Class Action Fairness Act (CAFA)

The Class Action Fairness Act (CAFA) is a 2005 federal statute that expanded federal court jurisdiction over class action lawsuits by lowering the thresholds for federal diversity jurisdiction. The Act requires minimal diversity between any plaintiff and any defendant, a class size of 100 or more members, and aggregate damages exceeding $5 million to trigger federal jurisdiction.

CAFA was designed to prevent forum shopping and ensure that large interstate class actions are adjudicated in federal rather than state courts. The legislation established specific procedures for removing state class actions to federal court and created exceptions for certain local controversies and cases involving primarily state law claims.

The Act fundamentally altered the landscape of class action litigation by making it significantly easier for defendants to move cases from potentially plaintiff-friendly state courts to federal courts, where certification standards and procedural requirements are often more stringent.

CAFA operates by expanding the traditional diversity jurisdiction requirements that previously required complete diversity between all plaintiffs and all defendants. Under CAFA's minimal diversity standard, federal courts can hear class actions where any single plaintiff is from a different state than any single defendant, provided the other statutory requirements are met.

The Act involves multiple parties: class action plaintiffs seeking to represent a proposed class, defendants who typically invoke CAFA to remove cases to federal court, and federal judges who must determine whether CAFA's requirements are satisfied. Plaintiffs' attorneys often attempt to structure their complaints to avoid CAFA's reach, while defense counsel actively seeks to trigger federal jurisdiction through removal procedures.

CAFA is triggered when three primary conditions converge: the proposed class contains 100 or more members, the aggregate amount in controversy exceeds $5 million, and minimal diversity exists between the parties. Additional factors include the interstate nature of the alleged harm and whether the primary defendants are citizens of the forum state where the case was originally filed.

Dart Cherokee Basin Operating Co. v. Owens (2014) — Supreme Court ruled that defendants need only plausibly allege CAFA's amount-in-controversy requirement when removing state class actions to federal court.

Standard Fire Insurance Co. v. Knowles (2013) — Supreme Court held that a plaintiff cannot prevent CAFA removal by stipulating that damages will not exceed the $5 million threshold.

Mississippi ex rel. Hood v. AU Optronics Corp. (2014) — Fifth Circuit applied CAFA to allow federal jurisdiction over a state attorney general's parens patriae action that functioned as a class action.

In re Sprint Nextel Corp. (2010) — Court found CAFA jurisdiction where wireless carrier customers alleged improper billing practices affecting millions of subscribers across multiple states.

For class members, CAFA typically means their cases will be heard in federal rather than state court, which can significantly impact litigation outcomes. Federal courts generally apply stricter class certification standards under Rule 23, potentially making it harder for classes to be certified and cases to proceed.

CAFA often results in longer litigation timelines as federal courts may be more congested and procedurally demanding than state courts. Class members may find that federal courts are less familiar with state consumer protection laws and more inclined to dismiss cases on procedural grounds.

The Act can affect settlement dynamics, as federal judges may scrutinize proposed settlements more rigorously and require more extensive fairness hearings. However, CAFA also provides some protections for class members, including enhanced scrutiny of coupon settlements and requirements for judicial review of attorney fee arrangements in certain circumstances.

Can plaintiffs avoid CAFA by filing in state court?

No, defendants can remove qualifying state class actions to federal court under CAFA's removal provisions, even if plaintiffs originally filed in state court.

What is the $5 million threshold in CAFA?

The $5 million refers to the aggregate amount in controversy for the entire class, not individual claims, and includes damages, injunctive relief value, and attorney fees.

Are there exceptions to CAFA jurisdiction?

Yes, CAFA includes exceptions for local controversies where primary defendants and significant portions of the class are from the forum state, and for cases involving certain state law claims.

How does CAFA affect attorney fees in class actions?

CAFA requires enhanced judicial scrutiny of attorney fee awards, particularly in coupon settlements, and mandates that fees be tied to actual benefits delivered to class members.

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