Bradford Coleman, a California citizen, sued Estes Express Lines, Inc., a Virginia corporation, and Estes West, a California corporation, individually and on behalf of a proposed class, in California state court. Coleman alleged the defendants failed to pay their employees properly, in violation of California law. Estes Express removed to federal district court under the Class Action Fairness Act. The district court remanded to state court because the case involved a local controversy under 28 U.S.C. § 1332(d)(4). Estes Express applied for leave to appeal that order under CAFA, 28 U.S.C. § 1453(c)(1), which grants federal appellate courts discretion to accept such appeals. We previously reported on the Ninth Circuit’s opinion that granted leave to appeal and articulated criteria to determine when it is appropriate to hear discretionary appeals under CAFA. To read our bulletin on that opinion, click here.

CAFA’s local controversy exception, 28 U.S.C. § 1332(d)(4)(A) requires district courts to decline jurisdiction over essentially intra-state matters. One requirement of this exception is that “at least one 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) is a citizen of the State in which the action was originally filed.”

Defendants argued that the declaration of Estes Express’s Director of Human Resources established that two of the requirements of the local controversy exception were not satisfied. First, defendants asserted the declaration established that Estes West did not have any funds to satisfy a judgment. All customer revenues were paid to Estes Express, which then gave Estes West only the money necessary to fund its payroll. Because Estes did not have any cash to satisfy a judgment, Estes argued that the proposed class could not seek significant relief from the California defendant.

Second, the declaration asserted that Estes Express had complete control over all of the payroll functions about which Coleman complained. Moreover, the declaration said that Estes Express maintained complete control over every significant term of employment for every Estes employee in the State of California. Accordingly, Estes West’s conduct could not possibly be a significant source basis for the class’s claims for relief.

The Ninth Circuit held that “CAFA's language unambiguously directs the district court to look only to the complaint in deciding whether the criteria set forth in § 1332(d)(4)(A)(i)(II)(aa) and (bb) are satisfied.” 2011 WL 211206 at *3. The first criterion for the local controversy exception is whether significant relief was sought from a local defendant. This language focuses on what the plaintiff seeks, not on what is ultimately proved by the evidence. The court quoted the Tenth Circuit’s decision in Coffey v. Freeport McMoran Copper & Gold, 581 F.3d 1240, 1244-45 (10th Cir.2009): “There is nothing in the language of the statute that indicates Congress intended district courts to wade into the factual swamp of assessing the financial viability of a defendant as part of this preliminary consideration.”

Similarly, the second criterion is whether the defendant’s alleged conduct forms a significant basis for the claims asserted. Again, the emphasis is on what is alleged, not on what is ultimately proved. “We see nothing in CAFA that indicates a congressional intention to turn a jurisdictional determination concerning the local defendant's “alleged conduct” into a mini-trial on the merits of the plaintiff's claims.” 2011 WL 211206 at *5.

The court noted that the language of the first two criteria differs significantly from the final requirement, which is whether a defendant is a citizen of the forum state. This language indicates that citizenship is a fact that must be established, not just alleged. Therefore, extrinsic evidence on the issue of citizenship is permissible.

The decision in Coleman is significant in that it significantly restricts a defendant’s ability to oppose remand with evidence. Coleman is consistent with holdings in two other circuits. Coffey v. Freeport McMoran Copper & Gold, 581 F.3d 1240 (10th Cir.2009); Kaufman v. Allstate N.J. Ins. Co., 561 F.3d 144 (3d Cir. 2009). The Eleventh Circuit, however, considered extrinsic evidence in determining whether the second criterion, the defendant’s alleged conduct, was satisfied. Evans v. Walter Indus., Inc., 449 F3d 1159 (11th Cir. 2006) In Evans, however, the court did not address the propriety of considering the extrinsic evidence, perhaps because the parties did not raise the issue.