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Media Alerts - Broadway Grill, Inc. v. Visa, Inc.
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August 30, 2017
  Broadway Grill, Inc. v. Visa, Inc.
Headline: The Ninth Circuit held that plaintiffs may not amend their complaint, after a case has been removed to federal court, to change the definition of the class so as to eliminate minimal diversity and thereby divest the federal court of jurisdiction. The panel clarified that Benko v. Quality Loan Service Corp., that created an exception to this general rule unique to the Ninth Circuit, allows amendments only for purposes of clarifying the relationship between the parties and the effect of the class claims on particular defendants.

Area of Law: Civil Procedure

Issue Presented: Whether the representative party to a class action filed in state court may amend its complaint after the case has been removed to federal court under the Class Action Fairness Act, 28 U.S.C. §1332(d), in order to alter the plaintiff class so as to eliminate minimal diversity and divest the federal court of jurisdiction.

Brief Summary: The Ninth Circuit panel reversed the district court's order remanding a class action filed by Broadway Grill, Inc. that had been removed to federal court under the Class Action Fairness Act (CAFA) on the basis of minimal diversity between non-California citizens and a California defendant. After removal, the district court had permitted Broadway Grill to eliminate minimal diversity by amending its complaint to remove from the plaintiff class non-California citizens and include only California citizens. In granting leave to amend, the district court relied on the Ninth Circuit's decision in Benko v. Quality Loan Service Corp., 789 F.3d 1111 (9th Cir. 2015), which allows for amendment after removal under CAFA in limited circumstances so that the plaintiff may clarify the nature of the action for purposes of a federal jurisdictional analysis. On review, the Ninth Circuit panel distinguished Benko from the instant case, finding that Broadway Grill did not seek to amend its complaint to clarify the nature of the parties or their allegations for purposes of a jurisdictional analysis under CAFA, but, rather, to change the very makeup of the class itself so as to eliminate minimal diversity and divest the district court of jurisdiction. The panel found the amendment fell outside the parameters of Benko by changing the nature of the action itself.

Significance: Plaintiffs to a class action originally filed in state court may not alter the makeup of the class after the case is removed under the Class Action Fairness Act (CAFA), 28 U.S.C. §1332(d), in order to eliminate minimal diversity requirements and divest the federal court of jurisdiction.

Extended Summary: Broadway Grill, Inc., a California restaurant, filed a class action in California state court against Visa, Inc., a citizen of California and Delaware, alleging violations of state antitrust laws through rate fixing and by the company's practice of not allowing merchants to apply a surcharge to customers using credit cards. The complaint described the plaintiff class as "all California individuals, businesses and other entities who accepted Visa-branded cards in California since January 1, 2004 . . . ." The class included both California and non-California citizens.
Visa, Inc. removed the case to the District Court for the Northern District of California under the Class Action Fairness Act (CAFA), 28 U.S.C. §1332(d)(2), which provides that district courts shall have original jurisdiction of class actions where: (1) the matter in controversy exceeds $5,000,000; (2) there are 100 or more plaintiffs; and (3) any member of the plaintiff class is a citizen of a different state than any defendant (minimal diversity requirement). Because the plaintiff class included merchants doing business in California who were not California citizens, CAFA's minimal diversity requirement was met.

Following removal, Broadway Grill moved to remand the case back to California state court on the ground that the case fell within one of CAFA's specific exceptions to federal jurisdiction - the so-called "local controversy" exception, 28 U.S.C. §1332(d)(4). Under this exception, federal jurisdiction is denied in cases where: (1) more than two-thirds of plaintiff class members are citizens of the state of filing; (2) at least one defendant from whom "significant relief" is sought, and whose alleged conduct forms a "significant basis" for the plaintiff class' claims, is also a citizen of that state; (3) principal injuries as a result of the alleged conduct of each defendant were incurred in that state; and (4) no other class action has been filed asserting the same or similar allegations against any of the defendants in the 3-year period preceding filing; or two-thirds or more of the plaintiff class and the primary defendants are citizens of the state of filing. The district court denied the motion to remand because Broadway Grill was unable to show that two-thirds of the plaintiff class was citizens of California.

After its motion to remand was denied, Broadway Grill sought leave to amend the complaint in order to change the plaintiff class so that it included only "California citizens," which would eliminate minimal diversity and divest the district court of jurisdiction. The district court noted that, generally, jurisdiction is determined at the time of removal, and that amendments made to the complaint after removal cannot eliminate diversity. However, leave to amend was granted based on the exception articulated in Benko v. Quality Loan Service Corp., 789 F.3d 1111 (9th Cir. 2015), which allows for amendment of the complaint after the case is removed under CAFA so that the plaintiff may clarify the nature of the action in order for the federal court to determine whether it has jurisdiction. This exception appeared to be unique to the Ninth Circuit.

The panel cited to several recent cases demonstrating the uncertainty the Benko exception had created amongst the district courts as to when post-removal amendments to the complaint are permitted. See Lopez v. Aerotek, Inc., 2017 WL 253948, at *2 (C.D. Cal. Jan. 19, 2017) (amendment not allowed for purpose of adding a new defendant who might qualify for local controversy exception); Rossetti v. Stearn's Prod. Inc., 2016 WL 3277295, at *1 (C.D. Cal. June 6, 2016) (amendment not allowed for purpose of changing class from one including citizens of numerous states to one including only citizens of California); Chen v. eBay, Inc., 2016 WL 835512, at *2 n.1 (N.D. Cal. Mar. 4, 2016) (allowed amendment limiting a class to citizens of California, not residents, and ordered remand); In re Anthem Inc. Data Breach Litig., 129 F.Supp. 3d 887, 894-96 (N.D. Cal. 2015) (allowed amendment limiting class only to citizens of Missouri, not residents, and ordered remand).
The panel distinguished Benko from the instant case and held Broadway Grill's amendment fell outside the parameters of that case. The panel explained that Benko case allowed the plaintiffs to amend their complaint after removal to clarify the nature of the complaint's allegations against one of the defendants for a federal jurisdiction analysis under CAFA, not to change the makeup of the class. In Benko, the plaintiffs only amended their complaint to give "estimates of the percentage of total claims asserted against [the in-state defendant]" for purposes of satisfying §1332(d)(4) of CAFA, also known as the "local controversy" exception to federal jurisdiction. Benko, 789 F.3d at 1117. In the instant case, however, Broadway Grill did not amend their complaint to clarify the nature of the parties for purposes of a federal jurisdictional analysis under CAFA, but rather, changed the very makeup of the class itself from one including both California and non-California citizens, to one including only California-citizens so as to eliminate minimal diversity and divest the district court of jurisdiction.

The panel explained the reasoning behind its decision in Benko was that a complaint originally drafted for state court may not address certain issues that are specific to CAFA, such as the "local controversy" exception allowing for remand back to state court following removal. Therefore, in limited circumstances, leave to amend post-removal should be granted to clarify issues affecting federal jurisdiction under CAFA. The panel reasoned that in contrast, a class definition must always be included in the complaint for a class action, no matter whether if it is filed in state or federal court. Thus, Broadway Grill's amendment to their complaint did not serve to explain the nature of the allegations for jurisdictional analysis purposes under CAFA as in Benko, instead, it changed the nature of the action itself. Also, the panel noted that the Benko decision itself states that federal jurisdiction is favored for class actions under CAFA.

The panel noted that the other circuit courts of appeals have unanimously held that the decision whether an order to remand is proper is to be determined at the time of removal based on the pleadings. See Pullman Co. v. Jenkins, 305 U.S. 534, 537-38 (1939). The panel also stated these circuit court decisions are consistent with the statutory language of § 1332(d)(7), which states minimal diversity is determined at time of removal ("Citizenship of the members of the proposed plaintiff class shall be determined . . . as of the date of the complaint or amended complaint . . . indicating the existence of Federal jurisdiction."). Therefore, Broadway Grill is precluded from amending their complaint after removal in order to eliminate diversity and divest the federal court of jurisdiction. The leading case for application of this rule in the in the context of CAFA is Mondragon v. Capital One Auto Fin., 736 F.3d 880, 883 (9th Cir. 2013).

In conclusion, the Ninth Circuit panel found that, because minimal diversity existed at the time of removal based on the pleadings, the general rule preventing post-removal amendment from divesting federal jurisdiction over the matter must be applied. The Benko exception allowing for post-removal amendment of the complaint is limited to clarifying the relationship between the parties, and how plaintiff class claims affect certain defendants for purposes of a jurisdictional analysis under CAFA. Therefore, Broadway Grill's amendment changing the makeup of the plaintiff class itself in order to divest the district court of jurisdiction fell outside that exception. Accordingly, the district court's order remanding the case of the matter back to state court was reversed.

To read the full opinion, please visit:
http://cdn.ca9.uscourts.gov/da...17/05/18/17-15499.pdf

Panel: Mary M. Schroeder and Johnnie B. Rawlinson, Circuit Judges, and Steven Paul Logan, District Judge for the District of Arizona, sitting by designation.

Argument Date: April 21, 2017

Date of Issued Opinion: May 18, 2017

Docket Number: 17-15499; 4:16-cv-04040-PJH

Decided: Reversed and Remanded

Case Alert Author: Michael J. Thies

Counsel:
Matthew A. Eisenstein (argued), Washington, D.C.; Sharon D. Mayo and Robert J. Vizas, San Francisco, California; for Defendants-Appellants
Nancy L. Fineman (argued), and Joseph W. Cotchett, Cotchett Pitre & McCarthy LLP, Burlingame, California; for Plaintiff-Appellee

Author of Opinion: Judge Mary M. Schroeder

Circuit: Ninth

Case Alert Supervisor: Professor Glenn S. Koppel

    Posted By: Glenn Koppel @ 08/30/2017 06:21 PM     9th Circuit  

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