CAFA: Ninth Circuit Affirms District Court’s Sua Sponte Invocation and Application of Discretionary Home State Exception

Carlton Fields

Carlton Fields

On May 13, 2020, the Ninth Circuit Court of Appeals affirmed the remand of a wage and hour class action lawsuit filed in California state court based on the home state exception to the Class Action Fairness Act (CAFA). In its opinion affirming the remand, the Ninth Circuit explored both parts of the home state exception.

Defendant West Marine removed the lawsuit to federal court under CAFA. There was no dispute that West Marine’s CAFA removal satisfied the statutory thresholds of an amount in controversy exceeding $5 million and minimal diversity.

Instead, the remand argument centered on the home state exception. As the panel explained, there are actually two parts of this CAFA exception, one mandatory and one discretionary. The panel labeled the two parts of the home state exception as the “mandatory home state exception” and the “discretionary home state exception” to differentiate between the two after observing that, “perplexingly, both the mandatory and discretionary home state exceptions are often referred to by the same name — that is, simply, as the ‘home state exception.’”

Under the “mandatory home state exception,” the district court “shall” decline to exercise jurisdiction when “two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.” 28 U.S.C. § 1332(d)(4)(B). Under the “discretionary home state exception,” a district court “may, in the interests of justice and looking at the totality of the circumstances, decline to exercise jurisdiction” when more than one-third of the putative class, and the primary defendants, are citizens of the state where the action was originally filed. 28 U.S.C. § 1332(d)(3).

The named plaintiff, Adrianne Adams, moved to remand the case to state court. She offered evidence that 90% of the class members had last known addresses in California. She also offered her own “sworn declaration that she had been required upon hire to certify her California (and United States) citizenship to West Marine; and that, as a West Marine store manager, she was ‘required to ask applicants whether they were citizens of California[.]’” In moving to remand, she did not raise or brief the discretionary home state exception. Rather, she relied on the mandatory home state exception. The district court, however, sua sponte analyzed the discretionary home state exception and granted the remand motion based on that exception. The district court also ruled that, in the alternative, the mandatory home state exception would be satisfied.

West Marine petitioned the Ninth Circuit for leave to appeal, which was granted. On appeal, West Marine argued that evidence of actual citizenship was lacking and that the district court inappropriately used weak evidence of residency as a proxy for citizenship: “In concluding that this showing was adequate to establish that more than one-third or more than two-thirds of the putative class were California citizens, the district court rewrote the standards Congress set, replacing ‘citizenship’ with ‘residence,’ and even then engaged in guesswork as to both the fact and time of mere residence.” West Marine argued that the district court thus undermined CAFA by finding the named plaintiff’s evidence sufficient in this case: “Despite having virtually no evidence on the topic of whether the requisite number of putative class members were citizens of the state of California at the time of removal and literally no evidence of whether the requisite number of those same putative class members were also citizens of the United States at any point in time, much less as of the date of removal, the District Court committed serious error and undermined CAFA’s application to employment class actions.”

The Ninth Circuit affirmed. The panel acknowledged that citizenship and residency are not the same inquiry: “Adams offered evidence showing that more than 90% of class members had last known mailing addresses in California — a percentage far greater than the one-third (or roughly, 33%) required for remand. Of course, last known mailing addresses are not a direct proxy for residence, and residence is not a direct proxy for citizenship.” Even so, the panel concluded, “given the substantial cushion afforded by the percentage of class members with last known California addresses, as compared to the percentage of class member citizens required for a discretionary remand, Adams readily met her burden.” In reaching this conclusion, the panel found the named plaintiff’s sworn declaration meaningful because it stated that “she (1) was required to ask job applicants whether they were United States citizens; (2) was herself asked upon hire to certify her United States citizenship; (3) never herself hired a ‘foreign worker’ under an employment-related visa; and (4) never heard of anyone at West Marine hiring a ‘foreign worker’ under an employment-related visa.”

A disconnect between West Marine’s arguments and the panel’s decision is in the quality of proof required of a plaintiff to establish that a CAFA exception applies. West Marine’s brief made the following point in that regard:

No doubt, Congress has assigned a difficult proof to a party that asks a Court to abstain from its jurisdiction based on the individual citizenship of two-thirds (or one-third) of a putative class. But that is the test Congress chose for application of the narrow exceptions to favored CAFA jurisdiction it designed, and by which Congress expressed its “overall intent to strongly favor the exercise of federal jurisdiction over class actions with interstate ramifications.”

In contrast, the Ninth Circuit did not view the proof to be so difficult:

Citizenship is determined “as of the date the case became removable[.]” “A district court makes factual findings regarding jurisdiction under a preponderance of the evidence standard.” Although such a finding must be based on more than mere “guesswork,” we have repeatedly cautioned that the burden of proof on a plaintiff “should not be exceptionally difficult to bear.”

Perhaps the most notable part of this opinion is that the Ninth Circuit affirmed the district court’s reliance on an argument the named plaintiff did not make or brief. As stated above, the district court sua sponte raised and ruled on the discretionary home state exception. West Marine challenged this as a point on appeal, citing authority that such a sua sponte ruling in the context of CAFA exceptions is inappropriate. Specifically, West Marine cited Kuxhausen v. BMW Financial Services NA LLC, 707 F.3d 1136 (9th Cir. 2013) (“Although CAFA carves out exceptions to the district court’s exercise of jurisdiction, the obligation to raise and prove that those exceptions apply … rests on the party seeking remand. As a result, we have no charge to consider those possibilities sua sponte.”), and Edwards v. North American Power & Gas, LLC, No. 3:14-cv-01714 (D. Conn. May 13, 2016) (“[T]he use of the phrase ‘decline to exercise’ means that the exception is not jurisdictional. Thus, for the Court to consider the applicability of either of these exceptions, they must be raised by the parties.”). West Marine argued that “if district courts may sua sponte remand employment class actions on a basis that was not argued by parties and on which neither party provided evidence, parties will be forced to petition the Ninth Circuit for permission to appeal such decisions, and do so without a complete record.”

The panel rejected this argument: “The local controversy and home state exceptions are not jurisdictional. Rather, as West Marine recognizes, we treat the local controversy and home state exceptions as a form of abstention. We may raise abstention sua sponte. Thus, although not required to do so, a district court may raise sua sponte an exception to CAFA jurisdiction.” This ruling is interesting, coming just a week after the U.S. Supreme Court vacated a Ninth Circuit decision based on the party presentation principle. See United States v. Sineneng-Smith, No. 19–67 (U.S. May 7, 2020) (“We therefore vacate the Ninth Circuit’s judgment and remand the case for an adjudication of the appeal attuned to the case shaped by the parties rather than the case designed by the appeals panel.”). The ruling also presents challenging tactical questions for defendants arguing and briefing in opposition to remand motions.

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Carlton Fields

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