Nevada v. Bank of America Corp., et al, 2012 WL 688552 (9th Cir. March 2, 2012). 

Nevada AG’s parens patriae suit fell 99 persons short of a 100 person “mass action” under CAFA and was remanded back to state court.

Nevada’s Attorney General filed suit on behalf of all Nevada consumers (a parens patriae suit) alleging that the defendants, a group of mortgage lenders and servicers, misled Nevada consumers about the terms and operation of their home mortgage modification and foreclosure processes, in violation of the Nevada Deceptive Trade Practices Act (“DTPA”). Nevada also alleged that the defendants violated an existing consent judgment in a prior case.

This action was based on complaints Nevada had reviewed and investigated from more than 150 consumers, housing counselors, and other industry sources. The Complaint sought declaratory and injunctive relief, civil penalties, restitution for allegedly defrauded Nevada consumers, attorney’s fees, and the costs of investigation.

Nevada initially filed its suit action in Nevada state court, and the defendants removed the litigation to the U.S. District Court for the District of Nevada, asserting subject matter jurisdiction as either a class action or “mass action” under the CAFA. 

Nevada moved to remand the case for lack of jurisdiction under CAFA, which the District Court denied. 

On appeal, the Ninth Circuit reversed the District Court’s order, and remanded the case to state court. 

The Ninth Circuit began its analysis by noting that since the District Court issued its order holding that Nevada’s parens patriae suit was a CAFA class action, the Ninth Circuit had issued Washington v. Chimei Innolux Corp., 659 F.3d 842 (9th Cir. 2011), wherein it held that attorney general enforcement actions were not removable class actions under CAFA. In Chimei, the attorneys general of Washington and California brought parens patriae suits under their states’ antitrust laws, alleging that a group of manufacturers and distributors engaged in a conspiracy to fix the prices of certain liquid crystal display panels. The Chimei court held that parens patriae suits lacked the defining attributes of true class actions, and as such, they only resembled class actions in the sense that they were representative suits. 

Although the defendants conceded that Chimei defeated any finding that Nevada’s suit was a class action under CAFA, they argued that this action was nevertheless removable as a mass action under 28 U.S.C. § 1332(d)(11). 

The Ninth Circuit observed that a mass action was defined as any civil action in which the claims of 100 or more persons were proposed to be tried jointly on the ground that the plaintiffs’ claims involved common questions of law or fact, except that jurisdiction shall exist only over those plaintiffs whose claims in a mass action satisfy the $75,000 jurisdictional amount requirement set forth in § 1332(a). This issue was res nova in the Ninth Circuit and, moreover, was the subject of a circuit split between the Seventh and Fifth Circuits. Accordingly, the Ninth Circuit considered the differing positions and ultimately sided with the Seventh Circuit.

In LG Display Co., Ltd. v. Madigan, 665 F.3d 768, 772 (7th Cir. 2011), the Seventh Circuit concluded that a parens patriae suit was not a mass action because the Attorney General was the only plaintiff. The Seventh Circuit reasoned that a suit is not a mass action if all of the claims in the action were asserted on behalf of the general public pursuant to a state statute specifically authorizing such an action. Accordingly, those a parens patriae suit might represents more than 100 persons, there was only one “plaintiff” and thus it could not be a mass action.  

In Louisiana ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418 (5th Cir. 2008), the Fifth Circuit reached the opposite conclusion; it held that a state’s parens patriae antitrust action against insurance companies qualified as mass action because insurance policyholders were the real parties in interest. Since a finite class of persons was set up to benefit from the attorney general’s action, to the extent that group exceeded 100 persons, the suit qualified as a “mass action.”

Thus, here, both parties agreed that the characterization of this case as a mass action turned to whether the State of Nevada or the hundred-plus consumers on whose behalf it sought restitution were the real parties in interest. The Ninth Circuit noted that Nevada’s sovereign interest in protecting its citizens and economy from deceptive mortgage practices was not diminished merely because it was making claims for restitution. The Ninth Circuit noted that in Chimei, although it did not reach the issue of whether a claim for restitution in a consumer protection action rendered the consumers the real parties in interest, the district court had concluded that the states of California and Washington were the real parties in interest because both states had a sovereign interest in the enforcement of their consumer protection and antitrust law, and in securing an honest marketplace and the economic well being of their citizens. The Ninth Circuit noted that here, as in Chimei, the restitution that Nevada sought (although on behalf of its consumers) would first be paid to the State, and distributed on an equitable basis. 

The Ninth Circuit noted further that in a virtually identical action brought by the Arizona Attorney General, a federal court in Arizona ex rel. Horne v. Countrywide Fin. Corp., 2011 WL 995963 (D. Ariz. Mar. 21, 2011) also reasoned that the fact that some private parties may receive restitution did not negate the state’s substantial interest or render the entire action removable. As in the Arizona case, the Ninth Circuit remarked that the State of Nevada here was the real party interest because of its interest in protecting the integrity of the residential mortgage loan business’ and preventing consumer fraud in loan modifications and foreclosures. 

Accordingly, the Ninth Circuit held that neither CAFA’s minimal diversity requirement, nor its numerosity requirement, was satisfied. As the State of Nevada was the real party in interest, the Ninth Circuit concluded the action was 99 persons short of a mass action. Accordingly, the Ninth Circuit concluded that this case was not properly removable under CAFA and remanded to the district court with instruction to remand to the state court.

(Editors’ Note:  For an early analysis of the removal of attorney general actions under CAFA see the following scholarly article:  “Removal of Attorney General Actions Under the Class Action Fairness Act of 2005,” BNA, Inc. Class Action Litigation Report, Vol. 12, No. 9, May 13, 2011.)