The Ninth Circuit found that a post-removal amendment to the complaint made not to eliminate a federal question (and thereby avoid federal jurisdiction), but made to elaborate on estimates of the percentage of total claims asserted against an in-state defendant is permissible under CAFA.
In this case, the plaintiffs brought a putative class action in state court alleging that the defendants engaged in illegal debt collection practices in the course of carrying out non-judicial foreclosures. The plaintiffs took loans against Nevada real properties. When the plaintiffs defaulted on the loans, the defendants, trustees on the foreclosed deeds, engaged in claim collection under Nevada Revised Statutes (“NRS”) Section 649. The plaintiffs argued that Nevada law required the trustees be licensed, and the defendants’ failure to register as “collection agencies” constituted deceptive trade practice. The defendants removed the action to the District Court under the CAFA.
The plaintiffs attempted to amend their complaint to add claims against Meridian Foreclosure Services (“Meridian”), a Nevada corporation. Although the District Court found jurisdiction, it dismissed the plaintiffs’ claim for failure to state a claim. The District Court also denied the plaintiffs leave to amend holding that amendments were futile. The plaintiffs appealed to the Ninth Circuit.
The Ninth Circuit noted that, because Meridian was a significant defendant for purposes of the CAFA’s local controversy exception, it lacked jurisdiction over this action. The Ninth Circuit cited Coleman v. Estes Express Lines Inc., 631 F.3d 1010 (9th Cir., 2011) and held that it must analyze only the allegations in the complaint to determine whether the plaintiffs sought significant relief from an in-state defendant and whether the in-state defendant’s alleged conduct formed a significant basis for the claims asserted.
The Ninth Circuit compared the allegations against Meridian to the allegations made against other defendants and found that the plaintiffs had shown that a significant number or percentage of putative class members might have claims against Meridian. In terms of the overall class, the plaintiffs alleged that Meridian conducted illegal debt collection agency activities with respect to thousand of files each year, and that Meridian’s activities constituted between 15 to 20% of the total debt collection activities of all the defendants. Further, the plaintiffs claimed general damages of $10,000 from Meridian and punitive damages as a result of deceptive trade practices and fraud.
The plaintiffs estimated that the total recovery for damages from Meridian would be between $5,000,000 and $8,000,000. The Ninth Circuit concluded that Meridian’s conduct constituted a significant basis for the plaintiffs’ claims, as the plaintiffs sought significant relief from Meridian. Thus, the plaintiffs had met their burden of showing that the action qualified for the local controversy exception.
The Ninth Circuit further held that the District Court abused its discretion in denying the plaintiffs leave to amend. According to the Ninth Circuit, the plaintiffs did not attempt to amend their complaint to eliminate a federal question so as to avoid federal jurisdiction; rather, they attempted to elaborate on estimates of the percentage of total claims asserted against Meridian, an in-state defendant, and the dollar value of those claims.
The Ninth Circuit tus held that, by amending complaint, the plaintiffs provided the information required to determine whether the action was within the District Court’s jurisdiction under the CAFA. Accordingly, the Ninth Circuit reversed the District Court’s order and instructed it to remand the action to the state court for further proceedings.
The dissent, however, remarked that courts generally refuse post-removal amendments in analyzing jurisdiction because doing so would invite plaintiffs to plead artfully, after the fact, what was necessary to defeat federal jurisdiction. Further, the dissent stated that the District Court correctly considered only the allegations in the operative complaint at the time of removal without regard to subsequent attempted amendments to avoid federal jurisdiction.
-Melissa M. Grand