Nevada v. Bank of America Corp., No. 3:11–cv–00135–RCJ–RAM, 2011 WL 2633641 (D. Nev. July 5, 2011).

In this case, a District Court in Nevada held that the State’s presence as a real party of interest will not defeat diversity if the discrete class of consumers is also real parties in interest.

The State of Nevada sued the defendants in state court on behalf of potentially thousands of individual Nevadans on a single cause of action under Nevada’s Deceptive Trade Practices Act (“DTPA”), Chapter 598 of the Nevada Revised Statutes (“NRS”). The State alleged that the defendants made misrepresentations or promises concerning the availability of a mortgage modification.

The State requested declaratory judgment, an injunction against any practices declared to be unlawful, civil penalties as provided by §§ 598.0999(2) and 598.0973, restitution as provided by § 598.0993, and the costs of investigation and attorney’s fees as provided by § 598.0999(2). 

The defendants removed the action to the federal court, inter alia, asserting jurisdiction under CAFA, 28 U.S.C. § 1332(d). The State moved to remand, which the District Court denied.

The Court noted that § 1332(d) requires minimum diversity between the parties. A state itself is not a citizen of any kind. Therefore, there is no diversity jurisdiction when a state brings a case as a lone plaintiff. However, diversity comes into play if the state is only a nominal plaintiff and the real parties in interest are one or more of the state’s individual citizens. Accordingly, the Court examined the precedents on this point.

The Fifth Circuit faced a mixed case in Louisiana ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418 (5th Cir.2008). (Editors’ Note: See the CAFA Law Blog analysis of Allstate posted on August 14, 2008). Because the state was seeking both injunctive relief as a matter of sovereign enforcement and damages to be paid to a discrete class of individuals, and because the damage claims payable to those individuals satisfied the requirements of a mass action under CAFA, the Fifth Circuit left it to the district court whether to retain the entire action or remand the case to state court in part insofar as the state sought injunctive relief.

Some district courts that have addressed similar cases have remanded them. In Illinois v. SDS West Corp., 640 F.Supp.2d 1047, 1049 (N.D.Ill.2009), the district court observed that when a state wears “two hats,” i.e., when it is the real party in interest as to a quasi-sovereign interest, but when a discrete class of individuals are the real parties in interest as to damages claims, some district courts have rejected the Fifth Circuit’s solution and decided to remand the question based on the purpose of the lawsuit as a whole; if a state has a substantial stake in the outcome of the case, the state is a real party in interest as to the entire case, regardless of whether a small class of individuals are the real parties in interest as to damages claims.

The district of Arizona recently remanded a case very similar to the present case, Arizona ex rel. Horne v. Countrywide Fin. Corp., No. CV–11–131–PHX–FJM, 2011 WL 995963 (D.Ariz. Mar. 21, 2011). The court found that the State of Arizona was not seeking relief on behalf of a discrete group of individuals, because even though a discrete group of persons might receive restitution as a result of the suit, under the Arizona Consumer Fraud Act there was no private right of action for individuals, so the State of Arizona was the only real party in interest. As a result, there was a lack of diversity under CAFA. In other words, because the individuals could not have sought relief on their own under the statute, the State of Arizona was not merely suing in their place but was suing on its own behalf, regardless of whether it would ultimately pay the proceeds of the suit to the individuals. The court then noted that even if the individuals were considered the real parties in interest, the suit was neither a class action nor mass action.

Here, the Court observed that unlike the Arizona case, the DTPA provided for a private cause of action. However, as in the Arizona case, the Attorney General had brought the case at least partly in an enforcement capacity. Some district courts are in agreement that when a state attorney general brings such a case, the fact that a discrete class of individuals will receive restitution does not defeat the fact that the gravamen of the action is protection of the public welfare. As a result, these district courts have typically granted motions to remand.

The Ninth Circuit, however, recently held in Dep’t of Fair Emp’t & Hous. v. Lucent Tech., Inc., 2011 WL 1549232, at *1–5 (9th Cir.2011) that when a state sues on behalf of individuals to obtain relief that the individuals could have obtained on their own, the state is not the real party in interest, regardless of whether, and in fact especially where, the state sues to further the public welfare. The Ninth Circuit stated that a sovereign interest in furthering the general welfare of the populace makes a state a real party in interest for the purposes of standing, but it does not make the state a real party in interest for the purposes of diversity. If the relief sought, whether monetary or equitable, “will effectively operate in favor of the person claiming to be aggrieved,” then that party is the real party in interest for the purposes of diversity. 

Under this background, the Court examined the State’s claims in this case. The State brought this single-count action under five provisions of Chapter 598, which is entitled “Deceptive Trade Practices.” Although Chapter 598 does not itself provide for a private cause of action for violations of its provisions, Chapter 41 does. NRS § 41.600 provides that an action may be brought by any person who is a victim of consumer fraud, and defines “consumer fraud” to include “a deceptive trade practice as defined in NRS 598.0915 to 598.0925, inclusive”. Because the persons on whose behalf the State seeks declaratory, injunctive, and monetary relief in this case could bring their own actions to obtain such relief under § 41.600(2)(e) for any of the violations alleged in the Complaint, the Court concluded that the “thousands of Nevada consumers,” on whose behalf the State had brought this action were real parties in interest for the purposes of diversity.

The Court observed that the State was also a real party in interest, however, because in addition to restitution to consumers under § 598.0993 and other declaratory and injunctive relief available to consumers via their own actions, the State sought civil fines under § 598.0999(2) that are payable directly to the State, not to the consumers. But the State’s presence as a real party of interest will not defeat diversity if the consumers are also real parties in interest, the Court opined. The State has no citizenship, but so long as the consumers are minimally diverse from the defendants, there is federal jurisdiction so long as CAFA is otherwise satisfied.  

The Court found that CAFA was otherwise satisfied here. It noted that CAFA applies to class actions and mass actions. Although the State did not formally file the state action as a “class action” in state court, it was in substance a “class action” under CAFA because of its nature. The Court maintained that invocation of class action procedures is “a mere matter of form,” and that a complaint that contains class-type allegations historically has been assumed to assert a class action before formal class certification. 

(Editors’ Note: Interested in a more in depth discussion of the removability of cases brought by State Attorney Generals? Then look no further than the very scholarly article entitled “Removal of Attorney General Actions Under the Class Action Fairness Act of 2005,” BNA, Inc. Class Action Litigation Report, Vol. 12, No. 9, May 13, 2011. This article will give you a road map to remove similar AG actions. It was written by our very own Anthony Rollo and Michael Ferachi).