Wednesday, September 22, 2010

FYI: 8th Cir Says CAFA's "Local Controversy" Exception Determined by All Putative Classes Pled, Not by Separate Class Counts

The United States Court of Appeals for the Eighth Circuit recently held that, for the purposes of the local-controversy exception to the Class Action Fairness Act of 2005 ("CAFA"), a plaintiff class includes all of the class members in the class action as a whole, and not by separate class counts.
A copy of the opinion is available at:
Borrower filed a class action in Missouri state court against Independent Processing, LLC ("Independent"), a residential mortgage documents processor, and Provident Funding Associates, LP ("Provident"), a residential mortgage provider.  Borrower alleged that Provident and Independent violated state law when they charged "broker processing fees" and "administrative fees" in residential mortgage financing transactions.
Provident removed the case to federal court pursuant to CAFA, but the District Court granted the Borrower's motion to remand the case back to state court based on an the local-controversy exception to CAFA, 28 U.S.C. § 1332(d)(4)(A).  The Eighth Circuit granted Provident's appeal and vacated and remanded the case to the district court.
The Court first held that the lower court erred by resolving any doubt regarding the applicability of the local-controversy exception in favor of the Borrower.  Once "CAFA's initial jurisdictional requirements have been established by the party seeking removal…the burden shifts to the party seeking remand to establish that one of CAFA's express jurisdictional exceptions applies."  Accordingly, "the District Court should resolve any doubt about the applicability of CAFA's local-controversy exception against [Borrower], the party who seeks remand and the party who bears the burden of establishing that the exception applies."
The Court next addressed the local-controversy exception under CAFA, which requires a federal district court to decline to exercise jurisdiction over a class action when, among other things, "an in-state defendant — in this case, Independent — is a so-called 'significant' defendant, one 'from whom significant relief is sought by members of the plaintiff class' and one 'whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class.'" 28 U.S.C. §1332(d)(4)(A)(i)(II)(aa) and (bb).
In this case, Borrower asserted two state-law claims against Independent and two identical state-law claims against Provident on behalf of two separate putative classes, seeking separate certification of the two separate putative classes.  The district court "analyzed the significant defendant issue separately for each class defined" by the Borrower and, "not surprisingly, concluded that with respect to Counts I and II, each of which defined a class and asserted claims against Independent alone, Independent was a significant defendant. Thus the court ruled that the local-controversy exception applied and the case had to be remanded."
The Eighth Circuit rejected the lower court's analysis and, seeking to effectuate the purpose of CAFA, reasoned that "'class'" is defined under CAFA as 'all of the class members in a class action.' 28 U.S.C. § 1332(d)(1)(A).  Therefore, "'the plaintiff class' described in §1332(d)(4)(A)(i)(II)(aa) and 'the proposed plaintiff class' described in §1332(d)(4)(A)(i)(II)(bb) include all of the class members in the class action as a whole."  "It follows, then, that whether an in-state defendant is a significant defendant for purposes of the local-controversy exception must be determined by considering the claims of "all of the class members in [the] class action" and not by considering the claims of class members on a class-by-class basis." 
The Court cited Kaufman v. Allstate N.J. Ins. Co., 561 F.3d 144, 157 (3d Cir. 2009), with approval.  In that case, the Court stated that under the "significant basis" element of the local-controversy exception, the "local defendant's alleged conduct must be an important ground for the asserted claims in view of the alleged conduct of all of the Defendants."  The Eight Circuit further reasoned that the lower court's reading of the "local-controversy exception would allow class-action plaintiffs to avoid federal jurisdiction under CAFA simply by pleading their claims against an in-state defendant as separate counts on behalf of a separate class."
Let me know if you have any questions.  Thanks.


Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874


NOTICE:  We do not send unsolicited emails.  If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention.  Thank you.


Our updates are available on the internet, in searchable format, at:


 The information transmitted (including attachments) is covered by the Electronic Communications Privacy Act, 18 U.S.C. 2510-2521, is intended only for the person(s) or entity/entities to which it is addressed and may contain confidential and/or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient(s) is prohibited. If you received this in error, please contact the sender and delete the material from any computer.  Notice Under U.S. Treasury Department Circular 230: To the extent that this e-mail communication and the attachment(s) hereto, if any, may contain written advise concerning or relating to a Federal (U.S.) tax issue, United States Treasury Department Regulations (Circular 230) require that we (and we do hereby) advise and disclose to you that, unless we expressly state otherwise in writing, such tax advise is not written or intended to be used, and cannot be used by you (the addressee) or other person(s), for purposes of (1) avoiding penalties imposed under the United States Internal Revenue Code or (2) promoting, marketing or recommending to any other person(s) the (or any of the) transaction(s) or matter(s) addressed, discussed or referenced herein. Each taxpayer should seek advice from an independent tax advisor with respect to any Federal tax issue(s), transaction(s) or matter(s) addressed, discussed or referenced herein based upon his, her or its particular circumstances.