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CAFA Law Blog

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

Class Action Remanded For Untimely Removal Where Amount In Controversy Could Have Been Timely Ascertained From State Court Pleadings

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Levanoff, et al. v. SoCal Wings LLC, et al., 2015 WL 248338 (C.D. Cal. Jan. 16, 2015).

In Levanoff, a district court in California remanded the case to state court and held that a  notice of removal was untimely filed where the removing defendant could have ascertained the amount in controversy from the pleadings in a timely manner.

The plaintiffs brought an employment class action in state court on September 28, 2011. On October 22, 2012, the plaintiffs filed a statement of damages (the “Statement of Damages”), estimating that the proposed class sustained damages of at least $8,160,000.  In October 2013, plaintiffs filed their second amended complaint, including an additional defendant, Dragas Homes Inc. (“Dragas Homes”).

In May 2014, the plaintiffs filed a motion seeking class certification, which the state court granted. On November 24, 2014, three years after the case was initiated and almost one year after Dragas Homes was named as a defendant, Dragas Homes removed the action to the district court.  The plaintiffs moved to remand arguing that the removal was untimely.

The District Court noted that CAFA provides for federal jurisdiction over class actions in which the amount in controversy exceeds $5 million, there is minimal diversity between the parties, and the number of proposed class members is at least 100. 28 U.S.C. §§ 1332(d)(2), (d)(5)(B). Under 28 U.S.C. § 1446(b), a defendant may remove a state court action to the federal court within thirty days if the case stated by the initial pleading is “removable on its face.” Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 885 (9th Cir. 2010).  Where the basis for removal is not apparent from the face of the complaint, a notice of removal may be filed within 30 days after receipt by the defendant 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.” 28 U.S.C. §1446(b)(3). The District Court noted that untimely removal was a procedural defect that may defeat removal if properly raised by the party seeking remand. Smith v. Mylan Inc., 761 F.3d 1042, 1045 (9th Cir. 2014).

Dragas Homes cited to Roth v. CHA Hollywood Medical Center, L.P., 720 F.3d 1121 (9th Cir. 2013), and argued that, prior to October 2014, it could not determine that the amount-in-controversy exceeded $5 million until it conducted its own investigation into the damages the plaintiffs were seeking.  Roth, 720 F.3d at 1125 (concluding that although a defendant does not have a duty to investigate, if it does conduct its own investigation and discover that the case is removable the defendant is entitled to remove the case within 30 days of discovering the information).

Here, however, the District Court remarked that the facts and circumstances strongly suggested that Dragas Homes could have reasonably and intelligently ascertained the amount in controversy well before October 2014. While it is true that “defendants need not make extrapolation or engage in guesswork” to determine the amount in controversy, the Ninth Circuit has found that the removal statute “requires a defendant to apply a reasonable amount of intelligence in ascertaining removability.” Kuxhausen v. BMW Fin. Serv. NA LLC, 707 F.3d 1136, 1140 (9th Cir. 2013) (internal citation and quotation marks omitted).

The District Court observed that, after being served with the second amended complaint in December 2013, Dragas Homes actively litigated the case, filed a voluminous opposition to the plaintiffs’ motion for class certification, and had access to the state court docket. The Statement of Damages, although filed with the state court prior to the second amended complaint, clearly outlined that the proposed class suffered at least $8,160,000 in damages as of October 22, 2012.  In fact, for the purposes of showing that the amount-in-controversy was met under CAFA, Dragas Homes submitted this exact statement in its opposition to the plaintiffs’ motion to remand.

The District Court held that Dragas Homes “should not be able to ignore pleadings or other documents from which removability may be ascertained and seek removal only when it becomes strategically advantageous for it to do so.” Roth, 720 F.3d at 1125; see also 28 U.S.C. § 1446(c)(3)(A) (stating that information relating to the amount in controversy in the record of the state proceeding may be used to ascertain whether a case is removable). Accordingly, the District Court found that the removal was untimely because Dragas Homes could have intelligently ascertained the amount in controversy within the requisite time period, and thus remanded the case to the state court.


O’Shaughnessy v. Cypress Media, LLC, 2014 WL 1791065 (W.D. Mo. May 6, 2014).

Posted in Case Summaries

O’Shaughnessy v. Cypress Media, LLC, 2014 WL 1791065 (W.D. Mo. May 6, 2014).

A district court in Missouri denied the plaintiffs’ motion to remand based on CAFA’s local controversy exception finding that when the lone defendant in the action is not the citizen of a state where the class action was originally filed, the requirements of the exception cannot be satisfied.

The three named plaintiffs in this case originally filed this putative class action lawsuit on April 16, 2013 in the Circuit Court of Jackson County, Missouri against the McClatchy Company, the sole shareholder of Cypress Media, Inc.  The McClatchy Company removed the lawsuit to the federal court, asserting jurisdiction under CAFA and traditional diversity jurisdiction.  After the Court denied the plaintiffs’ motion for remand, the plaintiffs voluntarily dismissed their lawsuit, without prejudice.  The plaintiffs then filed the present lawsuit in the Circuit Court of Jackson County, Missouri against Cypress Media, L.L.C. (“Cypress”). 

This putative class-action lawsuit alleged that the defendant, a publisher of three newspapers in three different states, unlawfully double billed some of its subscribers in the period between when their original subscription ended and a renewed subscription began.  The defendant removed the action to the federal court under CAFA, and the plaintiffs moved to remand.

The plaintiffs contended that: (i) traditional diversity jurisdiction does not exist because the parties are not citizens of different states and that the amount in controversy of any one the named plaintiff did not exceed $75,000; and (ii) CAFA jurisdiction did not exist because the parties are not minimally diverse, and the total amount in dispute did not exceed $5 million.  And, even if CAFA jurisdiction existed, the plaintiffs argued, the Court should decline to hear the dispute under CAFA’s “local-controversy” exception.

Turning first to the question of diversity jurisdiction, the District Court found that the defendant failed to meet its burden of demonstrating that the amount in dispute between any named plaintiff and defendant exceeds $75,000.  The District Court explained that the maximum that could be in dispute in this case was approximately $20,000, well short of the jurisdictional threshold.  The plaintiffs suggested, which the defendant did not dispute, that compensatory damages were approximately $9.24 per plaintiff for wrongful subscription charges.  With respect to punitive damages, the Court noted that any award that exceeds a single-digit ratio between punitive and compensatory damages presumptively violates a defendant’s due process rights, unless the act being punished is particularly egregious and has resulted in only a small amount of economic damages.

While the compensatory damages here were small, the District Court observed that the defendant’s alleged actions were not so egregious that the Court would consider awarding punitive damages at a ratio exceeding one 100 to 1, such that $924 would be the upper-limit for any punitive damage award.  Thus, the District Court remarked that the outer-limits of an individual named plaintiff’s total damages in this case were $20,933.24, an amount that did not meet the jurisdictional threshold.  Accordingly, the District Court ruled that it lacked jurisdiction to hear this case pursuant to its diversity jurisdiction.

On the other hand, the District Court found that the defendant had established CAFA jurisdiction.  Regarding the amount-in-controversy, the District Court observed that there were approximately 763,313 potential class members who had subscribed to one of the three Cypress-owned newspapers.  The District Court remarked that assuming compensatory damages of $9.24 per class member, the compensatory damages in dispute alone exceed $7 million, not including punitive damages or attorneys’ fees.  Therefore, the jurisdictional threshold was satisfied.

The District Court also found that minimal diversity was satisfied.  The Court explained that for purposes of determining diversity jurisdiction under CAFA, a limited liability company such as Cypress is considered to be a citizen of the state under whose laws it is organized and of the state in which it has its principal place of business.  

The District Court observed that while the parties agreed Cypress was organized under Delaware law, they hotly disputed as to where its principal place of business was.  Because Congress chose to treat LLC’s like corporations for purposes of determining citizenship under CAFA, the Court remarked that it would use the “nerve center” approach to determine the principle place of business.  Under the “nerve center” approach, the corporation’s principal place of business is that single place, where the corporation’s high-level officers direct, control, and coordinate the company’s operations.  Here, the Court noted that Cypress’ officers oversaw the publishing of its three newspapers from its offices in Sacramento, California.  The Court also found that the preponderance of the evidence indicated that Cypress’ nerve center is in Sacramento, California.  Consequently, Cypress is a citizen of Delaware and California.  Since the proposed class consists of individuals from Missouri, Kansas, Texas, and Illinois, the District Court found that there was at least one class member who was not a citizen of Delaware or California, and so there was minimal diversity here.

The plaintiffs also attempted to invoke the local-controversy exception.  The Court, however, found that the plaintiffs could not establish the exception because two of its four requirements were not met.  First, more than two-thirds of the proposed class members were not citizens of the state in which the action was originally filed (Missouri).  Only 201,122, or 26%, of the proposed class were Missouri citizens; the remainder were citizens of Kansas, Texas, Illinois, or other states.  Second, there was no defendant from whom significant relief was sought and whose conduct formed a significant basis for the class members’ claims who was a citizen Missouri, where the class action was originally filed.  Because Cypress was the only defendant in this case and it was not a Missouri citizen, the requirements of the local-controversy exception were not satisfied. 

Accordingly, the District Court denied the plaintiffs’ motion to remand and retained jurisdiction.

Federal Jurisdiction Under CAFA is Measured at the Time of Removal

Posted in Case Summaries

Growitch v. Charter Communications, Inc., 2014 WL 1718737 (8th Cir. May 2, 2014).

The Eighth Circuit held that a federal jurisdiction under CAFA is measured at the time of removal–the court does not lose its jurisdiction over the action merely because the district court found that complaint failed to state a sufficient claim for damages and dismissed the claim.

The plaintiffs in this action were customers of the defendant Charter Communications (“Charter”), broadband communications company that provides cable, Internet, and telephone services.  The plaintiffs subscribed to Charter’s “Plus” Internet service under Charter’s Internet Residential Customer Agreement (the “Agreement”) in 2011.  Charter provided the plaintiffs with DOCSIS 2.0 modems at the time their Internet services were installed. 

The plaintiffs were promised increased download speeds of up to 30 Mbps; however, they never achieved those speeds because they did not have the DOCSIS 2.0 modems.  Accordingly, the plaintiffs brought putative class action in Missouri state court, claiming that Charter violated the Missouri Merchandising Practices Act (“MMPA”) and breached its contract with the class members.  Charter removed the action under CAFA, and then filed a motion to dismiss.

The district court dismissed the complaint with prejudice on three independent grounds, concluding (1) that the plaintiffs had not pleaded facts sufficient to demonstrate pecuniary loss, (2) that the plaintiffs’ January 2012 bills gave them notice that their modems needed to be upgraded to obtain the increased download speed, and (3) that the plaintiffs’ claims were foreclosed by a speed disclaimer in the Agreement.  On appeal, the plaintiffs challenge each of the grounds the district court relied on in granting Charter’s motion to dismiss and, in the alternative, argue that the district court did not have jurisdiction.

 The plaintiffs argue that removal under CAFA was improper because Charter failed to prove by a preponderance of the evidence that the amount-in-controversy exceeded $5 million.  The plaintiffs contended that the district court should have remanded the case to state court because it did not have subject matter jurisdiction.  

Contrary to their argument, the Eighth Circuit noted that the plaintiffs alleged a nationwide class consisting of at least 50,000 members, who overpaid for Internet services each month from September 14, 2007, to the date of final judgment.  The plaintiffs sought to recover up to $50,000 in damages per class member.  Based on these allegations, a jury might conclude that the class suffered damages of more than $5 million dollars, even if the individual class members’ monthly overpayment was minimal.  Accordingly, the Eighth Circuit concluded that Charter met its burden of showing that the amount-in-controversy exceeded CAFA’s $5 million jurisdictional threshold.

Challenging the grant of motion to dismiss, the plaintiffs argued that even if the district court had jurisdiction, it erred in dismissing their complaint for failure to plead facts sufficient to demonstrate pecuniary loss.  Missouri law requires the plaintiffs to prove that they suffered pecuniary loss in order to prevail on their MMPA claim, and breach of contract claim.  The plaintiffs contended that they adequately pleaded damages by alleging that they suffered a monetary loss of the difference in the cost and value of the services they paid for and the useable service they received.

The Eighth Circuit, however, noted that the complaint did not allege facts to support the plaintiffs’ allegation of damages because it did not allege that the plaintiffs paid extra for the 30 Mbps download speed.

The plaintiffs then contended that if based on the pleading, there were no damages, then there cannot be an amount-in-controversy of more than $5 million.  The plaintiffs, thus, maintained their claim that removal under CAFA was improper.  The Eighth Circuit ruled that the district court’s jurisdiction is measured at the time of removal.  At that time, the Eighth Circuit remarked, the district court could fairly assume that the plaintiffs had stated a claim and that a fact finder might legally conclude that the class damages were greater than $5 million.  The Eighth Circuit remarked that the plaintiffs themselves did not challenge removal until after their claims were dismissed.

Accordingly, the Eighth Circuit found no error in the district court’s holding and affirmed the dismissal of the action.

South Florida Wellness, Inc. v. Allstate Ins. Co., 2014 WL 576111 (11th Cir. Feb. 14, 2014)

Posted in Case Summaries

South Florida Wellness, Inc. v. Allstate Ins. Co., 2014 WL 576111 (11th Cir. Feb. 14, 2014).

In this action, where a health care provider merely sought a declaration that the insurance policy did not clearly state that the defendant would limit the statutory fee, the U.S. Eleventh Circuit Court of Appeals held that such a declaration would only open doors to insureds to seek damages from the insurance company far exceeding the amount-in-controversy threshold.  Accordingly, the Eleventh Circuit directed the District Court to retain federal jurisdiction over the action.

The plaintiff, a healthcare provider brought a putative class action contending that the defendant, an insurer, did not indicate unambiguously in its insurance policy that it chose to limit payments to the statutory fee schedule against the Florida Supreme Court’s directive in Geico Gen. Ins. Co. v. Virtual Imaging Servs., Inc., 2013 WL 3332385 (Fla. July 3, 2013).  In January 2012, Florencio Sanchez was injured in an automobile accident and received medical treatment from the plaintiff.  Sanchez was insured by the defendant under a policy that provided her with personal injury protection (“PIP”) coverage.

The general rule for PIP coverage in Florida is that an insurance policy must cover 80% of all reasonable costs for medically necessary treatment resulting from an automobile accident.  Florida law also provides that an insurer may opt out of it.  When the plaintiff sought payment of 80% of the total amount billed, the defendant it opted out of the general payment rule, and paid only 80% of certain amounts set out in the statutory fee schedule contained in Fla. Stat. § 627.736(5)(a).

The complaint did not seek for monetary damages but, instead, sought a declaration that the form language used in policies did not clearly and unambiguously indicate that payments would be limited to the levels provided in § 627.736(5)(a).  The defendant removed the case to the federal court asserting jurisdiction under CAFA.  The plaintiff moved to remand contending that the defendant did not establish the amount-in-controversy exceeded $5 million as the complaint sought no damages.  The District Court agreed and remanded the case.  The defendant appealed.

The Eleventh Circuit noted that, for amount-in-controversy purposes, the value of injunctive or declaratory relief was the value of the object of the litigation measured from the plaintiff’s perspective.  In support of its position that the value of the declaratory relief was too speculative, the plaintiff pointed to the multiple events that must occur before any putative class member could recover additional money from the plaintiff in the event that the declaratory judgment went in favor of the class.  The plaintiff pointed that, under Florida law, a party seeking to file a suit to recover PIP benefits must first submit a pre-suit demand letter to the insurer for payment benefits.  If the insurer rejects that demand, the party may file a suit for additional payment if it could be determined that the treatment in question was related to an accident, medically necessary, and billed at a reasonable rate.  The plaintiff argued that with all of those contingencies standing between any class member and recovery, valuing a declaratory judgment was far too speculative.

The Eleventh Circuit found that the plaintiff’s speculative argument itself was too speculative.  The Eleventh Circuit explained that estimating the amount-in-controversy was a simple affair considering the large number of medical bills at issue and the significant amount of money at stake.  The Eleventh Circuit observed that, given the large bills, it was unlikely that most insureds and medical providers, who may be collectively owed $68,176,817.69, would leave the vast majority of that money on the table if a federal court declared that they were entitled to it.

The plaintiff relied on Leonard v. Enter. Rent a Car, 279 F.3d 967 (11th Cir.2002), where the plaintiffs sought injunction to stop the defendant from selling automobile insurance when it rented cars to customers.  The Eleventh Circuit in Leonard held that the injunctive relief had no value because the plaintiffs had always been free to refuse purchase the insurance offered by the defendants, and hence, the relief could not be monetized.

The Eleventh Circuit, here, found that Leonard, could be distinguished because it concerned future transactions that were merely possible, as opposed to here, where the defendant was able to identify a specific number of bills that would be affected by the declaratory relief sought.  Accordingly, the Eleventh Circuit reversed the District Court’s order remanding the case to state court.

Jurisdiction under CAFA Denied Because the Defendant Suffered From Foot in Mouth Disease

Posted in Case Summaries

Aparicio v. Abercrombie & Fitch Stores, Inc., 2014 WL 545795 (C.D. Cal. Feb. 10, 2014).

A District Court in California remanded the case to the state court finding that the plaintiff relied on the defendant’s data to reach her settlement demand for $16 million; whereas the defendant refuted that it ever produced such a data.  Because the defendant refuted the sole reason for the plaintiff’s amount-in-controversy calculation, the District Court remanded the case.

The plaintiff, Jessica Aparicio, filed this putative class action in the state court against the defendant Abercombie & Fitch Stores, her employer, and certain fictitious defendants.  The complaint alleged failure to provide rest breaks, waiting time penalties, violations of the Unfair Competition Law (“UCL”), and a cause of action under the Private Attorneys General Act.  The plaintiff alleged that the amount-in-controversy exceeded $25,000 and that the class consisted of 90 hourly employees.  The plaintiff sought compensatory damages, penalties, interest, restitution under the UCL, costs, and attorneys’ fee.  The plaintiff also sought an order enjoining the defendant from failing to provide plaintiffs with proper rest breaks.

The defendant made a request to settle, and the plaintiff responded seeking $16 million in damages.  The plaintiff calculated her damages as follows: (1) rest break premium at $682,848; (2) interest at $99,246; (3) § 203 penalties at $7 million; and (4) PAGA penalties at around $9 million.  The damages model appeared to calculate rest break damages assuming a class of 3,338 former employees, 2,999 current employees, an average hourly rate of $8.87, 76,984 shifts worked, and a rest break violation during 100% of the shifts.  The defendants then removed the action to the federal court.

The first question before the District Court was whether the removal was timely.  The District Court noted that 28 U.S.C. § 1446(b) provides that an action must be removed within 30 days from the defendant’s receipt of the initial pleading.  If the amount-in-controversy is not clear on the face of the initial pleading, then the 30 day period begins only after the defendant receives a copy of an amended pleading, motion, or other paper from which it can determine that the case is removable.  Here, the District Court noted that the defendant became aware of the amount-in-controversy only after the plaintiff filed her paper seeking $16 million in settlement.  The District Court observed that this document in settlement demand in excess of the jurisdictional minimum constituted “other paper” sufficient to provide notice that a case is removable.  Accordingly, the District Court held that the removal was timely.

The next question was whether the District Court could exercise jurisdiction under CAFA.  Here, the District Court observed that the defendant failed to establish a minimal diversity.  The plaintiff did not allege her citizenship; instead, the plaintiff only stated that she was a resident of California, and the notice of removal likewise alleged that she was a resident of California.  The District Court found this was insufficient to establish citizenship.  The District Court, therefore, ruled that, because the defendant failed to allege the plaintiff’s citizenship and also failed to allege the citizenship of any other class member, it had failed to carry its burden of showing citizenship of the parties was minimally diverse.

Because the plaintiff’s damages model estimate that the class consisted of 3,338 former employees and 2,999 current employees, the CAFA’s numerosity requirement was satisfied.  The only other question left was that of the amount-in-controversy.  In that regard, the District Court noted that a settlement letter was relevant evidence that the amount-in-controversy if it appeared to reflect a reasonable estimate of the plaintiff’s claim.  However, a plaintiff’s damage estimate would not establish the amount-in-controversy if it appeared to be only a “bold optimistic prediction.”  This meant that the defendant still had the burden to show by preponderance of evidence that the amount-in-controversy far exceeded the jurisdictional minimum.  In her email to the defendant, the plaintiff asserted that her damages model made no assumptions, because it was based entirely on the data that the defendant provided.  However, the defendant’s attorney contended that it did not produce data that supported the assumption that all 3,338 former employees worked 8 hours per day and were not paid all wages due for 30 days after termination.

The defendant’s attorney further contended that the defendant could not discern how the plaintiff calculated PAGA penalties.  According to the defendant’s attorney, the damages model identified no other source that purportedly supported the figures set forth in the model.  Because the plaintiff identified the defendant’s data as the sole source supporting her damages model and the defendant contended that its data did not support the model, the District Court remarked that it was unable to conclude that the model set forth a reasonable estimate as opposed to a bold optimistic prediction regarding damages.  Accordingly, the District Court concluded that the defendant did not appear to have established, by a preponderance of the evidence, that the amount-in-controversy exceeded the jurisdictional threshold.

Hart v. Rick’s NY Cabaret Intern., Inc., 2014 WL 301357 (S.D.N.Y. Jan. 28, 2014)

Posted in Case Summaries

Hart v. Rick’s NY Cabaret Intern., Inc., 2014 WL 301357 (S.D.N.Y. Jan. 28, 2014).

In an action asserting Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”) claims, the District Court found that, despite the FLSA claims, it had jurisdiction over NYLL claims, because the plaintiffs had sufficiently established the requirements under CAFA.

Exotic dancers brought a collective action under FLSA and a putative class action under the NYLL against an adult entertainment club owner and two corporate parents.  The District Court advised counsel that it was weighing whether to resolve the FLSA claims first and afterwards, it would decide whether to exercise supplemental jurisdiction over the NYLL claims.  The plaintiffs took the position that the Court independently would have diversity jurisdiction over the NYLL claims under the CAFA, such that, in the event the federal claims were resolved ahead of the NYLL, the Court could still retain jurisdiction over the action.  For the purposes of future case management, the Court addressed the CAFA jurisdiction, although it was not required to do so at the initial stage.

The District Court concluded that it had jurisdiction under CAFA to try the NYLL claims.  The defendants did not dispute that the plaintiffs satisfied the 100 members requirement or the minimal diversity requirement.  The defendants, however, took exception to the plaintiffs’ contention that they satisfied the amount-in-controversy requirement.  The District Court noted that in determining the amount-in-controversy, the plaintiffs must show that it appeared to a “reasonable probability” that the aggregate claims of the plaintiff class were in excess of $5 million.

 The complaint alleged that the amount-in-controversy exceeded in $5 million, thereby creating a presumption that the CAFA requirement was satisfied.  To rebut this, the District Court noted that the defendants offered conclusory statements that plaintiffs’ allegations were pled inadequately and their estimation of damages was entirely speculative and insufficient to support CAFA jurisdiction.  In any event, the District Court determined that the evidence promulgated by the plaintiffs made it a reasonable probability that the damages aggregated across the class would exceed $5 million. 

 Next, the District Court determined that the defendants failed to establish any of the exceptions to CAFA jurisdiction, i.e., the “local controversy” exception, the “home state” exception, and the “interest of justice” exception.

 As to the local controversy exception, the plaintiffs argued that the defendants failed to establish two out of the four elements, contending that the defendants failed to establish that more than two-thirds of the class members were New York citizens and no other similar class actions were filed in the previous three-year period. 

 As to the citizenship of the class members, the District Court noted that, of the 3000 members, roughly about 70% of them had New York addresses.  The plaintiffs did not dispute the authenticity of the accuracy of the records.  However, they contended that the dancers’ last known addresses, standing alone, were insufficient to establish the two-thirds requirement.  The District Court found that the defendants’ records were not directed squarely to the issue of citizenship; instead, they captured the last known address given by a dancer.  Such an entry provided only limited insight into whether the dancer intended to make New York a dancer’s permanent home.  Because this was not sufficient to show that a dancer’s true fixed home and principal establishment was New York, the District Court ruled that the defendants failed to show that the dancers were New York citizens.

 Another requirement for the local controversy exception was that no other class action was filed within a three-year period preceding the filing.  The District Court found that as the defendants failed to prove two-thirds of the class were New York citizens, it need not definitively resolve whether there existed another class action. 

 The District Court next found that the defendants failed to establish that the alternative home state exception applied.  Under that exception, a district court must decline to exercise jurisdiction where two-thirds or more of the members of all the proposed plaintiff classes in the aggregate, and the primary defendants were citizens of the state in which the action was originally filed.  The District Court noted that for this exception to apply, then at least two-thirds of the class members must have been citizens of New York and the primary defendants must have been citizens of New York.  Because the first element was not established by the defendants, the District Court ruled that the home state exception did not apply.

 Finally, the District Court remarked that it would not decline jurisdiction in the interest of justice, rather it would wait for the records to develop to ascertain as a matter of fact if the defendant Rick’s NY Cabaret International, Inc. was indeed the primary defendant.

 Accordingly, the District Court exercised jurisdiction over the NYLL claims.

Alexandra D. Lahav, Symmetry and Class Action Litigation, 60 UCLA L. Rev. 1494 (Aug. 2013)

Posted in Legal Publications and Articles

Alexandra D. Lahav, Symmetry and Class Action Litigation, 60 UCLA L. Rev. 1494 (Aug. 2013).

In her article, Alexandra D. Lahav, a Professor of Law at the University of Connecticut, discusses the resources that parties often have to devote to their lawsuit in terms of both human as well as financial capital, the effect of such resources on lawsuits, and the impact of such resources on class actions.

The question that Lahav aims to answer is to what extent should procedural law take into account the resources of participants in the legal system?  Lahav notes that the assumption in the United States is that the legal system does not require symmetry between litigants, and the courts take the litigants as they find them.  Lahav points three exceptions to this general rule: (1) the provision of an attorney by the state in certain limited circumstances; (2) fee shifting in the prevailing plaintiff’s favor; and (3) the class action lawsuit. 

Lahav focuses on the baseline assumption that the courts take litigants as they find them.  She outlines that current developments of the class action doctrine reinforces the asymmetry that exists between individual plaintiffs and organizational defendants outside litigation.  The trends favoring settlement classes over litigated classes are driven, at least in part, by a belief that litigation class actions pressure defendants into settling meritless cases to the detriment of defendants and society.

This Article first considers the power dynamics between parties in class actions.  Part I explains those dynamics and demonstrates how they create a disparity between class actions certified for settlement only and those certified for litigation. This section begins by describing the doctrinal background and then discusses recent decisions that point to a renaissance in settlement-only class actions. 

Lahav points that, until recently, the trend in class action doctrine moved in one direction—class actions were increasingly difficult to certify for both litigation and settlement purposes.  The biggest barriers to class actions were the courts’ concern for future claimants in the mass tort context, their openness to collateral attacks on settlements, and the increasingly narrow reading of the requirements of Rule 23, especially the commonality requirement for all class actions and the predominance requirement for money damages class actions.

Lahav noted that, in the last twelve months, the barriers to certifying settlement class actions have appeared to diminish. Courts have given certification requirements a more generous reading, and they have been more tolerant of differences among class members when presented with a settlement than when presented with a motion to certify a class for litigation.

Lahav notes that the recent renaissance in settlement classes allows defendants to obtain global peace when they agree to a settlement price, but they can resist collective resolution in all other cases so that litigation is extremely costly for plaintiffs to pursue.  For example, after the settlement announcement, more claimants than were expected may come out of the woodwork and dilute the settlement fund, or there may be fraudulent claims or other problems that increases the cost of settling or of administering the settlement.   For this reason, defendants are pushing for leniency in the certification of settlement class actions, even as they would like to limit litigation classes.  Lahav opines that the defendants may find themselves arguing for a lenient interpretation of predominance in settlement and a rigorous application in litigation, although in both cases the same provision of the rule is in play.

The recent decisions imposing very onerous standards for certifying litigated classes and looser standards for certifying settlement classes, according to Lahav, would alter the power dynamics in favor of defendants and undo the symmetry between parties that the class action procedure was intended to achieve.  Lahav notes that the defendants can use class certification as a way to obtain global peace when they agree to a settlement price, but they can resist collective resolution in all other cases so that litigation is extremely costly for plaintiffs to pursue.

Lahav points that the courts’ leniency toward class settlements leads to a paradox.  While judges are concerned that a litigated class will exert undue pressure on the defendant to settle, they readily approve of settlements of claims they believe lack merit.  One might respond that defendant has consented to the settlement, but arguably courts should also be concerned that the defendant’s purported consent is in fact a response to the duress imposed by the threat of a class action. Lahav suggests that the reason for courts’ exclusive concern over defendant’s duress in litigated classes is that litigated class actions upend the status quo ante whereas settlement classes reinforce it.  Ultimately, if judges continue to treat settlement and litigation classes differently, the courts will reflect the asymmetry between plaintiffs and defendants in the real world.

 In Part II, the article considers the problem created by the fact that the class action alters the status quo ante. Lahav asks whether it is possible to defend an egalitarian ideal of adjudication in a society with unequal resource distribution.  One possible justification for an egalitarian court system focuses on the special role of the courts in a social order structured around legal rights and obligations that are enforced through litigation.  The adjudicative process must treat individuals with equal respect and concern for them to be able to realize rights and enforce obligations. There is much more to be said on this subject.

In conclusion, Lahav remarks that the frustrating thing about litigation is that there is always someone equal and opposite you trying to undo everything you do.  The class action creates symmetry between litigants where outside the courtroom they are unequal.  In doing so, it sets in motion a process that lives up to the promise of the American litigation system, with all its flaws.  In her article, Lahav suggests that much of the ire against the class action stems from the fact that this procedural device alters the status quo ante by creating symmetry between litigants.  If the inconsistent treatment of the settlement and litigation classes persists, this symmetry would be undone and the power dynamic favoring organizations in the larger social order would be enforced within the courts.  Lahav hopes that her article would be the beginning of a conversation on the role of egalitarian principles in litigation.

Ullman v. Safeway Ins. Co., 2013 WL 7141522 (D.N.M. Dec. 31, 2013)

Posted in Case Summaries

Ullman v. Safeway Ins. Co., 2013 WL 7141522 (D.N.M. Dec. 31, 2013).

In a personal injury action, the District Court ruled that diversity jurisdiction asserted by the insurance company could not be satisfied and remanded the case to the state court.

The plaintiff, an insured in an automobile accident, filed a putative class action in the state court alleging that the insurer did not adequately inform her of her options to purchase uninsured/underinsured motorist (UM/UIM) coverage or obtain waiver of UM/UIM coverage equal to limits of liability coverage or waiver of stacking UM/UIM coverage.  The plaintiff alleged that the defendants improperly denied benefits under the UM/UIM insurance coverage to her and others similarly situated.  The defendants removed the case to the federal court based on the diversity jurisdiction, because the plaintiff was New Mexico citizen and the defendants were incorporated in Illinois with their principal place of business in Illinois.

A vehicle driven by another driver, Richard Bailey, struck the passenger side of the plaintiff’s vehicle, injuring the plaintiff and totaling her vehicle.  The plaintiff made Bailey a defendant as well.  Bailey was a New Mexico citizen as well, and the defendant, Safeway Insurance, argued that the plaintiff fraudulently joined and procedurally misjoined Bailey to defeat diversity jurisdiction, and, thus, the Court should ignore Bailey’s citizenship.  The plaintiff filed a motion to remand.

The District Court noted that, in its notice of removal, Safeway Insurance asserted that the amount-in-controversy exceeded the jurisdictional minimum of $75,000.  Although Safeway Insurance did mention CAFA as an alternative basis for removal at the hearing, it stated that it was not pursuing removal under CAFA.  The plaintiff conceded that her damages likely would exceed the jurisdictional minimum, but citing Lovell v. State Farm Mutual Automobile Insurance Co., 466 F.3d  893 (10th Cir. 2006), argued that Safeway Insurance also must demonstrate that each putative class member’s damages exceeded $75,000. Lovell noted that, in multiple plaintiff cases, each plaintiff individually must satisfy the amount in controversy requirement.

The District Court noted that each putative class members’ claims arose from separate contracts, and so, as in Lovell, the claims may not be aggregated to meet the amount-in-controversy requirements.  The Court found that a significant difference between that case and the present matter, however, was that, in the instant matter, the parties agreed that the plaintiff’s claims exceeded $75,000.  The Court found that Safeway Insurance had not established that every putative class members’ claims exceed the jurisdictional minimum amount, but it need not do so, because the Court could exercise supplemental jurisdiction over the other claims.

Accordingly, the District Court concluded that Safeway Insurance had demonstrated, and the plaintiff agreed, that the plaintiff’s claims likely exceeded $75,000.  Thus, the Court would exercise supplemental jurisdiction over the other putative class members’ claims as long as the other requirements for diversity jurisdiction are met.

Safeway Insurance mainly argued that Bailey was joined fraudulently to defeat the diversity jurisdiction.  Safeway Insurance argued that the plaintiff was seeking damages from it rather than Bailey and that, by attempting to reform the insurance policy to include the UM/UIM coverage, the plaintiff had not asserted a basis to recover from Bailey.  The District Court disagreed and explained the principles of personal injury.  When driver A runs his car into driver B, there is a possibility that driver B can recover against driver A for negligence.  The plaintiff might not have much success getting any money from Bailey, but she did have a legal right to pursue her claim and get judgment.  Accordingly, the District Court ruled that Bailey was neither fraudulently joined nor was he misjoined. 

Because Bailey’s mere presence in the suit destroyed Safeway Insurance’s attempts to establish complete diversity, the District Court ruled that it did not have subject matter jurisdiction and remanded the case.