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CAFA Law Blog Information, cases and insights regarding the Class Action Fairness Act of 2005

“Local Controversy” Exception Demands Remand

Posted in Case Summaries

Vitale_v__DR_Horton__Inc_, CV No. 15-00312 DKW-KSC, 2016 WL 4203399 (D. Haw. Aug. 9, 2016)

In Vitale v. D.R. Horton, Inc., a federal district court in Hawaii remanded a putative class action, one brought pursuant to the Class Action Fairness Act (“CAFA”), because CAFA’s “local controversy” exception demanded that the federal court decline to exercise its jurisdiction.

The plaintiffs, home-purchasers, brought a putative class action in Hawaii state court,  alleging that the defendants, a Hawaiian homebuilder and its parent corporation, developed, constructed, and sold thousands of single-family homes and condominiums in Hawaii that contained defective, embedded hurricane straps. The plaintiffs identified 3,300 putative class members—over 2,900 of whom were citizens of Hawaii.

The defendant-homebuilders removed the case, asserting that the parties met CAFA’s minimal diversity requirement because some of the plaintiffs were citizens of Hawaii and the parent company of the Hawaii homebuilders was incorporated in Delaware and had its principal place of business in Texas.  After the case was removed, the district court informed the parties that it believed the court may lack subject matter jurisdiction under CAFA and ordered the two sides to brief the issue for the court. The defendants asserted that the court lacked the authority to consider CAFA’s jurisdictional exceptions sua sponte—an assertion the court thoroughly and forcefully rebutted, explaining the court’s “perpetual obligation to ensure its own subject matter jurisdiction.”

After clarifying the court’s power to raise questions of its jurisdiction under CAFA, the court turned to the particulars of the “local controversy” requirement. The court wrote that while CAFA’s minimal diversity requirement, the amount-in-controversy requirement, and the numerosity requirement had been met, it must also consider CAFA’s mandatory jurisdictional exceptions.

The “local controversy” exception, delineated in 28 U.S.C. § 1332(d)(4)(A), reads:

 A district court shall decline to exercise jurisdiction under

paragraph (2)—

(A)(i) over a class action in which—

(I) greater than two-thirds of the members of all proposed

plaintiff classes in the aggregate are citizens of the State in

which the action was originally filed;

(II) at least 1 defendant is a defendant—

(aa) from whom significant relief is sought by

members of the plaintiff class;

(bb) whose alleged conduct forms a significant

basis for the claims asserted by the proposed

plaintiff class; and

(cc) who is a citizen of the State in which the action

was originally filed; and

(III) principal injuries resulting from the alleged conduct

or any related conduct of each defendant were incurred in

the State in which the action was originally filed; and

(ii) during the 3–year period preceding the filing of that class

action, no other class action has been filed asserting the same or

similar factual allegations against any of the defendants on

behalf of the same or other persons[].

First, the district court tackled the citizenship requirement, which requires proof, by a preponderance of the evidence, that two-thirds or more of the members of the proposed class were citizens of Hawaii.  According to the plaintiffs, approximately ninety percent of the putative class were citizens of Hawai’i; the plaintiffs supported this statement with property and tax records. Using the preponderance-of-the-evidence standard, the court determined that the first requirement of the exception had been met. Next, the court looked at the domicile of the defendants. From the defendant’s own admission, the local homebuilder company had its principal place of business in Hawaii, and the plaintiffs asserted that this defendant was the one who allegedly built and sold the defective hurricane straps at issue in this case. The district court found the Hawaii company was a “defendant from whom significant relief is sought and whose alleged conduct forms a significant basis for the claims is a citizen of the state in which the claim was originally brought,” satisfying the second element. Third, the parties did not dispute that the principal alleged injuries arose from conduct that occurred in Hawaii. And, last, no other parties had filed a class action alleging the same or similar claims in the prior three years.

Therefore, because all four requirements of the “local controversy” requirement had been met, the court had no choice but to remand the putative class action back to Hawaii state court.

Laura Cannon