Class met CAFA's discretionary jurisdiction exception

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Decisions

March 1, 2011

Class met CAFA's discretionary jurisdiction exception 

Although a class of stockholders didn’t meet the Class Action Fairness Act’s (CAFA’s) local controversy and home state exceptions for remand, the totality of the circumstances warranted remand under the discretionary jurisdiction exception, a U.S. district court held.

After a group of stockholders sued several officers and directors of BankMeridian, N.A., for negligence and breach of fiduciary duty, among other claims, the defendants removed the case to federal court. The class sought remand to state court in South Carolina, arguing that CAFA’s local controversy and home state exceptions applied because many of the stockholders and all of the defendants were from South Carolina.

Rejecting that claim, the court said that in addition to other requirements, the plaintiffs were required to establish that at least two-thirds of the class members were citizens of South Carolina for the exceptions to apply. Residency alone is insufficient to establish citizenship, the court noted; members must have a physical presence in the state and intend to make the state their home.

The defendants admitted that 60 percent of the class members had stock registered in South Carolina, which adequately proved citizenship for those members. The plaintiffs claimed they could reach the two-thirds threshold because 49 of the members whose stock was registered out of state had mailing addresses in South Carolina, including 9 lawyers who were members of the state bar and practiced before the state high court. But proof of residency or membership in the state bar is not enough, the court said, and the plaintiffs provided no other evidence of citizenship. Thus, they were not entitled to the home state or local controversy exceptions.

The court noted, however, that under the discretionary jurisdiction exception, the court may remand a case if more than one-third of the class members and the defendants are citizens of the state and the totality of the circumstances warrants remand.

Weighing several factors that courts must consider for remand, the court said most were in the plaintiffs’ favor. The allegations were state law claims that would not involve interpretation of federal law, and other states’ laws were not a factor because the claims were based on events that occurred in South Carolina. Further, most of the class was from the state, and the bank had branches only in the state.

There was also no evidence that the plaintiffs were trying to avoid federal jurisdiction, the court found, especially because they could have kept the amount in controversy under the required $5 million to avoid jurisdiction but did not do so. Finally, no similar class actions had been filed in the last three years.

Accordingly, the court remanded the case to state court.

Citation: Bowen v. Houser, 2011 WL 380455 (D.S.C. Feb. 3, 2011).

Plaintiff counsel: AAJ member William E. Hopkins Jr., Montgomery, Alabama.


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