Class Action Fairness Act Blog

New Claims And New Plaintiffs Start A Fresh Journey (At Least in Texas

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Fri, 30 Jul 2010 06:30:00 -0600

Leal v. Government Employees Ins. Co., No. CIV. A. M-09-228, Slip Copy, 2009 WL 4852670 (S.D. Tex. Dec 14, 2009).

In this case a District Court in Texas found that when an amended petition adds a plaintiff and proposed class members, whose claims the defendants were not aware of, then the addition is equivalent to commencement of a new civil action under CAFA.

The plaintiffs in this case – Jon Patterson (a chiropractor) – brought a state court action alleging that one of the defendants’ agents sent a letter to his patient – Lisa Olson – that Patterson had charged an unreasonable amount for the medical treatment that she had received from him and from his chiropractic clinic (“Clinic”). The same letter also allegedly inferred that the defendants would help Olson avoid having to pay Patterson in full for the medical treatment received. Patterson and the Clinic sought to represent a class of chiropractors and providers of chiropractic treatment in bringing claims against the defendants for libel, defamation, and tortuous interference with the plaintiffs’ contracts with their patients for medical services.

Over the course of a decade, Patterson amended the original petition nine times, and added Juan Leal, as the only other named plaintiff as another patient to whom the defendants had allegedly directed a defamatory letter that induced him to breach his contract for medical services by not paying for the treatment received. Patterson sought to represent patient as well as physician classes asserting claims for libel and tortuous interference with contract arising from the letter communications between GEICO and patients of the proposed class members.

On appeal of the trial court’s orders certifying the patient and physician classes, the Court of Appeals for the Thirteenth District of Texas found that Patterson did not have standing to bring a claim for breach of the duty of confidentiality on behalf of the patient class.

The plaintiffs then amended the petition for the ninth time – in 2009 – seeking to represent a class that included all covered Texas residents and their third party beneficiaries and assignees, who among other things submitted first-party claims to GEICO pursuant to automobile policy’s medical payment/personal injury protection coverage claims for payment of medical expenses. The ninth amended petition abandoned all previously asserted tort claims against GEICO.

The defendants removed the case pursuant to CAFA to the federal District Court in Texas. The plaintiffs did not dispute that the defendants fulfilled the procedural requirements for removal, however, they contended the ninth amended petition did not ‘commence’ suit for the purposes of removal under CAFA, and therefore, they were entitled to remand.

The District Court noted that although the plaintiffs brought this suit in 1999 – many years before CAFA was enacted – the Fifth Circuit had recognized special circumstances in which a suit may be commenced more than once for the purposes of determining whether removal under CAFA was appropriate. In Braud v. Transp. Serv. Co. of Ill., 445 F.3d 801, 803 (5th Cir. 2006), the Fifth Circuit held that the post CAFA amendment of a complaint through the addition of a new defendant commenced a new civil action as to that defendant, and therefore permitted removal under CAFA. The Braud decision highlighted two considerations underlying its holding – (1) CAFA does not define when an action commences and, therefore, was not intended to replace case law germane to this question; and (2) the language of the removal statute itself – which allows for removal within 30 days after the receipt by the defendant a copy of an amended pleading from which it may first be ascertained that the case has become removable. (Editors’ Note: See the CAFA Law Blog analysis of Braud posted on May 24, 2006).

The court also looked at the Fifth Circuit’s decision in Abshire. In Admiral Ins. Co. v. Abshire, 574 F.3d 267, 273 (5th Cir. 2009), the Fifth Circuit determined whether a ninth amended pleading in a consolidated action that for the first time sought class action treatment of previously asserted claims “commenced” an action for purposes of removal under CAFA. (Editors’ Note: See the CAFA Law Blog analysis of Abshire posted on February 8, 2010).

The Abshire court held that the mere addition of class allegations did not commence new action under CAFA, especially when the proposed class comprised only of individuals or successors of individuals who were previously parties to the suit. The Abshire court applied the ‘relation back’ test and determined that the addition of new plaintiffs and claims in the ninth amended pleading related back to the original complaint, or at the least, to one or more pre-CAFA complaints, such as the eighth amended version. Therefore, the Abshire court concluded that the ninth amended pleading did not commence a new action under CAFA so as to permit removal.

In this case, the District Court noted that almost after a decade of pursuing this case, Patterson abandoned all previously asserted tort theories of recovery, added a plaintiff, proposed a new and expanded class, and asserted a new claim against the defendants for breach of contract. The District Court remarked that this was a case where the amended pleading added a plaintiff and proposed class members of whose breach of contract claim defendants were not aware, thus presented the kinds of notice and due process concerns that the Fifth Circuit had found relevant to the issue of whether an amended pleading commenced a new civil action under CAFA.

The District Court found that unlike in Abshire, the ninth amended petition did not relate back to the filing of any prior pleading; and also that the addition of Leal as a plaintiff did not relate back to any prior petition.

Accordingly, the District Court concluded that the Ninth Amended Petition commenced a new civil action after the effective date of CAFA, and denied the motion to remand.

"Internal Affairs" Expunges CAFA Jurisdiction

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Thu, 29 Jul 2010 07:47:00 -0600

Brady v. Denton County Elec. Co-op., Inc., No. 4:09-CV-130, Slip Copy, 2009 WL 3151177 (E.D. Tex. Sep 28, 2009)().

Every TV cop show has a story line that involves Internal Affairs. But did you know that CAFA has Internal Affiars as well? In Brady, a District Court in Texas remanded the case to Denton County court finding that CAFA’s internal affairs exception negated the federal court jurisdiction, and also that the home state exception favored remand.

Janice Brady, the plaintiff, brought an action in state court seeking a declaratory judgment stating that (1) the defendant’s – Denton County Electric Cooperative, Inc. d/b/a CoServ Electric (“CoServ”) – policies violated Texas state law, and (2) CoServ may not declare her in breach and it may not terminate her membership rights, as a result of the alleged violation of those policies. Brady particularly challenged CoServ’s Policy 310, which requires its members to provide that information which was of a confidential corporate nature – such as the names and addresses or telephone numbers of members. Brady contended that during the course of her membership, CoServ acquired confidential corporate information of approximately 2% of the cooperative’s eligible voting members. Brady challenged Policy 310 contending that it was contrary to Texas state law requiring the transparency of voting members.

Subsequently, Brady, and other two plaintiffs – Duncan Duval and Paul Confer – filed an amended counterclaim and petition of intervention on behalf of themselves and others similarly situated, and sought, inter alia, class certification, declaratory relief, injunctive relief, and damages for breach of fiduciary duties, breach of contract, and improper use of plaintiffs’ property. The plaintiffs filed a second amended counterclaim and petition of intervention which alleged the same claims brought in the third petition except that the plaintiff Confer was excluded.

In response to the third and fourth petitions, CoServ removed the action to the federal court under CAFA.

CoServ argued that due to the nature and substance of the class action alleged in the third petition (class size, diversity, and the issues relating to non-members), the district court had jurisdiction under CAFA. The plaintiffs on the other hand, however, contended that CAFA did not confer jurisdiction because of the internal affairs exception.

According to the CAFA, internal affairs are matters peculiar to the relationships among or between the corporation and its current officers, directors and shareholders.

The District Court agreed finding that each of plaintiffs’ claims necessarily turned towards questions that related to the internal affairs of the corporation and were under the laws of Texas, therefore, these claims invoked the internal affairs exception to CAFA.

Alternatively, the District Court noted that CAFA prevents the federal district court from exercising subject matter jurisdiction under the home state exception, and plaintiffs stated that CoServ’s current membership consisted of approximately 142,000 members. The plaintiffs proposed two putative classes – the Voting Subclass, and the Equity Subclass. The plaintiffs stated that 92% of the 142,000 members were residential and each of those members purchased electricity from within CoServ’s area of operation. The plaintiffs also stated that less than 7% of the county population to which CoServ provided electricity moved out of state, and nearly 70% of those who had changed homes remained within the same county. Based on this information coupled with the membership data, the district court remarked that common sense dictated that it was more likely than not that at least two-thirds of the aggregate putative class members were Texas Citizen.

The District Court, therefore, remanded the case to state court.

Around the Blogosphere: Commentary on Recent CAFA Decision (Cappuccitti v. DirecTV)

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Wed, 28 Jul 2010 16:00:24 -0600

We told you this case was a big deal, and predicted that it would attract attention all over the country (no major crystal ball required for that prediction). We also told you that the CAFA Law Blog would try to bring you information on what was going on around the blogosphere about the Cappuccitti v. DirecTV Eleventh Circuit decision, and in keeing with that commitment, here's a commentary from Professor Adam Steinman of Seton Hall University School of Law with his thoughts on the "puzzling" decision rendered in Cappuccitti:

Commentary on Recent CAFA Decision (Cappuccitti v. DirecTV)

Last week the Eleventh Circuit issued a very significant (though a bit puzzling) decision on the 2005 Class Action Fairness Act (CAFA). The case is Cappuccitti v. DirecTV, Inc., No. 09-14107, ___ F.3d ___, 2010 U.S. App. LEXIS 14724, 2010 WL 2803093 (11th Cir. July 19, 2010), covered earlier here. One of CAFA’s most significant changes was an amendment to the diversity jurisdiction statute, codified at 28 U.S.C. § 1332(d), to authorize federal diversity jurisdiction over class actions for which there is (a) minimal diversity between the parties, and (b) an aggregate amount in controversy in excess of $5,000,000. Neither party in Cappuccitti disputed that federal subject matter jurisdiction was proper under § 1332(d); DirecTV's appeal challenged only the district court’s refusal to compel arbitration. But the Eleventh Circuit raised the jurisdictional issue sua sponte and dismissed the case entirely. It held that even if a class action’s aggregate amount-in-controversy exceeds $5,000,000, CAFA jurisdiction applies only if at least one class member’s claim exceeds the $75,000 threshold that applies for ordinary diversity jurisdiction under 28 U.S.C. § 1332(a). [Read the rest of the post here.]

Around the Blogosphere: What to do with Cappuccitti?

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Wed, 28 Jul 2010 15:26:54 -0600

In keeping with our promise at the CAFA Law Blog to keep you up to date on what's happening in the world of the Class Action Fairness Act and particularly, last week's blockbuster decision by a panel of the Eleventh Circuit in the Cappuccitti v. DirecTV case, here's a blog post from the Carlton Fields' Class Action Blog posted by Matt Allen, a partner in the Tampa office of Carlton Fields who also chairs the firm's Class Action Task Force, in which he gives his opinion as to how Eleventh Circuit litigants should react to the decision: do nothing. Interesting reading. Take a look.

What To Do With Cappuccitti?

Posted by D. Matthew Allen

What should parties with class actions in federal court do in light of the Eleventh Circuit's bombshell Cappuccitti decision? At this point, I think they should do ... nothing.

The Panel Decision

In Cappuccitti, the plaintiffs sued DirecTV in Georgia federal court in a class action, alleging that their satellite TV service was improperly cancelled before the expiration of their contract period. They alleged that class members' damages ranged from $175 to $480. DirecTV moved to compel arbitration. The district court denied that motion, and DirecTV appealed. [Read the rest of the post here.]

You Can Appeal, If We Let You!

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Wed, 28 Jul 2010 06:30:00 -0600

Froud v. Anadarko E & P Company Limited Parntership, 2010 WL 2196015 (8th Cir.(Ark.), Jun 03, 2010)(NO. 10-8010)

The Eighth Circuit Court of Appeals recently told litigants they could appeal district court removal orders under 28 U.S.C. § 1453, but only if they ask nicely for permission. This action arose following a district court’s denial of a plaintiff’s motion to remand back to state court a case which had been previously removed to federal court under CAFA. The issue before the Eighth Circuit was whether to grant the petitioners the ability to appeal the denial. (Editors' Note: See the CAFA Law Blog analysis of the district court's decision in Froud posted on May 21, 2010).

The first issue the court faced was whether an appeal from a denial to remand was an appeal as of right governed by Rule 4 or a permissive appeal governed by Rule 5. The Court reasoned that 28 U.S.C. § 1453 had permissive language and therefore found that any appeal from a denial or remand would thus be governed by Rule 5.

The court continued by explaining the petitioners had met all procedural requirements of a Rule 5 appeal and then moved on to the seminal issue, if they should actually grant the appeal.

While the plaintiffs met all procedural requirements, the court noted one important flaw to the plaintiffs’ motion; they forgot to explain why the appeals court should grant their appeal!

The court focused on the fact that a rule 5 permissive appeal relies heavily on the discretion of the appeals court. The court though would have no ability to have discretion if there is nothing listed in the appeal petition for the court to base its decision upon. Since the petitioners did not list out any reason for the appeal, then the court had no other option but than to deny their request for a permissive appeal.

The court distinguished the case before it from other cases in which it used its discretion to grant an appeal. In one case, an appeal was granted so the court could address the important question of which party has the burden of establishing jurisdiction when the home-state and local controversy provisions of CAFA are implicated. In another case, a discretionary appeal was granted based upon whether a state-law deceptive practices claim predicated on the sale of a security is removable under CAFA. The important difference though between those cases and the case before the court was that those petitioners had actually explained to the court why they needed an appeal!

By: Jack Stanley

CAFA: The Little Jurisdiction that Could

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Tue, 27 Jul 2010 06:30:00 -0600

In re Burlington Northern Santa Fe Railway Co., 2010 WL 1980172 (C.A. 7 (Wis.) May 19, 2010).

In a well-known children’s tale, a little engine overcame obstacle and defeat, pulling a long train over a high mountain while repeating (Come on, you remember.) “I think I can, I think I can, I think I can.” Just recently, out of the Seventh Circuit, federal jurisdiction under the Class Action Fairness Act won a similar victory. Even after the plaintiffs decided not to pursue class certification, amending their complaint post-removal to eliminate class allegations, CAFA jurisdiction was not defeated.

Allen Moore and his fellow Bagley, Wisconsinites (Say Cheese!) filed suit in state court against Burlington Northern Santa Fe Railway Company (“BNSF”). This class of local property owners alleged that the railroad’s failure to inspect and maintain a railroad trestle caused the town to flood and caused damage to their property.

BNSF removed the case to federal court under CAFA. In response, the property owners moved to remand the case.

When that motion was denied, they asked to amend their complaint to omit the class allegations. The district court allowed the amendment and interpreted the plaintiff’s motion as an implied motion to remand the case. Upon granting it, the court explained that the jurisdictional analysis was now based on the amended complaint and since the amended complaint contained no class allegations, CAFA jurisdiction was defeated (“I think I can’t, I think I can’t, I think I can’t). BSNF filed under 28 USC § 1453, requesting leave to appeal the district court’s order of remand.

The Seventh Circuit held that jurisdiction under CAFA still existed even though, after removal, the plaintiffs amended their complaint to omit their class allegations (“But you can!”). Jurisdiction is measured at the time of removal, and filings made post-removal (albeit a long train or high mountain) do not affect it.

A similar issue was addressed in Cunningham Charter Corp. v. Learjet, Inc. In that case, this court held that jurisdiction stands, in a case removed under CAFA, even upon district court denial of class certification. This is because CAFA jurisdiction is triggered when a case is filed as a class action and denial of class certification does not change this. (Editors’ Note: See the CAFA Law Blog analysis of Cunningham posted on Feb. 3, 2010.)

So, the moral of the story: In true Little Engine that Could fashion, the Little Jurisdiction that Could was not defeated, even after the plaintiffs decided not to pursue class certification and amended their complaint post-removal to eliminate class allegations. The Seventh Circuit vacated the district court’s remand order.

By: Sunny Mayhall

Pop Goes the Weaver!...Back to State Court

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Mon, 26 Jul 2010 06:30:00 -0600

Miranda v. Weaver Popcorn Co., Inc., Not Reported in F.Supp.2d, 2010 WL 1929771 (C.D.Cal., May 12, 2010)(NO. EDCV10-632 PARZX)

Remember the good ole days? You know, back when Russia was still the enemy and SNL was actually funny? Back when Ford was President, Nixon was in the White House, and FDR was running this country into the ground? (Bonus points if you have any idea what movie that is from). Well, enough reminiscing. Don’t worry, this will all tie in soon. So let’s get down to brass tacks….

Say you’re a defendant and you want to remove a class action to federal court. Well, it turns out that before you can remove this shindig to the towering bastion of law that is federal court, you still have to follow well established law from the aforementioned ‘good ole days’ when removing under CAFA….at least that is what the court in Miranda tells us (and no, I’m not talking about the landmark criminal justice case).

The defendant, Weaver Popcorn Company, Inc., sought removal of the action to federal court based on diversity of citizenship under CAFA. The court followed Abrego Abrego v Dow Chemical Co., 443 F.3d 676,685 (9^th Cir. 2006) and found the party seeking removal (in all CAFA cases only the defendant can seek removal), in this case Weaver, still had the burden of establishing federal subject matter jurisdiction under CAFA as it would in other removal cases. (Editors’ Note: See the CAFA Law Blog analysis of Abrego Abrego posted on May 25, 2006). (Editors’ Note: See the CAFA Law Blog analysis of the Seventh Circuit’s decision in First Bank posted on May 8, 2010).

Weaver did not have a problem demonstrating that at least one plaintiff and one defendant were citizens of different states, but the same cannot be said when it came to showing the aggregate amount in controversy exceeded $5 million, exclusive of interests and costs. The plaintiff failed to plead a specific amount of damages, so according to the District Court and Abrego it fell on Weaver to prove by a preponderance of evidence that the amount in controversy had been met.

The District Court followed Abrego further and said in order to make this determination the court would have to consider the complaint, “facts in the removal petition and…summary judgment-type evidence relevant to the amount in controversy at the time of removal.” Weaver argued that the plaintiff was seeking as restitution an amount in excess of or equal to its total sales and that since their sales exceeded $5 million the amount in controversy had been met. The court found Weaver’s allegations concerning the amount in controversy to be conclusory and not supported by summary judgment-type evidence.

The District Court followed law which favors strict, narrow construction against removal jurisdiction and resolves any doubt in favor of remand and found that cases under CAFA are subject to the same rules as other removal cases unless explicitly stated otherwise. The District Court found the complaint silent as to the amount in controversy and refused to interpret plaintiff’s vague prayer for relief seeking only an “order requiring Defendant to pay restitution to Plaintiff and all members of the Class” as meaning it was seeking full restitution of all amounts paid (i.e. total sales) rather than some lesser amount. The District Court found that since it was unclear based on the prayer for relief whether the plaintiff class demanded an amount in excess of $5 million, Weaver had not proven by a preponderance of the evidence that the amount in controversy had been met. Thus, the District Court found that it lacked subject matter jurisdiction and remanded the case back to state court.

By: Jason Landry

Guest Post: More Musings on Cappuccitti from Eleventh Circuit Practitioners Eric Jon Taylor and Jon Chally

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Sun, 25 Jul 2010 20:54:37 -0600

The recent Eleventh Circuit decision in Cappuccitti v. DirecTV, has already caused quite a stir, with undoubtedly more to come in the immediate future. The CAFA Law Blog has received a number of comments and emails about the decision and its likely effects on class action practice, particularly in the Eleventh Circuit, and the potential national ramifications. We're happy to feature a guest post from Atlanta lawyer Eric Jon Taylor, with an assist from Jon Chally, both of the firm of Parker, Hudson, Rainer & Dobbs LLP, with their thoughts and observations on Cappuccitti. Take a look, and let us know what you think.

To put Cappuccitti in perspective, we have to review a few years of Eleventh Circuit CAFA interpretation. The real CAFA-restricting story begins in September of 2007. Then, the Eleventh Circuit issued its somewhat controversial opinion in Lowery v. Ala. Power Co., 483 F. 3d 1184 (11^th Cir. 2007), where the court construed CAFA in connection with a removal under CAFA's mass action provisions. (Editors’ Note: See the CAFA Law Blog analysis of Lowery posted on May 15, 2007). The Lowery panel ultimately ordered remand, concluding that the removing defendant had not met its burden of demonstrating the jurisdictional requirements for mass actions. The decision in Lowery did not become controversial because of its holding or even because of its construction of CAFA's jurisdictional provisions regarding mass actions. Rather, Lowery became controversial because of the court’s dicta regarding the appropriate basis for determining jurisdictional facts on removal. Specifically, the court in Lowery noted that removal is appropriate only if jurisdictional elements are "either stated clearly on the face of the documents before the court or readily deducible from them." 483 F. 3d at 1211. Who is the author of this dicta? The former chief judge of the Eleventh Circuit, Judge Gerald Tjoflat.

To some district courts in the Eleventh Circuit, the restrictive language in Lowery meant that carefully drafted complaints could not be removed to federal court under CAFA. Taken to its extreme, the dicta in Lowery allowed class action plaintiffs to insulate cases from any attempted removal to federal court by merely avoiding express references to damages in excess of $5 million. If the basis for removal, including the amount in controversy, was not disclosed on the face of the complaint, Lowery’s dicta precluded removal entirely. In practice, courts within the Eleventh Circuit denied defendants' attempts to introduce affidavit testimony or any other evidence regarding the amount in controversy and similarly refused efforts to conduct discovery into CAFA's jurisdictional elements. See, e.g., Cox v. Triad Isotopes, 2008 U.S. Dist. LEXIS 57634 (S.D. Ala. July 29, 2008). To say the least, Lowery significantly restricted the applicability of CAFA within the Eleventh Circuit. Cappuccitti grew out of the seeds planted in Lowery.

Then, on June 8, 2010, the Eleventh Circuit, in an opinion written by a panel with no overlap to the Lowery panel, gave defense counsel in the Eleventh Circuit a view of light at the end of the tunnel. The Eleventh Circuit limited Lowery to its facts and even expressly acknowledged the court's "disagree[ment]" with certain potential readings of the Lowery opinion. See Pretka v. Kolten Plaza II, Inc., 2010 U.S. App. LEXIS 11686 (11^th Cir. 2010). (Editor's Note: See CAFA Law Blog analysis of Pretka here.) In Pretka, the court held that Lowery addressed only the type of evidence that a court can consider in determining removal when the removal is attempted under the second paragraph of 28 U.S.C. § 1446(b) -- i.e., not a removal on the basis of plaintiff's original complaint but on some "other paper" on which the removal basis is made clear. In all other removals, including the traditional circumstance of removal immediately following the initial complaint, Lowery "does not limit the type of evidence a defendant may use to establish that the plaintiff's complaint already is removable." Pretka, 2010 U.S. App. LEXIS, at *44.

Perhaps even more surprising (and helpful to defense counsel), the court in Pretka made clear its "disagree[ment]" with certain language in the Lowery opinion. Thus, the court reiterated that any attempt to extend Lowery beyond the confines of a removal based on the second paragraph of § 1446(b) was simply wrong. In practice, Pretka operates to overturn Lowery and its most CAFA-restricting characteristics. To many defense counsel, Pretka simply restored the unambiguous intent of Congress in enacting CAFA and thereby “righted the wrong” created by the dicta in Lowery. Thus, all appeared well, for a time, for CAFA-holics in the Eleventh Circuit. But there were dark clouds on the horizon.

On July 19, 2010, the court issued its CAFA-esque opinion in Cappuccitti v. DirectTV, Inc., 2010 U.S. App. LEXIS 14724 (11th Cir. July 19, 2010) and again restricted, or maybe more than restricted, CAFA jurisdiction. In Cappuccitti, another opinion written by Judge Tjoflat, the court held that jurisdiction under CAFA can be established only if the plaintiff’s claim in a purported class action puts in controversy at least $75,000. Thus, to the court in Cappuccitti, even if the aggregate amount in controversy in a class action exceeds $5 million, federal courts can exercise jurisdiction under CAFA only if one of the plaintiffs' claims, standing alone, put in controversy at least $75,000:

We hold that in a CAFA action originally filed in federal court, at least one of the plaintiffs must allege an amount in controversy that satisfies the current congressional requirement for diversity jurisdiction provided in 28 U.S.C. § 1332(a). . . . If we held that § 1332(a)'s $ 75,000 requirement for an individual defendant did not apply to § 1332(d)(2) cases, we would be expanding federal court jurisdiction beyond Congress's authorization. We would essentially transform federal courts hearing originally-filed CAFA cases into small claims courts, where plaintiffs could bring five-dollar claims by alleging gargantuan class sizes to meet the $ 5,000,000 aggregate amount requirement. While Congress intended to expand federal jurisdiction over class actions when it enacted CAFA, surely this could not have been the result it intended.

2010 U.S. App. 14724, at 12.

While the Court's holding in Cappuccitti arguably applies only to actions originally filed in federal court and not those removed to federal court by defendants, the reasoning and language in the decision suggest it should apply in the removal context as well.Indeed, a case can be removed under 28 U.S.C. § 1441 only if federal court has original jurisdiction over the matter. Unless a motion for rehearing en banc leads to the court vacating its opinion in Cappuccitti, it is sure to cause concerns for all class action counsel with cases in the Eleventh Circuit.

The court’s holding in Cappuccitti renders CAFA as effective as a caffeine-free coke. If, as the court held, federal court jurisdiction under CAFA is dependent on the named plaintiff putting in controversy at least $75,000 based on the plaintiff’s claim, federal court jurisdiction is only slightly more significant than traditional diversity jurisdiction under 28 U.S.C. §1332(a). Under traditional diversity jurisdiction, federal courts could exercise jurisdiction over class actions if the named plaintiff’s claim put $75,000 in controversy and the named plaintiff and the defendants were completely diverse. While Cappuccitti does not alter CAFA’s “minimal diversity” requirement, Cappuccitti effectively eliminates CAFA’s expansion of federal jurisdiction based on the amount-in-controversy requirement, leaving CAFA-holics with few options.

The Court notes that Cappuccitti is the only decision in which a court of appeals has addressed, much less imposed, the amount-in-controversy requirement found in 28 U.S.C. § 1332(a) -- $75,000 for the plaintiff’s claim -- on original federal court jurisdiction over class actions under CAFA and 28 U.S.C. § 1332(d)(2). On its face, § 1332(d)(2) -- CAFA’s section granting jurisdiction over class actions -- does not refer to § 1332(a) and seems to require only an aggregate amount in controversy of $5 million, without regard to the amount in controversy of the named plaintiff’s claim. In fact, the only reference in CAFA to the requirements of § 1332(a) are found in CAFA’s mass action provisions, 28 U.S.C. § 1332(d)(11)(B)(i), which are irrelevant to jurisdiction over class actions. Failure to include a similar reference in § 1332(d)(2), along with CAFA’s unambiguous intent to greatly expand federal court jurisdiction over class actions, strongly suggests that Congress did not intend to impute the requirements of § 1332(a) into § 1332(d)(2).

One thing is certain: the conclusions in Cappuccitti are set forth with crystal clarity. In the Eleventh Circuit, the Cappuccitti opinion has precedential value even if mandate has not yet issued. Unless and until Cappuccitti is vacated, pending an en banc review or certiorari review, the opinion remains in effect. As a result, and for now, the Eleventh Circuit effectively is a de-CAFA-nated circuit.

Eric Jon Taylor
Parker, Hudson, Rainer & Dobbs LLP
285 Peachtree Center Avenue N.E.
1500 Marquis Two Tower
Atlanta, Georgia 30303
Direct: (404) 420-5526
Facsimile: (404) 522-8409
etaylor@phrd.com

Editor’s Note: As we mentioned before, since all of the Editors of the CAFA Law Blog are lawyers, we have to do our disclaimer, which applies to all guest commentaries, in pure legalese (which is also listed below in our "Disclaimers" section) -- "The views and opinions expressed herein are exclusively the personal views of the authors only, unless otherwise attributed. Information and comments provided through CAFA Law Blog do not necessarily represent the views of McGlinchey Stafford, its attorneys or clients, or of the CAFA Law Blog Editors, and should not be attributed to them. The posting of an item on CAFA Law Blog does not mean that McGlinchey Stafford, its attorneys or clients, or CAFA Law Blog Editors approve or disapprove of the selection or contents of that item." There. That's out of the way. We appreciate Eric's and Jon's efforts in providing this post, and solicit readers' comments on the subject matter. Let us hear from you.

Around the Blogosphere - Eleventh Circuit Decision Threatens To Eliminate Federal Jurisdiction Over Most Consumer Class Actions, Undermining The Goals Of The Class Action Fairness Act

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Sat, 24 Jul 2010 14:04:23 -0600

The Eleventh Circuit's decision last week in Cappuccitti v. DirecTV has already caused quite a stir aound the Blogosphere. We're going to bring you some of the commentary from other blogs over the next few days. Here's a post from the Mayer Brown site to whet your appetite:

Eleventh Circuit Decision Threatens To Eliminate Federal Jurisdiction Over Most Consumer Class Actions, Undermining The Goals Of The Class Action Fairness Act

The US Court of Appeals for the Eleventh Circuit has just issued a decision that, if it is allowed to stand, will preclude federal jurisdiction over virtually all class-action lawsuits filed in, or removed to, federal courts within that circuit. In Cappuccitti v. DirecTV, Inc., the Eleventh Circuit held sua sponte that the Class Action Fairness Act of 2005 (CAFA) does not allow for jurisdiction over class actions unless the amount in controversy for at least one plaintiff (or class member) exceeds $75,000. So long as Cappucitti remains in force, federal courts in the Eleventh Circuit will lack jurisdiction over virtually all consumer class actions and similar types of employment class actions under state law, as individual plaintiffs in those actions typically have modest claims. That result would undercut the core purpose of CAFA—to ensure a federal forum for significant class actions—and could transform state courts in the Eleventh Circuit into magnet jurisdictions for class actions that (under Cappuccitti) cannot be removed. [Read the rest here.]

Seismic Alert: 11th Circuit Upends Existing Landscape of CAFA Subject Matter Jurisdiction

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Thu, 22 Jul 2010 15:31:44 -0600

Cappuccitti v. DirecTV, Inc., --- F.3d ---, 2010 WL 2803093, No. 09-14107 (11th Cir. July 19, 2010)

(Editor’s Note: More detailed analyses of this case will be published by CAFA Law Blog in the near future – stay tuned.)

OK, gang. Pay attention. This is important. Like really important.

Earlier this week, the Eleventh Circuit surprised everyone with an opinion in Cappuccitti v. DirecTV, Inc., --- F.3d ---, 2010 WL 2803093, No. 09-14107 (11th Cir. July 19, 2010), that literally turned CAFA jurisdiction on its head (and knocked unsuspecting CAFA watchers on their collective rears). If the ruling stands as is (and is a controlling precedent), it would arguably require that most of the cases now in federal court within the Eleventh Circuit which are based on CAFA jurisdiction be dismissed for lack of subject matter jurisdiction. Yep. We said that. Dismissed for lack of subject matter jurisdiction. And might well serve to make the state courts within the Eleventh Circuit magnet jurisdictions for class actions and create new judicial hellholes all over the Southeast. And be cited by removed plaintiffs around the country as authoritative. And, . . . well, you get the picture. Enough of the doomsday predictions (for now).

As faithful readers of the CAFA Law Blog know, CAFA was enacted to remove the $75,000 amount in controversy and complete diversity jurisdictional requirements of Section 1332 in the context of a class action – thus greatly expanding federal jurisdiction over class actions (as was the intent of Congress). The Eleventh Circuit, however, out of the blue, held that for CAFA jurisdiction to apply, at least one of the named plaintiffs, on his or her own, must also have suffered (or at minimum, alleged) at least $75,000 in damages. Cappuccitti at 9-10. Yes, you read that correctly.

Our readers are usually pretty familiar with the nuances of 28 U.S.C. §§ 1332(a) and (d) and the legislative history of CAFA, and are probably wondering, “How did the court reach this conclusion?” Let’s take a look.

The plaintiffs initially filed a class action under Fed. R. Civ. P. 23 against DirecTV in the U. S. District Court for the Northern District of Georgia, asserting CAFA as the basis of federal jurisdiction. (For those paying attention, note that the plaintiffs asserted federal jurisdiction - this isn’t a removal.) The plaintiffs claimed that DirecTV violated Georgia common law by charging early termination fees. The complaint alleged that the parties were diverse (DirecTV is a California corporation), the class exceeded a 100 members, and that aggregated damages surpassed $5,000,000. Jurisdiction seems pretty straightforward, right? All four requirements of CAFA were met: Civil Rule 23 action? Check. Minimal diversity? Check. At least 100 members of the class? Check? Amount in controversy exceeds $5,000,000? Check. All systems go? Roger.

DirecTV then filed a motion to compel arbitration, which was denied, so it filed an interlocutory appeal to the elventh Circuit under 9 U.S.C. § 16(a)(1)(B). Rather than address the arbitration issues, however, the Eleventh Circuit instead questioned its jurisdiction over the case, a matter that was apparently neither briefed nor argued. The Court began its opinion by discussing three previous Eleventh Circuit opinions: Lowery v. Ala. Power Co., 483 F.3d 1184 (11th Cir. 2007) (Editor’s Note: see CAFA Law Blog synopsis of Lowery here); Evans v. Walter Indus., Inc., 449 F.3d 1159 (11th Cir. 2006) (Editor’s Note: see CAFA Law Blog synopsis of Evans here); and Miedema v. Maytag Corp., 450 F.3d 1322 (11th Cir. 2006) (Editor’s Note: see CAFA Law Blog synopsis of Miedema here). Each of these cases involved the removal of actions originally filed in state courts, while, as you remember (if you were paying attention), the Cappuccitti plaintiffs originally filed their class action in federal court, relying on CAFA from the onset. The opinion relies heavily on Lowery, in which, as you may also recall, jurisdiction was not based upon CAFA’s “class action” provisions, but rather CAFA’s “mass action” provisions. (If you’re interested take a look at 28 U.S.C. § 1332(d)(11), which outlines the jurisdictional requirements for “mass actions.”)

The Cappuccitti court, which also authored Lowery, noted that Lowery concluded that “‘mass actions’ removable under CAFA are class actions that meet the requirements of § 1332(d)(2) through (10).” Cappuccitti, p.6, citing Lowery, 483 F.3d at 1199-1200. In fact, the Court’s holding essentially all but eliminates the $5,000,000 threshold, as a “class action” under CAFA requires at least 100 members, but according to the court in Cappuccitti, at least one of named plaintiff’s damages must also exceed $75,000. Assuming the class suffered a similar harm (they would pretty much have had to under Fed. R. Civ. P. 23(a)(3)), and the class had least 100 members, the damages would have to start at $7,500,000, right? $75,000 x 100 = $7,500,000, right? But if Congress had intended the $75,000 amount in controversy requirement in § 1332(a) to apply to class actions under CAFA, and the class must have at least 100 members, it surely would have said so, just as it did when it made the $75,000 requirement apply to mass actions.

After the extensive discussion of Lowery and a reference to 28 U.S.C. § 1332(d), the court correctly noted that the minimal diversity and $5,000,000 thresholds were met under 1332(d)(2). Cappuccitti, p.8. The court also correctly observed that, because this was, in fact, a class action with not less than 100 potential members, the requirements of § 1332(d)(2) and (5) were also met. Analysis done. Finis. Jurisdiction exists - right? Not quite.

The court then uttered (ok, a written utterance for the purists out there) the phrase that kicked open the door to what we believe was the ultimately incorrect analysis: “[T]he requirements for an original CAFA action resemble those for a mass action removable under CAFA.” (Perhaps, but significantly, Congress did create separate threshold requirements for each, so the “resemblance” is limited.)

The court then concluded, “CAFA did not alter the general diversity statute’s requirement that the district court have original jurisdiction ‘of all civil actions where the matter in controversy exceeds the sum or value of $75,000’ and is between citizens of different States. § 1332(a).” Cappuccitti, p.9. The court reasoned that § 1332(d) was not intended to expand “federal court jurisdiction beyond Congress’s authorization.” Cappuccitti, p.10. Despite the relevant legislative history, however, the court then noted that requiring only the $5,000,000 aggregate threshold “would essentially transform federal courts hearing originally-filed CAFA cases into small claims courts, where plaintiffs could bring five-dollar claims by alleging gargantuan class sizes to meet the $5,000,000 aggregate amount requirement.”

The notion that federal courts cannot serve as “small claims courts” when aggregate claims in interstate class actions are substantial, is, however, squarely contrary to both the language of the statute and the stated intent of CAFA. Let's start with the statute itself: "In any class action, the claims of the individual class members shall be aggregated to determine whether the matter in controversy exceeds ther sum or value of $5,000,000, exclusive of interest and costs." Section 1332(D)(6). No mention of a $75,000 amount in controversy requirement for any plaintiff or class member here. Just $5,000,000 in the aggregate.

That doesn't seem to be ambiguous to us, and this post isn't the place to get into a major statutory construction discussion. But if there is any ambiguity here, we'd probably bring up the importance of the legislative history so let's have a little (legislative) history lesson. For starters, take a look at S. Rep. 109-14 at 32, U.S. Code Cong. & Admin. News 3 (2005), which states that the Act is intended to cover class actions where each plaintiff “only [has] a small financial stake in the litigation.” Sounds like Congress was ok with small claims.

Another id. at 70 (and this one is strong): “As noted previously, in some federal Circuits, the jurisdictional amount requirement in a class action is satisfied [pre-CAFA] by showing that any member of the proposed class is asserting damages in excess of $75,000 . . . [I]t will [now] be much easier to determine [under CAFA] whether the amount in controversy presented by a purported class as a whole (that is, in the aggregate) exceeds $5 million than it is to assess the value of the claim presented by each and every individual class member [to see if it reaches $75,000], as is required by the current diversity jurisdictional statute.” S. Rep. 109-14 at 70.

And see id. at 83: “By providing plaintiffs access to the [federal] courts in cases where a defendant may have caused small injuries to a large number of persons, class action procedures have traditionally offered a valuable mechanism for aggregating small claims that otherwise might not warrant individual litigation.”

And another id. at 12: prior to CAFA, “class actions often include[d] a provision stating that no class member will seek more than $75,000 in relief . . . . This leads to the nonsensical result under which a citizen can bring a ‘federal case’ by claiming $75,001 in damages for a simple slip-and-fall case against a party from another state, while a class action involving 25 million people living in all fifty states and alleging claims against a manufacturer that are collectively worth $15 billion must usually be heard in state court (because each individual class member’s claim is for less than $75,000).” S. Rep. 109-14 at 12.

Want more? “As noted above, the two most common tactics employed by plaintiffs’ attorneys [before CAFA] in order to guarantee a state court tribunal are: adding parties to destroy diversity and shaving off parties with claims for more than $75,000….Other complaints seek $74,999 in damages on behalf of each plaintiff or explicitly exclude from the proposed class anybody who has suffered $75,000 or more in damages. . . . The Committee believes that federal courts are the appropriate forum to decide most interstate class actions because these cases usually involve large amounts of money and many plaintiffs, and have significant implications for interstate commerce and national policy.” S. Rep. 109-14 at 26-27.

And “the Committee notes that as with the other elements of section 1332(d), the overall intent of these provisions is to strongly favor the exercise of federal diversity jurisdiction over class actions with interstate ramifications.” S. Rep. 109-14 at 35.

One more - Footnote 29 of the Senate Report: "The committee stresses, however, that even in those Circuits following this rule [referring to the extension of supplemental jurisdiction in Allapattah Servs. v. Exxon Corp., 333 F.3d 1248 (11th Cir. 2003) (Editor’s Note: see also Exxon Mobile Corp. v. Allapattah Services, Inc., 545 U.S. 546 (2005) and the CAFA Law Blog’s analysis of Allapattah Services here], relatively few class actions find their way into federal court because plaintiffs offer named plaintiffs who do not have $75,000 claims or name a non-diverse plaintiff or defendant in order to prevent removal of the case to federal court."

Convinced yet? We sure are. There’s more in the legislative history for those who want to drill down further, we’ll try do so in a subsequent post and get into the statutory construction issues, too.

Now. back to the decision itself. And finally, the court grafts part of the mass action provision to separate the class action provision of CAFA by finding that “the $75,000 requirement expressly applies in actions removed under CAFA, 28 U.S.C. § 1332(d)(11)(B)(i) [referencing § 1332(a)], and we can think of no reason why Congress would have intended the requirement in the context of CAFA removal jurisdiction, but not CAFA original jurisdiction.” It’s important to note the court is citing to the “mass action” section of CAFA (§ 1332(d)(11)(B)(i)), with its completely separate, additional $75,000 requirement, and applying it to the “class action” section of CAFA (§ 1332(d)(2)), which has no such requirement.

In short, Cappuccitti appears to add a new, fifth requirement to CAFA jurisdiction under § 1332(d)(2):

1. Action filed under Rule 23 or similar rule (yeah, we already knew this).

2. Aggregate class damages of $5,000,000 (uh-huh, we knew that too).

3. Minimal diversity (ditto).

4. At least 100 class members (everybody knows that).

AND NOW

5. The individual damages of the named plaintiff must exceed $75,000. (Now, this is something we didn’t know. We didn’t see in the statute, either.)

As Congress noted in CAFA’s Legislative History, the very purpose of class actions is to encourage people to bring claims that would, on their own, not be cost effective, given their small value. S. Rep. 109-14 at 32. As our learned readers know, very few class actions are filed where an individual’s damages exceed $75,000 (except, perhaps in Mississippi, which doesn’t have a state Rule 23). The Court’s interpretation, if correct, would have the effect of not expanding federal jurisdiction, as CAFA intended – take a look at S. Rep. 109-14 at 83, “‘The Class Action Fairness Act of 2005’ will force most state class action cases into federal courts.” (emphasis added). Rather, under Cappuccitti, CAFA jurisdiction would be significantly diminished, if not effectively gutted.

And because this new threshold in Cappuccitti could rarely be met, particularly in consumer classes (since plaintiffs wanting to avoid federal court will allege that no class member, including the named plaintiff, has more than $75,000 in controversy), CAFA cases as we now know them might all but cease to exist. And all of the prior holdings in which the new $75,000 “requirement” did not exist could arguably be considered void, or at least subject to challenge (we won’t get into retroactivity here). (Editor’s note: There is an argument that Cappuccitti conflicts with the prior Eleventh Circuit opinion in Evans v. Walter Indus., Inc., 449 F.3d 1159 (11th Cir. 2006), which holds that “[u]nder CAFA, federal courts now have original jurisdiction over class actions in which the amount in controversy exceeds $5,000,000 and there is minimal diversity (at least one plaintiff and one defendant are from different states). 28 U.S.C. § 1332(d)(2).” Id. at 1163. While the Evans opinion discusses the $5,000,000 amount in controversy requirement under CAFA, there is no mention of § 1332(a)’s “$75,000” requirement as a jurisdictional requirement.)

Maybe this isn’t the end of the world as we know it. It’s not 2012 yet. But it’s sure an earthquake of significant magnitude, with its epicenter in the Eleventh Circuit, and the possibility of a tsunami radiating outward across the country. We don't know whether DirecTV will ask for a rehearing en banc. Stay tuned for further developments.

Posted by:

- Anthony Rollo

- Hunter Twiford

- Richard Freshwater

Get Real or Get Remanded. West Virginia Denies Remand of State's Parens Patriae Case.

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Thu, 22 Jul 2010 06:30:00 -0600

West Virginia v. ComCast Corp., --- F. Supp. 2d ---, 2010 WL 1257639 (E.D. Pa., March 31, 2010) (No. 09-4671).

The State of West Virginia in its capacity as parens patriae (for those who have no idea how to pronounce that, just say parent), brought suit against Comcast Corporation to stop Comcast’s policy of you have to “pay to play” pricing methods on its cable boxes. The suit was filed in state court alleging that the cable company’s policy of requiring their premium subscribers to only rent Comcast cable boxes “constituted impermissible tying behavior.” (or in other words they were acting like a spoiled three year who is not willing to share his toys) Comcast had the suit removed to federal court based on CAFA diversity requirements. The most pivotal aspect of the case hinged on the Court’s analysis of when is a State acting as a real party plaintiff.

The issue before the court was to determine who was right: the parent or the child (in essence was removal proper)? According to CAFA, in order to remove a case all four requirements must be met. Of the four requirements, the parties were only in agreement that the aggregate amount exceeded five million. Therefore, the Court was left to wrestle with the other three issues.

The first issue was whether minimal diversity was met. Generally, where the only plaintiff is the state, diversity jurisdiction does not exist. Let us analyze: West Virginia is a state and the only plaintiff, case closed, right? Wrong, would I really write about a case that simple. Of course not, where there is a rule there is an exception. And that exception arises when the state should not be considered the only plaintiff.

So the question arose, when should the state be viewed as more than the only party, when they are the only party?(Are you confused yet?) The answer rests on whether the state’s interest is the only “real interest.” If the Court finds that the State is filing on behalf of itself and it is the only real interest, then minimum diversity cannot exist. However, if the Court finds that the State, in its capacity as parens patriae, is representing other parties’ interest, then minimum diversity exists and the case can be removed.

To determine whether a state is representing more than a nominal interest, the state must operate in one of two “quasi-sovereign” interests: 1) acting as a superhero protecting the health and well-being of its residents in general; or 2) playing the victim of discriminatorily being denied its rightful status within the federal system. Well, it goes without saying that number is one is applicable and the Court felt the same way. In order to justify its position, the Court paid homage to the state of Louisiana and took a detour to analyze the Fifth Circuit’s opinion in Caldwell v. Allstate Ins. Co., 536 F. 3d 418, 424 (5th Cir. 2008). (Editors’ Note: See the CAFA Law Blog analysis of Caldwell posted on April 14, 2008).

Caldwell is a case brought by “The Boot” against (Surprise! Surprise!) insurance carriers that were allegedly in cohorts to defeat competition by suppressing policy rates. The Court in Caldwell laid two analyses for determining real parties: either case by case or the “wholesale” approach. As with all good superheroes, you attack your enemy using their weakness. That is why the Court used Caldwell’s framework of case by case approach (in other words I do not want to be consistent so I will play it by ear) to arrive at the decision that the real parties in the suit were actually Comcast’s premium subscribers. Therefore, the state was not the only real party and minimum diversity existed.

Once the Court decided that minimum diversity existed, it easily resolved the issue of numerosity, because Comcast conceded that it had tens of thousands of premium subscribers in West Virginia. As to the issue of whether the West Virginia’s equivalent was equal to rule 23 of Federal Rules of Civil Procedure, the Court held that rule 23 should be interpreted liberally and that West Virginia’s law does not require “exactitude.”

Now, as with any parent whose child is correct in an argument, West Virginia did not go down without a fight. The State attempted to argue that 1) removal of the action to federal court would violate the State’s right to sovereign immunity under the Eleventh Amendment; and 2) removal would violate the State’s right to enforce its police power under the Tenth Amendment. And just like a wise grandparent witnessing the whole scene, the Court chastised the State for its feeble arguments. Ultimately, punishing West Virginia and denying its Motion to Remand.

By: Latisha Nixon-Jones

CAFA Serves the Class-less

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Wed, 21 Jul 2010 06:30:00 -0600

Long v. Dick’s Sporting Goods, Inc., 2010 WL 2044524 ((W.D.Ky.), May 21, 2010)

No Shirt, No Shoes, No CLASS, No Problem! (Editors’ Note: Yes, we recognize that the caption of this case would make for some really hilarious puns. But we respect our loyal readers too much to make childish remarks about the length of body parts or the use of those limbs in sport contexts.)

Evidently in a welcoming mood, the United States District Court for the Western District of Kentucky, who already invites litigants into the federal courthouse under the protection of CAFA before receiving class certification, recently informed litigants they could stay as long as they wanted, even if their application for class certification was rejected, or even more exciting, withdrawn voluntarily.

In Long, the plaintiffs sought class certification. Upon seeing the defendant’s response to their motion, they realized their chance of being recognized as a class was slim. So, they moved to withdraw their petition and move forward as to only their individual claims.

This maneuver led to the easier of the two issues facing the court, deciding if it should dismiss the class action complaint or allow the plaintiffs to withdraw it. The court, obviously realizing the result would be the same with either decision, denied the plaintiffs’ original motion for class certification based on the plaintiffs’ own desire to withdraw its motion and also on the clear absence of merit for class certification.

With the plaintiffs waiving the white flag in regard to certification, the district court was faced with the more difficult of its two issues, whether the original jurisdictional status under CAFA controls the remaining claims or whether the denial of class certification status altered jurisdiction. The plaintiffs now wanted to remand their case to state court and claimed the federal court’s basis for jurisdiction, possible class treatment, had been divested. The defendant’s countered with the argument that jurisdiction is determined at the time of removal, and once removed the federal court retains jurisdiction, even if class certification is denied.

Facing a split in the circuits, the court concluded denial of class certification does not divest a district court of subject matter jurisdiction under CAFA. The main factor in jurisdiction for CAFA, therefore, is the plaintiff’s intent to seek class certification at the time of removal. The court was also persuaded by the “once jurisdiction, always jurisdiction” principle which aims to avoid unnecessary expense and delay, and noted the parties had spent over one year and significant resources merely litigating over class certification.

-Jack Stanley

Ninth Circuit Says Don't Count Punitives If Punitives Can't Be Awarded

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Tue, 20 Jul 2010 06:30:00 -0600

Trahan v. U.S. Bank National Association, No. 10-15665, 2010 WL 1986182 (9^th Cir. May 18, 2010)(designated not for publication).

In Trahan, U.S. Bank National Association (“U.S. Bank”) removed this case to federal court on the basis of diversity under 28 U.S.C. § 1332 (a) and § 1332 (d). Jerry Trahan (“Trahan”) subsequently filed a motion to remand. There was no dispute that the parties were diverse; the only question before the court was the amount in controversy.

U.S. Bank argued that Trahan’s individual claims were worth $76,691.48, of which $23,174.49 were alleged punitive damages and that the class’s claims were worth $6,491,652.38 of which $2,412,331.35 were alleged punitive damages. Looks as if the amount in controversy was satisfied, doesn’t it? Think again.

The appellate court held, “Simple subtraction reveals that the amount in controversy requirement is not satisfied under either § 1332(a) or § 1332 (d) without sufficient punitive damages.” (author’s comment: *wide eyes, mouth ajar* Simple subtraction? I was sure you would have used calculus and long division to figure this one out. *blank stare*)

The court noted that under Davenport v. Mut. Benefit Health & Accident Ass’n, 325 F.2d 785,787 (9^th Cir. 1963) which stated, “A District court need not consider punitive damages in determining the amount in controversy when such damages are unavailable as a matter of state law,” you don’t count punitives in this type of case. The court noted that Trahan’s wage and hour claims were inherently tied to employment contracts Trahan and the class had with U.S. Bank, and according to Brewer v. Premier Golf Props., 86 Cal. Rptr. 3d 225, 235 (Ct. App. 2008)(review denied Mar. 18, 2009); and Cal. Civ. Code § 3294(a), “such claims cannot support punitive damages under California law.”

Just as quick as one crawfish is devoured at the New Orleans Jazz Fest, Trahan stipulated in his oral argument that “in the light of these authorities, despite what is currently alleged in his complaint, he cannot, and will not attempt to, collect punitive damages or pursue a conversion claim in this case.” (author’s comment: wow! really dude?! you are insanely strategic! *blank stare*)

I think I’ll keep this one in my back pocket the next time I am on The Price is Right and I spin the wheel for the second time, go over $1.00 and am knocked out of the showcase. I’ll simply say, “I cannot and will not accept that second spin of the wheel. I’ll stick with .75 cents from the first spin.” Better yet, whenever I am a contestant on Deal or No Deal and I choose the case with $0, I’ll simply change my mind and ask if I can exchange it for the million dollar case.

By: Diamond Paten

Pennsylvania District Court Sends Case to a Land Down Under

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Mon, 19 Jul 2010 06:30:00 -0600

Auxer v. Alcoa, Inc., Slip Copy, 2010 WL 1337725 (W.D.Pa., Mar. 29, 2010) (No. 2:09cv995).

The District Court for the Western District of Pennsylvania held that plaintiffs seeking damages after their exposure to emissions from an Australian refinery should take their case to the land of Nicole Kidman and kangaroos. The court said “G’day mate” by granting the defendants’ motion for dismissal on the grounds of forum non conveniens before even reaching other jurisdictional matters.

In several different actions that the court ordered be consolidated, the plaintiffs sought damages for injuries allegedly caused by their exposure to the emissions from several alumina refineries in Western Australia and owned by Alcoa, an Australian corporation. The plaintiffs alleged that the atmospheric conditions in the area trap the emissions from the refinery near the ground, resulting in high concentrations of toxic compounds in the communities near the refineries, which affected the plaintiffs (and the koalas) who lived near or worked at the refineries. The plaintiffs asserted that the toxic emissions caused them to speak funny. Okay, we made the last allegation up.

The plaintiffs asked to “give the state court a go,” instead of federal court, while the defendants sought the action be dismissed for forum non conveniens, under a Supreme Court case that allows for considerations of convenience, fairness and judicial economy to be taken up in a forum non conveniens dismissal before subject-matter and personal jurisdiction questions are addressed. The plaintiffs also asserted, in the alternative, that the action be maintained in the federal district court under CAFA’s “mass action” provisions.

The defendants argued that the plaintiffs structured the action specifically to try to avoid federal jurisdiction under CAFA. The court found that the circuits split on how to deal with such actions. (For one discussion of the cases cited, see the CAFA Law Blog analysis of Tanoh v. Dow Chemical Co. posted August 13, 2009.)

Ultimately, this court burrowed away from the issue like a scared wombat and addressed the forum non conveniens dismissal instead.

While a dismissal on the grounds of forum non conveniens is usually the exception and not the rule and plaintiffs are generally given deference by the courts, when foreign plaintiffs request United States’ forums, the courts are more likely to treat the plaintiffs like a boomerang… and send them back from where they came. The court here considered a “sliding scale” articulated by the Second Circuit in which various factors dealing with convenience and expense (such as the lawsuit’s connection to the United States and the forum chosen, the convenience of the United States forum as compared to the plaintiff’s home forum, and the location of key witnesses and evidence) are used to determine the amount of deference the plaintiff’s forum choice should receive. Here, all but one of the 244 plaintiffs resided in Oz, and the one who resided in Pennsylvania had been exposed to the emissions in the outback.

The court found that since trying the case here was not at all convenient and since the action had few Pennsylvania connections, the plaintiffs’ forum choice would receive little deference.

The court applied a two-step analysis in determining whether the forum non conveniens motion should be granted. First, the defendant must establish there is an adequate alternative forum, and then, the court must balance public and private factors. The court found that defendant was amenable to a court in Australia and that the plaintiffs could receive appropriate redress in Australia. Although the statute of limitations had run on some of the plaintiffs’ claims in Australia, under Pennsylvania law, the court was to apply Australia’s statute of limitations anyway. Therefore, their claims would have been barred in Pennsylvania as well, and Australia was an adequate alternative forum.

Finally, the court considered private interest factors, which affected the convenience of the litigants, and the public interest factors affecting the convenience of the forum. Since nearly all of the plaintiffs, all of the non-party witnesses, and the majority of the evidence about the interaction between emissions and the environment were located in Hugh Jackman’s homeland, the court found that private interest factors strongly favored dismissal. Additionally, while Australia had significant interest in the outcome of this case, Pennsylvania had very little connection to the case, other than one of the Aussies decided to move there. Under Pennsylvania’s conflict of law provisions, it is likely that Australian law would be applied to the case as well; the court found that it would be easier for those who actually eat Vegemite to “make a good fist” (do a good job) at applying Aussie law.

The Pennsylvania court granted the defendant’s motion for dismissal on the grounds of forum non conveniens. The plaintiffs from Oz were ordered to surf back to the bush.

By: Ashley Barbier

Gradeless and Loudermilk Don't Make the Grade

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Fri, 16 Jul 2010 06:30:00 -0600

Gradeless v. American Mutual Share Insurance Corp., Slip Copy, 2010 WL 1935867 (S.D. Ind., May 7, 2010) (NO. 1:10CV86-WIL-DML).

I would be embarrassed too if a district court judge called me out for reading a case erroneously, then pointed out how my interpretation would force me to sue myself. After pointing out the plaintiffs’ implausible arguments, the court declined to remand the case to state court because there was complete diversity of the parties at the time of removal and the requisite amount in controversy.

The plaintiffs, Harry Gradeless and John Loudermilk, filed a case in the Hamilton County Superior Court asserting claims of fraud, negligence and rescission arising out of the merger between the defendant credit union and the credit union in which plaintiffs were members. Take note that the plaintiffs are members of this credit union, as it comes back to slap Gradeless and Loudermilk on the behind like a schoolmarm.

The defendants made a timely removal to the United States District Court for the Southern District of Indiana, Indianapolis Division. Not until after the removal did Gradeless and Loudermilk amend their complaint to name over forty additional plaintiffs. Had they amended their complaint prior to removal, the citizenship of the additional plaintiffs conceivably could have helped them get out of federal court. Perhaps they missed the day in civil procedure discussing the basics of removal; the court analyzes whether they had jurisdiction at the time of removal.

Let’s go back to the ABCs and 123s of federal civil procedure subject matter jurisdiction. Pursuant to 28 U.S.C. § 1332, diversity jurisdiction requires two things: 1) complete diversity of citizenship and 2) an amount in controversy that exceeds $75,000. So which lucky state were Gradeless and Loudermilk citizens of? Indiana. The defendant credit union was a citizen of Illinois, and American Mutual Insurance Corp., another defendant, was a citizen of Ohio. Indiana, Illinois and Ohio: complete diversity of citizenship of the parties at the time of removal. The parties did not dispute that the matter in controversy exceeded $75,000. As the Jackson 5 put it: “A-B-C is easy as 1-2-3.” (Editors' Note: Click here for a trip down memory lane with the Jackson 5). This was a clear cut case that removal was proper because there was complete diversity and an amount in controversy over $75,000.

However, the plaintiffs thought they were too cool for school and argued that because the $5 million amount in controversy requirement under the Class Action Fairness Act was not met, the district court was barred from exercising any jurisdiction to hear the case. Gradeless and Loudermilk wanted the court to believe that CAFA establishes the sole basis for jurisdiction over class actions, and that any other bases for jurisdiction should be thrown out the window. Hmmm. Interesting argument. I don’t think we have heard this one before.

The court needed the plaintiffs to take a time out. CAFA does not serve to limit federal jurisdiction, but rather expands federal jurisdiction over class actions in which there is minimal diversity.

But Gradeless and Loudermilk refused to give up there. Hey, you have to give these guys credit. Even though their arguments lacked logic, they never stopped trying. The plaintiffs cited National Ass’n of Realtors v. National Real Estate Ass’n, Inc. to support their argument that complete diversity did not exist. 894 F.2d 937 (7th Cir. 1990). According to the plaintiffs, National Ass’n of Realtors suggested that the citizenship of a not-for-profit corporation is determined by the citizenship of its members, rather than the citizenship of the corporation itself.

The court interpreted that case differently, stating that the case said that the citizenship of the real party in interest is what matters. It just so happens that the real parties in interest in National Ass’n of Realtors were the members of the plaintiff organization rather than the organization itself. In the instant case, however, the real parties in interest were the defendant corporations, not their members.

Remember that disciplinarian schoolmarm I mentioned earlier? Well, the court was not shy to point out here that if the plaintiffs’ interpretation of National Ass’n of Realtors was followed, “the Plaintiffs would essentially be suing themselves.” Take that Gradeless and Loudermilk. Hit the books fellas and maybe next time the court won’t be able to make a mockery out of your arguments.

By: Nora Makky