CAFA Class Action Defense Cases–In re Burlington Northern: Seventh Circuit Reverses Remand Of Former Class Action Holding Jurisdiction Under Class Action Fairness Act (CAFA) Determined At Time Of Removal Not After Amendment Of Complaint To Eliminate

Following Removal of Class Action to Federal Court under CAFA (Class Action Fairness Act), Plaintiffs Decision to Amend Complaint to Eliminate Class Action Allegations did not Destroy Federal Court Jurisdiction because Jurisdiction is Determined at Time of Removal and is not Affected by Subsequent Events Seventh Circuit Holds

Plaintiffs filed a putative class action in Wisconsin state court against Burlington Northern Santa Fe Railway Company and Burlington Northern Santa Fe Corporation alleging that defendants’ “failure to inspect and maintain a railroad trestle caused the town to flood in July 2007, damaging their property.” In re Burlington Northern Santa Fe Railway Co., 606 F.3d 379, 379-80 (7th Cir. 2010). Defense attorneys removed the class action to federal court under CAFA (Class Action Fairness Act); plaintiffs then amended the complaint to remove the class action allegations and the district court remanded the matter to state court on the ground that without the class action allegations federal court jurisdiction was lacking under CAFA. Id., at 379. Id. Defense attorneys sought leave to appeal the remand order; the Seventh Circuit granted the petition and reversed.

The Seventh Circuit noted that “the parties battled extensively over jurisdiction” in the district court. In re Burlington, at 380. Defense attorneys argued diversity jurisdiction existed because the joinder of the non-diverse individual employee defendants was fraudulent, but the district court found it to be tactical rather than fraudulent. Id. The district court agreed, however, that jurisdiction existed under CAFA, and denied plaintiffs’ first motion to remand. Id. Plaintiffs thereafter sought and obtained leave of court to amend the complaint to remove the class action allegations. Id. The federal court also considered the motion to amend to be “an implied motion to remand the case, which it granted.” Id. In the district court’s view, because the amended complaint did not contain any class action allegations, jurisdiction under CAFA no longer existed. Id.

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CAFA Class Action Defense Cases–Moffitt v. Residential Funding: Fourth Circuit Court Affirms District Court Order Denying Remand Of Class Actions Holding CAFA Jurisdiction Existed At Time Remand Motions Filed

Even if Defendants Removed Class Actions to Federal Court Prematurely, Subsequent Class Action Complaints Filed by Plaintiffs Prior to Filing Motion for Remand Established Federal Court Jurisdiction under Class Action Fairness Act (CAFA) so District Court did not Err in Denying Motion to Remand Class Actions to State Court Fourth Circuit Holds In 2003, three plaintiffs filed individual state court lawsuits against various defendants, including Residential Funding, “alleging violations of the Maryland Secondary Mortgage Loan Law.

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CAFA Class Action Defense Cases–Anderson v. Bayer: Seventh Circuit Court Holds Class Action Fairness Act (CAFA) Provision For “Mass Actions” Did Not Allow Federal Courts To Treat Separate Lawsuits As One Lawsuit To Meet 100 Plaintiff Threshold

“Mass Action” Provision in Class Action Fairness Act (CAFA), Extending Federal Court Jurisdiction to Lawsuits Involving at Least 100 Plaintiffs, did not Permit Federal Courts to Treat Multiple, “Virtually Identical Complaints” by Same Plaintiffs’ Counsel as a Single Lawsuit for Purposes of Determining Number of Plaintiffs Seventh Circuit Holds

Five separate but “mostly identical complaints” (not class actions) were filed against various Bayer entities in Illinois state court seeking damages for personal injuries allegedly caused by Bayer’s prescription drug Trasylol. Anderson v. Bayer Corp., ___ F.3d ___ (7th Cir. June 22, 2010) [Slip Opn., at 1, 3]. According to the “virtually identical” lawsuits, “plaintiffs (or their decedents) suffered injuries as a result of being administered Trasylol during heart surgery.” _Id._, at 3-4. Defense attorneys removed the lawsuits to federal court under the Class Action Fairness Act (CAFA), asserting that the lawsuits fell within CAFA’s “mass action” provision “which allows the removal of cases joining the claims of at least 100 plaintiffs that otherwise meet CAFA’s jurisdictional requirements.” _Id._, at 3. The district court remanded four of the five lawsuits on the ground that they involved less than 100 – it was, apparently, only by accident that the fifth lawsuit named precisely 100 plaintiffs. _Id._ Bayer asked the Seventh Circuit for permission to appeal the remand order; defense attorneys argued that the Circuit Court should “hold that (1) plaintiffs cannot avoid federal diversity jurisdiction by carving their filings into five separate pleadings, and (2) there is diversity jurisdiction over most plaintiff’s claims because the claims of the small number of non-diverse plaintiffs were fraudulently misjoined and should be severed.” _Id._ The Circuit Court rejected the appeal because it agreed with the district court that the lawsuits fell outside the scope of CAFA’s “mass action” provision because they involved fewer than 100 plaintiffs; accordingly, the Court held that it was without jurisdiction to reach the second issue advanced by Bayer. _Id._

Plaintiffs’ counsel originally filed “four virtually identical complaints, using verbatim language,” in Illinois state court “on behalf of 57 unrelated plaintiffs.” Anderson, at 3-4. Defense attorneys removed the lawsuits to federal court on grounds of diversity, arguing that the non-diverse plaintiffs had been joined fraudulently to defeat diversity jurisdiction. Id., at 4. The federal court remanded the complaint to state court sua sponte. Id. On remand, plaintiffs’ counsel amended the lawsuits to add another 111 plaintiffs, distributed across the four complaints and bringing the total number of plaintiffs in one of those lawsuits to 100; plaintiffs’ counsel also filed a fifth lawsuit. Id. Bayer again removed the lawsuits to federal court on the ground that the five separate complaints “should be treated as a single mass action,” id. The lawsuits were again remanded to state court and Bayer filed a petition seeking permission to appeal under the CAFA provision that “creates an exception for class actions to the general rule that remand orders are not reviewable.” Id. (citing 28 U.S.C. § 1447(d)).

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CAFA Class Action Defense Cases–Lincoln National Life v. Bezich: Seventh Circuit Court Dismisses Appeal For Lack Of Jurisdiction Holding Variable Life Insurance Policy Was A “Security” Within Meaning Of Exception To CAFA Jurisdiction

District Court Properly Remanded Class Action to State Court on Ground that Variable Life Insurance Policy Constituted a “Security” Within the Meaning of Exception to Federal Court Jurisdiction under CAFA (Class Action Fairness Act) Seventh Circuit Holds

Plaintiff filed a putative class action against the issuer of his life insurance policy, Lincoln National Life Insurance, alleging that it breached the terms of certain of its variable life insurance policies. Lincoln Nat’l Life Ins. Co. v. Bezich, ___ F.3d ___ (7th Cir. June 25, 2010) [Slip Opn., at 1]. According to the allegations underlying the class action complaint, “Each month, Lincoln deducts cost-of-insurance charges from the accounts of its policyholders…[that] are not determined based on expected mortality, as promised by the policy.” _Id._, at 1-2. Defense attorneys removed the class action to federal court, asserting jurisdiction under the Class Action Fairness Act (CAFA), _id._, at 2. However, the district court remanded the class action to state court on the ground that CAFA provides an exception for class actions “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 (as defined under section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. 77b(a)(1)) and the regulations issued thereunder).” _Id._ (citing § 1332(d)(9)(C)). Defendant filed a petition with the Seventh Circuit seeking permission to appeal the district court’s remand order. _Id._, at 1-2. Lincoln National Life argued “that its petition raises a ‘novel and important issue’ under CAFA: ‘whether contract claims grounded in the traditional insurance features of variable life insurance policies, as opposed to those related to their security features, qualify under the securities exception to CAFA.’” _Id._, at 2. Because the Seventh Circuit agreed with the district court’s conclusion that § 1332(d)(9)(C) required remand, it dismissed the appeal for lack of jurisdiction. _Id._

The Circuit Court explained that Lincoln allowed the holders of single variable life insurance policies to “allocate money between a General Account, which accumulates value from premium payments, and a Separate Account, an investment account whose value varies depending on the performance of the investments selected.” Bezich, at 2-3. The policyholder may place 100% of his or her funds in either the General or Separate Account, or may split the funds between the accounts in any percentage they desire. Id., at 3. “The Separate Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940,” id. (citation omitted). The class action challenges the insurance charges deducted from both the General and Separate Account based on the percentage of funds in each account. Id. Defense attorneys argued that the appeal should be accepted because “no court of appeals has ever considered the application of CAFA to this type of variable life insurance policy.” Id.

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CAFA Class Action Defense Cases–Cunningham Charter v. Learjet: Seventh Circuit Court Holds Class Action Removed To Federal Court Under CAFA Remains In Federal Court Following Denial Of Class Action Certification

In Case Removed to Federal Court under Class Action Fairness Act (CAFA), District Court Erred in Remanding Class Action Complaint to State Court Following Denial of Class Action Treatment because Jurisdiction is Generally Determined at Time Complaint is Filed and Class Action Allegations were not Frivolous Seventh Circuit Holds

Plaintiff filed a putative class action in Illinois state court against Learjet alleging breach of warranty and product liability claims; the class action complaint sought to represent all purchasers of Learjets “who had received the same warranty from the manufacturer that [plaintiff] had received.” Cunningham Charter Corp. v. Learjet, Inc., 592 F.3d 805 (7th Cir. 2010) [Slip Opn., at 1]. Defense attorneys removed the class action to federal court under CAFA (the Class Action Fairness Act of 2005), id., at 1-2. Plaintiff then moved the district court to certify two classes, but the court denied class action treatment “on the ground that neither proposed class satisfied the criteria for certification set forth in Rule 23.” Id., at 2. The federal court then ruled that the denial of the class action certification motion removed federal court jurisdiction under CAFA and remanded the complaint to state court. Id. Defendant petitioned the Seventh Circuit for leave to appeal the remand order; the Circuit Court granted the petition “to resolve an issue under the Class Action Fairness Act that this court has not heretofore had to resolve.” Id. The Circuit Court reversed.

The Seventh Circuit explained that CAFA creates federal court diversity jurisdiction in cases of minimal diversity; that is, “over certain class actions in which at least one member of the class is a citizen of a different state from any defendant (that is, in which diversity may not be complete).” Learjet, at 2. CAFA expressly applies “to any class action [within the Act’s scope] before or after the entry of a class certification order.” Id. (quoting § 1332(d)(8)). The Circuit Court explained that CAFA implies an “expectation” of class certification in that a district court should remand a putative class action to state court if “it would have been certain from the outset of the litigation that no class could be certified.” Id., at 3. On the other hand, “jurisdiction attaches when a suit is filed as a class action, and that invariably precedes certification.” Id. The Circuit Court concluded, therefore, “All that section 1332(d)(1)(C) means is that a suit filed as a class action cannot be maintained as one without an order certifying the class. That needn’t imply that unless the class is certified the court loses jurisdiction of the case.” Id.

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CAFA Class Action Defense Cases–Irish v. Burlington: Wisconsin Federal Court Reaffirms Order Remanding Class Action To State Court Holding Post-Removal Amendments Destroyed CAFA Removal Jurisdiction

Plaintiffs’ Amendment to Class Action Complaint Following Removal under Class Action Fairness Act (CAFA) Defeated CAFA Jurisdiction Warranting Remand of Lawsuit to State Court Wisconsin Federal Court Holds

Plaintiffs filed a putative class action in Wisconsin state court against various defendants seeking “damages resulting from a flash flood that inundated plaintiffs’ homes in the town of Bagley, Wisconsin in 2007.” Irish v. Burlington Northern Santa Fe Railway Co., 632 F.Supp.2d 871, 872 (W.D. Wis. 2009). Defense attorneys removed the class action to federal court on grounds of diversity even though two of the defendants shared Wisconsin citizenship with the plaintiffs, arguing that the Wisconsin-resident defendants were fraudulently joined to defeat diversity, and also asserting removal jurisdiction under the Class Action Fairness Act (CAFA). Id., at 872-83. “Plaintiffs’ moved to remand the case to state court, arguing that joinder was not fraudulent and that their suit was not subject to the Class Action Fairness Act.” Id., at 873. The district court determined that the joinder was not fraudulent but that CAFA removal jurisdiction existed, id. Plaintiffs sought and obtained leave to amend their class action complaint, “disavowing their class action allegations and seeking relief for only the named plaintiffs.” Id. The district court then remanded the class action to state court on the ground that it “no longer had subject matter jurisdiction under the Class Action Fairness Act.” Id. Defense attorneys moved the district court to reconsider its remand order, arguing that because CAFA jurisdiction existed at the time of removal, it could not be taken away by subsequent amendment “even if the case was no longer a class action.” Id. The district court granted reconsideration but again held that the case had to be remanded to state court.

As a preliminary procedural matter, the district court noted that defendants also filed a notice of appeal from the remand order with the Seventh Circuit. Irish, at 873. For reasons we do not discuss here, the district court concluded that it retained jurisdiction over the matter to reconsider its remand order. See id., at 873-74. Turning to the merits, the district court noted that the reconsideration motion was primarily directed at “[the] decision to remand the suit on the basis of a post-removal amendment of the complaint.” Id., at 874. The district court rejected the argument that “for the purpose of determining whether subject matter jurisdiction exists in a case removed from state court under [CAFA], the court is bound by the allegations of the original complaint and may not consider any later amendments.” Id., at 875. The court reaffirmed its holding that “the dismissal of plaintiff’s class action claims eliminated the ground for the court’s grant of diversity jurisdiction under the Class Action Fairness Act.” Id., at 876.

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Class Action Defense Cases–Rynearson v. Motricity: Washington Federal Court Again Remands Class Action To State Court Holding CAFA Jurisdiction Not Met And “Other Paper” Does Not Include Pleadings In Unrelated Action

Class Action Improperly Removed to Federal Court under CAFA (Class Action Fairness Act) because Declaration of Plaintiff’s Counsel in Unrelated Lawsuit Against Different Defendant was Insufficient to Establish $5 Million Amount in Controversy and, in Any Event, did not Constitute an “Other Paper” within Meaning of Removal Statute, Warranting Remand of Class Action and Award of Attorney Fees and Costs for Frivolous Removal Washington Federal Court Holds Plaintiff filed a putative class action in Washington state court against Motricity alleging violations of Washington’s Consumer Protection Act; specifically, the class action complaint alleged that defendant “facilitated placing unauthorized charges for mobile content on customers’ bills.

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Class Action Defense Cases–Brown v. JEVIC: Third Circuit Reverses Order Remanding Class Action To State Court Holding Class Action Properly Removed Under Class Action Fairness Act Despite Fact Co-Defendant Was In Bankruptcy

Class Action Filed in State Court Against Defendant and Co-Defendant Debtor in Bankruptcy Removable to Federal Court under CAFA (Class Action Fairness Act) because Co-Defendant Sued in Violation of Automatic Stay and because Co-Defendant’s Bankruptcy does not Preclude Defendant from Removing Class Action to Federal Court Third Circuit Holds

Plaintiffs filed a putative class action against JEVIC Transportation and its parent company, Sun Capital Partners, alleging labor law violations; specifically, the class action complaint alleged that defendants violated New Jersey’s WARN Act which, “[l]ike its federal counterpart, …requires advance notice of a plant closing under certain circumstances.” Brown v. JEVIC, 575 F.3d 322, 325 (3d Cir. 2009). JEVIC had filed for bankruptcy protection, and the class action was filed as an adversary proceeding in the United States Bankruptcy Court, id. One week later, and despite the automatic stay afforded by the bankruptcy proceeding, plaintiffs filed a class action in New Jersey state court against JEVIC and Sun Capital Partners. Id. Defense attorneys for JEVIC removed the state court class action to federal court under the Class Action Fairness Act (CAFA); the district court remanded the class action sua sponte on the grounds that the automatic stay precluded the debtor’s petition for removal. Id. Defense attorneys for Sun Capital then removed the state court class action to federal court under CAFA; the district court again remanded the class action, ruling that “[w]hen an action is initiated after the filing of a Chapter 11 petition, in violation of the accompanying stay, removal is not available.” Id., at 325-26. The Third Circuit granted Sun Capital’s petition for leave to appeal the remand order, id., at 326. The Circuit Court explained at page 325, “In this appeal implicating the Class Action Fairness Act of 2005, we consider whether a defendant is precluded from removing a class action to federal court because a co-defendant is in bankruptcy. We hold that it is not.”

The Third Circuit began its analysis by noting that Sun Capital bore the “heavy burden” of establishing federal court jurisdiction. Brown, at 326 (citation omitted). Central to the Circuit Court’s analysis was the fact that Sun Capital was not in bankruptcy, so the district court’s reliance “on cases dealing with debtor defendants who attempted to remove actions” were inapplicable. Id. Also central to its analysis was the fact that the state court class action against JEVIC was improper because it was filed in knowing violation of the automatic stay, so plaintiffs had “improperly joined JEVIC in the [state court class action], [and] that joinder cannot prevent Sun from removing the action.” Id. In essence, plaintiffs fraudulently joined JEVIC in the state court class action. Id., at 326-27. The Third Circuit summarized its holding at page 327: “In sum, because [plaintiffs] had no reasonable basis to believe that JEVIC was amenable to suit, we hold that JEVIC was a fraudulently joined party and its status as a Defendant could not be used to defeat otherwise proper federal jurisdiction.” (The Third Circuit also held that the district court erred in remanding the class action to state court because JEVIC had never been served with legal process and therefore was not properly before the district court. See id., at 327. We do not here analyze that aspect of the Circuit Court’s opinion.) Accordingly, the Circuit Court reversed the district court order remanding the class action to state court, id., at 329.

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CAFA Class Action Defense Cases–Manson v. GMAC Mortgage: Massachusetts Federal Court Denies Motion To Remand Class Action To State Court Holding Class Action Removable Under CAFA

Class Action Properly Removed to Federal Court under Class Action Fairness Act (CAFA) because Defendants Adequately Established $5 Million Amount in Controversy and because Plaintiffs Failed to Establish that Local Controversy Exception or Home-State Controversy Exception Applied Massachusetts Federal Court Holds

Plaintiffs filed a putative class action in Massachusetts state court against GMAC Mortgage and various other defendants challenging defendant’s mortgage foreclosure practices; specifically, the class action complaint alleges GMAC violated Massachusetts state law in connection with its foreclosure proceedings because “the foreclosed mortgages had not been validly assigned to the foreclosing banks at the time the foreclosure actions were undertaken.” Manson v. GMAC Mortgage, LLC, 602 F.Supp.2d 289, 291-92 (D. Mass. 2009). Plaintiffs’ class action seeks to represent some 1000 people, all residents of Massachusetts residents, “whose primary residence was foreclosed by a power of sale…by a defendant that did not contemporaneously possess a written assignment of the underlying mortgage at the time the Notice of Sale was served” or “who face a pending foreclosure initiated by a defendant that did not have a written assignment of the underlying mortgage when the Notice of Sale was served and/or when a Right to Cure notice was sent.” Id., at 292. According to the allegations underlying the class action complaint, “the defendant banks and law firms knew that the foreclosures violated: (i) the Statute of Frauds…; (ii) the statutory notice and sale requirements…; and (iii) the common-law duty of good faith and diligence.” Id. Defense attorneys removed the class action to federal court under CAFA (Class Action Fairness Act), id. Plaintiffs moved to remand the class action to state court on the grounds that the $5 million amount-in-controversy had not been shown and that CAFA’s “local controversy” or “home-state controversy” exceptions required that the district court “decline jurisdiction.” Id. The district court denied plaintiffs motion, concluding that the class action had been properly removed.

The federal court began by noting that CAFA, inter alia, creates federal jurisdiction over class actions with minimal diversity where the combined amount in controversy exceeds $5 million and the class action involves 100 members or more. GMAC, at 293. Plaintiffs conceded that minimal diversity was present and that the putative class contained more than 100 members, but insisted that it was not “reasonably probable” that the amount in controversy exceeded $5 million at the time of removal. Id. (In this regard, the district court observed that the time of removal was the relevant inquiry because “[e]vents subsequent to removal that reduce the amount in controversy do not divest a federal court of CAFA jurisdiction.” Id., at 293 n.5 (citing Coventry Sewage Assocs. v. Dworkin Realty Co., 71 F.3d 1, 6 (1st Cir. 1995)).) Under plaintiffs’ analysis, the class action seeks primarily injunctive and declaratory relief, and each class members’ monetary damage is approximately $1200; thus, the amount in controversy is only $1.2 million. GMAC, at 293. Defense attorneys countered that a total of 3,934 loans were “referred for foreclosure” during the putative class period, with 1,048 of these loans proceeding to foreclosure and 48 foreclosed properties being sold to third parties for more than $15 million. Id., at 293-94. GMAC argued that this fact went directly to “plaintiffs’ contingent claim that defendants may be liable for the collective replacement value of the homes that were foreclosed.” Id., at 294 n.8. In the alternative, defense attorneys argued that “the actual amount assessed foreclosed borrowers in costs and fees was approximately $8,000 per transaction,” not the $1200 figure provided by plaintiffs, which would make the amount in controversy approximately $8 million. Id., at 294. The district court found defendant’s evidence sufficient to meet the amount in controversy test, id.

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Class Action Defense Cases–Walker v. Motricity: California Federal Court Remands Class Action To State Court Holding CAFA’s Amount In Controversy Requirement Not Met And Sanctions Defendant For Removal

Class Action Improperly Removed to Federal Court (Twice) because Defendant Failed to Establish $5 Million Amount in Controversy Required by Class Action Fairness Act (CAFA) and Basis for Defendant’s Removal of Class Action Warrants Sanctions Sua Sponte California Federal Court Holds

Plaintiff filed a putative class action in California state court against Motricity alleging violations of every conceivable statute, including the kitchen sink (see NOTE), arising from Motricity’s alleged act of billing for unwanted mobile content. Walker v. Motricity Inc., 627 F.Supp.2d 1137, 1139-40 (N.D. Cal. 2009). According to the allegations underlying the class action complaint, Motricity “allegedly operates mobile transaction networks to help companies develop, deliver and bill for ‘mobile content’ services to compatible mobile devices in California and the nation,” including such services as “customized ring tones, premium text messages, and sports score reports,” and is purportedly “able to reach and bill millions of wireless subscribers nationwide and has registered thousands of transactions and processed thousands of dollars in California over recent years.” Id., at 1139. Plaintiff alleges that Motricity billed her for “unwanted mobile content services on her cellular telephone bill in the form of premium text messages” that she did not authorize, leading to the filing of her class action. Id., at 1139-40. But plaintiff’s act of excessive pleading was more than matched by defendant’s act in response. Defense attorneys removed the class action to federal court under the Class Action Fairness Act (CAFA), but the district court granted plaintiff’s motion to remand the class action on the ground that Motricity failed to show the requisite $5 million amount in controversy. Id., at 1139, 1140. Defense attorneys again removed the class action to federal court under CAFA “just fifteen days later,” based on a declaration filed by plaintiff’s counsel in an unrelated action which (Motricity alleged) set forth a ratio for revenue that would (if applied in this case) meet the $5 million threshold for removing class actions under CAFA. Id., at 1140. Plaintiff again moved to remand it to state court. Id. The district court granted plaintiff’s motion, and awarded sanctions for frivolous removal of the class action.

After summarizing CAFA and noting the removing party’s burden of demonstrating that removal jurisdiction exists, see Walker , at 1140-41, the federal court observed that Ninth Circuit authority establishes “different burdens of proof for establishing removal jurisdiction in the CAFA context, depending on what has been pled in the complaint,” id., at 1141. If the class action complaint specifically alleges the amount of damages at issue, then it must appear to a “legal certainty” that the amount prayed for is incorrect; in other words, “If the complaint alleges specific damages in excess of the jurisdictional minimum, then the amount in controversy is presumptively satisfied unless it appears to a ‘legal certainty’ that the claim is actually for less than the jurisdictional minimum, whereas if the specific damages are less than the statutory minimum, it must be shown to a legal certainty that the amount in controversy exceeds that minimum for removal.” Id., at 1141 (citation omitted). But if the complaint does not specify the amount in controversy, then “then the court must look beyond the facts of the complaint and apply the preponderance of the evidence standard.” Id. (citations omitted). In its initial order granting plaintiff’s motion to remand the class action to state court, the district court noted that the class action complaint is silent as to the amount in controversy so Motricity was required to show that the amount in controversy exceeded $5 million. Id., at 1141-42. Because it failed to meet that burden, the court remanded the class action to state court. Id.

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