The Class Action Fairness Act (“CAFA”) eliminated longstanding barriers to removal of cases from state to federal court. To remove a class action under CAFA, it is no longer necessary for all plaintiffs and defendants to be completely diverse; now, only one class member and one defendant must be citizens of different states. Certain exceptions, however, including the local controversy exception, limit this broad access to federal court and provide a means for parties to keep certain actions in state court. The local controversy exception provides that federal court must decline jurisdiction where “significant” relief is sought from at least one defendant in the case whose conduct forms a “significant basis” for the claims asserted by the putative class. The Third Circuit, in Kaufman v. Allstate New Jersey Insurance Co., 561 F.3d 144 (3d Cir. 2009), recently became the first Court of Appeals to hold that CAFA does not require every class member to assert a claim against that local defendant for the action to remain in state court.
In Kaufman, plaintiffs sued six auto insurance companies in New Jersey state court and one defendant removed the action to federal court pursuant to CAFA. After plaintiffs moved to remand under the local controversy exception, but before the district court heard the petition, the plaintiffs dismissed three of the defendants. The district court then remanded the case, and the three remaining defendants appealed.
On appeal, only one of the three defendants, Allstate NJ, was a New Jersey citizen, and it was thus the only defendant that could possibly meet the “significant basis” requirement. Defendants argued that this language required that every class member have a claim against Allstate NJ and, since the individual class members of the plaintiff had a claim against only one of the companies, defendants maintained that the requirement was not met. The Third Circuit, however, disagreed, concluding that the local defendant’s conduct must form a significant basis of the overall action, seen in relation to the conduct of the other defendants, but need not form a basis of every individual claim.
The court further ruled that “the local defendant’s alleged conduct must be an important ground for the asserted claims in view of the alleged conduct of all the Defendants,” and that merely showing the conduct was “more than trivial” did not suffice.