Even if Congress prefers that class action suits proceed in federal court, the plaintiffs’ bar often feels otherwise.
Plaintiffs sometimes fight for remand to state court after a defendant removes a class action to federal court under the Class Action Fairness Act of 2005 (CAFA). In this fray, the U.S. Court of Appeals for the Ninth Circuit stood alone in allowing plaintiffs to broadly amend their complaints post-removal to avoid federal diversity and return class actions to the state courts where they were first filed. But no longer.
Without expressly reversing its prior decisions, the Ninth Circuit has now joined other circuits in holding that once a class action has been removed to federal court, plaintiffs are no longer free to amend the complaint to redefine class membership and defeat diversity jurisdiction.
A Convoluted History
The lead plaintiff in Broadway Grill, Inc. v. Visa, Inc., a California restaurant, filed a California class action, claiming that Visa violated state antitrust laws by fixing rates and prohibiting vendor surcharges. The complaint described the class as “all California individuals, businesses and other entities who accepted Visa-branded cards in California since January 1, 2004.” Although Visa was itself a California resident, it was able to remove the case to federal court by invoking CAFA. Under CAFA’s minimal diversity standard, federal jurisdiction exists, provided that at least one class member has citizenship diverse from any one defendant. Because some of the merchants doing business in California were citizens of others states, CAFA’s minimum diversity standard was satisfied.
After Visa removed the case to federal court, however, the plaintiffs moved to remand, arguing that the case fell into CAFA’s “local controversy” exception. Under this carve-out, removal is improper where two-thirds of the class members are citizens of the state where the case was originally filed, provided that a “significant” defendant is also a citizen of that same state. Because Visa was a citizen of California and the class consisted of California merchants, the plaintiffs argued that the original California suit was a “local controversy” for which CAFA would not apply. In their original complaint, however, the plaintiffs had not identified whether they satisfied the two-thirds citizenship required to fall into the local controversy exception. Thus, they sought leave to amend their complaint to redefine their class as solely comprising of California residents. The district court allowed this revision, citing the Ninth Circuit’s earlier decision allowing post-removal amendments in Benko v. Quality Loan Service Corp.
Clarifying or Confusing?
In Benko, the Ninth Circuit had ruled that in at least some circumstances, “plaintiffs should be permitted to amend a complaint after removal to clarify issues pertaining to federal jurisdiction under CAFA.” Thus, the court had allowed the Benko plaintiffs to amend their complaint to allege facts showing that the in-state defendant was a “significant defendant” within the meaning of CAFA’s local controversy exception. While noting that jurisdiction is determined by the complaint as it exists at the time of removal, the Benko court allowed complaint amendments to “provide some amplification, for federal jurisdictional purposes, of the nature of plaintiffs’ allegations,” according to the Ninth Circuit in Broadway Grill. The court observed, however, that “Benko has created some uncertainty in the district courts as to when post-removal amendments may be allowed.”
Noting that CAFA prefers federal jurisdiction for class actions and citing concerns over forum manipulation, the Ninth Circuit held in Broadway Grill that by changing the definition of the class, the plaintiff had “changed the nature of the action” itself, thereby falling outside the “amplification” rule provided in Benko. The court commented that it did not find any circuit decisions “permitting post-removal amendment of the complaint to affect the existence of federal jurisdiction and certainly none permitting alteration of the make up of the class.” But the court did cite decisions from the Second, Seventh, Eighth, and Tenth Circuits denying such amendments as the Broadway Grill plaintiffs sought here.
Was It a “Clarification” or a Change?
The dissent in Broadway Grill accused the majority of “essentially engag[ing] in a stealth reversal of Benko, something a three-judge panel may not legitimately do.” Instead, the dissent opined that the plaintiff’s post-removal amendment was simply meant to “clarify issues pertaining to federal jurisdiction under CAFA,” consistent with Benko. As the dissenting judge explained, “Because Broadway Grill originally filed its action in state court, the citizenship of the parties was irrelevant. . . . In Benko, we expressly acknowledged that pleadings filed in state court need not, and often do not, ‘address CAFA-specific issues,’ such as diversity of citizenship. ‘By amending their complaint in these circumstances, plaintiffs can provide a federal court with the information required to determine whether a suit is within the court’s jurisdiction under CAFA.’”
Moreover, the dissenter continued, the plaintiff had not changed the nature of the action, because pre-amendment and post-amendment, its substantive claims remained the same. For each of these reasons, in the dissenter’s view, the case belonged back in California state court.
Comports with Public Policy
Others are not so sure. “In enacting CAFA, Congress made it clear that litigating these types of cases in state courts wasn’t always working,” observes Lindsay D. Breedlove, Philadelphia, PA, cochair of the Antitrust Subcommittee of the ABA Section of Litigation’s Class Actions & Derivative Suits Committee. “State systems aren’t generally designed to deal with claims brought on behalf of individuals from around the country. Not every state has the sort of infrastructure required to efficiently handle large class action cases. CAFA was intended to solve that.”
The legislative purpose of Congress was to create uniformity and to ensure that defendants and absent class members were being treated fairly.
Breedlove is not alone in being skeptical. Benko “frustrated the intent of Congress to broaden federal class action jurisdiction to include virtually all cases of significant amount,” says Gregory C. Cook, Birmingham, AL, cochair of the Books Subcommittee of the Section of Litigation’s Class Actions & Derivative Suits Committee. “The legislative purpose of Congress was to create uniformity and to ensure that defendants and absent class members were being treated fairly.”
Others are equally glad to see Benko curtailed. “Parties and counsel should not be able to manipulate the pleadings after the fact to forum shop if they don’t like how a case is going,” notes Sondra A. Hemeryck, Chicago, IL, cochair of the Consumer Law Subcommittee of the Section’s Class Actions & Derivative Suits Committee. “On the other hand, CAFA’s been around now since 2005. Everyone knows it’s there. Certainly, class action plaintiffs’ attorneys draft their pleadings to avoid CAFA removal when they can.”
“That’s really the question,” Cook agrees. “Was there an attempt to forum shop here by plaintiff’s counsel? Are they attempting to have their cake and eat it too? Define their class broadly when they file the complaint and then, if it gets removed under CAFA, try and restrict it after removal so that they can get back to state court? It’s impossible to get into the mind of the plaintiff’s counsel, but that’s certainly one interpretation of what happened here.”
A bright-line approach avoids these concerns entirely, Hemeryck observes. “A rule that says we are going to decide jurisdiction based upon the pleadings as they exist at removal contributes to predictability and conserves resources for the courts and parties alike.”
“From a public policy perspective, the better course would have been to overrule Benko entirely,” she adds. “But I think they went as far as they could, given the practical procedural limitations of being a single three-judge panel.”
“Class action plaintiffs’ attorneys are free to include in their original pleadings whatever facts are necessary to establish the local controversy exception as appropriate. But the burden is back on the plaintiffs to frame it that way in their original pleading. Later amendments may well be too late,” Hemeryck concludes.
Carl A. Aveni is an associate editor for Litigation News.
- Broadway Grill, Inc. v. Visa, Inc., No. 17-15499 (9th Cir. May 18, 2017).
- Benko v. Quality Loan Serv. Corp., 789 F.3d 1111 (9th Cir. 2015).
- Class Action Fairness Act, 28 U.S.C. § 1332(d).
- Gregory C. Cook, ed., The Class Action Fairness Act: Law and Strategy (ABA 2014), available at http://bit.ly/cafa-law-book.
- Kristen L. Burge, “Circuit Court Adopts Bright-Line Rule for Removal under CAFA,” Litigation News (Sept. 8, 2016), available at http://bit.ly/cafa-burge.
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