Seventh Circuit Clarifies Amount in Controversy Requirement Under Class Action Fairness Act

The Class Action Fairness Act (CAFA) gives federal courts jurisdiction over certain class actions where the amount in controversy exceeds $5 million. If the plaintiff brings such an action in state court, the defendant may remove it to federal court. One of the purposes of CAFA is to reduce forum shopping by plaintiffs who file suit in plaintiff-friendly state courts.

On April 14, 2011, the United States Court of Appeals for the Seventh Circuit (which covers Indiana, Illinois and Wisconsin) issued a decision clarifying the "amount in controversy" requirement under CAFA. In that case, employees filed a proposed class action against their employer in Illinois state court alleging, among other claims, violations of the Illinois Wage Payment and Collection Act and the Illinois Minimum Wage Law. The employer removed the case to federal district court, but the district court remanded the case to state court because it concluded the employer failed to demonstrate by a preponderance of the evidence that the amount in controversy exceeded $5 million. The employer appealed to the Seventh Circuit.

The Seventh Circuit held the district court required more of the employer than it should have because the evidence the employer presented showed the amount in controversy exceeded $5 million. First, the employer pointed to a class action in Arizona where the class members asserted they were not paid for 2,600 hours of work. The employer calculated that in this case, using the average of its hourly employees' pay rates, each of the 538 Illinois employees would need to seek payment for only 552 hours of work for CAFA's $5 million requirement to be met.

Second, the employer pointed to a case against it in Virginia where the plaintiffs alleged CAFA jurisdiction even though there were only approximately 300 Virginia employees. Because 300 Virginia employees would meet CAFA's $5 million requirement, the employer argued 538 Illinois employees would also meet CAFA's $5 million requirement.

The Seventh Circuit stated that once the proponent of federal jurisdiction has explained plausibly how the stakes exceed $5 million, the case belongs in federal court unless it is legally impossible for the plaintiff to recover that amount. Here, the employer provided plausible, good faith estimates demonstrating how the stakes exceed $5 million, and the plaintiffs did not attempt to demonstrate it was legally impossible for them to recover that amount. Accordingly, the Seventh Circuit ruled in favor of the employer. This decision is favorable to employers by making it easier for them to obtain federal jurisdiction over certain class actions.