KT Class Action Blog

Category: CAFA

Posted on Thursday, February 8 2018 at 4:09 pm by
Fourth Circuit Reaffirms Pre-Dart Cherokee Ruling that Counter-Defendant Cannot Remove Class Action Counterclaims Under CAFA

By Joe Reynolds

In Jackson v. Home Depot U.S.A., Inc., 880 F.3d 165 (4th Cir. Jan. 22, 2018), the Fourth Circuit held a counter-defendant cannot invoke federal jurisdiction under the Class Action Fairness Act of 2005 (“CAFA”). The Court reasoned that both CAFA and the general removal statute, 28 U.S.C. § 1441 expressly provide for removal by a “defendant”—not a counter-defendant. The Seventh and Ninth Circuit have reached the same result, Westwood Apex v. Contreras, 644 F.3d 799 (9th Cir. 2011), and Tri-State Water Treatment, Inc. v. Bauer, 845 F.3d 350 (7th Cir. 2017). But the Fourth Circuit’s careful attention to the procedural posture of the case suggests a different timeline might have produced a different result.

In Jackson, Citibank filed a debt collection action against George Jackson in North Carolina state court, based on Jackson’s failure to pay for a water treatment system purchased using a Citibank-issued credit card. 880 F.3d at 167. Jackson responded by filing a counterclaim against Citibank and third-party class action claims against Home Depot and Carolina Water Systems (“CWS”), claiming the latter two entities misled customers about their water treatment systems. Following Citibank’s voluntary dismissal of its original claims against Jackson, Home Depot removed the action to federal court, invoking federal jurisdiction under CAFA. And after removal, Home Depot moved to realign the parties such that Jackson would be the plaintiff and Home Depot, CWS, and Citibank would be the defendants. Jackson moved to remand and then amended his third-party complaint to remove any reference to Citibank. Id.

The general removal statute contemplates that “the defendant” or “the defendants” may remove a case to federal court, providing in pertinent part: “[A]ny civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.” 28 U.S.C. § 1441 (emphasis added). CAFA incorporates this statute, providing that a class action filed in state court may be removed “in accordance with section 1446 [the procedure for removal of civil actions under § 1441]… without regard to whether any defendant is a citizen of the State in which the action is brought, except that such action may be removed by any defendant without the consent of all defendants.” 28 U.S.C. § 1453(b) (emphasis added).

Apart from this statutory language, the Supreme Court held long ago that a plaintiff cannot remove a counterclaim brought against it. Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100 (1941). In doing so, the Supreme Court held that the predecessor to the current removal statue, which used similar language, should be strictly construed. Id. at 108. Congress enacted CAFA, on the other hand, “to facilitate adjudication of certain class actions in federal court.” Dart Cherokee Basin Operating Co., LLC v. Owens, 135 S. Ct. 547, 554 (2014). As such, “CAFA’s provisions should be read broadly, with a strong preference that interstate class actions should be heard in a federal court if properly removed by any defendant.” Id. (quoting S.Rep. No. 109–14, p. 43 (2005)).

In advocating for the application of CAFA, Home Depot first argued the phrase “any defendant” in CAFA should be read to include a counter-defendant, especially in light of the Supreme Court’s recent decision in Dart Cherokee that “no antiremoval presumption attends cases invoking CAFA.” Jackson, 880 F.3d at 170 (quoting Dart Cherokee, 135 S. Ct. at 554). The Fourth Circuit rejected this argument, holding that Congress chose to use the term “defendant,” and absent evidence otherwise, the Court would presume that Congress intended to adopt its well-established meaning. The Court of Appeals also refused to “upend so settled a definition as ‘defendant’ without clear direction from the Supreme Court,” leaving it to the highest court to rule “directly” CAFA effectuated such an expansion. Id. at 171.

Home Depot next argued that it actually constituted the true “defendant” as to the only live action remaining in the case (Jackson’s third-party class action claims against Home Depot and CWS). 880 F.3d at 171. The Fourth Circuit rejected this argument as well, paying “particular attention to the complex timeline of events in this case.” Id. Specifically, the Court of Appeals placed great emphasis on the fact that, at the time Home Depot removed, Citibank remained a counterclaim-defendant, even if Jackson thereafter dropped his claims against Citibank. Id.

Finally, Home Depot challenged the district court’s denial of its motion to re-align the parties. 880 F.3d at 172. The Fourth Circuit likewise gave short shrift to this argument, on the grounds that the purpose of realignment is to prevent “the creation of sham diversity jurisdiction.” Id. According to the Court of Appeals, “[b]ecause no party contends that this case involves an attempt to fraudulently manufacture jurisdiction, we need not delve too deeply into the issue of realignment.” id. at 172-73.

Takeaway: The Jackson decision rejected the argument that Dart Cherokee warranted a change to the existing law holding that an existing counterclaim-defendant could not remove. But the decision’s careful attention to the timeline of the case may leave open a procedural path for removal by a similarly-situated counterclaim-defendant in the future. If, for example, an additional counterclaim-defendant facing class claims can persuade a state court to re-align the parties with the original defendant as plaintiff (which could only happen if, as with Citibank in Jackson, the original plaintiff dismissed its claims against the original defendant), would the state court order granting realignment constitute an “order or other paper” rendering the case removable under 28 U.S.C. § 1446(b)(3)? For that matter, could Home Depot “re-remove” the case if it persuaded the North Carolina state court to re-align the parties following the remand of Jackson? Until these remaining procedural questions have been answered, the final fate of the current rule barring additional counterclaim-defendants from removing remains unresolved.

Posted on Friday, March 10 2017 at 3:07 pm by
The Eleventh Circuit holds CAFA’s local controversy provision does not preclude the exercise of federal question jurisdiction

 by Jay Bogan and Allen Garrett

Takeaway: The Class Action Fairness Act (“CAFA”) was enacted to broaden federal diversity jurisdiction over class actions. While CAFA’s local controversy provision requires district courts to “decline to exercise [diversity] jurisdiction” over local class actions, it was not intended to restrict other bases for federal subject matter jurisdiction, such as federal question jurisdiction.

In Blevins v. Askut, No. 16-11585, 2017 WL 782288 (11th Cir. Mar. 1, 2017), the plaintiff filed a putative class action in Alabama state court against a doctor and several medical facilities, alleging the doctor recommended and performed unnecessary heart procedures. Because the plaintiff alleged claims under federal RICO, the defendants removed the case to federal court. The district court denied plaintiff’s motion to remand and dismissed the RICO claims on the ground that plaintiff had failed to allege a cognizable RICO injury. The plaintiff appealed.

The Eleventh Circuit affirmed the district court’s denial of the motion to remand, rejecting the plaintiff’s arguments that CAFA’s local controversy provision (1) precluded district courts from exercising jurisdiction over all local class actions or (2) otherwise vested state courts with exclusive jurisdiction over such class actions.

On the first point, the Eleventh Circuit observed that the local controversy provision – 28 U.S.C. § 1332(d)(4) – requires a form of abstention and thus does not abrogate federal jurisdiction. But more importantly, the provision only directs district courts to refrain from exercising diversity jurisdiction over local class actions under Section 1332(d)(2). In other words, while Section 1332(d)(2) expands a federal court’s diversity jurisdiction over class actions with over $5 million at stake, § 1332(d)(4) (the local controversy provision) “proscribes the exercise of that [expanded] jurisdiction over local cases.” 2017 WL 782288, at *3. Thus, the local controversy provision has no impact on class actions properly removed to federal court based on the existence of federal question jurisdiction.

On the second point, the Eleventh Circuit held that federal courts presumptively have federal question jurisdiction under Section 1331 over claims arising under federal statutes, and that there was nothing in the language of the local controversy provision showing that Congress intended to divest federal courts of federal question jurisdiction over local class actions. “In sum, CAFA’s local-controversy provision does not require district courts to abstain from exercising federal-question jurisdiction over local class actions, and nothing in that provision indicates that Congress intended to divest district courts of federal-question jurisdiction.” Id.

On the merits, the Eleventh Circuit reversed the district court’s dismissal of plaintiff’s federal RICO claim, holding that payments for allegedly unnecessary heart procedures constituted “economic injuries” conferring standing under RICO – i.e., injuries to “business or property” – rather than injuries flowing from personal injuries. In so ruling, the Court of Appeals followed its reasoning in Ironworkers Local Union 68 v. AstraZeneda Pharmaceuticals, LP, 634 F.3d 1352, 1363 (11th Cir. 2011), a case involving allegedly inappropriate prescriptions, which differentiated non-recoverable personal injury-related harm from recoverable RICO injury arising from “a physician’s medically unnecessary or inappropriate prescriptions.” 2017 WL 782288, at *4. The Eleventh Circuit explained: “These injuries do not flow from any personal injuries. Rather, as in Ironworkers, the payments themselves are economic injuries because they were for medically unnecessary procedures.” Id.

Posted on Friday, February 10 2017 at 12:52 pm by

 by Ron Raider and Allen Garrett

President Trump has nominated Tenth Circuit Judge Neil M. Gorsuch to replace Justice Antonin Scalia on the United States Supreme Court, and we expect that his nomination will eventually be confirmed. Since 2006, Judge Gorsuch has issued a limited set of decisions concerning Rule 23 and the Class Action Fairness Act (“CAFA”). Here is our take on his class action jurisprudence:

Judge Gorsuch addressed the interplay of Rule 23(b)(2) (governing injunctive relief classes) and the general requirements for injunctive relief under Rule 65(d) in upholding an order denying class certification in Shook v. Board of County Commissioners, 543 F.3d 597 (10th Cir. 2008). The Shook plaintiffs sought to certify a class consisting of all present and future mentally ill inmates at Colorado’s El Paso County Jail. Gorsuch ruled that “[a]t the class certification stage, the injunctive relief sought must be described in reasonably particular detail such that the court can at least ‘conceive of an injunction that would satisfy [Rule 65(d)’s] requirements,’ as well as the requirements of Rule 23(b)(2).” Id. at 605 (quoting Monreal v. Potter, 367 F.3d 1224, 1236 (10th Cir. 2004)). Analyzing the different types of class members suffering from mental illness as well as “the fluid nature of the class” (given that it included not only current but future inmates), he found that any injunction would have to distinguish class members “based on individual characteristics and circumstances” rather than “prescribing a standard of conduct applicable to all class members.” Id. at 605 (emphasis in original). Moreover, while the problems inherent in formulating appropriate class-wide injunctive relief could have been “mitigated, or perhaps avoided, by the use of subclasses,” the district court did not sua sponte create any subclasses and was under no obligation to do so. Id. at 606-607. Accordingly, Gorsuch ruled that the district court did not abuse its discretion in declining to certify an injunctive relief class under Rule 23(b)(2).

In a 2010 opinion, Judge Gorsuch allowed a corporate defendant to appeal a federal district court order remanding a “mass action” to state court – one that that had been removed to federal district court under CAFA. BP America, Inc. v. Oklahoma ex. rel. Edmondson, 613 F.3d 1029 (10th Cir. 2010). BP raised two issues: (1) whether the appellate court had jurisdiction to consider the appeal (given that appellate courts are generally prohibited from reviewing district court remand orders under 28 U.S.C. § 1447), and (2) whether, if the order was appealable under CAFA’s exception to this general rule (28 U.S.C. § 1453), the appellate court should accept the interlocutory appeal. On the issue of appellate jurisdiction, Judge Gorsuch found that Congress had authorized appellate courts in § 1453(c)(1) to review district court remand orders of “mass actions.” Accordingly, the appellate court had jurisdiction over the appeal. On the issue of whether the appellate court should take the appeal, Gorsuch considered the factors listed by the First Circuit in terms of whether to grant leave to appeal under CAFA. Gorsuch ruled that the appellate court should accept the appeal, because (among other reasons) the “case raise[d] the important and unsettled legal questions whether CAFA’s mass action provision applies to suits by a state attorney general; . . .” Id. at 1035.

Just two months ago, Judge Gorsuch addressed how to prove the amount “in controversy” in terms of determining CAFA’s $5 million jurisdictional threshold in Hammond v. Stamps.com, Inc., 844 F.3d 909 (10th Cir. 2016). Hammond involved a class of Stamps.com subscribers who allegedly had been deceived into paying a monthly subscription fee. Stamps.com removed the case to federal court, asserting that the putative class sought damages that well exceeded $5 million. The district court remanded the case to state court, however, noting that the class consisted of persons who were “actually deceived,” and that, without proof as to how many class members were so deceived, Stamps.com could not satisfy the $5 million “in controversy” requirement. Examining the historical meaning of the term “in controversy,” Gorsuch ruled that Stamps.com need only show what a fact finder “might legally conclude,” as opposed to what the “factfinder would (or probably would) find” on the issue of damages. Id. at 912 (emphasis in original). Because the district court applied the wrong standard, it abused its discretion and improperly remanded the case to state court.


All three of these Gorsuch opinions are pro-defendant decisions. In Hammond, Judge Gorsuch joined the Seventh, Eighth, and Ninth Circuits in holding that a party may satisfy the amount “in controversy” requirement under CAFA by showing what a fact-finder could award in damages, as opposed to proving up the likely outcome, a decision that makes it easier for a defendant to remove a case under CAFA. See also Jay Bogan and Allen Garrett, Establishing CAFA Jurisdiction in the Face of Contradictory Allegations, January 4, 2017. BP was another pro-defendant removal decision. Finally, in Shook, Judge Gorsuch used the general injunctive relief requirements under Rule 65 to affirm the denial of certification of an injunctive relief class under Rule 23(b)(2). Shook should prove useful to any corporate defendant opposing Rule 23(b)(2) certification, especially in the Tenth Circuit.




Posted on Wednesday, January 4 2017 at 2:57 am by
Establishing CAFA Jurisdiction in the Face of Contradictory Allegations

Establishing CAFA Jurisdiction in the Face of Contradictory Allegations by Jay Bogan and Allen Garrett

It is a bedrock principle of American jurisprudence that you can’t have your cake and it eat too.

In class action litigation, plaintiffs often strive to avoid removal to federal court because they perceive state courts as more plaintiff-friendly. So class action plaintiffs frequently advance allegations designed to frustrate CAFA removals to federal court.

But plaintiffs also want to recover as much money as possible, so they naturally want to include allegations preserving the ability to recover the maximum amount of damages.

Courts in “fuel surcharge” class actions recently have grappled with this tension in addressing motions to remand CAFA removals. In these cases, plaintiffs allege the defendants collect unreasonable or excessive fees or surcharges, such as fuel charges, environmental charges, or delivery charges. To avoid removal to federal court, however, a plaintiff might argue that it is only challenging the portion of these charges that exceed the defendants’ related costs (claiming, for example, that a defendant collected more in fuel charges than it incurred in fuel costs).

In 2015, a Georgia federal court granted a motion to remand a class action challenging the reasonableness of various surcharges. The defendant presented evidence of the total amount of its charges and offered arguments (but not evidence) as to the amount of such charges that should be considered “unreasonable” under the theory articulated in the class action plaintiff’s complaint. But the defendant also refused to produce evidence of the costs that allegedly offset the collected charges. The federal court, distinguishing federal appellate authorities holding that the entire amount of the disputed charges should be considered under CAFA’s $5 million jurisdictional threshold, remanded the case to state court, reasoning that the defendant’s removal evidence did not show that $5 million was at stake, in light of plaintiff’s allegations. All-South Subcontractors, Inc. v. Sunbelt Rentals, Inc., No. 1:14-CV-124-WLS, 2015 WL 4255781 (M.D. Ga. July 14, 2015).

A Florida federal court recently reached a different result in 2016, denying a motion to remand a class action challenging fuel and environmental surcharges. In that Florida case, the complaint advanced contradictory allegations. On the one hand, the complaint challenged the fuel and environmental charges in their entirety, arguing the surcharges constituted “double dipping” by the defendant (under the theory the defendant was already reimbursed for its fuel and environmental costs through its base price). On the other hand, the complaint alleged the plaintiff sought only to recover the “excessive portion” of the charges, rather than the entire amount of those charges.

The federal court rejected this purported limitation and denied the plaintiff’s motion to remand. Pointing to the “double dipping” allegations, which attacked the charges in their entirety, the court ruled that the defendant’s evidence – which showed that the charges in their entirety exceeded $5 million – supported removal under CAFA. Vision Construction Ent., Inc. v. Argos Ready Mix, LLC, No. 3:15cv00534-MCR/CJK, 2016 WL 6987009 (N.D. Fla. Nov. 7, 2016).

Takeaway: CAFA has changed the jurisdictional analysis. It used to be that removal jurisdiction was strictly construed and that all jurisdictional doubts were to be resolved in favor of remand. No longer. The U.S. Supreme Court confirmed in Dart Cherokee Basin Operating Co. v. Owens, 135 S. Ct. 547, 554 (2014), that “no antiremoval presumption attends cases invoking CAFA, which Congress enacted to facilitate adjudication of certain class actions in federal court.” See also Dudley v. Eli Lilly and Co., 778 F.3d 909, 912 (11th Cir. 2014) (“we may no longer rely on any presumption in favor of remand in deciding CAFA jurisdictional questions.”)

In this context, “it must appear to a legal certainty that the claim is really less than the jurisdictional amount to justify dismissal.” Federated Mut. Ins. Co. v. McKinnon Motors, LLC, 329 F.3d 805, 807 (11th Cir. 2003) (emphasis added). Accordingly, when faced with a complaint that purports to challenge only the “unreasonable” or “excessive” portion of an alleged fee or charge, while at the same time preserving the ability to attack the fee or charge in its entirety, the defendant should emphasize the allegations that put all of the charges at issue and submit detailed evidence showing the charges well exceed CAFA’s $5 million threshold.

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