Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co.

Introduction by Professor Greiner:  There is a piece missing from the discussion in the following case. Recall from Exxon that the rule in federal court putative class actions in which jurisdiction is based solely on diversity is that at least one class member’s claim must meet the $75,000 amount in controversy requirement (almost always this class member is one of the named plaintiffs). Only then does Exxon’s supplemental jurisdiction ruling become active.  For example, if there are 600 class members, each of which has a $10,000 claim based entirely on state law (with no Smith/Grable exception in the mix), then a federal district court would lack subject matter jurisdiction for any lawsuit because no single class member’s claim meets the amount in controversy requirement, meaning (in the terminology we used in class) that there is no anchoring claim.  In other words, one cannot aggregate class members’ claims to meet the amount in controversy requirement.

In 2005, Congress passed a statute called the “Class Action Fairness Act,” or “CAFA.” One view (although scholars debate this) is that Congress’ purpose in passing CAFA was to allow defendants (usually large business entities) facing class actions in state courts to remove those lawsuits to the federal courts, where the federal courts would kill almost all of them by, among other things, strictly construing Fed. R. Civ. P. 23 and declining to certify the classes. Allowing federal courts to kill class actions may have been a good idea, or may not have been, but at least on this theory, such was Congress’ intent. Under CAFA, with certain restrictions that you do not need to worry about, class claims CAN be aggregated, and if the total amount of the claim exceeds $5,000,000, then the federal court has diversity jurisdiction (and the case thus becomes removable). In the hypothetical above, if there are 600 class members, each of whom has a $10,000 claim based entirely on state law, there WOULD be diversity jurisdiction under CAFA, so long as the class ended up being certified. If the class were not certified, then the federal district court would have to dismiss for lack of subject matter jurisdiction.

In this case, you will see a doctor sue an insurer for $500 on a state law claim, which is obviously not enough to meet the $75,000 amount in controversy. But the doctor seeks class certification and alleges that the aggregated class claims exceed $5,000,000. Thus, the doctor alleges that the federal court has diversity jurisdiction under CAFA. And this theory of subject matter jurisdiction depends entirely on whether the doctor can convince the federal court to certify a class.

You might ask: why would the doctor file the case in federal court, instead of state court, as an original matter if the purpose of CAFA were to get class actions into federal court with the idea that federal courts would kill almost all of them (by declining to certify the class). Well, some chance of life is better than no chance of life. To see what the state courts would have done to the doctor’s class claim, read on.

YOU DO NOT NEED TO KNOW CAFA FOR THIS COURSE!! For the purposes of this course, this case is an Erie case, NOT a class actions case. If you want to learn about CAFA, take a course focusing on class actions.