Copper Sands Homeowners Ass’n v. Copper Sands Realty, LLC, No.: 2:10-cv-00510-GMN-LRL, 2011 U.S. Dist. LEXIS 27198 (D. Nev. Mar. 16, 2011).
In absence of the definition of who is a “primary defendant” in CAFA, the District Court in Nevada found that the primary defendant is one who has the greater liability exposure; is most able to satisfy a potential judgment; is sued directly, as opposed to vicariously or for indemnification or contribution; is the subject of a significant portion of the claims asserted by plaintiffs; or is the only defendant named in one particular cause of action.
The plaintiffs, unit owners of the condominium project and their homeowner’s association, brought an action against developer Copper Sands Realty, LLC (“CSR”), and others, alleging misconduct in the conversion, sale and financing of a condominium project.
The plaintiffs named 31 defendants in their second amended complaint who were involved in some aspect of the conversion of the property including, the sale and financing of the condominiums, the appraisal or management of the property. A mortgage lender.–one of the named defendants added in the second amended complaint, removed the action to the District Court under CAFA, 28 U.S.C. §1332(d).
The plaintiffs sought remand to state court under the “discretionary abstention exception” of CAFA, which the Court denied without prejudice.
The plaintiffs argued that more than one-third, but less than two-thirds of the proposed class members (approximately 48%) were Nevada residents, and CSR, the only one primary defendant in this suit was a Nevada citizen. The defendants, however, argued that the mortgage lender was a primary defendant and was not a Nevada citizen.
The Court noted that the term “primary defendant” is not defined in CAFA, and the Ninth Circuit in Serrano v. 180 Connect, Inc., 478 F.3d 1018, 1025 (9th Cir. 2007) has expressly declined to address the definition of the term. Thus, courts have used different methods for determining who is a primary defendant. (Editors’ Note: See the CAFA Law Blog analysis of Serrano posted on May 20, 2011).
The district court in Sorrentino v. ASN Roosevelt Center, LLC, 588 F.Supp.2d 350 (E.D.N.Y. 2008) described a primary defendant “as one: (1) who has the greater liability exposure; (2) is most able to satisfy a potential judgment; (3) is sued directly, as opposed to vicariously, or for indemnification or contribution; (4) is the subject of a significant portion of the claims asserted by plaintiffs; or (5) is the only defendant named in one particular cause of action.” Sorrentino and other district courts have emphasized the requirement that “primary defendants” are those parties that are directly liable to plaintiffs, as opposed to “secondary defendants” who joined on a theory of vicarious liability, or for indemnification or contribution. (Editors’ Note: See the CAFA Law Blog analysis of Sorrentino posted on August 17, 2009).
The plaintiffs, accordingly, argued that CSR was only the primary defendant because it was the dominant culprit in the alleged scheme when it converted the apartments into condominium units and then entered into purchase agreements with the plaintiffs to buy the condominium units, and other defendants, who were affiliates of CSR could not be primary defendants but were secondary defendants. The plaintiffs argued that although the mortgage lender was alleged to have directly swindled the plaintiffs, its role was ancillary and secondary. The plaintiffs explained that the mortgage lender merely provided the financial backing to CSR’s underhanded scheme, and thus the mortgage lender’s participation was opportunistic assistance and conspiracy.
The Court found that the plaintiffs sued the mortgage lender as well as other defendants directly. The plaintiffs sued the mortgage lender directly in eight claims, including claims for negligence and breach of contract; therefore, the mortgage lender could be found directly and independently liable to 351 of 456 plaintiffs for these two causes of action. With 77% of the plaintiffs’ proposed class being the mortgage lender’s borrowers, the mortgage lender could be subject to extensive liability and damages. If these plaintiffs sought rescission of the contracts based on the mortgage lender’s alleged breach of contract, they could be liable for $19,000,000.00. Consequently, the Court found that the plaintiffs exposed the mortgage lender to a very high risk of exposure. Moreover, the Court remarked that it was difficult to find a reasonable basis upon which to differentiate the mortgage lender from CSR because the plaintiffs explicitly directed various counts against both defendants.
Accordingly, the Court concluded that the mortgage lender–an out of state defendant was a primary defendant, and declined to remand the action to state court.