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Keeping Your State Court Class Action in State Court

By Roger K. Smith

A plaintiff remains master of his or her complaint—even under the Class Action Fairness Act (CAFA)—provided class counsel is careful in preparing that pleading. In other words, class counsel can keep a state court action in state court and avoid removal under CAFA by paying attention to three things: class definition, the size of the requested recovery, and the number of claims to be tried jointly.


Location, Location, Location
The old adage about real estate applies with equal force to keeping state class actions in state court. Class counsel can avoid removal by defining the putative class in a way that brings the action within either CAFA’s “local controversy” or “home state controversy” exceptions. The “local controversy” provision requires a federal court to decline jurisdiction where (1) more than two-thirds of the members of the proposed plaintiff class are citizens of the state where the action was originally filed; (2) at least one “significant” defendant is a citizen of that state; (3) class members’ “principal injuries” were incurred there; and (4) no other class action asserting the same or similar factual allegations has been filed against any of the defendants within the preceding three years.[1] Under the “home state controversy” exception, a federal court must decline jurisdiction where two-thirds or more of the class members and the “primary” defendants are citizens of the state where the action was originally filed.[2]


Show Me the Money
A second way that class counsel can avoid removal is by limiting the request for recovery to less than $5 million, CAFA’s jurisdictional minimum.[3] If class counsel is careful, he or she may be able to segment a claim into several separate suits each seeking less than the jurisdictional minimum. The key here, as illustrated by a recent decision from the Sixth Circuit, is to make sure your segmentation is not arbitrary or artificial, but has a “colorable” basis.


In Freeman v. Blue Ridge Paper Products, Inc. [PDF], 300 persons who owned property downriver from a paper mill filed a class action in Tennessee state court to recover for harm allegedly caused by contaminants discharged into the river by the defendant’s mill. The plaintiffs sought damages accruing from August 2005 to February 2008. The complaint disavowed recovery in excess of $4.9 million. The defendant removed the action to federal court pursuant to CAFA. The district court remanded the case to state court due to the defendant’s failure to show that the amount in controversy satisfied CAFA’s $5 million jurisdictional threshold. On remand, the plaintiffs took steps to divide the action into five separate suits, each covering a successive six month period. Each complaint capped damages at $74,000 per plaintiff or less than $5 million in total. The defendant removed again and, once again, the district court remanded after first consolidating the cases. The defendant appealed and won. In reversing the district court’s decision to remand, the Sixth Circuit stressed the absence of any compelling reason behind the temporal segmentation:


The complaints are identical in all respects except for the artificially broken up time periods. Plaintiffs put forth no colorable reason for breaking up the lawsuits in this fashion, other than to avoid federal jurisdiction. In fact plaintiff’s counsel admitted at oral argument that avoiding CAFA was the only reason for this structuring.[4]


The Sixth Circuit also noted that if the claimed recovery of the five suits was aggregated, the total requested recovery was almost $25 million, well in excess of CAFA’s $5 million threshold. The Sixth Circuit rebuffed this gambit, stating “where recovery is expanded, rather than limited by virtue of the splintering of lawsuits for no colorable reason, the total of such identical splintered lawsuits may be aggregated.”[5]


Size Does Matter
In talking about the benefits of having big battalions, Napoleon used to say that “quantity has a quality all its own.” In the removal wars under CAFA, bigger is still better, but only up to a point. Class counsel can, at least in the context of a potential “mass action,” avoid CAFA jurisdiction by limiting the size of the class.


Under CAFA, a “mass action” is a lawsuit in which the “monetary relief claims of 100 or more persons are proposed to be tried jointly due to common questions or law or fact.”[6] A recent decision by the Ninth Circuit, Tanoh v. Dow Chemical Co.,[7] illustrates how removal of a large set of claims may be avoided.


In Tanoh, 664 West African foreign nationals sued Dow Chemical Company in seven separate lawsuits, all of which were filed in California state court. In each action, there were fewer than 100 plaintiffs. The plaintiffs in each of the actions alleged exposed to a toxic chemical used in a Dow–manufactured pesticide that was used on banana and pineapple plantations in and around two villages in the Ivory Coast. Dow removed the actions to federal court, arguing that the cases, when taken together, qualified as a “mass action” under CAFA.


CAFA authorizes removal of class actions in which the number of proposed class members exceeds 100. CAFA defines a class action to include a “mass action.”[8] A “mass action” is a lawsuit in which the “monetary relief claims of 100 or more persons are proposed to be tried jointly,” because there are common issues of law or fact.[9] A “mass action,” however, does not include any case where “the claims are joined upon motion of a defendant” or have been consolidated or coordinated solely for pretrial proceedings.[10]


After the removal, the plaintiffs moved to remand, arguing that none of the cases was a “mass action” under CAFA because each involved fewer than 100 plaintiffs. The district court agreed and granted the motion. Dow appealed and the Ninth Circuit affirmed. In reaching its decision, the Ninth Circuit first characterized the “mass action” provisions as “fairly narrow.” The Court in Tanoh then went on to stress that because the plaintiffs had not proposed consolidation for trial, that decision must be respected and cannot be undone by a defendant’s motion: “the decision to try claims jointly and thus qualify as a ‘mass action under CAFA should remain . . . with plaintiffs. . . . [R]emoval under CAFA is limited to cases in which one hundred or more plaintiffs elect to try their claims together.”[11]


In summary, if you are careful in your definition of the proposed class, careful in the amount that you request on behalf of your clients, and careful in how you plan to try your clients’ claims, then you can keep your state court class action in state court.


Keywords: Class actions, CAFA


Roger K. Smith is of counsel with Morgan Lewis & Bockius LLP in Los Angeles, California.

This article appears in the forthcoming Fall 2009 issue of CADS Report, from the Class Actions and Derivative Suits Committee.

 

End Notes


  1. See 28 U.S.C. § 1332(d)(4)(A)); Lao v. Wickes Furniture Co., Inc., 455 F. Supp.2d 1045 (C.D.Cal. 2006).
  2. See 28 U.S.C. § 1332(d)(4)(B); Bond v. Veolia Water Indianapolis, LLC, 571 F. Supp.2d 905 (S.D.Ind. 2008).
  3. See 28 U.S.C. § 1332(d)(2).
  4. Freeman v. Blue Ridge Paper Products, Inc., 551 F.3d 407 (6th Cir. 2008).
  5. 551 F.3d at 409.
  6. 28 U.S.C. § 1332(d)(11)(B)(i).
  7. Tanoh v. Dow Chemical Co., 561 F.3d 945 (9th Cir. 2009).
  8. 28 U.S.C. § 1332(d)(11)(A).
  9. 28 U.S.C. § 1332(d)(11)(B)(i).
  10. 28 U.S.C. § 1332(d)(11)(B)(ii) (emphasis added).
  11. Tanoh, 561 F.3d at 954.

 

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