Lao v. Wickes Furniture Co., No. EDCV 06-448 SGL OPX, 2006 WL 2879763 (C.D. Cal. Oct. 4. 2006).

A district judge declared that the Class Action Fairness Act is a statute that is a headache to construe.  We expect that these words will be quoted often by other judges and pundits of CAFA.  In fact, this could open up a whole new humanitarian purpose for our staff of eager bloggers. We can hear the ads now… “CAFA Law Blog: You can’t buy a more potent pain reliever without a prescription” or “CAFA Law Blog: The Headache Medicine” or “The More You Know, The More You Trust CAFA Law Blog.”

Judge Stephen Larson, a 2006 appointee to the federal bench in the Central District of California, recently had this to say about CAFA, before launching into an exhaustive look at CAFA’s legislative history and structure in Lao v. Wickes Furniture Company:

the Class Action Fairness Act of 2005 (“CAFA”), a statute in which some major terms are left undefined, certain of the provisions of which have been aptly characterized as “bewildering” or “clumsily crafted,” and whose legislative history is, in part, of questionable interpretive value. In short, it is a statute that is a headache to construe.

Come on Judge Larson-CAFA is not all that bad, is it? Should this not be just the kind of challenge a newly-minted judge would relish? Of course, the Editors of the CAFA Law Blog would never dare disagree with a federal court judge. However, we can suggest (in defense of our favorite statute) that such a painstaking analysis of ANY statute is likely to cause a headache!

The start of Judge Larson’s woes was a putative class action filed in California state court by a group of commissioned sales persons who claimed their employer had not paid them appropriately under California law. The plaintiffs sued Wickes Furniture Company and two other defendants for a host of alleged bad deeds involving payment of wages.

Wickes Furniture, and the two other defendants removed the case under CAFA. The plaintiffs moved to remand the case, thus beginning CAFA headache #1 for Judge Larson. The plaintiffs posited three reasons CAFA does not permit removal, citing 28 U.S.C. § 1332 (d) (2) and (4):

·    The five million dollar amount in controversy requirement was not met.

·     The home-state controversy bar applied.

·     The local controversy bar applied.

The Court reviewed each argument in turn.

First, the Court rejected the plaintiffs’ argument that their claims did not put more than five million dollars in controversy when all claims were aggregated. The plaintiffs urged that because the determination of the amount in controversy must be made at the time of removal, valuation of their wage claims should stop as of the date of removal. However, their complaint did not simply allege damages for the period extending as far prior to filing as the statute of limitations would permit. Instead, the complaint also sought damages for unpaid wages in the future “up until the time a class is certified.” Accordingly, the Court agreed with the defendants that this expanded time period puts the statutorily required amount in controversy.

Next, the Court tackled the local controversy and home-state rules, res nova in the Ninth Circuit. Both rules require the federal court to decline jurisdiction when they apply. The home-state controversy bar applies when two-thirds or more of the class members and the “primary” defendants are citizens of the state where the action was initially filed. See 28 U.S.C. § 1332 (d)(4)(B). The local controversy bar applies when a four-factor test is met. See 28 U.S.C. § 1332 (d)(4)(A). When reading this section of the opinion, we can almost see Judge Larson’s head start throbbing.

The chief catalyst for this pain seems to be the perennial burden of proof question. The struggle concerns whether it is the non-removing parties’ burden to establish applicability of one of these two provisions as an exception to jurisdiction OR whether it is the removing parties’ burden to establish they meet all jurisdictional criteria, including non-applicability of subsections (d)(4)(A) and (B).

Judge Larson addressed the post-CAFA enactment Senate Judiciary Committee Report.  The Senate Judiciary Committee Report included language supporting the notions that (d)(4)(A) and (B) were intended to be exemptions and that a non-removing party would have the burden to establish the exemptions in order to defeat CAFA-based removal. He cited a host of authorities concluding such a post-enactment report should be afforded scant weight. He also cited the Ninth Circuit’s analysis in Abrego, which characterized the report as a “naked expression of ‘intent’ unconnected to any enacted text.”   (Editors’ Note:  See the CAFA Law Blog analysis of Abrego posted on May 25, 2006).

Resolving to ignore the Senate report’s naked expressions, headache in full bloom, the court embarked on a lengthy discourse on diversity jurisdiction and CAFA. The court acknowledged that the Fifth, Seventh and Eleventh Circuits have concluded the home-state and local controversy bars are exceptions that must be established by the party opposing federal jurisdiction. (Editors’ Note:  See the CAFA Law Blog analysis of  the 7th Circuit’s decision in Hart posted on August 21, 2006; the analysis of the 5th Circuit’s decision in Frazier posted on August 17, 2006, and the analysis of the 11th Circuit’s decision in Evans posted on May 25, 2006.  For an added bonus, see the CAFA Law Blog critique of Evans posted on May 26, 2006.  These posts are guaranteed not to give you a headache). However, not satisfied with the conclusion of three appellate courts, the court trudged on, through the thicket of statutory structure, focusing particularly on other parts of CAFA where Congress specifically labeled provisions as “exception”, including 28 U.S.C. § 1453 (d).

The court considered defendants’ suggestion that the unique formulation of the introduction of the home-state and local controversy provisions was intended to create a form of “statutory abstention.” The court rejected this novel claim as being inconsistent with the idea that abstention is a judicially-created limitation on statutory authority.

In the end, Judge Larson decided it is more logical to consider subsection (d)(4) as “further elucidating (d)(2)’s definitional provisions” and “an integral component of the removal provisions themselves,” rather than exemptions like subsections (d)(5) and (9).   In so doing, Judge Larson specifically opined that the decisions in Hart, Frazier and Evans are erroneous.  Now that it is something you don’t see everyday….a district judge declaring the decisions of three different appellate courts as erroneous.

Having placed the burden on the defendants to establish the home-state and local controversy rules did not apply, the court next considered the evidence. Fortunately for the court, probably dizzy with all the mental gyrations at this point, in applying the criteria for the two rules to the evidence, it quickly became obvious that the dispositive disputed fact is the corporate citizenship of defendant Wickes Furniture Company.

Easy, right? Wrong. The court conducted a detailed corporate citizenship analysis, using the Ninth Circuit’s “substantial predominance” test. This analysis twists because of the defendants’ invitation for the court to view the factors on a per capita basis, an argument developed in lower courts in California because of the sheer size of that state’s population in comparison to other states. The court ultimately refused to employ this per capita rule in this case, because Wickes only does business in a few states. Finally, Judge Larson concluded Wickes is a California citizen, and, thus, the local controversy rule applied to defeat jurisdiction under CAFA.

That was painful…and so preventable. All we can prescribe for Judge Larson is this: Read two CAFA Law Blog posts and call us in the morning. We suggest the CAFA Law Blog critique of Miedema posted on August 22, 2006, and our law review article “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”, available here.