Tuesday, December 3, 2013

FYI: 9th Cir Rules Plaintiff Must Introduce Evidence to Meet CAFA's "Local Controversy" Exception, Inferences as to Citizenship Insufficient

The U.S. Court of Appeals for the Ninth Circuit recently held that the plaintiff bears the burden of proving the "local controversy" exception under the federal Class Action Fairness Act (CAFA).  The Court's ruling establishes that plaintiffs in a putative class action are no longer allowed to rely on inferences regarding the citizenship of the class members to establish the exception.


A copy of the opinion is available at:



A consumer brought a putative class action in San Diego County Superior Court against an auto finance company and a local automobile dealership, alleging violations of various provisions of California state consumer law related to automobile finance contract disclosures.  Capital One removed the matter to the U.S. District Court for the Southern District of California under the Class Action Fairness Act ("CAFA"), 28 U.S.C. §§ 1332(d) and 1453(d). 


As you may recall, under CAFA, the federal diversity jurisdiction requirements are broadened such that complete diversity is no longer required but only minimal diversity, see 28 U.S.C. §1332(d)(2), and the amount in controversy is satisfied if the aggregation of the class members' claims satisfies the minimum amount of $5 million.  28 U.S.C. § 1332(d)(6). 


There are, however, exceptions to the CAFA.  One such exception is what is commonly referred to as the "local controversy" exception, 28 U.S.C. § 1332(d)(4)(A).  Under that exception, a district court shall decline to exercise jurisdiction over a class action if four specific requirements are satisfied: (1) greater than two-thirds of the members of the proposed class are citizens of the state in which the action was originally filed, (2) at least one defendant is one from whom significant relief is sought, whose alleged conduct forms a significant basis of the claims asserted and is a citizen of the state in which the action was originally filed, (3) principal injuries allegedly caused by the defendants were incurred in the state in which the action was originally filed, and (4) during the three year period preceding the filing of the action no other class action has been filed asserting the same or similar allegations against any of the defendants.  The burden of establishing the applicability of an exception to CAFA jurisdiction rests with the party seeking to remand the matter to state court. 


In the lower court, the plaintiff argued that his proposed class definitions, which essentially defined the class as all persons who purchased and registered cars in California, was sufficient to establish the local controversy exception applied.  The auto finance company disagreed and argued that the plaintiff was required to introduce evidence, and not rely on assumptions or inferences, to establish that two-thirds of the proposed class members were citizens of California.  The district court agreed with plaintiff and remanded the case to state court.  The auto finance company appealed. 


On appeal, the Ninth Circuit first held that plaintiff bore the burden of establishing the "local controversy" exception to CAFA, and that the issue of citizenship was set as of the date the case became removable.  As to the citizenship of the class members, plaintiff again argued that his proposed class definitions likely consisted of more than two-thirds of California citizens.  The Ninth Circuit agreed that it was likely that the two-thirds requirement would be satisfied, but that plaintiff needed to introduce facts to establish it as fact. 


The Ninth Circuit held that when the facts are in dispute, CAFA requires district courts to make factual findings before the matter will be remanded.  "The statute does not say that remand can be based simply on a plaintiff's allegations, when they are challenged by the defendant. . . We conclude that there must ordinarily be at least some facts in evidence from which the district court may make findings regarding class members' citizenship for purposes of CAFA's local controversy exception."  The Ninth Circuit relied on In re Sprint Nextel Corp., 593 F.3d 669 (7th Cir. 2010) to support its ruling. 


Although the Ninth Circuit conceded that plaintiff's proposed class definitions would likely satisfy the two-thirds requirement, it went on to hold that "likely," with no facts in support, was not sufficient.  "As the Seventh Circuit (in Sprint) noted, such freewheeling discretion amounts to no more than guesswork.  Sensible guesswork, based on a sense of how the world works, but guesswork nonetheless." 


The Ninth Circuit then identified examples of how plaintiff's proposed class definitions may not encompass only citizens of California, such as automobiles purchased by members of the military, out-of-state students, owners of second homes and other temporary residents who are citizens of other states or not a U.S. citizen.  Another factor giving the Ninth Circuit pause was that the proposed class potentially included individuals who had purchased the vehicle more than five years prior to when the date became removable and those individuals may no longer have been citizens of California. 


The Ninth Circuit acknowledged that its ruling would result in "some degree of inefficiency by requiring evidentiary proof of propositions that appear likely on their face."  Cognizant of the inefficiency that would result, the Ninth Circuit cautioned that "any such inefficiency is largely of the parties' own making."  The Court then stated that both parties could have avoided such inefficiency had they selected different strategies.  For the plaintiff, he could have expressly limited the class by defining it to consist of only California citizens or he could have opted to not seek remand and proceeded in federal court.  Similarly, the auto finance company could have allowed the matter to proceed in state court initially or after the district court ordered it remanded. 


The Court next addressed auto finance company's argument that the matter should be remanded to the district court with instructions to deny plaintiff's motion to remand.  The auto finance company argued that plaintiff should not have "another bite of the apple" because of the inefficiency and delay that would result from the district court making factual findings.  The Ninth Circuit disagreed, and stated "that inefficiency and delay is at least equally attributable to [the auto finance company] for insisting that plaintiff affirmatively prove with evidence a proposition that seems likely to be true."


Finally, as an evidentiary matter, the Ninth Circuit acknowledged that there may be practical obstacles in establishing citizenship for the necessary two-thirds of the class, and ruled that the plaintiff may rely on "the presumption of continuing domicile" to establish citizenship, "which provides that, once established, a person's state of domicile continues unless rebutted with sufficient evidence of change."  The Court observed that the plaintiff's burden of proof should not be exceptionally difficult to bear.


Accordingly, the Ninth Circuit vacated the district court's remand order, and remanded the matter to the district court with the instructions to allow the plaintiff the opportunity to renew his motion to remand and present evidence to establish the two-thirds requirement of the exception. 




Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com


Admitted to practice law in Illinois


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