The U.S. Court of Appeals for the Eighth Circuit held that a plaintiff could not defeat federal jurisdiction under the Class Action Fairness Act based on a pre-class certification damages stipulation limiting attorney’s fees to ensure that the amount in controversy remained under CAFA’s $5 million jurisdictional limit.
In so ruling, the Eighth Circuit affirmed the trial court’s finding that the amount in controversy for jurisdiction under CAFA includes the amount of future attorney’s fees based on the expected length of the litigation, the risks and complexity involved, and the hourly rates charged.
A copy of the opinion in Faltermeier v. FCA US LLC is available at: Link to Opinion.
Following a three-year investigation, the National Highway Traffic Safety Administration (NHTSA) requested that an automobile manufacturer initiate a safety recall of two kinds of SUV vehicles that faced an increased likelihood of dangerous fires in rear crashes.
The manufacturer responded by issuing a press release contesting NHTSA’s findings and stated that the vehicles were “safe and not defective.” Two weeks later, the manufacturer issued a second press release announcing that it had agreed with NHTSA to a limited recall to install a trailer hitch assembly, which it asserted would improve vehicle performance in low speed accidents.
A consumer purchased a 2003 SUV from an unrelated third party in August 2013, two months after the manufacturer’s press releases. The consumer did not see the press releases until months after purchasing the vehicle.
In June 2015, the consumer filed a putative class action on behalf of all purchasers of the relevant SUV vehicles in the state of Missouri since June 4, 2013 (the date of the first press release).
The consumer alleged that the manufacturer’s statements that the vehicles were “safe” and “not defective” were false and misleading and violated the Missouri Merchandising Practices Act (MMPA). The consumer also alleged that the manufacturer’s proposed trailer hitch assembly did not remove the vehicles’ safety defects and suggested that an appropriate remedy required the installation of a “fuel shield/skid plate.”
The manufacturer removed the case to federal court under CAFA. As you may recall, “CAFA provides the federal district courts with ‘original jurisdiction’ to hear a ‘class action’ if the class has more than 100 members, the parties are minimally diverse, and the ‘matter in controversy exceeds the sum or value of $5,000,000.'” Standard Fire Ins. Co. v. Knowles, 568 U.S. 588, 592 (2013) (quoting 28 U.S.C. § 1332(d)(2), (d)(5)(B)).
The consumer sought remand, arguing that CAFA’s amount-in-controversy requirement was not satisfied.
The trial court determined that by a preponderance of the evidence, the “benefit of the bargain” damages alleged in this case exceeded $5 million if calculated as either the total value of overpayment or diminution in value damages. The trial court reached this conclusion by finding that 8,127 unique vehicles were potentially within the class and that the average sale price of a relevant vehicle was $6,638. Based on these facts, the trial court concluded that a reasonable jury could find damages in excess of the CAFA jurisdictional limit.
The consumer filed an amended complaint and argued that the court lacked subject matter jurisdiction because Missouri law required “benefit-of-the-bargain” damages to be calculated as the lesser of diminution in value or cost of repair. Asserting that the proposed fuel shield/skid plate repair could be implemented for as little as $320 a vehicle, the consumer argued the amount in controversy would be far under CAFA’s $5 million jurisdictional limit.
The trial court recognized that it had not fully explained the alternative damages under the MMPA, and entered an order clarifying its previous denial of remand.
In the clarifying order, the trial court found that compensatory damages under the consumer’s proposed measure of damages could total $3,605,010. However, the trial court also concluded that the $5 million jurisdictional limit was satisfied when including potential attorney’s fees, which it found could well exceed $1.4 million. The court further held that a stipulation to limit attorney’s fees to ensure the amount in controversy remained under $5 million did not alter the amount in controversy as a matter of law.
The trial court granted summary judgment in favor of the manufacturer, holding that the manufacturer’s alleged misrepresentations were not made “in connection with” the consumer’s purchase of his SUV. The court denied the motion to certify the class without prejudice, indicating that the motion could be renewed within 30 days of the order.
The consumer appealed, challenging both subject matter jurisdiction under CAFA and the merits resolution of his claims.
The Eighth Circuit began its analysis with the stipulation limiting attorney’s fees and how that factored into the trial court’s calculation of the amount in controversy.
In analyzing the issue, the Eighth Circuit acknowledged that in Rolwing v. Nestle Holdings, Inc., 666 F.3d 1069 (8th Cir. 2012), a prior panel held that a damages stipulation could preclude removal under CAFA . However, the Eighth Circuit observed that in Standard Fire, the Supreme Court concluded that precertification damages stipulations cannot defeat CAFA-jurisdiction because absent and unbound class members might later enlarge the scope of recovery beyond the stipulated amounts. Standard Fire, 568 U.S. at 593.
The Eighth Circuit noted that Standard Fire raised serious questions about the continued validity of Rolwing and it found no reason to apply a different rule to a stipulation limiting the amount of attorney’s fees in order to defeat CAFA jurisdiction. Thus, the Eighth Circuit held that the trial court properly included in the jurisdictional amount the attorney’s fees that may be awarded.
The Eighth Circuit then observed that the trial court made findings on the total cost of repair damages based on the proof submitted by each side, which were an available form of damages under the MMPA. The trial court also determined that attorney’s fees could exceed $1.4 million based on the expected length of the litigation, the risk and complexity involved in the case, and the hourly rates charged.
In the Eighth Circuit’s view, the record supported the trial court’s finding that the sum of the total repair cost (including labor and parts) of $3,605,010 and potential attorney’s fees would exceed $5 million.
Further, the Eighth Circuit determined that the record supported the trial court’s finding that the consumer’s purchase had no relationship with the alleged misrepresentation. Although actual reliance on the seller’s misrepresentation by the buyer was not required, the Eighth Circuit agreed with the trial court that evidence of some factual connection between the misrepresentation and the purchase was required.
Accordingly, the Eighth Circuit affirmed the trial court’s denial of the motion to remand and grant of summary judgment for the manufacturer.