9th Cir. Holds No Remand When Only Portion of Putative Class Met CAFA’s Home-State Controversy Exception

The U.S. Court of Appeals for the Ninth Circuit recently held that a plaintiff cannot force remand of a federal Class Action Fairness Act (CAFA) removal under the home-state controversy exception when only a portion of the putative class met the two-thirds citizenship requirement.

A copy of the opinion Brinkley v. Monterey Financial Services, Inc. is available at:  Link to Opinion.

A financial services company (“defendant”) allegedly recorded or monitored its telephone conversations with the plaintiff without giving her notice.  The plaintiff brought this action in California state court “alleging (1) invasion of privacy in violation of California and Washington state law; (2) unlawful recording of telephone calls under California law; and (3) violation of California Business and Professions Code § 17200, et seq.”

The plaintiff brought her first and third claims on behalf of a class of:

[a]ll persons who, while physically located or residing in California and Washington, made or received one or more telephone calls with [defendant] during the four-year period preceding the filing of this lawsuit (the “Class Period”) and did not receive notice at the beginning of the telephone call that their telephone conversation may be recorded or monitored[.]

After the defendant removed this action to federal court, the plaintiff moved to remand the case back to California state court pursuant to CAFA’s home-state controversy exception, 28 U.S.C. § 1332(d)(4)(B).

As you may recall, “CAFA vests federal courts with original diversity jurisdiction over class actions where (1) the aggregate amount in controversy exceeds $5,000,000; (2) any class member is a citizen of a state different from any defendant; and (3) there are at least 100 class members.”  28 U.S.C. § 1332(d)(2),(5)(B).

However, CAFA also contains some exceptions which require the federal court to decline to exercise jurisdiction and remand the matter to state court.  28 U.S.C. § 1332(d)(4).

Under the home-state controversy exception, a federal trial court must decline to exercise jurisdiction where “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.”  28 U.S.C. § 1332(d)(4)(B).

To meet this burden, the moving party must provide “some facts in evidence from which the district court may make findings regarding class members’ citizenship.”  Mondragon v. Capital One Auto Fin., 736 F.3d 880, 884 (9th Cir. 2013).

The magistrate judge ordered the defendant to produce a list of all putative California and Washington class members.  Purportedly complying with the order, the defendant produced a list of over 152,000 persons who had recorded calls with the defendant between Oct. 15, 2009 and May 6, 2016, and had a California or Washington mailing address.

The plaintiff’s expert analyzed the list produced by the defendant and segregated a random sample of individuals included in that list.  The defendant challenged the expert report because it did not limit the analysis to individuals who had telephone contact with the defendant before the class period ended on Oct. 15, 2013.

The expert submitted a supplemental report purporting to be limited to individuals who made or received at least one call with the defendant during the defined class period.  However, the report contained no evidence of individuals who were physically located in, but were not residents of, California or Washington when they made or received a phone call with the defendant.

Based on the expert report, the federal trial court found that at least two-thirds of class members were California citizens, and granted the plaintiff’s motion to remand.

On appeal, the Ninth Circuit had to determine whether two-thirds of class members are California citizens.

Initially, as the putative class was defined as all individuals who made or received a telephone call from the defendant “while physically located or residing in California and Washington,” the Ninth Circuit determined that the class included individuals who were physically located in, but were not residents of, California or Washington when they made or received a call from the defendant (the “located in” subgroup).

During jurisdictional discovery, the trial court ordered the defendant to produce a list of putative California and Washington class members.  In response, the defendant produced a document “which contains a list of [the defendant’s] accounts listing California and Washington street addresses with respect to which account telephone calls (to and/or from) were recorded between Oct. 15, 2009 and May 6, 2016.”  The plaintiff relied exclusively on its expert’s analysis of this list to prove that two-thirds of all class members are California citizens.

However, the Ninth Circuit found that this list addressed only a portion of the class – those who were “residing in California and Washington” when they made or received a call from the defendant.

The Ninth Circuit noted that the list did not contain information about the size of the “located in” subgroup (i.e., individuals who were physically located in, but were not residents of, California or Washington when they made or received a call from the defendant), and the plaintiff never sought more information about the size of the class after she obtained this list, never appealed the magistrate judge’s discovery order, and never argued that the list did not comply with the discovery order.

Because the plaintiff did not submit any evidence regarding the size of the “located in” subgroup, the Ninth Circuit could not determine the size of the entire class and whether two-thirds of class members are California citizens.  Therefore, the Ninth Circuit held that the plaintiff failed to meet her burden to show that the home-state controversy exception applied.

The plaintiff also argued that her class definition problem was a red herring because the defendant failed to identify a single non-California or Washington citizen whose telephone conversation it recorded.  However, the Ninth Circuit rejected this argument because the defendant did not have the burden to prove the inapplicability of a CAFA exception.  Instead, the plaintiff as the party seeking remand was required to prove the applicability of a CAFA exception.

Accordingly, the Ninth Circuit vacated the trial court’s order remanding the case to state court, and remanded the action to the trial court for further proceedings.

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Eric Tsai practices in Maurice Wutscher’s Commercial Litigation and Consumer Credit Litigation groups, and in its Regulatory Compliance group. He concentrates his practice primarily on the defense of consumer and commercial financial services companies, including mortgage lenders and servicers, mortgage loan investors, third party debt collectors, and other financial services providers. He also counsels clients on regulatory compliance, licensing, and other consumer protection matters. Eric earned his undergraduate degree from the University of California, Irvine. Prior to attending law school, he worked as a loan officer for national direct lenders. He earned his Juris Doctor from California Western School of Law and thereafter obtained a Master of Laws (LLM) in Taxation from the University of San Diego School of Law. Eric publishes extensively on various issues affecting consumer lending and litigation, including both federal and California-specific developments. He is licensed to practice law in California, Nevada, and Oregon, and is admitted in all United States District Courts in the State of California, the United States District Court for the District of Oregon, the United States District Court for the District of Nevada, the U.S. Tax Court, and the Ninth Circuit Court of Appeals. He is also a licensed real estate broker in the State of California.