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A class action defendant has the burden of proof in attempting to remove a case to federal court, the 2nd U.S. Circuit Court of Appeals ruled Wednesday in interpreting a 2005 law designed to expand federal jurisdiction over class actions.

The ruling returned the case to Southern District of New York Judge George B. Daniels to determine whether the 2005 statute’s requirement that claims of more than $5 million be at stake had been met in a case charging that the Blockbuster video chain had been deceptive in promoting its no-late-fee program.

The circuit had ordered the case to be sent back to Judge Daniels in March because the Class Action Fairness Act of 2005 (CAFA) required appeals to be decided within 60 days after they are filed. Wednesday’s opinion was issued to explain the circuit’s reasons for its earlier decision, Judge Richard J. Cardamone wrote in Blockbuster v. Galeno. Judges John W. Walker and Sonia Sotomayor joined in the ruling.

In the meantime, there has been no further activity in the case.

The lead plaintiff, Michael Galeno, brought the class action in New York state court on behalf of all New Yorkers claiming that Blockbuster’s no-late-fee policy, which was effective on Jan. 1, 2005, was deceptive.

Instead of charging late fees, Blockbuster began to charge its customers the sale price of any video kept for more than eight days. Blockbuster deducted the initial rental fee from the price, and also agreed to refund the price (less a $1.25 fee) for any video returned within 30 days of the sale date.

Under the pressure of a lawsuit brought by the attorneys general of 47 states and the District of Columbia, Blockbuster agreed to a settlement that ended the no-late-fee program in March 2005.

The New York lawsuit, which was filed about three weeks before the practice was ended, differed from the suit brought by the attorneys general in that it is seeking statutory and common law damages for New Yorkers who were assessed fees after the no-late-fee policy went into effect, said Michael P. Malakoff, who represents the plaintiffs. No class has yet been certified.

Shortly after the plaintiffs filed their lawsuit on Feb. 25, 2005, Blockbuster removed it to federal court under CAFA, which makes removal easier by relaxing requirements for diversity and removal. CAFA also requires that to sustain jurisdiction, there be 100 plaintiffs and a minimum of $5 million to be at stake.

The crucial question before the court, Cardamone wrote, was whether CAFA changed the prior rule that required Blockbuster, as the party seeking removal, to sustain the burden of proving that removal was appropriate.

Daniels had not squarely addressed that question, Cardamone wrote in rejecting the plaintiffs’ request that the case be returned to state court.

Turning to the burden-of-proof question, Cardamone concluded that CAFA left intact the old rule that the party seeking removal has the burden. He remanded the case to Daniels to determine whether Blockbuster could make a sufficient showing that the $5 million threshold in potential damages had been met.

Cardamone noted that the statute did not explicitly repeal the pre-existing rule and shift the burden to the plaintiffs to prove that removal was inappropriate under the act’s standards.

“We assume that the drafters of CAFA were well aware of the statutory language necessary to express an intent to shift the burden of proof to the plaintiff, especially in light of long-standing judicial rules placing the burden on the defendant,” he wrote.

Cardamone also discounted Blockbuster’s reliance on language in a U.S. Senate committee report, stating that “the named plaintiff(s) should bear the burden of demonstrating that the removal was improvident.”

Since the report was issued 10 days after the enactment of CAFA, Cardamone wrote, that to adopt Blockbuster’s position “would be to ignore the Constitution’s requirement of bicameralism and presentment.”

Blockbuster was represented by Michael L. Raff, Robert C. Walters, Jennifer B. Poppe and Steven Paradise of Vinson & Elkins, in both Dallas and New York.

In addition to Malakoff, of Malakoff Doyle & Finberg in Pittsburgh, Ronen Sarraf of Sarraf Gentile in New York represented the plaintiffs.

This article originally appeared in the New York Law Journal, a publication of ALM. •

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