I Won’t Play “Ping-Pong” For Gift Cards

Boundas v. Abercrombie & Fitch Stores, Inc., No. 10 C 4866, 2011 WL 5903495 (N.D. Ill. Nov. 21, 2011).

Clothier who paid The Situation not to wear its clothes gets to stay in federal court for voiding its own gift cards.

In this case, although the amount in controversy fell below CAFA’s jurisdictional minimum after a District Court in California dismissed the complaint in part, it still retained the jurisdiction holding that a federal district court may not dispose of some claims on the merits, then dismiss the suit for lack of jurisdiction as the remaining claims fall short of the minimum amount in controversy.

The plaintiffs, Tiffany Boundas and Dorothy Stojka, brought this putative class action in the Illinois state court, against the defendant, Abercrombie & Fitch Stores, Inc., alleging breach of contract and violation of the Ohio Consumer Sales Practices Act (“OCSPA”).

Abercrombie is a clothing retailer with stores across the United States and who is known for using scantily clad young models in its advertisements. In a December 2009 promotion, Abercrombie promised a $25 gift card to customers who bought at least $100 of merchandise in a single transaction. Stojka purchased approximately $300 of merchandise at an Abercrombie store in Oak Brook, Illinois, and received gift cards with a cumulative value of $75.

Stojka gave her cards to Boundas as a gift. When Boundas attempted to redeem the cards at the Oak Brook store in April 2010, the store declined, explaining that Abercrombie had voided the cards on or around January 30, 2010, eliminating all remaining value on them.

Abercrombie removed the case to the federal court pursuant to CAFA. Later, on Abercrombie’s motion, the District Court dismissed the OCSPA claims because the transactions at issue involved non-Ohio consumers and otherwise lacked a substantial connection to Ohio.

The plaintiffs then moved to remand the case to state court, arguing that dismissal of the OCSPA claim reduced the matter in controversy below CAFA’s jurisdictional minimum of $5 million. The Court, however, denied the motion.

Abercrombie contended that the value of the cards at issue was $5,674,453.44; whereas, the plaintiffs responded that the value of the cards was $4,228,537.35. The Court observed that even if the plaintiffs were right, punitive damages at a 1:5 ratio would to push the amount in controversy over $5 million. Specifically, the Court stated that the complaint included an OCSPA claim at the time of removal, and as permitted by Ohio law, the complaint sought punitive damages on that claim.

The plaintiffs, however, did not contest the availability of punitive damages under the OCSPA and did not argue that a 1:5 ratio of punitive to compensatory damages would be “legally impossible,” which is the governing standard. Rather, they argued that the OCSPA claim should not be considered in calculating the amount in controversy. The Court noted that if OCSPA claim was not considered, then the amount in controversy would not exceed $5 million because punitive damages are not permitted on contract claims under either Illinois or Ohio law.

The Court said, “Plaintiffs are wrong,” because the settled law in the Seventh Circuit holds that a federal court’s jurisdiction under CAFA is determined at the time of removal. Specifically, subject-matter jurisdiction depends on the state of things when suit is filed; what happens later does not detract from jurisdiction already established, and events after the date of removal do not affect federal jurisdiction.

Thus, the Court stated that the OCSPA claim, despite its dismissal after removal, must be considered in calculating the amount in controversy because the Sixth Circuit has held in Morrisonv. YTB Int’l, Inc., 649 F.3d 533, 535 (7th Cir.2011) that “a district court may not dispose of some claims on the merits, then dismiss the suit for lack of jurisdiction as the remaining claims fall short of the minimum amount in controversy.” (Editors’ Note: See the CAFA Law Blog analysis of Morrison posted on August 31, 2011).

The Court found that the plaintiffs’ attempt to evade this principle by arguing that the OCSPA claim was dismissed not on the merits, but on “standing” grounds was incorrect. Specifically, the Court dismissed the OCSPA claim because the statute does not apply extraterritorially where, as here, the Ohio business did not communicate, from Ohio, directly and individually with the non-Ohio plaintiffs. And that dismissal was on the merits under Fed. R. Civ. P. 12(b)(6), not for lack of standing under Rule 12(b)(1).

The Seventh Circuit addressed a materially identical issue in Morrison, where the district court held that non-Illinois class members could not pursue a claim under the ICFA and characterized its decision as resting on “standing.” The Seventh Circuit rejected that characterization, explaining that the dismissal of the non-Illinois class members’ ICFA claims was on the merits–If the ICFA does not apply because events were centered outside Illinois, then plaintiffs must rely on some other state’s law; this application of choice-of-law principles has nothing to do with standing. The Court concluded that same applied here with respect to the dismissal of the OCSPA claim, and because that claim was dismissed on the merits, it must be considered in calculating the amount in controversy.

For these reasons, the Court held that CAFA’s jurisdictional minimum was satisfied, and denied the plaintiffs’ motion to remand.