United States: Fifth Circuit Remands Parens Patriae Cases Removed Under Class Action Fairness Act

Last Updated: February 14 2014
Article by Judith R. Blakeway

The Class Action Fairness Act of 2001 ("CAFA") allows defendants to remove to federal court large class actions filed in state court. The question before the Fifth Circuit in Hood v. JP Morgan Chase & Co., 2013 LEXIS 23993 (Dec. 2, 2013) was whether the statute applied to a parens patriae action. A parens patriae action is one brought by a state on behalf of its citizens.

The State of Mississippi sued in state court alleging six credit card companies violated the Mississippi Consumer Protection Act ("MCPA") by charging consumers for products they did not want or need. The state specifically disclaimed federal question subject matter jurisdiction, denying that the complaint alleged a "mass action" and affirmatively alleging that the amount in controversy for any individual Mississippi consumer was less than $75,000.

The claims arose under state law and the parties were not diverse. (There can be no diversity in an action to which a state is a party.) Nevertheless, defendants removed the cases to federal court, relying on CAFA. The state moved to remand.

The district court denied remand, holding that it had subject matter jurisdiction because (1) the cases were mass actions under CAFA, (2) the National Bank Act ("NBA") and the Depository Institutions Deregulation and Monetary Control Act ("DIDA") preempted state law claims and (3) it had supplemental jurisdiction to hear the remaining claims.

The Fifth Circuit disagreed, finding no federal subject matter jurisdiction under the CAFA and reversing the district court's holding that the state's MCPA claims were preempted by the NBA or DIDA.

CAFA defines federal jurisdiction over a "mass action" which is defined as:

any civil action. . .in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs' claims involve common questions of law or fact, except that jurisdiction shall exist only over those plaintiffs whose claims in a mass action satisfy the jurisdictional amount requirements under subsection (a).

28 U.S.C. §1332(a)(11)(B)(i).

Subsection (a) states that "[t]he district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs. . . ." 28 U.S.C. §1332(a).

The court determined that, as the parties seeking removal, defendants bore the burden of proving the amount in controversy. The first question was whether at least 100, or only one, of the plaintiffs had to satisfy the individual amount in controversy to confer CAFA jurisdiction. The Fifth Circuit decided it need not reach that issue, however, because defendants failed to prove that even a single plaintiff satisfied the monetary requirement. Thus, even if, as defendants argued, the individual customers who paid for the ancillary services were the real parties in interest for the state's restitution claims, defendants had failed to show any of those customers satisfied the amount in controversy requirement.1

The court went on to hold that a state was not a mass action plaintiff that satisfied the amount in controversy and that any claims for which the state was the sole party in interest could not possibly be mass action claims because they were brought by a single plaintiff on its own behalf, rather than a mass of plaintiffs.

Turning to the question of preemption, the court concluded that the state's MCPA claims were not preempted by federal law. Defendant banks argued that state law usury claims against nationally chartered banks are completely preempted by the NBA. In the court's view, however, defendants failed to conclusively show that payment protection plan fees fit within the definition of "interest". Even if they did, the court held, the state's claims would not be preempted because the state never alleged that defendants charged an improper interest rate. Rather, the state's complaint was that the customers did not actually agree to purchase the services and were charged without their consent, not that they were charged too much. Thus, the claims were not preempted. Accordingly, the Fifth Circuit reversed and remanded.

Footnote

1. Interestingly, the Fifth Circuit acknowledged that the Supreme Court was currently reviewing its decision in Mississippi v. AU Optronics Corp., 701 F.3d 796 (5th Cir. Miss. 2012), in which the Fifth Circuit reached the opposite result, holding that the case was properly removed. But because the Fifth Circuit found that jurisdiction was lacking regardless of whether the customers were considered the real parties in interest, a reversal of that decision by the Supreme Court would not affect the outcome here. In fact on January 14, 2014, the Supreme Court reversed and remanded AU Optronics, holding that because Mississippi was the only named plaintiff, the suit did not constitute a mass action under CAFA.

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