Assuming its other requirements are satisfied, the local controversy exception to CAFA jurisdiction requires a district court to remand a class action if, during the three-year period preceding the filing of that action, another class action was filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons. But what happens when the class action, prior to its removal, was actually consolidated with the previously filed other action in state court? The Ninth Circuit Court of Appeals recently addressed this very question.
The two separate class actions were filed only minutes apart in the same California state court against the same California-resident defendants. The complaints in both actions each alleged racial and gender employment discrimination against members of a California class in violation of multiple California statutes. The state court subsequently ordered the cases consolidated “for all purposes.”
After the two sets of plaintiffs each amended their respective complaints to include the same non-California citizen as an additional named defendant, the defendants filed a separate notice of removal for each of the two class actions that had been consolidated by the state court.
The federal district court considered whether it was required under CAFA’s local controversy exception to remand one or both of the cases to state court. Under the local controversy exception, which responds to concerns that class actions with a truly local focus should not be moved to federal court under CAFA because state courts have a strong interest in adjudicating such disputes, the district court must decline to exercise jurisdiction when:
- Greater than two-thirds of the members of the putative class are citizens of the State in which the action was originally filed;
- At least one defendant is a citizen of the State in which the action was originally filed from whom significant relief is sought by members of the class and whose alleged conduct forms a significant basis for the class claims;
- Principal injuries resulting from the alleged unlawful conduct or any related conduct were incurred in the State in which the action was originally filed; and
- During the 3-year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons[.].
Based on its analysis of the fourth prong, the district court concluded that the local controversy exception applied to the second class action, which it remanded, but not to the first, over which it elected to exercise jurisdiction. The paradoxical result of these rulings was that the consolidated actions were split between a state and federal court.
On appeal, the Ninth Circuit considered whether the local controversy exception required it to decline to exercise jurisdiction over both actions, one action, or neither action by virtue of the filing of a similar class action against any of the defendants in the preceding three years. The plaintiffs argued that when two actions are consolidated “for all purposes” under California law, such consolidation means “the two actions are merged into a single proceeding under one case number and result in only one verdict or set of findings and one judgment,” and “the cases are to be treated as if the causes had been united originally.” The defendants countered that, for purposes of determining whether a similar action had been filed in the preceding three-year period, a court applying the local controversy exception should go all the way back to the filing dates of the original complaints—which, in this case, was when the two separate actions had yet to be consolidated.
The court agreed with the plaintiffs, concluding that California law required the two cases to be treated as a single consolidated class action that was united originally, rather than as two separate class actions filed at different times. Because the state court’s consolidation of the two cases prior to removal resulted in a single consolidated class action, no other class action had been filed during the three-year period preceding the filing of the consolidated class action, and the local controversy exception applied to defeat federal jurisdiction. Moreover, as a consolidated class action involving primarily California claims by California plaintiffs against California defendants, with only one defendant being an out-of-state corporation, and involving injuries suffered in California, it would be difficult for this controversy to be any more local to California. The court concluded that allowing the California state court to continue to adjudicate the consolidated class action was entirely in accordance with the purpose of the local controversy exception, as well as an overall purpose of CAFA, to avoid the inefficiencies of similar, overlapping class actions proceeding before different state courts in an uncoordinated, redundant fashion. Accordingly, the Ninth Circuit held that the district court erred in exercising jurisdiction over one class action and remanding the other, when the correct decision was to remand both.