U.S. Court of Appeal for the Ninth Circut
U.S. Court of Appeal for the Ninth Circut (Jason Doiy / The Recorder)

Class action lawyers, take note: “Resident” is not the same thing as “citizen.” And trying to use the words interchangeably to avoid federal jurisdiction won’t get by the U.S. Court of Appeals for the Ninth Circuit.

Ruling 2-1 Thursday, the panel found that amending a complaint in an antitrust class action against Visa Inc. to replace “resident” with “citizen” after the case was removed to federal court was not enough to avoid federal jurisdiction under an exception of the U.S. Class Action Fairness Act. In so holding, the panel reversed a lower court’s remand order while attempting to clarify the scope of its own 2015 decision, Benko v. Quality Loan Service Corp., which permits plaintiffs to amend their complaint in order to clarify jurisdiction but had created uncertainty in the lower courts.

“In this case plaintiffs have attempted to do what CAFA was intended to prevent: an amendment changing the nature of the class to divest the federal court of jurisdiction,” wrote Judge Mary Schroeder for the majority in Broadway Grill v. Visa. Benko allowed plaintiffs to amend their complaint to “provide some amplification, for federal jurisdictional purposes,” Schroeder wrote, but did not “permit plaintiffs to amend their class definition, add or remove defendant, or add or remove claims in such a way that would alter the essential jurisdictional analysis.”

The appeal revolves around CAFA’s “local controversy” exception, which applies when two-thirds of the class members and a “significant” defendant are citizens of the state where the case was filed. The exception allows plaintiffs to keep class actions in state courts, which they consider to be more favorable to them than federal courts. The CAFA exception has plagued several class actions filed over the Flint, Michigan water crisis. 

In the Ninth Circuit case, the majority turned to recent decisions by the Seventh, Second, Fifth, Eighth and Tenth circuits in holding that remand orders must be based on the pleadings at the time the case is removed and not after it’s been amended once removed.

In a dissent, Judge Johnnie Rawlinson said the majority “essentially engaged in a stealth reversal of Benko.”

“The description of the class was defined more precisely without in any way expanding or modifying the allegations underlying the asserted cause of action,” she wrote. “Our analysis in Benko approves of just such an amendment.”

Plaintiff’s attorney Nancy Fineman, a principal at Cotchett, Pitre & McCarthy in Burlingame, California, said the case always intended to represent just California citizens and attributed the original complaint’s language to “an inadvertent mistake.”

“But when we drafted the complaint, we weren’t as precise as we now will be in the future if this decision stands,” she said.

She was not sure whether her client, the owner of a Burlingame restaurant, would petition for a full panel to rehear the case. But she acknowledged that courts could use some guidance in attempting to follow Benko.

“This is a huge case with big implications, not just for us,” Fineman said. “There’s been at least, since Benko was decided, 10 or so cases that dealt with this issue.”

A spokeswoman for Visa, declined to comment. The company is represented in the appeal by Sharon Mayo, senior counsel in the San Francisco office of Arnold & Porter Kaye Scholer.

Broadway Grill Inc. filed its case on July 12, 2016, in San Mateo Superior Court in California, asserting that Visa conspired with banks that issued its cards to fix the rates charged to merchants. The original complaint was brought on behalf of “all California individuals, businesses and other entities” that used Visa cards since 2004.  

Visa, which is based in Foster City, California, removed the case to federal court, where Chief Judge Phyllis Hamilton of the Northern District of California on Aug. 29 refused to grant a remand motion since many of the class members might not be California citizens.  But Hamilton allowed the plaintiff to amend its complaint, citing the Benko decision, and on Sept. 27 granted remand of the case.

On appeal of that remand order, the majority agreed that the plaintiff had gone too far in its reliance on Benko.

“The amendment in this case,” Schroeder wrote, “did not provide an explanation of the allegations, but changed the definition of the class itself.”

Class action lawyers, take note: “Resident” is not the same thing as “citizen.” And trying to use the words interchangeably to avoid federal jurisdiction won’t get by the U.S. Court of Appeals for the Ninth Circuit.

Ruling 2-1 Thursday, the panel found that amending a complaint in an antitrust class action against Visa Inc. to replace “resident” with “citizen” after the case was removed to federal court was not enough to avoid federal jurisdiction under an exception of the U.S. Class Action Fairness Act. In so holding, the panel reversed a lower court’s remand order while attempting to clarify the scope of its own 2015 decision, Benko v. Quality Loan Service Corp., which permits plaintiffs to amend their complaint in order to clarify jurisdiction but had created uncertainty in the lower courts.

“In this case plaintiffs have attempted to do what CAFA was intended to prevent: an amendment changing the nature of the class to divest the federal court of jurisdiction,” wrote Judge Mary Schroeder for the majority in Broadway Grill v. Visa. Benko allowed plaintiffs to amend their complaint to “provide some amplification, for federal jurisdictional purposes,” Schroeder wrote, but did not “permit plaintiffs to amend their class definition, add or remove defendant, or add or remove claims in such a way that would alter the essential jurisdictional analysis.”

The appeal revolves around CAFA’s “local controversy” exception, which applies when two-thirds of the class members and a “significant” defendant are citizens of the state where the case was filed. The exception allows plaintiffs to keep class actions in state courts, which they consider to be more favorable to them than federal courts. The CAFA exception has plagued several class actions filed over the Flint, Michigan water crisis. 

In the Ninth Circuit case, the majority turned to recent decisions by the Seventh, Second, Fifth, Eighth and Tenth circuits in holding that remand orders must be based on the pleadings at the time the case is removed and not after it’s been amended once removed.

In a dissent, Judge Johnnie Rawlinson said the majority “essentially engaged in a stealth reversal of Benko.”

“The description of the class was defined more precisely without in any way expanding or modifying the allegations underlying the asserted cause of action,” she wrote. “Our analysis in Benko approves of just such an amendment.”

Plaintiff’s attorney Nancy Fineman, a principal at Cotchett, Pitre & McCarthy in Burlingame, California, said the case always intended to represent just California citizens and attributed the original complaint’s language to “an inadvertent mistake.”

“But when we drafted the complaint, we weren’t as precise as we now will be in the future if this decision stands,” she said.

She was not sure whether her client, the owner of a Burlingame restaurant, would petition for a full panel to rehear the case. But she acknowledged that courts could use some guidance in attempting to follow Benko.

“This is a huge case with big implications, not just for us,” Fineman said. “There’s been at least, since Benko was decided, 10 or so cases that dealt with this issue.”

A spokeswoman for Visa, declined to comment. The company is represented in the appeal by Sharon Mayo, senior counsel in the San Francisco office of Arnold & Porter Kaye Scholer .

Broadway Grill Inc. filed its case on July 12, 2016, in San Mateo Superior Court in California, asserting that Visa conspired with banks that issued its cards to fix the rates charged to merchants. The original complaint was brought on behalf of “all California individuals, businesses and other entities” that used Visa cards since 2004.  

Visa, which is based in Foster City, California, removed the case to federal court, where Chief Judge Phyllis Hamilton of the Northern District of California on Aug. 29 refused to grant a remand motion since many of the class members might not be California citizens.  But Hamilton allowed the plaintiff to amend its complaint, citing the Benko decision, and on Sept. 27 granted remand of the case.

On appeal of that remand order, the majority agreed that the plaintiff had gone too far in its reliance on Benko.

“The amendment in this case,” Schroeder wrote, “did not provide an explanation of the allegations, but changed the definition of the class itself.”