Monday, September 8, 2014

FYI: 9th Cir Holds CAFA's "Local Controversy" Exception to Be Determined as of Date Action Became Removable

The U.S. Court of Appeals for the Ninth Circuit recently held that, for purpose of considering the “local controversy” exception to federal court jurisdiction under the Class Action Fairness Act, 28 U.S.C. § 1332(d) (“CAFA”), the citizenship of a proposed plaintiff class is based on the operative complaint as of the date the case became removable.

A copy of the opinion is available at: http://cdn.ca9.uscourts.gov/datastore/opinions/2014/08/22/14-56075.pdf                                                                                                                                                                        

Two plaintiffs filed a class action complaint in the Superior Court of California asserting claims against bank (“Bank”) and several defendants.  One of the defendants removed the action to the United States District Court for the Central District of California, invoking federal jurisdiction under 28 U.S.C. § 1332(d)(2). 

The parties stipulated to sever one of the plaintiff’s claims and transferred them to the District of Arizona.  The District Court ordered the remaining plaintiff to amend her complaint to reflect the severance.  After filing her Second Amended Complaint, the plaintiff moved to remand the action to California state court under one of the exceptions to CAFA jurisdiction, 28 U.S.C. § 1332(d)(4).  The District Court granted the motion to remand under 28 U.S.C. § 1332(d)(3). 

As you may recall, the CAFA expanded federal jurisdiction over interstate class action lawsuits by, among other things, replacing the typical requirement of complete diversity with one of only minimal diversity.  Section 1332(d)(2) provides:


(2) The district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which—

(A) any member of a class of plaintiffs is a citizen of a State different from any defendant;

(B) any member of a class of plaintiffs is a foreign state or a citizen or subject of a foreign state and any defendant is a citizen of a State; or

(C) any member of a class of plaintiffs is a citizen of a State and any defendant is a foreign state or a citizen or subject of a foreign state.


See 28 U.S.C. § 1332(d)(2).  However, Congress provided exceptions allowing certain class actions that would otherwise satisfy CAFA’s jurisdictional requirements to be remanded to state court.

Specifically for purposes here, pursuant to Section 1332(d)(4), the District Court shall decline to exercise jurisdiction under paragraph (2):
  
(A)

(i) over a class action in which—

(I) greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed;

(II) at least 1 defendant is a defendant—

(aa) from whom significant relief is sought by members of the plaintiff class;

(bb) whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and

(cc) who is a citizen of the State in which the action was originally filed; and

(III) principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed; and

(ii) during the 3-year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons; or

(B) two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.


See 28 U.S.C. § 1332(d)(4).

In reversing the order for remand, the Ninth Circuit held that the District Court erred by determining citizenship of the plaintiff class as pled in plaintiff’s Second Amended Complaint filed in the District Court, after the action had been removed from state court and after the severance of the Arizona plaintiff’s claims.

Under the CAFA, “[c]itizenship of the members of the proposed plaintiff class shall be determined for purposes of paragraphs (2) through (6) as of the date of filing of the complaint or amended complaint … indicating the existence of Federal Jurisdiction.”  28 U.S.C. § 1332(d)(7). 

Relying on Mondragon v. Capital One Auto Fin., 736 F.3d 880 (9th Cir. 2013), the Ninth Circuit explained that the District Court should have determined the proposed plaintiff class based on plaintiff’s complaint “as of the date of the case became removable” for the purpose of considering the applicability of the exceptions to CAFA jurisdiction.  See Mondragon, 736 F.3d at 883.

Accordingly, the Ninth Circuit vacated the order remanding the action to state court, and sent the action back to District Court for further proceedings. 



Eric Tsai
McGinnis Wutscher Beiramee LLP
 
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