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Supplemental Jurisdiction in Diversity-Only Class Actions After Exxon Mobil Corp

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Supplemental Jurisdiction in Diversity-Only Class Actions After Exxon Mobil Corp COVER STORIES © 2005 American Bar Association. All rights reserved. Reprinted from Antitrust magazine, Fall 2005, a publication of the ABA Section of Antitrust Law. Supplemental Jurisdiction in Diversity-Only Class Actions After Exxon Mobil Corp. v. Allapattah Services, Inc. BY CHRISTIAN G. VERGONIS AND EDWIN L. FOUNTAIN OUR MONTHS AFTER THE to which CAFA is directed, the decision still has significant enactment of the Class Action Fairness Act of implications for whether class actions not covered by CAFA 2005 (CAFA) wrought a sea change in the juris- may be brought in, or removed to, federal court. dictional rules governing diversity-only class F actions, the U.S. Supreme Court issued an impor- The Jurisdictional Backdrop tant decision further modifying the scope of federal court To appreciate the changes that CAFA and Exxon Mobil have jurisdiction in diversity cases. Resolving a 15-year-old con- made to the landscape of diversity jurisdiction, it is helpful troversy that had sharply divided the lower courts, the Court to understand the legal setting in which these two develop- held in Exxon Mobil Corp. v. Allapattah Services, Inc.,1 that the ments arose. This backdrop included two well-settled rules supplemental jurisdiction statute, 28 U.S.C. § 1367, abro- concerning jurisdiction based on diversity of citizenship, gated the long-standing rule of Zahn v. International Paper both of which were based on interpretations of the diversity- Co.2 that, in a diversity-only class action—such as an indirect jurisdiction statute and, therefore, susceptible to revision by purchaser class action brought under state antitrust laws— Congress. First, the rule of “complete diversity” requires that each class member must individually satisfy the amount-in- all parties on the plaintiffs’ side of a lawsuit be diverse from controversy requirement of the diversity jurisdiction statute. all parties on the defendants’ side.3 Second, the nonaggrega- The Court held that so long as the other elements of diver- tion principle prohibits courts from aggregating the claims of sity jurisdiction are present and at least one named plaintiff separate plaintiffs to satisfy the amount-in-controversy has claims sufficient to meet the required jurisdictional requirement of the diversity statute, requiring instead that, amount, Section 1367 authorizes the exercise of supplemen- for jurisdictional purposes, each plaintiff’s stake must indi- tal jurisdiction over the related claims of additional plain- vidually rise above the jurisdictional amount.4 tiffs—including named and unnamed class members—even The federal courts had also developed rules to determine if those claims do not independently satisfy the jurisdiction- whether and when it is appropriate to exercise jurisdiction al minimum. over claims that themselves are not independently within Like CAFA, the holding in Exxon Mobil is a victory for the courts’ statutory grants of subject-matter jurisdiction but those favoring the increased availability of a federal forum for which relate in some specified degree to other, jurisdiction- the efficient resolution of related state-law claims. CAFA, ally sufficient claims properly pending in federal court. In an with its provisions for minimal (rather than complete) diver- effort to avoid requiring parties to litigate such related claims sity and aggregation of claims, represents a much greater in different fora, the Supreme Court had, by the early part of expansion of federal court jurisdiction, and thus supersedes the 20th century, endorsed the common-law doctrines of to some extent the significance of Exxon Mobil in the class- pendent and ancillary jurisdiction in limited circumstances.5 action context. Nevertheless, many class actions will fall out- During the 1960s and 1970s, moreover, the lower courts side CAFA’s ambit, either because the aggregate damages seized upon the Supreme Court’s broad endorsement of pen- claim is below CAFA’s threshold of $5 million or because one dent-claim jurisdiction in the seminal case of United Mine of CAFA’s several exceptions applies. Thus, while Exxon Workers v. Gibbs 6 to permit expansive exercises of jurisdiction Mobil has limited applicability to the large multistate actions over nonfederal claims asserted by or against pendent parties or added to lawsuits by defendants and third parties. This heyday of the common-law doctrines now collectively Christian Vergonis is an associate and Edwin Fountain is a partner in the Washington office of Jones Day. Mr. Vergonis was counsel for the grouped under the heading “supplemental jurisdictional” petitioners in Ortega v. Star-Kist Foods, Inc. was short-lived, however, as subsequent Supreme Court cases took a more restrictive view and restrained the exercise of 38 · ANTITRUST pendent-party and ancillary jurisdiction where such juris- (b) of the statute narrows this broad authorization in diver- diction had not been authorized by Congress.7 sity cases, however, by excluding from the courts’ supple- The Supreme Court’s pronouncements in this area were mental jurisdiction claims asserted by plaintiffs against per- not always a model of consistency, particularly when the sons made parties to the lawsuit under Rules 14 (third-party rules governing diversity jurisdiction and supplemental juris- practice), 19 (compulsory joinder), 20 (permissive joinder), diction intersected in the class-action context. In the early and 24 (intervention) of the Federal Rules of Civil Procedure, case of Supreme Tribe of Ben-Hur v. Cauble,8 the Court held and claims asserted by would-be plaintiffs proposed to be that in a diversity-only class action, the federal courts are per- joined under Rule 19 or seeking to intervene under Rule 24, mitted to exercise ancillary jurisdiction over the claims of “when exercising supplemental jurisdiction over such claims nondiverse absent class members. As a result, the citizenship would be inconsistent with the jurisdictional requirements of absent class members has never been relevant to the fed- of” the diversity statute.14 eral courts’ jurisdiction over Rule 23 class actions (although Controversy about the impact of Section 1367 on the rule complete diversity has been required between the named of Zahn followed immediately after the statute’s enactment. plaintiffs and the defendants). Years later, however, the The disagreement centered around the propriety of exercis- Supreme Court held in Zahn that ancillary jurisdiction could not be exercised over claims of absent class members that did not, on a per-plaintiff basis, separately satisfy the amount-in- Like CAFA, the holding in Exxon Mobil is a victory controversy requirement.9 As a result, under Zahn, the claims of each individual class member in a diversity-only class for those favoring the increased availability of a action had to be above the jurisdictional amount for a federal court to have jurisdiction over those claims. federal forum for the efficient resolution of Apart from its obvious tension with Ben-Hur, the Court’s decision in Zahn soon had appreciable effects on the justi- related state-law claims. ciability of antitrust class actions in federal court. After the Supreme Court rejected indirect purchaser standing under ing supplemental jurisdiction over the claims of additional the federal antitrust laws in Illinois Brick,10 indirect purchas- plaintiffs with jurisdictionally insufficient claims when those er actions proceeded almost entirely under state law. While plaintiffs had been permissively joined pursuant to Rule 20 Ben-Hur permitted these diversity-only actions to be brought or were absent members of a Rule 23 class. Although Section in, or removed to, federal court without regard to the citi- 1367(b) expressly excludes from the federal courts’ supple- zenship of absent class members, Zahn prevented the lawsuits mental jurisdiction claims asserted against parties added to from proceeding in federal court, unless each and every mem- a lawsuit pursuant to Rule 20, and also excludes claims by ber of the plaintiff class had claims above the required juris- parties added through other mechanisms (intervention and dictional amount. Because indirect purchaser class actions compulsory joinder), it does not similarly exclude claims often involve end-user consumers with individual claims of asserted by parties permissively joined as plaintiffs under small financial value, the rule of Zahn generally resulted in Rule 20 or joined as members of a plaintiff class certified such lawsuits being heard in the state courts. Denied a fed- under Rule 23. eral forum, defendants were unable to take advantage of pro- Given that the rationale for this patchwork of exceptions cedural mechanisms, such as multidistrict transfer and con- is not readily apparent,15 a number of courts and commen- solidation, that are available to deal with similar cases filed in tators relied on a statement in the House Judiciary Commit- multiple federal courts, and were forced to deal with the tee Report that the statute was not intended to affect juris- inefficiencies of litigating related cases separately.11 dictional requirements as interpreted in Zahn and Ben-Hur to argue that, consistent with Zahn, the statute should not be Enactment of 28 U.S.C. § 1367 and the read to authorize supplemental jurisdiction over the claims of Decision in Exxon Mobil any co-plaintiff or class member who did not independent- The Supreme Court’s growing hostility toward the judicial- ly satisfy the jurisdictional amount. The Supreme Court first ly created doctrines
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