Coleman v. Estes Express Lines, Inc., No. 10-80152, 2010WL 4925407 (9th Cir. (Cal.) Nov. 30, 2010). 

Laying down the criteria to evaluate applications for leave to appeal remand orders, the Ninth Circuit concluded that to permit appeal, the case should involve an important CAFA-related question or at least a fairly debatable CAFA issue. (Editors’ Note: See the CAFA Law Blog analysis of the district court opinion in Coleman posted on December 17, 2010.)

Bradford Coleman brought a class action in state court against Estes Express Lines, Inc. and Estes West alleging violations of California wage and hour statutes.

Estes Express is a Virginia-based corporation, and Estes West operates as an “internal regional division” of Estes Express. Estes Express owns 100% of Estes West and exercises significant control over its operations.  Estes West has no revenue, but it maintains a payroll account in California as mandated by California law.  It has a Board of Directors consisting of Estes Express employees, but the Board holds no independent meetings and has no responsibility for formulating a business plan. 

Estes Express removed the case to the District Court under CAFA.  

Coleman moved to remand to state court under “local controversy” exception to CAFA, 28 U.S.C. § 1332(d)(4).  Estes Express argued that local controversy exception did not apply because it was the only defendant whose alleged conduct formed a significant basis for the claims asserted and from whom significant relief was sought, and that only it had the ability to satisfy any judgment.  Thus, it contended that in deciding this jurisdictional questions, the District Court should look beyond  the pleadings to determine which party actually caused the alleged harm and form which party any relief would actually come. 

In a thorough opinion, the District Court explained that courts have split on whether to look beyond the complaint in determining whether the local controversy exception applies, and that the Ninth Circuit has not yet addressed the issue.  

The District Court held that the plain language of the statute precluded it from considering extrinsic evidence on the question of which party would actually pay a judgment.  The District Court then held that, even considering extrinsic evidence, Estes West was a defendant whose alleged conduct formed a significant basis for the claims asserted; therefore, the District Court found it unnecessary to reach the question whether extrinsic evidence should be considered.  Accordingly, the District Court found that the local controversy exception applied and remanded to state court. 

Estate Express sought leave to appeal.

At the onset, the Ninth Circuit noted that CAFA does not explain how an appellate court should decide whether to accept an appeal of a remand order.  Although the Ninth Circuit has not yet articulated the criteria to consider, the First Circuit, in Coll. of Dental Surgeons of P.R. v. Conn. Gen. Life Ins. Co., 585 F.3d 33, 38-39 (1st Cir. 2009),has set out a helpful list of criteria to use in evaluating applications for leave to appeal under § 1453(c)(1).  (Editors’ Note: See the CAFA Law Blog analysis of Coll. of Dental Surgeons posted on April 29, 2010).

The Tenth Circuit has adopted this list of criteria in BP Am., Inc. v. Oklahoma, 613 F.3d 1029, 1034-35 (10th Cir.2010).  (Editors’ Note: See the CAFA Law Blog analysis of BP Am., Inc. posted on August 18, 2010).

The First Circuit held that a key factor in determining whether to accept an appeal is “the presence of an important CAFA-related question” in the case, and that if the CAFA-related question is unsettled, immediate appeal is more likely to be appropriate, particularly when the question “appears to be either incorrectly decided by the court below or at least fairly debatable.” The First Circuit held that whether to permit appeal under § 1453(c)(1) is ultimately “committed to the informed discretion” of the appellate court.

Applying these criteria, the Ninth Circuit granted Estes Express’ application for leave to appeal.  The Ninth Circuit stated that although the local controversy exception to CAFA jurisdiction is “narrow,” it is nonetheless an enumerated exception to a federal court’s CAFA removal jurisdiction.  It is intended to “identify a controversy that uniquely affects a particular locality” and to ensure that it is decided by a state rather than a federal court.  

The Ninth Circuit remarked that the question whether the district court must rely only on the pleadings or should look to extrinsic evidence will often determine whether a case will be remanded under the local controversy exception.  

This case, thus, raised an important issue of CAFA law, the Ninth Circuit concluded.  As this was an unsettled question in Ninth Circuit, the Ninth Circuit did not conclude that the District Court ‘incorrectly decided,’ but the array of courts on both sides of the question indicated that it was at least “fairly debatable” and that appellate review would be useful.

Further, the Ninth Circuit observed that the case was well-positioned for review because whether the district court may look beyond the complaint may be dispositive of whether this case should be remanded.  As the District Court recognized, it may be possible to decide whether the conduct of a defendant formed significant basis without looking at extrinsic evidence, but the applicability of ‘significant relief’ depended on Estes West’s ability to pay a judgment.  

Finally, the Ninth Circuit concluded that balance of harms favored Estes Express, because Estes Express would lose almost any chance of litigating this case in a federal forum if it was not allowed to appeal the remand order.