9th Cir Holds Local Controversy and Home-State Controversy Provisions of CAFA Provide Exceptions to CAFAs Jurisdiction, Not Add'l Prima Facie Elements

Per Serrano v. 180 Connect, Inc., 2007 WL 601984, (9th Cir. Feb. 22, 2007):

Our resolution of this issue derives first and foremost from the plain text and structure of the statute. Section 1332(d)(2) confers “original jurisdiction” where the amount in controversy exceeds $5,000,000 and minimal diversity exists. Thus, this section sets out the contours of original jurisdiction. In contrast, § 1332(d)(3) describes situations where district courts may “decline to exercise jurisdiction” “in the interests of justice and looking at the totality of the circumstances”; and § 1332(d)(4) sets out two circumstances that require district courts to decline jurisdiction, the so-called “local controversy” and “home-state controversy” exceptions. Implicit in both subsections (d)(3) and (d)(4) is that the court has jurisdiction, but the court either may or must decline to exercise such jurisdiction. See § 1332(d)(3)-(4).

. . .

Serrano argues that the circumstances enumerated in § 1332(d)(4) do not represent “exceptions” to CAFA's jurisdiction, but simply constitute additional elements that must affirmatively be shown by the party seeking to establish CAFA jurisdiction in the first instance. Serrano cites to a recent district court opinion, Lao v. Wickes Furniture Co., Inc., 455 F.Supp.2d 1045 (C.D.Cal.2006), for support. In Lao, the district court held that §§ 1332(d)(3) and (d)(4) provide additional criteria that must be proven as part of the prima facie case of diversity jurisdiction under CAFA, and that § 1332(d)(5) is an exception to the application of CAFA. Id. at 1054-59. We are not persuaded by Lao's reasoning because it is inconsistent with the statute. As noted above, §§ 1332(d)(4)(A) and (B) require federal courts-although they have jurisdiction under § 1332(d)(2)-to “ decline to exercise jurisdiction ” when the criteria set forth in those provisions are met. Subsections (d)(4)(A) and (B) are not part of the prima facie elements of jurisdiction.

That the provisions of §§ 1332(d)(4)(A) and (B) are not labeled as “exceptions” does not prevent them from operating as such, as Serrano suggests. Nor does it solve the interpretive puzzle to label them as “negative conditions,” another of Serrano's suggestions. The provisions fit into the statutory structure as exceptions to jurisdiction, not elements of original jurisdiction. We thus hold that the provisions set forth in §§ 1332(d)(3) and (4) are not part of the prima facie case for establishing minimal diversity jurisdictional under CAFA, but, instead, are exceptions to jurisdiction. See Hart, 457 F.3d at 681 (construing §§ 1332(d)(4)(A) and (B) as “express exceptions” to § 1332(d)(2)'s grant of jurisdiction).