Saturday, December 28, 2013

FYI: 4th Cir Holds Named Defendants to be Aggregated for Purposes of CAFA's "Local Controversy" Exception

The U.S. Court of Appeals for the Fourth Circuit recently held that a district court properly aggregated various named defendants together for purposes of analyzing whether the "local controversy" exception to jurisdiction under the federal Class Action Fairness Act applied.


A copy of the opinion is available at:


Two borrowers sued a lender, two title companies, and a class of defendant appraisers, alleging a scheme whereby the bank would suggest an inflated value for a given property to an appraiser, who would then appraise the property at that value, resulting in a borrower obtaining a loan that was underwater from the time of origination.  The borrowers sued both individually and on behalf of a class of West Virginia citizens.  The borrowers specifically identified a handful of appraisers, and also added a class of unnamed appraisers.  


The lender removed the action to federal court, pursuant to the Class Action Fairness Act ("CAFA").  The borrowers moved to remand the matter to state court, under the local controversy exception to CAFA.  The district court granted the borrowers' motion, and the lender appealed. 


As you may recall, the local controversy exception to CAFA provides that district courts must decline to exercise jurisdiction over an action and remand it to state court where, among other factors, at least one defendant (a) is a defendant from whom members of the plaintiff class are seeking "significant relief," (b) is a defendant whose conduct "forms a significant basis for the proposed plaintiff class's claims, and (c) is a citizen of the state in which the action originally was filed.  28 U.S.C. Sec. 1332(d)(4)(A). 


Here, the lender argued that it was improper for the district court to aggregate the various defendant appraisers together for the purpose of satisfying the "at least one defendant" requirement described above.  The lender further argued that unidentified members of an uncertified class do not qualify as "defendants" for the purposes of CAFA. 


The Fourth Circuit was unconvinced by the lender's contention that the "at least one defendant" requirement must be satisfied by only one defendant -- pointing out that "the term 'at least' permits a reading that more than one defendant could satisfy the stated criteria." 


In addition, the Fourth Circuit examined the relevant legislative history and determined that CAFA's local controversy exception was designed to "permit actions with a truly local focus to remain in state court."  Accordingly, it rejected the lender's interpretation of CAFA as one that would produce "an outcome that is demonstrably at odds with clearly expressed congressional intent." 


Because all of the named defendant appraisers, all of the plaintiffs, and all of the alleged injuries supposedly occurred in the state where the action was filed, the Fourth Circuit held that the instant matter qualified as a local controversy, such that it appropriate for the lower court to aggregate the defendants together to determine whether the local controversy exception applied. 


However, the Fourth Circuit ruled in favor of the lender in finding that "[a]n unnamed member of a proposed but uncertified class is not a party to the litigation."  Accordingly, the Fourth Circuit indicated that the resolution of the appeal hinged on whether the defendant appraisers named by the borrowers satisfied the "at least one defendant" requirement of the local controversy exception.   


Finding that the record was not sufficient to permit it to make that determination, the Fourth Circuit vacated the decision of the lower court, and remanded the matter for a determination as to whether the named defendant appraisers satisfy the "at least one defendant" requirement of the local controversy exception.   






Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
(312) 551-9320
(312) 284-4751
(312) 493-0874


Admitted to practice law in Illinois



          McGinnis Wutscher Beiramee LLP





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