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U.S. Supreme Court Expands the Availability of Federal Jurisdiction in Class Actions

July 2005
by: Thomas M. Goutman, Esq. and Edward M. Koch, Esq

On June 23, 2005, the United States Supreme Court issued a narrow 5-4 decision that extends the reach of the jurisdiction of federal courts. In Exxon Mobil Corp. v. Allapattah Servs, Inc., 2005 WL 1469477 (U.S. Jun. 23, 2005), the Court clarified an ambiguity in the federal supplemental jurisdiction statute that resulted in a split among the circuit courts of appeal. The ambiguity was present in multi-plaintiff cases, such as class actions, in which federal jurisdiction is based upon diversity of citizenship (i.e., in cases between citizens of different states where the amount in controversy is $75,000 or more). Under Exxon Mobil, the Supreme Court held that, as along as at least one plaintiff satisfies the amount-in-controversy requirement, federal courts can exercise supplemental jurisdiction over the claims of all other plaintiffs even if those claims are worth less than $75,000.

Historical Overview of Federal Diversity Jurisdiction

Federal courts are courts of limited jurisdiction. They may only exercise their jurisdiction in cases in which jurisdiction is conferred by the constitution, laws, or treaties of the United States. A common instance of federal court jurisdiction is diversity jurisdiction. Under diversity jurisdiction, a federal court is empowered to hear cases between citizens of different states as long as the amount in controversy exceeds $75,000. 28 U.S.C. § 1332.

Since its enactment over two centuries ago, a number of rules concerning Section 1332 has evolved from the caselaw. For example, the rule of complete diversity requires that no plaintiff can be a citizen of the same state as any defendant. Strawbridge v. Curtis, 3 Cranch 267 (1806). In addition, if federal diversity jurisdiction existed as to at least one claim, the court could exercise supplemental jurisdiction over all other claims between the parties in the litigation. Mineworkers v. Gibbs, 383 U.S. 715 (1966).

In class actions, additional rules developed. For example, the claims of plaintiffs could not be aggregated to meet the jurisdictional requirement. Zahn v. International Paper Co., 414 U.S. 291 (1973). Also, the grant of jurisdiction over claims involving particular parties did not confer jurisdiction over related claims by or against different parties. Finley v. United States, 490 U.S. 545 (1989).

In response to the latter rule announced in Finley, Congress enacted Title 28, Section 1367 of the United States Code. This section reversed the rule in Finley by permitting federal courts to exercise supplemental jurisdiction “in any civil action” over related claims by or against different parties so long as one party satisfied the jurisdictional requirement.

The “in any civil action” language contained in Section 1367 was interpreted by the circuit courts differently in multi-plaintiff cases where some, but not all, of the plaintiffs satisfied the amount-incontroversy requirement. The First, Third (including Pennsylvania, New Jersey, and Delaware), and Tenth circuits interpreted this language to mean that each plaintiff had to meet or exceed the amountin-controversy requirement. The Fourth, Fifth, Sixth, Seventh, and Eleventh circuits held that, as long as the named plaintiff met the amount-in-controversy requirement, the court could exercise supplemental jurisdiction over the claims of other plaintiffs.

The Exxon Mobil Case

In Exxon Mobil, the Supreme Court set out to settle the conflict among the circuits. It was actually two cases in one. In the first, Exxon Mobil dealers sued Exxon Mobil in a class action for systematic overcharging. Some, but not all, of the dealers met the amount-in-controversy requirement, which was then $50,000. After the district court certified the jurisdictional issue for appeal, the Eleventh Circuit ruled that Section 1367 permitted the federal court to exercise jurisdiction over the claims of all plaintiffs – not just the ones who satisfied the amount-in-controversy requirement.

In the second, a girl sued Starkist when she sliced her finger on a tuna can. Although the girl’s claim met or exceeded the amountin-controversy requirement, the emotional distress claims of her family members did not. The First Circuit ruled that the district court could assert jurisdiction over the girl’s claim, but not the claims of her family members that fell below the jurisdictional threshold.

In Exxon Mobil, the Supreme Court traced the evolution of diversity jurisdiction, including the enactment of Section 1367. Reading the plain language of the statute, Justice Kennedy reasoned that, if a district court has original jurisdiction over the claim of one plaintiff, it has jurisdiction over the entire “civil action,” including the claims of other plaintiffs that fall below the required amount-incontroversy. Kennedy reasoned that to hold otherwise would be antithetical to the whole notion of supplemental jurisdiction that permits district courts to exercise jurisdiction over related claims. As a result of Exxon Mobil, it is easier to retain diversity class actions in, or remove them to, federal courts as along as at least one plaintiff satisfies the $75,000 amount-in-controversy requirement.

The Effect of New Federal Legislation

It is important to note that the decision in Exxon Mobil affects cases that are, for any reason, not subject to new federal legislation known as the Class Action Fairness Act (“CAFA”). Subject to certain exceptions, CAFA confers federal jurisdiction over class actions commenced after February 18, 2005 where the amount in controversy exceeds $5 million in the aggregate (thus reversing Zahn’s noaggregation rule) and where CAFA’s diversity requirements are met. The Supreme Court, in Exxon Mobil, provides an additional basis for federal jurisdiction of class actions that otherwise cannot be removed to federal court under CAFA. 

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.
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