Davis v. Chase Bank U.S.A., N.A., — F.Supp.2d —-, 2006 WL 2812343 (C.D.Cal., Sep 20, 2006).

If you are reading the CAFA Law Blog you probably do not practice much, if any, criminal law.  But we have all watched enough Law & Order on television to be able to recite the Miranda warning.  This case reminds us of the portion of the Miranda warning that states, "Anything you say can and will be used against you in a court of law," because that is exactly what happened to the plaintiff in this case.

On September 20, 2006, United States District Judge Dean D. Pregerson handed down an Order finding removal was proper in this Central District of California case because the case satisfied the dictates of the Class Action Fairness Act. 

The class action was originally filed on June 26, 2006 against Chase Bank USA and Circuit City Stores alleging damages surrounding California residents’ use of a Circuit City Chase Bank Rewards Card to make promotional purchases in a specific time frame. These purchases were advertised to accrue no immediate interest. The plaintiffs alleged that Gary Davis charged $2,000 to his Rewards Card during the promotional period which provided no interest from the date of purchase to January 2008. When Davis received his statement after the purchase, a finance charge appeared. Davis alleged that this charge carried forward from the prior month’s statement and his interest free promotional purchase. He also alleged that this happened to thousands of other Rewards Card holders.

Chase and Circuit City removed the case to federal court on August 9, 2006 alleging removal under CAFA’s provisions because the aggregate of the claims was greater than $5 million. The Central District of California issued an Order to Show Cause requesting briefing on the aggregate amount. Davis responded that even if CAFA provided jurisdiction, the security exception of CAFA applied and the case must be remanded. The court ordered further briefing on the securities exception and stated the issues as (1) whether the amount in controversy exceeded $5 million and (2) whether the securities exception applied.

Beginning its legal analysis, the court was quick to cite Abrego for the proposition that the removing defendant must prove by a preponderance of the evidence that the amount in controversy requirement had been met. (Editors’ Note: See the CAFA Blog analysis of Abrego posted on May 5, 2006. For further discussion on the concept of Minimal Diversity and why Abrego is incorrectly decided, see the CAFA Law Blog’s recent analysis, “Hot Off the Press,” posted May 5, 2005, which introduces a soon-to-be published law review article entitled “CAFA’s New Minimal Diversity Standard For Interstate Class Actions Creates A Presumption That Jurisdiction Exists, With The Burden Of Proof Assigned To The Party Opposing Jurisdiction,” authored by CAFA Law Blog Editors Hunter Twiford, Anthony Rollo and John Rouse).  Now, back to the show.

The court determined that the minimal diversity requirement was met because Davis is a California citizen, Chase is a Delaware citizen, and Circuit City is a Virginia citizen. When examining the amount in controversy, the court cited the case of Cohn v. Petsmart, Inc., 281 F.3d 837 (9th Cir. 2002) noting that a court may consider post-removal admissions contained in correspondence between counsel in determining the amount in controversy. In this case, Davis’ counsel actually admitted in a post removal letter that “plaintiff certainly alleges that the amount in controversy exceeds the threshold amount.”  You could almost hear Detective Ed Green from Law & Order, as well as Chase’s and Circuit City’s attorneys, saying "Gotcha" when the letter was received.  The Court held that this post-removal admission by the plaintiffs’ counsel satisfied the jurisdictional amount.

After finding CAFA jurisdiction, the opinion focused on the security exception under CAFA. Davis argued that the credit card agreement constituted a security.  In response, Chase correctly pointed out that the definition of a security does not include such agreements. Additionally, the court noted that the complaint alleged breaches of California’s consumer fraud statutes, not securities fraud.  As a result, the Court held that the securities exception did not apply.

Finally, the court turned to the burden of proof under the exception. Circuit City argued that in spite of the general rule that the removing party bears the burden of proof with regard to establishing federal court jurisdiction, the plaintiff should bear the burden with regard to CAFA exception. The court passed on deciding the issue as the defendants clearly met their burden under a traditional analysis. The court did state that a Ninth Circuit decision on the issue of burden of proof for CAFA exceptions following the Fifth and Eleventh Circuits would be helpful in future CAFA litigation. (Editor’s note: The court did not provide a cite to the Fifth and Eleventh Circuit cases that it referred to, but we think that the opinions the Court was referring to are probably Frazier v. Pioneer Americas, see our analysis posted on August 17, 2006 and Evans v. Walter Industries, see our analysis posted on May 25, 2006 and our critique posted on May 26, 2006).

Who would have thought all of those hours watching Law & Order would be of assistance with the Class Action Fairness Act?