Class Action Defense Cases–Greenwich v. Countrywide: New York Federal Court Remands Class Action To State Court Holding Class Action Complaint Fell Within Exception To CAFA (Class Action Fairness Act) Removal

Class Action Complaint Satisfied Amount in Controversy and Minimal Diversity Requirements for Removal under Class Action Fairness Act (CAFA), but Remand Warranted because Plaintiffs Met Burden of Establishing Exception to Removal Jurisdiction in that Class Action Related Solely to Securities New York Federal Court Holds

Plaintiffs, the holders of mortgage-backed securities certificates issued by various trusts, filed a putative class action in New York state court against various Countrywide entities seeking declaratory relief; specifically, the class action complaint alleged inter alia that Countrywide violated the federal Truth-in-Lending Act (TILA). Greenwich Fin. Servs. Distressed Mtg. Fund 3, LLC v. Countrywide Fin. Corp., ___ F.Supp.2d ___ (S.D.N.Y. August 18, 2009) [Slip Opn., at 1-2]. According to the allegations underlying the class action complaint, the Attorneys General for 7 states sued Countrywide in 2008 alleging violations of predatory lending laws; Countrywide settled those lawsuits with “a multistate settlement, requiring it to modify the terms of numerous mortgage loans that it currently services – including at least some of the loans it services on behalf of plaintiffs.” _Id._, at 2-3. Plaintiffs argued that the loan modifications caused them to suffer monetary damage, and that Countrywide was required to repurchase the loans that it modified “at a price equal to the unpaid principal and accrued interest thereon” in order to make plaintiffs whole. _Id._, at 2-3. Defense attorneys removed the class action to federal court; Countrywide argued that removal was proper under the Class Action Fairness Act of 2005 (CAFA), and further argued that the class action was removable “because plaintiffs’ claims raise substantial, disputed federal questions under the Truth-in-Lending Act [(TILA)],” _id._, at 1. Plaintiffs moved to remand the class action to state court. _Id._ The district court held that neither CAFA nor TILA provided subject-matter jurisdiction over the dispute and remanded the class action as requested.

The district court first examined whether removal jurisdiction existed under CAFA, which authorizes removal of class actions where the amount in controversy exceeds $5 million and where minimal diversity exists. Greenwich, at 4. (A more detailed discussion of CAFA may be found HERE.) Plaintiffs conceded that the requirements for removal had been met, but countered that their class action fell within an exception to removal – viz., a class action that “solely involves a claim…that relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security.” Id. (quoting 28 U.S.C. § 1332(d)(9)(C)). The burden of establishing that the exception applied rests with plaintiffs, id. Relying on the Second Circuit decision in Estate of Barbara Pew v. Cardarelli, 527 F.3d 25 (2d Cir. 2008), the district court held that the class action fell squarely within the scope of the exception to CAFA removal jurisdiction, see Greenwich, at 4-8, and rejected Countrywide’s arguments to the contrary, see id., at 8-11.

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CAFA Class Action Defense Cases–Thomas v. Bank of America: Eleventh Circuit Affirms Remand Of Class Action To State Court Holding Evidence Insufficient Of Amount In Controversy Under Class Action Fairness Act

Class Action Improperly Removed to Federal Court under Class Action Fairness Act (CAFA) because Defendant Failed to Adequately Establish that the $5 Million Amount in Controversy Requirement Eleventh Circuit Holds Plaintiff filed a class action in Georgia state court against Bank of America and its wholly-owned subsidiary FIA Card Services (collectively “BofA”) alleging insurance fraud, unfair and deceptive acts, bad faith, and violations of the state’s Racketeer Influenced and Corrupt Organizations Act (RICO); the class action complaint was premised on the allegation that BofA “[sold] a bundled insurance product, known as Credit Protection Plus, to ineligible individuals.

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CAFA Class Action Defense Cases–Marshall v. H & R Block: Seventh Circuit Reverses Remand Of Class Action To State Court Holding Potential Increase In Liability Rendered Class Action Removable Under CAFA

District Court Erred in Remanding Class Action to State Court because Decertification Order and Dismissal of Co-Defendants Substantially Increased Remaining Defendant’s Liability such that Amended Class Action Complaint did not “Relate Back” to Original Class Action Complaint, Rendering Class Action Removable under Class Action Fairness Act of 2005 (CAFA) Seventh Circuit Holds Plaintiff filed a putative class action in Illinois state court against various H & R Block companies alleging violations of the state’s Consumer Fraud Act; the class action complaint alleged that defendants “had used deceptive practices to sell ‘Peace of Mind’ insurance against mistakes by H & R Block that increased customers’ tax liabilities.

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CAFA Class Action Defense Cases–Rynearson v. Motricity: Washington Federal Court Remands Class Action Complaint To State Court Holding Defense Failed To Establish Amount In Controversy Under CAFA

Motion to Remand Class Action to State Court Granted because $5 Million Amount in Controversy Required by Class Action Fairness Act (CAFA) not Established because “Cost” of Complying with Possible Injunction not Sufficient to Support Removal Jurisdiction Washington Federal Court Holds Plaintiff, a citizen of Florida, filed a class action in Washington state court against Motricity, a Delaware corporation with its principle place of business in Washington; the class action complaint alleged that Motricity, which “represents providers of mobile content in dealing with wireless carriers whose networks and billing services the providers use” and “receives a fee per content transaction billed to cellular telephone users,” violated the Washington Consumer Protection Act by “placing unauthorized charges for mobile content on customers’ bills.

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CAFA Class Action Defense Cases–In re Hannaford Bros.: First Circuit Affirms Remand Of Class Action Holding Home State Exception To CAFA (Class Action Fairness Act) Jurisdiction Applies

Class Action on Behalf of Florida Citizens Against Florida Corporation, Removed to Federal Court under Class Action Fairness Act (CAFA), Properly Remanded to State Court because Home State Exception to CAFA Jurisdiction Applies First Circuit Holds

Plaintiff filed a class action in Florida state court against Kash N’ Karry Food Stores (a chain of grocery stores in Florida) alleging “alleging that Kash N’ Karry had failed to adopt adequate security measures to protect its customers’ credit card information.” In re Hannaford Bros. Co. Customer Data Security Breach Litig., 564 F.3d 75 (1st Cir. 2009) [Slip Opn., at 3]. According to the allegations underlying the class action, a computer hacker stole from defendant the credit and debit card information of approximately 1.6 million Kash N’ Karry customers, and limited the class action’s definition to Florida residents, id., at 3-4. Defense attorneys removed the class action to federal court under the Class Action Fairness Act of 2005 (CAFA), and the Judicial Panel on Multidistrict Litigation coordinated plaintiff’s class action for pretrial purposes with two dozen other class actions in the District of Maine. Id., at 4. The other 24 class actions had been filed against entities that were related to Kash N’ Karry; specifically, its sister corporation Hannaford Brothers, and their common parent company, Delhaize America. Id. Plaintiff moved to remand his class action to state court under the home state exception to CAFA jurisdiction; the district court granted plaintiff’s motion and the First Circuit gave defendant leave to appeal. Id. The Circuit Court stated that this case “presents an issue of first impression for this circuit regarding the application of the home state exception to federal jurisdiction under [CAFA].” Id., at 2. Defense attorneys argued that the class action complaint had been drafted to defeat CAFA jurisdiction “in violation of congressional intent”; plaintiff responded that the home state exception to CAFA jurisdiction applied and, accordingly, that the district court order remanding the class action to state court was correct. Id. The Circuit Court affirmed the remand of the class action to state court, holding that the class action complaint fell squarely within the home state exception to CAFA jurisdiction.

CAFA’s home state exception “requires a federal court to decline to exercise jurisdiction if at least two-thirds of the members of all proposed plaintiff classes in the aggregate and the primary defendants are citizens of the state where the action was originally filed.” In re Hannaford, at 2 (citing 28 U.S.C. § 1332(d)(4)(B)). The First Circuit observed that plaintiff’s class action complaint limits the scope of the class to Florida citizens, and is brought against a single corporation, Kash N’ Karry, which also is a Florida citizen. Id. The district court remanded the class action to state court on the basis of the home state exception, and the Circuit Court affirmed, rejecting defense attorney claims that “the application of CAFA’s home state exception depends on a broader assessment of the claims brought by others who do not fall within the complaint’s class definition or of the claims available to the class against other possible defendants.” Id.

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CAFA Class Action Defense Cases–Katz v. Gerardi: Seventh Circuit Reverses Order Remanding Class Action To State Court Holding Class Action Fairness Act May Trump Securities Act Of 1933

District Court Erred in Remanding Securities Class Action to State Court because Evidentiary Hearing Required to Determine Whether Section 22(a) of Securities Act Precluded Removal of Class Action to Federal Court Pursuant to CAFA (Class Action Fairness Act) Complaint Seventh Circuit Holds

Plaintiff filed a putative class action in state court against various defendants purportedly on behalf of “a class of persons who contributed real property (or interests in real property) to the Archstone real estate investment trust, in exchange for interests called ‘A-1 Units’”; the class action complaint asserted that defendants violated federal securities laws. Katz v. Gerardi, 552 F.3d 558, 559 (7th Cir. 2009). According to the allegations underlying the class action, “In 2007 Archstone merged into Tishman-Lehman Partnership. Holders of A-1 Units were offered a choice of cash or Series O Preferred Units in the entity formed by the merger. [Plaintiff] contends that the merger violated the terms of the A-1 Units, because neither cash nor the Series O Preferred Units offered investors the same tax benefits as A-1 Units.” Id. Defense attorneys removed the class action to federal court pursuant to the Class Action Fairness Act of 2005 (CAFA), id. The district court remanded the class action to state court on the grounds that the Securities Act of 1933 prohibited removal, id., at 560. The Seventh Circuit granted defendants’ application for permission to appeal and reversed the district court’s remand order.

The Circuit Court began its analysis by observing, “One might suppose that a statute enacted in 2005 supersedes a statute enacted in 1933, but the district court held that § 22(a) [of the Securities Act of 1933] controls because it is ‘more specific’ than the 2005 Act – for § 22(a) deals only with securities litigation, while the 2005 Act covers class actions in many substantive fields.” Katz, at 560. The Seventh Circuit also noted that “[o]nly purchasers of securities may pursue actions under the 1933 Act,” id. (citation omitted). But the district court found it sufficient that the class action complaint “invokes the Securities Act of 1933,” which, in the district court’s view, was alone sufficient to preclude removal.” Id. The Seventh Circuit disagreed: “It is hard to distinguish between a claim artfully designed to defeat federal jurisdiction and one that is properly pleaded but unsuccessful on the merits, but it cannot be right to say that a pleader’s choice of language always defeats removal.” Id. Based on the Circuit Court’s analysis, “Section 22(a) and the 2005 Act are incompatible; one or the other must yield,” id., at 561, and further that § 22(a) did not “insulate” the class action’s alleged claims under the Securities Act from removal under CAFA. See id., at 561-63.

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CAFA Class Action Defense Cases–Dennison v. Carolina Payday Loans: Fourth Circuit Affirms Remand Of Class Action To State Court Holding Class Action Fairness Act (CAFA) Minimal Diversity Not Established

Class Action Properly Remanded to State Court because under CAFA (Class Action Fairness Act) Defendant is Citizen of Both State of Incorporation and State of Principal Place of Business, and CAFA does not Permit Defendant to Choose State of Citizenship to Satisfy Minimal Diversity for Removal Jurisdiction Fourth Circuit Holds

Plaintiff filed a class action in South Carolina state court against Carolina Payday Loans alleging violations of state law in “payday loans” that were allegedly unconscionable; plaintiff was a South Carolina citizen, and brought the putative class action complaint on behalf of herself and other South Carolina citizens. Dennison v. Carolina Payday Loans, Inc., 549 F.3d 941, 942 (4th Cir. 2008). Defense attorneys removed the class action to federal court asserting removal jurisdiction under the Class Action Fairness Act (CAFA); the defense argued minimal diversity had been met because Carolina Payday “is a citizen of Georgia, where it claims it has its principal place of business, even though it is also a citizen of South Carolina, where it is incorporated,” or because some members of the putative class may have moved out of state. Id. The district court granted plaintiff’s motion to remand the class action to state court because Carolina Payday and the putative class members were citizens of South Carolina. Id. The district court additionally found that the class action “fell within the ‘home-state exception’ to CAFA jurisdiction set forth in 28 U.S.C. § 1332(d)(4) because in a class limited by definition to ‘citizens of South Carolina,’ at least two-thirds of the class members necessarily are citizens of South Carolina.” Id. The Fourth Circuit granted defendant’s request for permission to appeal the remand order, and affirmed.

The Circuit Court found this case to be “substantively identical” to Johnson v. Advance America, Cash Advance Centers of South Carolina, Inc., 549 F.3d 932 (4th Cir. 2008). Dennison, at 942. Because the class action complaint expressly defined the putative class “to include only citizens of South Carolina,” defense counsel’s speculation that class members may have moved out of state was inaccurate. Id. The Fourth Circuit first held that a class defined as “all citizens of South Carolina” is indistinguishable from a class defined as “citizens of South Carolina who are domiciled in South Carolina” because “an individual must be domiciled in a State in order to be a citizen of that State.” Id., at 942-43 (citations omitted). Accordingly, the class action complaint properly limited the scope of the class to South Carolina residents/citizens. Id., at 943. The Court therefore found irrelevant Carolina Payday’s evidence that some of its South Carolina borrowers were now citizens of other states because class membership was limited to “citizen[s] of South Carolina at the time the complaint was filed.” Id. The Fourth Circuit also found unpersuasive the defense argument that because Carolina Payday has its principal place of business in Georgia, it is allowed to rely on its Georgia citizenship to establish minimal diversity under CAFA. See id., at 943-44. The Circuit Court explained at page 944 that CAFA “does not give greater weight to a corporation’s principal place of business than to its place of incorporation” and that, accordingly, for purposes of establishing diversity under CAFA “Carolina Payday is a citizen of both South Carolina, its State of incorporation, and Georgia, assuming it is able to demonstrate that its principal place of business is in Georgia.” The Fourth Circuit therefore affirmed the district court order remanding the class action to state court, id., at 944.

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CAFA Class Action Defense Cases–McLoughlin v. People’s United: Connecticut Federal Court Denies Motion To Remand Class Action To State Court Holding Removal Jurisdiction Exists Under Class Action Fairness Act (CAFA)

Class Action Properly Removed to Federal Court under CAFA (Class Action Fairness Act of 2005) because Defendants Established by Preponderance of the Evidence that Class Action Placed more than $5 Million in Controversy Connecticut Federal Court Holds Plaintiffs filed a class action in Connecticut state court against Bank of New York Mellon (“Mellon”) and People’s United Bank (“Bank”) alleging negligence, invasion of privacy, breach of fiduciary duty, and violations of Connecticut’s Unfair Trade Practices Act (CUTPA); the class action complaint asserted that Mellon lost electronic data belong to Bank customers.

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CAFA Class Action Defense Cases–Ava Acupuncture v. State Farm: New York Federal Court Denies Motion To Remand Class Action To State Court Holding “Reasonably Probable” $5,000,000 Was At Stake And Plaintiffs Failed To Establish Local Controversy Exception

Class Action Properly Removed to Federal Court under CAFA (Class Action Fairness Act) because State Farm Declaration Established “Reasonable Probability” that Amount in Controversy Exceeded $5 Million and Plaintiffs Failed to Establish Relief Sought Against “Significant” Local Defendant New York Federal Court Holds

Plaintiffs, medical providers who had “been assigned No-Fault medical reimbursement claims by eligible injured persons (‘EIPs’),” filed a class action in New York state court against various defendants, including State Farm, alleging “that defendant insurers have fraudulently failed to pay statutorily mandated medical benefits under New York’s No-Fault Insurance Law” and that, together with “their legal counsel and special investigation units (‘SIUs’),” violated various New York state laws. Ava Acupuncture P.C. v. State Farm Mutual Auto. Ins. Co., ___ F.Supp.2d ___, 2008 WL 5170186, *1 (S.D.N.Y. December 9, 2008). According to the allegations underlying the class action, the defendants engaged in “harassing, abusive verification and litigation tactics” and used “preset numeric targets to limit claim payouts,” and allegedly bribed individuals at the Suffolk County District Attorney’s office. _Id._ Defense attorneys for State Farm and two other defendants removed the class action to federal court, asserting removal jurisdiction existed under the Class Action Fairness Act of 2005 (CAFA), _id._ In response, plaintiffs voluntarily dismissed their class action claims against the two other removing defendants, leaving State Farm as “the only remaining removing defendant,” and then filed a motion to remand the class action back to state court. _Id._ The district court denied the motion.

Plaintiffs argued that the class action should be remanded to state court for two reasons: (1) because State Farm failed to establish that the amount in controversy exceeded $5,000,000, and (2) because the class action falls within the scope of CAFA’s “local controversy” exception. Ava Acupuncture, at *1. After summarizing New York’s no-fault insurance law and federal subject matter jurisdiction requirements of CAFA, see id., at *2, as well as the general rules for calculating the amount in controversy and summarizing the “local controversy” exception to CAFA removal jurisdiction and the burden of the party opposing removal to establish the applicability of exceptions to CAFA removal, see id., at *3, the district court turned to whether the removing parties had met their burden of establishing federal court jurisdiction within a “reasonable probability,” id., at *2. While the class action complaint outlined damages “in only the most general terms, indicating that the exact number of class members will be ascertained through discovery and review of defendants’ records.,” and while the class action failed to “plac[e] a value on the object of the litigation,” the complaint did allege that “thousands” of individuals would be covered by the class action and attacked every denial of insurance coverage by State Farm over a 6-year period. Id., at *4. To meet its burden, State Farm submitted as evidence a declaration stating that “over the last six years State Farm has denied $40,265,558 worth of claims arising out of investigations conducted by its SIU investigators” and that “the amount of unpaid denied claims since 2003 far exceeds $5,000,000.” Id. The district court rejected plaintiffs’ objections to this declaration and concluded that the $5 million threshold was “easily” met. Id., at *4-*5. The federal court therefore turned to the local controversy exception.

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CAFA Class Action Defense Cases–Johnson v. Advance America: Fourth Circuit Affirms Remand Of Class Action Against Payday Lender To State Court Because Minimal Diversity Under Class Action Fairness Act (CAFA) Not Met

District Court Properly Remanded Class Action to State Court because under Class Action Fairness Act (CAFA) a Defendant is Citizen of Both its State of Incorporation and the State where it has its Principal Place of Business Fourth Circuit Holds

Plaintiffs filed a class action against Advance America in South Carolina state court alleging labor law violations; alleging violations of state law in “payday loans” that were allegedly unconscionable and failed to meet the state law requirement for good faith and fair dealing; plaintiffs were South Carolina citizens, and brought the putative class action complaint on behalf of themselves and other South Carolina citizens. Johnson v. Advance America, 549 F.3d 932, 933 (4th Cir. 2008). Advance America removed the class action to federal court asserting removal jurisdiction under the Class Action Fairness Act (CAFA); defense attorneys asserted that minimal diversity existed because, even though it had its principal place of business in South Carolina, it was a Delaware corporation. Id. The defense argued also that minimal diversity existed because some class members may have moved out of state, id. The district court granted plaintiff’s motion to remand the class action to state court because Advance America and the putative class members were citizens of South Carolina. Id. The district court found also that the class action “fell within the ‘home-state exception’ to CAFA jurisdiction set forth in 28 U.S.C. § 1332(d)(4) because in a class limited by definition to ‘citizens of South Carolina,’ at least two-thirds of the class members necessarily are citizens of South Carolina.” Id. The Fourth Circuit granted defendant’s request for permission to appeal the remand order and affirmed.

The Circuit Court explained that despite the fact that Advance America was a citizen of Delaware, it was also a citizen of South Carolina. Johnson, at 934. Because the class action defined the class “to include only citizens of South Carolina, thus excluding persons who may have moved from South Carolina and established citizenship elsewhere at the time the action was commenced,” minimal diversity under CAFA had not been established. Id. Specifically, plaintiffs’ class action defined three proposed subclasses limited to “[a]ll citizens of South Carolina who are domiciled in South Carolina” or “[a]ll citizens of South Carolina,” id. The district court granted plaintiffs’ motion to remand both because minimal diversity had not been satisfied and because of the home-state exception. Id., at 934-35.

In broad terms, the Class Action Fairness Act permits removal of class actions if, inter alia, the citizenship of a single defendant is diverse from the citizenship of a single member of the class, and the defendant, as the removing party, bears the burden of establishing federal court jurisdiction. See Johnson, at 935. The Fourth Circuit first held that the fact Advance America has “dual citizenship” does not mean that it may select the citizenship of a diverse state to establish removal jurisdiction under CAFA: in short, Advance America has dual citizenship, not alternative citizenship, and it may not “rely on only one citizenship where its other citizenship would destroy federal jurisdiction.” Id., at 935-36. Further, the Circuit Court rejected defense efforts to create diversity among the plaintiffs, holding that the definitions of the proposed classes were limited to individuals who resided in South Carolina, not to former South Carolina citizens who had moved out of state. See id., at 936-37. The Court noted, “To be a citizen of a State, a person must be both a citizen of the United States and a domiciliary of that State.” Id., at 937 n.2 (citing Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 828 (1989)). The fact certain Advance America customers may indeed have moved out of state was irrelevant for purposes of removal: “as the maters of their complaint, [plaintiffs] can choose to circumscribe their class definition” so as to exclude such persons and preclude removal. Id., at 937 (citations omitted). Accordingly, the defense failed to establish minimal diversity and the district court did not err in remanding the class action to state court. Id., at 937-38. (The Fourth Circuit found it unnecessary to reach the home-state exception argument, but noted “as a matter of logic, that if the class is limited to citizens of South Carolina, it could hardly be claimed that two-thirds of the class members were not citizens of South Carolina.” Id., at 938.)

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