Fourth Circuit Holds That Federal Subject-Matter Jurisdiction Under the Class Action Fairness Act Can Rest on What “May Be” True

January 27, 2023
By: Gerard J. Gaeng

In an apparent case of first impression, the U.S. Court of Appeals for the Fourth Circuit held that the fact that the district court may be foreclosed by governmental immunity from ordering relief prevents the federal court from exercising jurisdiction over the case, regardless of whether or not the court actually is so foreclosed under the facts of the case. The issue was raised sua sponte by the appellate court in interpreting a provision of the Class Action Fairness Act (“CAFA”), which otherwise expands diversity subject-matter jurisdiction for class actions.

In Monaco v. WV Parkways Authority, – F.3d -, Case No. 21-1230 (4th Cir. January 6, 2023), motorist Blazine Monaco brought a putative class action for allegedly improper fees charged to motorists by the West Virginia Parkways Authority (the “Authority”). The Authority defended the claim and filed a motion to dismiss on the ground that it was immune from suit under the constitutions of both the United States and West Virginia. The district court rejected their immunity argument, but found on the merits that the fees were proper under the enabling statute for the Authority and granted the Authority’s motion to dismiss on this basis.

On appeal, the Fourth Circuit did not reach the merits of the district court’s dismissal, but instead addressed the fundamental and unexamined question of whether the district court had diversity jurisdiction over the class-action lawsuit in the first place.

Monaco alleged that there was diversity subject-matter jurisdiction under the Class Action Fairness Act, which expands the scope of diversity jurisdiction in certain interstate class actions. But, as the Fourth Circuit panel pointed out, the Act by its express terms does not apply when the “primary defendants” are “governmental entities against whom the district court may be foreclosed from ordering relief.”  28 U.S.C. §1332(d)(5)(A).

Focusing on that statutory phrase, the Fourth Circuit easily concluded that Authority met the “primary defendants” requirement, as the Authority was the only defendant. Likewise, the panel assured itself that defendant Authority was a governmental entity by the express terms of West Virginia Code provisions creating it.

Less simple was the task of construing the CAFA language excluding jurisdiction over lawsuits where “the district court may be foreclosed from ordering relief.” §1332(d)(5)(A) (emphasis added).

The Fourth Circuit held that the “may be foreclosed” phrase does not require a definitive determination that the Authority has immunity. Something less will suffice. On the other hand, a “plainly implausible claim of immunity” would not establish that the “district court may be foreclosed from ordering relief.”  Something more is required.

Without determining the precise bounds of CAFA’s “may be foreclosed” language, the Fourth Circuit said that “[w]hether the precise line is drawn closer to possibility, probability, or plausibility,” the Authority’s immunity arguments were sufficient to apply the §1332(d)(5)(A) “may be foreclosed from ordering relief” exception to expanded diversity jurisdiction under CAFA. Accordingly, and notwithstanding the district court’s finding that the Authority was not entitled to immunity, the appellate court held that the district court was without subject-matter jurisdiction under CAFA. The Fourth Circuit remanded the case to the district court with the direction to dismiss the case without prejudice.

In a footnote, the panel noted that no other federal Court of Appeals appears to have addressed this specific question.