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CAFA — Court Is Limited to Face of Complaint in Determining Whether Certain Elements of “Local Controversy” Exception Apply — “Relief Sought” and “Alleged Conduct”

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From Coleman v. Estes Express Lines, Inc., 2011 U.S. App. LEXIS 1538 (9th Cir. Jan. 25, 2011):

Under the Class Action Fairness Act of 2005 ("CAFA"), Pub. L. No. 109-2, 119 Stat. 4 (2005), defendants may remove a diversity class action from state to federal court when, among other conditions, the parties are minimally diverse and the amount in controversy exceeds $5,000,000. 28 U.S.C. §§ 1332(d)(2), 1453(b). However, plaintiffs may obtain a remand to state court if the suit involves a local controversy.... § 1332(d)(4)(A)(i). The question before us is whether a federal district court is limited to the complaint in deciding whether two of the criteria for the local controversy exception are satisfied. We hold that the district court is so limited.***

The first criterion is whether "significant relief is sought" from a defendant who is a citizen of the state in which the suit is filed. 28 U.S.C. § 1332(d)(4)(A)(i)(II)(aa) (emphasis added). The word "sought" focuses attention on the plaintiff's claim for relief -- that is, on what is "sought" in the complaint -- rather than on what may or may not be proved by evidence. The second criterion is whether the defendant's "alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class." Id. § 1332(d)(4)(A)(i)(II)(bb) (emphasis added). Like the word "sought," the word "alleged" makes clear that the second criterion is based on what is alleged in the complaint rather than on what may or may not be proved by evidence.

There is a revealing contrast between the language in subsections (aa) and (bb) and the language in subsection (cc). All three subsections specify criteria that must be satisfied before the local controversy exception to CAFA jurisdiction applies. Subsection (cc) requires that the defendant from whom relief is sought and whose alleged conduct is at issue be a defendant "who is a citizen of the State in which the action was originally filed." Id. § 1332(d)(4)(A)(i)(II)(cc) (emphasis added). Unlike the words "sought" and "alleged," used in subsections (aa) and (bb), the word "is," used in subsection (cc), indicates that an actual fact must be established.

The decision of the Tenth Circuit in Coffey v. Freeport McMoran Copper & Gold, 581 F.3d 1240, 1244-45 (10th Cir. 2009), illustrates the distinction between "sought" in subsection (aa) and "is" in subsection (cc). ***

Estes argues that our understanding of the words "sought" and "alleged" in subsections (aa) and (bb) is inconsistent with the common practice of considering extrinsic evidence and making factual determinations in resolving questions of a federal court's subject matter jurisdiction. It is true that some questions of subject matter jurisdiction are questions of fact, the determination of which may depend on evidence. For example, as just noted, in CAFA itself a district court may rely on evidence to determine the citizenship of a defendant under subsection (cc). A district court may also consider evidence in deciding whether CAFA's $5,000,000 amount-in-controversy requirement has been satisfied. *** Further, a district court may consider evidence in determining citizenship and amount-in-controversy under general provisions of the diversity jurisdictional statute, 28 U.S.C. § 1332(a), (c). ***

However, for three reasons, we do not believe that this practice should apply to determinations under subsections (aa) and (bb). First, as just discussed, the plain language of these subsections indicates, through the use of the words "sought" and "alleged," that the district court is to look to the complaint rather than to extrinsic evidence.

Second, though district courts sometimes consider evidence in making some subject matter jurisdiction determinations, they do not always do so. For example, under long-established law, the district court looks to the "well-pleaded complaint," rather than to any subsequent pleading or evidence, in determining whether there is federal question subject matter jurisdiction under 28 U.S.C. § 1331. ***

Third, factual determinations under subsections (aa) and (bb) are likely to be more expensive and time-consuming than factual determinations of citizenship and amount-in-controversy. Congress was particularly concerned that subject matter jurisdiction determinations be made quickly under CAFA.

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New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.
New York Attorneys JHA handles range the gamut of complex financial and commercial litigation and arbitration, including securities, RICO, corporate and contract disputes, credit default swaps, derivatives, and class, mass, and derivative actions. The firm also represents law firms in major disputes.

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