Hirschbach v. NVE Bank, et al, 496 F.Supp.2d 451 (D.N.J. 2007)

Here at CAFA Law Blog, we try to maintain a neutral approach to the courts’ treatment of CAFA, trying our hardest to love all CAFA decisions and treat them as God’s precious little creatures. We admire them, classify them zoologically, and generally accept them for all of their differences and occasional imperfections.   But every so often we discover a new demon-spawn of a case that, well, just makes us say WTF?   

In this head-scratcher, our newly discovered species is a sua sponte dismissal using CAFA’s permissive prong of the home state exception. In Hirschbach, the plaintiff filed a consumer fraud class action in New Jersey state court. The plaintiff alleged that the defendants, NVE Bank (a New Jersey state-chartered bank) and its holding company, issued certificates of deposit to the class members at competitive interest rates and then fraudulently applied lower than market interest rates to renewed certificates later down the road. Per the plaintiff, NVE’s alleged interest rate reduction violated the New Jersey Consumer Fraud Act, so the plaintiffs filed a class action.

The complaint was originally filed in New Jersey state court in November of 2006 and defined the class as all people who invested in CD’s issued by NVE at competitive market rates and who renewed their CD’s at least once after the initial maturity date and received interest on their renewed CD below competitive market rates (or translated to English: people whose CD interest rates were reduced after their CD’s were renewed).

On its face, the complaint stated only a single state law cause of action—an alleged violation of the New Jersey Consumer Fraud Act. Still, NVE removed the suit to the District of New Jersey on both federal question and CAFA minimal diversity grounds. In its removal, NVE asserted that federal question jurisdiction was implicit because its handling of the CD’s was governed by the Truth in Savings Act, 12 U.S.C. § 4301 et seq. (“TISA”).

No motion to remand was filed.  Instead, the plaintiff accepted his removed fate and amended the complaint to attempt to assert a cause of action for violations of TISA.

Shortly after the amended complaint was filed, the District of New Jersey issued an order, sua sponte, requiring the parties to show cause why the case should not be remanded back to the New Jersey state court for lack of subject matter jurisdiction.  Citing the general maxim that courts have an obligation to satisfy themselves that subject matter jurisdiction exists, the court challenged the removal and questioned both whether federal question jurisdiction was actually present and whether CAFA’s minimal diversity requirements were met. 

Before reaching the jurisdictional question, the court dismissed the TISA claim sua sponte after finding that no private right of action exists for violations of TISA. The dismissal of the only overtly federal claim left the court to determine whether (1.) the state law claim would rely upon TISA enough to provide federal question, and (2.) whether the CAFA minimal diversity removal was appropriate. 

The court quickly disposed of the federal question issue by finding that the plaintiff had only asserted state law claims and that the alleged violation of the New Jersey Consumer Fraud Act did not sufficiently rely on TISA in order to classify it as a federal question. 

With all of the federal question grounds out of the way, the court turned its full attention to CAFA. At first blush, the Court found that all of the prima fascia CAFA removal elements were met—i.e. that  amount in controversy was present, that there was minimal diversity between the putative class and the defendants, and that the putative class contained at least 100 members. One would expect the inquiry to have ended here, considering that the plaintiff never requested remand. Wrong. Despite finding minimal diversity, the court decided to push the issue and examine whether the case could be remanded under the home state controversy exception.   

After reviewing the complaint and unspecified documents provided by the parties, the court determined that, while the putative class may be comprised of over two thirds New Jersey residents, such a calculation could not be made. However, the court was able to satisfy itself that at least one third of the class was made up of New Jersey residents—i.e. that the discretionary home state exception applied. After finding that at least one third of the class was made up of New Jersey residents, the court noted that the case involved purely state law claims and opted to remand the case back to state court.

But, what about the burden of proof you ask? We guess the court never liked the burden of proof so much. Instead, while  noting that legislative history and the 5^th, , 7^th, 9^th, and 11^th Circuits (Frazier v. Pioneer Americas, L.L.C., 455 F.3d 542 (5^th Cir. 2006); Hart v. FedEx Ground Package Sys., Inc., 457 F.3d 675 (7^th Cir. 2007); Serrano v. 180 Connect, Inc., 478 F.3d 1018 (9^th Cir. 2007); Evans v. Walter Indus., Inc. 449 F.3d 1159 (2006)) have all found that the burden of proof for the home state exemption rests on the party seeking remand, the court found that the issue had not been decided by the Third Circuit—the court’s home circuit.   Interestingly, the court declined to actually determine who bears the burden of proof on the home state exception, choosing instead to simply say that it was satisfied from its own inquiry that more than one third of the class members lived in New Jersey. Perhaps the court considered itself the removing party and determined that it had met its burden of proof. Obviously, after going through all of the trouble of doing the plaintiff’s job in asserting and establishing the one third local population issue, the remaining discretionary grounds were a piece of cake.   

While Hirschbach may be rare species, we wouldn’t be too surprised if it went extinct.