Monday, September 18, 2006

Seventh Circuit Says Plaintiffs Challenging CAFA Removal Bear Burden of Proving CAFA's Home-State and Local Controversy Execptions

BNA reported in its August 25 Class Action Litigation Report (Vol. 7, No. 16) on the Seventh Circuit's recent decision in Hart v. FedEx Ground Package System Inc., --- F.3d ---, 2006 WL 2266303 (7th Cir. Aug. 9, 2006). Here is an excerpt from the opinion:

Recently, the Fifth and Eleventh Circuits decided, consistently with the district court's ruling and FedEx Ground's position, that once the removing defendants prove the amount in controversy and the existence of minimal diversity, the burden shifts to the plaintiffs to prove that the local controversy exception to federal jurisdiction should apply. See Frazier v. Pioneer Americas LLC, 455 F.3d 542 (5th Cir.2006); Evans, 449 F.3d at 1165. The Eleventh Circuit offered three reasons for this result: first, it thought that the Supreme Court's decision in Breuer v. Jim's Concrete of Brevard, Inc., 538 U.S. 691 (2003), recognizing that the opponent of removal under 28 U.S.C. § 1441(a) must prove that there is an express exception to removability, supported the same outcome here; second, at least for cases involving the citizenship of members of the plaintiff class, it predicted that the plaintiff was best positioned to collect the relevant evidence; and third, it drew an analogy to cases addressing the removal of actions involving the Federal Deposit Insurance Corporation (FDIC), in which the opponent of removal must prove the "state action" exception to federal jurisdiction. See Evans v. Walter Industries, Inc., 449 F.3d 1159, 1164-65 (11th Cir.2006). The Fifth Circuit agreed with these reasons. Frazier, 455 F.3d at 544.

Although we are not persuaded that second and third reasons that the Eleventh and Fifth Circuits gave provide much support for their conclusion, we nonetheless agree with the result they reached. The Eleventh Circuit began its discussion of the "local controversy" exception by quoting § 1332(d)(4)(A), but then it moved directly to a discussion of CAFA's legislative history, to the analogy to § 1441(a) and FDIC cases, and to its observation about relative ability of each party to gather the relevant evidence. In so doing, we think that it missed an important step, namely, the examination of the language of the statute before it. That language, coupled with the Supreme Court's Breuer decision, leads to the conclusion that the party seeking to take advantage of the home-state or local exception to CAFA jurisdiction has the burden of showing that it applies.

…As is typical with jurisdictional statutes, § 1332(d)(2) begins with the phrase "[t]he district courts shall have original jurisdiction" and goes on to define the governing criteria. Compare 28 U.S.C. §§ 1331 (federal question jurisdiction), 1332(a) (ordinary diversity and alienage jurisdiction), 1333 (admiralty, maritime and prize case jurisdiction), 1334 (bankruptcy jurisdiction), and 1335 (interpleader). The next subsection, § 1332(d)(3), describes situations in which the district court is permitted to "decline to exercise jurisdiction" "in the interests of justice and looking at the totality of the circumstances." Subsection (d)(4), which follows immediately, stands out for its contrasting wording. It commands the district courts to decline jurisdiction under paragraph 2 when either the "local" or the "home state" factors are present. Subsection (d)(5) also contains mandatory language making CAFA inapplicable to class actions in which the primary defendants are states, state officials, or other governmental entities against whom the district court may be foreclosed from granting relief and class actions involving less than 100 members. § 1332(d)(5).

Although the match is not perfect, the relation between subparts (d)(2) and (d)(4) of CAFA is analogous to the structure of 28 U.S.C. § 1441(a), which the Supreme Court examined in Breuer. The general removal statute begins with the phrase "[e]xcept as otherwise expressly provided by Act of Congress," and then goes on to delineate a defendant's right to remove from state court to federal court those cases over which the federal courts have original jurisdiction. The Court stated there that "[s]ince 1948 ... there has been no question that whenever the subject matter of an action qualifies it for removal, the burden is on a plaintiff to find an express exception." 538 U.S. at 698, 123 S.Ct. 1882.

CAFA expressly states that the district court "shall decline to exercise jurisdiction" in two particular situations. It is reasonable to understand these as two "express exceptions" to CAFA's normal jurisdictional rule, as the Supreme Court used that term in Breuer. The case might be different if Congress had put the home-state and local controversy rules directly into the jurisdictional section of the statute, § 1332(d)(2), but it did not. We acknowledge that the language of § 1332(d)(4) is mandatory, in contrast with the permissive language of § 1332(d)(3), but that alone proves little. Nothing indicates that the kinds of exceptions to which the Supreme Court referred in Breuer were permissive only.

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