June 07, 2017 Practice Points

Plaintiffs Cannot Amend Their Complaint Post-Removal to Change the Nature of the Class to Divest the Federal Court of CAFA Jurisdiction: Ninth Circuit

The ruling comes in Broadway Grill v. Visa Inc.

By Antonieta Pimienta

In a split decision, the U.S. Court of Appeals for the Ninth Circuit held that plaintiffs may not divest a federal court of jurisdiction by amending their complaint after a case has been removed to federal court to change the definition of the class to eliminate minimal diversity. Broadway Grill, Inc. v. Visa Inc. et al., No. 17-15499 (9th Cir. May 18, 2017). In so holding, the majority clarified that only a narrow range of amendments is permitted under Benko v. Quality Loan Service Corp., 789 F.3d 1111 (9th Cir. 2015).

In the underlying lawsuit, Broadway Grill, a California restaurant, accused Visa of violating California antitrust laws by fixing rates and preventing merchants from applying a surcharge for the use of credit cards. After Visa removed the lawsuit to federal court because the minimal diversity requirement and other requirements of the Class Action Fairness Act (CAFA) were satisfied, Broadway Grill moved to remand the suit back to state court but was unsuccessful. Broadway Grill subsequently sought leave to amend the complaint to change the plaintiff class to include only “California citizens,” rather than anyone doing business in California, to eliminate minimal diversity. While the U.S. District Court for the Northern District of California acknowledged the general rule that jurisdiction is determined at the time of removal, and post-removal amendments cannot eliminate jurisdiction, in light of an exception articulated in Benko, the court granted leave to amend and ordered the case remanded to state court.

Benko held that, in certain circumstances, “plaintiffs should be permitted to amend a complaint to clarify issues pertaining to federal jurisdiction under CAFA . . . .” Benko, 789 F.3d at 1117. Thus, the plaintiffs were permitted to set out the percentage of claims that were against the in-state defendant to show that it was a “significant defendant” within CAFA’s local controversy exception. Under the local controversy exception, which the plaintiff restaurant invoked in Broadway Grill in its remand motion, federal jurisdiction will not be exercised over cases in which two-thirds of the class members are citizens of the state of filing and a “significant” defendant is a citizen of that state as well. 28 U.S.C. § 1332 (d)(4).

Recognizing that Benko had created uncertainty in the district courts as to when post-removal amendments are permissible, the majority in Broadway Grill reiterated that the amendment in Benko “served only to provide some amplification, for federal jurisdictional purposes, of the nature of plaintiffs’ allegations.” The amendment provided “estimates of the percentage of total claims asserted against [the in-state defendant]” in order to show that the in-state defendant was “significant,” for purposes of § 1332(d)(4). According to the Broadway Grill majority, only under such “limited circumstances,” where plaintiffs could provide information clarifying “the relationship between the parties and the effect of the class claims on particular defendants,” would amendments that can potentially affect jurisdiction be allowed.

In contrast, Broadway Grill’s amendment “did not provide an explanation of the allegations, but changed the definition of the class itself”: “Instead of being composed of all the merchants in the state of California, regardless of citizenship, the class, as defined in the amended complaint, became exclusively composed of California citizens.”

Accordingly, Broadway Grill reaffirms the general rule that jurisdiction is determined at the time of removal and that post-removal amendments cannot eliminate jurisdiction. Only limited circumstances warrant departure from this rule, and they do not include post-removal amendments that change the nature of the claims or the make-up of the class so as to bypass CAFA.

Antonieta (Tonie) Pimienta is a litigation associate in the Los Angeles, California, office of Skadden, Arps, Slate, Meagher & Flom LLP.