Friday, April 25, 2014

FYI: 9th Cir Reverses Lower Court's Remand of CAFA "Mass Action" Involving Numerous Banks, Servicers, and GSEs

Saturday, November 2, 2013

Reversing the lower court, the U.S. Court of Appeals for the Ninth Circuit recently ruled that removal to federal courtof a purported "mass action" was proper under the federal Class Action Fairness Act, and that the lower court had jurisdiction to sever the misjoined plaintiffs post-removal in order that they could pursue their claims individually, as the claims did not involve common questions of law or fact.
Over 100 named plaintiffs ("Plaintiffs"), who owned properties around the country and had loans involving different financial institutions, including banks, loan servicers and government-sponsored enterprises (collectively, "Defendants"), filed suit in California state court, alleging in part that Defendants engaged in improper lending and securitization practices.  Two of the Defendants removed the case to federal court, arguing that this case was a removable "mass action" under the Class Action Fairness Act, 28 U.S.C. § 1332(d)(11)(B)(i) ("CAFA").
In their post-removal amended complaint, Plaintiffs asserted state-law claims of invalid assignment, mistake, and negligence, alleging deceptive and unscrupulous lending and securitization practices and mismanagement of their loan modification applications. 
Defendants moved to dismiss, asserting misjoinder of parties and failure to state a claim.  Plaintiffs opposed the motion, arguing in part that Defendants had waived their right to challenge joinder when they removed the case. 
The lower court remanded to state court and denied as moot Defendants' motion to dismiss.  Reasoning that the case did not present common questions of law or fact for permissive joinder under Fed. R. Civ. Pro. 20(a), the lower court concluded that it lacked jurisdiction under CAFA.  Defendants appealed.
The Ninth Circuit reversed the lower court's order remanding the case to state court, concluding that CAFA conferred  jurisdiction over the proposed claims and that misjoinder did not deprive the lower court of federal jurisdiction.
As you may recall, CAFA confers federal jurisdiction over civil actions "in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs' claims involve common questions of law or fact . . . ."  28 U.S.C. §1332(d)(11)(B)(i).  In addition, CAFA requires that a district court decline to exercise its jurisdiction "over a class action [or mass action] in which the plaintiff class and at least one defendant meet certain characteristics that . . . make the case a local controversy."  See Serrano v. 180 Connect, Inc., 478 F.3d 1018, 1022 (9th Cir. 2007); 28 U.S.C. § 1332(d)(4).
In ruling that the lower court misinterpreted CAFA, the Ninth Circuit pointed out that CAFA expressly contemplates the filing of putative mass action lawsuits in which claims of at least 100 persons are proposed to be tried jointly on the basis of common questions of law or fact.   Looking to the time of removal when over 100 plaintiffs were seeking a joint trial, the Court went on to explain that whether claims proceed to a joint trial is irrelevant because post-removal developments, such as a court's denial of class certification, do not defeat federal jurisdiction.  See United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus. & Serv. Workers Int'l Union v. Shell Oil Co., 602 F.3d 1087, 1091-92 (9th Cir. 2010). 
As to Plaintiffs' argument based on the so-called "local controversy" exception (i.e., that because the original complaint concerned fewer than 100 properties the case had fewer than 100 "real" plaintiffs), the Ninth Circuit referenced CAFA's language indicating that the exception requires a court to decline to exercise the jurisdiction it already has.  In so doing, the Court pointed out that CAFA specifically refers to "persons" -- not properties -- and that the complaint in this case named 137 plaintiffs and thus satisfied CAFA's numerosity requirement for federal jurisdiction. 
Finally, as to joinder, the Court concluded that Plaintiffs' various claims did not satisfy the requirements of Fed. R. Civ. Pro. 20(a) for permissive joinder.  Because the claims involved over 100 loan transactions with many different lenders and the loans were secured by separate properties throughout the country, the Court pointed out that the factual dissimilarities among the transactions and claims precluded permissive joinder in this case, as they did not present questions of law or fact common to all Plaintiffs and required particularized factual analyses.  See Fed. R. Civ. P. 20(a)(1)(B). 

Thus, noting the "superficial similarity" of Plaintiffs' allegations and their choice of counsel as the only common factors, the Court reasoned that dismissal of all but the first named plaintiff was appropriate, stressing that dismissal would not prejudice the filing of individual actions.

Accordingly, ruling that misjoinder did not deprive the lower court of federal jurisdiction, the Ninth Circuit remanded the case back to the district court, instructing it to dismiss the claims of the misjoined plaintiffs, but to otherwise allow the case to proceed in federal court.

Eric Tsai
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