Westerfeld v. Independent Processing, LLC, No. 10-2635 (8th Cir. Sept. 20, 2010). 

This opinion by the Eight Circuit discusses one of the jurisdictional exceptions to CAFA. The exceptions and burden of proof are both near and dear to our hearts here at the CAFA Law Blog. 

This opinion discusses an appeal from the Eastern District of Missouri. In reversing the district court’s remand order, the Eighth Circuit found that whether an in-state defendant is a significant defendant for purposes of the local-controversy exception must be determined by considering the claims of “all of the class members in the class action” and not by considering the claims of class members on a class-by-class basis. 

The plaintiff, Missouri citizen, filed a class action in Missouri state court against Independent Processing, LLC–a Missouri limited liability company that processed residential mortgage documents, and Provident Funding Associates, LP–a California limited partnership that provided residential mortgages. The plaintiff alleged that Independent and Provident violated Missouri Merchandising Practices Act while charging her and other Missouri residents a “broker processing fee” and an “administrative fee,” respectively, in residential mortgage financing transactions. Accordingly, the plaintiff sought two separate plaintiff classes against each defendant for identical state law claims.

Following removal, the District Court remanded the action to state court under CAFA’s local controversy exception. 

The Eighth Circuit vacated and remanded to the District Court. 

In its holding, the Eighth Circuit stated that the District Court had correctly found that Provident, as a removing party, bore the initial burden of establishing that CAFA’s fundamental jurisdictional requirements were met. (Editors’ Note: You avid readers know our position on who bears the burden of proof, but if you have forgotten or if you are new, see our law review article on the subject).

On the other hand, the District Court opinion stated that even if application of the exception was not as clear as it was, any doubt must be resolved in favor of remand. (Editors’ Note:  See the CAFA Law Blog analysis of Westerfeld I posted on September 13, 2010). The Eighth Circuit found that this was a misstatement of the law because once Provident satisfied CAFA’s basic jurisdictional requirements, the burden shifted to the plaintiff to establish that local-controversy exception applied. The Eighth Circuit observed that the District Court erred by resolving any doubt regarding applicability of the local-controversy exception in favor of remand, i.e., in favor of the plaintiff–the party who was invoking the exception to federal jurisdiction and the party who was required to establish that the exception applied. The Eighth Circuit concluded that the party bearing the burden of proof was not entitled to the benefit of the doubt. 

Second, the Eighth Circuit stated that to apply the local controversy exception, at least one significant defendant should be from the state in which the class action was originally filed. Provident had urged the District Court to determine whether Independent was a significant defendant under CAFA by considering the class action as a whole and not by considering the claims on a class-by-class basis. According to Provident’s preferred analysis, the plaintiff was not seeking significant relief from Independent–the in-state defendant. Thus, Independent did not qualify as a significant defendant. 

The Eighth Circuit noted that “class” is defined under CAFA, §1332(d)(1)(A) as “‘all’ of the class members in ‘a’ class action.’” By definition, therefore, “the plaintiff class” described in §1332(d)(4)(A)(i)(II)(aa) and “the proposed plaintiff class” described in §1332(d)(4)(A)(i)(II)(bb) include “all” of the class members in the class action as a whole. The Eighth Circuit found that whether an in-state defendant is a significant defendant for purposes of the local-controversy exception must be determined by considering the claims of “all of the class members in the class action” and not by considering the claims of class members on a class-by-class basis. 

The Eighth Circuit noted that in Kaufman v. Allstate N.J. Ins. Co., (Editors’ Note: See the CAFA Law Blog analysis of Kaufman posted on October 14, 2009), the Third Circuit analyzed that “whether the in-state defendant’s alleged conduct is significant cannot be decided without comparing it to the alleged conduct of all the defendants.” 

The Eighth Circuit observed that if an in-state defendant’s significance was determined on a class-by-class basis, the in-state defendant would always be significant with respect to the classes and the claims asserted against it. The Eighth Circuit remarked that this reading of the local-controversy exception would allow plaintiffs to avoid federal jurisdiction under CAFA simply by pleading their claims against an in-state defendant as separate counts on behalf of a separate class. 

The Eighth Circuit maintained that Congress did not intend this result-particularly given its admonition that the local-controversy exception was “a narrow exception that was carefully drafted to ensure that it does not become a jurisdictional loophole.”