Header graphic for print

CAFA Law Blog

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

Appellate Court Opinion in a Wholly Separate Case Does Not Reset the 30-Day Removal Window

Posted in Case Summaries

Brown v. MHN Government Services, Inc., 2013 WL 2321509 (W.D. Wash. May 28, 2013).

The U.S. District Court for the Western District of Washington held that a recent Supreme Court opinion in a wholly separate case does not reset the 30-day removal window under 28 U.S.C. § 1446(b)(3).

Initially, the plaintiffs filed an action in the Pierce County Superior Court for the State of Washington (“Brown I”), alleging state wage law claims on behalf of themselves and a proposed class. The defendants removed the action to the District Court under CAFA, and the plaintiffs then voluntarily dismissed that complaint.

Thereafter, the plaintiffs filed a new complaint in Pierce County Superior Court for the State of Washington (“Brown II”), alleging state wage law claims on behalf of themselves and a proposed class. The plaintiffs and 12 other named plaintiffs then filed a complaint in the District Court, alleging violations of the Fair Labor Standards Act and the California Labor Code. The defendants removed Brown II to the District Court, and the plaintiffs moved for remand. The District Court granted the plaintiffs’ motion.

Subsequent to the Supreme Court’s decision in Standard Fire Ins. Co. v. Knowles, 133 S. Ct. 1345 (2013), the defendants again removed Brown II to the District Court, and the plaintiffs moved to remand.  (Editors’ Note: see CAFA law blog analysis on Knowles posted on April 12, 2013.)

The District Court observed that the defendants removed the matter without any authority for the proposition that a recent Supreme Court opinion in a wholly separate case resets the 30-day removal window under 28 U.S.C. § 1446(b)(3). The defendants provided an unpersuasive argument for the proposition that the District Court should extend the limited exception of out-of-circuit cases and hold that a Supreme Court decision, which did not involve the party seeking removal but was sufficiently related to the proceedings, could qualify as an order or “other paper.” The District Court declined to adopt the defendants’ proposed new rule of law and, accordingly, granted the plaintiffs’ motion for remand.

The plaintiffs requested an award of expenses. The District Court noted that an order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal. Whether fees and costs are awarded depended on the reasonableness of the removal. Further, the District Court noted that fees may be awarded under unusual circumstances or where there is no objectively reasonable basis for removal. Here, because it did not find that the defendants’ argument had no objectively reasonable basis for removal, the District Court declined granting an award of fees and costs.

Limited Liability Companies Are like Corporations for Purposes of Determining Citizenship under CAFA

Posted in Case Summaries

Heckemeyer v. NRT Missouri, LLC, 2013 WL 2250429 (E.D. Mo. May 22, 2013).

The U.S. District Court for the Eastern District of Missouri held that Congress chose to treat limited a limited liability company (“LLC”) like a corporation for purposes of determining citizenship under CAFA; thus, an LLC is deemed to be a citizen of the states where its principal place of business is located and the state under whose laws it is organized.

The Missouri resident plaintiffs brought an action under the Missouri Merchandising Practices Act, in Circuit Court of St. Louis County, Missouri, alleging that the defendants knowingly misrepresented the square footage of the homes that the plaintiffs and the putative class members purchased, by including footage of the empty space on the second floor above a two-story entry foyer or two-story great room. The plaintiffs alleged that James Dohr, as NRT Missouri LLC’s (“NRT”) designated broker, was responsible for supervising NRT’s brokers and salespeople and adopting a written policy covering various matters, including the subject matter of the lawsuit.

The defendants removed the action to the District Court, asserting traditional diversity jurisdiction under 28 U.S.C. § 1332(a) and CAFA jurisdiction under § 1332(d). The defendants asserted that complete diversity of citizenship existed for purposes of § 1332(a), because NRT Missouri was a citizen of Delaware and New Jersey and James Dohr was fraudulently joined so his citizenship should not be taken into account. Further, the defendants asserted that the general rule that an LLC’s citizenship is based on the citizenship of its members applies under CAFA, such that diversity of citizenship under § 1332(d), also existed.

The plaintiffs moved for remand, arguing that traditional diversity jurisdiction did not exist because Dohr was not fraudulently joined and the defendants did not show that the requisite amount in controversy of $75,000 was met with respect to any one plaintiff. The plaintiffs also argued that jurisdiction under CAFA did not exist because, under CAFA ,an LLC’s citizenship is based upon the state in which the LLC is organized and where its principal place of business is located. The plaintiffs asserted that NRT’s principal place of business was in Missouri and argued that the defendants did not establish CAFA’s requisite $5 million amount in controversy.

First, the District Court noted that the claim of any one plaintiff was less than $75,000, and the defendants made no effort to show otherwise. Thus, the District Court found that the defendants did not meet their burden to establish that traditional diversity jurisdiction existed.

Additionally, the District Court stated that diversity jurisdiction under §1332(a)(1) requires complete diversity, such that no defendant holds citizenship in the same state where any plaintiff holds citizenship. Because an LLC’s citizenship for purposes of traditional diversity jurisdiction is the citizenship of each of its members, there was diversity between the plaintiffs and NRT for purposes of traditional diversity jurisdiction. The District Court, however, remarked that, because Dohr was a citizen of Missouri, his presence as a defendant defeated traditional diversity jurisdiction.

Next, the District Court observed that, to prove that a plaintiff fraudulently joined a diversity-destroying defendant, the Eighth Circuit requires a defendant seeking removal to prove that the plaintiff’s claim against the diversity-destroying defendant has no reasonable basis in fact and law. Further, the District Court stated that joinder is not fraudulent where there is arguably a reasonable basis for predicting that the state law might impose liability based upon the facts involved.

The District Court also noted the Eighth Circuit’s instruction that, where the sufficiency of the complaint against the non-diverse defendant is questionable, the better practice is for the federal court not to decide the doubtful question in connection with the motion to remand but simply to remand the case and leave the question for the state courts to decide. Thus, because the sufficiency of the complaint against Dohr was questionable, the District Court opined that it would be best for a Missouri state court to decide Dohr’s potential liability in the present action.

Second, the District Court remarked that, although the defendants had established by a preponderance of the evidence the CAFA jurisdictional requirements of numerosity and amount in controversy, they failed to establish CAFA diversity of citizenship.

Under § 1332(d)(10), CAFA provides that an unincorporated association shall be deemed to be a citizen of the State where it has its principal place of business and the State under whose laws it is organized. Although the Eighth Circuit had not yet addressed the question, the Fourth Circuit held that an LLC is properly considered “an unincorporated association” within the meaning of § 1332(d)(10) and, thus, is deemed to be a citizen of the state both where it has its principal place of business and the state under whose laws it is organized.  Further, the District Court observed that CAFA’s legislative history, specifically Senate Report No. 109-14, shows that Congress chose to treat LLCs like corporations for purposes of determining citizenship under CAFA.

The Fourth Circuit also rejected the argument that Congress intended “unincorporated association” to refer only to those non-corporate entities that, unlike an LLC in Missouri, lacked a distinct legal identity under the law of the state where they are organized. The defendants argued that the term “unincorporated association” in § 1332(d)(10) referred to only a narrower subset of non-corporate business forms, a class that excluded entities having a distinct legal identity under the law of the state in which they are organized.

The Fourth Circuit reasoned that the term “business enterprise” includes both corporations and non-corporate entities, and the District Court noted that use of the terms “business enterprise,” “corporation,” and “unincorporated association” reflects Congress’s intent to subdivide the entities covered by the term “business enterprise” into two categories: corporations and non-corporate entities. The District Court stated that CAFA refers to non-corporate entities as “unincorporated associations.” To extend CAFA’s application, Congress narrowly defined the citizenship of non-corporate entities to include only one or two states, thereby extending federal court jurisdiction over class actions.  Accordingly, the District Court stated that Congress chose to treat LLCs like corporations for purposes of determining citizenship under CAFA.

Next, the District Court analyzed the location of NRT’s principal place of business. In Hertz Corp. v. Friend, 130 S. Ct. 1181 (2010), the Supreme Court adopted the “nerve center” test for determining a corporation’s principal place of business, defining “principal place of business” as the place where a corporation’s officers direct, control, and coordinate the corporation’s activities. Further, the District Court opined that the “nerve center” normally was the place where the corporation maintained its headquarters, provided that the headquarters was the actual center of direction, control, and coordination, and not simply an office where the corporation held its board meetings.

The plaintiffs asserted that NRT’s principal place of business was Missouri, as evidenced by NRT’s judicial admissions in several cases that its principal place of business and corporate headquarters were in Missouri. The plaintiffs also maintained that NRT’s principal place of business was Missouri, because NRT Missouri maintained its corporate office in St. Louis County, Missouri operating and doing business under the fictitious name of Caldwell Banker Gundaker.

In support of its contention that its principal place of business was New Jersey, NRT submitted the sworn declaration of its General Counsel who attested that, although business was carried out in Missouri, all NRT’s business was subject to the control of its officers in the NRT corporate headquarters in New Jersey.  However, because the District Court found that defendants did not met their burden of establishing that NRT’s principle place of business was not Missouri, it held that all plaintiffs and both defendants were citizens of Missouri for purposes of CAFA, and jurisdiction under CAFA did not exist.

Accordingly, the District Court granted the plaintiffs’ motion for remand.

Facts Outside of the Complaint and Notice of Removal Are Irrelevant for Deciding CAFA Jurisdiction

Posted in Case Summaries

Owens v. Dart Cherokee Basin Operating Co., LLC, 2013 WL 2237740 (D. Kan. May 21, 2013).

The U.S. District Court of Kansas has held that reference to factual allegations or evidence outside of the complaint and notice of removal is not permitted to determine the amount in controversy.

The plaintiff brought an action in state court, representing a class of royalty owners who were underpaid royalties from the defendants working interest Kansas wells. The plaintiff alleged breach of contract and unjust enrichment claims and sought compensatory damages, costs, and further relief as the court deemed just and proper. The petition did not state a specific amount of damages.

The defendant removed the action to the District Court, asserting CAFA jurisdiction and contending that the amount in controversy was in excess of $8.2 million. Thereafter, the plaintiff moved to remand, and the District Court granted the motion.

The District Court stated that, in determining the amount in controversy for an action removed pursuant to CAFA, the question is not how much the plaintiff will recover but rather is an estimate of the amount that will be put at issue in the course of the litigation. The District Court further noted that the amount in controversy is ordinarily determined by either the allegations of the complaint or by the allegations in the notice of removal where the allegations of the complaint are not dispositive. If the jurisdictional amount is not shown by the allegations of the complaint, then the burden is on the removing party to set forth in the notice of removal the underlying facts supporting the assertion that the amount in controversy exceeds the threshold limit.

The District Court observed that, in McPhail v. Deere & Co., 529 F.3d 947, 956 (10th Cir. 2008), the Tenth Circuit held that a plaintiff cannot avoid removal merely by declining to allege the jurisdictional amount; however, in the absence of an explicit demand for more than the jurisdictional amount, the defendant must show how much is in controversy through other means such as interrogatories obtained in state court prior to the removal, affidavits, or other evidence submitted to the federal court.

In support of their calculation that the amount in controversy exceeded $8.2 million, the Owens defendants presented the declaration of Charles E. Henderson, Vice President of Legal Affairs and General Counsel. Henderson stated that these calculations showed that the plaintiff’s claims for the entire class period exceeded the jurisdictional threshold. Upon service of the Petition, Henderson quantified the damages at issue based on the allegations in the petition, the claims, the class period, and the number of leases.

Assuming that the royalty paid to the plaintiff class should have been calculated on 100% of the proceeds and not 75%, using a “back of the envelope” calculation, Henderson concluded the class was underpaid by approximately $11 million. Using the same back of the envelope analysis, he further asserted that the claim for shrinkage was approximately $3.52 million. Assuming the allegations in the petition were correct, the defendants located and analyzed the actual production and sales data for the period in question and ran a formal economic analysis of the potential damages. Based on those assumptions, it was determined that the amount in controversy for the five year period prior to the filing of the petition was $8,224,798.62 and $11.86 million for the entire ten year period claimed by the plaintiff class.

Owens, however, asserted that the defendants could not meet their burden to show that it was more likely than not that the amount in controversy exceeded $5 million, because the defendants submitted no evidence with their unsworn notice of removal that the amount in controversy exceeded the statutory requirement.

The District Court observed that the defendants did not submit any supporting documentation, affidavit or declaration as evidence of the amount of compensatory damages, although the defendants conceded that they had the actual production and sales data at the time of the notice of removal.

The defendants argued that the amount in controversy could be demonstrated by the allegations in the petition alone and made their calculations from those allegations, along with additional facts. The defendants relied on McPhail, contending that the court held the allegations of the complaint alone was sufficient to find the amount in controversy exceeded the jurisdictional threshold for diversity jurisdiction.

The District Court, however, observed that in McPhail, the plaintiff brought a wrongful death action. The McPhail complaint cited to the Oklahoma wrongful death statute and requested all relief enumerated therein, which provided recovery for several categories of compensatory damages alleged in the complaint, as well as punitive damages up to $100,000. The Tenth Circuit held that, given the allegations and the nature of the damages sought, the complaint on its face may be sufficient by itself to support removal. The Tenth Circuit, however, declined to decide the question based on the complaint alone because the plaintiff had incorporated correspondence between counsel in the notice of removal that demonstrated her counsel believed the amount in controversy could be in excess of $75,000.

Owen’s petition, however, did not include a claim based on statutory liability or a claim for punitive damages, and the jurisdictional amount was not readily apparent from the face of the petition. Further, Owens did not attempt to limit the amount in controversy to less than the jurisdictional amount. Although the defendants stated in the notice of removal that they had undertaken to quantify the amount of additional royalties that would be owed, they failed to incorporate any evidence supporting this calculation in the notice of removal, such as an economic analysis of the amount in controversy or settlement estimates.

Accordingly, the District Court remarked that in the absence of such evidence, the general and conclusory allegations of the petition and notice of removal did not establish by a preponderance of the evidence that the amount in controversy exceeded $5 million.

Next, the District Court evaluated whether the defendants could rely on factual allegations to meet their jurisdictional burden which were not contained in the notice of removal but instead were subsequently submitted with their response as additional support. The District Court observed that the Tenth Circuit consistently held that reference to factual allegations or evidence outside of the petition and notice of removal was not permitted to determine the amount in controversy. The District Court noted that, although the Tenth Circuit appeared to have carved out a limited exception to this rule by holding that a party may seek limited discovery to determine the amount in controversy, it did not give any guidance on when it was appropriate to grant or deny a request. Nevertheless, in McPhail, the Tenth Circuit contemplated a situation in which the defendant had no information from which to establish the amount of damages.

 In Owens, the District Court found that discovery was not justified, because the defendants conceded in their response and Henderson’s Declaration that they were aware of additional facts and data at the time of removal, but they did not allege all of these facts in their notice of removal. Further, although the McPhail court indicated that evidence of settlement proposals and estimates were permitted as a basis for establishing the amount in controversy, such was possible only when those facts were incorporated into the notice of removal.

The District Court found that, although the petition was silent on the jurisdictional amount, it had enough detail regarding the basis of the claims of the underpayment of royalties to enable defendants to use their data to calculate an amount in controversy, albeit data and/or evidence they did not include in their notice of removal. Even assuming that the defendants could establish the amount in controversy exceeded $5 million, the District Court concluded that the defendants were obligated to allege all necessary jurisdictional facts in the notice of removal.

Thus, because the jurisdictional facts alleged in the petition and notice of removal did not show by a preponderance of the evidence that the amount in controversy exceeded $5 million, the District Court remanded the action to state court.

Smith v. Honeywell International, Inc., 2013 WL 2181277 (D.N.J. May 20, 2013)

Posted in Case Summaries

Smith v. Honeywell International, Inc., 2013 WL 2181277 (D.N.J. May 20, 2013).

The plaintiffs sued defendants, PPG Industries, Inc. (“PPG”) and Honeywell International Inc. (“Honeywell”), alleging that the chromium ore processing residue (“COPR”) used by the defendants to fill in residential and commercial areas in Jersey City exposed the class members to hazardous materials which contaminated them and the surrounding properties. The plaintiffs’ proposed class consisted of a medical monitoring class and a property value diminution class. The plaintiffs claimed that more than two-thirds of the members of the proposed classes were New Jersey citizens. PPG is a Pennsylvania corporation with its principal place of business in Pennsylvania, and Honeywell is a Delaware corporation with its principal place of business located in New Jersey.

Pursuant to CAFA, PPG removed the action from the Superior Court of New Jersey, Hudson County to the District Court. Although the plaintiffs did not move for remand, the Magistrate Judge expressed concern that the Court may not have jurisdiction under 28 U.S.C. § 1332(d)(4)(A)(i)(II). The Magistrate Judge noted that the threshold requirements of CAFA jurisdiction under 28 U.S.C. § 1332(d)(2)(A) were met in this case. The Magistrate Judge, however, observed that CAFA underlines two mandatory exceptions, specifically the local controversy exception and the home state exception, which restrict a district court’s ability to exercise jurisdiction.

First, under the local controversy exception of 28 U.S.C. § 1332(d)(4)(A), a district court should decline to exercise its jurisdiction 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 one 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 three-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.

The plaintiffs alleged that more than two-thirds of the members of the proposed classes were citizens of the State of New Jersey. Moreover, Honeywell, a defendant from whom significant relief was sought, likewise is a citizen of New Jersey. Additionally, the principle injuries were incurred in the state in which the action was originally filed, and the pleadings did not contain any reference to another class action asserting the same or similar allegations involving these parties.

Because the requirements of 28 U.S.C. § 1332(d)(4)(A) are conjunctive, the defendants focused on the § 1332(A)(i)(I) requirement that over a two-thirds aggregate of both of the proposed medical monitoring and property damage classes be New Jersey citizens. The plaintiffs did not defend their allegation that more than two-thirds of the members of the proposed classes were citizens of the State of New Jersey. The defendants argued that the plaintiffs could not argue credibly that two-thirds of the tens of thousands of persons who had ever lived, worked, or gone to school for six months within the range of the many New Jersey COPR sites over a 115-year period or who currently own any property in the class, were New Jersey citizens.

Because of the absence of facts to support the two-thirds allegations in the pleadings, the Magistrate Judge concluded that the first element of the local controversy exception was inapplicable. Thus, it was unnecessary to address the remaining elements of the local controversy exception.

As for the home state exception, under 28 U.S.C. § 1332(d)(4)(B), a district court must decline to exercise jurisdiction 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.

The Magistrate Judge stated that the two-thirds requirement for the home state exception is similar to that under the local controversy exception. Because the plaintiffs did not currently have facts to support the two-thirds requirement, the Magistrate Judge opined that it was not necessary to address the other elements of the home state exception.

The Magistrate Judge, therefore, recommended that CAFA jurisdiction existed, and the District Court adopted the Magistrate Judge’s report and recommendation.

Spillman v. RPM Pizza, LLC, 2013 WL 2286076 (M.D. La. May 23, 2013)

Posted in Case Summaries

Spillman v. RPM Pizza, LLC, 2013 WL 2286076 (M.D. La. May 23, 2013).

The plaintiff brought an action under the Telephone Consumer Protection Act (TCPA) on behalf of a class of persons who received automated telephone calls to their cellular phone numbers made by or on behalf of the defendant, RPM Pizza, LLC or one of its Domino’s franchise stores. The parties settled the action, and the settlement agreement created a common fund totalling $9,750,000.

Pursuant to the settlement, 314,231 members of the Monetary sub-class would receive up to a $15 cash payment funded by a $4,000,000 deposit by Argonaut Insurance Company and RPM, creating a total common fund amount of $9,750,000. Additionally, the Merchandise Voucher sub-class, the largest sub-class composed of 1,152,617 members, would receive a fully-transferrable voucher worth from $6.71 to $11.99. Without the settlement, the Merchandise Voucher sub-class would have received no benefit, because their claims were dismissed in February 2011.

The settlement agreement also contained a provision for injunctive relief with RPM agreeing to comply with the TCPA statutory and regulatory requirements applicable to pre-recorded phone messages. The value of this injunctive relief was estimated at $16.2 million dollars. Excluding the estimated value of the injunctive relief, the total potential value of the cash and voucher components of the settlement was more than $20,000,000.

Because the settlement involved creation of a common fund, the settlement was subject to CAFA, and a CAFA settlement must comply with 28 U.S.C. § 1714 and § 1715. Having preliminarily approved the settlement, the Magistrate Judge issued the class notices and directed the parties to comply CAFA notice requirements. After a fairness hearing, the Magistrate Judge approved the settlement, concluding that it was fair, reasonable, adequate and in the best interests of the class.

The Magistrate Judge found that under § 1714, the proposed settlement did not provide for the payment of greater sums to some class members than to others, solely on the basis that the class members to whom the greater sums are to be paid are located in closer geographic proximity to the Court. The proposed settlement provided that the members of the largest sub-class, the Merchandise Voucher sub-Class, would receive a fully transferrable, single-use voucher for a large one-topping pizza redeemable for in-store pick-up at an RPM-owned Domino’s store in the states of Louisiana, Alabama and Mississippi. However, the basis for geographic limitation had nothing to do with geographic proximity to the Court, and the provision was a result of the fact that RPM operated in these three states, and the vast majority of the class members had phone numbers with area codes originating from Louisiana, Alabama and Mississippi.

Further, notice of the proposed settlement and appropriate settlement documents had been given to the attorneys general in all 50 states and the District of Columbia. The 90-day period required by § 1715(d) had expired before the date of fairness hearing, and no officials had filed objections to the settlement. Accordingly, the Magistrate Judge found that the proposed settlement complied with the CAFA requirements of 28 U.S.C. §§ 1714 and 1715.

The Magistrate Judge also concluded that the notice of proposed settlement was given sufficiently to the class, which consisted of more than 1,400,000 class members. No objection to the settlement had been filed. The essential components of the notice plan developed and implemented were print publication, internet, the settlement website and press releases. The geographic composition of the class and the relative costs were considered in determining the national print and internet outlets to provide the best notice practicable to the class as a whole. 770 claims had been filed on the settlement website, and there were approximately 80 requests from individuals for claim forms. This rate of filing was consistent with other TCPA class action settlements awarding similar relief.

The notice directed to all class members who would be bound by the settlement complied with the Court’s orders and Rule 23(e), and the content and form of the notices provided were reasonable and sufficiently apprised all interested parties and class members of their right to object or opt out.

Finally, the settlement was within the range of possible recoveries and court approvals when compared to other TCPA cases which had settlements approved by the courts in this and other districts.

Accordingly, the Magistrate Judge found that the proposed TCPA class action settlement was fair, reasonable and adequate, and in the best interest of the class.

The Supreme Court’s Knowles Ruling Is Not “Other Paper” Within the Meaning of 28 U.S.C. 1446(b)(3)

Posted in Case Summaries

Henry v. Michaels Stores, Inc., 2013 WL 2208070 (N.D. Ohio May 20, 2013).

The District Court held that the Supreme Court’s recent opinion in Standard Fire Insurance Co. v. Knowles, 133 S. Ct. 1345 (2013), is not an “other paper,” which could make a previously un-removable case removable under 28 U.S.C §1446(b)(3).

The plaintiff alleged that, although the defendant advertised that its products were discounted, the defendant never actually gave the discount. The plaintiff claimed this was a violation of the Ohio Consumer Sales Practices Act, Ohio Revised Code, breach of contract, unjust enrichment, and fraud. The plaintiff disclaimed damages over $5,000,000 to preclude federal jurisdiction under the CAFA.

The defendant filed its notice of removal in the District Court, relying on the Knowles decision where the Supreme Court held that a putative class action complaint’s damages disclaimer does not preclude federal jurisdiction. (Editors’ Note: see CAFA law blog analysis of Knowles posted on April 12, 2013). The plaintiff moved to remand, arguing that the defendant failed to file its notice of removal in a timely manner. The District Court granted the plaintiff’s motion.

Under 28 U.S.C § 1446(b)(1), a defendant must file its notice of removal within 30 days of receiving a copy of the initial pleading, and if the initial pleading is not removable, a defendant under 28 U.S.C. § 1446(b)(3) may file a notice a notice of removal within 30 days after receipt of a copy of an amended pleading, motion, order or “other paper” from which it may first be ascertained that the case is one which is or has become removable.

First, the plaintiff claimed that the case was removable at the time he filed his complaint, and the relevant Sixth Circuit precedent allowed a defendant to remove a case upon a demonstration that damages were more likely than not to meet 28 U.S.C. § 1332(d)(2)’s amount in controversy requirement. Therefore, the defendant’s earlier failure to remove barred subsequent removal. The defendant, however, argued that the Sixth Circuit precedent, at the time of filing, recognized the validity of damages disclaimers to avoid federal jurisdiction.

In Smith v. Nationwide Property and Casualty Insurance Co., 505 F.3d 401 (6th Cir. 2007), the Sixth Circuit held that a disclaimer in a complaint, regarding the amount of recoverable damages, does not preclude a defendant from removing the matter to federal court upon a demonstration that damages are more likely than not to meet the amount in controversy requirement. Remand was warranted in Smith because the defendant could not show that total damages exceeded $5,000,000. (Editors’ Note: see CAFA law blog analysis of Smith posted on July 11, 2008).

Relying on In re: Travelers Casualty and Surety Company of America, No. 11-0311 (6th Cir. Jan. 27, 2013), the defendant argued that it could not have removed the plaintiff’s complaint upon filing. In Travelers Casualty, however, the Sixth Circuit stated that under the appropriate circumstances, a plaintiff may limit the damages sought in a class action, and removal would be appropriate if the plaintiff were to file an amended complaint or other pleading demonstrating a substantial likelihood or reasonable probability that he or she intends to seek damages in excess of the CAFA amount-in-controversy requirement.

The District Court remarked that this language, which does not require the absence of a damages disclaimer, supported the plaintiff’s and not the defendant’s position. Thus, the District Court opined that a plaintiff could avoid federal jurisdiction through a damages disclaimer, unless the defendant showed that the actual amount in controversy exceeded the jurisdictional threshold.

Second, the plaintiff asserted that, even if the case was not immediately removable, an intervening Supreme Court opinion could not make a previously un-removable case removable. The defendant, however, contended that a recent Supreme Court decision was an “other paper” that made the instant case removable under 28 U.S.C. §1446(b)(3).

The District Court found that the phrase “other paper” was informed by the words preceding it in 28 U.S.C. § 1446(b)(3), and ejusdem Generis, a principle of statutory construction, provides that where general words follow specific words in a statutory enumeration, the general words are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words.

The District Court also noted that the rule applied to lists of specific items separated by commas and followed by a general or collective term, but not to disjunctive phrases comprising both specific and general categories. The District Court stated that the words “pleading, motion and order” plainly referred to documents within the instant case, and to say otherwise would allow removal based on anything at all, running afoul of the rule that statutes conferring removal jurisdiction are to be construed strictly in favor of state court jurisdiction. Thus, the phrase “other paper” must share the prior terms’ limiting characteristic, and another court’s order–even the Supreme Court’s–was outside these bounds.

28 U.S.C. § 1446(b)(3) states that the tolled removal period accrues after receipt by the defendant, through service or otherwise, of the document providing the grounds for removal. The District Court remarked that holding that an intervening Supreme Court case was an “other paper” would render this phrase meaningless.

The District Court further observed that the language in 28 U.S.C. §1446 (b)(3) suggested, by use of the word “disclosure,” that removability under 28 U.S.C. § 1446(b)(3) would be triggered by the revealing of some fact –like the dropping of a nondiverse party or a settlement demand in excess of the jurisdictional threshold. Per the District Court, a Supreme Court opinion is not “disclosed” or “revealed.”

Finally, the District Court noted that 28 U.S.C. §1446(b) was not intended to provide a defendant with an escape route to federal court on the eve of a judgment in state court. Moreover, removal is disfavored in the late stages of litigation.

Accordingly, the District Court granted the plaintiff’s motion and remanded the action to the state court.

Is A Continuing Tort An “Event Or Occurence” Under CAFA’s Mass Action Provisions?

Posted in Case Summaries

Eleanor Abraham, et al v. St. Croix Renaissance, Group, L.L.L.P., 719 F.3d 270 (3d Cir. 2013).

In this appeal, the Third Circuit held that CAFA’s phrase “an event or occurrence,” as it appears in the mass-action exclusion, is not limited to something that happened at a particular moment in time.

 The plaintiffs, more than 500 Virgin Island residents, brought suit in the Superior Court of the Virgin Islands, asserting claims for abnormally dangerous condition, public nuisance, private nuisance, intentional infliction of emotional distress, negligent infliction of emotional distress, and negligence arising out of the defendant’s ownership interest of an alumina refinery on the south shore of St. Croix.  

The defendant purchased the refinery in 2002.  The plaintiffs contended that for more than thirty years the refinery refined a red ore which created enormous mounds of “red mud.”  At times, the mud was as high as 120 to 190 feet and covered up to 190 acres of land.  According to plaintiffs, this “red mud” released hazardous materials into the community including: chlorine, fluoride, TDS, aluminum, arsenic, molybdenum, selenium, coal dust, and friable asbestos.  The plaintiffs averred that the defendant’s improper maintenance of the refinery caused them to sustain damages. 

The defendant removed the action from the Superior Court of the Virgin Islands to the District Court asserting that plaintiffs’ claims qualified as a mass action.  When more than 100 cases sharing common issues of fact or law are proposed to be tried jointly, they may be removed under the mass action exception.  There are many nuances to this requirement.  Most importantly, jurisdiction does not exist under the mass action provisions of the Act unless the “mass action” definition is first satisfied. CAFA excludes from the definition 

any civil action in which – (I) all of the claims in the action arise from an event or occurence in the state in which the action was filed, and that allegedly resulted in injuries in that State or in the States contigous to that State.  

28 U.S.C. § 1332(d)(11)(B)(ii)(I).  In line with this exception, plaintiffs argued that their claims did not qualify as a mass action becuase they arose from a single event or occurent in St. Croix and caused injury and damages to their persons and property in St. Croix.  The District Court agreed and granted the plaintiffs’ motion.  The case was remanded  to the Superior Court of the Virgin Islands.  Upon the defendant’s appeal, the Third Circuit affirmed the District Court’s decision. 

For the Third Circuit, the issue boiled down to the meaning of the phrase “an event or occurrence” as it appears in the mass action exclusion.  With any issue of statutory interpretation, courts are to determine if the language at issue has a plain meaning.  The defendant relied heavily on the plain meaning of the article “an” that precedes “event or occurrence” in §1332(e).  In the defendant’s view, this “an” before “event or occurrence” excluded injuries that did not result from a single discrete incident.  Because the claims were based on the plaintiffs continued exposure to hazardous substances, the defendants argued that there was not once single discrete incident.    

The Third Circuit acknowledged that the article “an” is singular in nature.  However, the Court’s anaysis did not end there.  The Court also determined the meaning of the phrase “event or occurrence.”  The Third Circuit found that in common place, neither the term “event” nor “occurrence” was used to solely refer to a specific incident that could be definitely limited to an ascertainable period of minutes, hours or days.  The Court explained, for example, that the Civil War is a defining event in history although it spanned over a four year period and involved many battles.  Because the words “event” and “occurrence” did not commonly or necessarily refer to what transpired at an isolated moment in time, the Third Circuit remarked that there was no reason for it to conclude that Congress intended to limit the phrase “event or occurrence” in § 1332(d)(11)(B)(ii)(I) in that fashion.  Accordingly, the Court reasoned that where the record demonstrated circumstances that shared some commonality and persisted over a period of time, those could constitute “an event or occurrence” for purposes of the exclusion in § 1332(d)(11)(B)(ii)(I). 

As a matter of public policy, the Third Circuit noted that congress contemplated that some “mass actions” are better adjudicated by the state courts in which they originated.  The “event or occurrence” exclusions for mass actions, as well as the local-controversy and homes-state exceptions in § 1332(d)(4)(A) and (B) for class actions assure that aggregate actions with substantial ties to a particular state remain in the courts of that state.  Notably, the local-controversy and home-state exceptions are quite different.  The Third Circuit explained that in light of the statutory structure of CAFA, the exceptions and the exclusion have to be different because a “mass action,” to be removable, must meet the provisions of § 1332(d)(2) through (10).  This meant that to be removable a mass action must present something other than a uniquely local controversy that may not be removed under either the local-controversy or home-state exception in § 1332(d)(4)(A) and (B), respectively.  The Third Circuit remarked that if the mass action complaint pleads neither a local-controversy nor a home-state cause of action under subsection (d)(4), it may be removed unless the “event or occurrence” exclusion in subsection (d)(11)(B)(ii)(I) applies. 

The Third Circuit observed that the local-controversy exception contained broad language instructing a district court to decline to exercise jurisdiction where the “principal injuries resulting from the alleged conduct or any related conduct … were incurred in the State in which the action was originally filed.”  The Third Circuit opined that the use of this broad language in the local-controversy exception for class actions and not in the mass-action exclusion might suggest that Congress intended to limit the mass-action exclusion to claims arising from a discrete incident. 

Accordingly, the Third Circuit concluded that the District Court did not err in its interpretation of “event and occurrence.”  Rather, the Third Circuit agreed with the District Court that the complaint was not a removable “mass action” because all of the claims in the action arose from an “event or occurrence” that happened in the Virgin Islands and that resulted in injuries in the Virgin Islands. 

Accordingly, the Third circuit concluded that the District Court appropriately remanded the action to the Superior Court of the Virgin Islands.

In short, on its face, a continuing set of circumstances will likely qualify as an “event or occurrence.” Moving forward, parties wishing to utilize the mass action exception should  identify separate and discrete incidents giving rise to the claims. 

 

Citizenship, not Residency bring cases to Federal Court

Posted in Case Summaries

Villa v. United Site Servs. of California, Inc., 2013 WL 2436605 (N.D. Cal. June 4, 2013). 

District Judge Jon S. Tigar, writing for the Northern District of California remanded an action for failure to establish minimal diversity, holding that the relevant inquiry for determining whether minimal diversity exists is the citizenship of the parties, which was not proven by the defendant. 

The plaintiff brought an action alleging failure to provide rest breaks, to pay wages at the time of discharge, and to pay rest period premiums in violation of the California Labor Code.  The plaintiff sought to represent all current and former service technicians and pick-up delivery drivers working within the State of California at any time during the period beginning four years before the filing of the initial complaint, who worked for shifts of greater than three and one-half hours and who were denied rest breaks, who were denied compensation, including premium pay on a daily basis, and whose premium payments were delayed after their employment was terminated. 

The defendant removed the action from Superior Court of Santa Clara County to the District Court under § 1332(d) of CAFA.  The plaintiff moved for remand arguing that removal under was improper because the complaint asserted only state law claims and there was no minimal diversity.  The District Court granted the motion.  

Because the defendant was a citizen of California, the District Court noted that minimal diversity would exist only if at least one putative class member was not a citizen of California.  The defendant submitted two declarations of its attorneys to demonstrate that at least one purported class member was not a citizen of California.  The first declaration stated that during a telephone conversation a former employee informed the lawyer that she moved to Kansas in 2009 and that she was moving to Oklahoma the following week.  Further, the declaration stated that online research showed the employee’s address to be in Kansas and that another online search revealed that another former employee had an address in Texas.  The second declaration stated that the Texas address belonged to a former employee of the defendant. 

The District Court observed that the relevant inquiry for determining whether minimal diversity exists is the citizenship of the parties, and here, the declarations only spoke about the residence of the two purported class members, and not their citizenship.  The District Court opined that allegations pertaining to the state in which a person resides are not conclusive as to whether that person is a citizen of that state, and that the declarations did not establish that the putative class members’ permanent home was in a state other than California, because they contained no information as to whether the putative class members intended to remain in the places where the defendant claimed that they currently resided.  

Thus, the District Court stated that the defendant failed to meet its burden to support its allegations that minimal diversity under §1332(d) existed. 

Further, the District Court noted that courts evaluate a person’s domicile in terms of objective facts, and here, the defendant did not submit any objective facts to establish the citizenship of the two putative class members.  Instead, the defendant submitted two declarations of its own lawyers, which contained factual statements that were not based on personal knowledge. 

Although the defendant was capable of submitting competent proof as to the putative class members’ citizenship, either by submitting declarations of the putative class members themselves, or by submitting other proof of citizenship such as voting registration and voting practices, location of personal and real property, location of brokerage and bank accounts, location of spouse and family, place of employment or business, driver’s license and automobile registration, and payment of taxes, the defendant did not explain why it failed to submit any such proof. 

Thus, because the defendant failed to establish the citizenship of the putative class member, the District Court granted the plaintiff’s motion and remanded the action to state court. — JR

Amount in Controversy adequately supported by Defendant’s Affidavit

Posted in Uncategorized

Turnage v. Old Dominion Freight Line, Inc, 2013 WL 2950836 (N.D. Cal. June 14, 2013).

The plaintiff, truck driver, brought a wage and hour action in violation of California Labor Code, and Industrial Welfare Commission Wage Orders.  The plaintiff also brought a representative claim under the Private Attorney General Act, and a cause of action for unlawful, deceptive, and unfair business practices under California Business & Professions Code § 17200.  The plaintiff alleged failure to provide meal and rest periods, to pay minimum wages, to pay wages in a timely manner, to provide itemized wage statements, to maintain accurate records, and to allow inspection of personnel files and records.   

The defendant removed the action from the Alameda County Superior Court to the District Court under CAFA and submitted a declaration of its Director of Compensation and Employee Benefits, in which he provided calculations of an estimated amount in controversy in excess of $29 million.  

The plaintiff moved to the remand the action, and the defendant moved to dismiss all the claims, and to transfer, dismiss or stay the action.  The District Court denied the plaintiff’s motion, and granted the defendant’s motion to transfer the action, and rendered the defendant’s motion to dismiss as moot. 

First, the plaintiff sought remand arguing that the defendant failed to establish that the amount in controversy exceeded $5 million.  Because the complaint did not specify the amount of damages sought, the District Court stated that the removing defendant must prove by a preponderance of the evidence that the amount in controversy requirement had been met. (Editor’s Note:  See the CAFA Law Blog analysis of Abrego Abrego posted on May 25, 2006, the CAFA Law Blog analysis of Lowdermilk posted on July 30, 2007).   

The District Court observed that in calculating the amount in controversy, the ultimate inquiry is what amount is put in controversy by the complaint, not what a defendant will actually owe, and that the amount in controversy includes the amount of damages in dispute, as well as attorney’s fees, if authorized by statute or contract.  Further, the District Court noted that facts in the removal petition would be considered, and the parties may be required to submit summary-judgment type evidence relevant to the amount in controversy at the time of removal. 

The defendant simultaneously filed its opposition to the plaintiff’s motion to remand with an amended notice of removal, which was accompanied by a declaration by its Vice President, Human Resources.  The declaration, which was based on a review of the defendant’s personnel and employment records, showing that at least 341 full-time drivers were employed during the period from January 22, 2009 through January 22, 2013.  

Based on the number of employees working at any given time, and the number of net workweeks, the declaration estimated that the penalties for the meal break and rest break claims was $4,146,254.40, the penalties for the minimum wage claims was $681,040.00, and the penalties for waiting-time penalties and penalties for inaccurate wage statements exceeded $1.3 million.  In addition, the defendant claimed that a 25% attorney’s fee was reasonable.  

The District Court opined that the calculations were adequately supported by the declaration of the Vice President, and that they sufficiently established by a preponderance of the evidence that the total amount in controversy exceeded $5 million.  Accordingly, the District Court denied the motion to remand. 

Finally, the defendant sought to transfer the action to the Central District of California and asserted that the interests of justice strongly favored transfer because of the pendency in that district of another similar class action, which was filed before the present action was filed.  Because the convenience of the parties among other factors favored transferring venue, and the plaintiff did not provide any opposition to the motion in the form of analysis of the factors, the District Court ordered transfer of this action to the Central District of California. — JR

Individual Claims are Immaterial because CAFA Aggregates the Class Claims

Posted in Case Summaries

Stella v. Hertz Corp, 2013 WL 2456042 (S.D. Cal. June 5, 2013).

Establishing that the named plaintiff’s individual claims exceeds $75,000 is immaterial to CAFA jurisdiction.  What is important under CAFA is that the claim of the class should exceed $5 million.  Because the defendant here did not establish CAFA requirements, a District Court in California remanded the action to state court.   

The plaintiff, former non-exempt employee, brought an action in Alameda Superior Court, alleging failure to provide timely off-duty meal period to the defendant’s California non-exempt employees who were the sole employees on duty, failure to provide and/or on duty meal periods, and failure to pay full wages due upon separation of employment.   

The defendant removed the action to the District Court asserting diversity jurisdiction under CAFA, 28 U.S.C. §§ 1332(d).  The District Court sua sponte remanded the action holding that the defendant’s notice of removal was facially deficient.   

The District Court observed that federal courts possess only that power authorized by the Constitution or a statute, which is not to be expanded by judicial decree.  Also, the District Court noted that the removal statute is strictly construed against removal jurisdiction, and that federal jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance.  The District Court stated that a district court’s duty to establish subject matter jurisdiction is not contingent upon the parties’ arguments.  

CAFA applies to class action lawsuits where the aggregate number of members of all proposed plaintiff classes is 100 or more persons and where the primary defendants are not States, State officials, or other governmental entities against whom the district court may be foreclosed from ordering relief.  Further, under 28 U.S.C. § 1332(d)(2), CAFA vests federal courts with original diversity jurisdiction over class actions if the aggregate amount in controversy exceeds $5 million, and any class member is a citizen of a state different from any defendant.  

The District Court stated that after a plaintiff files an action in state court, the defendant must allege and bear the burden of proof that the amount in controversy exceeds $5 million, and the defendant must set forth, in the removal petition itself, the underlying facts supporting its assertion that the amount in controversy exceeds $5 million. (Editor’s Note: See the CAFA Law Blog analysis of Abrego Abrego posted on May 25, 2006). 

Here, the plaintiff alleged that there were more than 2,000 current and former employees in the Class, thereby satisfying the threshold matter requiring that the class action include an aggregate number of members of all proposed plaintiff classes be 100 or more persons.   

The District Court, however, observed that the defendant failed to address whether the amount in controversy satisfied the CAFA’s $5 million jurisdictional threshold; rather the defendant only addressed the $75,000 jurisdictional limit that was inapplicable here.  The District Court held that the defendant failed to provide any explanation whatsoever to justify finding that it had satisfied the $5 million amount-in-controversy requirement under CAFA, and accordingly, remanded the action for lack of subject matter jurisdiction.

CAFA jurisdiction is different than diversity jurisdiction.  Always remember who has the burden of proof.  — JR