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CAFA Law Blog

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

A Noteworthy Event

Posted in Events

ACI’s Data Breach & Privacy Litigation and Enforcement conference, March 17-18, 2016 at the Union League in Philadelphia. Click here for the pdf of the agenda.

This premiere conference is led by an unparalleled faculty of in-house counsel, federal judges, and the top outside counsel plaintiff and defense litigators and firms. It has networking opportunities galore and features innovative and highly relevant content that will allow you to benchmark your current data breach, TCPA and privacy strategies.

Some of the issues to be discussed this year include:

  • Class Actions: Data Privacy & Security Breach Case Law Trends in Key Jurisdictions and Circuit Court Rulings; New Class Certification Issues; Novel Standing, Causation, Damages, Injury and Actual Harm Nuances; and How the Neiman Marcus and Spokeo Decisions Have and Will Continue to Change the Landscape
  • New Claims Involving the Video Privacy Protection Act and Telephone Consumer Protection Act (TCPA) and Related State Law Claims
  • Federal and State AG Enforcement for Invasion of Privacy, Data Breaches, and Failure to Comply with Notification Statutes: FTC Authority & Litigation, Wyndham Case Implications, Multi-State/ Agency Investigation and Audits, Negotiation, Settlement, Trial, and How the Various Actions Are Proceeding and Being Resolved
  • Shareholder Derivative Lawsuits
  • Business to Business Claims
  • International Data Breaches and resulting litigation and enforcement
  • Attorney/Client Privilege Issues Arising out of Breach Notification

Additional details and registration information are available at http://www.AmericanConference.com/DataBreach or by calling 888-224-2480.

Please mention this code when registering: B00-999-CLB16

Removal Untimely Where State Court Pleading Acknowledges Grounds For Removability Previously Ascertained

Posted in Uncategorized

Addison v. The Netherlands Ins. Co., 2015 WL 461958 (D. Mass. Feb. 4, 2015)

A district court in Massachusetts remanded a case to state court finding that a delay in filing a notice of removal unjustifiable when the complaint, the defendants’ prior filings, and underlying circumstances provided defendants with sufficient grounds to timely ascertain their basis for removal.

The defendants filed a notice of removal almost three years after the 30 day initial period of removability. They contended that the grounds for removability were only first ascertained by a state court order on their motion to dismiss that referenced a decision implying that this present action could be construed as a class action.

The Court noted, however, that the initial filing provided the defendants with information from which it could ascertain the basis for removability. Even though the complaint did not classify the matter as a class action, it specifically sought relief on behalf of the plaintiff “individually and as the representative of a class of similarly-situated persons.” It also attached and referred to a prior, related action, that was a class action, and that provided defendants with citizenship of the class members. The prior action also provided enough information to ascertain the amount in controversy.

Moreover, in their motion to dismiss, the defendants relied extensively on a decision that was directly on point and involved the same plaintiff. That decision held that the plaintiff only had standing to pursue its case as a class representative, which was the basis on which defendants sought dismissal of this present action. Asserting that position necessarily meant that the defendants had, by the time of filing the motion to dismiss, ascertained the basis for their removal of the action. However, rather than remove the action, defendants attempted to dismiss it. The Court noted that defendants’ attempt to remove the action came only after their unavailing effort at dismissing the case, stating: “Now that [defendants] strategy has not succeeded, they seek to rely on the one-sentence order [denying the motion to dismiss] to toll the clock for removal.” Because defendants had the ability to ascertain grounds for removability at the time of filing the complaint, and at latest at the time of filing their motion to dismiss, removal was untimely. Accordingly, the Court granted the plaintiff’s motion to remand.

Calculation of 100 or more does not include unnamed parties

Posted in Case Summaries

Stump v Camp, 2014 WL 582813 (E.D. La. Feb. 13, 2014).

In an action brought by employees of a company who alleged fraud due to an alteration in the plan documents which denied them additional benefits that they were entitled to, the district court remanded the action finding that the under Louisiana law, the spouses cannot be included in the class definition for the purposes of ascertaining numerosity requirement for federal subject matter jurisdiction under CAFA.

The current and former employees of Pamlab, LLC., brought an action in the Twenty-Second Judicial District Court for the Parish of St. Tammy against the defendants Samuel M. Camp, Judith M. Camp, Camline LLC f/k/a/ Pamlab, LLC. The plaintiffs alleged that while they were employed at Pamlab over the past 20 years, they earned points in an “Incentive Points Employee Compensation Plan,” which the plaintiffs characterized as stock. The plaintiffs claimed that they were told that if the company was ever sold, the worker still employed could liquidate their points into cash. According to the plaintiffs, in 2012, Pamlab terminated the points system, but they were informed that plaintiffs could either elect to receive a cash payment based on how many points they formerly held or they could receive the same number of points under the newly adopted 2012 incentive plan.

The plaintiffs contended that they chose to cash in their points because the new plan lasted only until 2017, but the company reserved the right to terminate the plan at any point in time. The plaintiffs claimed that Nestle bought over Pamlab in 2013, but the defendants were already negotiating a sale when the 2012 plan came into force. The plaintiffs felt shortchanged, and hence, filed this action. The defendants removed this case under CAFA, and the plaintiffs moved to remand.

In their motion to remand, the plaintiffs argued that that federal court did not have jurisdiction under CAFA because there were not more than 100 class members, the plaintiffs pointed out that in the defendants’ notice of removal they admitted that there were only 87 Pamlab employees who constituted members of the putative class action. The defendants countered by pointing to the plaintiffs’ complaint where the plaintiffs claimed that there were over 100 potential class members. The defendants contended that the jurisdictional facts are evaluated based on the pleadings at the time of the removal. In the alternative, the defendants argued that the plaintiffs had failed to join indispensable parties, who, when joined, would satisfy the numerosity requirement. The defendants claimed that the Federal Rules of Civil Procedure requires spouses in community property states to be joined because they have interests related to the subject matter of the action.

Here, the district court observed that the plaintiffs’ definition of the proposed class was very specific i.e., all individuals employed by Pamlab, who held points and who elected to receive cash payment for those points by signing a release agreement, and who remained employees until the company was sold. The district court remarked that the class definition did not include spouses who lived in community property, therefore, it could not consider the spouses when assessing the jurisdictional requirements under CAFA. In support of its conclusion, the district court relied on Mississippi ex rel. Hood v. AU Optronics Corp., 134 S.Ct. 736 (2014), where the United States Supreme Court rejected the theory that CAFA’s definition of a mass action included unnamed persons who were real parties in interest. (Editor’s Note: See the CAFA Law Blog analysis of Hood posted on October 8, 2014). The Supreme Court reasoned that the statute says 100 or more persons, not 100 or more named or unnamed real parties in interest. The Supreme Court continued that had Congress intended the later, it easily could have drafted language to that effect. Similarly, here, the district court concluded that if the Congress wanted to include all named and unnamed interested or required parties, it could have included that language, instead, the choose to require 100 or more named or unnamed persons who fell within the definition of the proposed class. Accordingly, the district court concluded that the CAFA definition does not infer an inclusion of the spouses in this case.

The defendants then argued that spouses should be included in assessing CAFA’s numerosity requirement based on the Louisiana’s community property regime – Louisiana Civil Law Treaties: Matrimonial Regimes § 1:1 (3d ed. 2013). The defendants pointed to Louisiana Civil Code Article 2336, which provides that each spouse owns a present undivided one-half interest in the community property. The district court noted that the present case involves a breach of contract claim made by current and former employees of the Defendants. In the complaint, the plaintiffs claimed that the defendants breached their contract by terminating the Incentive Points Employee Compensation Plan. The plaintiffs alleged that the Release Agreement that they signed should be rescinded due to the defendants’ fraud and misrepresentation. The employees who were parties to those employment-related contracts were the only parties who were in privity of contract with the defendants. The district court found no reason to alter this understanding based on the contents of the contracts. The district court concluded that according to Louisiana law, joinder of the spouses in the present case was not mandatory. In addition, the district court remarked that the defendants did not point to any reason why the failure to join the spouses would result in an injustice to those spouses. Accordingly, the district court concluded that under Louisiana law there were only 87 members of the proposed class.

Accordingly, the district court remanded the case to the state court. –JR

More than Declarations are Required for Evidence of CAFA Jurisdiction

Posted in Case Summaries

Emmons v Quest Diagnostics Clinical Labs Inc, 2014 WL 584393 (E.D. Cal. Feb. 12, 2014).

In this action, the federal court refused to accept the defendants’ attempt to establish amount-in-controversy exceeded $5 million through a declaration by one of its employees, finding that the declarations were not enough evidentiary support to retain jurisdiction under CAFA.

Two phlebotomists, on behalf of themselves and others similarly situated, brought this action in the Stanislaus County Superior Court against the defendants seeking overtime wages, unpaid minimum wages, unpaid meal period and rest period premiums. Phlebotomists are those who are trained and certified to draw blood for diagnostic testing. The plaintiffs defined three classes of similarly situated persons: (1) non-Floater Phlebotomists in California; (2) Floater Phlebotomists in California; and (3) non-Floater and Floater Phlebotomists in California who worked for defendants within one year prior to filing of the complaint, until certification.

The defendants removed the action to the federal court under CAFA. Supporting removal, the defendants attached the declaration of Megan Bassler, the Senior Human Resources Generalist, who stated that there were at least 2,000 employees who worked in California as non-Floater Phlebotomists during the 4-year period, and 785 were former employees; at least 180 employees were Floater Phlebotomists, among them 30 were former employees. The defendants indicated that the entire alleged class consisted of at least 2,180 individuals. The plaintiffs sought remand on the grounds that the defendants failed to meet their burden of establishing that the amount-in-controversy exceeded $5 million.

As in many cases, here too, the complaint did not specify an amount of damages, therefore, the defendants again landed with the burden of establishing the amount-in-controversy by preponderance of evidence. The district court noted that in Lowdermilk v. U.S. Bank Nat’l Ass’n, 479 F.3d 994 (9th Cir. 2007), the Ninth Circuit adopted “legal certainty” standard as the standard of proof in CAFA cases where a state court complaint affirmatively alleges that the amount-in-controversy was less than CAFA’s jurisdictional minimum. (Editor’s Note:  See the CAFA Law Blog analysis of Lowdermilk posted on July 30, 2007). The defendants argued that in Rodriguez v. AT & T Mobility Services, LLC, 728 F.3d 975 (9th Cir. 2013), the Ninth Circuit found that the Supreme Court overruled Lowdermilk in Standard Fire Insurance Company v. Knowles, 133 S.Ct. 1345 (2013) instructing the district courts to look to the potential claims of the absent class members, rather than plaintiff’s complaint. (Editors’ Note: see CAFA law blog analysis of Standard Fire posted on April 12, 2013). The Rodriguez court observed that Lowdermilk reasoned that the initial jurisdictional determination derives from the complaint, while the Standard Fire mandates that courts determine their jurisdiction by aggregating all potential class members’ individual claims.

Under this heightened burden, the district court found that the defendants did not show that the amount-in-controversy exceeded $5 million. The district court explained that here, the defendants contended that the amount-in-controversy exceeded $8,625,000 based on three of the nine allegations of violations of the California Labor Code. The district court noted that in their sixth cause of Action, the plaintiffs alleged that the defendants intentionally and willfully failed to provide the employees with accurate wage statements in accordance with California Labor Code § 226(a). The defendants calculated the value of this claims as $5,565,000 with support from Megan Basler’s declaration. Basler declared that the defendants issued at least 2,100 paychecks in the one-year preceding the complaint, and the defendants assumed that every wage-statement issued over 26 periods was incorrect. Based on that assumption, the defendants argued that the plaintiffs were entitled to recover $50 for the initial incorrect wage statement, $100 for every additional erroneous wage statement, and therefore, each employee would be entitled to receive $2,650 in statutory compensation at minimum. According to the defendants 2,100 paychecks X $2,650 equaled over $5.56 million.

The district court noted that in Garibay v. Archstone Communities LLC, the plaintiff alleged violations of § 226, and the defendant calculations assumed that every single member would be entitled to recover maximum penalties for every single period without providing supporting evidence for that assertion. The Garibay court observed that the only support for the defendants’ calculation of the amount-in-controversy was a declaration by their superior. Accordingly, the Garibay court rejected this evidence as a support for amount-in-controversy. Similarly, the district court in this case relied on other cases where the defendants attempted to establish amount-in-controversy by declarations as opposed to producing solid evidence. The district court concluded that similar to those cases, the defendants here merely speculated without much evidence that the violations of § 226 would result in them paying maximum penalties. The district court ruled that it cannot rely on the defendants’ assertions that the amount-in-controversy was in excess of $5.65 million only in violations of § 226 for the purpose of calculation amount-in-controversy.

Likewise, the district court found that the defendants’ reliance of Basler’s declarations to establish that the violation of § 203 – waiting time penalties – also attracted maximum penalties. The district court refused to accept the defendants’ argument the plaintiffs’ allegations of PAGA violations also helped cross the $5 million threshold.

Accordingly, the district court granted plaintiffs’ request to remand the case to the state court. –JR

Home State Exception Unsuccessful in California

Posted in Case Summaries

Swearingen v Yucatan Foods LP, 2014 WL 553537 (N.D. Cal. Feb. 7, 2014).

In an action brought by the consumers of nationwide class, the district court denied the defendant’s challenge of the federal jurisdiction based on home state exception finding that the choice of law analysis was inappropriate at the pleadings stage, and refused to dismiss the complaint.

These consumers purchased food products from the defendant Yucatan Foods, a food seller, and brought a putative class action contending that the defendant misbranded its guacamole products by using the term “evaporated cane juice” in violation of California’s Sherman Food, Drug and Cosmetics Law and Unfair Competition Law (“UCL”). The defendant moved to dismiss the complaint contending among other things that the plaintiffs cannot plead federal jurisdiction based on class action status.

The defendant argued that plaintiffs failed to plead a claim invoking federal jurisdiction. The plaintiffs had asserted federal jurisdiction pursuant to CAFA, which vests the district courts with jurisdiction over class actions in which the amount-in-controversy exceeds $5 million so long as there is minimal diversity between the parties. The defendant nevertheless, argued that the home state exception should apply, under which the court shall decline jurisdiction when both the primary defendants and 2/3rds of the proposed plaintiff class members are citizens of the forum state.

The district court remarked that ordinarily, the party seeking to invoke federal diversity jurisdiction must bear the burden of establishing that the court may properly exercise such jurisdiction. However, the home state provision i.e., U.S.C. § 1332(d)(4), is an exception to jurisdiction under CAFA and therefore, not part of the prima facie case establishing minimal diversity jurisdiction.

The district court found that on its face, the plaintiffs’ complaint met the jurisdictional requirements of § 1332(d)(2). First, the defendant was a Delaware Corporation with is headquarters in Los Angeles, California. Second, the plaintiffs asserted claims on behalf of over 100 members of a proposed class of consumers throughout the United States, including class members from states other than Delaware or California. The amount-in-controversy was in excess of $5 million in the aggregate. These assertions were unchallenged by the defendant, therefore, were sufficient to establish a prima facie case of minimal diversity jurisdiction under CAFA.

With this established, the district court remarked that the burden was on the defendant to show the home state exception. The defendant pointed to a California appellate decision in Norwest Mortgage, Inc. v. Superior Court, 72 Cal. App. 214 (1999) reversing the trial court’s certification on a nationwide UCL consumer class on the ground that the UCL was not intended to regulate conduct unconnected to California. The Court, however, noted that in Nat’l Notary Ass’n v. U.S. Notart, No. D038278, 2002 WL 1265555 (Cal. Ct. App. June 7, 2002) which distinguished Norwest on the grounds that the class in Nat’l Notary sought injunctive, not monetary, relief to enforce compliance by the resident defendant for conduct directed from its California headquarters. Irrespective of the holdings in the two cases, the district court remarked that whatever the merits of the defendant’s argument in this case as to the ultimate propriety of a nationwide class, resolution of the question would require detailed choice-of-law analysis not appropriate at the pleadings stage. Accordingly, the district court rejected the defendant’s challenge of the federal jurisdiction based on the CAFA’s home state exception.

Similarly, the district court denied the defendant’s other arguments based on preemption, standing, and for failure to state a claim, and rejected the motion to dismiss. –JR

Amendment after Removal does not divest CAFA Jurisdiction

Posted in Case Summaries

Rivas v Terminix Intl Co., 2013 WL 6443381 (N.D. Cal. Dec. 9, 2013).

In this action, a California federal court reaffirmed the oft-repeated finding that when a class action is properly removed, a subsequent amendment of the complaint to delete class allegations did not divest the district court of its original jurisdiction, and refused to remand the case.

The plaintiff filed this action in the state court asserting six causes action, and each one was brought on behalf of a class, including the Sixth Cause of Action by which the plaintiff alleged a claim under the Private Attorneys General Act. The defendants removed the complaint to the federal court under CAFA. Thereafter, the plaintiff filed a first amended complaint, pleading only one cause of action, the PAGA claim, which was no longer brought on behalf of the class. The plaintiff then moved to remand the case to the state court.

At the very outset, the district court noted that once a putative class action is properly removed, it stays removed. This effectively meant that post filing developments did not defeat the jurisdiction if the jurisdiction was properly invoked as of the time of filing. Here, the district court found that the removal of the initial complaint was proper under CAFA, in light of the defendants’ showing that the parties were minimally diverse, and that the amount-in-controversy exceeded $5 million. Consequently, the district court ruled that the plaintiffs’ subsequent amendment did not divest it of the original jurisdiction.

Accordingly, the district court denied the motion to remand. –JR

Getting Free Stuff in Settlement is Not a Coupon Settlement

Posted in Case Summaries

Seebrook v The Childrens Place Retail Stores Inc, 2013 WL 6326487 (N.D. Cal. Dec. 4, 2013).

In this action, a California federal court found that when class members are receiving vouchers, which entitles them to get free stuff from defendants under a Settlement Agreement, it does not attract the provisions of § 1712, and therefore, are not coupon settlements.

The plaintiffs in this action were purchasers from the defendant’s stores. They sued the defendant alleging that the defendant requested and recorded personal identification information in conjunction with a credit card transaction in violation of the Song-Beverly Credit Card Act of 1971. After the district court approved the settlement, the plaintiffs filed a motion for attorneys’ fees, expenses, and incentive award payments.

The issue before the district court was whether the settlement agreement was a coupon settlement under CAFA. The district court noted that the terms of the settlement provided that class members receive the choice of $10 gift certificate with no minimum purchase required or a 35% off voucher at the defendant’s retail store.

The district court observed that In re HP Inkjet Printer Litigation, 716 F.3d 1173 (9th Cir. 2013), the Ninth Circuit addressed the calculation of attorneys’ fees in the context of coupon settlement under CAFA, and held that if a settlement gives coupon and equitable relief and the district court sets attorneys’ fees based on the value of the entire settlement, and not solely on the basis of injunctive relief, then the district court must use the value of the coupons redeemed when determining the value of the coupons part of the settlement.

The district court observed that CAFA does not define what constitutes a coupon or even for that matter a voucher. However, the distinction between a coupon and a voucher was that a coupon is a discount on merchandise or services offered by the defendant and a voucher provides for free merchandise or services. In this case, the district court found that the 35% discount was indisputably a coupon, however, at issue was whether the $10 merchandise certificate provided in the alternative by the settlement was a coupon.

The district court observed that other courts have found that CAFA does not apply to settlements that offer vouchers for free products. Such cases distinguish vouchers from discounts on products where class members are forced to purchase the products and pay the difference between the full and coupon-discounted price. For example, in Foos v. Ann, Inc., 2013 WL 5352969 (S.D. Cal. 2013), a very similar case to the one at hand, the court found that a $15 certificate and a discount at the defendant’s store did not constitute a coupon settlement because the class members had the opportunity to receive free merchandise, as opposed to merely discounted merchandise.

Accordingly, the district court ruled that, the $10 certificate was not a coupon settlement, and did not trigger the provisions of 28 U.S.C. § 1712.

In the same vein, the district court granted the attorneys’ request for $335,000 in class counsel’s fees, costs and expenses of litigation, finding those reasonable. –JR

A Controversy No Matter How Local, Must Be Established With Evidence

Posted in Case Summaries

Mandragon v Capital One Auto Finance, 2013 WL 6183001 (9th Cir. Nov. 27, 2013).

In this action, the Ninth Circuit refused the plaintiff’s request that the class definition was sufficient to establish a local controversy exception, and that a requirement of evidence showing that the two-thirds of the class members were in fact California citizens, thereby vacating the district court’s order remanding the case.

The plaintiff filed a putative class action against the defendants Capital One Auto Finance and Ron Baker Chevrolet in the San Diego County Superior Court, alleging violations of various provisions of California state law related to automobile finance contract disclosures. Captial One removed the case to the United States District Court for the Southern District of California under CAFA. The plaintiffs filed a motion to remand under the local controversy exception. The plaintiff did not produce any evidence to establish the local controversy exception, but relied on the class definitions that more than two-thirds of the class members were citizens of California.

The plaintiff argued that the class definitions, limiting putative class members to those consumers who purchased and registered cars in California, were sufficient to establish that this action fell within CAFA’s local controversy exception. The district court agreed and remanded. Capital One appealed to the Ninth Circuit. On appeal, the district court’s remand order based on what the Ninth Circuit termed as “guesswork” was reviewed.

At the very outset, the Ninth Circuit observed that in many cases before this, it has held that the burden of proof for establishing the applicability of an exception to CAFA jurisdiction rests on the party seeking remand, which in this case, as in most cases, is the plaintiff. This meant that the plaintiff here must thus establish that greater than two-thirds of the prospective class members were citizens of California as of the date the case became removable. The plaintiff argued that more than two-thirds of the members of the class defined to be limited to persons who purchased vehicles in California for personal use to be registered in the State of California, would necessarily be California citizens, but he did not present any evidence, even after Capital One challenged it.

The Ninth Circuit noted that where the facts are in dispute, the statute requires the district court to make factual findings before granting a motion to remand a matter to state court. The Ninth Circuit remarked that it joined the other three circuits that had considered the issue, in holding that the plaintiff must have some facts in evidence from which the district court may make findings regarding class members’ citizenship for the purposes of CAFA’s local controversy exception.

In re Sprint Nextel Corp., 593 F.3d 669 (7th Cir. 2010), the Seventh Circuit noted that freewheeling discretion amounts to no more than guesswork, and a jurisdictional finding of fact should be based on more than guesswork. (Editors’ Note:  See the CAFA Law Blog analysis of In Re Sprint Nextel posted on March 28, 2010). Similarly, in Preston v. Tenet Healthsystem Mem’l Med. Ctr., Inc., 485 F.3d 793 (5th Cir. 2007); and in Evans v. Walter Indus., Inc., 449 F.3d 1159 (11th Cir. 2006), the Fifth Circuit and the Eleventh Circuit, have concurred with the Seventh Circuit that a jurisdictional finding of fact should be based on more than guesswork. (Editors’ Note: See the CAFA Law Blog analysis of Evans posted on May 25, 2006.)

Applying the rulings here, the Ninth Circuit remarked that merely because a purchaser may have a residential address in California, it does not mean that the person is a citizen of California. The Ninth Circuit remarked that if the plaintiff decides to expend the effort, he would be able to gather and submit evidence to support his contention that more than two-thirds of prospective class members were California citizens.

The Ninth Circuit, however, remarked that the burden of proof placed on a plaintiff should not be exceptionally difficult to bear, and that even under CAFA, the jurisdictional allegations in the complaint can be taken as a sufficient basis, on their own, to resolve questions of jurisdiction where no party challenges the allegations. Nevertheless, as the allegations were disputed in this case, the Ninth Circuit vacated the district court’s remand order and remanded the case to the district court with instructions to allow plaintiff an opportunity to renew his motion to remand and to gather evidence to prove that more than two-thirds of the putative class members were California citizens. –JR

Local Defendants Must be Significant Defendants

Posted in Uncategorized

Lefevre v Connextions Inc., 2013 WL 6241732 (N.D. Tex. Dec. 3, 2013).

In this action, the United States District Court for the Northern District of Texas found that the plaintiffs failed to distinguish between a local defendant, and the other defendants in order to establish by a preponderance of evidence that the local defendant was the one from whom significant relief was being sought. Therefore, the district court refused to remand the case under the local controversy exception.

The plaintiffs filed a suit in Texas state court alleging that the defendants offered them jobs with a promise that they would earn between $17 and $25 per hour, as a combination of hourly wages, sales commissions, and performance bonuses, but in reality they were paid nowhere near that amount. The plaintiffs asserted that they only received hourly wages and were never paid commissions on the sales of two specific drug plans. The defendants removed the case under CAFA, and the plaintiffs moved to remand under CAFA’s local controversy exception.

The plaintiffs asserted that there were two local defendants – Ayaya Staffing Professionals Ltd., and Patrick Kerl. The plaintiffs, however, did not contend that Kerl was a significant defendant within the meaning of CAFA. The district court noted that 28 U.S.C. § 1332(d)(4)(A)(i)(II)(aa) requires that Ayaya be one from whom significant relief was sought by the members of the plaintiff class. Second, subsection (bb) requires that Ayaya be one who alleged conduct formed a significant basis for the claims asserted by the proposed plaintiff class. The plaintiffs maintained that Ayaya was a significant defendant because it satisfied the requirements of subsections (aa) and (bb).

The district court noted that the plaintiffs sought damages equally from Ayaya and the other defendants. The district court also noted that Ayaya was a local defendant, and therefore, subsection (aa) was satisfied. As to the subsection (bb) the district court noted that in Opelousas General Hospital Authority v. Multiplan, Inc., 2013 WL 3245169 (5th Cir. June 28, 2013), the Fifth Circuit held that the plaintiff failed to satisfy subsection (bb) because the complaint contained no information about the conduct of the local defendant relative to the conduct of the other defendants as it related to the claims of the putative class or even the lead plaintiff. (Editor’s Note: See the CAFA Law Blog analysis of Multiplan here).

Unlike Opelousas General Hospital Authority, the plaintiffs’ complaint included allegations to distinguish the conduct of Ayaya from that of the other defendants. For example, the complaint alleged that Ayaya recruited plaintiffs and the class to work for defendant Connextions, Inc., suggesting that Ayaya was a recruiting organization whereas Connextions was the actual employer. The district court noted that these distinctions, however, were insufficient to prove by a preponderance of the evidence that Ayava was a significant defendant under subsection (bb). In fact, the district court remarked that the distinguishing conduct – that Ayava recruited plaintiffs to work for Connextions – cuts against the finding that Ayava was a significant defendant. The allegations suggest instead that Ayava was merely a recruiting agency that did not itself hire or purport to hire any of the plaintiffs.

In addition, the district court noted that the vast majority of the allegations in the amended petition did not distinguish between the conduct of Ayava and the conduct of the other defendants.

Consequently, the district court found that that the plaintiffs failed to carry their burden under subsection (bb) because they did not prove by a preponderance of the evidence that Ayava was a local defendant “whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class.” Because plaintiffs did not meet their burden of proof as to all the essential elements of the local controversy exception, the court denied their motion to remand. –JR