Class Action Fairness Act of 2005: Early Judicial Interpretations
CRS Report for Congress
Class Action Fairness Act of 2005:
Early Judicial Interpretations
Paul Starett Wallace Jr.
Specialist in American Public Law
American Law Division
Congressional Research Service ˜ The Library of Congress
On February 18, 2005, President Bush signed into law the Class Action Fairness
Act (CAFA), P.L. 109-2, amending Title 28 of the U.S. Code. The Act extends the
reach of federal diversity jurisdiction over state law class actions. Congress wanted
to correct a provision in federal jurisdiction law that prevented many class actions
that were national in scope from being litigated in federal courts by making it more
difficult for plaintiffs' counsel to defeat diversity jurisdiction. Second, CAFA
imposes new requirements on the settlement of class actions.
CAFA applies to class actions commenced on or after the date of enactment.
Much of the early CAFA case law has held that actions are "commenced" when filed
rather than when removed. The courts agree that the simple addition of new
members to the class or a change in class representative is insufficient; the courts are
divided over whether the inclusion of additional defendants will satisfy the
requirements for CAFA coverage. The Seventh Circuit in Schorsch v. Hewlett-
Packard, Co. 417 F.3d 748, 751 (7th Cir. 2005), and the Tenth Circuit in Pritchett v.
Office Depot, Inc., 420 F.3d 1090 (10th Cir. 2005), stated that amendments to class
definitions do not necessarily commence a new action under or trigger CAFA.
In a second area of early construction, the courts appear to be split over the
question of burden of proof, although the trend, at least in the Seventh and Ninth
Circuits, seems to favor imposing the burden upon the moving party; that is, the party
seeking to remove a class action case from state court to federal court under CAFA
(ordinarily the defendant) bears the initial burden and thereafter the burden falls to
the party seeking remand back to state court under the CAFA exception (ordinarily
the plaintiff).
In troduction ..................................................1
Legislative Background and Purpose...............................1
What Is A Class Action?........................................5
CAFA's Provisions............................................6
Effective Date............................................6
Jurisdictional Provisions....................................8
Burden of Proof..........................................11
Amount in Controversy and Complete Diversity.................11
Settlement Provisions.........................................12
Coupon Settlements.......................................12
Notification to Appropriate Federal and State Officials...........13
Other Settlement Protections....................................14
Original Federal Jurisdiction for Mass Actions......................14
Report on Class Action Settlements..............................15
Enactment of Judicial Conference Recommendations.................15
Rulemaking Authority of the Supreme Court and Judicial Conference...15
The Class Action Fairness Act (CAFA) was passed by Congress in February of
2005 to address what Congress considered problems and abuses in class action cases.
CAFA was intended to (1) expand federal diversity jurisdiction over class actions
asserting state law claims, (2) make it easier for defendants to remove class actions
to federal court, (3) limit the ability of federal courts to remand removed cases, and
(4) protect class action participants from unfair settlement practices. Congress's
overall intent was to alter fundamentally the way class actions were handled by
making more of them subject to federal law.
CAFA became effective on February 18, 2005. Since its enactment, a number
of court of appeals and district court cases applying CAFA have been decided, and
it appears that cases that formerly could not be filed in or removed to federal court
will now be removable, at the election of defendants. Whether the extended federal
jurisdiction over state law-based class actions will have the effect that Congress
intended relative to limiting the types and number of cases that once proceeded as
class actions in state courts will have to be determined as more cases make their way
through the federal court system.
Legislative Background and Purpose
The Senate began consideration of the Class Action Fairness Act in the 105th
Congress when the Senate Judiciary Subcommittee on Administrative Oversight and
the Courts convened a hearing on October 30, 1997.1 On September 28, 1998, the
Subcommittee on Administrative Oversight and the Courts approved S. 2083, the
Class Action Fairness Act of 1997, which was introduced by Senators Charles2
Grassley and Herb Kohl, with an amendment in the nature of a substitute. The
Senate took no further action on S. 2083 in the 105th Congress. On the House side,
the Judiciary Subcommittee on Courts and Intellectual Property convened a hearing
on similar issues,3 and the full Committee approved H.R. 3789, the Class Action
Jurisdiction Act of 1998, which was introduced by Representative Henry Hyde for
1 Class Action Lawsuits: Examining Victim Compensation and Attorneys' Fees: Hearing
Before the Subcomm. on Administrative Oversight and the Courts of the Senate Comm. onthst
the Judiciary, 105 Cong., 1 Sess. (1997).
2 144 Cong. Rec. D956 (daily ed. Sept. 10, 1998).
3 Mass Torts and Class Action Lawsuits: Hearing Before the Subcomm. on Courts and
Intellectual Property of the House Comm. on the Judiciary, 105th Cong., 2d Sess. (1998).
himself and several other Committee members.4 As in the case of the Senate,
adjournment occurred before final action could be taken.
On February 3, 1999, S. 353, Class Action Fairness Act of 1999, was
introduced in the 106th Congress by Senators Charles Grassley, Herb Kohl, and Strom
Thurmond and referred to the Senate Committee on the Judiciary.5 On May 4, 1999,
the Judiciary Subcommittee on Administrative Oversight and the Courts held
hearings on S. 353.6 On June 29, 2000, the Judiciary Committee approved S. 353
with an amendment in the nature of a substitute, offered by Chairman Orrin G. Hatch
and Senators Charles Grassley and Herb Kohl, by a roll call vote of 11 yeas and 7
nays.7 Continuing the work begun in the prior Congress, the committee conducted
hearings8 and approved H.R. 1875, the Interstate Class Action Jurisdiction Act of
1999, which had been introduced by Representative Hyde.9 On September 23, 1999,
by a vote of 222 to 207, the House passed H.R. 1875, as amended, which would have
expanded federal class action diversity jurisdiction.10 Neither House took any further
action on either bill.
The Senate continued consideration of the Class Action Fairness Act in the 107th
Congress when Senator Charles Grassley introduced S. 1712 on November 15, 2001,
with Senators Kohl, Hatch, Carper, Thurmond, Chafee, and Specter.11 Although S.
1712 was similar to its predecessors, S. 1712 included some new provisions. On July
30, 2002, the Senate Judiciary Committee, which was then chaired by Senator Leahy,
held a hearing to discuss class actions generally, during which time S. 1712 was
considered.12 In the House, Representative Goodlatte introduced H.R. 2341, the
Class Action Fairness Act, for himself and a number of other Members, including
several members of the Judiciary Committee. Hearings were held.13 The Committee
4 H.Rept. 105-702 (1998).
5 145 Cong. Rec. S1166-1167 (daily ed. Feb. 3, 1999).
6 The Class Action Fairness Act of 1999: Hearings before the Subcomm. on Administrative
Oversight and the Courts of the Senate Comm. on the Judiciary, 106th Cong., 1st Sess.
7 S.Rept. 106-420 at 8 (2000).
8 Interstate Class Action Jurisdiction Act of 1999 and Workplace Goods Job Growth and
Competitiveness Act of 1999: Hearing Before the House Comm. on the Judiciary, 106thst
Cong., 1 Sess. (1999).
10 145 Cong. Rec. H8567-568 (daily ed. Sept. 23, 1999).
11 147 Cong. Rec. S11940 (daily ed. Nov. 15, 2001).
12 Class Action Litigation: Hearing Before the Senate Comm. on the Judiciary, 107th Cong.
2d Sess. (2002).
13 Class Action Fairness Act of 2001: Hearing Before the House Comm. on the Judiciary,
107th Cong., 2d Sess. (2002).
approved an amended bill,14 which the House further amended and passed.15 As
passed by the House, H.R. 2341 had many of the general features that ultimately
found their way into law: protection of class members, expanded diversity
jurisdiction for large class actions, and more generous removal procedures to allow
certain class actions filed in state court to be removed to federal court for trial.
Nevertheless, the 107th Congress adjourned before the final action could be taken.
Early in the 108th Congress, on February 4, 2003, Senator Grassley introduced
S. 274, the Class Action Fairness Act of 2003.16 On April 11, 2003, the Judiciary
Committee reported S. 274 favorably, with amendments.17 On October 16, 2003,
Senator Grassley introduced S. 1751, the Class Action Fairness Act of 2003, a
compromise version of the bill.18 Pursuant to Rule XXIV of the Standing Rules of
the Senate, a Motion to Proceed to consideration of S. 1751 was filed.19 On October
22, 2003, the Senate failed to invoke cloture by a vote of 59-39.20 Senators Grassley,
Kohl, Hatch, and Carper subsequently negotiated key provisions of the bill with
Senators Landrieu, Schumer, and Dodd;21 the compromise bill, S. 2062, the Class
Action Fairness Act of 2004, was introduced on February 10, 2004.22 The House
passed a class action bill (H.R. 1115, Class Action Fairness Act of 2003);23 however,
due to a last-minute attempt to attach non-germane amendments such as drug
reimportation and the minimum wage to the companion bill (S. 2062) in the Senate,
it was withdrawn from further consideration in the 108th Congress.24
Senator Grassley reintroduced in the 109th Congress, on January 25, 2005, the
stalled Senate class-action bill (S. 2062) from the 108th Congress as S. 5, which was
referred to the Senate Judiciary Committee.25 On February 3, 2005, the Senate
Judiciary Committee approved the overall bill on a 13-5 vote, without amendment,
and referred it to the Senate.26 On February 10, 2005, S. 5 passed the Senate without
14 H.Rept. 107-370 (2002).
15 148 Cong. Rec. H857-86 (daily ed. Mar. 13, 2002).
16 149 Cong. Rec. S1870 (daily ed. Feb. 4, 2003).
17 149 Cong. Rec. D401 (daily ed. April 11, 2003).
18 S.Rept. 108-123 at 5 (2003).
19 149 Cong. Rec. S12853 (daily ed. Oct. 17, 2003).
22 150 Cong. Rec. S792, S953 (daily ed. Feb. 10, 2004).
23 149 Cong. Rec. H5306-H5307 (daily ed. June 12, 2003); the bill had previously been
approved by the Judiciary Committee, H.Rept. 108-144 (2003).
24 150 Cong. Rec. S7818 (daily ed. July 8, 2004)(remarks of Sen. Hatch).
25 151 Cong. Rec. S450 (daily ed. Jan. 25, 2005).
26 S.Rept. 109-14 at 3-4 (2005).
amendment by a vote of 72-26.27 On February 15, 2005, S. 5 was referred from the
House Rules Committee to the full House of Representatives by voice vote.28 On
February 17, 2005, the House,29 as in the Senate, passed S. 5 without amendment,
279-149.30 On February 18, 2005, the President signed into law the Class Action
Fairness Act of 2005 (CAFA).31
The general concept of class actions was first codified in 1849, when 36 states
adopted the Field Code.32 In order to successfully plead and prosecute class actions
in accordance with the Field Code, it required that numerous parties demonstrate a
common interest in law and fact.33
Before CAFA was enacted, Title 28, Section 1332 of the U.S. Code, provided
that in cases when at least one plaintiff and one defendant both had "citizenship" ties
in the same state, the case would remain in state court. This was referred to as the
"complete diversity requirement," whereby counselors for the plaintiffs would join
non-diverse defendants in order to defeat removal to federal court.
The Class Action Fairness Act amends Title 28 of the U.S. Code and makes
substantial changes in two areas where Congress perceived abuses to be occurring.
First, the Act extends the reach of federal diversity jurisdiction over state law class
actions.34 Congress wanted to correct a provision in federal jurisdiction law that
prevented many class actions that were national in scope from being litigated in
federal courts by making it more difficult for plaintiffs' counsel to "game the
system"in an effort to defeat diversity jurisdiction.35 Second, the Act imposes new
requirements on the settlement of class actions to prevent some perceived abuses.
It was observed that plaintiffs' counsel at times recovered large fees in settlements;
however, the class members received awards of little or no value, such as coupons
for the purchase of additional products from the defendant.36 The Act requires that
judicial scrutiny be increased for settlements involving coupons which constitute all
27 151 Cong. Rec. S1259 (daily ed. Feb. 10, 2005).
28 H.Rept. 109-7; 151 Cong. Rec. D93-D94, H603 (daily ed. Feb. 15, 2005).
29 151 Cong. Rec. H723-H755 (daily ed. Feb. 17, 2005).
30 P.L. 109-2, 119 Stat. 4 (2005) (codified in various sections of 28 U.S.C).
31 Washington Post, February 18, 2005, at 1, col.1.
32 See Newberg on Class Actions 3d §§ 13-14 to 13-17 (1992). In 1849, the state of New
York enacted a code of civil procedure which was drafted by David Dudley Field, an
American lawyer and law reformer. The Field Code became the basis for the reform of civil
law procedure which was adopted by 36 states and the federal government.
33 S.Rept. 109-14 at 5 (2005).
34 28 U.S.C. §1332(d).
36 Supra note 33, at 5.
or part of the relief afforded to claimants.37 The Act also requires that federal and
state government agencies be notified of proposed class action settlements and be
given an opportunity to object to them.38
What Is A Class Action?
The basic definition for the term "class action," for purposes of original and
removal jurisdiction, is "any civil action filed in a district court of the United States
under rule 23 of the Federal Rules of Civil Procedure or any civil action that is
removed to a district court of the United States that was originally filed under a State
statute or rule of judicial procedure authorizing an action to be brought by 1 or more
representatives as a class action."39
CAFA provides that a "mass action shall [also] be deemed to be a class
action."40 And "the term 'mass action' [is considered any civil action other than a
class action] in which monetary relief claims of 100 or more persons are proposed
to be tried jointly on the plaintiffs' claims involve common questions of law and fact,
except that jurisdiction shall exist only over those plaintiffs whose claims in a mass
action satisfy the jurisdictional amount requirements [$5,000,000] under subsection
(a)."41 The Senate Report states that
Subsection 1332(d)(11)(B)(i) includes a statement indicating that jurisdiction
exists only over those plaintiffs whose claims in a mass action satisfy the
jurisdictional amount requirements under section 1332(a). The Committee notes
that the intent of this proviso is as follows. If a mass action satisfies the criteria
set forth in the section (that is, it involves the monetary relief claims of 100 or
more persons that are proposed to be tried jointly on the ground that the claims
involve common questions of law or fact and it meets the tests for federal
diversity jurisdiction otherwise established by the legislation), it may be removed
to a federal court, which is authorized to exercise jurisdiction over the action.
Under the proviso, however, it is the Committee's intent that any claims that are
included in the mass action that standing alone do not do not satisfy the
jurisdictional amount requirements of Section 1332(a) (currently $75,000),
would be remanded to state court. Subsequent remands of individual claims not
meeting the section 1332 jurisdictional amount requirement may take the action
below the 100-plaintiff jurisdictional threshold or the $5 million aggregated
jurisdictional amount requirement. However, so long as the mass action met the
various jurisdictional requirements at the time of removal, it is the Committee's
view that those subsequent remands should not extinguish federal diversity
jurisdiction[ ] over the action.
37 28 U.S.C. § 1712.
39 28 U.S.C. § 1332 (d)(1)(B).
40 28 U.S.C. § 1332(d)(11)(A).
41 28 U.S.C. § 1332(d)(11)(B)(i).
The Committee find[s] that mass actions are simply class action in disguise.
They involve a lot of people who want their claims adjudicated together and they42
often result in the same abuses as class actions."
Other significant limitations or restrictions regarding federal jurisdiction over
"mass actions" are (1) the statute would not permit jurisdiction over "mass actions"
involving an event or occurrence that took place within the state and is considered
a truly local single event with no substantial interstate effects;43 (2) there would be
no jurisdiction over "mass actions" if the claims for joinder are the results of a
defendant's motion; thus, a defendant would not be able to get individual claims filed
against it in state court and then moved into federal court by having the state court
consolidate them and subsequently removing the case as a "mass action";44 (3) a
"mass action" would not include private attorney general actions or claims
"...asserted on behalf of the general public (and not on behalf of individual claimants
or members of a purported class) pursuant to a State statute specifically authorizing
such action";45 and (4) "mass actions" would not include claims that are consolidated
or coordinated solely for pretrial purposes.46
CAFA's Provisions
Effective Date.
CAFA does not apply retroactively.47 Section 9 of CAFA provides that "[t]he
amendments made by this Act shall apply to any civil action commenced on or after
the date of enactment of this Act."48 The date of enactment of CAFA is February 18,
2005, and thus, according to judicial interpretations, CAFA applies to any civil action
commenced on or after that date, and does not apply to actions already pending in
state courts on that date unless there is a post-CAFA development that constitutes
recommencement. Circuit Courts of Appeals have uniformly held that a state court
action is "commenced" on the date that the plaintiff originated the action in state
court, and not the date when the defendant removes it. For example, in Pritchett v.49
Office Depot, Inc., the issue, one of first impression, was whether the removal
provisions of CAFA apply to pending state court cases that were removed after the
effective date of the Act. In Pritchett, a class action was filed on April 2, 2003, in
Colorado state court on behalf of a class consisting of assistant store managers
seeking unpaid overtime payments. The state court certified the class on June 21,
2004, and scheduled trial to begin on March 14, 2005.
42 S. Rept.109-14 at 46-47 (2005).
43 28 U.S.C. § 1332(d)(11)(B)(ii)(I). The existing conditions under which there is federal
jurisdiction over these "mass actions" claims are set forth in 28 U.S.C. § 1369.
44 28 U.S.C. § 1332(d)(11)(B)(ii)(II).
45 28 U.S.C. § 1332(d)(11)(B)(ii)(III).
46 28 U.S.C. § 1332(d)(11)(B)(ii)(IV).
47 Exxon Mobil Corp. v. Allapattah Services, Inc., 125 S.Ct. 2611, 2628 (2005).
48 28 U.S.C. § 1332(d).
49 420 F.3d 1090 (10th Cir. 2005).
On March 1, 2005, the defendant, citing the newly enacted CAFA, removed the
case to federal court. The plaintiff moved to remand, arguing that CAFA did not
apply to pending actions. The district court agreed and remanded the case. On
appeal, the defendant argued that the case was commenced within the meaning of
CAFA § 9 on the date it was removed, not the date it was first filed in state court.
The U.S. Court of Appeals for the Tenth Circuit disagreed. After noting that
removal of an action is not "traditionally viewed" as a recommencement of the case,
it relied on the principle that statutes conferring jurisdiction on the federal courts are
to be construed narrowly and any ambiguity is to be resolved against the exercise of
jurisdiction.50 The Tenth Circuit also reviewed CAFA's legislative history. It noted
that an earlier version of CAFA would have applied CAFA not only to cases
commenced after its effective date but also to cases in which the class-certification
order was issued after the effective date; this provision was deleted from the final
bill. This change, the court said, "...signaled an intent to narrow the removal
provisions of CAFA to exclude currently pending suits."51
The court also looked to public policy. It said the defendant's interpretation of
would allow cases to be plucked from state court on the eve of trial. Such
practices are disruptive to federal-state comity and the settled expectations of the
litigants. Permitting removal of this case would effectively apply new rules to
a game in the final minutes of the last quarter, and we find it ironic that
Defendant seeks countenance for its position from a statute that was designed,52
in the first place, to curtail jurisdictional gaming and forum-shopping.
A similar interpretation may be gleaned from other cases involving class actions
where the courts have held an action is "commenced" for purposes of the Act when53
it is first filed in state court, not when it is removed to federal court.
Although an action does not "commence" with the occurrence of certain events
such as filing a notice of removal, some courts have recognized that while a routine
amendment of a complaint may not render a state court action subject to CAFA, the
addition of a new claim or new defendant may. A leading case on point is Knudsen
v. Liberty Mutual Ins. Co., where the Seventh Circuit addressed a second attempt at
removal to the district court. Liberty Mutual removed the case after the enactment
of CAFA, but the court remanded because the case "commenced" in state court
50 Id. at 1094.
53 See Pfizer, Inc. v. Lott, 417 F.3d 725 (7th Cir. 2005); Schorsch v. Hewlett-Packard Co.,
417 F.3d 748 (7th Cir. 2005); Bush v. Cheaptickets, Inc., 425 F.3d 683, 687-88 (9th Cir.
2005). Federal district courts have recorded similar results. See, e.g. Natale v. Pfizer, Inc.,
379 F.Supp.2d 161, 171-76 (D.Mass. 2005); In re Expedia Hotel Taxes and Fees Litigation,
377 F.Supp.2d 904, 906 (W.D.Wash. 2005); Smith v. Pfizer, Inc., 2005 WL 3618319
(S.D.Ill. Mar. 24, 2005)* (cases marked with an * are unreported).
before CAFA became effective.54 Subsequent to the remand, the state court certified
a class. The plaintiffs then asserted new claims for relief, and Liberty Mutual
removed a second time. Under Illinois law, a new claim relates back to the original
complaint when the original pleading furnishes the defendant with notice of the facts
underlying the new contention. The court held that because the claims first raised in
the second half of 2005 did not demonstrate that Liberty Mutual had notice of the
new claims before February 18, 2005, the case was properly removed.55 The court
said, "A novel claim tacked on to an existing case commences new litigation for
purposes of [CAFA]."56
Courts of Appeals have generally held that plaintiffs amending an earlier
complaint to add additional members to the class, to change the definition of the class
or to designate a new class representative have not "commenced" a new action within
the meaning of CAFA.57 However, one federal district court in the Ninth Circuit
recently held that it may obtain jurisdiction over a class action when a fully
adjudicated complaint is amended.58 Some courts have held that amending a
complaint to include additional defendants likewise constitutes commencement of
a new action for CAFA purposes.59
Jurisdictional Provisions.
Under CAFA, federal courts have original jurisdiction over any class action
lawsuit in which there exists diversity between any class member and any defendant
and the amount in controversy exceeds $5 million, exclusive of interest and cost.60
It is also permissible for individual class members' claims to be aggregated in order
54 411 F.3d 805, 807 (7th Cir. 2005).
55 Knudsen v. Liberty Mutual Ins. Co., 435 F.3d 755, 757 (7th Cir. 2006).
56 Id. at 758; see also Plummer v. Framers Group, Inc., 388 F.Supp.2d 1310, 1314 (E.D.
Okla. 2005).
57 Schillinger v. Union Pac. R.R. Co., 425 F.3d 330, 332 (7th Cir. 2005); Schorsch v.
Hewlett-Packard Co., 417 F.3d 748, 751 (7th Cir. 2005); Kundsen v. Liberty Mutual Ins.Co.,thth
411 F.3d 805, 807 (7 Cir. 2005); Plubell v. Merck & Co., Inc., 434 F.3d 1070, 1072 (8 Cir.
58 Cf. Heaphy v. State Farm Mutual Auto. Ins., 2005 WL1950244 (W.D. Wash. Aug. 15,
2005)* (the district court, concluding that removal under CAFA was appropriate, held that
the revived pleading that sought to assert new claims was a new action and it did not relate
back to the originally, fully adjudicated complaint; these claims were "in fact separate from
the claims originally asserted" and should therefore be "treated as fresh litigation" for
purposes of CAFA. Id. at 4-5.
59 Knudsen v. Liberty Mutual Ins. Co., 435 F.3d 755, 757-58 (7th Cir.2006); Brand v.
Transport Service Co., 445 F.3d 801, 804 (5th Cir. 2006); Werner v. KPMG, 415 F.Supp.2d
688, 700-701 (S.D.Tex. 2006); contra, Prime Care v. Humana Ins.Co., F.3d , (10th
Cir. May 12, 2006)(2006 WL 1305229)(an amended complaint that substitutes additional
defendants does not constitute the commencement of a new action in the absence of a new
claim that does not relate back to the earlier complaint).
60 28 U.S.C. § 1332(d)(2)(A) and § 1332(d)(6).
to determine if the amount in controversy requirement is satisfied.61 This
modification in the law reflects an expansion of federal diversity jurisdiction to
include most class actions. More specifically, Section 3 of CAFA modified 28
U.S.C. § 1332 ("Diversity of citizenship; amount in controversy; costs") to add the
following provision, which gives federal courts jurisdiction over, for all practical
purposes, all class actions of significant size as long as any class member is diverse
from at least one defendant:
The district courts shall have original jurisdiction of any civil action in which the
matter in controversy exceeds the sum or value of $5,000,000, exclusive of
interest and costs, and is a class action in which —
(A) any member of a class of plaintiffs is a citizen of a State different from any
defendant;
(B) any member of a class of plaintiffs is a foreign state or citizen or a subject of
a foreign state and any defendant is a citizen of a State; or
(C) any member of a class of plaintiffs is a citizen of a State and any defendant62
is a foreign state or a citizen or subject of a foreign state.
The $5,000,000 determinate for federal class action jurisdiction — which is
determined by the aggregated damages assertedly suffered by the class63 — is also a
significant departure from the requirements of the preceding statute. Prior to the
current Act (CAFA), courts interpreted Section 1332 as requiring that each plaintiff
must affirmatively have sustained damages totaling at least the jurisdictional
minimum of $75,000 in order to engage diversity jurisdiction.64
A number of important exceptions have been carved out of the expanded federal
jurisdiction in class action cases under 28 U.S.C. § 1332(d)(2). These exceptions to
federal jurisdiction are (1) when more than two-thirds of the members of the
proposed class reside in a single state, at least one defendant from whom significant
relief is sought and whose "conduct forms a significant basis for the claims" resides
in the state, the principal injuries incurred in the state, and no other class action
regarding the same or similar or similar factual allegations have been filed during the65
three-year period preceding the filing; (2) when "the primary defendants are States,
State officials, or other governmental entities against whom the district court may be
61 28 U.S.C. § 1332(d)(6). See Berry v. American Express Publishing, 2005 U.S. Dist.
LEXIS 15514 (C.D. Cal. June 15, 2005) (held that the amount in controversy requirement
may be satisfied by determining the aggregate value of the claims from the perspective of
either the class members or defendants).
62 28 U.S.C. § 1332(d)(2).
64 The U.S. Supreme Court overturned Zahn v. International Paper, Inc., 414 U.S. 291
(1973), whereby the Court previously held that the monetary requirements for diversity
jurisdiction must be met by all plaintiffs. Exxon Mobil Corp. v. Allapattah Services, Inc.,
125 S.Ct. 2611, 2635-36 (2005).
65 28 U.S.C. §1332(d)(4)(A)(I-III).
foreclosed from ordering relief";66 (3) when the number of all proposed plaintiff
class members in the aggregate is less than 100;67 (4) when the action concerns
certain securities class actions as defined under 15 U.S.C. § 78p(f)(3) or16(f)(3) of
the Securities Act of 1933 and section 28(f)(5)(E) of the Securities Exchange Act of
1934 (15 U.S.C. § 78bb(f)(5)(E));68 and (5) when the action relates to the internal
affairs or governance of a corporation or other form of business enterprise arising
under or by virtue of the laws of the state in which such corporation or business
enterprise is incorporated or organized.69 In these cases, the Act requires the federal
district court to decline to exercise jurisdiction.
District courts have discretion to decline to exercise jurisdiction under CAFA
in cases where greater than one-third but less than two-thirds of the members of the
plaintiff class are citizens of the state in which the action was originally filed.70
Factors to be considered in exercising this discretion are (1) matters of national or
interstate interest;71 (2) whether the claims will be governed by laws of the state in
which the action was originally filed or by the laws of other states;72 (3) whether the
class action has been pleaded in a manner that seeks to avoid federal jurisdiction;73
(4) whether the action was brought in a forum that has a "distinct nexus" with the
class members, the alleged harm, or the defendants;74 (5) whether the number of
citizens of the state in which the action was originally filed is substantially larger than
the number of citizens from any other state, and the citizenship of the other members
of the proposed class is dispersed among a substantial number of states;75 and (6)
whether during the three-year period preceding the filing of the class, one or more
other class actions asserting the same or similar claims on behalf of the same or other
persons have been filed.76
The statute prior to CAFA provided that when a federal district court determines
that removal is not proper and remands to the state court, the remand order cannot be
reviewed on appeal.77 CAFA, however, provides that a court of appeals "may" rather
than "must" accept an appeal of an order either granting or denying a motion to
remand, if an application for permission to appeal is filed within seven days of the
66 28 U.S.C. § 1332(d)(5)(A).
67 28 U.S.C. § 1332(d)(5)(B).
73 28 U.S.C. § 1332(d)(3)(C)).
74 28 U.S.C. § 1332(d)(3)(D).
75 28 U.S.C. § 1332(d)(3)(E).
76 28 U.S.C. § 1332(d)(3)(F).
order.78 If the court of appeals accepts the appeal, it "must" decide it within 60 days,
unless all parties agree to an extension of no more than 10 days.79 If the court of
appeals does not decide the case within the time limit, the appeal is denied and the
case will be deemed to have been affirmed.80
Burden of Proof.
Following the enactment of CAFA, federal courts are faced with new issues.
One such issue is that of determining who has the burden of proof in demonstrating
whether an interstate class action qualifies for removal from state court to federal
court and thereafter who bears the burden with respect to state court. CAFA's
legislative history suggests that the burden is placed on the remanding party, and the
party seeking remand consequently will be required to disprove either the amount in
controversy or minimal diversity, or affirmatively demonstrate that an exception to
CAFA applies. The courts appear to be split on this issue, although the trend seems
to favor imposing the burden upon the moving party; that is, the party seeking to
remove a class action case from state court to federal court under CAFA (ordinarily
the defendant) bears the initial burden81 and thereafter the burden falls to the party
seeking remand back to state court under the CAFA exception (ordinarily the
plaintiff). 82
Amount in Controversy and Complete Diversity.
The amended statute (CAFA) explicitly addresses the amount-in-controversy
requirement for class actions. Previously, class actions raising federal claims may
be brought in or removed to federal court by virtue of the broad grant of federal
question jurisdiction in 28 U.S.C. § 1331. However, most class actions raising only
state-law claims could reach federal court only if the requirements for diversity
jurisdiction were satisfied under 28 U.S.C. § 1332. Section 1332 placed two
78 28 U.S.C. § 1453(c)(1). Although the statute states that the appellate courts may review
a lower court decision concerning the return of a class action case to state court as long as
the application for appeal is filed "not less" than seven days thereafter, the courts have held
that an appeal may be had if the application is filed "not more" than seven days after theth
lower court decision. Leslie Miedema v. Maytag Corp., F.3d , (11 Cir. June 5,th
2006); Amalgamated Transit Union v. Laidlaw Transit Servs., Inc., 435 F.3d 1140, 1146 (9th
Cir. 2006); Pritchett v. Office Depot, Inc., 420 F.3d 1090, 1093 n2. (10 Cir. 2005).
79 28 U.S.C. § 1453(c)(3). The 60 day time period begins to run when the appeal is granted,
Leslie Miedema v. Maytag Corp., F.3d , (11th Cir. June 5, 2006); Amalgamatedth
Transit Union v. Laidlaw Transit Servs., Inc., 435 F.3d 1140, 1145 (9 Cir. 2006); Pritchettth
v. Office Depot, Inc., 420 F.3d 1090, 1093 (10 Cir. 2005).
80 28 U.S.C. §1453(c)(4).
81 Leslie Miedema v. Maytag Corp., F.3d , (11th Cir. June 5, 2006); Brill v.
Countrywide Home Loans, Inc., 427 F.3d 446, 448 (7th Cir. 2005); Abrego Abrego v. Dowth
Chemical Co., 443 F.3d 676, 686 (9 Cir. 2006); Plummer v. Farmers Group, Inc., 388
F.Supp.2d 1310, 1317-318 (E.D.Okla. 2005); but see, Natale v. Pfizer,. 379 F.Supp.2d 161,
168 (D.Mass. 2005)(party opposing removal bears the burden).
82 Evans v. Walter Industries, Inc., F.3d , (11th Cir. May 22, 2006); Harvey v.
Blockbuster, Inc., 384 F. Supp. 2d 749, 752 (D. N.J. 2005).
prominent hurdles to federal jurisdiction over these class actions: the "complete
diversity" rule and the amount-in-controversy requirement.
In preparation for a class action, the "complete diversity" requirement, as
enacted and refined in judicial decisions, was that all "named" class representatives
and all defendants had to be citizens of different states. If any named plaintiff and
any named defendant were from the same state, the action could not be filed in or
removed to federal court.83 Regarding the amount-in-controversy requirement, in
most cases, the claims of class members could not be aggregated to satisfy the
$75,000 jurisdictional amount in diversity cases.84 Therefore, at least one class
member was required to have a claim for more than $75,000; however, according to
the Supreme Court decision in Zahn v. International Paper Co.,85 "all" class
members had to have claims exceeding $75,000.86
With the enactment of CAFA, changes were made in these requirements.
CAFA amended the diversity statute (28 U.S.C. § 1332) and the removal provisions
(28 U.S.C. §§ 1441 et seq.) to provide for federal jurisdiction, at the election of either
the plaintiff or the defendant, over class actions that do not satisfy the traditional
"complete diversity" and "amount-in-controversy" requirements. The basic changes
in the new law (subject to certain exceptions) are (1) it establishes federal jurisdiction
over any action in which "any one member of the class" — named or not — has
diverse citizenship from "any one defendant" and (2) where the "aggregate" amount
in controversy exceeds $5 million.87
Settlement Provisions
Coupon Settlements.
At this time, there appear to be no reported cases dealing with the issue of class-
action settlements under CAFA. However, CAFA requires that certain types of
settlements, perceived by Congress to have particular potential for abuse, be subject
83 See Strawbridge v. Curtiss, 7 U.S. 267 (1806); Supreme Tribe of Ben-Hur v. Cauble, 255
U.S. 356 (1921).
84 See Snyder v. Harris, 394 U.S. 332 (1969).
85 414 U.S. 291 (1973).
86 The Supreme Court resolved the split in the circuits over whether Zahn was still valid
in light of the supplemental jurisdictional statute, 28 U.S.C. § 1367, when the Court decided
in Exxon Mobil Corp. v. Allapattah Services, 125 S.Ct. 2611, 2620-21 (2005) that the
supplemental jurisdiction statute permits the exercise of diversity jurisdiction over
additional plaintiffs who fail to satisfy the minimum amount-in-controversy requirement,
as long as other elements of diversity jurisdiction are present and at least one named plaintiff
satisfies the amount-in-controversy requirement. The Exxon decision also provides
additional alternatives for federal courts (based upon the supplemental jurisdiction statute)to
exercise jurisdiction over claims of class members even though they do not satisfy the
CAFA requirements. See id. at 2627-28
to increased scrutiny by the court.88 These settlements include "coupon
settlements,"89 net loss settlements,90 and geographically discriminatory settlements.91
CAFA (Section 1712 of 28 U.S.C.) addresses two aspects of coupon
settlements: its overall fairness and the award of attorneys' fees in coupon
settlements.
Regarding fairness of coupon settlements, CAFA provides that a "...court may
approve [a class action] settlement [involving coupons] only after a hearing to
determine whether, and making a written finding that, the settlement is fair,
reasonable, and adequate for class members."92
The award of attorneys' fees in coupon cases provides another significant
change in the law. The new section 1712(a) of 28 U.S.C. provides that in a coupon
settlement, "...the portion of any attorney's fee award to class counsel that is
attributable to the award of the coupons shall be based on the value to class members
of the coupons that are redeemed." Therefore, attorneys will no longer be able to
receive fees based on the gross amount of coupons awarded, nor upon predictions of
how many coupons will be redeemed. Any percentage-based fee will be allowed
only on the basis of the value of coupons actually redeemed.93
Notification to Appropriate Federal and State Officials.
CAFA requires defendants to notify various federal and state officials, including
the state Attorney General as well as reasonably pertinent state regulators and
licensing authorities, of the settlement of a class action within 10 days after a
88 28 U.S.C. § 1712 (e). See also S.Rept. 109-14, supra note 33 at 5.
89 28 U.S.C. § 1712(a).
92 28 U.S.C. §1712(e). Rule 23 of the Federal Rules of Civil Procedure had already provided
for the same identical standard. However, section 1712(e) goes beyond Rule 23 in one
respect: It provides that a court has discretion to require that in a coupon settlement, some
portion of the value of unclaimed coupons be distributed to charity and it forbids an award
of attorneys' fees based on the value of the contribution of unclaimed coupons.
In Girsh v. Jepson, 521 F.3d 153, 157 (3d Cir. 1975), the court articulated nine factors
a district court should consider when determining whether a proposed settlement is fair,
reasonable, and adequate. The factors are (1) the complexity, expense, and likely duration
of the class action suit; (2) class reaction to the settlement; (3) the stage of the proceedings
and the amount of the discovery completed; (4) the risk of establishing liability; (5) the risk
of establishing damages; (6) the risk of maintaining the class action through trial; (7) the
defendant's ability to withstand a greater judgment; (8) the reasonableness of the settlement
fund in light of the best possible recovery; and (9) the reasonableness of the settlement in
light of all the risks of litigation.
93 The legislation evidenced the congressional desire to reform the tort system and limit any
exorbitant attorneys' fees that provide little benefit to the plaintiffs. See 151 Cong. Rec.
H723, H725 (2005)(daily ed. Feb. 17, 2005) (statement of Rep. Sensenbrenner); 151 Cong.
Rec. H723, H727 (2005)(daily ed. Feb. 17, 2005) (statement of Rep. Boucher).
proposed class action settlement is filed with the district court.94 The notice must
contain a number of items regarding the proposed settlement.95 This notice must be
sent to the appropriate state official of each state in which a class member resides.96
Federal courts cannot approve any proposed settlement until 90 days after the
last "appropriate" federal or state official receives the required notice.97 A class
member may refuse to be bound by any settlement if the required notices are not
gi ven.98
Other Settlement Protections
CAFA99 provides that a court may approve a settlement in which class members
incur out-of-pocket losses to compensate class counsel "...only if the court makes a
written finding that nonmonetary benefits to the class members substantially
outweigh the monetary loss."
CAFA100 prohibits class settlements that provide for the payment of greater
amounts to some class members "...solely on the basis that the class members to
whom the greater sums are to be paid are located in closer geographic proximity to
the court."
Original Federal Jurisdiction for Mass Actions
CAFA's expansion of federal diversity also encompasses certain cases that are
not deemed class actions. CAFA defines "class action" to include certain "mass
actions" where (1) numerous plaintiffs are joined in a single case without relying on
the class action mechanism; (2) original jurisdiction exists for any civil action
seeking monetary relief where the claims of 100 or more named plaintiffs involving
94 28 U.S.C. § 1715(b).
95 28 U.S.C. § 1715(b). The notice must consist of (1) a copy of the complaint and any
materials filed with the complaint and amended complaints (with exceptions for
electronically served documents); (2) notice of any scheduled judicial hearing in the class
action; (3) any proposed or final notification to class members of a) the members' rights to
request exclusion from the class action or if no right to request exclusion exists, a statement
that no such right exist; and b) a proposed settlement of a class action; (4) any proposed or
final class action settlement; (5) any settlement or other agreement contemporaneously made
between class counsel and counsel for the defendants; (6) any final judgment or notice of
dismissal; (7) if feasible, the names of class members residing in each state and the
estimated proportionate share of their claims to the entire settlement, or if not feasible, a
reasonable estimate of such information; and (8) any written judicial opinion relating to the
materials described under subparagraphs (3) through (6).
98 28 U.S.C. § 1715(e).
100 28 U.S.C. § 1714.
common questions of law or fact are proposed to be tried jointly; and (3) "the matter
in controversy exceeds the sum or value of $5,000,000, exclusive of interest and
cost ."101
The term "mass action" does not include the following types of civil actions:102
(1) claims that arise out of an event or occurrence that happened in the state where
the action was filed and that resulted in injuries in that state or in states contiguous
to it (this exception would allow for example cases involving environmental torts,
such as toxic chemical spills, to remain in state courts); (2) claims that were joined
on the motion of the defendant; (3) claims that were asserted on behalf of the general
public without class certification pursuant to a state statute authorizing such a private
action (for example, California's Unfair Competition Statute); or (4) claims that have
been consolidated or coordinated solely for pretrial purposes (cases consolidated by
a multi-district litigation panel do not qualify as a mass action; also, a mass action
removed to federal court cannot be transferred to another federal court under the
multi-district litigation statute, unless a majority of the plaintiffs request such a
transfer).
Report on Class Action Settlements
Section 6 of CAFA requires the Judicial Conference, within one year of CAFA's
passage, to report to Congress on class action settlements and on best practices to
ensure their fairness and to award appropriate fees to class counsel.103 This section
also provides that it does not in any way alter the authority of the federal courts to
supervise attorneys' fees.
Enactment of Judicial Conference Recommendations
Section 7 of CAFA provides that the changes to Rule 23 of the Federal Rules
of Civil Procedure, promulgated by the U.S. Supreme Court on March 27, 2003, shall
go into effect upon passage of CAFA or December 1, 2003, whichever comes sooner
(this is a vestige of the 2003 version of CAFA that has no effect because the amended
Rule 23 had already gone into effect on December 1, 2003).
Rulemaking Authority of the Supreme Court and Judicial
Section 8 of CAFA preserves the authority of the Judicial Conference and the
Supreme Court to propose and prescribe rules of practice and civil procedure
governing class actions pursuant to chapter 131 of title 28, U.S. Code
101 28 U.S.C. § 1332(a)(B)(i).
102 28 U.S.C. § 1232(a)(B)(ii).
103 On May 22, 2006, the Advisory Committee on Civil Rules published an Interim Progress
Report on its "Class Action Fairness Act Study" and expect to present a follow-up report
in September 2006.