Earlier this summer, our blog discussed a recent Ninth Circuit decision in which the court appeared to take a more liberal approach to removal jurisdiction under the Class Action Fairness Act (“CAFA”). Recently, the Ninth Circuit focused on the purpose of CAFA’s local-controversy exception to reinforce a key yet narrow limit on federal jurisdiction under CAFA.[1]
Congress enacted CAFA in 2005 to curb perceived abuses of the class-action device by vesting federal courts with diversity jurisdiction over any class action of 100 or more plaintiffs in which the aggregate amount in controversy exceeds $5 million, as long as any class member and any defendant are members of different states.[2] A defendant may remove a case filed in state court that meets these requirements to the federal district court.[3] The statute is designed to prevent forum shopping and multiple duplicative actions in state courts and require significant multistate actions to be litigated in federal courts.[4]
There are exceptions to CAFA’s grant of removal jurisdiction.[5] One, known as the local-controversy exception, requires a district court to decline to exercise jurisdiction where (among other things) more than two-thirds of the class members are citizens of the state in which the action was filed originally, and the principal injuries occurred there. But the exception only applies if no similar class action has been filed against any of the defendants in the preceding three years.[6]
In Bridewell-Sledge v. Blue Cross of California, the Ninth Circuit examined the latter requirement of the local-controversy exception. In Bridewell, two similar class actions were filed against the same defendants in the same California state court on the same day.[7] The state court granted a motion to consolidate the cases “as of this date for all purposes.” After consolidation, the plaintiffs amended the complaint to add a non-California defendant, which created the minimal diversity required for CAFA removal jurisdiction. The defendants then filed notices removing each of the originally filed state court actions to federal district court.
The plaintiffs sought remand under CAFA’s local-controversy exception. In response, the defendants argued that the exception did not apply to the second-filed case because a similar class action (the first case) had been filed against the defendants in the preceding three years. The district court agreed with the defendants, remanding the first-filed case under the local-controversy exception but retaining the second-filed case. Although consolidated “for all purposes” into a single action by the state court prior to removal, the district court rulings resulted in one part of the consolidated case proceeding in state court and the other in federal court.
The Ninth Circuit reversed. In doing so, the court recognized that the purpose of the local-controversy exception is “to respond to concerns that class actions with a truly local focus should not be moved to federal court under CAFA because state courts have a strong interest in adjudicating such disputes.”[8] The court examined CAFA’s legislative history and found “the purpose of the fourth prong of the local controversy exception and an overall purpose of CAFA is to ensure that similar, overlapping class actions do not proceed before different state courts in an uncoordinated, redundant fashion resulting in inefficiencies.”[9] Allowing the consolidated class action to proceed in state court was consistent with CAFA’s judicial efficiency and other goals.
The district court’s application of CAFA was literally and technically correct—by the time the second case was filed in state court, a similar case had been filed in the previous three years (and indeed, within the previous three hours). But the district court’s order resulted in two similar class actions proceeding simultaneously in different courts. While the Ninth Circuit arguably honored CAFA’s efficiency goals in reversing, it also expanded the local-controversy exception by creating an exception to the requirement that there have been no similar class action filed in the last three years.
One could argue that the circumstances of this exception to the exception are limited to instances where the earlier case has been consolidated—i.e., a plaintiff can file a state-court action similar to a previously filed state court action and avoid CAFA removal as long as the plaintiff successfully moves to consolidate the cases. But the case might also be used to argue for a broader interpretation in other circumstances where the public policy of efficiency is implicated.
The key takeaway: vigilance. A defendant sued in a putative class action in state court that qualifies for CAFA removal where a similar class action has been filed against any of the defendants should remove before the plaintiff can move for consolidation. By the same token, the existence of a similar pending state-court action may not be a barrier to defeating CAFA removal jurisdiction if plaintiffs can consolidate before removal.
–Brandi Balanda
[1] See Bridewell-Sledge v. Blue Cross of Cal., —F.3d — 2015 WL 4939641 (9th Cir. Aug. 20, 2015); see also Benko v. Quality Loan Serv. Corp., 789 F.3d 1111, 1116 (9th Cir. 2015) (recognizing the local controversy exception to CAFA “is a narrow one, particularly in light of the purposes of CAFA”); Tanoh v. Dow Chem. Co., 561 F.3d 945, 954 (9th Cir. 2009) (recognizing and discussing CAFA’s primary purpose as preventing abuse of the class action device in state courts).
Brandi B. Balanda
Brandi has wide-ranging experience successfully litigating large, complex cases, from defending a senior executive against the largest trade secret claim asserted in Washington to prosecuting fraud, contract, and fiduciary duty claims related to the financing of major real estate development projects.