In Kaufman v. Allstate New Jersey Insurance Co., the Third Circuit tackled several issues of first impression regarding CAFA’s “local controversy” exception. Nine plaintiffs sued six insurance companies in New Jersey state court alleging that the defendants did not pay “diminished value” claims, suffered because an automobile loses value if it is damaged in an accident even though it may be completely repaired. The plaintiffs sought a New Jersey-only class. The plaintiffs subsequently dismissed three New Jersey insurers, leaving Allstate New Jersey as the only in-state defendant. After the case was removed the plaintiffs sought a remand under CAFA’s local controversy exception. The district court granted remand. The Third Circuit granted the defendants’ petition for review, ultimately vacating in part and remanding to the district court for further consideration.

Although federal diversity jurisdiction is generally determined on the facts prevailing at the time a suit is filed, the Third Circuit concluded that the local controversy exception requires consideration of only those defendants who are in the action at the time of removal. The court joined four other circuits in holding that once CAFA jurisdiction is established, it is plaintiffs’ burden to demonstrate that the local controversy exception applies. The case concerned two provisions of the local controversy exception to CAFA jurisdiction: that the action include at least one local defendant “whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class,” and that “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.” On these issues of first impression, the Third Circuit ruled that the “significant basis” provision requires at least one local defendant whose alleged conduct forms a significant basis for all the claims asserted in the action, but does not require that every member of the proposed plaintiff class have a claim against the local defendant. The “principal injuries” requirement is satisfied either when principal injuries resulting from the alleged conduct of each defendant are incurred in the state in which the action was filed, or when principal injuries resulting from any related conduct of each defendant are incurred in that state.