Jadeja v. Redflex Traffic Systems, Inc., No. C 10-04287 WHA, 2010 WL 4916413 (N.D. Cal. Nov 22, 2010).
Red light cameras suck! Everyone knows that these spawn of technology are more about revenue generation and less about public safety. In this case the red light camera company got to stay in federal court because the local controversy exception was ticketed as inapplicable.
A District Court in California declined to remand the action to state court under the “local controversy” exception to CAFA holding that if a controversy results in the filing of multiple class actions, it is a strong signal that such a controversy is not localized and those cases may not be of the variety that the local controversy exception to CAFA removal is intended to address.
The plaintiff, S.D. Jadeja, filed a putative class action in California Superior Court seeking money damages and equitable relief, against the defendants, Redflex Traffic Systems, Inc.; Redflex Traffic Systems (California), Inc.; and American Traffic Solutions, Inc.
The defendants entered into contracts to provide automated traffic-enforcement systems to various state municipalities and agencies throughout California. The contracts provided for fixed payments from the municipalities and agencies, but the ‘cost-neutral clauses’ in the contract in effect guaranteed that the red light cameras would pay for themselves; if the fixed monthly fees charged by the defendants were to exceed the total revenue generated by the cameras, then defendants would refund, credit, or otherwise repay the municipality for the difference.
Jadeja alleged that because companies utilizing cost-neutral contracts were financially incentivized to ensure that the cameras they installed produce a sufficient number of infractions to cover their monthly operation fees, these contracts were merely illegal contingency contracts under which the contracted vendor was paid on a per-ticket basis with a monthly cap on total fees.
Jadeja alleged that the defendants had engaged in unfair competition in violation of California Business and Professions Code, § 17200, et seq.,because the relevant acts arose from allegedly unfair, unlawful contracts in which the defendants’ compensation depended on the number of red light citations they issued, in violation of California Vehicle Code, § 21455.5(g)(1). Second, Jadeja claimed that the defendants had been unjustly enriched by receiving compensation for the unlawful operation of automated traffic-enforcement systems in violation of the Vehicle Code.
The defendant, American Traffic Solutions, removed the action to federal court pursuant to CAFA, 28 U.S.C. §1332. Jadeja sought to remand to state court under the local controversy exception to CAFA jurisdiction, §1332(d)(4)(A).
The District Court denied the motion holding that Jadeja had not carried his burden of proving the element set forth in §1332(d)(4)(A)(ii) that during the 3-year period preceding the filing of the class action, 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.
The defendants identified five recently-filed putative class actions and claimed that each one satisfied the requirements of §1332(d)(4)(A)(ii).
In June 2009, a putative class action Todd v. City of Auburn was filed against Redflex Traffic Systems, Inc. and other defendants in the state of Washington. The Todd plaintiffs accused Redflex of unfair business practices and unjust enrichment based on the contracts between red-light camera companies and Washington cities containing ‘cost neutrality’ that gave the companies improper incentives. The Court found that the instant action echoed these factual allegations in precisely the manner contemplated by §1332(d)(4)(A)(ii).
Jadeja, however, contended that the Todd action was not ‘similar’ under the local controversy exception because it would have no collateral effect on the instant case, because it was not filed in California, did not involve interpretation of the California Vehicle Code, and did not assert a cause of action for violation of the UCL or other California state law. Jadeja dismissed the question of whether the two actions concerned similar contract language as inapposite.
The Court concluded that this focused on the legal theories rather than the factual allegations; thus, Todd action’s collateral effect was inapposite to this analysis, and the contract language certainly was not.
The Court noted that the plain language of §1332(d)(4)(A)(ii) is directed at “the same or similar factual allegations”, and the Senate Judiciary Committee, S. Rep. No. 109-14, at 41 (2005), as reprinted in 2005 U.S.C.C.A.N. 3, 39, provided specific guidance on how to evaluate the presence of this element: “the Committee also wishes to stress that the inquiry under this criterion should not be whether identical (or nearly identical) class actions have been filed. The inquiry is whether similar factual allegations have been made against the defendant in multiple class actions, regardless of whether the same causes of action were asserted or whether the purported plaintiff classes were the same (or even overlapped in significant respects).” The Committee also explained that §1332(d)(4)(A)(ii) functions as “a test for assessing whether a controversy is localized. If a controversy results in the filing of multiple class actions, it is a strong signal that those cases may not be of the variety that the local controversy exception to CAFA removal is intended to address”. When a controversy is widespread rather than localized, federal courts are better suited to providing a fair, efficient resolution. (Editors’ Note: as regular readers of the CAFA Law Blog will already know…the CAFA Law Blog is delighted that another court not only bothered to read the notes of the Senate Judiciary Committee but also applied them.)
Accordingly, the Court concluded that the local controversy exception to CAFA jurisdiction did not apply.