Commercial Litigation and Arbitration

CAFA’s Discretionary Jurisdiction Exception — Declining Jurisdiction Where More Than 1/3 of All Plaintiff Classes and Primary Defendants Are Citizens of the Forum State

From Bowen v. Houser, 2011 U.S. Dist. LEXIS 10870 (D.S.C. Feb. 3, 2011):

Plaintiffs contend that the court should decline to exercise jurisdiction in this case under § 1332(d)(3). ***Title 28 United States Code, Section 1332(d)(3) provides:

[a] district court may, in the interest of justice and looking at the totality of the circumstances, decline jurisdiction . . . over a class action in which greater than one-third . . . of all proposed plaintiff classes in the aggregate and primary defendants are citizens of the State in which the action was originally filed based on consideration of [a number of factors].

*** Thus, CAFA's discretionary jurisdiction exception requires that more than one-third of the class members and the primary defendants be citizens of the state in which the action was originally filed. In addition, in looking at the totality of the circumstances, courts consider several factors in exercising its discretion to remand including: 1) "whether the claims asserted involve matters of national or interstate interest;" 2) "whether the claims asserted will be governed by laws of the State in which the action was originally filed or by the laws of other States;" 3) "whether the class action has been pleaded in a manner that seeks to avoid Federal jurisdiction;" 4) "whether the action was brought in a forum with a distinct nexus with the class members, the alleged harm, or the defendants;" 5) "whether the number of citizens of the State in which the action was originally filed in all proposed plaintiff classes in the aggregate is substantially larger than the number of citizens from any other State, and the citizenship of the other members of the proposed class is dispersed among a substantial number of States; and" 6) "whether, during the 3-year period preceding the filing of that class action, 1 or more other class actions asserting the same or similar claims on behalf of the same or other persons have been filed." Id. The parties agree that more than one-third of the proposed class and all of Defendants are citizens of South Carolina. *** Therefore, the court will consider the interests of justice and the totality of the circumstances in determining whether this case should be remanded to state court.

With regard to the first discretionary factor (the national interest factor), this case does not necessarily involve the interpretation of federal law, specifically the National Bank Act. The claims in this case are state law claims of negligence and breach of fiduciary duty, which are governed by state law. Therefore, the national interest factor supports remand. The second discretionary factor (the state law governance factor), also supports remand. South Carolina law, as opposed to the laws of other states will apply because Plaintiffs' claims are based on events that occurred in South Carolina. The third discretionary factor (the federal jurisdiction avoidance factor), weighs in favor of remand because there is no evidence that this case was pleaded to avoid federal jurisdiction. Plaintiffs could have restricted the amount in controversy to under $5,000,000 if they intended to avoid federal jurisdiction, but they did not do so. See S.C. R. Civ. P. 8 (". . . a party may plead that the total amount in controversy shall not exceed a stated sum which shall limit the claim for all purposes."); St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 294 (1938) (a plaintiff can "resort to the expedient of suing for less than the jurisdictional amount, and though he would be justly entitled to more, the defendant cannot remove."). The fourth discretionary factor (the nexus factor), supports remand because a large portion of the potential class is from South Carolina, all of the class members purchased stock in a bank that only has branches in South Carolina, and all of the Defendants are South Carolina citizens. The fifth discretionary factor (the forum citizenship factor) is neutral because the court does not have information on the citizenship of all of the class members to make the necessary determination. The sixth discretionary factor weighs in favor of remand because Defendants do not dispute Plaintiffs' contention that no other similar class actions have been filed within the past three years. Based upon the foregoing, the court exercises its discretion to remand this case to state court.

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