Dutcher v. Matheson, 840 F.3d 1183 (10th Cir. 2016).

In this action, affirming the judgment of a district court in Utah denying the plaintiffs’ motion to remand, the Tenth Circuit found that differences in the causes of action pleaded are not enough to distinguish cases under the demands of CAFA’s local-controversy exception, which looks exclusively to whether the other case has asserted “the same or similar factual allegations,” not the same or similar causes of action. Additionally, the Tenth Circuit held that the home-state exception requires all primary defendants to be citizens of the state in which the action was brought.

The plaintiffs, mortgage borrowers, brought a putative class action in Utah state court against the defendant ReconTrust Company, a national bank, alleging that ReconTrust illegally non-judicially foreclosed on the plaintiffs’ properties. Plaintiffs allege that depository institutions like ReconTrust did not have authority to enforce the power-of-sale provisions in the deeds of trust that secured the properties. Plaintiffs also sued the defendants BAC Home Loans Servicing (“BAC”) and Bank of America, N.A. (“BOA”), as the former trustees who transferred trusteeship to ReconTrust, as well as attorney Stuart Matheson and his law firm, as the agents who conducted the foreclosure sale on behalf of ReconTrust.

To secure the financing used to purchase their properties, the plaintiffs had executed deeds of trust that provided their lenders with a lien interest in the properties in the event of default. After the plaintiffs defaulted on their loan obligations, they were subject to non-judicial foreclosure under Utah law. The defendants BAC and BOA designated ReconTrust—whose functions were limited to foreclosing on deeds of trust pursuant to its charter with the Office of the Comptroller of the Currency (“OCC”)—as the substitute trustee. ReconTrust proceeded to conduct the foreclosures that the plaintiffs asserted were unlawful.

The defendants removed the case to federal court pursuant to CAFA and diversity jurisdiction. The district court denied a motion by the plaintiffs to remand the case to state court and agreed with ReconTrust on the merits, and granted the defendants’ pending motion to dismiss. On appeal, the Tenth Circuit affirmed the district court’s judgment.

Plaintiffs moved to remand. They did not deny that Defendants had not met the required elements to give a court jurisdiction under CAFA. Instead, they argued one of three exceptions—local controversy, home state, or discretionary—applied.

Primarily, the plaintiffs argued that CAFA’s “local controversy” exception required that the district court grant their motion to remand. The Tenth Circuit addressed only the fourth element of the exception, which requires a court to remand when no other class action “has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons” in the three years prior. 28 U.S.C. § 1332(d)(4)(A).

The district court found that the case of Coleman v. ReconTrust Co., 2012 WL 1302567 (D. Utah Apr. 16, 2012), filed approximately eight months before the instant action, was the type of class action that prevented the plaintiffs from making the requisite showing on the fourth prong of CAFA’s “local controversy” exception. The Tenth Circuit agreed. The plaintiffs attempted to distinguish Coleman based on different causes of action asserted in the suits. But the Tenth Circuit found that differences in the causes of action pleaded were not enough to distinguish cases under the demands of CAFA, as the local controversy exception looks exclusively to whether the other case has asserted “the same or similar factual allegations,” not the same or similar causes of action.

The plaintiffs also argued that Coleman was not a class action, despite the case being filed as a putative class action, because the district court ultimately denied class certification. The plaintiffs thus argued that there was no true prior class action to pre-empt the instant suit under the local controversy exception. But the Tenth Circuit noted that the text of the local controversy exception states that it applies only when “no other class action has been filed” within the three year period. The Tenth Circuit thus agreed with the district court that Coleman was a class action that raised similar factual claims as the instant case and its denial of remand under the local controversy exception was proper.

Second, the plaintiffs argued that they were entitled to a remand to state court under the CAFA’s “home state” exception. The defendants argued that the plaintiffs could not make the necessary showing because all of the primary defendants were not Utah citizens—specifically, ReconTrust, BAC, and BOA. The plaintiffs argued that they had satisfied the criterion because Mr. Matheson and his law firm were Utah citizens. But the Tenth Circuit held that its opinion was grounded in the text of the exception itself: “The use of the definite article, ‘the,’ before the plural noun, ‘primary defendants,’ and the use of the plural verb, ‘are,’ leaves no doubt that Congress intended the state action provision to preclude CAFA jurisdiction only when all of the primary defendants are states, state officials, or state entities.” Because the plaintiffs did not contest that some primary defendants were not Utah citizens, the court concluded that the case could not be remanded under the home state exception.

Finally, Plaintiffs argued that the CAFA’s discretionary exception applied, which applies six factors. But to even qualify for the exception, plaintiffs must show that all the primary defendants are citizens of the State in which the action was originally filed. Because that criterion could not be met, it could not remand the case under the discretionary exception.

In light of the foregoing, the Tenth Circuit affirmed the judgment of the district court.

–Barry A. McCain