Class Action Removal Standards in Flux

Transcription

1 presents Class Action Removal Standards in Flux Effective Litigation Strategies for Plaintiff and Defense Counsel A Live 90-Minute Audio Conference with Interactive Q&A Today's panel features: D. Matthew Allen, Shareholder, Carlton Fields, Tampa, Fla. Brian Anderson, Partner, O'Melveny & Myers, Washington, D.C. Garrett W. Wotkyns, Of Counsel, Schneider Wallace Cottrell Brayton Konecky, Scottsdale, Ariz. Tuesday, June 16, 2009 The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 am Pacific The audio portion of this conference will be accessible by telephone only. Please refer to the dial in instructions ed to registrants to access the audio portion of the conference. CLICK ON EACH FILE IN THE LEFT HAND COLUMN TO SEE INDIVIDUAL PRESENTATIONS. If no column is present: click Bookmarks or Pages on the left side of the window. If no icons are present: Click View, select Navigational Panels, and chose either Bookmarks or Pages. If you need assistance or to register for the audio portion, please call Strafford customer service at ext. 10

2 EVOLVING CLASS ACTION REMOVAL STANDARDS a Defendant s Perspective Part I D. Matthew Allen Carlton Fields, P.A. Corporate Center Three at International Plaza 4221 West Boy Scout Blvd. Suite 1000 Tampa, FL (813)

3 I. Introduction EVOLVING CLASS ACTION REMOVAL STANDARDS A Defendant s Perspective Part I By D. Matthew Allen 1 A. The Class Action Fairness Act of 2005, or CAFA, was signed into law on February 18, B. Among other things, the law expands the scope of federal court diversity jurisdiction over nonfederal question class actions. II. Burden of Proof A. Rule before CAFA: The burden of proof on motions to remand is borne by the party seeking to confer federal jurisdiction. E.g., Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir.1992). B. Did CAFA change this rule? The Senate Judiciary Committee report on CAFA (S. Rep ) suggested that the statute was intended to reverse this longstanding judicial rule. A few early decisions relied on this report to hold that CAFA reversed the burden of proof on a motion to remand. E.g., Berry v. Am. Express Publ'g, Corp., 381 F. Supp. 2d. 1118, 1123 (C.D. Cal. 2005). C. Subsequent decisions have strongly disagreed with this use of legislative history and ruled that the burden of proof remains with the party seeking federal jurisdiction. In 2007, Judge Kessler of the District of Columbia stated in Wexler v. United Air Lines, Inc., 496 F. Supp. 2d 150 (D.D.C. 2007) that no circuit has accepted the burden-shifting argument. The Third, Fourth, Sixth, Seventh, Ninth, and Eleventh Circuits have held that CAFA does not change the traditional rule that the party seeking to remove the case to federal court bears the burden of establishing federal jurisdiction. See Brill v. Countryside Home Loans, 427 F.3d 446 (7 th Cir. 2005); Frederico v. Home Depot, 507 F.3d 188 (3d Cir. 2007); Stawn v. AT&T Mobility LLC, 530 F.3d 293 (4 th Cir. 2008); Smith v. Nationwide Prop. & Cas. Ins. Co., 505 F.3d 401 (6 th Cir. 2007); Luther v. Countryside Home Loan Servicing LP, 533 F.3d 1031 (9 th Cir. 2008); Evans v. Walter Industries, 449 F.3d 1159 (11 th Cir. 2006). D. The clear trend among the courts has been to impose the burden of proof on the party invoking the exception to jurisdiction in other words, in the removal context on the plaintiff. Among the courts of appeal, the Fifth, Seventh, Ninth, 1 Mr. Allen is a shareholder of Carlton Fields in Tampa, Florida and the head of Carlton Fields' Class Action Task Force. He is a 1990 graduate of Vanderbilt University School of Law and is board certified by the Florida Bar as a specialist in antitrust law

4 and Eleventh Circuits have reached this conclusion, along with a number of district courts. See Preston v. Tenet HealthSystem Mem. Med. Ctr., Inc., 485 F.3d 793 (5 th Cir. 2007); Hart v. FedEx Ground Package Sys., Inc., 457 F.3d 675 (7 th Cir. 2006); Serrano v. 180 Connect, Inc., 478 F.3d 1018 (9 th Cir. 2007); Evans v. Walter Indus., Inc., 449 F.3d 1159 (11 th Cir. 2006). 1. In Frederico v. Home Depot, 507 F.3d 188 (3d Cir. 2007), the Third Circuit suggested in dictum that the defendant retains the burden of even proving that the exceptions do not apply. 2. But in Kaufman v. Allstate New Jersey Ins. Co., 561 F.3d 144 (3d Cir. 2009), the Third Circuit aligned itself with the other circuits and held that the plaintiff has the burden of proving the exceptions. III. Jurisdictional Requirements Of CAFA A. Commencement. The class action must have been commenced on or after February 18, B. Minimal Diversity. A single plaintiff or unnamed class member must be a citizen of a different state than any defendant. C. Number. The class must be composed of at least 100 members. D. Amount in Controversy. The aggregate amount in controversy, exclusive of interest and costs, must exceed $5 million. E. Declining Jurisdiction. 1. Note: If between 1/3 and 2/3 of putative class members are citizens of the forum state, the district court may decline to exercise diversity jurisdiction based on its consideration of several enumerated factors. 2. If two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which action was originally filed, the court is required to decline to exercise jurisdiction. 28 U.S.C. 1332(d)(4)(B). F. Exceptions. In addition, by its terms, CAFA does not apply to cases where the primary defendant is a government agency, cases involving covered securities or fiduciary duties related to securities, and cases relating to the internal affairs of a corporation. IV. Litigation Over The Commencement Requirement

5 A. The law of the forum state determines whether a specific action re-commences a case. See Natale v. Pfizer, Inc., 424 F.3d 43, 44 (1 st Cir. 2005); Bush v. Cheaptickets, Inc., 425 F.3d 683, 686 (9 th Cir. 2005). B. The act of removal to federal court does not constitute a new commencement of the case. Pritchett v. Office Depot, Inc., 404 F.3d 1232 (10 th Cir. 2005). C. The addition of class claims to an individual lawsuit, however, does commence a new action. Smith v. Nationwide Property & Cas. Ins. Co., 505 F.3d 401 (6 th Cir. 2007). C. The joinder of new defendants may commence a new action. See Prime Care of Northeast Kansas, LLC v. Humana Ins. Co., 447 F.3d 1284 (10 th Cir. 2006); Schillinger v. Union Pacific R.R. Co., 425 F.3d 330 (7 th Cir. 2005); Springman v. AIG Marketing, Inc., 523 F.3d 685 (7 th Cir. 2008). D. But the joinder of new plaintiffs may not. Weber v. Mobil Oil Corp., 506 F.3d 1311 (10 th Cir. 2007). E. The addition of new claims on behalf of existing parties may at times commence a new action if they are based on different conduct than the original claims. Jones v. Sears Roebuck and Co., 2008 WL (4 th Cir. Nov. 10, 2008). In most circuits, the question turns on whether, under applicable state law, the amended pleading relates back to the original complaint. Schorsh v. Hewlett-Packard Co., 417 F.3d 748 (7 th Cir. 2005). The court will look to the state law equivalent of Rule 15 of the Federal Rules of Civil Procedure to make this determination. But see McAtee v. Capital One, F.S.B., 479 F.3d 1143 (9 th Cir. 2007) (a case is commenced under California law when the complaint is filed, regardless of any subsequent amended pleading that might be filed). V. Amount In Controversy Requirement The starting point of analysis is the complaint. The defendant s specific quantum of proof that is required will change depending on what is alleged in the complaint. A. If the plaintiff pleads damages that exceed the $5 million amount in controversy, there is a presumption that the jurisdictional amount is satisfied. See Gugliemino v. McKee Foods Corp., 506 F.3d 696 (9 th Cir. 2007). B. If the plaintiff specifically alleges that aggregate damages are less than $5 million, in at least two circuits, a removing defendant will need to prove to a legal certainty that damages will equal or exceed $5 million. Lowdermilk v. U.S. Bank Nat l Ass n, 479 F.3d 994 (9 th Cir. 2007); Morgan v. Gay, 471 F.3d 469 (3d Cir. 2006). But see Bell v. The Hershey Co., 557 F.3d 953 (8 th Cir. 2009) (the

6 preponderance of the evidence standard applies even when the plaintiff attempts to cap damages in the complaint). C. If the complaint does not specify the amount of damages sought in the complaint or it merely specifies that damages exceed a certain minimal threshold the defendant needs only prove by a preponderance of the evidence or a more lenient standard that damages exceed $5 million in the aggregate. See Miedema v. Maytag Corp., 450 F.3d 1322 (11 th Cir. 2006). 1. Some courts use the terminology more likely than not. See Abrego Abrego v. Dow Chem. Co., 443 F.3d 676 (9 th Cir. 2006). 2. Others use the terminology reasonable probability. Amoche v. Guarantee Trust Life Ins. Co., 556 F.3d 41 (1 st Cir. 2009). 3. The Third Circuit standard is even more lenient. There, if the complaint does not cap damages, remand is appropriate only if the plaintiff proves to a legal certainty that damages cannot exceed the $5 million jurisdictional amount. Frederico v. Home Depot, 507 F.3d 188 (3d Cir. 2007). Evaluation of the amount in controversy requirement must proceed circuit-by-circuit. The Seventh Circuit is the most receptive to removal. Hart v. Fedex Ground Package System, Inc., 457 F.3d 675 (7 th Cir. 2006); Spivey v. Vertrue, Inc., 528 F.3d 982 (7 th Cir. 2008). The Eleventh Circuit is the most hostile to removal. See Lowery v. Alabama Power Co., 483 F.3d 1184 (11 th Cir. 2007). The Ninth Circuit will look skeptically at premature removal decisions without the development of evidence. See Abrego Abrego v. Dow Chem. Co., 443 F.3d 676 (9 th Cir. 2006). The First Circuit takes a middle of the road approach in terms of receptiveness to removal. See Amoche v. Guarantee Trust Life Ins. Co., 556 F.3d 41 (1 st Cir. 2009)

7 EVOLVING CLASS ACTION REMOVAL STANDARDS -- PART II Brian Anderson O Melveny & Myers LLP 1. CAFA Exceptions a. Who has the burden of proving the exception? Most courts say the plaintiff. i. Evans v. Walter Indus., Inc., 449 F.3d 1159 (11 th Cir. 2006) (party seeking to invoke CAFA exception is most capable of bearing burden of persuasion) 1 b. The local controversy exception i. 28 U.S.C. 1332(d)(4)(A). Ct must decline jurisdiction if: 1. more than 2/3 of class members are from forum state, 2. a significant defendant is from the forum state, 3. principle injuries occurred in-state, and 4. no other class action on the issue filed against defendants in last 3 years ii. Kaufman v. Allstate New Jersey Inc. Co., 561 F.3d 144 (3d Cir. 2009) (the significant basis provision requires comparing the local defendant s alleged conduct to the alleged conduct of all the defendants; the analysis must be substantive (there is no quantitative measure for this determination), and the local defendant s alleged conduct must be an important ground for the claims alleged as compared with the alleged conduct of all the 1 See also Serrano v. 180 Connect, Inc., 478 F.3d 1018 (9th Cir. 2007); Frazier v. Pioneer Ams. LLC, 455 F.3d 542 (5th Cir. 2006); Hart v. FedEx Ground Package Sys. Inc., 457 F.3d 675 (7th Cir. 2006). See also McMorris v. TJX Cos., 493 F. Supp. 2d 158, 165 (D. Mass. 2007) (concurring in the judgment of every other federal court that has considered the issue and concluding that the burden of showing that a statutory exception [to CAFA] applies falls on the party moving to remand ); Anthony v. Small Tube Mfg. Corp., No. 06-CV-4419, 2007 U.S. Dist. LEXIS 73064, at *19 (E.D. Pa. Sept. 27, 2007) (noting that the U.S. Court of Appeals for the Third Circuit had not yet ruled on the issue, but finding the reasoning of the Fifth, Seventh, Ninth, and Eleventh Circuits persuasive and concluding that the burden of proving a CAFA exception falls to the party seeking to invoke the exception); Eakins v. Pella Corp., 455 F. Supp. 2d 450 (E.D.N.C. 2006); Robinson v. Cheetah Transp., No , 2006 WL (W.D. La. Feb. 27, 2006); Schwartz v. Comcast Corp., No , 2006 U.S. Dist. LEXIS 7499 (E.D. Pa. Feb. 28, 2006). 1

8 defendants; the provision also does not require that the local defendant s conduct form a basis of each claim asserted; it will suffice if the alleged conduct forms a significant basis of all the claims asserted) iii. Frazier v. Pioneer Americas LLC, 455 F.3d 542 (5 th Cir. 2006) (rejecting P s argument that state agency defendant is a citizen of forum state, thus defeating removal under local controversy exception) iv. Preston v. Tenet Healthsystem Memorial Medical Center, Inc., 485 F.3d 793 (5th Cir. 2007) (rejecting P s argument that 2/3 of displaced Katrina victim class members are Louisiana residents in absence of evidence that they plan to return to live in Louisiana). 2 c. The home state exception i. 28 U.S.C. 1332(d)(4)(B). Ct must decline jurisdiction if: 1. more than 2/3 of class members are from forum state, and 2. all primary defendants are from the forum state ii. 28 U.S.C. 1332(d)(3). Ct may decline jurisdiction based on consideration of six factors and totality of the circumstances if: 2 See also Caruso v. Allstate Ins. Co., 469 F. Supp. 2d 364, (E.D. La. 2007) (denying motion to remand because plaintiffs failed to establish applicability of the local controversy exception; the existence of class actions that undoubtedly assert similar factual allegations filed in the last three years is fatal to plaintiffs argument that this lawsuit falls under CAFA s local-controversy exception ); Escoe v. State Farm Fire & Cas., No , 2007 U.S. Dist. LEXIS 30088, at *8 (E.D. La. April 23, 2007) (concluding that the local controversy exception was inapplicable); Fuller v. Home Depot Servs., LLC, No. 1:07-CV-1268-RLV, 2007 WL , at *5 (N.D. Ga. Aug. 14, 2007) (plaintiff proffered no evidence whatsoever in support of his assertion that over two-thirds of the class members are Georgia citizens ; thus the local controversy exception to CAFA is not applicable and Home Depot has properly removed this case ); Phillips, 2007 WL , at *3 (concluding that the local controversy exception was inapplicable); Brook v. UnitedHealth Group Inc., No. 06 CV 12954(GBD), 2007 WL , at *4 (S.D.N.Y. Sept. 27, 2007) (holding that plaintiffs failed to establish applicability of the local controversy exception); Eakins v. Pella Corp., 455 F. Supp. 2d 450, 453 (E.D.N.C. 2006) (denying motion to remand based on local controversy exception; plaintiffs failed to show the product in question was sold exclusively in North Carolina, that the injury resulting from the defect is specific to North Carolina, or that the class as a whole has a cause of action against the local defendant); Robinson v. Cheetah Transp., No. Civ. A , 2006 WL , at *4 (W.D. La. Feb. 27, 2006) (denying motion to remand based on local controversy exception and concluding that the relevant in-state defendant, the driver of a tractor-trailer, was just small change compared to what the putative class was seeking from the out-of-state national company defendants); Sullivan v. State Farm Fire & Cas. Ins. Co., No , 2006 U.S. Dist. LEXIS 95817, at *24 (E.D. La. April 6, 2006) (same); Kearns v. Ford Motor Co., No. CV GAF, 2005 WL (C.D. Cal. Nov. 21, 2005) (denying motion to remand and concluding, inter alia, that a local car dealership was not a defendant from whom significant relief was sought or whose conduct formed a significant basis for the claims asserted for purposes of the local controversy exception, since most of the plaintiffs had purchased their vehicles from other dealerships). 2

9 2. CAFA Appeals 1. between 1/3 and 2/3 of class members are from forum state, and 2. all primary defendants are from the forum state iii. Schwartz v. Comcast Corp., No , 2006 U.S. Dist. LEXIS 7499, at *22 (E.D. Pa. Feb. 28, 2006) (plaintiff failed to prove that more than 1/3 of class members residing or doing business in Pennsylvania were citizens of that state). 3 a. The 7-day rule i. 28 U.S.C Court of appeals may hear appeal of order granting or denying remand if application made within 7 days after order. Must decide within 60 days unless extension granted. ii. Estate of Pew v. Cardarelli, 527 F.3d 25 (2d Cir. 2008) (the not less than 7 days language of 28 U.S.C. 1453(c)(1) must be a typographical error and should be read not more than 7 days because the legislative intent behind the statute was to impose a seven-day deadline for appeals, not a waiting period); 4 iii. But see Spivey v. Vertrue, Inc., 528 F.3d 982 (7th Cir. 2008) (finding that less means less and not more and noting that rather than creating a limitless timeframe for filing the appeal, the ruling means that the 30-day rule for filing a notice of appeals under the Federal Rules of Appellate Procedure would control). b. Scope of review i. 28 U.S.C. 1453(c)(1). Notwithstanding general ban on review of remand orders pursuant to 28 U.S.C. 1447(d), court of appeals may accept appeal of order granting or denying a motion to remand a class action. 3 See also Nichols v. Progressive Direct Ins. Co., No DLB, 2007 WL , at *3 (E.D. Ky. Mar. 31, 2007) (denying motion to remand and concluding neither the home state exception or local controversy exception applied); Kendrick v. Standard Fire Ins. Co., No DLB, 2007 WL , at *5 (E.D. Ky. Mar. 31, 2007) (same); Kitson v. Bank of Edwardsville, No GPM, 2006 U.S. Dist. LEXIS 85285, at *18 (S.D. Ill. Nov. 22, 2006) (concluding that both the home state and local controversy exceptions applied to plaintiffs claims for state law violations arising from improperly calculated interest on bank loans given by the defendants, an Illinois bank and a software licensing company). 4 See also Morgan v. Gay, 466 F.3d 276 (3d Cir. 2006); Miedema v. Maytag Corp., 450 F.3d 1322 (11th Cir. 2006); Amalgamated Transit Union Local 1309 v. Laidlaw Transit Servs., Inc., 4345 F.3d 1140 (9th Cir. 2006); Pritchett v. Office Depot, Inc., 420 F.3d 1090 (10th Cir. 2005). 3

10 ii. Brill v. Countrywide Home Loans, Inc., 427 F.3d 446 (7th Cir. 2005) (because 1453(c)(1) permits appellate review of remand orders notwithstanding section 1447(d), the court is not limited to reviewing only mistakes in the application of CAFA and is free to consider any potential error that would have otherwise been unreviewable pursuant to 1447(d)); iii. But see Patterson v. Dean Morris, L.L.P., 448 F.3d 736 (5th Cir. 2006) (appellate jurisdiction under CAFA is limited to review of remand orders premised on prerequisites of 1453 or on claims with adequate nexus to CAFA, and the precatory language of 1453 cannot be construed to allow the court to reach otherwise nonreviewable remand decisions). 4

11 28 U.S.C. 1332(d) (2) The district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $ 5,000,000, exclusive of interest and costs, and is a class action in which-- (A) (B) (C) any member of a class of plaintiffs is a citizen of a State different from any defendant; any member of a class of plaintiffs is a foreign state or a citizen or subject of a foreign state and any defendant is a citizen of a State; or any member of a class of plaintiffs is a citizen of a State and any defendant is a foreign state or a citizen or subject of a foreign state. (3) A district court may, in the interests of justice and looking at the totality of the circumstances, decline to exercise jurisdiction under paragraph (2) over a class action in which greater than one-third but less than two-thirds of the members of all proposed plaintiff classes in the aggregate and the primary defendants are citizens of the State in which the action was originally filed based on consideration of-- (A) (B) (C) (D) (E) (F) whether the claims asserted involve matters of national or interstate interest; whether the claims asserted will be governed by laws of the State in which the action was originally filed or by the laws of other States; whether the class action has been pleaded in a manner that seeks to avoid Federal jurisdiction; whether the action was brought in a forum with a distinct nexus with the class members, the alleged harm, or the defendants; whether the number of citizens of the State in which the action was originally filed in all proposed plaintiff classes in the aggregate is substantially larger than the number of citizens from any other State, and the citizenship of the other members of the proposed class is dispersed among a substantial number of States; and whether, during the 3-year period preceding the filing of that class action, 1 or more other class actions asserting the same or similar claims on behalf of the same or other persons have been filed. (4) A district court shall decline to exercise jurisdiction under paragraph (2)-- 5

12 (A) (i) over a class action in which-- (I) (II) 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; at least 1 defendant is a defendant-- (aa) (bb) (cc) from whom significant relief is sought by members of the plaintiff class; whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and who is a citizen of the State in which the action was originally filed; and (III) principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed; and (ii) during the 3-year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons; or (B) two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed. (5) Paragraphs (2) through (4) shall not apply to any class action in which-- (A) (B) the primary defendants are States, State officials, or other governmental entities against whom the district court may be foreclosed from ordering relief; or the number of members of all proposed plaintiff classes in the aggregate is less than

13 28 U.S.C (c) Review of remand orders. (1) In general. Section 1447 [28 USCS 1447] shall apply to any removal of a case under this section, except that notwithstanding section 1447(d) [28 USCS 1447(d)], a court of appeals may accept an appeal from an order of a district court granting or denying a motion to remand a class action to the State court from which it was removed if application is made to the court of appeals not less than 7 days after entry of the order. (2) Time period for judgment. If the court of appeals accepts an appeal under paragraph (1), the court shall complete all action on such appeal, including rendering judgment, not later than 60 days after the date on which such appeal was filed, unless an extension is granted under paragraph (3). (3) Extension of time period. The court of appeals may grant an extension of the 60-day period described in paragraph (2) if-- (A) (B) all parties to the proceeding agree to such extension, for any period of time; or such extension is for good cause shown and in the interests of justice, for a period not to exceed 10 days. (4) Denial of appeal. If a final judgment on the appeal under paragraph (1) is not issued before the end of the period described in paragraph (2), including any extension under paragraph (3), the appeal shall be denied. 7

14 EVOLVING CLASS ACTION REMOVAL STANDARDS JUNE 16, 2009 THE PLAINTIFFS PERSPECTIVE GARRETT W. WOTKYNS / SCHNEIDER WALLACE COTTRELL BRAYTON KONECKY LLP There is no such thing as a simple class action. Managing Class Action Litigation: A Pocket Guide for Judges (Federal Judicial Center 2005) I. Remand: To Move Or Not To Move? A. Signaling risks concerning perceived case value B. Need to preserve autonomy at outset concerning case theory B. Possible intrinsic value in forcing defendant to reveal important facts in removal papers / remand briefing C. Relative (perceived) favorability of state vs. federal forum D. Implications of removal for litigation trajectory / leadership issues II. Crafting Single-State Class Complaint Allegations With Remand Practice In Mind A. Prayer for relief: how specific to be? B. Avoiding federal questions C. Punitive damages D. Naming out-of-state defendants