The U.S. Court of Appeals for the Eleventh Circuit recently held that the federal Class Action Fairness Act's ("CAFA") local-controversy provision, 28 U.S.C. § 1332(d)(4), does not preclude a federal trial court from exercising federal-question jurisdiction.
Accordingly, the Eleventh Circuit affirmed the federal trial court's denial of the plaintiffs' motion to remand the matter to state court following the defendants' removal.
A copy of the opinion is available at: Link to Opinion
The litigation involved a defendant doctor's alleged performance of unnecessary heart procedures on the plaintiffs. Specifically, the plaintiffs alleged that the defendant doctor would falsely tell a patient that the patient needed heart surgery, and then perform the procedure at a facility operated by one of the defendant hospitals, which then billed the patient for the unnecessary procedure.
As a result, the plaintiffs filed a complaint in state court asserting, among other things, claims under the civil Racketeer Influenced and Corrupt Organizations Act ("RICO"). The defendants timely removed the case to the federal district court based on federal-question jurisdiction.
The plaintiffs moved to remand and argued that CAFA's local-controversy exception prohibited the federal district court from exercising jurisdiction. Around the same time, the defendants filed a motion to dismiss the RICO claims. The district court denied the motion to remand because it found that CAFA was inapplicable. It also granted the motion to dismiss the RICO claims.
On appeal, the plaintiffs asserted two arguments in support of their claim that CAFA's local-controversy provision precludes federal jurisdiction. First, the plaintiffs argued that CAFA's local-controversy exception requires district courts to abstain from exercising jurisdiction over all local class actions. Second, and in the alternative, they argued that CAFA assigns jurisdiction over local class actions exclusively to the state courts.
The Eleventh Circuit rejected both arguments.
In so ruling, the Eleventh Circuit observed that with the enactment of CAFA, Congress amended 28 U.S.C. § 1332 to include section 1332(d). Section 1332(d)(2) grants district courts jurisdiction over class actions "in which the matter in controversy exceeds the sum or value of $5,000,000" and there is diversity between any class member and any defendant.
However, under section 1332(d)(4), district courts must refrain from exercising jurisdiction over certain class actions that otherwise meet section 1332(d)(2)'s requirements. Specifically, section 1332(d)(4) instructs district courts to "decline to exercise jurisdiction under" section 1332(d)(2) over class actions that involve local parties and controversies. This is the so-called "local controversy" exception.
The Eleventh Circuit noted that courts in the Seventh and Eighth Circuits have held that section "1332(d)(4) is similar to abstention and does not eliminate federal jurisdiction." See Morrison v. YTB Int'l, Inc., 649 F.3d 533, 536 (7th Cir. 2011); Graphic Commc'ns Local 1B v. CVS Caremark Corp., 636 F.3d 971, 973 (8th Cir. 2011).
Still, the plaintiffs argued that section 1332(d)(4) requires district courts to decline to exercise jurisdiction over any class action that meets the requirements of section 1332(d)(4), even where there is federal-question jurisdiction by virtue of federal law claims raised in the lawsuit.
The Eleventh Circuit disagreed. The Court noted that 1332(d)(2) grants district courts jurisdiction over minimally diverse class actions in which more than $5,000,000 is in dispute, and section 1332(d)(4) proscribes the exercise of that jurisdiction over local cases.
Thus, the Court held, "[section] 1332(d)(2) grants district courts jurisdictional power they did not previously have, and [section] 1332(d)(4) removes their ability to exercise that specific grant of jurisdiction in certain cases." Accordingly, "when the requirements of federal-question jurisdiction are met, district courts may exercise jurisdiction over class actions, even if they involve only local parties."
The plaintiffs further argued that section 1332(d)(4) grants state courts exclusive jurisdiction over local class actions, including those based on federal-question jurisdiction.
The Eleventh Circuit disagreed, holding that "[n]othing in the language of [section] 1332(d)(4) indicates that Congress intended to divest district courts of jurisdiction under [section] 1331. Rather . . . [section] 1332(d)(4) prevents district courts from exercising the jurisdiction that they otherwise possess under that statute."
The Eleventh Circuit therefore affirmed the district court's denial of the plaintiffs' motion for remand.
However, because the Eleventh Circuit determined the plaintiffs adequately alleged damages for their RICO claim, it vacated the trial court's dismissal of the RICO claim, and remanded the matter back to the federal trial court for further proceedings.
Ralph T. Wutscher
Maurice Wutscher LLP
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