Wednesday, February 27, 2013

FYI: 9th Cir Holds CAFA Removal Based on Amended Putative Class Complaint Was Timely

Reversing the lower court's ruling, the U.S. Court of Appeals for the Ninth Circuit recently held in a putative class action against an assignee finance company that, where the plaintiff's original complaint did not sufficiently state the amount in controversy to support removal on the basis of diversity jurisdiction pursuant to the federal Class Action Fairness Act, removal within thirty days after the filing of an amended complaint that did sufficiently state the amount in controversy was timely. 


In ruling that the thirty-day period for removal only began to run after the filing of the amended complaint, the Court: (1) noted that the amended complaint's addition of a new proposed class introduced the minimal diversity required under CAFA; and (2) stressed that the assignee finance company was under no obligation to supply information beyond what was stated in the original complaint in order to determine whether the initial complaint set forth an amount in controversy that exceeded CAFA's $5 million threshold.


A copy of the opinion is available at:


Plaintiff consumer ("Consumer") bought a German luxury car from a car dealer ("Dealer"), financing the purchase with a Retail Installment Sales Contract ("RISC").  In a section of the RISC titled "Itemization of the Amount Financed Section" was the notation "N/A" for "not applicable," referring to registration and titling fees.  The RISC also contained an arbitration provision of which Consumer was supposedly unaware. 


About a week after Consumer's purchase, Dealer informed her that the financing for her car did not go through and that she would need to either return the car she had purchased or make a down payment as part of a new financing deal.  As a result, Consumer rescinded the original RISC and executed a new one, which was back-dated to match the date of the original RISC.  The second RISC also contained an arbitration clause as well as the same "N/A" notation.  Financing was successful after the second attempt, and Consumer's promissory note was later sold and assigned to the defendant finance company ("Finance Company").


Over two years later, Consumer filed a putative class action law suit in California state court against Dealer and Financing Company, asserting various state-law causes of action, including alleged violations of the California Consumer Legal Remedies Act, Cal. Civ. Code § 1750 et seq., and the California Automobile Sales Finance Act, Cal. Civ. Code § 2981 et seq.   The initial complaint proposed two classes:  one composed of customers with backdated RISCs that included the arbitration clauses and the other consisting of customers whose RISCs' allegedly indicated falsely that registration and/or titling fees were not applicable to their car purchases.  Without specifying a total sum for class-wide damages, Consumer sought statutory damages as well as other relief.


In state court, Consumer stated in a Case Management Conference Statement ("CMC Statement") that she may amend her complaint to plead a separate class on behalf of consumers whose RISCs were transferred to Finance Company.  Shortly after filing the CMC Statement, Consumer was granted permission to file an amended complaint and, accordingly, filed an amended complaint adding a third proposed class.  The third class consisted of car purchasers whose RISCs had been transferred to Finance Company, which RISCs failed to disclose registration or titling fees.


Finance Company then removed the case to federal court pursuant to the federal Class Action Fairness Act of 2005 ("CAFA") within a month of Consumer's filing of the amended complaint.  Finance Company claimed in part that a post-amended complaint search of its business records revealed that the number of potential members in the third class exceeded 100 and that the dollar amount of RISCs in that class exceeded $10 million. 


Consumer moved to remand, arguing the Finance Company's removal was untimely because more than 30 days had passed since the filing of her original complaint.  The district granted Consumer's motion.  Finance Company appealed the remand order. 


The Ninth Circuit reversed, ruling in part that because the amount in controversy was not sufficiently stated in the initial complaint, all the facts necessary for diversity jurisdiction under CAFA had not been pled to allow defendant to ascertain whether the case was removable.


As you may recall, CAFA confers federal jurisdiction where:  (1) there is minimal diversity between the parties; (2) the proposed class has at least 100 people; and (3) the amount in controversy exceeds $5 million.  See 28 U.S.C. § 1332(d). 


In addition, a defendant faces either of two potentially applicable thirty-day periods for removal.  The first thirty-day period starts running if the case stated in the initial pleading is removable on its face.  28 U.S.C.  § 1446(b) ("Section 1446(b)"); Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 885 (9th Cir. 2010).  The second thirty-day removal period kicks in if the initial pleading does not indicate that the case is "removable," and the defendant receives "a copy of an amended pleading, motion, order or other paper" from which removability may be first ascertained.  Carvalho, 629 F.3d 876 at 885.


Noting that Section 1446 does not define "removable," the Ninth Circuit recognized that removability may not be readily apparent from the face of a complaint, stressing that the basis for removal must be "revealed affirmatively in the initial pleading" in order to trigger the first thirty-day period for removal.  See Harris v. Bankers Life & Cas. Co., 425 F.3d 689, 695 (9th Cir. 2005); Carvalho, 629 F.3d at 886.


Next, rejecting Finance Company's assertion that the number of class members was indeterminate, the Ninth Circuit reasoned that the initial complaint's reference to "hundreds of affected consumers" would satisfy CAFA's numerosity requirement.  However, as to CAFA's amount-in-controversy requirement, the Court ultimately concluded that Financing Company was not required to supply information not provided in Consumer's initial complaint in order to arrive at a valuation of class members' RISCs. 


In so ruling, the Ninth Circuit rejected Consumer's assertion that, although Finance Company could have consulted its business records after receipt of the initial complaint to identify a representative valuation, it had no obligation to do so even though it chose to consult its records once the amended complaint was filed, adding a third class.  


In observing that the lower court had roughly calculated on its own that the amount in controversy in the original complaint exceeded CAFA's $5 million threshold by estimating that the average contract value was likely at least  $25,000, the Ninth Circuit nevertheless emphasized that the time period for removal does not start running until defendants have "received a piece of paper that gives them enough information to remove."  See Durham v. Lockheed Martin Corp., 445 F.3d 1247, 1251 (9th Cir. 2006).   As the Ninth Circuit explained, because Consumer's initial complaint failed to indicate that "the amount demanded by each putative class member exceed[ed] $25,0000," the initial complaint did not trigger the initial thirty-day removal period under Section 1446(b). 


Having determined that the original complaint did not trigger Section 1446(b)'s initial thirty-day removal period, the Ninth Circuit also rejected Consumer's argument that Finance Company's removal was untimely partly because Finance Company did not remove within thirty days of its receipt of "an order or other paper" from which removability could be ascertained -- that is, Consumer's Statement that she would file an amended complaint.   In so doing, the Ninth Circuit recognized that removal prior to the actual filing of the amended complaint would have been improper.


Finally, the Ninth Circuit declined to decide whether to join other federal appellate courts in recognizing a "revival exception" that Finance Company argued would give it an additional thirty days to remove when Consumer added a potential third class of plaintiffs.


Accordingly, the Ninth Circuit reversed and remanded.




Ralph T. Wutscher
McGinnis Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
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