Understanding The Home State Exception To CAFA's Diversity Jurisdiction

• Published date: 09 February 2022
• Subject Matter: Litigation, Mediation & Arbitration, Class Actions
• Law Firm: Butler Snow LLP
• Author: Ms Diana M. Miller

The Class Action Fairness Act ("CAFA"), enacted in 2005, expanded federal jurisdiction over class actions. However, CAFA contains some exceptions, or instances when a federal court may not exercise jurisdiction. One such exception is the "home state exception," which requires a district court to decline to exercise jurisdiction if two-thirds or more of the members of a proposed class, as well as the "primary defendants," are citizens of the state in which the action is filed.¹ It is "designed to draw a delicate balance between making a federal forum available to genuinely national litigation and allowing the state courts to retain cases when the controversy is strongly linked to that state."² The citizenship of the proposed class as a whole determines whether the exception applies.³

The Exception Does Not Remove Jurisdiction but Rather Mandates Abstention

Several circuits have interpreted the home state exception as mandating that a district court abstain from exercising jurisdiction if the requirements of the exception are satisfied. In other words, if the exception applies, even though the district court has subject matter jurisdiction over the controversy, it must abstain from exercising said jurisdiction. For example, the Seventh Circuit has held that the exception "does not itself diminish federal jurisdiction. It directs district judges to 'decline to exercise' jurisdiction otherwise present and is thus akin to abstention."⁴ The Eighth Circuit has distinguished between divestment of jurisdiction and abstention, explaining that the home state exception is set out separately from the statute's jurisdictional requirements and "inherently recognizes [that] the district court has subject matter jurisdiction by directing the court to 'decline to exercise' such jurisdiction when certain requirements are met."⁵ The exception "operates as an abstention doctrine, which does not divest the court of subject matter jurisdiction."⁶

The Second Circuit has held that "the home state exception was not jurisdictional because the 'decline to exercise' language 'inherently recognized [that] the district court has subject matter jurisdiction' but must actively decline to exercise it if the exception's requirements are met."⁷ The Fifth Circuit has similarly recognized that the home state exception requires "abstention from the exercise of jurisdiction" and is "not truly jurisdictional in nature."⁸ The Sixth and Ninth Circuits have reached the same conclusion.⁹ Though the...