FYI: 11th Cir Reverses Remand on Incorrect CAFA "Local Controversy" Ruling

The U.S. Court of Appeals for the Eleventh Circuit recently reversed a trial court's ruling remanding the case to state court based on the federal Class Action Fairness Act's (CAFA) "local controversy" exception, finding the trial court erroneously applied the exception.

 

A copy of the opinion is available at:  Link to Opinion

 

A medical patient ("Patient") filed a putative class action in state court "individually and on behalf of all other Floridians similarly situated" against numerous defendants, including a practitioner ("Practitioner") and his financer ("Financer"). The putative class was defined by Patient as "[a]ll persons over 64 years of age who visited [Practitioner] after reading [a specified advertisement] and who received 'stem cell' treatments financed by [Financer]."

 

Financer removed the case to federal court under CAFA.  Patient moved to remand back to state court arguing Financer had not proven the amount in controversy was in excess of $5 million. Patient further argued that the trial court was required to decline jurisdiction under both CAFA's "home state" and "local controversy" exceptions. See. id. § 1332(d)(2), (3), (4).

 

The trial court granted the motion for remand based solely on the local controversy exception which applies if "greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed." Id. § 1332(d)(4)(A)(i)(I). The court relied on the complaint's statement that it was filed "individually and on behalf of all other Floridians similarly situated" and "on behalf of Florida senior citizens."

 

Financer appealed the order arguing that Patient had failed to establish the local controversy exception's two-third's requirement. Patient moved to dismiss the appeal on the basis of lack of jurisdiction arguing review was barred by 28 U.S.C. § 1447(d) and that the appeal was not properly filed under Federal Rule of Appellate Procedure 5, as required by U.S.C. § 1453(c).

 

The Eleventh Circuit first determined whether it had jurisdiction over the appeal under 28 U.S.C. § 1447(d) and 28 U.S.C. § 1453(c).  The Court noted, "[a]s a general matter, remand orders are reviewable as final decisions under 28 U.S.C. § 1291." Hunter v.  City of Montgomery, 859 F.3d 1329, 1333 (11th Cir. 2017).

 

However, under 28 U.S.C. § 1447(c) and (d), the Appellate Court lacks jurisdiction to review a trial court's remand order if it "(1) followed a timely motion for a defect other than lack of subject matter jurisdiction, or (2) was based on lack of subject matter jurisdiction." Id.

 

The Eleventh Circuit found that 28 U.S.C. § 1447(c) and (d) did not apply as the trial court did not remand for a procedural "defect" or for "lack of subject matter jurisdiction," as the local controversy exception applied by the trial court does not implicate subject matter jurisdiction under the second part of Section 1447(c). Hunter, 859 F.3d at 1334.

 

The Appellate Court noted that its precedent has further established that the local controversy exception is not a procedural "defect" under the first Section of 1447(c). The Court previously held that in Section 1447(c), "defect" refers only to "defect[s]' in the removal itself," and not grounds which are "external to the removal process. Snapper, Inc. v. Redan, 171 F.3d 1249, 1253 (11th Cir. 1999).  The Court found that "a remand order based on CAFA's local controversy exception…does not fall within either of § 1447(d)'s categories." Hunter, 859 F.3d at 1334.

 

The Court next addressed whether the court lacked jurisdiction because the amount in controversy did not exceed $5 million dollars. 

 

Where, as here, the plaintiff has not pled a specific amount of damages, the removing defendant must prove by a preponderance of the evidence that the amount in controversy exceeds the jurisdictional requirement." Pretka v. Kolter City Plaza II, Inc., 608 F.3d 744, 752 (11th Cir. 2010) (quoting Williams v. Best Buy Co., Inc., 269 F.3d 1316, 1319 (11th Cir.2001)).

 

Patient argued the $5 million amount in controversy was not met as she stipulated to accept no more than $4,999,999 in damages. See 28 U.S.C. § 1332(d)(2). However, the Court noted that a named plaintiff in a putative class action does not have authority to bind other class members through such a stipulation. Standard Fire Ins. Co. v. Knowles, 568 U.S. 588, 592-93 (2013).

 

As Financer offered evidence that the relief requested would exceed $5 million when multiplied across the entire class, the Court agreed with the trial court's implicit finding that the amount in controversy exceeded the requirements of CAFA.

 

The Eleventh Circuit also addressed whether the trial court correctly remanded because the local controversy exception was satisfied.

 

"[P]laintiffs bear the burden of establishing that they fall within CAFA's local controversy exception." Evans v. Walter Indus., Inc., 449 F.3d 1159, 1162, 1164 (11th Cir. 2006). That exception is a "narrow one, with all doubts resolved 'in favor of exercising jurisdiction over the case.'" Id. at 1163 (quoting S. Rep. No. 109-14 at 42, 2005 U.S.C.C.A.N. 3, 40).  The exception applies only if, among other things, "greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed." 28 U.S.C. §   1332(d)(4)(A)(i)(I).

 

The Appellate Court recently held that "[c]lass action plaintiffs can prove that two-thirds of the putative class are citizens of a certain state in two ways." Smith v. Marcus & Millichap, Inc., 991 F.3d 1156, 1157 (11th Cir. 2021). A plaintiff can (1) "limit the class definition to citizens of a certain state" or (2) "provide evidence of the class members' state of residence as well as evidence showing their intent to remain in that state." id. at 1156-57.

 

Patient argued and the trial court concluded that this case fell into the first category. However, the Eleventh Circuit disagreed finding the complaint did not restrict class membership to Florida citizens.

 

The trial court recognized the class definition did not explicitly state it was limited to Florida citizens and instead relied on other portions of the complaint to conclude that the two-thirds requirement was met. However, the Eleventh Circuit ruled that under Smith, only the class definition itself can restrict the scope of the class for purposes of establishing the two-thirds requirement under the first method. See id. 1156-57.

 

The Appellate Court also found, that even if this were not the case, the complaint's other language did not support the trial court's decision.

 

First, the Eleventh Circuit reasoned that an action brought "on behalf of all other Floridians similarly situated" did not necessitate that those Floridians compromised more than two-thirds of the class. In addition, the Court found it was not clear whether "Floridians" referred to citizens who intended to remain there.

 

Finally, the Court held that Patient failed to establish that more than two-thirds of the class were Florida citizens. Patient introduced no evidence to support her contention that two-thirds of the class were citizens, though the burden of proving so was hers. See Evans, 449 F.3d at 1164; see also Smith, 991 F.3d at 1157.

 

Noting that the local controversy exception is a narrow one, and any doubts must be resolved against the exception (Evans, 449 F.3d at 1163; cf. Smith, 991 F.3d at 1159), the Eleventh Circuit held that the trial court erred by applying the local controversy exception as a basis for remand, and reversed and remanded for further proceedings.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: TX Sup Ct Holds Wire Transfer Form Did Not Create Contractual Duty

The Supreme Court of Texas recently held that a bank's wire transfer form did not create a contractual duty as claimed by a bank customer.

 

A copy of the opinion is available at:  Link to Opinion

 

A lawyer in Houston ("Attorney") was the victim of an internet scam. The scammer ("Scammer") emailed Attorney seeking his representation in a debt-collection action. After agreeing to represent Scammer, Attorney was informed that a settlement had been reached and a cashier's check would be sent.  On Scammer's instruction, Attorney deposited the check with plaintiff ("Bank") in his IOLTA account and was given a check with a limitation stating, "All items are credited subject to payment."

 

The next day Attorney contacted Bank to execute a wire transfer as instructed by Scammer. An employee of Bank emailed Attorney a one-page form titled International Outgoing Wire Transfer Request ("Transfer Form").

 

The Transfer Form contained a printed declaration requiring the transferor to acknowledge that Bank could not guarantee delivery of an international wire and that the transferor could be responsible for "tracer fees" under certain circumstances. Attorney signed the Transfer Form and returned it to Bank's employee.

 

The Transfer Form also contained a preprinted admonishment to Bank employees stating "Before signing off, be sure you 'know your customer' and have verified the collected balance and documented any exception approvals."

 

Two versions of the Transfer Form were entered into the record, one of which contained a hand written note of a Bank employee which stated "Ava Bal" of $497,643.80, "verified @11:08 am". Bank transferred $398,980.00 pursuant to Attorney's instructions to the bank identified on the Transfer Form. The next day, the cashier's check was dishonored and returned to Bank unpaid.  Bank notified Attorney and charged the provisionally deposited amount back to his account and demanded that he pay the overdrawn funds. Attorney refused.

 

Bank sued Attorney for breach of deposit agreement, breach of warranty under Section 4.207 of the UCC and common-law torts. The trial court granted summary judgment in favor of Attorney and signed a final judgment that each party take nothing.

 

A split court of appeals panel affirmed. Bank petitioned for review.

 

Attorney argued, and the lower courts agreed, that Bank's damages were caused by its breach of a superseding contractual duty to transfer funds from a "verified" or "collected balance" that excluded provisionally credited funds.

 

More specifically, Attorney argued that, by signing the top of the Transfer Form and providing it to Bank employee, Attorney made an offer to pay Bank the transfer fee in exchange for transferring money from the "collected balance" of his account, which consisted of the remaining balance once provisionally credited funds were excluded. Attorney also argued that the funds being taken only from the "collected balance" was a material term of the agreement, and that Bank accepted Attorney's offer by completing the form and initiating the transfer.  In addition, Attorney argued that if Bank had fulfilled its duty to ensure the "collected balance" was sufficient prior to making the transfer, then Bank would have seen the balance was insufficient and would not have made the transfer, thereby avoiding any damages.

 

The Texas Supreme Court noted that Attorney's theory was premised on a banking customer's "verified" or "collected balance" being a balance that excludes provisionally credited funds.

 

Bank argued that this theory was preempted by the Texas version of the Uniform Commercial Code, which does not allow for disclaimer of a bank's statutory right to rely on the transfer warranties established in Section 4.207(a). Attorney responded that the Transfer Form imposed a separate obligation on the bank rather than disclaiming any warranty. 

 

The Court did not resolve the parties' disputes regarding the UCC, as it found that the Transfer Form did not create an agreement.

 

"To be enforceable, a contract must address all of its essential and material terms with 'a reasonable degree of certainty and definiteness.'" Fischer v. CTMI, L.L.C., 479 S.W.3d 231, 237 (Tex. 2016). At a minimum, "a contract must at least be sufficiently definite to confirm that both parties actually intended to be contractually bound." Id. It must also be "sufficiently definite to 'enable a court to understand the parties' obligations'" and "to give 'an appropriate remedy' if they are breached" Id.

 

The Texas Supreme Court found that the Transfer Form failed to create a contractual duty measured against these standards. First, the Court noted that the Transfer Form was titled "International Outgoing Transfer Request" and that it had all indicia of a form with the purpose of facilitating Bank's internal processing of a wire transfer.  In addition, the bottom half of the Transfer Form remained blank with the exception of the transfer fee amount at the time it was executed by Attorney.

 

Attorney based his claim on the fields adjacent to the fee field, "Collected Balance/Cash" and "Employee Who Verified Collected Balance," arguing the presence of these words, created by Bank, had the effect of implicitly imposing on Bank a contractual duty that superseded the UCC and deposited agreement.

 

However, the Court found this reasoning would allow any of a bank's routine administrative forms to potentially override the UCC's default rules.

 

Thus, the Texas Supreme Court found that the Transfer Form was not "sufficiently definite to confirm that [Bank] actually intended to be contractually bound" by the promise to only transfer "collected funds." Id.

 

As such, the Court reversed the judgment of the court of appeals and remanded the case to the trial court to consider Lawyer's remaining claims or defenses that were not based on breach of contract.

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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