Third-Party Claims: Solutions for Data Breach Class Actions

This discussion is part of a series identifying core processes and defenses that increase the likelihood of a favorable outcome in data breach class actions.

A Primer on CAFA’s Jurisdictional Expansion for Class Actions

Congress passed the Class Action Fairness Act (CAFA) to expand the number of class actions that could be heard in federal court. Congress did so against a backdrop of what it considered to be abusive class action practices in state courts. CAFA expanded the number of class actions that could be heard in federal court by imposing a minimal diversity requirement, eliminating the one-year time limit for removal, and allowing for an appeal of a federal district court’s remand order.

However, CAFA has certain limitations, with the most significant being that the amount in controversy must exceed $5 million. The burden of establishing the amount of controversy falls on the defendant seeking removal under CAFA. To meet this burden, the defendant must show there is a reasonable probability that more than $5 million is in dispute in the lawsuit.

For cyber insurance professionals seeking favorable resolutions of data breach class action matters, the chart below details the difference between CAFA’s jurisdiction requirements and standard diversity jurisdiction requirements:

Jurisdictional Elements    CAFA RequirementsRequirements Under Traditional Diversity Jurisdiction
Amount in ControversyMust exceed $5 million, exclusive of interest and costs (28 U.S.C. § 1332(d)(2)).The claims of individual class members must be aggregated to determine whether the $5 million threshold is met (28 U.S.C. § 1332(d)(6)).  Claims of at least one plaintiff must exceed $75,000, exclusive of interests and costs (28 U.S.C. § 1332(a)).Court may exercise supplemental jurisdiction over claims of diverse class members who seek less than $75,000.  
Required Diversity between Parties“Minimal diversity” between the parties, which is satisfied where any member of a class of plaintiffs meets one of the following:   Is a citizen of a state different from any defendant.Is a foreign state or a citizen or subject of a foreign state and any defendant is a citizen of a state.Is a citizen of a state and any defendant is a foreign state or a citizen or subject of a foreign state. (28 U.S.C. § § 1332(d)(2)(A)-(C)).”Complete diversity” between the parties, which is only satisfied where the controversy is between one of the following:   Citizens of different states.Citizens of a state and citizens or subjects of a foreign state, with an exception for citizens and lawful permanent residents domiciled in the same state.Citizens of different states and in which citizens or subjects of a foreign state are additional parties.A foreign state as plaintiff and citizens of a state or of different states. (28 U.S.C. § § 1332(a)(1)-(4)).  
Required Level of Consent of Defendant PartiesAn action may be removed by any defendant without the consent of all the defendants (28 U.S.C. § 1453(b)).  All defendants who have been properly joined and served generally must consent to removal (28 U.S.C. §§ 1446(b)(2)(A) and 1441(a)).  
Ability to Remove Action Filed in State where Defendant is a CitizenA class action may be removed without regard to whether any defendant is a citizen of the state in which the action is brought (28 U.S.C. § 1453(b)).An action is normally not removable if any of the parties in interest properly joined and served as defendants is a citizen of the state in which the action is brought (28 U.S.C. § 1441(b)(2)).  
Time Period for RemovalThe one-year outer limit on removal of diversity cases does not apply (28 U.S.C. § 1453(b)).  As a general rule, an action may not be removed on diversity grounds more than one year after commencement of the action, unless plaintiff acted in bad faith to prevent a defendant from removing the action (28 U.S.C. §1446(c)(1)).  
Appealability of Remand OrdersA district court’s order granting or denying a motion to remand a class action is appealable (28 U.S.C. § 1453(c)(1)).A district court’s remand order based on lack of subject matter jurisdiction or a non-jurisdictional defect in the removal process generally is not appealable (28 U.S.C. § 1447(d)).