The Class Action Fairness Act of 2005 was created to ease diversity jurisdiction rules. The act also expanded federal jurisdiction over class actions based on state law claims.
Specifically, the Class Action Fairness Act grants jurisdiction to federal courts in class actions if the following is met:
- the proposed class contains at least 100 members,
- the primary defendants are not states, state officials, or other governmental entities,
- the total amount in controversy for all class members exceeds $5,000,000, and
- there is diversity between at least one class member and defendants.
In addition, a federal court cannot exercise jurisdiction under the following circumstances:
- when two-thirds or more of the members of the proposed class and the primary defendants are citizens of the state in which the action is filed, or
- when two-thirds or more of the individuals in the proposed class and at least one defendant whose conduct forms a significant basis for the class’s claims are citizens of the state in which the action was filed if the primary injuries also arose in that state and a similar class action has not been filed against the same defendants during the preceding three years.
Lastly, a federal court may decline, but does not have to decline jurisdiction where a) between one-third and two-thirds of the proposed class and b) the primary defendants are citizens of the state in which the action was filed. When the court uses its discretion in deciding whether to exercise jurisdiction, the court must consider “interests of justice” and “totality of the circumstances.”
The factors that weigh into the interests of justice and the totality of circumstances are
- whether the case involves matters of national or inter-state interest,
- what law will govern the plaintiff’s claims,
- where the injuries at issue arose,
- whether the plaintiffs pled their claims in a manner designed to avoid federal jurisdiction, and
- whether similar class actions have been filed during the preceding three-year period.
The following actions do not fall under the jurisdiction of the Class Action Fairness Act. They include:
- a covered security as defined under 16(f)(3) of the Securities Act of 1933 and Section 28(f)(5)(E) of the Securities Exchange Act of 1934,
- the rights, duties, and obligations relating to any security as defined under Section 2(a)(1) of the Securities Act of 1933, or
- the internal affairs or governance of a business enterprise under the laws of the state in which the enterprise is organized.