The Ninth Circuit reversed the dismissal of a class action and instructed the district court to remand the case to state court, based on the local controversy exception to the Class Action Fairness Act (CAFA). In doing so, it held that a post-removal amended complaint may be considered to determine whether remand is appropriate.

A group of Nevada citizens sued six separate entities in Nevada state court for illegal debt collection practices. After removal, the plaintiffs sought to amend the complaint to add information about their claims against one of the defendants, a Nevada corporation, for purposes of establishing a local controversy exception to CAFA. The district court denied leave to amend, reasoning the amended complaint did not alter the core allegations in the original complaint and were therefore futile, and concluded it had jurisdiction.

The Ninth Circuit reversed, based on the plaintiffs’ post-removal amended complaint, finding a local controversy existed. The local controversy exception requires remand when plaintiffs establish:

  1. greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed;
  2. at least 1 defendant is a defendant–(aa) from whom significant relief is sought by members of the plaintiff class; (bb) whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and (cc) who is a citizen of the State in which the action was originally filed; and
  3. principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed.

28 U.S.C. § 1332(d)(4)(A)(i).

The Ninth Circuit concluded the plaintiffs met their burden because: a class of exclusively Nevada plaintiffs filed suit against six defendants, one of which was a Nevada citizen; the alleged misconduct occurred exclusively in Nevada; and the plaintiffs sought  “significant relief” from the Nevada defendant who was allegedly responsible for 15-20 percent of the alleged wrongdoing and whose conduct constituted a “significant basis” for the class claims.

It further held the district court abused its discretion in denying the plaintiffs leave to amend their complaint, and erred in not considering the post-removal amended complaint for purposes of analyzing CAFA jurisdiction. It explained that where a case is removed under CAFA, and an amended complaint is filed to explain the nature of the action for purposes of a jurisdictional analysis, the amended complaint may be considered to determine whether remand is appropriate.

Benko v. Quality Loan Svc. Corp., et al., No. 13-15185 (9th Cir. Jun. 18, 2014).