Coleman v. Estes Express Lines, Inc., No. 10-56852, 2011 WL 211206 (9th Cir. Cal. Jan. 25, 2011). 

In this case, although the appellate court allowed the appeal from a remand order, the U.S. Ninth Circuit ruled that a federal district court is limited to examining the complaint in deciding whether a local defendant is a significant defendant. 

The plaintiff, Bradford Coleman, a former pickup and delivery driver, brought a putative class action in state court against his employers, Estes Express and Estes West, alleging multiple violations of California law. 

Estes Express, a Virginia corporation, acquired G.I. Trucking, a California corporation, in 2005. After the acquisition, G.I. Trucking was renamed Estes West but remained a California corporation. After Estes removed the action to federal court, the plaintiff moved to remand to state court, arguing that the case was a local controversy under CAFA. 

The three criteria to be proved under the local controversy exception are: (1) whether “significant relief is sought” from a local defendant under 28 U.S.C. §1332(d)(4)(A)(i)(II)(aa); (2) whether the defendant’s “alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class” under subsection (bb); and (3) whether the significant defendant be a defendant “who is a citizen of the state in which the action was originally filed” under subsection (cc). 

Estes argued that Estes West had insufficient funds to satisfy a judgment, and that ‘significant relief,’ therefore, had not been “sought” from it. Second, Estes argued that Estes Express had almost complete control over the operations of Estes West, and that Estes West’s “alleged conduct” therefore did not “form a significant basis” for the claims asserted by the proposed plaintiff class. Estes provided evidence by way of declaration that as Estes West has no source of revenue, only Estes Express could satisfy a potential judgment. In addition, Estes Express maintains control over matter of payroll and every significant term of employment for every Estes employee in the State of California. 

The District Court, however, remanded the action to state court holding that it could not look beyond the allegations in the complaint in deciding whether the plaintiff “sought” “significant relief” from Estes West. Looking only to the complaint, it held that the plaintiff had satisfied the significant “relief requirement” of CAFA. (Editors’ Note: See the CAFA Law Blog analysis of the district court decision posted on December 17, 2010). The District Court did not resolve the question of whether it could look beyond the complaint in deciding whether Estes West’s “alleged conduct formed a significant basis” for the plaintiff’s claims. It held that regardless of whether it considered Estes declaration, the plaintiff had satisfied the conduct requirement of CAFA. 

Estes appealed. Because the question of whether a district court may look beyond the allegations of the complaint in determining the applicability of the local controversy exception had not been resolved in the Ninth Circuit, it granted Estes permission for appeal. (Editors’ Note: See the CAFA Law Blog analysis of the Ninth Circuit’s decision to allow the appeal posted on January 9, 2011).

First, the Ninth Circuit remarked that although district courts sometimes consider evidence in making some subject matter jurisdiction determinations, they cannot. Under subsection (aa) and (bb) CAFA’s language unambiguously directs the district court to look only to the complaint in deciding whether the criteria set forth in subsections (aa) and (bb) are satisfied. Under long-established law, the district court looks to the “well-pleaded complaint,” rather than to any subsequent pleading or evidence; factual determinations under subsections (aa) and (bb) are likely to be more expensive and time-consuming than factual determinations of citizenship and amount-in-controversy. 

While holding so, the Ninth Circuit observed that the word “sought” under subsection (aa) focuses attention on the plaintiff’s claim for relief–that is, on what is “sought” in the complaint–rather than on what may or may not be proved by evidence. Like the word “sought,” the word “alleged” under subsection (bb) makes clear that the second criterion is based on what is alleged in the complaint rather than on what may or may not be proved by evidence. 

Unlike the words “sought” and “alleged,” used in subsections (aa) and (bb), the word “is,” used in subsection (cc), indicates that an actual fact must be established. The tenth circuit in Coffey v. Freeport McMoran Copper & Gold, 581 F.3d 1240, 1244-45 (10th Cir. 2009), illustrated the distinction between “sought” in subsection (aa) and “is” in subsection (cc). It held that a “defendant from whom significant relief is sought” does not mean a “defendant from whom significant relief may be obtained” there is nothing in the language of the statute that indicates Congress intended district courts to wade into the factual swamp of assessing the financial viability of a defendant as part of this preliminary consideration. By contrast, in addressing citizenship under subsection (cc), the Tenth circuit upheld the district court’s factual determination of citizenship. (Editors’ Note: See the CAFA Law Blog analysis of Coffey posted on April 15, 2010).

Second, the Ninth Circuit remarked that because the text is unambiguous, it need not consult the legislative history; however, it discussed that history only because several courts have relied on a Report of the Senate Judiciary Committee to support a conclusion that the district court is not limited to the complaint in deciding whether the criteria of subsections (aa) and (bb) are satisfied. Consistent with the Ninth Circuits conclusion discussed above, the Report provides that under CAFA “a federal court may have to engage in some fact-finding, not unlike what is necessitated by the existing jurisdictional statutes.” Coffey found that fact-finding is necessary on questions of citizenship and Lowdermilk v. U.S. Bank Nat’l Ass’n, 479 F.3d 994, 998-1000 (9th Cir. 2007) found it on amount-in-controversy. However, there is no fact-finding under subsections (aa) and (bb)–relief sought and alleged conduct. The Ninth Circuit noted that in conformity with its findings, the third circuit in Kaufman v. Allstate N.J. Ins. Co., 561 F.3d 144, 157 (3d Cir. 2009), and Tenth circuit in Coffey declined to look beyond complaint while determining the criteria of subsections (aa) and (bb). (Editors’ Note: See the CAFA Law Blog analysis of Lowdermilk posted on July 30, 2007 and the analysis of Kaufman posted on October 14, 2009).

Finally, the Ninth Circuit found that the complaint sought sufficient relief against Estes West that satisfied subsection (aa), and there was nothing to suggest that Estes West was a nominal defendant. The complaint also sufficiently alleged conduct of Estes West that formed a significant basis for the claims asserted on behalf of the class under subsection (bb). The complaint alleged that Estes West employed the putative class members during the relevant period, and that Estes West violated California law in a number of ways with respect to those employees. The complaint also alleged that Estes Express had violated the same provisions of California law, but the allegations against Estes Express in no way made the allegations against Estes West, the actual employer, insignificant. 

The Ninth Circuit remarked that although Estes’ declaration was irrelevant here, the declaration stated that Estes West had no revenue to satisfy a potential judgment ignoring the fact that the plaintiff sought not only damages but also injunctive relief against Estes West, as to which the assets of Estes West are irrelevant. Estes’ contention that because Estes Express controlled all important actions of Estes West, the conduct of Estes West did not form a significant basis for the claims ignored the fact that the conduct of Estes West, even if controlled by Estes Express, nonetheless, remained the conduct of Estes West, for which Estes West might be held liable. 

Accordingly, the Ninth Circuit affirmed the District Court’s remand order.