The Class Action Fairness Act of 2005 put federal courts in charge of handling all but a small group of class cases with $5 million or more at issue. CAFA did so in part by growing the scope of "diversity of citizenship" jurisdiction — which applies when people on different sides hail from different states or, sometimes, from different countries.
Yesterday, in a small irony, the Fourth Circuit applied CAFA not to hold a class case in federal court but to send one that started in state court back there.
The ruling turned on a CAFA part of the diversity jurisdiction statute, 28 U.S.C. 1332. Subsection (d)(10), the court held, restricted the citizenship of limited liability companies to just one or two states — the one under whose laws someone organized the LLC in question and the one where it maintains its principal place of business. The old rule (in most circuits) tagged LLCs with the citizenship of all its "members", which could number in the dozens and would therefore make "diversity" harder to achieve.
The irony resulted from the fact that the court would've kept the case in federal court if the pre-CAFA rule governed. The defendant that removed the case from state court to federal qualified for citizenship in Kansas and Missouri under the old regime but Tennessee and South Carolina under the new one. Because the plaintiffs all came from South Carolina, diversity jurisdiction — even the "minimal" kind CAFA allows — didn't exist. Ferrell v. Express Check Advance of SC LLC, No. 09-240 (4th Cir. Jan. 8, 2010).