CLASS ACTION FAIRNESS ACT: Recent Cases and Commentaries By Professor Georgene Vairo, Loyola Law School, Los Angeles October 2009 I.
Applicability of CAFA
Georgene Vairo on Admiral Ins. Co. v. Abshire
Summary. Proponents and opponents of the Class Action Fairness Act (CAFA) all knew that its terms
would provide fodder for litigation. They did not expect, though, that the issue of the applicability of
CAFA would be the first big question to confront the courts. And, they certainly did not expect that nearly
five years after the enactment of CAFA litigants would still be arguing about whether a case that was
commenced in state court before CAFA was enacted in February 2005 would be subject to removal under
CAFA’s expanded jurisdictional standards. Admiral Ins. Co. v. Abshire, 574 F.3d 267, 2009 U.S. App.
LEXIS 14335 (5th Cir. July 2, 2009), is the latest of these cases. The Fifth Circuit there held that the
addition of class allegations to a suit originally filed in the early 1990’s did not commence a new suit so as
to bring the action within the scope of CAFA’s jurisdictional provisions. More importantly, the decision is
significant because it rejects the “relation back” approach that has been adopted by many sister circuits.
Facts and Procedural Background. During the early 1990s, 1,383 plaintiffs sued Louisiana in state court
for alleged negligent, intentional, and criminal acts that allegedly led to the failure of three companies from
which the plaintiffs had purchased life insurance, annuities, and corporate notes. The cases were
consolidated and litigated in state court for years, but the difficulty of maintaining communication with the
large number of plaintiffs raised ethical issues that hampered settlement efforts. Additionally, a number of
plaintiffs had died and it was becoming increasingly difficult for plaintiffs’ counsel to substitute survivors.
Believing that only class certification could give the attorneys the authority needed to participate in
mediation and to settle the case, the court permitted the plaintiffs to amend the complaint to seek class
certification. Thus, in 2008, the plaintiffs filed the ninth amended complaint, which, for the first time,
defined a proposed class. The amended complaint also sought “costs of suit, including reasonable
attorneys’ fees as provided by law.”
As soon as the plaintiffs filed the ninth amended complaint, Louisiana removed the action to
federal court, claiming subject-matter jurisdiction under CAFA. Finding that CAFA did not apply because
the case was commenced before the Act’s effective date, the district court remanded the case to state court.
The district court denied the plaintiffs’ request for fees and costs associated with the removal and remand.
The Fifth Circuit agreed with the district court that remand was proper because, regardless of what
analysis it applied, the action was commenced long before CAFA’s effective date. On the other hand, the
Fifth Circuit rejected the plaintiffs argument on cross-appeal for fees for improvident removal. The Fifth
Circuit ruled because of the complexity of the commencement question, the district court did not abuse its
discretion in denying the plaintiffs’ request for attorney’s fees and costs. Thus, the Fifth Circuit affirmed
the remand and the denial of fees and costs.
Default Rule: Original Petition “Commences” Case Under State Law. CAFA applies only to “civil
actions commenced” on or after its effective date, February 18, 2005 [Pub. L. 109-2, § 9; Exxon Mobil
Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 571, 125 S. Ct. 2611, 162 L. Ed. 2d 502 (2005), discussed in
Aug. 2005 MOORE’S FEDERAL PRACTICE UPDATE, p. 127 (CAFA is not retroactive)]. The date
on which a civil action is “commenced” for purposes of CAFA is determined by state law, in this case, the
law of Louisiana. Absent special circumstances, a suit is commenced under Louisiana law when the
original petition is filed in a court of competent jurisdiction. Thus, under this default rule, the suit was
commenced around December 11, 1991, when at least one of the petitions was filed, long before the
effective date of CAFA.
Comment. The Fifth Circuit is in agreement with the other courts of appeals that have ruled on the
question of how to determine the original date of commencement – turn to the law of the state in which the
district court sits [see Pritchett v. Office Depot. Inc., 420 F.3d 1090, 1093-1098 (10th Cir. 2005) (action
commenced on date action was first filed in court of proper jurisdiction, not date it was removed to federal
court); Smith v. Nationwide Prop. & Cas. Ins. Co., 505 F.3d 401, 405 (6th Cir. 2007) (state law determines
when matter is commenced for purposes of CAFA); McAtee v. Capital One, F.S.B., 479 F.3d 1143,
1146-1148 (9th Cir. 2007) (action commenced under applicable state law when original complaint was
filed in state court); Tmesys, Inc. v. Eufaula Drugs, Inc., 462 F.3d 1317, 1319 (11th Cir. 2006) (consensus
among circuits is that state law determines when action is commenced for purposes of CAFA); Knudsen v.
Liberty Mutual Ins. Co., 411 F.3d 805, 806-07 (7th Cir. 2005) (initial removal under CAFA was
unavailing, because the suit had been "commenced" in state court before February 18, 2005); Patterson v.
Dean Morris, L.L.P., 448 F.3d 736, 739-741 (5th Cir. 2006) (action commenced one day before effective
date of CAFA under applicable state law and therefore could not be removed under Act); Natale v. Pfizer,
Inc., 424 F.3d 43, 44 (1st Cir. 2005) (action commences for purposes of removal jurisdiction under CAFA
as of date of filing in state court).].
It makes sense for the federal courts to look to state law as a guide to when a state court action commences
because it accords with the Erie Doctrine. [See Erie R.R. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L.
Ed. 1188 (1938) (holding that state law applies to substantive issues in diversity cases); Walker v. Armco
Steel Corp., 446 U.S. 740, 100 S. Ct. 1978, 64 L. Ed. 2d 659 (1980) (affirming that state law controls the
meaning of the time of commencement in diversity cases). See generally Lonny Sheinkopf Hoffman, The
"Commencement" Problem: Lessons from a Statute's First Year, 40 U.C. Davis L. Rev. 469 (2006)
(arguing that state rules on commencement should be applied; criticizing the “relation back” approach)
(“Hoffman Commencement”).]
Did the Action Recommence for CAFA Purposes? No Because A “Civil Action” Does Not Mean
“Class Action.” Notwithstanding the default rule that an action is commenced under state law rules, the
Fifth and other courts of appeals have recognized that under some circumstances an action may
recommence for CAFA purposes. For example, in Braud v. Transp. Service Co. of Illinois, the Fifth
Circuit held that the addition of a new defendant to a case “commences” a new civil action as to that
defendant for purposes of CAFA [Braud v. Transp. Serv. Co. of Ill., 445 F.3d 801, 804 (5th Cir. 2006)].
Louisiana tried a variation of that theme, arguing that the term “civil action” in Section 9 of CAFA
means “class action.” Under this theory, an action would be “commenced” after CAFA’s effective date if
class certification were sought after February 18, 2005, in an action that had been filed before that date as a
non-class action. The Fifth Circuit rejected this argument; correctly pointing out that “civil action” is not
synonymous with “class action. A “civil action” may commence before it becomes a “class action,” and
Congress selected the commencement of the “civil action” as the relevant event for CAFA applicability. In
fact, Congress deleted language that would have extended CAFA to cases in which a class certification
order was entered on or after the enactment date [see Pritchett v. Office Depot, Inc., 420 F. 3d 1090, 1095
(10th Cir. 2005), discussed in June 2005 MOORE’S FEDERAL PRACTICE UPDATE, p. 96].
Comment. The Fifth Circuit was correct in dispatching Louisiana’s argument so readily. In the first place,
it is unquestionably true that a “class action” is a subset of the more extensive and exclusive term “civil
action.” Moreover, federal courts have uniformly rejected a similar argument that the removal of a case
itself is a commencement for CAFA purposes [see, e.g., Bush v. Cheaptickets, Inc., 425 F.3d 683, 686-88
(9th Cir. 2005) (rejecting defense argument that “removed” means “commenced”); Pfizer, Inc. v. Lott, 417
F.3d 725, 725-726 (7th Cir. 2005) (suit commences for purposes of CAFA when it is filed in state court,
not when it is removed to federal court).].
Class Allegations Did Not “Drastically Modify” Case. The Fifth Circuit recognized that there are
exceptions to the default rule that a lawsuit commences on the date prescribed by state law. Nonetheless,
the addition of the class allegations here did not so drastically modify the suit that it justified departure
from the default commencement rule. Louisiana had argued that the ninth amended complaint not only
exposed it to class liability for the first time, but also exposed it to additional liability with respect to (1) a
claim for attorney’s fees and costs, (2) the “resurrection” of claims held by deceased plaintiffs for whom no
one had been substituted, and (3) the “resurrection” of certain previously dismissed plaintiffs.
Indeed, where a defendant receives notice of claims and parties in the original complaint, and the
subsequent amended complaints are not game-changing, it is hard to argue that there has been a drastic
modification. Indeed, the Fifth Circuit distinguished Braud v. Transp. Service Co. of Illinois, in which it
had held that the addition of a new defendant to a case “commences” a new civil action as to that defendant
for purposes of CAFA [Braud v. Transp. Serv. Co. of Ill., 445 F.3d 801, 804 (5th Cir. 2006)]. In Braud,
application of the default rule for commencement of civil actions raised notice and due process concerns
with respect to the added defendant. In contrast, application of the default rule in this case would not raise
any such concerns, because the proposed class as defined in the ninth amended complaint was limited to
persons who were individual parties to the suits filed in the early 1990s. In other words, no plaintiffs of
whose claims the defendant was unaware were added by the class aleegations.
Comment. The Fifth Circuit’s conclusion that merely melding previously joined plaintiffs or their
survivors into a class for case management purposes is not sufficient to commence a new suit under CAFA
is justified. The point of the drastic modification rationale for holding that a case has been recommenced
would not apply in this case on the basis of the “resurrection” of some deaf plaintiffs’ claims. Louisiana
had always been on notice of them. Although “resurrection” of a deceased is always a surprise,
resurrection of their claims should not be.
However, the fact that the Fifth Circuit referred to the class allegations having been made for case
management purposes raises the question whether the result would be different if the class allegations were
made for trial or other adjudication on the merits purposes. The court’s reasoning appears to be sound in
this case no matter why the class allegations were made. However, the Fifth Circuit cites lower court cases
that suggest that the result would be different if the class allegations had expanded the number of class
members, the bases for recovery, and the extent of the sought after remedy significantly. Accordingly, the
“drastic modification” rationale for departing from the default rule needs to be carefully examined
depending on the case and its procedural history.
Relation-Back Analysis Unhelpful. Several circuits use a “relation-back” analysis to determine whether
an amendment to a complaint commences a new action for CAFA purposes [see, e.g., Prime Care of
Northeast Kansas, LLC v. Humana Ins. Co., 447 F.3d 1284, 1286 (10th Cir. 2006); Knudsen v. Liberty
Mut. Ins. Co., (Knudsen II), 435 F.3d 755, 757 (7th Cir. 2006); Plubell v. Merck & Co., 434 F.3d 1070,
1071<n>1073 (8th Cir. 2006)]. The Fifth Circuit rejected this approach as “particularly unilluminating in
this case,” to the extent that it is ever analytically relevant.
The Fifth Circuit explained that the Federal Rule of Civil Procedure 15 relation-back doctrine is
driven by evidentiary and notice concerns related to statutes of limitation. CAFA’s commencement
provision, on the other hand, is motivated by retroactivity concerns, such as the unjust disturbance of
settled legal expectations on which a party has relied. The addition of a new claim based on a statute
enacted after the defendant’s conduct might satisfy relation-back criteria but nevertheless disturb settled
legal expectations. On the other hand, the addition of a claim that does not relate back will not disturb
settled legal expectations if brought within the statutory limitation period. The Fifth Circuit concluded that
relation-back and retroactivity might overlap, but they are logically independent, and the relation-back test
should not necessarily control the analysis of CAFA’s non-retroactivity provision.
Comment. Again, the Fifth Circuit’s analysis should be applauded for its analytic approach. While the
relation back approach has a superficial appeal especially because it seems to capture the idea of “drastic
modification” and implicates notice and a notion of fairness to defendants, the court was correct to point
out that the rationales for the two issues. This fine-tuning of the analysis likely will become standard. In
so many areas in which CAFA and its terms have created litigation, it has taken time for the courts of
appeals to develop a more nuanced approach to the issue at hand. For a deeper analysis yet of the rationale
for rejecting the relation-back approach, see Hoffman Commencement, supra.
No New Action Even Under Relation-Back Analysis. In any event, the Fifth Circuit held, the relationback criteria of both Louisiana and federal law were satisfied in this case [see Fed. R. Civ. P. 15(c)(1)(B);
La. Code Civ. Proc. Ann. art. 1153]. Under Louisiana law, the addition of plaintiffs relates back to the
filing of the original petition if (1) the amended claim arises out of the same conduct, transaction, or
occurrence set forth in the original pleading; (2) the defendant either knew or should have known of the
existence and involvement of the new plaintiff; (3) the new and the old plaintiffs are sufficiently related so
that the added or substituted party is not wholly new or unrelated; and (4) the defendant will not be
prejudiced in preparing and conducting a defense [Giroir v. South Louisiana Med. Ctr., 475 So. 2d 1040,
1044 (La. 1985)]. The only arguably new parties were the survivors of the earlier deceased plaintiffs who
were not properly substituted before class certification was sought. If these persons were included in the
class definition, they would satisfy the Louisiana requirements for relating back. Under federal law, class
members are not new plaintiffs even when they were not previously joined to the action as individuals
[Schorsch v. Hewlett-Packard Co., 417 F.3d 748, 750, 752 (7th Cir. 2005)]. The only arguably new claim is
the request for attorney’s fees, which arises out of the same transaction or occurrence that led to the filing
of the original complaint.
Relationship Between CAFA Commencement Issue and 28 U.S.C. § 1446(b). Like the
“recommencement” argument for allowing removal of a previously unremovable case under CAFA,
Section 1446(b) provides a second shot at removal of a previously unremovable case. The Fifth Circuit
noted that the parties had confused its holding in Braud. It noted that the Braud decision had two holdings:
first, that the addition of a new defendant commences a new suit for CAFA purposes; and second, that §
1446(b) then opens a new window for removal because the character of the litigation has changed. The
court noted the confusion between the substantive need to determine whether a case has been
recommenced, or there is a new case that is subject to CAFA, with the procedural requirement of §
1446(b). Further, it noted the different policies underlying § 1446(b) and § 9 of CAFA, CAFA’s effective
date provision:
Section 1446 protects a plaintiff's choice of forum from a defendant's untimely effort to remove unless the
defendant could not have removed the case before or did not have the same incentives to remove it; Section
9 of CAFA protects a plaintiff's choice of forum from Congress's post hoc expansion of the federal courts'
subject matter jurisdiction unless the plaintiff attempts to use an old suit insulated from removal to bring
new claims.
Comment. It is helpful that the Fifth Circuit seeks to clarify the steps in determining whether a case is
properly removed under CAFA. And, the court is correct, as the 10th Circuit was in Prime Care of
Northeast Kansas, LLC v. Humana Ins. Co., 447 F.3d 1284, 1286 (10th Cir. 2006), to note the problem.
Section 1446(b) allows a defendant to remove a case (and if the removal is based on CAFA not all the
defendants need to join) within 30 days of receiving notice, via an amended complaint or some other paper,
that the case is subject to federal jurisdiction. The Fifth Circuit agreed with the Tenth Circuit that the
effective date of CAFA did not by itself create a new 30-day removal window on the basis of CAFA
jurisdiction. Such argument subverts the notion of an effective date.
Appellate Jurisdiction over Order Awarding Attorney’s Fees and Costs. The general ban on review of
remand orders [see 28 U.S.C. § 1447(d)] does not apply to cases removed under CAFA [28 U.S.C. §
1453(c)(1)]. However, the statute excepting CAFA cases from the appellate review ban does not mention
related orders concerning attorney’s fees and costs. In any event, the Fifth Circuit pointed out, such orders
are reviewable in any event because the general ban does not apply to such collateral orders.
Comment. The Fifth Circuit raises a tricky issue. In the case before it, the defendants petitioned to appeal
the remand under § 1453(c)(1), and the plaintiffs petitioned for a cross-appeal of the denial of sanctions.
The Fifth Circuit noted that the plaintiffs did not need to petition to cross-appeal; they could have simply
cross-appealed once the court of appeals granted the defendants petition to appeal. But, what if the
defendants had not petitioned to appeal, could or should the plaintiffs have petitioned to appeal the denial
of § 1447(c) fees? The plaintiff should not need to resort to § 1453(c)(1) because there is an alternative
route to obtaining appellate jurisdiction. As the Fifth Circuit correctly suggested, the § 1447(d) ban on
appellate review does not apply to a district court order on fees because it is a collateral order. The district
court retains jurisdiction, even after remand, to award attorney's fees and its decision is appealable as a
collateral matter. Accordingly, the plaintiff may simply appeal the denial of fees as a collateral order [see
Moore’s Federal Practice §§ 107.41[3][a][iii] & 107.43 (“Once the remand is effected, the federal court
lacks further jurisdiction over the case except that the court retains authority to adjudicate collateral
matters, such as costs, fees, and sanctions”]. Or, what if defendant petitions to appeal a remand order, but
the appellate court refuses to grant the defendant’s petition? If the plaintiff has not cross-appealed, it is
likely that the 7 days for filing an appeal under CAFA likely will have expired by the time the court of
appeals denies the defendant’s petition to appeal the district court’s decision to remand. Again, the answer
should be that the collateral nature of the order on § 1447(c) puts it beyond the § 1447(d) bar, and or the
need to invoke § 14453(c). In other words, because § 1453(c) applies only to decisions to remand, not
decisions to award fees under § 1447(c).
Although the Fifth Circuit did not need to deal with any timing issues under § 1453(c), it is important to
note that when it is necessary to invoke it to seek review of a remand order, there had been confusion as to
the timing for petitioning to appeal under CAFA. Congress has now fixed the date – the petition must be
filed no later than 10 days after the CAFA order if filed [see Act May 7, 2009, P.L. 111-16, § 6(2), 123
Stat. 1608 (effective on 12/1/2009, as provided by § 7 of such Act, which appears as 11 USCS ß 109 note),
which provides: "Title 28, United States Code, is amended-- * * * "(2) in section 1453(c)(1), by
striking 'not less than 7 days' and inserting 'not more than 10 days'; and".].
Application of the Supreme Court’s Standard for Awarding § 1447(c) fees. Under Martin v. Franklin
Capital Corp., attorney’s fees should not ordinarily be awarded on remand if the removing party had an
objectively reasonable basis for removal [Martin v. Franklin Capital Corp., 546 U.S. 132, 136, 126 S. Ct.
704, 163 L. Ed. 2d 547 (2005)]. There was some evidence that Louisiana removed the case in order to
prolong the litigation and impose costs on the plaintiffs. On the other hand, the Fifth Circuit found that the
commencement question was sufficiently complex to create a relatively close question. Braud was the only
Fifth Circuit decision that provided guidance, and it expressly withheld judgment on at least one dispositive
issue. The Fifth Circuit concluded that while it might have been objectively unreasonable for Louisiana to
conclude that the amended complaint commenced a new civil action, it could not say that the district court
abused its discretion in reaching the opposite conclusion.
References. 5 Moore’s Federal Practice (3d Ed.) § 23.63[2][a]; 10 Moore’s Federal Practice (3d Ed.) §
54.171[4][h]; 15 Moore’s Federal Practice (3d Ed.) § 102.26[1][a][i]; 16 Moore’s Federal Practice (3d
Ed.) §§ 107.15[13][b][i][A], 107.41[3][a]; 19 Moore’s Federal Practice (3d Ed.) § 202.11[5].
Expansion Of Liability Justifies Later Removal.
Plaintiffs brought a nationwide class action against a defendant class in state court prior to the effective
date of CAFA. After all but one defendant class representative was dismissed, the remaining defendant
moved to decertify the classes. The state court limited the plaintiff class to citizens of 13 states (rather than
50 as initially certified) and decertified the defendant class. Defendant then removed the action to federal
court, arguing the action was now removable under CAFA. The district court remanded the case to state
court, but the Seventh Circuit reversed. Marshall v. H&R Block Tax Servs., Inc., 564 F.3d 826 (7th Cir.
Apr. 30, 2009). The Seventh Circuit held that the greater potential liability to the remaining defendant
(now the only defendant) permits removal and the expansion of liability did not “relate back” to the initial
filing. Thus, the action was removable despite having initially been filed prior to the effective date of
CAFA.
II.
May Defendants Remove Under CAFA When State is Plaintiff?
A.
Georgene Vairo on In Re Katrina Canal Litigation Breaches, 2008 Emerging Issues 2362
SUMMARY: May a defendant remove under the Class Action Fairness Act if one of the plaintiffs is a
state? In In re Katrina Canal Litigation Breaches, the Fifth Circuit addresses this question of first
impression in the federal appellate courts. This commentary, by Moores Federal Practice Editorial Board
member Georgene Vairo, discusses the opinions practical significance.
ARTICLE: In re Katrina Canal Litigation Breaches, F.3d , 2008 U.S. App. LEXIS 7933 (5th Cir. Apr. 11,
2008) involves an issue of first impression under the Class Action Fairness Act (CAFA): May a defendant
remove under CAFA if the plaintiff is a state? This is a significant opinion because general litigation on
behalf of state citizens by state attorneys general has become increasingly important. The Fifth Circuit held
that the State of Louisiana was not entitled to remand of a class action suit, which had been removed from
state court based on the minimal diversity requirement of the Class Action Fairness Act, because the class
of citizen plaintiffs was not entitled to any immunity that might otherwise protect the state from removal.
Facts and Procedural Background. The case is one of many spawned by Hurricane Katrina. Louisiana
enacted the Road Home Program. In exchange for a partial assignment of the homeowners'' claims against
their insurers, the State of Louisiana advanced money to Louisiana homeowners to reconstruct homes
damaged by Hurricanes Rita and Katrina. As the partial assignee of these claims, the State of Louisiana
sued over 200 insurance companies for breach of contract in Louisiana state court. The State added a class
of Louisiana citizens who had applied for funds from the program as plaintiffs. The defendants removed the
case to federal court on the ground of diversity under the Class Action Fairness Act (CAFA) (28 U.S.C. §§ 1332(d)(2), 1453(b)) as well as under the Multiparty Multiform Trial Jurisdiction Act (MMTJA) (28 U.S.C. §§ 1369, 1441(e)(1)(A)).
Louisiana argued that (1) CAFA did not apply; (2) even if CAFA applied by its terms, CAFA could not
abrogate sovereign immunity from federal process, or at least Congress did not clearly do so in CAFA; and
(3) MMTJA did not apply by its own terms. The district court denied Louisiana''s motion to remand, and
the Fifth Circuit affirmed. The courts dealt only with removal under CAFA.
Class of Citizen Plaintiffs Satisfied CAFA''s Diversity Requirement. The Fifth Circuit agreed with
Louisiana that a state is not a citizen for diversity purposes, even under CAFA. However, Louisiana sought
relief not only for itself, but also for the class of citizens joined as plaintiffs. This class of citizens satisfied
the minimal diversity rules of CAFA, which require only that any member of a class of plaintiffs is a
citizen of a State different from any defendant [see 28 U.S.C. § 1332(d)(2)]. Thus, the Fifth Circuit rejected
Louisiana''s argument that CAFA did not apply. CAFA defines class action as any civil action filed under
rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure
authorizing an action to be brought by 1 or more representative persons as a class action [28 U.S.C. § 1332(d)(1)(B)]. Louisiana Code of Civil Procedure, Article 591, under which the state attorney general
brought this suit, was such a statute [see La. Code Civ. Proc. Art. 591(A)].
The States argument that it should not be subject to CAFA jurisdiction was not without force. The United
States Supreme Court has held that a state is not a person in several contexts [see Wilson v. Omaha Indian Tribe, 442 U.S. 653, 658, 666‐667, 99 S. Ct. 2529, 61 L. Ed. 2d 153 (1979) (citing (United States v. Cooper Corp., 312 U.S. 600, 604‐605, 61 S. Ct. 742, 85 L. Ed. 1071 (1941)) (holding that under 25 U.S.C. § 194,
applying to land disputes between a tribe and a "white person," a state was not a person but observing that
"[t]here is nevertheless ''no hard and fast rule of exclusion,'' . . . and much depends on the context, the
subject matter, the legislative history, and executive interpretation"); Will v. Mich. Dep''t of State Police, 491 U.S. 58, 64, 109 S. Ct. 2304, 105 L. Ed. 2d 45 (1989) (finding that a state was not a "person" as defined
by § 1983 because reading the term "person" to include "state" under the statutory language would "be a
decidedly awkward way of expressing an intent to subject the States to liability")]. In essence, however, the
Fifth Circuit found that it was irrelevant that the state might not be considered a person under CAFA
because the statute only requires that the action be brought under Rule 23 or a state statute that authorizes
class actions to be brought by a person. Louisiana''s Article 591(A) is such a statute, as it permits "members
of a class" to "sue or be sued as representative parties" [La. Code Civ. Proc. Art. 591(A)]. Congress
considered and rejected an amendment that would have exempted class actions filed by an attorney general
from removal under CAFA. Even CAFA''s use of the term "citizen" did not bar its application. The statute
refers to the citizenship of any class member and any defendant. Accordingly, in expanding federal
jurisdiction over certain class actions filed in state court, CAFA eliminated the rule that citizenship of the
named representative is controlling.
The court also rejected Louisianas argument that it was the real party in interest and as a state, it was not a
citizen for purposes of diversity jurisdiction. The court agreed that a state is not a citizen under the diversity
statutes, including CAFA. But in this case, Louisiana sought relief for both the State and the citizens as
"recipients" of insurance. Accordingly, as partial assignees and assignors, both the State and the citizens
were likely real parties in interest. CAFA only requires minimal diversity. Thus, CAFA supplies federal
jurisdiction and a path to removal unless state sovereignty turns away its exercise.
Comment. The obvious practice pointer for state attorneys general here is that if they want to stay out of
federal court, they ought not join a class of state citizens. The line of Supreme Court precedent suggesting
that a state is not a person or a citizen would likely be controlling if the State of Louisiana had not amended
its complaint. Before CAFA was enacted, the question whether a state plaintiff suing defendants over
whom it has regulatory authority in state court under its own state laws may be removed to federal court on
diversity grounds would not arise. The rule that a state is not a person for diversity purposes and the
requirement of complete diversity always precluded the removal of a state''s action on the ground of
diversity. CAFA, with its minimal diversity requirements, however, pushes the question forward, because
diversity jurisdiction may be based on minimal diversity, i.e., the citizenship of plaintiffs other than the
state.
State Sovereignty Considerations The State. The Fifth Circuit noted that the case law and the debates
over Article III when the Constitution was drafted all focused on the importance of protecting states as
defendants, not as plaintiffs. Ultimately, however, the court concluded that it did not need to decide
whether plaintiff states are entitled to protection from removal. Instead, the court based its decision on the
narrower issue of whether any state immunity from removal extends to the class of private citizens.
State Immunity Inapplicable to Class of Citizens. For purposes of this appeal, the Fifth Circuit accepted
that states enjoy some measure of protection from removal. However, the court held that any such
protection did not extend to the class of private citizens joined as plaintiffs. Thus, the Fifth Circuit
affirmed, determining that the district court properly denied Louisiana''s motion to remand the entire case to
state court.
Comment. Although providing a federal forum is the goal of removal, the effect of removal is to deprive
the state court of an action properly within its jurisdiction, which raises federalism concerns. There are a
number of Supreme Court cases discussing states and removal [see 16 Moores Federal Practice (3d ed.) §
107.03] that the Fifth Circuit did not address. These cases are not directly on point but do provide the
backdrop for understanding the Fifth Circuits cautious approach. For example, under Eleventh Amendment
jurisprudence, if a state has consented to suit in its own courts, but not in federal courts, any action brought
against the state must be litigated in the state court and may not be removed to federal court under the
general removal statute [see generally 17A Moores Federal Practice (3d ed.) Ch. 123, Access to Courts:
Eleventh Amendment and State Sovereign Immunity]. However, in Lapides v. Board of Regents, 535 U.S. 613, 618‐624, 122 S. Ct. 1640, 152 L. Ed. 2d 806 (2002), the Supreme Court held that if the state itself
removes the case, the state''s Eleventh Amendment immunity is waived. This ruling is in line with Supreme
Court precedent holding that a state''s voluntary appearance in federal court amounts to a waiver of its
Eleventh Amendment immunity.
Although Lapides involved the state as voluntary federal court plaintiff, under the Supreme Court''s
decision in Wisconsin Department of Corrections v. Schacht [see Wisconsin Dep''t of Corr. v. Schacht, 524 U.S. 381, 397‐398, 118 S. Ct. 2047, 141 L. Ed. 2d 364 (1998)], a case against a state defendant and state
officials is removable. The fact that the claim against the state or state entity may not be removable on
Eleventh Amendment grounds does not mean that the claims against the individuals are not removable.
Applying this analysis to the Fifth Circuit case, it would be the claims of the class members that provide
federal jurisdiction, making the case removable under the converse of the argument in Schacht.
Possible Partial Remand. In the lower court, the plaintiffs had raised the possibility of splitting the action
in two, leaving the plaintiff class to pursue the class action in federal court, and ordering a remand of the
States portion of the case to state court. There also was a suggestion of then staying the federal case to
await the decision of the Louisiana courts. The district court considered this approach but decided to deny
the remand motion instead. The Fifth Circuit discussed the approach at the end of its opinion when it
decided to remand the case.
Comment. Clearly the Fifth Circuit was mindful of two important principles. On the one hand, it tried to
avoid stepping on the toes of the district court by making plain that it wished that its observations would be
viewed against the backdrop of the settled power of the district courts. It complimented that district court as
an able manager of this complex litigation. On the other hand, the Fifth Circuit sent a strong signal that its
caution about the state sovereignty issues raised by the case should prompt the district court to explore
anew the plaintiffs proposed approach. In this day and age of the New Federalism, the Fifth Circuit
provides an appropriate balance.
References. 5 Moore''s Federal Practice (3d Ed.) § 23.63A[1]; 15 Moore''s Federal Practice (3d Ed.) §
102.26[1][b][i], [2]; 16 Moore''s Federal Practice (3d Ed.) §§ 107.03; 107.14[2][c][vii].
B.
Georgene Vairo on Louisiana ex rel. Caldwell v. Allstate Ins. Co., 2008 Emerging Issues 3053
SUMMARY: If a state sues as parens patriae on behalf of its citizens, rather than as the representative of a
class, may the defendant remove under the Class Action Fairness Act?
ARTICLE: Louisiana ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418, 2008 U.S. App. LEXIS 15275 (5th
Cir. July 18, 2008), picks up where another recent Fifth Circuit case left off. In Louisiana v. AAA Ins. (In re Katrina Canal Litig. Breaches), 524 F.3d 700, 2008 U.S. App. LEXIS 7933 (5th Cir. Apr. 11, 2008), the Fifth
Circuit dealt with an issue of first impression under the Class Action Fairness Act (CAFA''): may a
defendant remove under CAFA if the state is the named plaintiff in a class action case? The court held that
the State of Louisiana was not entitled to remand of a class action suit, because the state had joined a class
of citizen plaintiffs not entitled to any immunity that might otherwise protect the state from removal. In
Allstate, the second case, the Fifth Circuit decided another issue of first impression: if a state sues as parens
patriae on behalf of its citizens, rather than as the representative of a class, may the defendant remove
under CAFA? The Fifth Circuit held that the case was properly removed under CAFA.
Facts and Procedural Background of Katrina Litigation: In the wake of Hurricane Katrina, Louisiana
enacted the Road Home Program. In exchange for a partial assignment of the homeowners' claims against
their insurers, the State of Louisiana advanced money to Louisiana homeowners to reconstruct. As the
partial assignee of these claims, Louisiana sued over 200 insurance companies for breach of contract in
Louisiana state court, adding a class of Louisiana citizens who had applied for funds from the program as
plaintiffs. The defendants removed the case to federal court on the ground of diversity under the Class
Action Fairness Act (CAFA) [see 28 U.S.C. §§ 1332(d)(2) (CAFA diversity requirements), 1453(b)
(removal under CAFA)].
Louisiana argued that CAFA did not apply, and that even if it did apply by its terms, it could not abrogate
sovereign immunity from federal process. Alternatively, it argued that Congress did not clearly abrogate
sovereign immunity from federal process in CAFA. The district court denied Louisiana's motion to remand,
and the Fifth Circuit affirmed. Although the Fifth Circuit agreed with Louisiana that a state was not a
citizen for diversity purposes, even under CAFA, Louisiana sought relief not only for itself, but also for the
class of citizens joined as plaintiffs. This class of citizens satisfied the minimal diversity rules of CAFA,
which require only that any member of a class of plaintiffs is a citizen of a State different from any
defendant [see 28 U.S.C. § 1332(d)(2)].
The Fifth Circuit was sympathetic to Louisianas argument that a state should not be subject to CAFA
jurisdiction. However, it noted that Congress had considered and rejected an amendment that would have
exempted class actions filed by an attorney general from removal under CAFA. Moreover, even CAFA's
use of the term citizen'' did not bar its application because CAFA refers to the citizenship of any class
member and any defendant. Accordingly, in expanding federal jurisdiction over certain class actions filed
in state court, the Fifth Circuit eliminated the rule that citizenship of the named representative is
controlling.
Finally, the court agreed that a state is not a citizen under the diversity statutes, including CAFA, but that
because Louisiana sought relief for both the State and the citizens, both the State and the citizens were
likely real parties in interest. Because CAFA only requires minimal diversity, CAFA supplies federal
jurisdiction and a path to removal unless state sovereignty turns away its exercise.
In our Expert Commentary on the Katrina case, we noted as a practice pointer that state attorneys general
wanting to stay out of federal court ought not join a class of state citizens. See Vairo, Georgene, In re
Katrina Canal Litigation Breaches, LexisNexis Expert Commentary, 2008 Emerging Issues 2362. The line
of Supreme Court precedent suggesting that a state is not a person or a citizen would likely be controlling.
Before CAFA was enacted, the question whether a state plaintiff suing defendants over whom it has
regulatory authority in state court under its own state laws may be removed to federal court on diversity
grounds would not arise. The rule that a state is not a person for diversity purposes and the requirement of
complete diversity always precluded the removal of a state's action on the ground of diversity. CAFA, with
its minimal diversity requirements, however, pushes the question forward,'' because diversity jurisdiction
may be based on minimal diversity, i.e., the citizenship of plaintiffs other than the state. So, what happens
if the state sues without joining a class? That is the issue in the Allstate case.
Allstate Facts and Procedural Background. The State of Louisiana, through its attorney general, filed a
parens patriae action against the Allstate Insurance Company, and a number of other insurers and their
agents in state court alleging violations of Louisiana's antitrust laws. Specifically, Louisiana alleged a
scheme to thwart policyholder indemnity. Allegedly, in violation of their fiduciary duties, the insurer
defendants and others continuously manipulated Louisiana commerce by rigging the value of policyholder
claims and raising the premiums held in trust by their companies for the benefit of policy holders to cover
their losses. Louisiana alleged that the defendant insurance companies (and possibly others) worked
together to undervalue and underpay policyholders' claims, particularly in the wake of Hurricanes Katrina
and Rita.
Defendants removed the action to federal court arguing that the parens patriae action was a class action or
mass action under CAFA. Louisiana moved to remand the action, but the district judge denied the motion.
The district court was primarily concerned about who the real parties in interest were in this case. In noting
that it was his responsibility to look to the substance of the complaint--to pierce the pleadings--and to
determine the real nature of the claim asserted, he explained: [I]t's the Court's responsibility to not just
merely rely on who a plaintiff chose to sue, or, in this case, how the plaintiff chose to plead, but I have to
look at the specific substance of . . . the complaint . . . .'' Judge Zainey concluded that, while the State was a
nominal party, the real parties in interest were the citizen policyholders. Ultimately, he denied Louisiana's
motion to remand the case back to state court, concluding that the lawsuit was properly removed under
CAFA.
Louisiana petitioned the Fifth Circuit for permission to appeal the interlocutory order under CAFA. The
petition was granted and a divided Fifth Circuit panel affirmed.
Relevant CAFA Provisions: Definition of Class Actions and Mass Actions. CAFA permits removal of
class actions and mass actions involving parties with minimal diversity [see 28 U.S.C. §§ 1332(d)(2), (11),
1453]. For CAFA purposes, class action'' is defined as any civil action filed under rule 23 of the Federal
Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be
brought by 1 or more representative persons as a class action [28 U.S.C. § 1332(d)(1)(B)]. A mass action is
any civil action . . . 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, except that jurisdiction
shall exist only over those plaintiffs whose claims in a mass action satisfy the jurisdiction amount
requirement under [28 U.S.C. § 1332(a)]'' [see 28 U.S.C. § 1332(d)(11)(B)(i)].
The Fifth Circuit majority then foreshadowed its decision. It looked to the legislative history of CAFA and
stated that Congress intended that the term class action'' should be construed broadly to prevent
jurisdictional gamesmanship.'' It quoted from a Senate Report that stated that CAFAs application should
not be confined solely to lawsuits that are labeled class actions' by the named plaintiff or the state
rulemaking authority. Generally speaking, lawsuits that resemble a purported class action should be
considered class actions for the purpose of applying these provisions.'' [See S. Rep. No. 109-14, at 35
(2005).]
Like the Katrina court, the majority also noted that Congress had considered but rejected an amendment
that would have exempted class actions filed by state attorneys general from removal under CAFA. Here,
the majority quoted Senator Hatchs statement: At worst, [the amendment] will create a loophole that some
enterprising plaintiffs' lawyers will surely manipulate in order to keep their lucrative class action lawsuits in
State court. . . . If this legislation enables State attorneys general to keep all class actions in State court, it
will not take long for plaintiffs' lawyers to figure out that all they need to do to avoid the impact of [CAFA]
is to persuade a State attorney general to simply lend the name of his or her office to a private class action.''
[See 151 Cong. Rec. S1157, 1163S1164 (daily ed. Feb. 9, 2005) (statement of Sen. Hatch).]
Louisiana Authorized to Bring Parens Patriae Antitrust Actions But Are They Class or Mass
Actions? Louisiana argued that because it had filed the action as a parens patriae action instead of a class
action (as it had in the Katrina case) that CAFA did not supply federal jurisdiction. The Fifth Circuit agreed
that a state has standing to bring a parens patriae action to assert an interest relating to sovereignty or a
quasi-sovereign interest, such as the States interest in the physical and economic health and well-being of
its citizens. Specifically, under Louisiana law, the Louisiana Attorney General has statutory and
constitutional authority to bring parens patriae antitrust actions [see La. Rev. Stat. §§ 51.128, 51.138; see
also La. Rev. Stat. § 13.5036]. However, the court did not decide whether this parens patriae authority
allows the State to sue for treble damages in a representative capacity under state law. Rather, like the
district court, it focused on a narrow issue: whether the real parties in interest were the individual
policyholders or the State as the guide to whether the states parens patriae action should be considered a
class action or mass action for CAFA purposes.
Comment. In taking this tack, the Fifth Circuit majority ignores the general rule that jurisdiction depends
on a review of the well-pleaded complaint. The states complaint did not contain the words class action'' or
mass action.'' Nonetheless, the majority turned to the well-established'' rule that in determining whether
there is jurisdiction, federal courts look to the substance of the action and not only at the labels used by the
parties. The first case on which the majority relied was Grassi v. Ciba‐Geigy, Ltd., 894 F.2d 181, 185 (5th Cir. 1990), in which the Fifth Circuit had stated: [J]urisdictional rules may not be used to perpetrate a fraud
or ill-practice upon the court by either improperly creating or destroying diversity jurisdiction. Were that to
occur, we would not elevate form over substance but would accomplish whatever piercing and adjustments
considered necessary to protect the court's jurisdiction.'' However, that case involved an assignment of
interest to create federal jurisdiction, and Congress has specifically banned the use of collusive assignments
to create jurisdiction [see 28 U.S.C. § 1359.]
The second case the majority relied on was Wecker v. Nat'l Enameling & Stamping Co., 204 U.S. 176, 185S186, 27 S. Ct. 184, 51 L. Ed. 430 (1907), in which the Supreme Court stated: Federal courts should not
sanction devices intended to prevent a removal to Federal court where one has that right, and should be
equally vigilant to protect the right to proceed in the Federal court as to permit the state courts, in proper
cases, to retain their own jurisdiction.''). Of course, this standard invites a begging of the question. A
defendant does not have the right to remove unless there is federal jurisdiction. And, the Wecker court dealt
with the well-established fraudulent joinder'' doctrine pursuant to which claims made against a local
defendant to prevent removal will be disregarded if the plaintiff has no colorable claim against that
defendant. Indeed, defendants may pierce the pleadings to show that the . . . . claim has been fraudulently
pleaded to prevent removal.'' [See Burchett v. Cargill, Inc., 48 F.3d 173, 175 (5th Cir. 1995) (internal
quotation marks and citation omitted).] Here, in essence, the defendants argued that the state fraudulently
joined itself because it was not the real party in interest. Curiously, before the district court, at least
according to the Fifth Circuit, Louisiana failed to object to the district court engaging in that sort of a
piercing analysis.
Policyholders Are Real Parties in Interest With Respect to Treble Damages. The Fifth Circuit framed
the real party in interest question as whether Louisiana's action is a parens patriae action or whether, as the
district court found, the citizen policyholders are the real parties in interest.'' Nonetheless, the court began
by examining the parens patriae case law. The purpose of this discussion was to make the point that in the
context of such actions, the state is a real party in interest when an action concerns a type of injury that the
state has addressed or would be likely to address to further the well-being of its citizens.
The Fifth Circuit determined that the policyholders were the real parties in interest, at least with respect to
the claim for treble damages. The court explained that a party is a real party in interest when it is directly
and personally concerned in the outcome of the litigation to the extent that his or her participation in the
litigation will ensure a genuine adversary issue between the parties. The state does not have such an interest
when it sues for the particular benefit of a limited number of citizens and does not assert a direct interest of
its own. The court concluded that the only parties with the direct interest in the treble damages sought by
the Attorney General were the individual policyholders, who were the ones who suffered damages.
Type of Relief Matters. The court acknowledged that if Louisiana were seeking only injunctive relief, it
would have a more compelling argument that it is the real party in interest. In In re Katrina Canal
Litigation Breaches (referred to by the court as Road Home), in which another panel of the Fifth Circuit
refused to remand another case brought by the Louisiana Attorney General against insurance companies in
connection with damage caused by Hurricanes Katrina and Rita, the panel left open the possibility that
various claims could be severed so that the claims that were removable under CAFA (the claims of the
class of Louisiana citizens) would remain in federal court, while Louisianas claims could be remanded to
state court [see In re Katrina Canal Litigation Breaches, 524 F.3d 700, 711S712 (2008), discussed at 2008
Emerging Issues 2362.]. The Fifth Circuit again raised that possibility with respect to the claims for
injunctive relief in this case, although during oral argument the State had insisted it was not interested in
having the injunctive relief claims severed from the damage claims.
Suit Is Mass Action'' Subject to CAFA Removal. Having determined that the policyholders were the real
parties in interest, the Fifth Circuit agreed with the defendants that the action was properly removed under
CAFA because the requirements of a mass action were met: the suit was a civil action in which monetary
claims of 100 or more persons were proposed to be tried jointly on the ground that they involved common
questions of law or fact, the aggregate amount in controversy was at least $5 million, the parties were
minimally diverse, and the suit was brought in a representative capacity on behalf of those who allegedly
suffered harm [see 28 U.S.C. § 1332(d)(11)(B)(i)].
Comment. Of course, given how the state structured the case as a parens patirae action none of the policy
holders were parties to the suit. Should not the court have simply dismissed the case? If the state, the only
plaintiff named on the complaint, was not a real party in interest, then there were no proper plaintiffs before
the court, and there was no attempt to join any new plaintiffs. Yet, the Fifth Circuit found that the claims of
100 or more persons were proposed to be tried jointly. The court did not address whether the suit could
properly proceed as a class action following further proceedings on remand. Nor did it determine the
manner by which the individual policyholders were to be added to the case, leaving this matter to the
district judges capable hands.''
There is no question that the Fifth Circuits approach vindicates Congressional intent to interpret CAFAs
expanded jurisdictional provisions broadly. But, it seems inappropriate to hijack a case with no plaintiffs. If
the case had been dismissed, the state had the option of refilling series of cases, each with fewer than 100
plaintiffs, to get the ball rolling towards a resolution of its claims against the defendants.
Louisiana Waived Eleventh Amendment Immunity. Finally, the Fifth Circuit held that Louisiana had
waived any Eleventh Amendment immunity by bringing a suit in which individual policyholders were the
real parties in interest. In so holding, the court again relied on Katrina, in which the other panel held that
the State had waived immunity by joining a class of private citizens [see In re Katrina Canal Litigation Breaches, 524 F.3d 700, 711 (2008)]. The court concluded that it was bound by this circuit precedent.
However, it should be noted that in Katrina, the Louisiana Attorney General had explicitly added a class of
Louisiana citizens to his suit against the insurance companies [see In re Katrina Canal Litigation Breaches, 524 F.3d 700, 703 (2008)]. The Attorney General had not added such citizen plaintiffs in this case, though
the Fifth Circuit proclaimed them the real parties in interest.
Dissent: Suit Not Removable Under CAFA. In a dissenting opinion, Judge Southwick disagreed with the
majoritys approach. He argued that in determining whether the case was removable under CAFA, the court
should have limited its consideration to what the case is, not what it must be if all the relief requested is to
be part of the litigation. In other words, because the case as then structured did not satisfy the definition of
a class action or a mass action, it was not subject to removal under CAFA. Although he noted that perhaps
the case ought to be structured as a class action or mass action, it was not. Accordingly, the parens patriae
case should have been remanded to state court, where answers to the following questions could be
obtained: (1) does the Louisiana Attorney General have authority to bring the treble damage claims under
the Louisiana Monopolies Act? This is important, because if it did, it would be more likely that the court
would have to consider the state a real party in interest. (2) If so, must the attorney general use a class or
mass action to do so? And (3) if so, does the Attorney General wish to amend the suit or to dismiss the
treble damage claims, which then under Katrina would be removable under CAFA?
Judge Southwick also argued that even if the state were merely a nominal party, such a conclusion could
not make this suit a mass action. Instead, Judge Southwick would find that the Attorney General had filed a
defective pleading under Louisiana law. In his view, the majority was the wrong court making a premature
finding.
Comment. Judge Southwicks approach is preferable. It may well be true that the case was of a kind
Congress intended to be removable under CAFA, especially because C as the majority pointed out C the
state was represented by several plaintiffs law firms. And, it may well have turned out to be true had the
case been remanded that the state attorney general would have been required under Louisiana state law to
name a class of policy holders of over 100 plaintiffs in order to obtain treble damages. But, to do less
violence to principles of federalism, it would have been preferable to have those issues decided by the state
court, rather than not resolved at all.
Judge Southwick also reminds us that doubts about removal ought to be resolved in favor of remand.
Moreover, he correctly observes that Louisiana cannot be forced to litigate in the posture of a plaintiff in a
mass action or, as a class representative, so that the court can find that there is federal jurisdiction:
Deciding that a removed case should be a class or mass action does not create or confirm anything. It only
states our opinion that the parties after procedural work in state court should make this a removable action.''
Additionally, as the majority seems to understand, the fact that Congress did not provide a state attorney
general suits exemption under CAFA may have been because some members believed that such immunity
existed automatically.
It may well be worthwhile for the state to consider petitioning for en banc review or for certiorari.
References. 5 Moore's Federal Practice (3d Ed.) §§ 23.63[2][e], 23.63A[6]; 15 Moore's Federal Practice
(3d Ed.) §§ 102.107[3], 107.14[2][g][v]; 17A Moore's Federal Practice (3d Ed.) § 123.41[2].
III.
Amount in Controversy
Two courts recently have addressed the standard for determining the existence of the $5 million amount in
controversy required for CAFA removal.
In Bell v. Hershey Co., 557 F.3d 953 (8th Cir. Feb. 26, 2009), the plaintiff in an antitrust case sought to
avoid CAFA removal by defining the class period and overcharge to limit the total claimed recovery to
$4.99 million. Defendants removed the case, arguing that other facts alleged in the complaint would result
in damages in excess of that amount. The district court remanded the case to state court, but the Eighth
Circuit reversed. The Court of Appeals held that the defendant needed to show jurisdiction by a
preponderance of the evidence, not a legal certainty, and that if defendant satisfied that burden, plaintiff
could avoid jurisdiction only by showing that it was legally impossible to recover in excess of the
jurisdictional minimum, such as with a binding stipulation.
In Amoche v. Guarantee Trust Life Insurance Co., 556 F.3d 41 (1st Cir. Feb. 13, 2009), the First Circuit held
that where the complaint does not contain specific damage allegations, the removing party must show a
reasonable probability that the amount in controversy exceeds $5 million at the time of removal. The
district court applied a preponderance of the evidence test, and remanded the case to state court. The First
Circuit affirmed, holding that its “reasonable probability” test and the district court’s “preponderance of the
evidence” standard were equivalent, but stating that it preferred to define the standard without reference to
the evidence, as evidence often is not presented at the pleading stage. The appellate court added, however,
that the application of its standard might require evaluating and weighing the presentations of both sides,
not simply a review of the materials supporting remand.
IV. Exploring CAFA Exceptions
A. Local Controversy Exception
Georgene Vairo on Kaufman v. Allstate New Jersey Ins. Co., 2009 Emerging Issues 4079
Summary. Kaufman v. Allstate New Jersey Ins. Co., 561 F.3d 144, 2009 U.S. App. LEXIS 6429 (3d Cir. Mar.
26, 2009), is an important case involving the construction of the local controversy exception under the
Class Action Fairness Act (CAFA) [see 28 U.S.C. §§ 1332(d), 1453]. In answering a question of first
impression in the Third Circuit, the court joined its sister circuits in ruling that the party objecting to federal
jurisdiction under CAFA has the burden of showing that the exception applies. The Third Circuit also ruled
on several thorny questions of first impression in all of the circuits, holding that (1) only current defendants
should be considered in determining whether the local controversy exception to Class Action Fairness Act
(CAFA) jurisdiction applies; (2) the significant basis provision of the exception is satisfied if the local
defendant's alleged conduct is a significant part of the alleged conduct of all the defendants; and (3) the
principal injuries requirement of the exception is satisfied when either (a) principal injuries resulting from
the alleged conduct of each defendant were incurred in the state in which the action was originally filed, or
(b) principal injuries resulting from any related conduct of each defendant were incurred in that state.
Facts and Procedural History. Plaintiffs filed a class action against six automobile insurers in New Jersey
state court, alleging that the insurers refused to pay for the diminished value of cars damaged in accidents.
Diminished value is the loss in value even after the car has been completely repaired. The plaintiffs claimed
that the insurers' failure to pay for that loss violates New Jersey law and their insurance contracts. The
complaint defined two classes: (1) the Equitable Relief Class, consisting of all persons currently insured by
defendants under policies issued in New Jersey; and (2) the Damages Sub-Class, consisting of all persons
currently or previously insured by defendants who, within the six years before the complaint was filed,
submitted damage claims and did not receive compensation for diminished value. After three New Jersey
insurers were voluntarily dismissed, three defendants were left, one of which was a New Jersey insurer.
One of the insurers removed the case to district court under the Class Action Fairness Act (CAFA) [see 28 U.S.C. §§ 1332(d)(2), 1453]. The district court remanded the case to state court, holding that it fell within
the local controversy exception to CAFA jurisdiction [see 28 U.S.C. § 1332(d)(4)(A)]. The Third Circuit
vacated the district court's opinion in part and remanded the case to that court for further proceeding.
Removing Defendant Has Burden of Proving CAFA Jurisdiction. By the time Kaufman was decided, it
had become clear that the proponent of federal jurisdiction had the burden of proving that CAFA
jurisdiction existed. Indeed, the parties conceded the jurisdictional requirements of minimal diversity, a
class consisting of at least 100 members, and an aggregate amount in controversy of $5,000,000 [see 28 U.S.C. § 1332(d)(2)]. Nonetheless, the Third Circuit discharged its duty to ensure that jurisdiction existed.
The minimal diversity requirement was satisfied because at least one plaintiff was a citizen of New Jersey
and one of the defendants, Geico, was a citizen of Maryland. Of the two remaining defendants, one
(Allstate New Jersey) was a citizen of New Jersey, and the other a citizen of Wisconsin and Massachusetts.
The class numbered thousands of New Jersey policy holders. With respect to the amount in controversy,
because the parties conceded the $5,000,000 jurisdictional amount, the Third Circuit applied the legal
certainty test [see Frederico v. Home Depot, 507 F.3d 188, 193 (3d Cir. 2007)]. Because plaintiffs'
complaint implicated hundreds of thousands of policies, together with claims for punitive damages, the
Third Circuit found CAFA jurisdiction because it did not appear that the plaintiff was not entitled to
recover the jurisdictional amount.
Plaintiff Has Burden of Proving Exception to CAFA Jurisdiction. CAFA is a somewhat unusual
jurisdictional statute because it contains provisions excepting the exercise of jurisdiction, one provision
requiring the district court to remand the case under the local controversy or home state exceptions, and
another provision affording the district court discretion to retain the case or remand. Although a matter of
first impression in the Third Circuit, all the other courts of appeals to consider which party has the burden
of proving one of the exceptions appropriately have decided that the party seeking the remand must prove
the exception [see, e.g., Serrano v. 180 Connect, Inc., 478 F.3d 1018, 1024 (9th Cir. 2007); Hart v. FedEx Ground Package Sys. Inc., 457 F.3d 675, 680 (7th Cir. 2006); Frazier v. Pioneer Ams. LLC, 455 F.3d 542, 546 (5th Cir. 2006); Evans v. Walter Indus., Inc., 449 F.3d 1159, 1165 (11th Cir. 2006)]. Finding the reasoning of
its sister circuits compelling, the Third Circuit held that the plaintiffs had the burden of showing that the
local controversy exception applied. The court further explained that this burden-shifting approach is
justified by analogy to practice under the removal statute [see 28 U.S.C. § 1441(a); Breuer v. Jim's Concrete of Brevard, Inc., 538 U.S. 691, 698, 123 S. Ct. 1882, 155 L. Ed. 2d 923 (2003) (Since 1948, therefore, there
has been no question that whenever the subject matter of an action qualifies it for removal, the burden is on
a plaintiff to find an express exception.)].
Local Controversy Exception. The local controversy exception to CAFA jurisdiction is among the most
convoluted provisions in the linguistically-challenged Class Action Fairness Act. It mandates a remand
when it or the home state exception applies. Under the local controversy exception to CAFA, a district
court must decline to exercise jurisdiction [28 U.S.C. § 1332(d)(4)(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
persons.
Only Current Defendants Considered. The first problem confronting the Third Circuit was whether the
district court erred by including the three dismissed New Jersey defendants in its determination of whether
the local controversy exception applied. The Third Circuit held that only the remaining defendants should
be considered. The Third Circuit acknowledged that federal diversity jurisdiction is generally determined
based on the circumstances prevailing when the suit was filed -- the time of filing rule. However, citing
Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 575, 124 S. Ct. 1920, 158 L. Ed. 2d 866 (2004), the
court found that there are exceptions to the time of filing rule when the parties themselves, rather than the
circumstances of the parties, change. Moreover, a key condition of the local controversy exception is the
presence of at least one significant local defendant. If application of the exception were determined at the
time the complaint was filed, the exception could be applied even when the local defendant has been
dropped from the lawsuit.
To be consistent with CAFA's purpose of providing federal jurisdiction over cases of national, rather than
local, significance, the focus must be on the actual defendants before the court. In other words, looking at
the complaint at the time of filing could result in an inconsistency with the exception's focus on discerning
local controversies based, in part, on the presence of a significant local defendant. Thus, the court
concluded, application of the local controversy exception must be determined based on the three remaining
defendants. Of those, only the New Jersey insurer was a possible significant local defendant.
Comment. The Third Circuit's approach makes sense. First of all, it is a given that jurisdiction existed. The
only question is whether an exception to CAFA jurisdiction applied. Thus, the plaintiff ought to play the
hand it has at the time it makes the local exception argument. Although the plaintiff is the master of the
complaint, in the procedural posture at the time of making a motion to remand, it does not make sense to
revert to who was named in the complaint. Rather it makes sense to consider only those parties remaining
in the case. The idea is to determine which cases ought to stay in federal court because they are of national
significance. Only the current parties ought to be considered in determining whether the case should stay in
federal court, or be remanded because the local exception applies.
Elements of the Mandatory Exception to CAFA Jurisdiction. CAFA provides for two types of
mandatory exception to CAFA jurisdiction -- the local controversy exception and the so-called home state
exception. Both exceptions require that greater than two-thirds of the members of all proposed classes in
the aggregate are citizens of the State in which the action was originally filed [see 28 U.S.C. § 1332(d)(4)(A)(i)(I)]. In Kaufman, only the convoluted local controversy exception was implicated. To
summarize the mandatory local controversy exception, CAFA requires: 1) a class in which two-thirds of
the class members are local citizens [28 U.S.C. § 1332(d)(4)(i)(I)]; 2) who seek significant relief [28 U.S.C. § 1332(d)(4)(i)(II)(aa)]; 3) from at least one local defendant [§ 1332(d)(4)(i)(II), (II)(cc); 4) whose alleged
conduct forms a significant basis for the class claims [28 U.S.C. § 1332(d)(4)(i)(II)(bb)]; and 5) where the
principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred
in the state [28 U.S.C. § 1332(d)(4)(i)(III)].
Significant Basis Requires Comparison of Defendants' Conduct. The Third Circuit began an
archeological dig into the language of CAFA's local controversy exception by zeroing in on the significant
basis element. The defendants argued that the significant basis provision was not satisfied because not
every member of the proposed class had a claim against the local defendant. Each plaintiff had a claim only
against its own insurer, so only the local defendant's insureds had a claim against it.
The defendants relied on the use of the term class rather than members of the class, which is used in the
significant relief provision of the local controversy exception [see 28 U.S.C. § 1332(d)(4)(A)(i)(II)(aa)
(class action must include at least one local defendant from whom significant relief is sought by members of
the plaintiff class (emphasis added))] and in the home-state exception [28 U.S.C. § 1332(d)(4)(B) (exception
to CAFA jurisdiction when 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
(emphasis added)]. CAFA defines class as all of the class members in a class action [see 28 U.S.C. § 1332(d)(1)(A) (emphasis added)]. Moreover, the significant basis provision says that the local defendant's
conduct should form a significant basis of the claims asserted by the proposed plaintiff class, not some
claims asserted by members of the proposed plaintiff class.
The Third Circuit agreed that the significant basis provision requires at least one local defendant whose
alleged conduct forms a significant basis for all the claims asserted in the action. However, according to the
Third Circuit, this does not imply that every member of the proposed plaintiff class must assert a claim
against the local defendant. The plain text of the subsection (bb) relates the alleged conduct of the local
defendant, on one hand, to all the claims asserted in the action, on the other. Assessing the quantity of
claims based on the local defendant's alleged conduct may be useful, but a party's conduct may form a
significant basis of an entire set of claims even if some claims within the set are not based on that conduct.
Thus, what is required is a comparison of the local defendant's alleged conduct to the alleged conduct of all
the defendants. The significant basis provision is satisfied if the local defendant's alleged conduct is a
significant part of the alleged conduct of all the defendants.
Comment. The Third Circuit's reasoning is justified by the language of the local controversy provision. A
reading of parts (aa), (bb), and (cc) together, because they are joined with an and, not an or, supports the
court's conclusion. To the extent that (aa) requires that members of the class -- not the entire class -- must
seek significant relief from the local defendant, it follows that not all members of the class must have a
claim against that defendant. Rather, it is enough if the conduct by the local defendant giving rise to the
claims for significant relief is in itself a significant basis for the class claims as a whole. Although this is a
plaintiff-friendly construction of the local controversy exception, it does leave room for defendants to argue
that the relief sought against the local defendant is not significant (stay tuned for more case law on the
construction of that CAFA term), or that taken as a whole, the local defendant's conduct vis--vis the other
remaining defendants, is not significant enough to warrant a remand.
In other words, so long as the plaintiff class meets the two-thirds rule, and the complaint names a local
defendant alleging claims similar to those alleged against the non-citizen defendants, the plaintiff will be in
a good position to show that the case is so localized that it ought to be litigated in state court. Such an
approach comports with the intent of the local controversy exception. In cases in which more than twothirds of the class members are citizens of the state, and where the claims solely involve conduct in that
state, and the in-state local defendant is alleged to have engaged in the same conduct, principles of
federalism point to resolution of the dispute in state court rather than federal court.
Nuggets for the Defendants on Remand. Nonetheless, the Third Circuit provided the defendants with
some food for thought to escape remand to state court. It remanded the case to the district court to
reconsider its significant basis analysis in light of its opinion. The district court had properly rejected the
defendants' argument that every member of the class had to have a claim against the local defendant.
However, the district court simply considered the number of automobile insurance policies the local
defendant had sold in New Jersey, which represented 13 percent of all the auto policies sold in the state,
and concluded that the significant basis provision was satisfied because the local defendant had issued
substantially more policies than other defendants and it could not be considered trivial or of no importance
[Kaufman v. Allstate Ins. Co., 2008 U.S. Dist. LEXIS 71245, at *13 (D.N.J. Sept. 10, 2008)].
The district court took for granted that every insurance policy sold by each defendant violated New Jersey
law and that no defendant ever paid an insurance claim for diminished value, and the court did not compare
the local defendant's alleged conduct to the alleged conduct of all the defendants. This reliance on mere
generic market share numbers was insufficient, according to the Third Circuit. Moreover, it is not enough
that the local defendant's alleged conduct is more than trivial or of no importance or that the local defendant
is a major player in a particular market. The local defendant's alleged conduct must be an important ground
for the asserted claims in view of the alleged conduct of all the defendants (court's emphasis).
Principal Injuries Resulting From Alleged Conduct or Related Conduct. Finally, the Third Circuit
considered the principal injuries provision of the local controversy exception, which requires that the
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 (emphasis added) [28 U.S.C. § 1332(d)(4)(A)(i)(III)].
One defendant argued that this means that principal injuries resulting from the alleged conduct and any
related conduct of each defendant had to have been incurred in New Jersey. Under this theory, the local
controversy exception was inapplicable because the defendant issued insurance policies providing identical
coverage in other states, and principal injuries resulting from this related conduct would be incurred outside
New Jersey.
Neither the district court nor the Third Circuit agreed with this argument. The Third Circuit relied on the
plain language of the exception, which invokes the alleged conduct or any related conduct in the
disjunctive. The provision is satisfied when either (1) principal injuries resulting from the alleged conduct
of each defendant were incurred in the state in which the action was originally filed, or (2) principal
injuries resulting from any related conduct of each defendant were incurred in that state. In this case, the
alleged conduct was the failure to insure or pay for diminished value claims in New Jersey, and the putative
class would be made up of members with insurance policies issued in New Jersey. Thus, to the extent there
were any injuries resulting from the alleged conduct, those injuries were incurred in New Jersey, and the
principal injuries provision was satisfied.
Comment. The Third Circuit's ruling on the principal injuries issue is consistent with its significant basis
ruling. It suggests that the alleged conduct of the local defendant is severable from any related conduct by
non-instate defendants. In other words, the Third Circuit's construction of the entire local controversy
exception allows a sensible focus on what that local defendant did in the context of the entire case. To the
extent that it is significant, the case should be treated as a local matter.
Moreover, it would be ironic had the defendant escaped New Jersey state court on claims by a mostly New
Jersey class raising purely questions of New Jersey law on the basis that it harmed citizens of other states
based on their laws, even though the injuries were similar.
RELATED LINKS: See Moore's Federal Practice for more information: Moore's Federal Practice (3d Ed.) § 23.63[2][d][ii]; 15 Moore's Federal Practice (3d Ed.) § 102.26[1][d][iii]; 16 Moore's Federal Practice (3d Ed.) § 107.15[13][b][ii][E].
CAFA Local Controversy Exception Turns On Parties As Of Date Of Analysis.
Under CAFA, a federal court must decline jurisdiction of a removed case that presents a local controversy.
A local controversy is one in which two-thirds of the class and a defendant whose alleged conduct forms a
“significant basis” of the claim reside in the state where the action was initially filed, and the “principal
injuries” resulting from the alleged conduct or any related conduct were incurred in that state. In Kaufman v. Allstate New Jersey Insurance Co., No. 08-4911, 2009 WL 779759 (3d Cir. Mar. 26, 2009), the district
court found that these requirements were satisfied based on the residency of the defendant and three others
who had been named as defendants in the original complaint but were subsequently dismissed. The Third
Circuit, in a case of first impression, concluded this was error. While jurisdiction ordinarily is determined
at the time of filing, the local controversy exception requires consideration of the defendants presently in
the action, not those in the action when the lawsuit was filed. Interpreting the “significant basis” provision,
the court held it does not require every member of the plaintiff class to assert a claim against the local
defendant. Rather, there need only be one local defendant whose alleged conduct forms a significant basis
of the claims in the case. As to the “principal injuries” provision, the Third Circuit held it is satisfied when
injuries resulting from the alleged conduct of each defendant were incurred in the state. Because plaintiffs
were all citizens of New Jersey, that condition was satisfied.
Predominance Of Local Contacts Does Not Create A Local Controversy Under CAFA.
A “local controversy” does not satisfy CAFA jurisdiction. In Davis v. HSBC Bank Nevada, NA, No. 0857062 (9th Cir. filed Feb. 26, 2009), plaintiff represented a class of California consumers in a state court
suit against Best Buy. Best Buy removed the case; the district court remanded, finding Best Buy had its
principal place of business in California because it had more stores, employees, and sales in California than
in any other state and thus the dispute was a local controversy. The Ninth Circuit reversed, finding Best
Buy was not a California citizen, observing that Best Buy’s California operations “predominated” over its
operations in any other state only because California’s population “predominated” over the population of
any other State. If a corporation could be deemed a citizen of California on this basis, nearly every national
retailer would be deemed a citizen of California. Applying the “nerve center” test that is used in other
circuits, the court found that Best Buys’ California operations did not “substantially” predominate, and thus
Best Buy was not a California citizen. In a lengthy concurring opinion, one judge concluded the Ninth
Circuit should compare the corporation’s operations in one state to its operations in every other state.
B. Home State Exception
CAFA Home State Exception Addresses The Removed Case Only.
Plaintiffs brought a class action in Florida state court on behalf of a Florida class against a
Florida defendant. The defendant removed the case, which was then transferred to Maine by
the MDL panel. The district court remanded the case to state court. On appeal, the First
Circuit affirmed. In re Hannaford Bros. Customer Data Security Breach Litig., No.09-1393
(1st Cir. May 1, 2009). The First Circuit held that the statutory requirements of CAFA’s home
state exception were met, and rejected the defendant’s argument that plaintiffs had improperly
defined the class to avoid federal jurisdiction.
C. Carve Outs
Georgene Vairo on Estate of Pew v. Cardarelli. LexisNexis Expert Commentary, 2008 Emerging Issues
2502
Estate of Pew v. Cardarelli, 527 F.3d 25, 2008 U.S. App. LEXIS 10269 (2d Cir. May 13, 2008), involves a
rarely litigated provision of the Class Action Fairness Act (CAFA): the statutory exception for actions that
relate to the rights, duties, and obligations relating to or created by or pursuant to any security. It is the first
federal appellate ruling on the reach of the provision, 28 U.S.C. § 1332(d)(9). The Second Circuit, by a 2-1
vote, ruled that the exception applies only to suits that seek to enforce the terms of instruments that create
and define securities, and to duties imposed on persons who administer securities. The court also grappled
with some of the problems raised by CAFAs appellate jurisdiction provisions.
Background. This action alleged that officers of an issuer of debt certificates, abetted by the issuer's
auditor, failed to disclose that the issuer was insolvent. The plaintiffs sought relief under New York's
consumer fraud statute. The action was brought as a class action in state court and then removed to federal
court under the Class Action Fairness Act. The plaintiffs sought remand, arguing that the suit fell within the
securities exception to CAFA's removal provision. The district court remanded, and the defendants sought
permission to appeal the district court's remand order.
General Appellate Issues. Ordinarily, an order of remand is not appealable [see 28 U.S.C. § 1447(d)].
CAFA, however, allows a party who loses on a motion to remand to seek permission to appeal [28 U.S.C. § 1453(c)(1)]. However, the timing provisions are tricky. First, the text of § 1453(c)(1) states that the petition
be made to the court of appeals not less than 7 days after entry of the order.'' Following the other courts of
appeals that have considered the issue, the Second Circuit concluded that this was a drafting error, and that
the language should be interpreted to mean not more than seven days after entry of the order. Clearly, the
intention of Congress was to impose a seven-day deadline, not to require an indefinite waiting period.
Because the defendants petition for review filed on the seventh business day after the entry of the district
court's remand order, the petition was timely.
Second, CAFA imposes a strict deadline on the court of appeals to resolve the appeal. Again, the language
of the statute is problematic. Section 1453(c)(2) provides: If a court of appeals accepts an appeal . . . the
court shall complete all action on the appeal, including rendering judgment, not later than 60 days after the
date on which such appeal was filed. [emphasis added]. What if the court of appeals does not accept the
appeal until 61 days after the appeal was filed? Again, like the other courts of appeals who have had to deal
with this issue, the Second Circuit essentially finds that an appeal is not an appeal until the request for
review is granted. It ignores the word filed. So, once it grants the request to appeal, the Court has only 60
days to render a decision [see DiTolla v. Doral Dental IPA of N.Y., LLC, 469 F.3d at 275 (2d Cir. 2006)
(CAFA's 60-day clock for rendering judgment starts running on the day that the Court's order granting
permission to appeal is filed'')].
Finally, the Second Circuit noted that a court of appeals retains discretion to decline to hear CAFA appeals,
and that its sound exercise of discretion should be guided by consideration of the importance and novelty of
the issues raised by the case. Here, the Second Circuit allowed the appeal because the question of whether a
state-law deceptive practices claim predicated on the sale of a security is removable under CAFA was
important and consequential, was a case of first impression in the courts of appeals, and a decision on the
question would alleviate uncertainty in the district courts.
Comment. It is laudable that the courts of appeals are sticking together on their readings of the appellate
timing provisions of CAFA. It would be preferable for Congress to clean up the language of the statute, but
at least in the meantime, there is emerging clarity on these technical issues.
Parity of District Court and Appellate Court Jurisdiction. The CAFA provision allowing interlocutory
review of remand orders does not apply to any class action that solely involves a claim that relates to the
rights, duties, and obligations relating to or created by or pursuant to any security [28 U.S.C. § 1453(d)(3)].
This exception mirrors 28 U.S.C. § 1332(d)(9)(C), which provides an exception to CAFA's grant of original
federal jurisdiction. The plain language of § 1453(d), the Second Circuit said, limits all of § 1453, including
subsection (c), which delineates the scope of the court of appeals' authority to accept an appeal from a
remand order. Accordingly, § 1453(d) limits a court of appeals jurisdiction to review the district court's
remand order.
The congruity of the text of the original jurisdiction and appellate jurisdiction exceptions led the court to
combine its grant of leave to appeal with the merits of the appeal. Not to do so would waste some of the 60day time limit for deciding the appeal. More importantly in this case, it would be inefficient because the
decision on appellate jurisdiction required construction of the same statutory language on which the district
court based its remand order. In other words, CAFA's relevant jurisdictional and removal provisions
operate in tandem'' because both original and appellate jurisdiction depend on whether plaintiffs' allegations
fall within CAFA's exception for claims that relate to rights, duties and obligations related to or created by
or pursuant to a security. If there is original jurisdiction for plaintiffs' underlying claim, the court of appeals
would have appellate jurisdiction, and it would reverse the remand order, with the case remaining in federal
district court. If, on the other hand, the district court lacked jurisdiction over the underlying claim, the
appellate court would dismiss the appeal for lack of appellate jurisdiction. Thus, the remand order would
stand, and the action would be litigated in state court.
Interpretation of Statutory Exception. The question then, both as to the merits and as to appellate
jurisdiction, was whether the case fell under the exception to CAFA's grant of original federal jurisdiction
for any class action that solely involves a claim . . . that relates to the rights, duties (including fiduciary
duties), and obligations relating to or created by or pursuant to any security [28 U.S.C. § 1332(d)(9)(C)].
The Second Circuit acknowledged that CAFAs general purpose was to ensure that cases of national
importance involving securities be litigated in federal court. But, it also noted that the securities exception
was one of several CAFA provisions designed to keep purely local matters in the state courts. Because it
found the wording of the statute to be ambiguous, the Second Circuit considered not only the text of statute
itself but also the statutory context and the legislative history.
The Second Circuit interpreted the exception as applying only to suits that seek to enforce the terms of
instruments that create and define securities, and to duties imposed on persons who administer securities.
The natural reading of the statute, the court said, is to differentiate obligations from duties by reading
obligations to be those created in instruments, such as a certificate of incorporation, an indenture, a note, or
some other corporate document. The rights are those of the security-holders (or their trustees or agents) to
whom these duties and obligations run.
The Second Circuit rejected the idea that the term rights . . . relating to . . . any security'' includes the right
to bring any cause of action that relates to a security. This interpretation would defeat any limitation that
was intended by the use of the term. Moreover, this interpretation would render superfluous other sections
of CAFA excepting class actions concerning a covered security [see 28 U.S.C. §§ 1332(d)(9)(A),
1453(d)(1)].
The Second Circuit then found that the certificates involved here were clearly securities and created
obligations and corresponding rights in the holders. However, the suit did not relate to those rights; rather,
it was a state-law consumer fraud action alleging that the defendants fraudulently concealed the issuer's
insolvency when it sold the certificates. The claims here were not grounded in the terms of the security
itself, the kind of claims that might arise, for example, when the interest rate was pegged to a rate set by a
bank that later merges into another bank, or when a bond series is discontinued, or when a failure to
negotiate replacement credit results in a default on principal. The present claim that a debt security was
fraudulently marketed by an insolvent enterprise did not enforce the rights of the certificate holders as
holders, and therefore it did not fall within the statutory exception.
Because the statutory exception to jurisdiction did not apply, the Second Circuit had appellate jurisdiction.
This also meant that the district court had jurisdiction and the case should not have been remanded to state
court. Accordingly, the Second Circuit reversed the remand order and remanded to the district court for
further proceedings.
Dissent. The dissenting judge argued that the majority opinion misconstrued the plain language of the
statute. While the majority saw the provision as ambiguous and even cryptic, the dissent saw it as
straightforward. Section 1332(d)(9)(C) applies to claims relating to the rights, duties . . . and obligations
relating to or created by or pursuant to any security. In the dissent's view, it was readily apparent that the
present suit did relate to rights and obligations created by, or at least relating to, the securities. It plainly
concerned the defendant's failure to fulfill its obligations with respect to the certificates, and the plaintiffs'
deprivation of rights with respect to the certificates.
Indeed, the dissenting judge notes her agreement with virtually every assertion made by the majority, but
then chastises it for reaching a wrong conclusion that does not follow from its own analysis.
The majority opinion, the dissent said, was a wholly inexplicable departure from the plain text of Section
1332(d)(9)(C). . . . I can only conclude that the majority's specifications as to what claims must be in order
to qualify for exemption is an act of judicial re-drafting of CAFA.''
Comment. Judge Rosemary Pooler, in dissent, has the better of the argument. However, it is not surprising
that the majority ruled as it did. First, as both the majority and the dissent point out, the purpose of CAFA
is to expand federal jurisdiction. Moreover, subsection (A) of § 1332(d)(9) carves out class actions only
because jurisdiction exists under another federal statute: the Securities Litigation Uniform Standards Act
(SLUSA''). Between SLUSA and CAFA, Congress clearly wanted to steer cases involving claims of
securities fraud into federal court.
The decision shows once again that the importance of the mode of statutory construction. Judge Pooler,
quoting Benjamin Cardozo, acknowledges that there are times when judges will need to fill in the gaps of
poorly drafted or ambiguous statutes [Benjamin N. Cardozo, The Nature of the Judicial Process, 83 (1921)
(statutes are designed to meet the fugitive exigencies of the hour'')]. In Judge Pooler's view, the text of
CAFA points to a clear remand. In contrast, the majority has ignored the plain terms of CAFA, created its
own waste space, and filled in the resulting gap with an unwarranted exercise of legislative power.''
References. 5 Moore's Federal Practice (3d Ed.) §§ 23.63[2][a], 23.63A[1]; 15 Moore's Federal Practice
(3d Ed.) § 102.26[1][a][ii]; 16 Moore's Federal Practice (3d Ed.) § 107.15[13][b][i][B]; 19 Moore's Federal
Practice (3d Ed.) § 203.34[2].
See also:
CAFA Does Not Supersede 1933 Securities Act’s Bar On Removal.
In Luther v. Countrywide Home Loans Servicing LP, No. 08-55865, 2008 WL 2775483 (9th Cir. 2008), the
Ninth Circuit addressed the conflict between Section 22(a) of the Securities Act of 1933, which creates
concurrent jurisdiction in state and federal courts over claims arising under the Securities Act but which
does not permit such claims if brought in state court to be removed, and the Class Action Fairness Act
(“CAFA”), which in general terms permits the removal to federal courts of class actions meeting aggregate
damage thresholds. The court found that Section 22(a)’s express exception to removal superseded CAFA.
As a result, class action claims brought under the 1933 Securities Act are not removable.
CAFA Trumps Securities Act's Anti-Removal Provision.
Expressly splitting from the Ninth Circuit's view, the Seventh Circuit has held in Katz v Gerardi, No. 088031, 2009 WL 18137 (7th Cir. Jan. 5, 2009), that all securities class actions covered by the Class Action
Fairness Act of 2005 ("CAFA") are removable to Federal Court, subject only to the exceptions contained in
CAFA itself. Accordingly, the anti-removal provision in Section 22 of the Securities Act of 1933 does not
prevent removal when the other requirements of CAFA are met. The Seventh Circuit reasoned that CAFA
is more recent than the Securities Act, is more specific than the Securities Act in certain respects, and
contains express securities-related exceptions that would be rendered "pointless" if the Securities Act's antiremoval provision were applicable.
V. To What Extent May a Plaintiff Plead Around CAFA?
Amoche v. Guar. Trust Life Ins. Co., 556 F.3d 41, 2009 U.S. App. LEXIS 2849 (1st Cir. Feb. 18, 2009)
The First Circuit held that, to establish federal subject matter jurisdiction under the Class Action
Fairness Act, the removing party must show a “reasonable probability” that the amount in
controversy exceeds $5 million.
Background. The underlying dispute involved credit insurance policies purchased in conjunction with
loans to car buyers. The plaintiffs claimed that borrowers who paid off their loans early were entitled to a
refund of the unearned portion of the premium. The defendant was an insurer that sold such policies. The
plaintiffs brought suit in New Hampshire state court, and originally sought to represent a class of New
Hampshire consumers who had paid off their loans early but whose premiums had not been refunded as
required by a New Hampshire statute.
After the state court granted a motion for partial summary judgment in the plaintiffs’ favor, they sought and
were granted leave to file an amended complaint expanding the class definition to include consumers from
other states that had consumer protection laws similar to the one in New Hampshire. However, the
particular states were not specified. This amended complaint indicated that the plaintiffs believed the
defendant had issued hundreds of thousands of credit insurance policies, that a substantial percentage of
these were paid off early and no refunds were made, and that the damages for each individual class member
were less than $1,000 and likely about $200.
At this point the defendant removed to federal court, claiming federal jurisdiction under the Class Action
Fairness Act (CAFA). The defendant argued that if the class contained more than 25,000 members with
claims of $200 each, a fair reading of the plaintiffs’ allegations as to class size and value of claims, then the
amount in controversy would exceed CAFA’s $5 million jurisdiction minimum. The defendant also filed an
affidavit, as part of its opposition to the plaintiffs’ motion to remand, stating the $452,472.29 in total
unearned premium refunds had been made or requested in New Hampshire since the inception of the
litigation. If the totals from other states were similar, the amount in controversy would easily exceed $5
million.
The district court granted the motion to remand, finding that the plaintiffs had not alleged a specific amount
in damages and that the defendant had not shown that the amount in controversy exceeded $5 million by a
preponderance of the evidence.
“Reasonable Probability” Standard. CAFA provides for removal to federal court of state class actions
that satisfy the statute’s minimal diversity and class size requirements and have more than $5 million in
controversy [see 28 U.S.C. §§ 1332(d), 1453]. Generally, the party invoking federal jurisdiction has the
burden of establishing that the court has subject matter jurisdiction. This general principle applies in CAFA
cases, the court of appeals held: accordingly, the removing defendant has the burden of proving that
jurisdiction exists under CAFA. This is the same conclusion reached by the seven other circuits that have
considered the issue [See Strawn v. AT&T Mobility LLC, 530 F.3d 293, 298 (4th Cir. 2008) (collecting
cases)].
The court of appeals agreed with those circuits that have used the terminology of a “reasonable probability”
as the standard a removing defendant must meet in establishing CAFA jurisdiction [see Blockbuster, Inc. v.
Galeno, 472 F.3d 53, 58 (2d Cir. 2006); Brill v. Countrywide Home Loans, Inc., 427 F.3d 446, 449 (7th
Cir. 2005)]. The court noted that some circuits have required the removing defendant to prove “to a legal
certainty” that the amount in controversy exceeds the jurisdictional minimum when the complaint states a
specific amount in damages under the $5 million threshold. Here, however, the complaint was uncertain as
to the amount of damages. Accordingly, it was not necessary to decide whether to apply this higher
standard when a plaintiff alleges specific damages.
The defendant argued that the reasonable probability standard was too rigorous and that, instead, it should
be required to show only that there was ``not a legal certainty’’ that the amount in controversy was less that
the $5 million threshold. This lesser burden, the defendant argued, mirrored the burden on a plaintiff who
initially files in federal court. However, the policy considerations, the court said, are very different for the
two situations. Furthermore, placing a removing defendant in the same posture as a plaintiff who originally
files in federal court would conflict with the general rule of deference to the plaintiff’s chosen forum.
Instead, the removing defendant, as the proponent of federal jurisdiction, must sufficiently demonstrate that
the amount in controversy exceeds CAFA’s jurisdictional minimum. To do so, it must show a reasonable
probability that more than $5 million is at stake.
The court of appeals made several comments about the reasonable probability standard it had adopted.
First, it stated that this standard is for all practical purposes identical to the preponderance standard adopted
by some other circuits [see Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 543 (7th Cir. 2006)].
However, since questions of removal are typically decided at the pleadings state, when little or no evidence
has yet been produced, the burden is better framed in terms of a “reasonable probability” rather than
preponderance of the evidence.
Second, the court noted that it was not creating a step-by-step burden shifting system, which would result in
extensive and time consuming litigation over the question of the amount in controversy in CAFA removal
cases. Consideration of this preliminary issue should not devolve into a mini-trial regarding the amount in
controversy. Third, notwithstanding this caution, deciding whether a defendant has shown a “reasonable
probability” may well require analysis of what both parties have shown.
Fourth, a court’s analysis of the amount in controversy focuses on whether a removing defendant has
shown a reasonable probability that more than $5 million is in controversy at the time of removal. Events
subsequent to removal that reduce the amount in controversy below the jurisdictional minimum do not
divest a federal court of jurisdiction.
Finally, the plaintiffs’ likelihood of success on the merits is largely irrelevant to the court’s jurisdiction.
The pertinent question is what is in controversy in the case, not how much the plaintiffs are ultimately
likely to recover.
Removing Defendant Failed to Show a “Reasonable Probability.” The court of appeals concluded that
the defendant had failed to establish by a “reasonable probability” that the jurisdictional minimum was met,
in part because the plaintiffs’ class allegations were not yet fully developed at the time of removal. The
court noted that the entire record must be evaluated. At the time of removal, there was much uncertainty as
to the number of consumers who were members of the class. The third amended complaint had described a
geographically unbounded class of automobile purchasers. The plaintiffs had moved to amend further to
identify which states would be included, but the plaintiff removed to federal court before the state court
acted on the motion to amend.
In federal court, the plaintiffs specified the states to be included in a manner that was consistent with their
representations to the state court. The court of appeals could consider this specification, it said, because it
was not an impermissible effort to defeat federal jurisdiction by narrowing the pleadings post-removal, but
rather a fleshing out of the vague language of the third amended complaint.
Additionally, in assessing whether the defendant had met its burden, the court of appeals considered what
information reasonably within the defendant’s control it had failed to present, in addition to any affirmative
evidence of the amount in controversy. For example, a statistical analysis involving a sampling of the
defendant’s credit insurance certificates could have given a rough sense for the class size. Also, the
defendant could have come forward with information regarding its market share and revenues from states
other than New Hampshire that might have provided some insight to the court into the amount in
controversy.
The only affirmative evidence the defendant presented of the amount in controversy was the affidavit with
respect to New Hampshire. However, the court of appeals found that the figures in the affidavit were not
reliable. Moreover, differences in the defendant’s business practices from state to state made the total
amount in controversy impossible to ascertain with accuracy.
The court of appeals concluded that, at this stage of the litigation and based on all the information of
record, at best there was a draw. The defendant had not demonstrated a reasonable probability that the
amount in controversy exceeded $5 million. The district court’s decision to remand was proper.The court of
appeals made clear that its decision to affirm the district court’s remand order did not permanently
foreclose the defendant from attempting to remove the case to federal court—successive attempts at
removal are permissible when the grounds for removal become apparent only later in the litigation. The
defendant’s early removal was understandable, given the requirement that a defendant file a notice of
removal within thirty days of receipt of the first removable document. Here, however, the litigation had not
developed to a stage where the defendant had shown that the requirements for federal jurisdiction were met
under CAFA. The court also noted that CAFA cases are exempt from the removal statutes one-year time
limit on removal. Hence, it was not unfair to require the defendant to wait until the class allegations were
more fully developed before attempting to remove.
References. 5 Moore’s Federal Practice (3d Ed.) §§ 23.63[2][c], 23.63A[1]; 16 Moore’s Federal Practice
(3d Ed.) § 107.15[13][b][iii][B].
Grimsdale v. Kash N’ Karry Food Stores, Inc. (In re Hannaford Bros. Co. Customer Data Sec. Breach
Litig.), 564 F.3d 75, 2009 U.S. App. LEXIS 9418 (1st Cir. May 1, 2009)
The First Circuit held that plaintiffs were entitled to structure their class action to include only class
members residing in a particular state, so as to avoid removal under the Class Action Fairness Act.
Background. This appeal presented an issue of first impression in the First Circuit regarding the
application of the home state exception to federal jurisdiction under the Class Action Fairness Act (CAFA).
A plaintiff, on behalf of a class defined to consist entirely of Florida citizens, sued a single corporation, also
a Florida citizen, in Florida state court. The defendant operated a chain of grocery stores in Florida, and the
plaintiff class comprised about 1.6 million customers who had used credit or debit cards at these stores.
They alleged that the defendant had failed to adopt adequate security measures to protect their personal
information, and that a computer hacker had stolen this information.
The defendant removed to federal court under CAFA, and the plaintiff sought remand, arguing that
CAFA’s home state exception applied. The Judicial Panel on Multidistrict Litigation transferred the case
from Florida to the District of Maine, where twenty-four other suits had been consolidated. These suits
raised similar allegations of wrongdoing arising from the same security breach and against entities related
to the defendant. The transferee district court then granted the motion to remand, finding that the home
state exception did apply.
Burden of Proof. As a threshold question, the court of appeals determined that the plaintiff had the burden
to show that the home state exception applied. This rule is in accord with the other circuits that have
considered the issue, and is consistent with the general rule that whenever the subject matter of an action
qualifies it for removal, the burden is on the plaintiff to find an express exception.
Home State Exception. The home state exception requires a federal court to decline to exercise
jurisdiction under CAFA if at least two thirds of the members of all proposed plaintiff classes in the
aggregate, and the primary defendants, are citizens of the state where the action was originally filed [see 28
U.S.C. § 1332(d)(4)(B)].
The defendant argued, essentially, that the plaintiffs had improperly drawn the complaint in terms limiting
the class and the defendants, in order to defeat federal jurisdiction in violation of the congressional intent
behind CAFA. The First Circuit, however, rejected the idea that the application of CAFA's home state
exception depends on a broader assessment of the claims brought by others who do not fall within the
complaint's class definition or of the claims available to the class against other possible defendants.
All the requirements of the home state exception were satisfied here: as defined in the complaint, the class
consisted of only Florida citizens, the only defendant was a Florida citizen because its principle place of
business was in Florida, and the case was filed in Florida state court.
The defendant argued that, because the exception requires that “the members of all proposed plaintiff
classes in the aggregate” be citizens of the home state, the exception requires reference outside the four
corners of the complaint. That is, the district court should have considered all previously filed class actions
arising from the same core nucleus of operative facts. Accordingly, all the class actions consolidated by the
Judicial Panel on Multidistrict Litigation would be the appropriate reference point. Similarly, the defendant
argued that the exception’s reference to “primary defendants” required the court to look beyond the
complaint to consider unnamed defendants against whom the class could pursue a claim arising from the
same core set of facts.
The defendant’s reading, the court of appeals said, was contrary to the plain language of the exception. The
plural “classes” was used because, under Federal Rule 23 and similar state statutes and rules, a single
complaint may contain multiple classes and subclasses, not because Congress intended to require an inquiry
into the broader “case or controversy.”
The defendant further argued that giving effect to the plaintiff’s choice to define the suit narrowly would
defeat CAFA’s broader purpose of expanding federal jurisdiction. The court of appeals noted that similar
arguments have been made as to other provisions of CAFA in other circuits and with varying results.
“There is no one-size-fits-all response to a claim of evasion of congressional intent. The analysis will turn
on the precise language of that section of CAFA. Our job is to effectuate the intent expressed in the plain
language Congress has chosen, not to effectuate purported policy choices regardless of language.”
The court of appeals noted that the home state exception is fairly narrow, encompassing only those suits in
which at least two thirds of the class members and all the primary defendants are citizens of the same state.
Moreover, plaintiffs potentially sacrifice a great deal in terms of the parties they can sue and the claims
they can bring by narrowing their pleadings to fit within the home state exception.
Additionally, the court of appeals observed that many of the policy concerns that motivated Congress to
enact CAFA are simply not implicated when the suit qualifies for the home state exception. Congress was
responding to what it perceived as abusive practices by plaintiffs and their attorneys in litigating major
interstate class actions in state courts. These abusive practices included forum shopping to take advantage
of potential state court biases against foreign defendants. When the defendant is also a citizen of the forum
state, the concern for bias does not arise. Likewise, Congress was concerned that state courts were making
judgments imposing their view of the law on other states, but this potential problem also is not implicated
when the class members are largely citizens of the forum state.
Accordingly, the court of appeals applied the home state exception according to its clear terms, and
therefore affirmed the order remanding the case to state court.
References. 5 Moore's Federal Practice (3d Ed.) § 23.63[2][d][ii]; 15 Moore's Federal Practice (3d Ed.) §
102.26[1][d][iii]; 16 Moore's Federal Practice (3d Ed.) § 107.15[13][b][ii][e].
Tanoh v. Dow Chem. Co., 561 F.3d 945, 2009 U.S. App. LEXIS 6931 (9th Cir. Mar. 27, 2009)
The Ninth Circuit held that seven individual state court actions, each with fewer than 100 plaintiffs,
could not be treated as one “mass action” eligible for removal to federal court under the Class Action
Fairness Act.
Background. This litigation involved toxic tort claims by 664 West Africans, who alleged that they were
exposed to the defendant’s chemical product while working on banana and pineapple plantations in the
Ivory Coast. These workers filed seven separate actions in state court, each of which included fewer than
one hundred plaintiffs. The defendant removed to federal court, arguing inter alia that these seven actions,
taken together, qualified as a “mass action” removable to federal court under the Class Action Fairness Act
(CAFA).
The district court remanded to state court because of lack of jurisdiction, specifically rejecting the
defendant’s argument that the plaintiffs had strategically sought to avoid federal jurisdiction by filing
separate state court actions in groups of fewer than 100. The defendant then appealed under 28 U.S.C. §
1453(c), which allows the court of appeals to accept an appeal from an order granting or denying remand
when a case has been removed under CAFA. The court of appeals consolidated all seven appeals.
CAFA’s Mass Action Provision. The Ninth Circuit observed that CAFA was designed primarily to curb
perceived abuses of the class action device which, in the view of CAFA’s proponents, had often been used
to litigate multi-state or even national class actions in state courts. At the same time, one section of CAFA
also extended federal removal jurisdiction to “mass actions,” defined as any civil action other than a class
action 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)]. However, the term does not include an action in which .the claims are joined on motion
of a defendant {28 U.S.C. § 1332(d)(11)(B)(ii)].
Although plaintiffs in a mass action do not seek to represent the interests of parties not before the court, as
they would in a class action, CAFA provides that a qualifying mass action “shall be deemed to be a class
action” removable to federal court under CAFA, provided the rest of CAFA's jurisdictional requirements
are met [28 U.S.C. § 1332(d)(11)(A)].
Separate Actions Could Not Be Considered Together For Purposes of 100-Person Minimum. The
mass action provision, by its plain terms, did not allow removal of the claims in this case, as none of the
seven state court actions involved the claims of 100 or more plaintiffs, and neither the parties nor the trial
court had proposed consolidating the actions for trial. Concluding that the claims fell outside CAFA's
removal provisions, the Ninth Circuit said, was consistent with both the well-established rule that plaintiffs,
as masters of their complaint, may choose their forum by selecting state over federal court, and with the
equally well-established presumption against federal removal jurisdiction.
The defendant argued that allowing the plaintiffs to evade CAFA by artificially structuring their lawsuits to
avoid removal to federal court would be inconsistent with CAFA’s congressional purpose. The Ninth
Circuit was unpersuaded. First, Congress provided in CAFA that the term “mass action” does not include
civil actions in which the claims are joined on motion of a defendant. Congress anticipated, then, that
defendants might attempt to consolidate several smaller state court actions into one “mass action,” and
specifically directed that such a consolidated action was not a mass action eligible for removal under
CAFA.
In the present case, the defendant had never formally moved to consolidate, but nevertheless was asking the
court to treat the claims as consolidated for purposes of CAFA. Congress, the Ninth Circuit said, intended
to allow suits filed on behalf of fewer than one hundred plaintiffs to remain in state court, notwithstanding a
defendant’s wishes for consolidation, however expressed.
The Ninth Circuit also noted that CAFA specifies that claims “consolidated or coordinated solely for
pretrial proceedings” do not qualify as mass actions [28 U.S.C. § 1332(d)(11)(B)(ii)(IV)]. This provision
reinforced the conclusion that Congress intended to limit the numerosity component of mass actions quite
severely by including only actions in which the trial itself would address the claims of at least one hundred
plaintiffs.
The Ninth Circuit also rejected the defendant’s argument that CAFA’s primary purpose was to prevent
plaintiff’s lawyers from abusing the class action device, often by filing several “copycat” actions alleging
the same injuries on behalf of the same class of plaintiffs in different state courts. This might be so, the
Ninth Circuit said, but had no application here. Each of the seven cases that had been filed in state court
involved a different group of plaintiffs, and none purported to represent a nationwide class. While
competing claims to represent the same class of plaintiffs might raise concerns that overlapping or identical
claims would be litigated in multiple jurisdictions, such concerns simply did not apply in this case, in which
the plaintiffs expressly elected not to proceed as a class.
Moreover, while the legislative history did show a general concern over “copycat” class actions and
jurisdictional “gamesmanship,” these concerns did not appear in the sections of the legislative history
specifically addressing mass actions. These sections were consistent with the idea that the decision to try
claims jointly (thereby creating a mass action removable under CAFA) remains with plaintiffs.
Finally, the Ninth Circuit noted that cases relied on by the defendant were not on point. For example, in
Freeman v. Blue Ridge Paper Products, Inc. [551 F.3d 405 (6th Cir. 2008), discussed in Mar. 2009
MOORE’S FEDERAL PRACTICE UPDATE, p. 55], the Sixth Circuit held that plaintiffs could not
defeat removal jurisdiction under CAFA by dividing their action into five separate actions and limiting the
total damages for each action to less than CAFA’s $5 million threshold. However, Freeman involved actual
class actions and therefore did not address the statutory provisions applicable to mass actions. Instead, the
case involved an issue, the splitting of plaintiffs’ claims by time period, as to which CAFA’s class action
provisions are silent. In the present case, by contrast, the statute speaks to the issue at hand, specifying that
claims joined on motion of a defendant do not qualify for removal.
In another case cited by the defendant, Bullard v. Burlington N. Santa Fe Ry. Co. [535 F.3d 759 (7th Cir.
2008), discussed in Nov. 2008 MOORE’S FEDERAL PRACTICE UPDATE, p. 299], 144 plaintiffs
sought damages for exposure to chemicals. The court held that by filing a complaint on behalf of 144
residents injured by the leak, plaintiffs had proposed jointly trying the claims of one hundred or more
people, triggering removal under CAFA. Bullard did not address the present question, whether multiple
state court actions involving fewer than one hundred plaintiffs could be removed under CAFA as a single
mass action, as the plaintiffs' complaint in Bullard, on its face asserted claims on behalf of more than one
hundred individuals.
Conclusion. In short, the Ninth Circuit said, CAFA’s “mass action” provisions clearly apply only to civil
actions in which monetary relief claims of 100 or more persons are “proposed to be tried jointly.” None of
the seven state court actions involved the claims of one hundred or more persons proposed to be tried
jointly, and the actions were therefore not removable to federal court under CAFA.
The separate actions would become removable if plaintiffs at some later time joined their claims for trial.
The Ninth Circuit stated that it expressed no opinion as to whether a state court’s sua sponte joinder of
claims might allow a defendant to remove separately filed actions to federal court as a single “mass action.”
References. 5 Moore's Federal Practice (3d Ed.) §§ 23.63[2][e], 23.63A[6]; 15 Moore's Federal Practice
(3d Ed.) § 102.26[1][e]; 16 Moore's Federal Practice (3d Ed.) § 107.15[13][b][iv].
Bullard v. Burlington N. Santa Fe Ry. Co., 535 F.3d 759, 2008 U.S. App. LEXIS 16426 (7th Cir. Aug. 8,
2008)
The Seventh Circuit ruled that, for purposes of determining whether the claims of more than 100
plaintiffs are ``proposed to be tried jointly,'' making the action a ``mass action,'' a single complaint
may be read as implicitly proposing a single trial for all plaintiffs' claims.
The complaint, filed by 144 plaintiffs, alleged that they had been injured by chemicals that escaped from a
wood-processing plant near their homes. The four defendants were corporations that had designed,
manufactured, transported, or used the chemicals. The defendants removed the suit to federal court under
the Class Action Fairness Act (CAFA). The plaintiffs sought remand, which the district court denied, and
they then sought interlocutory appeal under 28 U.S.C. ' 1453(c)(1). The Seventh Circuit granted appeal in
order to decide the novel legal issue as to the interpretation of CAFA.
CAFA, generally speaking, creates federal jurisdiction over class actions when the stakes of the action as a
whole exceed $5 million, and minimal diversity of citizenship exists. ``Mass actions'' are treated as class
actions and are removable to the same extent. ``Mass actions'' are 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'' [see 28 U.S.C. ' 1332(d)(11)]. At least one plaintiff in the mass action
must meet the $75,000 amount-in-controversy requirement.
The plaintiffs acknowledged that the amount-in-controversy and diversity-of-citizenship requirements were
satisfied. They sought remand on the grounds that the suit was not a ``mass action,'' arguing that their
claims were not ``proposed to be tried jointly.'' Their complaint did not propose a trial: they would be
content to resolve the matter through settlement or summary judgment. By contrast, CAFA defines a ``class
action'' as a suit that is filed as a representative proceeding under Rule 23 or an equivalent state rule [see 28
U.S.C. ' 1332(d)(1)(B)]. A proposal to hold a joint trial comes after the complaint, so it could not meet this
filing requirement, according to the plaintiffs.
This interpretation was unacceptable to the Seventh Circuit, because under it no mass action could ever be
a class action, as a suit could not be identified as a mass action until close to trial, while a suit is determined
to be a class action on the date of filing. An alternative, more sensible reading, was that litigation counts as
a class action if it is either filed as a representative suit or becomes a ``mass action'' at any time. Whether a
suit is a mass action may be determined after the suit's filing date, and even on the eve of trial, but that is
not the only time.
Moreover, it is reasonable to read a single complaint as implicitly proposing a single trial. The complaint
here, which described circumstances common to all plaintiffs, proposed one proceeding and thus one trial.
The plaintiffs also argued that the case might be resolved with a trial covering fewer than all 144 plaintiffs.
This would not take the suit outside the mass action definition, however. A trial of several exemplary
plaintiffs, followed by application of issue or claim preclusion to the remaining plaintiffs without another
trial, is still a proceeding in which the claims of all the plaintiffs are being tried jointly.
References. 5 Moore's Federal Practice (3d Ed.) § 23.63A[6].
Precise Class Definition Defeats CAFA Jurisdiction.
In Johnson v. Advance America, 549 F.3d 932 (4th Cir. Dec. 12, 2008), plaintiffs defined the class to
include residents of South Carolina at the time of filing, thereby excluding persons who moved from South
Carolina and established citizenship elsewhere at the time the lawsuit was commenced. The defendant, a
Delaware corporation with a principal place of business in South Carolina, removed the case to federal
court. Relying on the class definition, which excluded non-South Carolina residents from the class, the
Fourth Circuit concluded that minimal diversity did not exist and remanded the case.
VI.
Appellate Issues
Georgene Vairo on "Spivey v. Vertrue, Inc." LexisNexis Expert Commentary, 2008 Emerging Issues 2804
The Class Action Fairness Act (CAFA'') has spawned more than its share of interpretive disputes. At the
time of its passage, we predicted the issue involved in Spivey v. Vertrue, Inc., 528 F.3d 982, 2008 U.S. App. LEXIS 12419 (7th Cir. June 11, 2008): the probable drafting flaw in the language of 28 U.S.C. § 1453(c)(1),
which provides for discretionary appellate review of district court orders granting or denying a motion to
remand an action removed to federal court under CAFA back to state court [see Class Action Fairness Act
of 2005 With Commentary and Analysis by Georgene M. Vairo of Moores Federal Practice Board of
Editors (LexisNexis 2005)]. Spivey is important because the Seventh Circuit has created a circuit split by
holding that the time limit for this CAFA provision should be read literally, so that an application to appeal
is timely if filed not less than 7 days after entry of the order.'' Judge Frank Easterbrooks amusing opinion
not only reminds one of the old Miller Lite beer commercials -- Great Taste . . . Less Filling -- but makes a
lot of sense. (The Great Taste...Less Filling!'' advertising campaign was ranked by Advertising Age
magazine as the 8th best advertising campaign in history. See http://en.wikipedia.org/wiki/Miller_Lite.)
Background. The plaintiff filed suit in state court as a class action, alleging that the defendant, a marketer,
systematically submitted unauthorized charges to its customers' credit cards. The defendant removed the
case to federal court under CAFA. The plaintiff moved to remand, arguing that CAFA's amount in
controversy requirement was not met because the amount in controversy did not exceed $5 million. The
district court agreed and remanded the case.
The defendant then filed for leave to appeal the remand as authorized by CAFA, 28 U.S.C. § 1453(c)(1),
which provides that a court of appeals may accept an appeal from an order granting or denying remand if
application is made to the court of appeals not less than 7 days after entry of the order.'' The defendant's
lawyer mailed the petition on the seventh day after the district court's remand order, and the petition
reached the court of appeals and was filed'' on the tenth day after the remand order was filed. The plaintiff
argued that the petition was too late and the court of appeals lacked jurisdiction.
Petition Was Timely. Because the defendants petition for leave to appeal was filed ten days after the
remand order it met the not less than 7 days after entry of the order'' under the language of the statute.
Excluding weekends when counting the 7-day period, as required by Appellate Rule 26(a)(2), arguably the
period would be extended to not less than 9 days'' after the entry of the remand order. Because the
defendant filed the petition on the tenth day, it was timely, i.e., it was filed not less than 7 or 9 days'' after
the filing of the order.
The plaintiff's argument was that the statute should not be interpreted literally because Congress did not
mean what it said. And, Judge Easterbrook agreed that CAFAs drafters intended to write not more than 7
days'' or not later than 7 days,'' or within 7 days'' because time limits for appeals are always set the last date
allowed for action, rather than the earliest time to file something. Additionally, taking an even closer look
at the ugly wording of the provision, he noted: No one noticed the gaffe (or the misuse of the word less'
when correct diction requires fewer') before the statute was enacted.'' Nonetheless, even though it was
doubtless'' that Congress intended a short deadline, legislative history can not justify reading a statute to
mean the opposite of what it says.'' Nor is the fact that Congress wrote an imprecise or even perverse
deadline reason to disregard the enacted language. Moreover, [t]he garble has attracted considerable
attention by both judges and law reviews, but Congress has not enacted a technical-corrections bill.''
The Seventh Circuit is the first to hold that less'' means less.'' Every other circuit has ruled that less'' means
more'' [see Estate of Pew v. Cardarelli, 527 F.3d 25, 28 (2d Cir. 2008); Morgan v. Gay, 466 F.3d 276, 277 (3d Cir. 2006); Amalgamated Transit Union v. Laidlaw Transit Services, Inc., 435 F.3d 1140, 1146 (9th Cir. 2006), rehearing en banc denied, 448 F.3d 1092 (9th Cir. 2006) (Bybee, J., and five other judges
dissenting); Pritchett v. Office Depot, Inc., 420 F.3d 1090, 1093 n.2 (10th Cir. 2005); Miedema v. Maytag Corp., 450 F.3d 1322, 1326 (11th Cir. 2006)].
Those courts cited three reasons why less'' should mean more'', i.e., that Congress wanted any petition to
appeal to be filed in no more than 7 days.'' First, the intent of Congress was to compel prompt action so that
the removal question could be quickly decided. Second, these courts were concerned about the abuses that
may result if there were an open-ended period for appealing the order. Third, they invoked the rule that
when the uncontested legislative history is at odds with the language of the statute, that legislative intent
controls. It also bears mentioning that, except for the Ninth Circuit case, the party petitioning filed on the
6th or 7th day after the order was filed. Accordingly, these courts were reviving an otherwise untimely
petition. And, the Ninth Circuit, after holding that less'' means more,'' revived the plaintiffs otherwise
untimely petition (filed 43 days after the district court order), invoking its authority to suspend the rules for
good cause [see Fed. R. App. P. 2].
However, the Seventh Circuit refused to adopt a statutory interpretation that did such violence to the text:
Legislative history may help disambiguate a cloudy text by showing how words work in context; it does not
permit a judge to turn a clear text on its head.'' It, however, agreed with the result that most of the courts
had reached, but on a different ground. According to the Seventh Circuit, a petition filed before the period
has elapsed should also be accepted. Under Appellate Rule 4(a)(2), a premature notice of appeal remains on
file and springs into effect when the decision becomes appealable. The same approach makes sense for a
premature request for leave to appeal.
But to the extent that language in other circuits' opinions implies that they would deem a petition filed on
the eighth day or later day jurisdictionally late, the Seventh Circuit took issue. A statute should not be
construed to sand-bag litigants by misleading language or pull the rug out from under a litigant who relied
on statutory text. Accordingly, in the Seventh Circuit, a petition for appeal under CAFA that is filed after
the 7-day period is timely. Litigants should be able to rely on the enacted language of a statute (which also
would have justified the result in the Ninth Circuit case).
Finally, the Seventh Circuit noted that its holding does not give litigants forever to appeal. Appellate Rule
5(a)(2) says that, when there is no other limit, a petition for permission to appeal must be filed within the
time provided by Rule 4(a) for filing a notice of appeal,'' or in other words within 30 days. Reading §
1453(c)(1) to mean what it says thus does not authorize indefinite delay. Although it may allow a party 23
days more than the authors anticipated, our reading avoids nasty surprises for litigants who believe--and are
entitled to believe--that courts will honor the language in the enrolled bill that the President signs.''
Amount in Controversy Was Adequately Pleaded. Under CAFA, the district courts have original and
removal jurisdiction of cases if, among other requirements, the amount in controversy exceeds $5 million.
The defendant submitted an affidavit to the effect that its billings, for a portion of the programs described in
the complaint, amounted to almost $7 million. The Seventh Circuit interpreted the complaint, which alleged
that the defendant made unauthorized charges as a standard practice, as putting into controversy the
propriety of all the defendant's charges.
The removing party, as the proponent of federal jurisdiction, bears the burden of describing how the
controversy exceeds $5 million. This is a pleading requirement, not a matter of proof. The demonstration
concerns what the plaintiff is claiming, not whether the plaintiff is likely to win or be awarded everything
that is claimed. Once the proponent of federal jurisdiction has explained plausibly how the stakes exceed $5
million, cf. Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007) [discussed in July 2007
MOORES FEDERAL PRACTICE UPDATE, p. 149], then the case belongs in federal court unless it is
legally impossible for the plaintiff to recover that much.'' The district court had found that recovery of more
than $5 million was uncertain, but uncertainty is not impossibility.
Accordingly, the Seventh Circuit granted the petition and accepted the appeal, and decided the appeal by
reversing the remand to state court. The case was then remanded to the federal district court for
adjudication on the merits.
Fortunately, Congress has solved the timing problem. The typo has been corrected. Permission to
appeal must be filed not more than 10 days after the remand decision.