Concept
Class Actions Under CAFA
Diversity jurisdiction
Class Actions Under CAFA
The ordinary diversity rules were built for a lawsuit with a handful of named parties, and a class action strains them in two places. The citizenship of thousands of absent class members is unknown, and their individual claims are often small. Congress answered those strains in 2005 with a separate diversity grant for certain class actions, found in 28 U.S.C. § 1332(d), which loosens the ordinary requirements and then adds exceptions that send state-centered cases back to state court.1 This section gives a compact map of that grant. It starts with the baseline rules for class actions outside the statute, then the statute's core requirements, then its localizing exceptions.
Baseline Class Action Rules
Outside the 2005 statute, a class action that rests on diversity alone is tested by the ordinary requirements, applied in a way that suits a representative lawsuit. For citizenship, only the named representatives count. In Supreme Tribe of Ben-Hur v. Cauble the Supreme Court held that the representative's citizenship must be diverse from the defendant's, and it is no objection that unnamed class members share the defendant's citizenship.2 The reason is practical. A rule that required every absent member to be diverse would be unworkable, because many of those members are unknown, and class counsel can in any event choose whom to name as representative.3
The amount in controversy was the real obstacle. In Snyder v. Harris the Court applied the ordinary aggregation rules to class actions, so a class whose members each held small, separate claims could not add them together even though one judgment would bind everyone.4 Zahn v. International Paper Co. went further and required each class member to meet the amount individually.5 That combination kept most consumer class actions, where each claim is a few hundred dollars, out of federal court. Exxon Mobil Corp. v. Allapattah Services, Inc. softened the result. If at least one named representative meets the amount and diversity is satisfied, the other members' smaller claims ride along under supplemental jurisdiction.6 Allapattah still needs one claim large enough to anchor the case. Where no named plaintiff has more than $75,000 at stake, the claims cannot be pooled under the general statute.7
CAFA Jurisdiction Requirements
The baseline left a gap that Congress chose to close. Many large multistate class actions with small individual claims were filed in state court, where, according to the legislative judgment, courts sometimes favored local plaintiffs against out-of-state defendants and imposed one state's view of the law on residents of other states.9 The Class Action Fairness Act of 2005 (CAFA) responded by giving the district courts original jurisdiction over a qualifying class action. The statute lets the court add up the class members' claims and requires only minimal diversity, meaning that one plaintiff and one defendant be citizens of different places rather than every plaintiff of a different state from every defendant.10
Several details follow from that structure. Class-member citizenship is measured at the filing of the complaint or amended complaint, or, if the original pleading was not removable, at the date the plaintiffs serve a paper showing that federal jurisdiction exists.14 The statute applies before or after the court certifies the class, so a defendant cannot defeat it by arguing that no class has yet been approved.15 An unincorporated association is treated for this subsection like a corporation, as a citizen of the state where it has its principal place of business and the state under whose laws it is organized, which differs from the every-member rule taught for partnerships and LLCs in ordinary diversity cases.16 Minimal diversity is constitutionally sufficient because Article III requires only that some party on each side be diverse, and the statute is not open to constitutional challenge on that ground.17 The statute also lets any defendant remove a qualifying class action even if that defendant is a forum citizen, and a representative cannot avoid removal by stipulating to seek less than $5,000,000, because the representative cannot bind absent members before certification.18
Consider two invented cases. A class of 5,000 purchasers of a defective appliance sues a manufacturer, claiming $8,000,000 in total. One purchaser lives in a state different from the manufacturer's. Each claim is tiny, and the baseline rule would have kept the case out, but the aggregate exceeds $5,000,000 and one class member is diverse from the defendant, so § 1332(d)(2) applies.19 Now change one fact. If every class member and the manufacturer were citizens of the same single state, minimal diversity would be missing, and the $8,000,000 total would not help. If instead the total were $4,000,000, the amount would be missing even though diversity is present.
Localizing Exceptions
The broad grant swept in cases that are really about one state, so Congress paired it with exceptions designed to keep those cases in state court. The reasoning is straightforward. The justification for federal jurisdiction is that a class action reaches across state lines, and when most of the class and the main defendants all belong to the filing state, that justification disappears and the state's own interest in the dispute predominates.21 The exceptions run along a scale, and the key variable is what share of the class, and which defendants, are citizens of the state where the action was filed.
In the middle range, where more than one-third but less than two-thirds of the class members and the primary defendants are citizens of the filing state, the court may decline jurisdiction in the interests of justice, looking at the totality of the circumstances and a list of statutory factors.22 At the high end the court must decline. Section 1332(d)(4) requires declination in a local-controversy case, which includes the situation where more than two-thirds of the class are citizens of the filing state and several further local features are present, and in a home-state case, where two-thirds or more of the class and the primary defendants are all citizens of the filing state.23 The first is a power and the second a duty. The statute's word choice marks the line, since the court "may" decline in the middle range and "shall" decline at the extremes.24
Some class actions fall outside the grant altogether. Section 1332(d) does not reach a case in which the primary defendants are states, state officials, or other governmental entities against whom the court may be unable to order relief, or one in which the proposed classes together have fewer than 100 members.25 The grant also excludes class actions that solely involve certain securities and internal-affairs claims, which are governed by other regimes.26 Imagine a class of 3,000 state residents suing a resident employer for $9,000,000 in a state court of their own state, with one class member recently moved out of state. Minimal diversity is technically present, but more than two-thirds of the class and the primary defendant are citizens of the filing state, so the court must decline. By contrast, a class of 60 members with $10,000,000 at stake is outside the statute entirely because of the size floor.
Baseline Class Action Rules
A class action that rests on diversity alone, outside the special statute taught below, is tested by the same two requirements as any other diversity case, citizenship and amount in controversy. Each requirement is applied differently because the suit is brought by representatives on behalf of many people who never appear in the caption. This section states how each requirement works in that setting, since the later statutory grant is best understood as a departure from these baseline rules.
For citizenship, only the named representatives count. In Supreme Tribe of Ben-Hur v. Cauble the Supreme Court held that the representative's citizenship must be diverse from the defendant's, and that it is no objection that unnamed class members share the defendant's citizenship.28 The reason is practical. Many absent members are unknown, so a rule that required every one of them to be diverse from every defendant could not be administered.29 A consequence follows from that choice. Class counsel usually decides who will serve as representative and can substitute one if necessary, so counsel can ordinarily select a representative whose citizenship preserves diversity.30 Suppose a nationwide class sues a manufacturer incorporated and headquartered in Ohio. If the named representative lives in Oregon, citizenship is satisfied even though thousands of absent members are Ohioans. If the named representative were an Ohio citizen, complete diversity would be missing, and the unnamed members' citizenship would not repair it.
The amount in controversy was historically the harder obstacle. In Snyder v. Harris the Court applied the ordinary aggregation rules to class actions, so members with separate and distinct small claims could not add them together, even though a single judgment would bind the whole class.31 Zahn v. International Paper Co. went further. Even where the named representatives' claims were large enough, each class member had to satisfy the amount individually, and any member who could not was dismissed.32 Together those decisions kept most consumer class actions, in which each claim is worth a few hundred dollars, out of federal court.
The later decision in Exxon Mobil Corp. v. Allapattah Services, Inc. changed the Zahn result. The Court held that where the other elements of jurisdiction are present and at least one named plaintiff satisfies the amount requirement, § 1367 authorizes supplemental jurisdiction over the claims of other plaintiffs in the same case or controversy, even if those claims fall below the jurisdictional amount.33 In a class action this means that smaller claims can ride along with an anchor claim. The anchor requirement remains, however. At least one named plaintiff must independently have more than $75,000 at stake, and several named plaintiffs whose claims are each too small cannot pool them to supply an anchor.34 A class of 1,000 buyers who each paid $525 has no claim large enough to anchor anything. A class in which the named representative also lost $80,000 in damaged property has one, and the $525 claims may then proceed with it.
CAFA Jurisdiction Requirements
The baseline rules just described left most multistate consumer class actions in state court, because each class member's small claim could not reach $75,000 and absent members were presumed to share the defendant's citizenship. Congress treated that outcome as a problem. Its stated concern was that state courts were sometimes hearing cases of national importance, showing bias against out-of-state defendants, and imposing one state's view of the law on residents of other states.36 The Class Action Fairness Act of 2005 (CAFA) answers that concern with a separate diversity grant in 28 U.S.C. § 1332(d), which relaxes both the amount requirement and the citizenship requirement for qualifying class actions.37
The second step reverses the ordinary rule. Outside CAFA, separate and distinct claims could not be added together, but § 1332(d)(6) directs that the individual claims be aggregated, which means a class of thousands of small claims can cross the line in a way no individual member could.40 The third step reverses the other ordinary rule. Complete diversity requires every plaintiff to differ from every defendant, while minimal diversity needs only one pair of opposing parties who differ. The statute also carries that idea into alienage cases: a foreign-citizen class member against a state-citizen defendant, or a state-citizen class member against a foreign defendant, also satisfies it.41 Minimal diversity raises no constitutional difficulty, because Article III asks only that some party on each side be diverse and the statute stays within that limit.42
Two timing and status details complete the grant. Class members' citizenship is fixed as of the filing of the complaint or amended complaint. If the original pleading did not show a federal case, it is fixed as of the date the plaintiffs serve an amended pleading, motion, or other paper revealing that federal jurisdiction exists.43 Unincorporated associations also receive special treatment. For purposes of this subsection, an association is a citizen of the state where it has its principal place of business and the state under whose laws it is organized, which resembles the corporate rule and differs from the every-member rule that governs partnerships and LLCs in ordinary diversity cases.44 CAFA also relaxes the removal rules, so a defendant sued in its home state may still remove a qualifying class action, and the one-year limit on removal does not apply to it.45
Two invented examples show the requirements operating. Imagine a nationwide class of purchasers who each overpaid a few dollars for a defective appliance and who together claim $8,000,000 from a manufacturer. One class member lives in a state different from the manufacturer's. No single claim comes near $75,000, and the unnamed members could not be counted under the baseline rule, but the aggregate exceeds $5,000,000 and one class member is diverse from the defendant, so the court has original jurisdiction.46 Now change the total to $3,000,000. Diversity is still present, yet the aggregated amount falls short, and CAFA's grant never applies. Changing a different fact produces a different failure. If the class members and the manufacturer all belong to a single state, the $8,000,000 total is irrelevant because no class member is diverse from any defendant. The exceptions that keep some qualifying cases in state court come next.
Localizing Exceptions
The CAFA grant is wide because minimal diversity needs only one class member who differs in citizenship from one defendant. Congress's reasons for opening the federal courts were that state courts were sometimes holding cases of national importance, showing bias toward local interests over out-of-state defendants, and applying one state's view of the law to residents of other states.48 Each of those reasons weakens when the class, the main defendants, and the injuries all belong to the state where the suit was filed. A dispute of that kind raises no real danger of one state's court binding outsiders, and the filing state has the strongest interest in resolving it. The statute therefore pairs the grant with exceptions that send such cases back to state court, and the dividing variable is the share of the class, together with the primary defendants, that is made up of citizens of the filing state.49
The difference between a power and a duty is carried by the statute's verbs. In the middle range the court "may" decline, and it does so in the interests of justice after looking at the totality of the circumstances.54 The statute lists several factors for that judgment. Three that are useful to remember are whether the claims involve matters of national or interstate interest, whether they will be governed by the law of the filing state or by the laws of other states, and whether the action was pleaded in a way that seeks to avoid federal jurisdiction.55 Each factor measures the same thing from a different angle, namely how much the case truly belongs to one state. At the high end, where two-thirds or more of the class and the primary defendants are all filing-state citizens, the court "shall" decline, and the court has no discretion to weigh anything further.56
The local-controversy exception reaches cases that may not satisfy the home-state numbers but are still centered in one state. It requires more than two-thirds of the class to be citizens of the filing state, at least one defendant who is a filing-state citizen, who is a real target of significant relief, and whose conduct forms a significant basis of the claims, and principal injuries incurred in the filing state, and it applies only if no other class action asserting the same or similar facts was filed against any of the defendants in the preceding three years.57 The three-year requirement keeps a local label from being used to defeat repeated multistate litigation over the same conduct. A mandatory exception is also the more reliable one on an exam, because the court's decision to decline requires no balancing.
Two invented class actions show how the dividing line works. Imagine 3,000 employees, all but a handful of them citizens of one state, who sue their employer, a citizen of that state, for $9,000,000 in that state's courts. A single class member who has moved away makes minimal diversity technically present, but more than two-thirds of the class and the only primary defendant are citizens of the filing state, so the court must decline. Now change the facts. A buyer class is spread across forty states, the manufacturer is a citizen of another state, and the same $9,000,000 is at stake. Few class members and no primary defendants are citizens of the filing state, so no exception applies and the case stays in federal court. A class of 60 members with $10,000,000 at stake lies outside § 1332(d) entirely because of the size floor, whatever its geography.58