Ford Motor Co. & Citibank (South Dakota), N.A., et al. v. McCauley, John, et al. (10/15/2002)

Questions presented: May the cost to a defendant of complying with an injunction sought by a plaintiffs' class satisfy the amount-in-controversy requirement of the federal diversity statute, when such compliance would cost the defendant more than the $75,000 minimum whether it covered the entire class or any single member of class?

BY: KATHERINE BONTRAGER, MEDILL NEWS SERVICE

You've seen them before, no doubt have received them in the mail, and you may even own one: the specialty credit cards that offer usage-incentive programs. Be it airline miles, cash back, or as in this case, savings on a car — all the credit cards come with great promises. Who wouldnt want to get a kickback for merely using credit? But as thousands of cardholders discovered, sometimes such promises arent for keeps.

Ford and Citibank issued such a card in 1993 that promised cardholders the opportunity to save on the purchase or lease of a new Ford vehicle. Cardholders earned a 5 percent rebate on each purchase they made. A maximum of $700 a year could be earned against the purchase or lease of a Ford (from $14,000 worth of purchases made on the Citibank card), for a maximum possible rebate of $3,500 over a five-year period.

On Dec. 31, 1997, less than five years after the companies started the program, Ford and Citibank terminated the rebate feature of the co-branded credit card.

In response to the sudden termination of the rebate program, six individual state actions were filed in Washington, California, Alabama, Illinois, Oregon and New York. The cardholders alleged that Ford and Citibank withheld information and misrepresented "the nature and duration of the rebate program and wrongfully discontinued it."

Ford and Citibank then relied upon diversity jurisdiction to remove each of the individual suits to federal district court. Diversity jurisdiction is granted to federal courts involving parties from different states where the matter in controversy exceeds the statutory amount of $75,000.

The two companies then petitioned the Judicial Panel on Multidistrict Litigation to consolidate and transfer the cases to a single district court.

In response, the suits were transferred to the Western District of Washington and combined.

"We prefer the state court," said John H. Alexander, one of the lawyers for the class. "However, we had all agreed to the original consolidation. We wound up in Seattle because we all agreed we werent adamantly opposed to federal courts, but we would have preferred to go to trial in our own state courts.

"Every class action lawyer would agree that Illinois is far friendlier to class action suits, especially for consumer fraud ... it's easier to have a class, easier to litigate, and more plaintiff-friendly. The federal court is not as friendly to class actions and consumer fraud class actions."

The cardholders from the six states were hoping to sue on behalf of a nation-wide class of six million Ford/Citibank cardholders. They requested specific performance, disgorgement, compensatory and punitive damages for Ford and Citibanks alleged breach of contract and consumer fraud.

Then the court did something unexpected. Deferring ruling on the class certification, the judge demanded proof why the "consolidated action should not be dismissed for lack of jurisdiction, and why [the six underlying actions] should not be remanded to state court."

Neither party had even challenged the jurisdiction, or the courts authority to rule on the cases. Yet the judge questioned whether the complaint alleged more than $75,000 worth of damages.

Ford and Citibank argued in support of the jurisdiction claiming that the requirement of $75,000 was indeed met. Their reasons included: "(1) the cost of compliance with the request for injunctive relief would exceed $75,000; (2) the consolidated plaintiffs have a common and undivided interest in their compensatory damages claim, which exceeds $75,000; and (3) the consolidated plaintiffs have a common and undivided interest in their punitive damages claim, which exceeds $75,000."

Yet in October 1999, the district court ruled that it "lack[ed] the subject matter jurisdiction over the consolidated complaint and the six removed cases." So the court dismissed the consolidated complaint, stated it also lacked the authority to look at the individual six lawsuits and remanded the separate actions to the state courts of their origin.

Ford and Citibank appealed, challenging both the courts dismissal of the consolidated complaint and the remand of the separate state lawsuits to the state courts.

But things were to get more complicated before they were to get any clearer. The 9th Circuit Court of Appeals had to first decide whether it had jurisdiction to rule on the lower courts order stating it lacked jurisdiction on the consolidated complaint. Once this hurdle was cleared, the court began to look at the lower courts dismissal of the combined complaint.

The fact there was diverse citizenship, or parties coming from different states, was uncontested. The only question that remained was whether the minimum amount in controversy was present. Ford and Citibank argued that the "cost of compliance with the request for injunctive relief carries this case over the jurisdictional amount threshold." The companies admitted it would cost them more than $75,000 to reinstate and administer the rebate feature of the credit card.

The appeals court stated that despite Ford and Citibank's claim that the plaintiffs had "a common and undivided interest" in the relief sought, in reality, "the equitable relief sought [in this case] is but a means through which the individual claims may be satisfied," and no single plaintiff had an individual claim worth more than $75,000. The court stated that since the plaintiffs used their credit cards separately and accrued rebates individually and not as a group they shared no common interest before the suits were filed. The court said, "punitive damages asserted on behalf of a [putative] class may not be aggregated for jurisdictional purposes." Essentially, the individual claims of the plaintiffs could not be added together to equal the $75,000 threshold. Instead, an individual claim must meet this limit, which none had.

In addition, the 9th Circuit found that "the amount in controversy requirements cannot be satisfied by showing that the fixed administrative costs of compliance exceed $75,000." In other words, Ford and Citibanks argument that it would cost them well above the controversy limit just to reinstate the credit card, be it for one individual or for six million, was invalid.

Still, there was one final argument whether the lower court really lacked jurisdiction on the six individual state cases. The 9th Circuit had established it had jurisdiction to review the consolidated complaint, but as for the remanding of the individual cases back to the state courts, the 9th Circuit stated "the district court did not exceed its authority in remanding the underlying removed actions to state court, and pursuant to section 1447 (d), we lack jurisdiction to review its decision."

The 9th Circuit decision left both Ford and Citibank looking forward to six individual lawsuits from six separate states since the federal court deemed the controversy limit of $75,000 was not met. Instead, the companies yet again appealed, this time to the U.S. Supreme Court.

On Feb. 19, 2002, the Court granted certiorari in the case limited to question one presented by the petition.

As to where this complicated and twisted path will end, Alexander admits he doesnt know. "It will be interesting to see what the Supreme Court says. I really dont think anyone knows," he said.

"It was a surprise the Supreme Court would grant certiorari because this area is pretty much well settled. The granting of certiorari may be an indication they want to reexamine the ruling that you cant aggregate claims to reach the $75,000 minimum," he said. "But in my opinion, it was pretty well settled. We just want to move ahead. We would have preferred that the U.S. Supreme Court denied certiorari, but for some reason it didnt. Now that its granted were going to be delayed, and my client will have to wait longer for the relief he seeks."

On Oct. 15, 2002, only eight days after the Court heard oral arguments in the case, the Court dismissed the case. In a per curiam opinion without comment as is typical in such cases, the Court dismissed the writ of certiorari as having been "improvidently granted."