The Class Action Fairness Act ("CAFA") lowers the bar for diversity jurisdiction for class actions and so-called "mass actions." In Mississippi ex rel. Hood v. Au Optronics Corp. (http://www.metnews.com/sos.cgi?0114//12-1036_0971), the Supreme Court clarified what constitutes a "mass action." In Au Optronics defendant argued that a case brought by the State of Mississippi seeking recovery on behalf of itself and its citizens was not a "mass action" within the meaning of CAFA and could not be removed to federal court under the more forgiving diversity jurisdiction for mass actions. Because only one plaintiff, the state, was named, the case was not in the Supreme Court's view a "mass action."
Brown, Neri, Smith & Khan LLP Blog
Under the Class Action Farness Act, commonly referred to as CAFA, most class actions are subject to federal court jurisdiction. One important exception is for so-called "local controversies." In Mondragon v. Capital One Auto Finance (http://www.metnews.com/sos.cgi?1213//13-56699), the Ninth Circuit clarified the standard of proof required to invoke that exception. The exception is generally invoked if two-thirds of the class members are citizens of the state in which the action is filed and the primary defendants are as well (there is another more complicated version of the exception where some defendants are and others are not citizens of the state where the action was filed). Accordingly, establishing that two-thirds or more of the class members are citizens of the forum state is a critical component of invoking the exception. The class plaintiffs bear the burden of proof. In Mondragon, class plaintiff presented no evidence as to the citizenship of the class members; rather, he argued that the exception self-evidently applied because the class was limited to persons who purchased automobiles in California for use and registration in the state. The Ninth Circuit held that such an inference is improper. Actual proof of the citizenship of the class is required, unless the class definition is specifically limited to citizens.
While the Court rejected Mondragon's attempt to establish the citizenship of two-thirds of the class with no evidence, the Court indicated that a would-be plaintiff might be able to rely on reasonable inferences and presumptions drawn from evidence submitted, for example that residence of a sufficient number of plaintiffs or proof of citizenship at an earlier point in time might suffice in some circumstances to meet the evidentiary burden.
In Hayden v. Wang, the Northern District of California allowed a claim under California's securities laws (Corporations Code Section 25401) to proceed, even though the primary violator (the issuer of the securities) was not sued. The issuer had sold securities in California in a private placement. An investor brought a class action alleging misrepresentations. The issuer then declared bankruptcy, making it impossible for the investors to proceed against the issuer because of the automatic stay. Defendants argued that the case could not proceed without the issuer. Judge Tigar squarely rejected that argument. The decision is unsurprising and squares California law with actions under the federal securities laws.
In Visendi v. Bank of America, NA (http://www.metnews.com/sos.cgi?1013//13-16747), a panel of the Ninth Circuit Court of Appeals clarified the application of the Class Action Fairness Act ("CAFA") in the context of a proposed "mass action." In Visendi, well over 100 aggrieved borrowers sued more than a dozen different lenders alleging bad acts in connection with mortgage lending. The defendant lenders sought to remove the mass action under CAFA which permits mass actions of over 100 plaintiffs to be removed to federal court provided certain requirements are met. Upon arrival in federal court, the defendants immediately argued that the claims at issue where not sufficiently similar to be tried together -- in short, that most of the plaintiffs be dismissed for misjoinder under Rule 20. The district court remanded, concluding that defendants had conceded that there was no mass action by arguing for misjoinder. Accordingly, the district court reasoned, CAFA's mass action provisions could not apply to allow for federal court jurisdiction. Defendant lenders appealed. The Ninth Circuit held that so long as plaintiffs proposed to hold a joint trial of all of the claims, CAFA's mass action rules did apply. Defendants do not waive CAFA jurisdiction by simultaneously arguing misjoinder. Accordingly, the Ninth Circuit reversed the remand. Then, the Ninth Circuit held that the so-called "local controversy" exception to CAFA was not jurisdictional. Accordingly, plaintiffs' failure to argue the exception below waived the issue. This is a significant holding which requires plaintiffs to raise the local controversy argument early on or risk waiver. Next, the Ninth Circuit agreed with defendants that the case did not present a proper mass action and that most plaintiffs were in fact misjoined. Thus, most of plaintiffs were ordered dismissed from the action.
The case is significant because it allows defendants to attack a class action or mass action on a dual front -- first, bringing it to federal court under CAFA and then arguing that it is not a proper class or mass action -- while still maintaining CFA jurisdiction in federal court.
On an issue of first impression, the Ninth Circuit held that a defendant may remove a matter to federal court at any time that its own investigation reveals grounds for removal, provided that such grounds were not previously apparent from pleadings or other documents provided by plaintiff. See Roth v. CHA Medical Center, L.P. (http://www.metnews.com/sos.cgi?0613//13-55771). Plaintiff contended that the thirty day periods described in 28 U.S.C. section 1446(b)(1) and (b)(3) established the only time periods in which a defendant could remove a class action from state to federal court under the Class Action Fairness Act (CAFA). The decision gives defendants substantial flexibility in deciding when to remove when the grounds for removal are not apparent from the complaint, but rather by defendant's own investigation.