On January 22, 2010, Judge Posner authored the opinion of the Seventh Circuit in Cunningham Charter Corp. v. Learjet Inc., No. 09-8042, which held that a class action removed to a federal district court under the Class Action Fairness Act (CAFA) must not be remanded simply because a motion to certify a class has been denied. The district court denied a motion to certify and interpreted CAFA as requiring it to remand the case, if there was no longer a potential class. The district court’s interpretation could result in a plaintiff being free to pursue class certification in state court after remand — which the Seventh Circuit stated is completely at odds with CAFA’s purposes.
The decision arose from a class action lawsuit filed against Learjet, Inc. in Illinois state court, asserting claims for breach of warranty and products liability. Learjet removed the case to federal district court based on CAFA. The named plaintiff moved to certify two classes. The district judge denied the plaintiff’s motion for class certification and then ruled that the denial of class certification eliminated subject matter jurisdiction under CAFA. The judge therefore remanded the case to state court and Learjet appealed.
The Seventh Circuit reversed the district court’s holding that jurisdiction under CAFA was contingent on class certification. CAFA creates federal diversity jurisdiction over certain class actions in which, among other things, one member of the class is a citizen of a different state from any defendant and the aggregate amount-in-controversy exceeds $5 million. 28 U.S.C. § 1332(d)(2). CAFA defines a “class action” as “any civil action filed under Rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by one or more representative persons as a class action.” 28 U.S.C. § 1332 (d)(1)(B) (emphasis added).
But what happens once a district court denies a motion for class certification? The Seventh Circuit considered and rejected arguments that the language of two sections of CAFA made CAFA’s grant of federal diversity jurisdiction contingent on class certification. The first section states that CAFA applies “to any class action [within CAFA’s] scope before or after the entry of a class certification order.” The court held that this section does not require that a class action be certified for jurisdiction to exist under CAFA, and that “probably all this means is that the defendant can wait until a class is certified before deciding whether to remove the case to federal court.” The court explained that reading this provision to require a class to be certified would ignore the plain language of the section. The court also noted that such a reading would be inconsistent with CAFA’s definition of a class action “as a suit filed under a statute or rule authorizing class actions” because “many such suits cannot be maintained as class actions because the judge refuses to certify a class.”
The second section considered by the court was CAFA’s definition of a “class certification order” as “an order issued by a court approving the treatment of some or all aspects of a civil action as a class action.” 28 U.S.C. § 1332(d)(1)(C). The court noted that this section, read in isolation, could be interpreted to mean that without a class certification order, a suit does not qualify as a class action. But the court held that because “jurisdiction attaches when a suit is filed as class action, and that invariably precedes class certification” that all this section meant was that a suit filed as a class action cannot be maintained as a class action absent an order certifying the class.
The court further noted that its decision was consistent with general jurisdictional principles and the purpose of CAFA. First, the court’s decision was supported by the “general principle that jurisdiction once properly invoked is not lost by developments after a suit is filed.” Second, the court’s decision was consistent with CAFA’s purpose of “relaxing the requirement of complete diversity of citizenship so that class actions involving incomplete diversity can be litigated in federal court.” Allowing a federal court to retain jurisdiction following denial of class certification served CAFA’s purpose because “if a state happened to have different criteria for crediting a class from those of Rule 23, the result of a remand because of a the federal court’s refusal to certify the class could be that the case would continue as a class action in state court.”
The Seventh Circuit did indicate that a wholly “frivolous attempt to invoke federal jurisdiction” should fail and “compel dismissal.” However, if the arguments for certification are anything more than frivolous — a very low standard — the district court retains jurisdiction. That is true even if a plaintiff’s attempt to certify a class are “fatally flawed” as the district court found in Learjet.
Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:
Chad R. Fuller
San Diego, California
Michael D. Leffel