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The Class Action Fairness Act of 2005, Pub. L. 109-2, 199 Stat. 4 (2005), creates new and expanded federal court jurisdiction for class action litigation. See 28 U.S.C. 1332(d) and 28 U.S.C. 1453. Notwithstanding this expanded jurisdiction, Congress also sought to strike an appropriate balance between federal and state authority to adjudicate class litigation. In an effort to accomplish this delicate balance, the CAFA statutory scheme recognizes exceptions to federal court jurisdiction over class litigation. In September 2006 [NLJ, Sept. 4], I explained that CAFA carve-outs and exceptions fall into different categories. My last column examined how federal courts have treated the CAFA carve-out for securities litigation. I also discussed a CAFA exception dealing with duplicative class litigation. This column addresses emerging judicial opinions that construe the CAFA “home-state exception” and “local-controversy exception.” These are separate CAFA provisions that require or permit a federal court to decline jurisdiction when the facts underlying a proposed class action chiefly pertain to local state-based events. To date, federal courts have issued approximately a dozen decisions construing the CAFA home-state and local-controversy exceptions. CAFA recognizes two exceptions to jurisdiction CAFA creates new federal diversity class action jurisdiction. A plaintiff may file a class action in federal court provided that the class consist of at least 100 putative members, the amount in controversy exceeds $5 million, and the parties are citizens of different states. 28 U.S.C. 1332(d)(2). Thus, CAFA modified the standard requirements for diversity jurisdiction by permitting minimal diversity among parties and aggregation of damages, to invoke federal jurisdiction. As such, CAFA is an exception to the normal rules for federal diversity jurisdiction. In spite of these liberalized standards for federal class action jurisdiction, CAFA nonetheless recognizes two significant exceptions to federal jurisdiction. These are the local-controversy and home-state exceptions. 28 U.S.C. 1332(d)(4)(A) and (B). In order for parties to invoke these exceptions, valid federal jurisdiction must first be established under 28 U.S.C. 1332(d). The local-controversy exception is mandatory. This exception provides that a district court shall decline to exercise jurisdiction where: (1) more than two-thirds of class members are state citizens where the action originally is filed; (2) significant relief is sought from at least one defendant whose alleged conduct forms a significant basis for the claims asserted, and that defendant is a citizen of filing state; (3) class members’ principal injuries were incurred in the filing state; and (4) no duplicative class litigation had been filed against the defendants, on behalf of the same or other persons, in the three prior years. See 28 U.S.C. 1332(d)(A). The home-state exception also is mandatory. This exception similarly provides that a district court shall decline to exercise jurisdiction if “two-thirds or more of the members of the 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). The two statutory exceptions suggested difficult interpretative problems for courts. How are courts to ascertain the two-thirds class membership requirement? Who is a “primary” defendant? What do the terms “significant relief” and “significant basis” mean? How are courts to apply these standards in multiple-defendant class litigation? Similar to many other emerging CAFA problems, federal courts have first grappled with the issue of which party carries the burden of proof to demonstrate that a CAFA exception applies, to defeat federal court jurisdiction. And, similar to many other CAFA problems, the statute itself is silent as to which party must satisfy the standards for the two CAFA local-controversy exceptions. Three U.S. courts of appeals have addressed this issue, and all seem to agree that the plaintiff carries the burden of demonstrating that a local-controversy exception applies, rather than the defendant, if the defendant removes a state class action to federal court under CAFA. See Hart v. FedEx Ground Package System Inc., 2006 U.S. App. Lexis 20431 (7th Cir. Aug. 9, 2006); Frazier v. Pioneer Americas LLC, 2006 U.S. App. Lexis 16848 (5th Cir. July 6, 2006); Evans v. Walter Industries Inc., 2006 U.S. App. Lexis 12509 (11th Cir. May 22, 2006). These appellate courts’ interpretation relating to burdens of proof to support the CAFA exceptions is interesting, because it represents a departure from many previously announced decisions that the defendant carries the burden of proof to establish valid CAFA removal jurisdiction. See e.g., Brill v. Countrywide Home Loans, 427 F.3d 446, 447-49 (7th Cir. 2005). In essence, the appellate courts that have considered the issue have concluded that, although defendants carry the burden to establish valid CAFA removal jurisdiction, the burden then shifts to the plaintiff to demonstrate that the local-controversy or home state-exception applies to require a remand to state court. See Hart, 2006 U.S. App. Lexis 20431, 13; Frazier, 2006 U.S. App. Lexis 16848; Evans, 449 F.3d at 1165. Appellate courts have grounded this conclusion in various rationales. In Evans, the 11th U.S. Circuit Court of Appeals articulated three reasons why plaintiffs carry the burden to satisfy the local-controversy exception. First, the court relied on Breuer v. Jim’s Concrete of Brevard Inc., 538 U.S. 691 (2003), in which the U.S. Supreme Court held that the party opposing removal (i.e., the plaintiff) must prove that there is an express exception to removability. Second, the 11th Circuit reasoned that a plaintiff is better positioned to collect relevant evidence concerning the location of class members. Third, the 11th Circuit analogized CAFA’s statutory scheme to cases involving the Federal Deposit Insurance Corporation (FDIC), in which the party opposing removal must prove the “state action” exception to federal jurisdiction. Evans, 449 F.3d at 1164-65. Accord, Frazier, 2006 U.S. App. Lexis 16848, 2006 WL 1843629 at 2. More recently, Judge Diane Wood of the 7th Circuit similarly concluded that plaintiffs carry the burden to demonstrate that the CAFA exceptions apply. While agreeing with the 5th and 11th circuits, Wood grounded her decision in CAFA’s express statutory language and the interrelationship of the class action diversity provision and the subsections defining the exceptions to that jurisdiction. Hart, 2006 U.S. App. Lexis, 14-15. More surprisingly, Wood also grounded her burden-shifting conclusion in CAFA’s legislative history. “[I]t is also worth noting that this outcome is consistent with the legislative history of CAFA. The Senate Judiciary [Committee] unambiguously signaled where it believed the burden should lie.” Wood cited the Senate report, which states: “[I]t is the intent of the Committee that the named plaintiff(s) should bear the burden of demonstrating that a case should be remanded to state court (e.g., the burden of demonstrating that more than two-thirds of the proposed class members are citizens of the forum state). Hart, 2006 U.S. App. Lexis 20431, 18, citing S. Rep. No. 14, 109th Cong. 1st Sess. 43 (2005). Wood’s reliance on CAFA legislative history should surprise some CAFA aficionados who are tracking the disagreement among federal courts regarding the permissible use of CAFA’s legislative history. In a prior CAFA decision, the 7th Circuit rejected reliance on CAFA’s legislative history (see Brill v. Countrywide Home Loans, 427 F.3d 446 (7th Cir. 2005)), but not so in Hart. Finally, Wood read CAFA’s legislative history to understand the exceptions as manifesting congressional intent “designed to draw a delicate balance between making a federal forum available to genuinely national litigation and allowing state courts to retain cases when the controversy is strongly linked to that state.” Hart, 2006 U.S. App. Lexis 20431, 19. Other federal district courts have applied the burden to plaintiffs to demonstrate that the exceptions apply, and similarly rely on CAFA’s legislative history. In some cases, courts have concluded that the plaintiffs have not satisfied the standards for showing that the exceptions apply. See e.g., Seat v. Farmers Group Inc., 2006 U.S. Dist. Lexis 30575, 5-6 (D. Okla. May 5, 2006) (relying on Senate report for allocation of burden on exceptions); Robinson v. Cheetah Transportation, 2006 U.S. Dist. Lexis 10129, 9-10 (same; plaintiff filed to carry burden and CAFA exceptions do not apply). CAFA exceptions in lower federal courts Not all federal courts are on board with the appellate conclusion that CAFA shifts the evidentiary burden to the plaintiff to demonstrate that a CAFA exception applies, requiring remand to state court. For example, U.S. District Judge Thelton E. Henderson of the Northern District of California determined that the defendants carried the burden of proof to show the inapplicability of the home-state exception. Serrano v. 180 Connecticut Inc., 2006 U.S. Dist. Lexis 61035, 3 (N.D. Calif. Aug. 11, 2006). After permitting the defendants further briefing to carry this burden, Henderson held that the defendants’ supplemental submission failed to satisfy their burden to demonstrate that either one-third of the proposed class members were not California citizens, or that either defendant was a primary defendant. Serrano, 2006 U.S. Dist. Lexis 61035, 18. Consequently, the court held that it was precluded from exercising CAFA jurisdiction under � 1332(d), and that the class action should be remanded to state court. Linda S. Mullenix holds the Morris and Rita Atlas Chair in Advocacy at the University of Texas School of Law. She can be reached at [email protected].

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