FYI: 11th Cir Holds CAFA Jurisdiction Remains Even When Class Claims Are Dismissed Before Certification

The U.S. Court of Appeals for the Eleventh Circuit recently held that federal courts that have original subject matter jurisdiction over state law claims under the federal Class Action Fairness Act ("CAFA") retain that jurisdiction even when the class claims are dismissed before the class is certified.

  

A copy of the opinion is available at:  Link to Opinion

 

An FBI investigation found evidence that some employees of a fuel supplier that operates the largest chain of truck stops in the United States engaged in a conspiracy to defraud the supplier's purchasers. One purchaser filed a putative class action on behalf of itself and others similarly situated in federal court against the fuel supplier. 

 

The purchaser brought the following state and federal law claims: (1) violations of 18 U.S.C. § 1962(c) for racketeering; (2) violation of 18 U.S.C. § 1962(d) for conspiracy to commit racketeering; (3) breach of contract under state law; (4) deceptive trade practices in violation of state law; (5) unjust enrichment under state law; (6) fraudulent misrepresentation under state law; (7) negligent misrepresentation under state law; and (8) suppression of the proper discounts owed to the class members under state law. 

 

The purchaser based federal subject matter jurisdiction over all eight claims under CAFA, 28 U.S.C. § 1332(d).  The purchaser also claimed federal question jurisdiction under 28 U.S.C. § 1331 for the federal racketeering claims, diversity jurisdiction under 28 U.S.C. § 1332(a), and supplemental jurisdiction under 28 U.S.C. § 1367.

 

The district court dismissed both of the purchaser's federal racketeering claims and its state law claims for fraudulent misrepresentation, negligent misrepresentation, suppression of discounts, and deceptive practices claim.  This left the breach of contract and unjust enrichment claims, asserted both individually and on behalf of a putative class.

 

While this case was pending, a rival class-action suit reached a court approved settlement in the U.S. District Court for the Eastern District of Arkansas.  The parties in this matter acknowledged that the Arkansas settlement would deprive the purchaser of standing to pursue its class claims.  Consequently, the district court dismissed all class claims in the complaint.  At this point, solely the individual breach of contract and unjust enrichment claims survived.

 

Meanwhile, six other separate suits were pending against the fuel supplier in five other federal judicial districts brought by parties who had opted out of the nationwide Arkansas class settlement and who were making similar claims as the corporation.  The six suits were consolidated with the purchaser's suit into one multidistrict-litigation ("MDL") proceeding in the U.S. District Court for the Eastern District of Kentucky.  Subsequently, the MDL court became aware of information that deprived it of diversity jurisdiction.  Without deciding jurisdiction under CAFA, the MDL court remanded this case to the Alabama district court.

 

On remand, the purchaser moved to dismiss its remaining claims without prejudice in order that it could refile in Alabama state court.  The district court dismissed the claims without prejudice.  The fuel supplier appealed. 

 

As you may recall, under CAFA, a federal trial court has original jurisdiction over a putative class action if the amount in controversy exceeds $5 million, as aggregated from the claims of the individual class members, the suit is brought as a class action for a proposed class with at least one hundred members, and any member of the class is a citizen of a state different than any defendant.

 

The Eleventh Circuit examined its ruling in Vega v. T-Mobile USA, Inc., 564 F.3d 1256 (11th Cir. 2009), a case removed from state to federal court.  There, the Court found that a failure to certify a class does not divest the federal courts of subject matter jurisdiction under CAFA.  The Court reasoned that jurisdictional facts are assessed at the time of removal and post removal events, including non-certification, decertification, and severance, do not deprive federal courts of subject matter jurisdiction. 

 

The Eleventh Circuit noted that every circuit court since Vega to consider the question has held that post-removal events do not oust CAFA jurisdiction.  In fact, the reasoning in Vega was explicitly adopted by the U.S. Court of Appeals for the Seventh Circuit in Cunningham Carter Corp. v. Learjet, Inc., 592 F.3d 80 (7th Cir. 2010).

 

The Eleventh Circuit clarified that a case under CAFA can be dismissed for lack of jurisdiction if those claims contain frivolous attempts to invoke CAFA jurisdiction.  However, the Eleventh Circuit noted, in these cases, the federal court did not lose CAFA jurisdiction, but rather the court never had jurisdiction in the first place.

 

Next, the Eleventh Circuit addressed whether there is a different result in this matter because the purchaser filed directly in federal court under CAFA but wished to refile in state court. 

 

The Court explained that there was a policy distinction between removal cases and cases initially filed in federal court.  The Court cautioned that in removal cases there were concerns about forum manipulation that dictate against a plaintiff's post-removal amendments to affect jurisdiction.  As a result, the Eleventh Circuit noted, a court should guard against a plaintiff whose case was removed to federal court and who then amends its pleadings to manipulate its way back into state court. 

 

On the other hand, the Eleventh Circuit explained that there were no forum manipulation concerns when the plaintiff chooses a federal forum and then pleads away jurisdiction through amendment.  In the situation where a plaintiff files a complaint in federal court and then voluntarily amends the complaint, courts should look to the amended complaint to determine jurisdiction. 

 

However, the Eleventh Circuit distinguished this case from those where a plaintiff files in federal court and amends out of CAFA.  The parties in this action did not suggest any action by the purchaser that divested the federal courts of CAFA jurisdiction.  Rather, the purchaser argued that the district court's dismissal of the class claims after the settlement in the Arkansas case destroyed CAFA jurisdiction. 

 

However, the Eleventh Circuit noted that the Arkansas settlement occurred after the corporation filed its complaint.  Moreover, the Court noted, there was no evidence that the complaint was frivolous or deficient under CAFA at the time it was filed. 

 

The Eleventh Circuit found no basis for distinguishing cases originally filed in federal court under CAFA from those removed to federal court when the post-filing action that did away with the class claims is not an amendment to the complaint.   Accordingly, the Court held that CAFA continued to confer original federal jurisdiction over the purchaser's remaining state law claims in the suit. 

 

Last, the Eleventh Circuit did not agree with the trial court's decision to analyze supplemental jurisdiction because supplemental jurisdiction has a role in CAFA cases only in those that have state-law claims that were never subject to CAFA jurisdiction.  Here, there is no dispute that all eight federal and state claims were properly plead as CAFA claims.  Consequently, the trial court had original jurisdiction over all eight claims. 

 

Accordingly, the Eleventh Circuit reversed the trial court's dismissal and remanded for further proceedings. 

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

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FYI: 2nd Cir Rules Successful Offer of Judgment Mooted Putative Class Action

The U.S. Court of Appeals for the Second Circuit recently held in a non-precedential opinion that a consumer, in the circumstances of this case, did not have standing to bring putative class action claims after entry of judgment in his favor on his individual claims pursuant to the defendants' offer of judgment under Fed. R. Civ. Pro. 68.

 

A copy of the opinion is available at:  Link to Opinion

 

A consumer filed an individual and putative class action alleging that several companies violated the federal Telephone Consumer Protection Act (TCPA"), 47 U.S.C. § 227, and New York's General Business Law ("NYGBL") § 399-p.

 

The district court dismissed the consumer's putative class action claims for a lack of subject matter jurisdiction after the entry of judgment in his favor pursuant to an offer of judgment under Rule 68 of the Federal Rules of Civil Procedure.  The consumer appealed.  

 

The Second Circuit began its analysis by addressing its prior ruling in Tanasi v. New Alliance Bank, 786 F.3d 195 (2d Cir. 2015).  There, the Second Circuit, contrary to the opinion of other circuits, held that that an unaccepted offer of settlement or judgment, on its own, will not moot a plaintiff's claims.  However, any individual claims are rendered moot where a judgment has been entered and plaintiff's claims have been satisfied.  Subsequently, the Supreme Court of the United States in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016) came to the same conclusion as the Second Circuit. 

 

The Second Circuit noted that it had not addressed the issue of whether, in all cases, the rendering moot of a plaintiff's individual claims undermines that plaintiff's standing to pursue claims on behalf of a putative class.  In Tanasi, the Second Circuit explicitly left open the question whether unresolved class action claims can ever provide an independent basis for justiciability.  Ultimately, the Court decided not to reach this question here because the consumer did not have any connection to a "live claim of his own" or any cognizable interest in pursuing the class claims. 

 

The Second Circuit cited Campbell-Ewald for the rule that Article III limits federal court jurisdiction to cases and controversies at all stages of review, not merely at the time the complaint is filed.  The Court then distinguished the effect of a putative and a certified class. 

 

The Second Circuit determined that although a certified class may obtain independent status for purposes of standing, where the individual claims of the putative class representative are rendered moot prior to certification, in general, the entire action becomes moot.  Consequently, the Court held that because the consumer was the sole individual representative for the putative class, once his claim was no longer live, no plaintiff remained in a position to pursue the class claims. 

 

The Court acknowledged that in certain circumstances the rendering of a named plaintiff's individual claim as moot will not remove the basis for the associated class action.  However, the Court determined that none of those circumstances applied to the consumer.  For example, the Second Circuit examined the relation back doctrine, which occasionally allows a court to review a class certification decision even after a plaintiff's individual claims have been rendered moot.  But that line of cases was inapplicable here because there was no class certification decision or any other reason to link the consumer's once-live claim to the now-independent class claims.

 

The Second Circuit then rejected the consumer's argument that his expectation of an incentive reward as representative of the putative class gave him a personal stake in the class litigation. 

 

The Court noted that standing requires that plaintiff allege a concrete injury that creates a legally protected interest in pursuing the litigation.  The Court determined that the consumer's interest a potential incentive award was merely a purely hypothetical possibility of recovery that did not meet the standing requirements, because an incentive reward is not guaranteed but rather solely within the discretion of the district court after a class is certified and recovery occurs. 

 

Moreover, in this matter there was never a determination as to whether there might be a cognizable class in this case, as he never moved for class certification.  Consequently, the Court held that the consumer did not meet the requirements for standing.

 

Accordingly, the Second Circuit affirmed the judgment of the trial court.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: Fla App Ct (4th DCA) Rules Mortgagee Did Not Violate Mortgage By Accepting Partial Payments

The District Court of Appeal of the State of Florida, Fourth District, recently reversed a trial court's ruling in favor of mortgage loan borrowers based on the mortgagee's failure to satisfy a condition precedent in paragraph 22 of the mortgage in accepting partial payments after default, holding that the mortgagee substantially complied with the requirements of the mortgage.

 

In so ruling, the Court held that the mortgagee was not obligated to send new acceleration notices after each partial payment received, as the borrowers never cured the default by paying the total amount needed to cure the default and reinstate the mortgage loan.

 

A copy of the opinion is available at:  Link to Opinion

 

The borrowers defaulted on their mortgage loan, and the mortgagee sent them a letter accelerating the loan pursuant to paragraph 22 of the mortgage.  The borrowers made several partial payments, after each of which the mortgagee sent them a letter acknowledging the payment and setting out the amount still needed to cure the default.

 

The mortgagee eventually sued to foreclose, and the case went to trial.  At the conclusion of trial, the court entered judgment in the borrowers' favor, holding that because the mortgagee accepted partial payments after acceleration, it failed to comply with paragraph 22 of the mortgage.

 

The mortgagee moved for rehearing or alternatively for a new trial, which was denied. The mortgagee appealed.

 

The Fourth District began by examining the text of paragraph 22 of the mortgage, which provided in relevant part that if the default was not cured on or before the date specified, the lender could at its option accelerate the loan "without further demand" and sue to foreclose.

 

The Appellate Court then pointed out that each partial payment notice contained language in which the mortgagee reserved the right to accept or reject a partial payment "without waiving any of its rights."

 

The Fourth District noted that such language was consistent with paragraph 1 of the mortgage, which allowed the mortgagee to accept any partial payment without waiving any of its rights.

 

The Appellate Court disagreed with the trial court's ruling that the mortgagee failed to comply with paragraph 22 because the partial payment notices were confusing and "did not adequately inform Borrowers of the necessary steps to cure."  Instead, the Fourth District noted, the main purpose of a default letter was to let the borrowers know what they must do to bring the loan current, and such notices "need only substantially comply with a mortgage's condition precedent."

 

Relying on its recent ruling in Sill v. JPMorgan Chase Bank, which held that "depending on the mortgage's language, a bank can comply with paragraph 22 without having to issue a new acceleration notice if it had previously sent such a notice," the Appellate Court also rejected the trial court's "assumption that the Bank was required to send a new acceleration notice every time it accepted a partial payment even if the principal amount due was never made current."

 

Because the borrowers did not dispute they were in default, nor did they argue that they had brought the loan current since they received the acceleration letter, the Fourth District held that the partial payment notices did not in any way render the acceleration notice insufficient.

 

In addition, the Court held, the mortgagee "was also not obligated to send new Paragraph 22 notices after each partial payment received since Borrowers never cured the total amount due."

 

Even though the trial court refrained from deciding if the mortgagee proved it had standing to foreclose, "in the interest of judicial economy, [the Court found that the mortgagee] produced sufficient evidence at trial to establish standing."

 

Because the mortgagee substantially complied with paragraph 22 of the mortgage, the Fourth District reversed the trial court's final judgment in the borrowers' favor and remanded the case with instructions for the trial court to enter final judgment in the mortgagee's favor.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

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and

 

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and

 

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