CAFA Connection Q3, 2011

Welcome to the inaugural issue of Dinsmore & Shohl's CAFA Connection, a quarterly firm e-publication reporting on recently decided cases addressing the Class Action Fairness Act ("CAFA").1 Although CAFA was enacted in 2005, its provisions are the subject of ongoing review and interpretation. Our newsletter is designed to provide insight into CAFA's evolving body of case law.

1 A court may allow discovery regarding the citizenship of the members of the class in order to determine if CAFA's local controversy and home state exceptions apply.

In Wilson v. PBI Bank, Inc., No. 1:11-CV-19, 2011 U.S. Dist. LEXIS 39675 (W. D. of Ky. April 12, 2011), the plaintiff brought a putative class action on behalf of a class consisting of commercial loan borrowers of PBI Bank, Inc. who where affected by the bank's alleged scheme of luring borrowers into commercial loans by quoting and agreeing to charge interest at a yearly rate while intending to charge interest at a higher rate. The plaintiff specifically excluded from the class any person or entity who is not now a resident of the state of Kentucky.

The defendant removed the case to federal court pursuant to CAFA. It was undisputed that the amount in controversy exceeded $5 million, the proposed class exceeded 100 individuals and the defendant was a citizen of Kentucky. The plaintiff challenged the existence of minimal diversity, and argued for the application of both the home state and local controversy exceptions to CAFA jurisdiction.

The plaintiff argued that CAFA's home state controversy exception applied because two thirds or more of the members of the proposed class and the primary defendant were citizens of the state where the action originally was filed. The plaintiff also argued that the local controversy exception applied because greater than two thirds of the members of the class were citizens of Kentucky; the defendant from who significant relief was sought and whose conduct formed a significant basis of the claims asserted was a citizen of the state where the action was originally filed; and the principal injuries from the alleged conduct were incurred in the state where the action originally was filed. The plaintiff also argued that the court should exercise its discretion to decline jurisdiction under 28 U.S.C. § 1332(d)(3).

As to the minimal diversity argument, the defendant argued that because the plaintiff had excluded from the class definition all persons or entities who were not "residents" of Kentucky, rather than not "citizens" of Kentucky, the complaint on its face did not preclude a finding of minimal diversity under CAFA.

The court granted the plaintiffs' motion for limited discovery regarding the citizenship of the members of the class in order to determine whether any of the CAFA exceptions raised by the plaintiff were applicable. In the interim, the court denied the plaintiffs' motion to remand but with leave to re-file.

2. A court still may have federal diversity jurisdiction under 28 U.S.C. § 1332(a), even if it does not have jurisdiction under CAFA.

   In Shah v. Hyatt Corp., No. 10-1492, 2011 U.S. Dist. LEXIS 8747 (3rd Cir. April 27, 2011), the plaintiff employee brought suit in state court individually and on behalf of a putative class of others similarly situated who allegedly failed to receive compensation for hours worked in excess of forty hours per week in violation of the Pennsylvania Minimum Wage Act. The plaintiff specifically claimed that the class size was less than 100 and the damages were less than $5 million.

   Hyatt removed the case under the general diversity statute contained in 28 U.S.C. § 1332(a). Hyatt asserted that the amount in controversy for Shah's claim exceeded $75,000 and there was diversity of citizenship between the parties allowing the district court to exercise supplemental jurisdiction over the class claims. Ignoring Hyatt's § 1332(a) argument, the plaintiff disputed the court's jurisdiction under 28 U.S.C. § 1332(d) because the class size was less than 100 and the...