Eleventh Circuit Reverses Itself To Give Eleventh Hour Reprieve To Class Action Plaintiffs With Small Individual Damages

Class action plaintiffs are breathing a little easier with last week’s decision by the U.S. Court of Appeals for the Eleventh Circuit to reverse its July decision that would have been the death knell for many class actions.

But the court still ruled against the individual plaintiff in the case before it.

In July, an Eleventh Circuit panel issued a surprising decision holding that CAFA – the Class Action Fairness Act of 2005 – required that in an original federal court action, at least one named plaintiff must meet the $75,000 damages threshold or face dismissal for lack of subject matter jurisdiction.  Cappuccitti v. DirecTV, Inc., 611 F.3d 1252 (11th Cir. July 19, 2010).

The decision was widely criticized.  One district court stayed proceedings in a CAFA matter to allow the appellate court time for rehearing, and the MDL court in the DirecTV matter declined to follow it.  See In re DirecTV Early Cancellation Litig., — F. Supp. 2d –, 2010 WL 3633079 (C.D. Cal. Sept. 7, 2010).

And on Friday, October 15, 2010, the panel admitted its error and reversed itself.  Cappuccitti v. DirecTV, Inc.,– F.3d –, 2010 WL 4027719, No. 09-14107 (11th Cir. Oct. 15, 2010).

The case involves a suit by a subscriber against DirecTV over a $420 cancellation fee – or rather, over the cancellation fees of an entire class of subscribers in the state of Georgia allegedly imposed in violation of state law.  The district court dismissed part of the complaint for failure to state a claim, but denied DirecTV’s motion to compel arbitration – finding the clause unconscionable because it denied a class action remedy – and allowed a claim for declaratory and injunctive relief to go forward. 

On interlocutory appeal of the arbitration ruling, the Eleventh Circuit sua sponte (apparently without briefing or hearing) dismissed the entire action, including the declaratory relief, because the plaintiff’s individual claim failed to meet the jurisdictional threshold of $75,000, even though the class exceeded the $5 million threshold required by CAFA.  Section 1332(D)(6) provides that “[i]n any class action, the claims of the individual class members shall be aggregated to determine whether the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs,” but makes no mention of a $75,000 amount in controversy requirement.

Many pending class actions could not meet this individual damage requirement – and indeed, it does not appear in the statute.  In fact, Congress intended to expand federal jurisdiction over class actions in CAFA, which removed the $75,000 amount in controversy and complete diversity jurisdictional requirements of Section 1332.  The Eleventh Circuit conflated the requirements of mass actions, which under the statute are required to meet the $75,000 requirement, with class actions under CAFA.  In mass actions, Section 1332(d)(11)(B)(i), combined with Section 1332(a), requires at least one plaintiff with more than $75,000 in controversy – there are no corresponding sections for class actions.

One thing was consistent in Friday’s opinion – the panel still ruled for DirecTV.  The court granted DirecTV’s petition to compel arbitration, overturning the lower court’s finding that the arbitration clause was unconscionable under Georgia law.