“Outflanked”: The plaintiffs, focused on defending against federal jurisdiction under the Magnusson-Moss Warranty Act, exposed their flank to Fidelity, and are routed into federal court on the sword of CAFA.

Chavis v. Fidelity Warranty Services, Inc., No. 05-1813, 2006 WL 346425 (D.S.C. Feb. 13, 2006).

Intently focused on avoiding federal court, the plaintiffs in this District of South Carolina case carefully pled their complaint to avoid the requirements for federal jurisdiction as prescribed by the Magnusson-Moss Warranty Act (the “M/M Act”). The complaint alleged violations of the M/M Act, “a remedial statute designed to protect the purchasers of consumer goods from deceptive warranty practices,” which allows state law warranty suits to be filed in federal court as long as the amount in controversy exceeds $50,000 per plaintiff, and the class consist of 100 named plaintiffs or more. Acutely aware of these requirements, the plaintiffs, alleging that Fidelity “charged and received premiums on automobile warranties in violation” of the M/M Act, limited each class member’s damages to no more than $50,000 by the express terms of the complaint. Further, the complaint only named two of the more than “one hundred (100) persons” that composed the putative class. Despite their obvious preparations, the plaintiffs ended up on the defensive, trying to escape the expanded federal jurisdiction provided by the Class Action Fairness Act of 2005.

Acknowledging that her court did not have jurisdiction under the M/M Act, South Carolina Federal District Judge Margaret B. Seymour also recognized that other courts had previously heard M/M Act claims under alternative bases of federal jurisdiction. After reviewing these cases, Judge Seymour concluded, “Federal jurisdiction may be appropriate for the M/M Act claims that fail to satisfy the requirements of 15 U.S.C. § 2310(d)(1)(B) if a valid alternative federal jurisdictional basis exists.” Then CAFA entered the fray.

Reconnoitering CAFA, Judge Seymour referenced comments by the Senate Judiciary Committee, noting that CAFA “should be read broadly, with a strong preference that interstate class actions should be heard in a federal court if properly removed by any defendant.” Moreover, addressing the interface between CAFA and the M/M Act, the court declared that Congress is presumed to have enacted CAFA with knowledge of the law, including the M/M Act, and thus, CAFA’s grant of federal jurisdiction over any class action that meets the amount in controversy and minimum diversity standards also includes classes alleging violations under the M/M Act, even if federal jurisdiction is not appropriate under the M/M Act itself.

Since both parties acknowledged that minimal diversity was satisfied, CAFA’s amount in controversy requirement became the next battleground. Multiplying the number of alleged plaintiffs (more than 100) by the damages claimed by each one (not more than $50,000) the district court concisely concluded that it could not say “to a legal certainty that the amount in controversy would not reach CAFA’s $5,000,000 threshold.” Providing guidance for plaintiffs’ use in preparation of future battle strategies, Judge Seymour observed that the plaintiffs “could have limited the damages alleged in their complaint to escape possible removal to federal court under CAFA.” However, based on her conclusions, the court denied the plaintiffs’ motion to remand to state court.