Note: This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.
In Kaufman v. Allstate New Jersey Ins. Co., Nos. 08-4911, 08-4912, 08-4913,--- F.3d ---, 2009 WL 779759 (3d Cir. Mar. 26, 2009), the United States Court of Appeals for the Third Circuit analyzed whether federal subject matter jurisdiction under the Class Action Fairness Act ("CAFA") existed over a putative diminished value class action filed against numerous insurers on behalf of a New Jersey-only putative class. Specifically, the Court examined whether the case fell within the "local controversy" exception to the Class Action Fairness Act, which creates an exception to CAFA jurisdiction for many cases in which over two-thirds of the putative class are citizens of the same state as a defendant "whose alleged conduct forms a significant basis for the claims asserted by the proposed putative class." 28 U.S.C. § 1332(d)(4).
The Court began its analysis by clarifying that when considering this issue, courts should only address the defendants who remain in the action, rather than defendants whose claims have been dismissed. The Court also observed that the party seeking remand has the burden of establishing that federal subject matter jurisdiction does not exist, and therefore has the burden of demonstrating that a case falls within the "local controversy" exception to CAFA.
The Court next turned to the defendants' contention that the "significant basis" exception to CAFA jurisdiction should only be applied when all of the putative class members have asserted a claim against the non-diverse defendant. The Court rejected this argument, noting that this exception "does not require that the local defendant's conduct form a basis of each claim asserted," but rather "requires the alleged conduct to form a significant basis of all the claims asserted." Kaufman, 2009 WL 779759 at *8. The Court further observed that "a party's conduct may form a significant basis of an entire set of claims even if some claims within the set are not based on that conduct." Id.
The Court therefore held that the trial court was correct in rejecting this argument. However, the Court concluded that the trial court's basis for granting Plaintiffs' Motion to Remand was erroneous. In determining that the conduct of the New Jersey defendant formed a "significant basis" of the conduct at issue, the trial court focused upon the fact that the defendant had a substantial share of the state automobile insurance market. The Third Circuit held that such an analysis was insufficient, as the trial court "did not consider whether some policies sold by the Defendants actually did provide diminished value coverage or whether the Defendants occasionally paid for diminished value claims, nor did it compare [the New Jersey insurer's] alleged conduct to the alleged conduct of all the Defendants." The Court emphasized that in order to fall within the "significant basis" exception to CAFA, "[t]he local defendant's alleged conduct must be an important ground for the asserted claims in view of the alleged conduct of all the Defendants." Id. at *9. Therefore, the Court remanded the matter to the trial court for further consideration consistent with its opinion.
The Third Circuit's analysis suggests that the determination of whether a non-diverse defendant's conduct forms a "significant basis" of the conduct at issue may require some consideration of the merits of the claims at issue. Such a determination may be an inevitable consequence of the jurisdictional standards established by the statute, which often compel a fact-intensive inquiry that may delve into the merits of Plaintiffs' allegations. While the determination of whether a particular case falls within the Class Action Fairness Act hardly requires a full trial on the merits, cases such as Kaufman demonstrate the jurisdictional issues raised by CAFA rarely lend themselves to a simple resolution.
