Bridewell-Sledge v. Blue Cross: District Court Erred in Treating Consolidated Class Actions as Separate for Purposes of Determining Federal Jurisdiction under the Class Action Fairness Act's "Local Controversy" Exception

Bridewell-Sledge v. Blue Cross of California (8/20/15) --- Cal.App.4th --- presents a novel legal issue regarding federal diversity jurisdiction under the Class Action Fairness Act and its "local controversy" exception. If you're not familiar with it, the local controversy exception provides roughly as follows: 

The district court shall decline jurisdiction over class actions when: more than two thirds of the class members are citizens of the State where the action was filed; at least one "significant" defendant is a citizen of that State; the principal injuries alleged were incurred in that State; and no similar class action has been filed against any of the defendants in the prior three years.

Plaintiff Bridewell-Sledge filed a putative class action against the defendants for failing to pay African American and female employees at a wage rate equal to white or male employees working in the same establishment and performing equal work. 14 minutes later, plaintiff Crowder filed a putative class action against the same defendants for failing to promote African-American and female employees because of their race and gender. The superior court consolidated the actions for all purposes.

Defendants removed the consolidated actions, and the district court again consolidated them for all purposes. After an OSC re. jurisdiction, district court retained jurisdiction over Bridewell-Sledge, finding that the local controversy exception applied, but remanded Crowder, finding that the local controversy exception did not apply because Bridewell-Sledge was a similar action and was filed in the three years prior to Crowder.

The Ninth Circuit reversed, holding that the district court should not have treated Bridewell-Sledge and Crowder as separate actions for CAFA purposes. By consolidating the two actions, the state court "destroy[ed] the identity of each suit and merge[d] them into one."

Under California law, when two actions are consolidated “for all purposes,” “the two actions are merged into a single proceeding under one case number and result in only one verdict or set of findings and one judgment.”

CAFA's legislative history supports this result. The purpose of the local controversy exception was “to ensure that state courts can continue to adjudicate truly local controversies in which some of the defendants are out-of-state corporations.” Remanding the consolidated cases to state court would accomplish this purpose.

The opinion is available here. 

Yocupicio v. PAE Group: Ninth Circuit Addresses CAFA Jurisdiction in Case Raising Both Class and PAGA Claims

In Yocupicio v. PAE Group, LLC, ___ F.3d ___ (9th Cir. 7/30/15), the plaintiff filed a class and PAGA representative action alleging a number of wage and hour violations. The defendants removed the case under the Class Action Fairness Act (CAFA), and the district court denied the plaintiff's motion to remand. The plaintiff appealed, and the Ninth Circuit reversed, holding as follows:

CAFA jurisdiction requires the following: a class of more than 100 members, "minimal diversity" among the parties, and an amount in controversy in excess of $5 million. The court found no question that the class claims would "satisfy CAFA’s numerosity and minimal diversity requirements," but the case did not satisfy the amount in controversy requirement. The value of the class claims alone did not satisfy the $5 million requirement, and the district court erred in adding in the value of the PAGA claims to make up the difference. Only class claims count toward the $5 million requirement, and PAGA claims are not class claims. The Court concluded: 

Where a plaintiff files an action containing class claims as well as non-class claims, and the class claims do not meet the CAFA amount-in-controversy requirement while the nonclass claims, standing alone, do not meet diversity of citizenship jurisdiction requirements, the amount involved in the non-class claims cannot be used to satisfy the CAFA jurisdictional amount, and the CAFA diversity provisions cannot be invoked to give the district court jurisdiction over the non-class claims. 

The opinion is available here. 

Laguna v. Coverall: Ninth Circuit Issues Class Action Attorney Fee Decision

In Laguna v. Coverall North America, Inc., ___ F.3d ___ (9th Cir. June 3, 2014), the Ninth Circuit affirmed a district court's approval of a pre-certification class action settlement in an independent contractor wage and hour action. The Ninth Circuit held as follows:

The district court did not abuse its discretion in awarding fees based on the lodestar method because the lodestar method is most appropriate where the relief sought is “primarily injunctive in nature,” and a fee-shifting statute authorizes “the award of fees to ensure compensation for counsel undertaking socially beneficial litigation.” Slip op. at 6-7. The award of approximately $1 million in fees was reasonable where the injunctive relief provided in the settlement likely exceeded a value of $4 million. Slip op. at 7-8.

With regard to the settlement as a whole, the district court did not err in considering the difficulty of certifying the class, the defendant's poor financial health, the experience of class counsel, and the fact that only two settlement class members opted out of the settlement. Slip op. at 8-10.

The district court did not abuse its discretion in approving the settlement term that objectors be available for depositions. Slip op. at 14-15.

Finally, the district court did not abuse its discretion when it approved the settlement agreement consistent with the notice requirements contained within the Class Action Fairness Act (“CAFA”). 28 U.S.C. § 1715(b) and (d). Slip op. at 15.

The opinion is available here.

Baumann v. Chase Inv. Services Corp.: CAFA Provides No Basis for Federal Jurisdiction Over PAGA Action

Baumann v. Chase Inv. Services Corp., ___ F.3d ___, (9th Cir. Mar. 14, 2014) presents a single issue, stated as follows by the Ninth Circuit:

In Urbino v. Orkin Services, 726 F.3d 1118 (9th Cir. 2013) [discussed here] we held that potential PAGA penalties against an employer may not be aggregated to meet the minimum amount in controversy requirement of 28 U.S.C. § 1332(a). The remaining issue in this appeal is whether a district court may instead exercise original jurisdiction over a PAGA action under the Class Action Fairness Act of 2005 ("CAFA"), 28 U.S.C. §§ 1332(d), 1453, 1711-15. We hold that CAFA provides no basis for federal jurisdiction.

The Court began by explaining CAFA original jurisdiction as follows:

CAFA confers original jurisdiction to the district courts "of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which any member of the class of plaintiffs is a citizen of a State different from any defendant." 28 U.S.C. § 1332(d)(2)-(A). The claims of class members may be aggregated to determine whether the amount in controversy requirement has been satisfied. Id. § 1332(d)(6). The class also must have at least 100 members. Id. § 1332(d)(5)(B).

The Court the held that a PAGA action does not satisfy the "class action" requirement of section 1332(d)(2)-(A). It reasoned that PAGA actions are not class actions under state law, nor do they arise under a state law that "closely resembles Rule 23 or is like Rule 23 in substance or in essentials." Among other differences between PAGA actions and class actions:

PAGA does not require notice to unnamed aggrieved employees; 

Aggrieved employees may not opt out of a PAGA action; 

A PAGA plaintiff need not prove numerosity, commonality, typicality, or adequacy of representation; and 

If an employer defeats a PAGA action, unnamed aggrieved employees are not bound by the judgment, except as to PAGA remedies. 

"In the end, Rule 23 and PAGA are more dissimilar than alike. A PAGA action is at heart a civil enforcement action filed on behalf of and for the benefit of the state, not a claim for class relief."

Baumann is available here.

Mississippi ex rel. Hood v. AU Optronics Corp.: Restitution Action By State Is Not Mass Action Under CAFA

A quick word about this case. In Mississippi ex rel. Hood v. AU Optronics Corp., ___ U.S. ___ (1/14/14), the Supreme Court of the United States held that an action by a state, as the sole named plaintiff, to obtain restitution on behalf of itself and its citizens was not a "mass action" for purposes of the Class Action Fairness Act (CAFA). 

It will be interesting to see whether this case has any impact on the question of whether a representative action under the 2004 Labor Code Private Attorneys General Act (PAGA) is considered a class action or mass action for CAFA removal purposes. 

Mississippi ex rel. Hood v. AU Optronics Corp. is available here. 

Rea v. Michaels Stores Inc.: Remand of Class Action to State Court Improper Under CAFA

In Rea v. Michaels Stores Inc., ___ F.3d ___ (2/18/14), the plaintiffs filed a wage and hour class action in state court, and the defendant removed to the district court under the Class Action Fairness Act (CAFA). The district court remanded because the plaintiffs disclaimed any recovery over $4,9999,999.99. After the US Supreme Court's decision in Standard Fire Ins. Co. v. Knowles (discussed here), the defendant again removed, and the district court again remanded, holding that the removal was untimely and that the defendant failed to demonstrate that the amount in controversy met the $5 million standard.

The defendant appealed, and the Ninth Circuit reversed, holding: 

First, the fact that the state court had certified a class did not bind the class members to the plaintiffs' earlier stipulation, nor did the fact that the certified class was smaller than the one originally contemplated it make it impossible that the amount in controversy would be under $5 million. 

Second, the defendant's second removal was not untimely. When the defendant removed the first time, the plaintiffs' stipulation re. amount in controversy was valid under Ninth Circuit precedent, and the defendant could not remove. Because the defendant removed the second time within 30 days of the Supreme Court's decision in Standard Fire, which held that such a stipulation was improper, the second removal was timely. 

Finally, because there was substantial, plausible evidence that the $5 million standard was met and no evidence to the contrary, the district court's finding that the standard was not met was clearly erroneous. 

The opinion is available here. 

Mondragon v. Capital One Auto Finance: Ninth Circuit Clarifies CAFA "Local Controversy" Rule

Mondragon v. Capital One Auto Finance, ___ F.3d ___ (9th Cir. 11/27/13) concerns the "local controversy" exception to the general rules of federal jurisdiction set forth in the Class Action Fairness Act of 2005 (CAFA). 

The Court gives a good overview of CAFA and the local controversy exception: 

Through CAFA, Congress broadened federal diversity jurisdiction over class actions by, among other things, replacing the typical requirement of complete diversity with one of only minimal diversity, see id. § 1332(d)(2), and allowing aggregation of class members’ claims to satisfy a minimum amount in controversy of $5 million, see id. § 1332(d)(6). However, Congress also provided exceptions allowing certain class actions that would otherwise satisfy CAFA’s jurisdictional requirements to be remanded to state court. Among these is the exception commonly referred to as the local controversy exception, set forth in 28 U.S.C. § 1332(d)(4)(A). One of the requirements of the local controversy exception is that “greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed.” Id. § 1332(d)(4)(A)(i)(I). 

Slip op. at 3-4. 

The Court held that the plaintiff failed to show that a class of people who "purchased a vehicle in California for personal use to be registered in the State of California" would necessarily be California citizens, and the district court erred in relying on an inference that more than two-thirds of such class members would be California citizens. The Court remanded with instructions that the district court allow the plaintiff an opportunity to renew his motion to remand and to take jurisdictional discovery tailored to proving that more than two-thirds of the putative class are citizens of California. 

The opinion is available here.

Visendi v. Bank of America: Ninth Circuit Clarifies Rules for Removal and Joinder in Mass Action

Visendi v. Bank of America (9th Cir. 10/23/13) ___ F.3d ___, is an interesting case on removal and joinder of mass actions under the Class Action Fairness Act (CAFA). 

In 2011, 137 named plaintiffs sued 25 financial institutions in Superior Court. They alleged that the institutions’ deceptive mortgage lending and securitization practices decreased the value of their homes, impaired their credit scores, and compromised their privacy. 

One defendant, Bank of America, removed the case to the district court. Relying on CAFA, it argued that the action was a removable “mass action” because it was a “civil action . . . in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law or fact . . . .” 28 U.S.C. § 1332(d)(11)(B)(i). 

The plaintiffs filed a first amended complaint, adding some parties, dismissing others, and changing their theories of liability. Defendants moved to dismiss, asserting misjoinder and failure to state a claim. The district court then remanded, finding that the Defendants conceded that the action was not removable when they argued that it did not present common questions of law or fact under Rule 20(a) and that the court thus lacked jurisdiction under CAFA. 

The Ninth Circuit reversed, holding: 

CAFA’s "mass action" provisions apply to civil actions in which "monetary relief claims of 100 or more persons are proposed to be tried jointly." Because the plaintiffs proposed a joint trial in state court, this provision applied, and the defendants properly removed the case. 

Whether Plaintiffs’ claims ultimately proceed to a joint trial is irrelevant. It is well settled that “post-filing developments do not defeat jurisdiction if jurisdiction was properly invoked as of the time of filing.” 

Slip op. at 8. 

CAFA's numerosity requirement was satisfied because the original complaint named more than 100 plaintiffs. Slip op. at 9-10.

CAFA's "local controversy" exception is not jurisdictional, and the plaintiffs could not raise it for the first time on appeal. Slip op. at 10-11.

Joinder of the more than 100 plaintiffs was improper because (1) the plaintiffs did not assert a "right to relief arising out of the same transaction and occurrence" and (2) no "question of law or fact common to all the plaintiffs" would arise in the action. Slip op. at 12-14. Although the plaintiffs alleged that the defendants' misconduct was “regular and systematic,” the case involved "over 100 distinct loan transactions with many different lenders," and the factual disparities alleged were too great to support permissive joinder.

The Ninth Circuit remanded to the district court with instructions with instructions to dismiss without prejudice the claims of all plaintiffs but the one first named in the action.

The opinion is available here.

Rodriguez v. AT&T Mobility: Preponderance of Evidence Standard Applies to Defendant Removing Class Action under CAFA

In Standard Fire Ins. Co. v. Knowles, ___ U.S. ___ (2013) (discussed here), a unanimous United States Supreme Court held: (1) a plaintiff in a putative class action may not defeat federal jurisdiction under the Class Action Fairness Act (CAFA) by stipulating that he or she will not seek to recover more than $5 million; and (2) a district court should look beyond the four corners of the complaint to determine the amount in controversy.

In Rodriguez v. AT&T Mobility Services LLC, ___ F.3d ___ (9th Cir. 8/27/13), the Ninth Circuit Court of Appeals held that, in light of Standard Fire, a "defendant seeking removal of a putative class action must demonstrate, by a preponderance of evidence, that the aggregate amount in controversy exceeds the jurisdictional minimum." Slip op. at 14. 

The Court thus overturned its prior decision in Lowdermilk v. U.S. Bank National Association, 479 F.3d 994, 999 (9th Cir. 2007), which held that a removing defendant must establish the amount in controversy to a legal certainty. 

The opinion is available here. 

Watkins v. Vital Pharmaceuticals, Inc.: Undisputed Declaration On Sales Of Product Establishes CAFA Jurisdiction In False Advertising Class Action

In Watkins v. Vital Pharmaceuticals, Inc., ___ F.3d ___ (7/2/13), the plaintiff filed a putative nationwide class action in Superior Court, alleging that the defendant, Vital, erroneously marketed and labeled its "ZERO IMPACT" protein bars as having little to no impact on blood sugar. He alleged that "the aggregate damages sustained by the Class are likely in the millions of dollars." 

Vital removed the case to district court, filing two declarations with the notice of removal: (1) a declaration of counsel stating that the amount in controversy exceeded $5 million; and (2) a declaration stating that nationwide sales of the bars for the last four years exceeded $5 million. The district court remanded the case sua sponte, holding that Vital did not meet its burden of proving by a preponderance of the evidence that the amount in controversy requirement of the Class Action Fairness Act (CAFA) was met.  

The Ninth Circuit reversed, holding: 

It had jurisdiction to review the district court's order.  Slip op. at 5-6. 

The declaration stating that nationwide sales of the bars exceeded $5 million was sufficient to establish that the amount in controversy exceeded $5 million.  Slip op. at 6-7.  

The opinion is available here. 

Roth v. CHA Hollywood Medical Center: Ninth Circuit Clarifies Time Period For CAFA Removal

In Roth v. CHA Hollywood Medical Center (9th Cir. 6/27/13) ___ F.3d ___, the Ninth Circuit reversed a district court order remanding a putative wage and hour class action to state court.  The holding is pretty straight-forward: 

[28 U.S.C.] Section 1446(b)(1) and (b)(3) specify that a defendant must remove a case within thirty days of receiving from the plaintiff either an initial pleading or some other document, if that pleading or document shows the case is removable.  However, these two periods do not otherwise affect the time during which a defendant may remove. That is, the two periods specified in § 1446(b)(1) and (b)(3) operate as limitations on the right to removal rather than as authorizations to remove.  

We hold that a defendant who has not lost the right to remove because of a failure to timely file a notice of removal under § 1446(b)(1) or (b)(3) may remove to federal court when it discovers, based on its own investigation, that a case is removable. 

Slip op. at 3-4.  

In other words, the two thirty-day time periods listed above are not the only times that a defendant may remove a case under CAFA, and a defendant may not remove "if and only if" the initial pleading or other document shows grounds for removal. Rather, a defendant may remove based on independent information gathered outside these thirty-day periods, provided that it has not previously waived the right to remove by failing to do so where the plaintiff's initial pleading or other document shows that the case is removable. 

Roth v. CHA Hollywood Medical Center is available here. 

In re: HP Inkjet Printer Litigation: Ninth Circuit Issues Decision on Attorney Fees In Coupon Class Action Settlements

In re: HP Inkjet Printer Litigation, ___ F.3d ___ (9th Cir. 5/15/13), addresses attorney fee awards in coupon settlements under the Class Action Fairness Act (CAFA). 28 U.S.C. Sec. 1712(a)-(c).  

Plaintiffs sued HP for alleged unfair business practices relating to the use of ink cartridges in its inkjet printers. After years of litigation, the parties reached a global settlement, with HP agreeing to: provide class members up to $5 million worth of coupons; make additional disclosures on its website and in other materials; pay up to $950,000 for class notice and settlement administration costs; and pay up to $2,900,000 in attorneys’ fees and expenses. 

The district court approved the settlement.  It estimated the settlement's "ultimate value" to the class at $1.5 million, held that class counsel's fees should not exceed this figure, and awarded $1.5 million in fees and $600,000 in costs.  The objectors appealed, and the Ninth Circuit reversed, holding as follows: 

First, section 1712(a) provides that “the portion of any attorney’s fee award to class counsel that is attributable to the award of coupons shall be based on the value to class members of the coupons that are redeemed.” Attorneys’ fees are "attributable to" an award of coupons where "the [singular] award of the coupons is the condition precedent to the award of attorneys’ fees."  Slip op. at 16-20.  

Second, under section 1712(b), "if class counsel wants to be paid 'any' fees, and the 'recovery of the coupons is not used to determine' those fees, the entirety of the payment 'shall be' calculated 'based upon the amount of time class counsel reasonably expended working on the action,' i.e., using the lodestar method. Section 1712(b)(2) further confirms that a court may, in its discretion, apply an appropriate multiplier to any lodestar amount it awards under subsection (b)(1) for obtaining non-coupon relief."  Slip op. at 20-22.  

Third, section 1712(c) controls when the settlement includes both coupon and equitable relief, and the district court sets attorneys’ fees based on the value of the entire settlement, rather than solely on the basis of injunctive relief. In that case, 

the district court must perform two separate calculations to fully compensate class counsel. First, under subsection (a), the court must determine a reasonable contingency fee based on the actual redemption value of the coupons awarded. Second, under subsection (b), the court must determine a reasonable lodestar amount to compensate class counsel for any non-coupon relief obtained. This lodestar amount can be further adjusted upwards or downwards using an appropriate multiplier. § 1712(b)(2). In the end, the total amount of fees awarded under subsection (c) will be the sum of the amounts calculated under subsections (a) and (b).

Slip op. at 22-26.  

In the present case, the district court erred in awarding attorney fees based on its estimate of the "ultimate value" of the settlement.

The district court awarded lodestar fees based on its supposition that the “ultimate value” of this settlement is $1.5 million. This $1.5 million figure included the court’s valuation of both the injunctive and coupon relief. But § 1712(a) and (c) required the district court to calculate the redemption value of the coupons before awarding any attorneys’ fees that were “attributable to” the coupon relief. Hence, the district court abused its discretion where it made a rough estimate of the ultimate value of this settlement, and then awarded fees in exchange for obtaining coupon relief without considering the redemption value of the coupons.  

We note, however, that the responsibility for this error lies principally with the parties. Because the settlement agreement specifies that no coupons may issue until after entry of a final judgment, it would have been impossible for the district court to calculate the redemption value of the coupons as required by § 1712(a). By structuring the settlement in this way, the parties essentially invited the error here. Of course, had the settlement been structured so that the redemption value of the coupons was ascertainable before final settlement approval, plaintiffs’ attorneys would have been entitled to seek compensation for both the coupon and the injunctive relief obtained for the class. See § 1712(c). Because the parties did not do so, however, we are required to reverse. 

Slip op. at 27-28. The Court concluded:  

Under § 1712 of CAFA, a district court may not award attorneys’ fees to class counsel that are “attributable to” an award of coupons without first considering the redemption value of the coupons. A district court may, however, award lodestar fees to compensate class counsel for any non-coupon relief they obtain, such as injunctive relief. Because the attorneys’ fees award in this case violates § 1712, we reverse and remand to the district court for further proceedings consistent with this opinion. 

The opinion is available here.  

Kuxhausen v. BMW: Ninth Circuit Issues Decision on Timeliness of CAFA Removal

A quick note on this decision. In Kuxhausen v. BMW Financial Services NA LLC (9th Cir. 2/25/13) the Ninth Circuit held that where an initial pleading does not state the amount in controversy, the plaintiff has not pled all the facts necessary for diversity jurisdiction under the Class Action Fairness Act (CAFA), and the removal clock under Section 1446(b) is not triggered.

The plaintiff filed a putative class action against a car dealer and financing company, asserting ten California causes of action, including alleged violations of the Consumer Legal Remedies Act (CLRA), and the Automobile Sales Finance Act. She sought statutory damages of up to $1,000 per consumer and $5,000 for senior-citizen consumers under the CLRA. The plaintiff filed a first amended complaint, and the defendants removed the action to district court. The district court remanded, and the defendants appealed.

The Ninth Circuit reversed, holding:

"To avoid saddling defendants with the burden of investigating jurisdictional facts, we have held that 'the ground for removal must be revealed affirmatively in the initial pleading in order for the first thirty-day clock under § 1446(b) to begin.'" Slip op. at 7.

The complaint's statement that it sough to "provide remedies for hundreds of affected consumers" satisfied CAFA's requirement that the proposed class must have at least 100 members because "hundreds" means "at least 200." Slip op. at 8.

However, because the complaint did not state that each of the 200 alleged class members was owed at least $25,000 (200 x $25,000 = $5 million), it did not allege that the amount in controversy was at least $5 million, and "it fell short of triggering the removal clock under Section 1446(b)." Slip op. at 8-11.

The opinion is available here.

Standard Fire Ins. Co. v. Knowles: Plaintiff Cannot Defeat CAFA Jurisdiction By Stipulating To Recover Less Than $5 Million

In a unanimous opinion written by Justice Breyer, the Supreme Court of the United States in Standard Fire Insurance Co. v. Knowles, ___ U.S. ___ (3/19/13), has held that a plaintiff in a putative class action may not defeat federal jurisdiction under the Class Action Fairness Act (CAFA) by stipulating at the start of the case that he or she will not seek to recover more than $5 million.  The official syllabus does a good job of stating the Court's decision succinctly:  

The Class Action Fairness Act of 2005 (CAFA) gives federal district courts original jurisdiction over class actions in which, among other things, the matter in controversy exceeds $5 million in sum or value, 28 U. S. C. §§ 1332(d)(2), (5), and provides that to determine whether a matter exceeds that amount the "claims of the individual class members must be aggregated," § 1332(d)(6). When respondent Knowles filed a proposed class action in Arkansas state court against petitioner Standard Fire Insurance Company, he stipulated that he and the class would seek less than $5 million in damages. Pointing to CAFA, petitioner removed the case to the Federal District Court, but it remanded to the state court, concluding that the amount in controversy fell below the CAFA threshold in light of Knowles' stipulation, even though it found that the amount would have fallen above the threshold absent the stipulation. The Eighth Circuit declined to hear petitioner's appeal.

Held: Knowles' stipulation does not defeat federal jurisdiction under CAFA. Pp. 3-7. 

(a) Here, the precertification stipulation can tie Knowles' hands because stipulations are binding on the party who makes them, see Christian Legal Soc. Chapter of Univ. of Cal., Hastings College of Law v. Martinez, 561 U. S. ___. However, the stipulation does not speak for those Knowles purports to represent, for a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified. See Smith v. Bayer Corp., 564 U. S. ___, ___. Because Knowles lacked authority to concede the amount in controversy for absent class members, the District Court wrongly concluded that his stipulation could overcome its finding that the CAFA jurisdictional threshold had been met. Pp. 3-4.  

(b) Knowles concedes that federal jurisdiction cannot be based on contingent future events. Yet, because a stipulation must be binding and a named plaintiff cannot bind precertification class members, the amount he stipulated is in effect contingent. CAFA does not forbid a federal court to consider the possibility that a nonbinding, amount-limiting, stipulation may not survive the class certification process. To hold otherwise would, for CAFA jurisdictional purposes, treat a nonbinding stipulation as if it were binding, exalt form over substance, and run counter to CAFA's objective: ensuring "Federal court consideration of interstate cases of national importance." § 2(b)(2), 119 Stat. 5.  

It may be simpler for a federal district court to value the amount in controversy on the basis of a stipulation, but ignoring a nonbinding stipulation merely requires the federal judge to do what she must do in cases with no stipulation: aggregate the individual class members' claims. While individual plaintiffs may avoid removal to federal court by stipulating to amounts that fall below the federal jurisdictional threshold, the key characteristic of such stipulations — missing here — is that they are legally binding on all plaintiffs. Pp. 4-7.  

Vacated and remanded.  

The opinion is available here.  SCOTUSblog.com has a page for the case here, which includes the opinion below, transcript of oral argument, and other materials.  

I had thought that we would present a Watch List program on this case, but the decision is pretty straight-forward, and there likely would not be tremendous interest in the program, so we are going to skip this one. Stay tuned for information on other Watch List programs.  

Standard Fire Insurance Co. v. Knowles: SCOTUS Hears CAFA Jurisdiction Matter

The Supreme Court yesterday heard oral argument in The Standard Fire Insurance Co. v. Knowles (Case No. 11-1450), which raises the following issue: 

Whether, after Smith v. Bayer [564 U.S. ---, 131 S.Ct. 2368 (2011), discussed here] when a named plaintiff attempts to defeat a defendant’s right of removal under the Class Action Fairness Act of 2005 by filing with a class action complaint a “stipulation” that attempts to limit the damages he “seeks” for the absent putative class members to less than the $5 million threshold for federal jurisdiction, and the defendant establishes that the actual amount in controversy, absent the “stipulation,” exceeds $5 million, the “stipulation” is binding on absent class members so as to destroy federal jurisdiction.

The Supreme Court's web site for Standard Fire is here. SCOTUSblog has an interesting article here -- written in advance of the argument. The oral argument transcript is here.  

The State Bar of California's Labor and Employment Law Section will present a webinar on Standard Fire within a week or two of the Supreme Court issuing its decision. Stay tuned here for more information.  

The Standard Fire Insurance Co. v. Knowles: SCOTUS Will Decide Whether Plaintiff May Destroy CAFA Jurisdiction By Stipulating to Seek Less Then $5 Million

On August 31, 2012, the Supreme Court of the United States granted a petition for writ of certiorari in The Standard Fire Insurance Co. v. Knowles (Case No. 11-1450) to decide the following issue:

Whether, after Smith v. Bayer [564 U.S. ---, 131 S.Ct. 2368 (2011), discussed here] when a named plaintiff attempts to defeat a defendant’s right of removal under the Class Action Fairness Act of 2005 by filing with a class action complaint a “stipulation” that attempts to limit the damages he “seeks” for the absent putative class members to less than the $5 million threshold for federal jurisdiction, and the defendant establishes that the actual amount in controversy, absent the “stipulation,” exceeds $5 million, the “stipulation” is binding on absent class members so as to destroy federal jurisdiction.

The Supreme Court's web site for Standard Fire is here. I have added it to our Watch List.

State of Nevada v. Bank of America: Ninth Circuit Holds that State Enforcement Action is Not Removable as Class Action under CAFA

I don't have much to say about this case, but  I did want to note it because I have not been seeing a lot of CAFA cases lately. It seems like it's been 24/7 arbitration and class action waivers.  

Anyway, the case is State of Nevada v. Bank of America (9th Cir. 3/2/12) 672 F.3d 661, and here is the Court's summary:

The State of Nevada, through its Attorney General, Catherine Cortez Masto, filed this parens patriae lawsuit against Bank of America Corporation and several related entities (collectively, “Bank of America”) in Clark County District Court. Nevada alleges that Bank of America misled Nevada consumers about the terms and operation of its home mortgage modification and foreclosure processes, in violation of the Nevada Deceptive Trade Practices Act, Nev. Rev. Stat. §§ 598.0903-0999. Nevada also alleges that Bank of America violated an existing consent judgment (“Consent Judgment”) in a prior case between Nevada and several of Bank of America’s subsidiaries, entered in Clark County District Court.

Bank of America removed this action to federal district court, asserting federal subject matter jurisdiction as either a “class action” or “mass action” under the Class Action Fairness Act (“CAFA”), 28 U.S.C. § 1332(d), and as arising under federal law, 28 U.S.C. § 1331. Denying Nevada’s motion to remand, the federal district court concluded that it has jurisdiction over this action as a CAFA “class action,” but not as a “mass action,” and that it also has federal question jurisdiction because resolving the state claims will require an interpretation of federal law.

We granted Nevada’s request for leave to appeal the district court’s denial of its motion to remand pursuant to 28 U.S.C. § 1453(c)(1). We conclude that because parens patriae actions are not removable under CAFA, and the action does not otherwise satisfy CAFA’s “mass action” requirements, the district court lacks jurisdiction under CAFA. We also exercise our interlocutory appellate jurisdiction under 28 U.S.C. § 1453(c) to review the district court’s determination that it has federal question jurisdiction because the complaint references the federal Home Affordable Mortgage Program and the Fair Debt Collection Practices Act. We conclude that the district court lacks federal question jurisdiction. Because there is no basis for federal subject matter jurisdiction, this case must be remanded to Nevada state court.

672 F.3d at 664-665.  The case is available here. 

Prieto v. US Bank: District Court Denies Motion for Summary Judgment on Prior Class Action Res Judicata Grounds

Thank you to Christian Schreiber for providing this decision.

In Prieto v. U.S. Bank, 2011 WL 2181459 (E.D. Cal. 6/2/11), the District Court for the Eastern District of California (Judge Kimberly J. Mueller) held, on a defendant's motion for summary judgment, that a wage and hour class action settlement on behalf of hourly employees does not prevent an action by an employee who alleges that the defendant misclassified her as exempt during part of her employment. That sounds more confusing than it is. Here are the facts:

Dolores Prieto worked for U.S. Bank in both non-exempt and exempt positions. She filed an action alleging that U.S. Bank misclassified her as exempt and thereby violated California and federal wage and hour laws. U.S. Bank settled a separate class action (Ross) on behalf of non-exempt employees. The settlement included a broad release of claims under California and federal law. Ms. Prieto was a member of the Ross settlement class for the time when she worked as a non-exempt employee. U.S. Bank moved for summary judgment, arguing that the Ross settlement barred Ms. Prieto's action.

The Court denied U.S. Bank's motion. First, relying on California law, the Court held that Ms. Prieto's claims were not barred by the doctrine of release because Ms. Prieto did not sign a release in the Ross action. Then the Court held:

Even if the court construes the settlement provisions of the Ross class action as a release, there are material issues of fact as to its scope.... [T]he agreement in this case must be read in its context: it was negotiated by hourly employees on behalf of other hourly employees, as defined by the two classes. Defendant has pointed to nothing beyond the language of the agreement itself suggesting that the named class members had any authority to negotiate a settlement on behalf of non-exempt employees.

Slip op. at 12. The Court then held that res judicata also did not bar Ms. Prieto's action:

Plaintiff does not dispute the fact that there was a final judgment in the Ross case, but argues that the instant cause of action is different than that litigated in Ross. Defendant insists that the same primary right is involved: the right to be compensated for earned overtime and for meal and rest periods that were denied. ECF No. 44 at 14. To resolve this dispute, the court “must compare the two actions, looking at the rights which are sought to be vindicated and the harm for which redress is claimed.” Citizens for Open Access to Sand and Tide, Inc. v. Seadrift Association, 60 Cal.App.4th 1053, 1067 (1998).

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There is much overlap in the two actions, starting with the similarity of the facts and the Labor Code violations presented through the requests for payment of lost wages. In the case proceeding in this court, however, the harm flowed from defendant’s alleged misclassification of plaintiff and could have occurred even if it honored all its obligations concerning meal and rest periods and off the clock work to hourly employees; in Ross, the harm flowed from defendant’s refusal to pay hourly employees’ wages due under the provisions of the Labor Code. The harm in the instant case is the misclassification, which led to the alleged failure to pay, while the harm in Ross was the failure to pay. Because the actions involve different primary rights, res judicata does not bar the instant suit.

Slip op. at 14-15.

Coleman v. Estes Express Lines: Ninth Circuit Gives Guidelines for Discretionary Appeals of CAFA Issues

In Coleman v. Estes Express Lines, --- F.3d ----, 2010 WL 4925407 (9th Cir. November 30, 2010), the Ninth Circuit addressed an issue that seems to have grown in prominence over just the last month, as the Court has issued a number of Class Action Fairness Act (CAFA) remand cases.

The plaintiff filed a putative class action in state court, and the defendants removed. The district court remanded the case as a "local controversy," and defendant appealed. The Ninth Circuit used the case as an opportunity to articulate rules for determining when it is appropriate to hear a discretionary appeal under CAFA.

The Court adopted guidelines set forth by the First Circuit and adopted by the Tenth Circuit:

In Dental Surgeons, the First Circuit held that a key factor in determining whether to accept an appeal is “the presence of an important CAFA-related question” in the case. Coll. of Dental Surgeons, 585 F.3d at 38. Because discretion to hear appeals exists in part to develop a body of appellate law interpreting CAFA, “[t]he presence of a non-CAFA issue (even an important one) is generally not thought to be entitled to the same weight.” Id. If the CAFA-related question is unsettled, immediate appeal is more likely to be appropriate, particularly when the question “appears to be either incorrectly decided [by the court below] or at least fairly debatable.” Id.
The First Circuit also enumerated several case-specific factors, including the importance of the CAFA-related question to the case at hand and the likelihood that the question will “evade effective review if left for consideration only after final judgment.” Id. The appellate court should also consider whether the record is sufficiently developed and the order sufficiently final to permit “intelligent review.” Id. Finally, the First Circuit observed that the court should conduct the familiar inquiry into the balance of the harms. Id. at 39.
The First Circuit explained, and we agree, that whether to permit appeal under 28 U.S.C. § 1453(c)(1) is ultimately “committed to the informed discretion” of the appellate court. Id. The foregoing criteria are guides, not a series of bright-line rules.

Slip op. at 3. Having adopted these guidelines, the Court granted the application for leave to appeal:

Although the local controversy exception to CAFA jurisdiction is “narrow,” it is nonetheless an enumerated exception to a federal court's CAFA removal jurisdiction. It is intended to “identify ... a controversy that uniquely affects a particular locality” and to ensure that it is decided by a state rather than a federal court. See Evans v. Walter Indus., Inc., 449 F.3d 1159, 1163-64 (11th Cir.2006) (internal quotation marks and citation omitted). The question whether the district court must rely only on the pleadings or should look to extrinsic evidence will often determine whether a case will be remanded under the local controversy exception. This case thus raises an important issue of CAFA law. As the district court recognized, this is an unsettled question in this Circuit. We do not say that district court's decision “appears to be incorrectly decided,” but the array of courts on both sides of the question indicates that it is at least “fairly debatable” and that appellate review would be useful.

Ibid. The opinion is available here.

Rhoades v. Progressive Casualty: Ninth Circuit Reverses CAFA Remand

In an unpublished opinion, the Ninth Circuit Court of Appeals in Rhoades v. Progressive Casualty Ins. Co. (Case No. 10-17129, 9th Cir., November 23, 2010) reversed a district court order remanding a wage and hour class action to state court after the district court found that the defendant failed to carry its burden under the Class Action Fairness Act (CAFA) of showing that the amount in controversy exceeded $5 million. The Court held:

Under CAFA, as in other diversity cases, “the party asserting federal jurisdiction has the burden of showing the case meets the statutory requirements for the exercise of federal jurisdiction and therefore belongs in federal court.” Lewis v. Verizon Communications, Inc., __ F.3d ___, 2010 WL 4645465, 4 (9th Cir. 2010). However, “‘[o]nce the proponent of federal jurisdiction has explained plausibly how the stakes exceed $5 million, . . . then the case belongs in federal court unless it is legally impossible for the plaintiff to recover that much.’” Id. (quoting Spivey v. Vertrue, Inc., 528 F.3d 982, 986 (7th Cir. 2008). In assessing whether the defendant has established that the amount in controversy exceeds $5 million, “we expressly contemplate the district court's consideration of some evidentiary record.” Id.

Slip op. at 2. Without discussion, the Court held that the defendant met its burden, and the plaintiff failed to demonstrate that it was "legally impossible" for them to recover $5 million. Slip op. at 3.

Judge Ikuta dissented, noting that Progressive removed the case for a second time after the remand order at issue, the District Court remanded the case for a second time, and Progressive failed to appeal from the second removal order, making its appeal from the first removal order moot. Slip op. at 5-6.