Lauren Kaufman v. Allstate NJ Ins Co ( 2009 )

Opinions of the United
2009 Decisions States Court of Appeals
for the Third Circuit
3-26-2009
Lauren Kaufman v. Allstate NJ Ins Co
Precedential or Non-Precedential: Precedential
Docket No. 08-4913
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 08-4911, 08-4912, 08-4913
LAUREN KAUFMAN; BETTINA FREELAND;
PHILLIP T. BURRUS;
VANGA STOILOV; ANTHONY ROSSETTI;
TAMESHA BROWN;
AXA & EDUARDO KIEFFER;
SANDRA KOZUSKO
v.
ALLSTATE NEW JERSEY INSURANCE COMPANY;
LIBERTY MUTUAL FIRE INSURANCE COMPANY;
GEICO INSURANCE COMPANY;
FIRST TRENTON INDEMNITY COMPANY;
HIGH POINT INSURANCE COMPANY;
NEW JERSEY MANUFACTURERS INSURANCE
COMPANY
Liberty Mutual Fire Insurance Company,
Appellant in No. 08-4911
Allstate New Jersey Insurance Company,
Appellant in No. 08-4912
Geico Insurance Company,
Appellant in No. 08-4913
On Appeal from the United States District Court
for the District of New Jersey
District Court No. 3-07-cv-06160
District Judge: The Honorable Mary L. Cooper
Argued January 27, 2009
Before: MCKEE, RENDELL, and SMITH, Circuit Judges
(Filed: March 26, 2009)
Eric D. Katz (Argued)
Mazie, Slater, Katz & Freeman
103 Eisenhower Parkway
Roseland, NJ 07068
Counsel for Appellees
John E. Keefe, Jr.
Keefe Bartel
830 Broad Street
Shrewsbury, NJ 07702
Counsel for Appellees
John J. Calkins
Sonnenschein, Nath & Rosenthal
1301 K Street, N.W.
2
Suite 600, East Tower
Washington, DC 20005
Counsel for Allstate NJ Insurance Company
DanaLynn T. Colao
Saiber
One Gateway Center, 13 th Floor
Newark, NJ 07102
Counsel for Allstate NJ Insurance Company
Mark G. Arnold (Argued)
Husch Blackwell Sanders
190 Carondelet Plaza, Suite 600
St. Louis, MO 63105
Counsel for Liberty Mutual Fire
Meloney C. Perry (Argued)
Meckler Bugler Tilson Marick & Pearson
10,000 North Central Expressway
Suite 1450
Dallas, TX 75231
Counsel for Geico Insurance Company
David F. Swerdlow
Windels, Marx, Lane & Mittendorf
104 Carnegie Center
Suite 201
Princeton, NJ 08540
Counsel for Geico Insurance Company
Stephen R. Katzman
3
Methfessel & Werbel
3 Ethel Road
P.O. Box 3012, Suite 300
Edison, NJ 08818
Counsel for First Trenton Indemnity Company
Joseph J. DePalma
Bruce D. Greenberg
Lite, De Palma, Greenberg & Rivas
Two Gateway Center, 12 th Floor
Newark, NJ 07102
Counsel for High Point Insurance Company
and NJ Manufacturing Insurance Company
Daniel J. Pomeroy
Mortenson & Pomeroy
155 Morris Avenue
Springfield, NJ 07081
Counsel for High Point Insurance Company
and NJ Manufacturing Insurance Company
OPINION
SMITH, Circuit Judge.
4
The Class Action Fairness Act of 2005 (CAFA) 1 confers
jurisdiction on federal courts over certain class actions in which
any defendant and any class member are citizens of different
states. 28 U.S.C. § 1332(d)(2). CAFA further enables any
defendant to remove a qualifying class action to federal court.
Id. § 1453(b). Under CAFA’s “local controversy” exception,
however, a federal court must decline jurisdiction if certain
conditions are met, including that a super-majority of the
members of the putative class and at least one significant
defendant are from the state in which the class action was
originally filed. 28 U.S.C. § 1332(d)(4)(A). This appeal
addresses, as issues of first impression, the meaning of two
provisions within CAFA’s local controversy exception.
Plaintiffs in this case originally filed their class action
complaint in the Superior Court of New Jersey, Monmouth
County, against six automobile insurance providers. After the
case was removed to the United States District Court for the
District of New Jersey pursuant to CAFA, the District Court
granted Plaintiffs’ motion to remand based on CAFA’s local
controversy exception, 28 U.S.C. § 1332(d)(4)(A). Government
Employees Insurance Company (GEICO), Allstate New Jersey
Insurance Company (Allstate NJ), and Liberty Mutual Fire
Insurance Company (Liberty) (collectively, the Defendants),
petitioned for permission to appeal under 28 U.S.C. §
1
Class Action Fairness Act of 2005, Pub. L. No. 109-2,
119 Stat. 4 (codified in scattered sections of 28 U.S.C.).
5
1453(c)(1). The Defendants challenge the District Court’s
interpretation of two provisions in CAFA’s local controversy
exception—specifically, the significant basis provision, 28
U.S.C. § 1332(d)(4)(A)(i)(II)(bb), and the principal injuries
provision, 28 U.S.C. § 1332(d)(4)(A)(i)(III). For the reasons set
forth below, we reject Defendants’ interpretations of these
provisions. Nevertheless, we will vacate in part the judgment of
the District Court and remand the case for the District Court to
reconsider its significant basis analysis, which erroneously relied
on generic market share numbers instead of focusing on the
conduct alleged in the complaint.
I.
A.
Prior to Congress’s enactment of CAFA in 2005, many
class actions were excluded from federal courts even if those
actions implicated matters of national importance affecting
millions of parties from many different states. This was the
result of the complete-diversity rule, which requires that no
plaintiff be a citizen of the same state as any defendant,2 and the
rule against aggregating claims, which requires that each
plaintiff individually seek at least the jurisdictional amount in
2
See 28 U.S.C. § 1332(a)(1); see also Strawbridge v.
Curtiss, 7 U.S. 267, 267 (1806); Midlantic Nat’l Bank v.
Hansen, 48 F.3d 693, 696 (3d Cir. 1995).
6
controversy.3
One purpose of CAFA was to provide for “[f]ederal court
consideration of interstate cases of national importance under
diversity jurisdiction.” CAFA § 2, Pub. L. 109-2, 119 Stat. 4.
Pursuant to CAFA, federal courts have jurisdiction over class
actions in which the amount in controversy exceeds $5,000,000
in the aggregate, §§ 1332(d)(2) & (6), any class member and any
defendant are citizens of different states, § 1332(d)(2)(A), and
there are at least 100 members in the putative class, §
1332(d)(5)(B).
CAFA also contains two mandatory exceptions from
federal jurisdiction, §§ 1332(d)(4)(A) & (B). These two
exceptions require a district court to decline jurisdiction when
the controversy is uniquely local4 and does not reach into
multiple states. Subsection (A), the “local controversy”
exception, may apply when at least one significant defendant
and more than two-thirds of the members of the putative classes
are local. Subsection (B), the “home-state” exception, may apply
when the primary defendants and at least two-thirds of the
3
See 28 U.S.C. § 1332(a); see also Zahn v. Int’l Paper
Co., 414 U.S. 291, 301 (1973); Packard v. Provident Nat’l
Bank, 994 F.2d 1039, 1045 (3d Cir. 1993).
4
For simplicity, we use the term “local” to mean from the
state in which the action was originally filed.
7
members of the putative classes are local. Specifically, 28
U.S.C. § 1332(d)(4) provides:
A district court shall decline to exercise
jurisdiction under paragraph (2)—
(A)(i) over a class action in which –
(I) greater than two-thirds of the members of all
proposed plaintiff classes in the aggregate are
citizens of the State in which the action was
originally filed;
(II) at least 1 defendant is a defendant—
(aa) from whom significant relief is sought
by members of the plaintiff class;
(bb) whose alleged conduct forms a
significant basis for the claims asserted by the
proposed plaintiff class; and
(cc) who is a citizen of the State in which
the action was originally filed; and
(III) principal injuries resulting from the alleged
conduct or any related conduct of each defendant
were incurred in the State in which the action was
originally filed; and
8
(ii) during the 3-year period preceding the filing
of that class action, no other class action has been
filed asserting the same or similar factual
allegations against any of the defendants on
behalf of the same persons; or
(B) 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).
In this appeal, we consider two questions: first, whether
the significant basis provision, § 1332(d)(4)(A)(i)(II)(bb),
requires that every class member must assert a claim against the
local defendant; and second, whether the principal injuries
provision, § 1332(d)(4)(A)(i)(III), requires that principal injuries
resulting from the alleged conduct and any related conduct of
each defendant must be incurred in the state in which the action
was originally filed. No other court of appeals has yet
considered these two questions.
B.
On November 30, 2007, nine representative plaintiffs
(Plaintiffs) filed a class action complaint against six insurance
companies in the Superior Court of New Jersey. Plaintiffs
voluntarily dismissed three New Jersey insurers in July 2008 so
that, presently, only Allstate NJ, GEICO, and Liberty remain in
9
the action. Allstate NJ 5 is a New Jersey citizen, but GEICO and
Liberty are not.6
Plaintiffs allege that they purchased automobile insurance
from Defendants and plead three causes of action: 1) breach of
contract; 2) breach of an implied duty of good faith and fair
dealing; and 3) violation of the New Jersey Consumer Fraud
Act, N.J. Stat. Ann. § 56:8-1 et seq. The crux of Plaintiffs’
claims is that an automobile loses value if it is damaged in an
accident, notwithstanding its complete repair. This loss in value
is known in the insurance business as “diminished value.”
Plaintiffs allege that Defendants do not pay their insureds for
diminished value insurance claims. They assert that Defendants
either expressly exclude diminished value from coverage, or
their insurance policies are silent as to such coverage. In any
event, Plaintiffs contend that Defendants’ practices violate New
Jersey law and the insurance contracts.
In addition to compensatory and punitive damages,
Plaintiffs seek reformation of the insurance contracts to establish
coverage and an injunction that would 1) compel Defendants to
cover diminished value claims; 2) require Defendants to notify
5
Allstate NJ was substituted for Allstate Insurance
Company, an out-of-state defendant, in March 2008.
6
GEICO is a Maryland corporation with its principal
place of business in Maryland. Liberty is allegedly a Wisconsin
corporation with its principal place of business in
Massachusetts.
10
their insureds of the coverage and claims processing procedures;
and 3) require Defendants to adhere to these contractual
obligations in the future.
The complaint also seeks class action status. Without
specifying the type of class action Plaintiffs seek to maintain,
their complaint includes language that might support a (b)(1),
(b)(2), or (b)(3) class action. See Fed. R. Civ. Pro. 23(b).
Plaintiffs define the putative “Equitable Relief Class” to include
all persons currently insured by Defendants under a policy
issued in New Jersey and the “Damages Sub-Class” to include
all persons currently or previously insured by Defendants and
who submitted, at any time within six years prior to the
complaint, a claim for damage and who did not receive
compensation for diminished value. Significantly, in
Defendants’ view, each class member would assert claims
against only one Defendant—the Defendant that underwrote the
class member’s automobile insurance. Thus, the putative class
and sub-class would actually be comprised of three separate and
distinct groups of members: 1) GEICO insureds; 2) Liberty
insureds; and 3) Allstate NJ insureds.
After GEICO timely removed the action to the District
Court pursuant to CAFA, 28 U.S.C. §§ 1332(d)(2) and 1453,
Plaintiffs filed a motion to remand based on CAFA’s local
controversy exception, § 1332(d)(4)(A). On September 10,
2008, the District Court determined that the local controversy
exception applied and remanded the action to the Superior Court
of New Jersey. Defendants timely petitioned for review of the
remand order. 28 U.S.C. § 1453(c)(1). We granted their
11
petitions.7
II.
We exercise jurisdiction pursuant to 28 U.S.C. § 1453(c)
and review issues of subject matter jurisdiction and statutory
interpretation de novo. Morgan v. Gay, 471 F.3d 469, 472 (3d
Cir. 2006) (citing Samuel-Bassett v. Kia Motors Am., Inc., 357
F.3d 392, 396 (3d Cir. 2004)).
III.
The parties do not dispute CAFA’s threshold
jurisdictional requirements.8 We must nevertheless satisfy
7
We granted the Defendants’ petitions December 22,
2008. Pursuant to 28 U.S.C. § 1453(c)(2), we have 60 days from
the date we granted the petition to file an opinion and judgment.
Morgan v. Gay, 471 F.3d 469, 472 (3d Cir. 2006). The February
20, 2009 deadline has been extended, however, by virtue of the
parties’ consent to a 45-day extension. See 28 U.S.C. §
1453(c)(3).
8
CAFA provides:
The district courts shall have original
jurisdiction of any civil action in which the
matter in controversy exceeds the sum or value
of $5,000,000, exclusive of interest and costs,
and is a class action in which—(A) any member
of a class of plaintiffs is a citizen of a State
12
ourselves that federal subject matter jurisdiction exists in the
first instance. See Samuel-Bassett, 357 F.3d at 395. We require
the party seeking to remove to federal court to demonstrate
federal jurisdiction. Frederico v. Home Depot, 507 F.3d 188,
193 (3d Cir. 2007); see also Morgan, 471 F.3d at 473 (“Under
CAFA, the party seeking to remove the case to federal court
bears the burden to establish that the amount in controversy is
satisfied.”). In removal cases, we begin evaluating jurisdiction
by reviewing the allegations in the complaint and in the notice
of removal. Frederico, 507 F.3d at 197.
GEICO’s notice of removal indicates GEICO and
Plaintiffs are from different states (Maryland and New Jersey,
respectively), and that the complaint seeks class action status for
a class comprising thousands of individuals. The notice of
removal also asserts that the amount in controversy exceeds
$5,000,000, exclusive of interest and costs. Although the
different from any defendant; (B) any member
of a class of plaintiffs is a foreign state or a
citizen or subject of a foreign state and any
defendant is a citizen of a State; or (C) any
member of a class of plaintiffs is a citizen of a
State and any defendant is a foreign state or a
citizen or subject of a foreign state.
28 U.S.C. § 1332(d)(2). Under § 1332(d)(5)(B), paragraph
(d)(2) shall not apply if “the number of members of all
proposed plaintiff classes in the aggregate is less than 100.”
Further, any defendant may remove the action without the
consent of all defendants. 28 U.S.C. § 1453(b).
13
complaint does not quantify the relief Plaintiffs seek, it
enumerates damages including compensatory damages and
interest, punitive damages in accordance with the New Jersey
Punitive Damages Act, attorney fees, and the costs of suit, in
addition to injunctive relief. Plaintiffs do not dispute that the
amount in controversy exceeds $5,000,000.
In Frederico, we reiterated that “when relevant facts are
not in dispute or findings have been made,” the legal-certainty
test applies. Id. Under the legal-certainty test, federal
jurisdiction exists unless it appears, to a legal certainty, that the
plaintiff was never entitled to recover the jurisdictional amount.
See id. Plaintiffs’ complaint purports to implicate hundreds of
thousands of insurance policies issued to consumers in New
Jersey by each Defendant, individually. Given the categories of
damages sought—punitive damages, in particular, which may
amount to as much as the greater of five times compensatory
damages or $350,000 9 —we are unable to conclude to a legal
certainty that Plaintiffs are not entitled to recover the
jurisdictional amount. Therefore, jurisdiction exists under §
1332(d)(2).
IV.
A.
Notwithstanding jurisdiction under § 1332(d)(2), the
District Court decided to remand the action based on the local
9
N.J. Stat. Ann. § 2A:15–5.9.
14
controversy exception, § 1332(d)(4)(A). Defendants do not
dispute that Plaintiffs meet several requirements of this
exception. They do not contest that more than two-thirds of the
members of all proposed plaintiff classes in the aggregate are
citizens of New Jersey, as required by § 1332(d)(4)(A)(i)(I).
Defendants also do not dispute that during the 3-year period
preceding the filing of the action, no other class action has been
filed asserting the same or similar factual allegations against any
of the Defendants on behalf of the same persons, in accord with
§ 1332(d)(4)(A)(ii). Rather, the argument focuses on whether
the significant basis provision, § 1332(d)(4)(A)(i)(II)(bb), and
principal injuries provision, § 1332(d)(4)(A)(i)(III), are met.
For the significant basis provision to apply, a local
defendant “whose alleged conduct forms a significant basis for
the claims asserted by the proposed plaintiff class” must be
named. 28 U.S.C. § 1332(d)(4)(A)(i)(II)(bb). The principal
injuries provision requires that “principal injuries resulting from
the alleged conduct or any related conduct of each defendant
were incurred in the State in which the action was originally
filed.” 28 U.S.C. § 1332(d)(4)(A)(i)(III). The District Court
determined these requirements were satisfied. It rejected
Defendants’ interpretation of each provision. In its analysis,
however, the District Court did not focus only on the Defendants
presently in the action. It also considered three New Jersey
insurers which were named in the original complaint but
subsequently dismissed. The District Court erred in that regard.
As explained below, the local controversy exception applies
only to the Defendants remaining in an action.
It is true that under a long-standing rule, federal diversity
15
jurisdiction is generally determined based on the circumstances
prevailing at the time the suit was filed. See Mollan v. Torrance,
(9 Wheat.) 537, 539 (1824) (Marshall, C.J.) (“[J]urisdiction of
the court depends upon the state of things at the time of the
action brought, and that, after vesting, it cannot be ousted by
subsequent events.”). This time-of-filing rule represents a policy
decision “that the sufficiency of jurisdiction should be
determined once and for all at the threshold and if found to be
present then should continue until final disposition of the
action.” Wright, A. Miller, & E. Cooper, 13E Federal Practice
and Procedure § 3608 (2009) (internal quotation marks and
citation omitted). The rule serves to increase certainty and
minimize repeated challenges to federal jurisdiction that might
undermine efficiency. Id.
But the time-of-filing rule admits exceptions in cases
where the parties change, in contrast to cases in which the
circumstances attendant to those parties change. See Grupo
Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 575 (2004)
(recognizing exceptions to the time-of-filing rule in cases where
parties change); see also Kabakjian v. United States, 267 F.3d
208, 212 (3d Cir. 2001) (same). Class actions, of course, often
involve more parties than traditional bipolar litigation and thus
a greater likelihood that some parties will change. In fact, 28
U.S.C. § 1332(d)(7) accounts for this aspect of class actions by
explicitly providing that class member citizenship may be
determined even after the time-of-filing:
Citizenship of the members of the proposed
plaintiff classes shall be determined for purposes
of paragraphs (2) through (6) as of the date of the
16
filing of the complaint or amended complaint, or,
if the case stated by the initial pleading is not
subject to Federal jurisdiction, as of the date of
service by plaintiffs of an amended pleading,
motion or other paper, indicating the existence of
Federal jurisdiction.
28 U.S.C. § 1332(d)(7).
In a similar vein, we conclude that the local controversy
exception requires consideration of the defendants presently in
the action. Indeed, a key condition of the local controversy
exception is the presence in the action of at least one significant
local defendant. Applying the exception when no local
defendant remains in the action, as could occur under the time-
of-filing rule, would not comport with the exception’s focus on
discerning local controversies based, in part, on the presence of
a significant local defendant.
In the instant case, three of the initial defendants, all
local, were dismissed. Currently, three defendants remain in the
action: GEICO, Liberty, and Allstate NJ. Of these, only Allstate
NJ is a possible significant local defendant, and it was
substituted into the action to replace a non-New Jersey
defendant only after the complaint had been filed. Also,
Plaintiffs have stipulated that they will file an amended
complaint to account for the changed parties, once jurisdiction
is resolved and the proper forum is known.
Yet in analyzing the significant basis provision, the
District Court identified one of the dismissed defendants, New
17
Jersey Manufacturers (NJM), as the local defendant.10 The
District Court’s focus on NJM was erroneous because NJM was
no longer in the action. Application of the local controversy
exception must focus on Defendants which remain in the action.
B.
We also conclude that the District Court correctly
assigned to Plaintiffs the burden of establishing that the local
controversy exception applies. Although a question of first
impression in this Court, other courts of appeals have uniformly
concluded that once CAFA jurisdiction has been established, the
burden shifts to the party objecting to federal jurisdiction to
show that the local controversy exception should apply. See
Serrano v. 180 Connect, Inc., 478 F.3d 1018, 1024 (9th Cir.
2007) (“[O]nce federal jurisdiction has been established under
[§ 1332(d)(2)], the objecting party bears the burden of proof as
to the applicability of any express statutory exception under §§
1332(d)(4)(A) and (B).”); Hart v. FedEx Ground Package Sys.
Inc., 457 F.3d 675, 680 (7th Cir. 2006) (same); Frazier v.
Pioneer Ams. LLC, 455 F.3d 542, 546 (5th Cir. 2006) (same);
Evans v. Walter Indus., Inc., 449 F.3d 1159, 1165 (11th Cir.
2006) (same).
As explained in Hart and Serrano, this burden-shifting
approach is justified by analogy to practice under the removal
10
The District Court did note that its analysis would yield
the same result if Allstate NJ were considered the local
defendant instead of NJM.
18
statute, 28 U.S.C. § 1441(a). Serrano, 478 F.3d at 1023–1024;
Hart, 457 F.3d at 680. In 1948, the removal statute was
amended to its present form, and now states: “Except as
otherwise expressly provided by Act of Congress, any civil
action brought in a State court of which the district courts of the
United States have original jurisdiction, may be removed by the
defendant or the defendants . . . .” 28 U.S.C. § 1441(a)
(emphasis added). Considering this statute, the Supreme Court
stated that “[s]ince 1948, therefore, there has been no question
that whenever the subject matter of an action qualifies it for
removal, the burden is on a plaintiff to find an express
exception.” Breuer v. Jim’s Concrete of Brevard, Inc., 538 U.S.
691, 698 (2003).
Under Breuer, the rule—that a plaintiff bears the burden
of demonstrating an exception to removability—follows from
the structure of a statute providing for removability absent an
express exception. Hart and Serrano extrapolated from Breuer
the rule that the party objecting to CAFA jurisdiction has the
burden of establishing an exception, once the conditions exist
under which “[t]he district courts shall have original
jurisdiction” pursuant to § 1332(d)(2). In the view of Hart and
Serrano, the structure of § 1332(d) mirrors that of § 1441(a),
with the exceptions of §§ 1332(d)(3) & (d)(4) being “express
exceptions.” See, e.g., Hart, 457 F.3d at 681 (“It is reasonable
to understand these as two ‘express exceptions’ to CAFA’s
normal jurisdictional rule, as the Supreme Court used that term
in Breuer.”). Hart explained, “[t]he case might be different if
Congress had put the home-state and local controversy rules
directly into the jurisdictional section of the statute, §
1332(d)(2), but it did not.” Id. Although the analogy to removal
19
is not perfect, Breuer’s reasoning persuades us to join our sister
circuits in concluding that the party seeking remand has the
burden of showing that the local controversy exception applies.
C.
We now turn to the significant basis provision. This
provision requires that the class action include at least one local
defendant “whose alleged conduct forms a significant basis for
the claims asserted by the proposed plaintiff class.” 28 U.S.C. §
1332(d)(4)(A)(i)(II)(bb). GEICO and Allstate NJ argue that,
under this provision, every member of the proposed plaintiff
class must assert a claim against the local defendant. Because
only Allstate NJ insureds can assert claims against Allstate
NJ—the only local defendant presently in the action—many
members of the proposed plaintiff class would not assert claims
against the local defendant in this case. Consequently, were we
to adopt Defendants’ interpretation, Plaintiffs could not satisfy
the significant basis provision.
GEICO and Allstate NJ make a textual argument to
support their interpretation. They explain that, based on the
language of the provision, “the proposed plaintiff class” must
assert claims against the local defendant. Because the term
“class” is defined as “all of the class members in a class action,”
28 U.S.C. § 1332(d)(1)(A), the phrase “the proposed plaintiff
class” refers to all the members of the proposed plaintiff class.
GEICO and Allstate NJ further contrast CAFA’s use of
the term “class,” as opposed to “members,” to emphasize that
CAFA uses different terms to distinguish between all class
20
members and a subset of those class members. For example, a
provision in the local controversy exception requires that the
class action include at least one local defendant “from whom
significant relief is sought by members of the plaintiff class.” 28
U.S.C. § 1332(d)(4)(A)(i)(II)(aa) (emphasis added). Similarly,
the home-state exception provides an exception to CAFA
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) (emphasis added).
According to GEICO and Allstate NJ, these textual differences
confirm that CAFA deliberately referenced the entire proposed
plaintiff class, rather than a subset of that class, in the significant
basis provision. DiGiacomo v. Teamsters Pension Trust Fund of
Philadelphia, 420 F.3d 220, 227 (3d Cir. 2005) (“[I]t is
generally presumed that Congress acts intentionally and
purposely when it includes particular language in one section of
a statute but omits it in another.”) (internal quotation marks and
citations omitted). Defendants further observe that the
significant basis provision does not say that the local
defendant’s conduct should be a basis for “some” claims
asserted by “members” of the proposed plaintiff class; it says the
local defendant’s conduct should form a significant basis of
“the” claims asserted by “the” proposed plaintiff class. Thus, in
their view, the provision requires every class member to assert
a claim against the local defendant. The District Court rejected
Defendants’ interpretation.
“In interpreting a statute, the Court looks first to the
statute’s plain meaning and, if the statutory language is clear and
unambiguous, the inquiry comes to an end.” Conn. Nat’l Bank
21
v. Germain, 503 U.S. 249, 253–54 (1992); Rosenberg v. XM
Ventures, 274 F.3d 137, 141–42 (3d Cir. 2001). When the
statutory language is not clear on its face, the statute must be
construed to give effect, if possible, to every word and clause.
See Cooper Indus., Inc. v. Aviall Servs., Inc., 543 U.S. 157,
166–68 (2004). In addition, when the plain meaning cannot be
derived, the provision at issue must be viewed in the context of
the statute as a whole. See Dolan v. U.S. Postal Serv., 546 U.S.
481, 486 (2006).
We agree with GEICO and Allstate NJ that “the claims
asserted by the proposed plaintiff class” means the claims
asserted by all the class members in the action. The term “class”
plainly refers to all the members of the proposed plaintiff class.
Additionally, the definite article preceding the term “claims”
indicates that “the claims asserted” means all the claims
asserted. See Frazier, 455 F.3d 542, 546 (5th Cir. 2006)
(determining that, in 28 U.S.C. § 1332(d)(5)(A), the presence of
the definite article in “the primary defendants” means the clause
refers to all the primary defendants). Thus, we agree that the
significant basis provision requires at least one local defendant
whose alleged conduct forms a significant basis for all the
claims asserted in the action.
But this conclusion does not imply that the significant
basis provision requires every member of the proposed plaintiff
class to assert a claim against the local defendant—and the
provision certainly does not state such a requirement. Instead, it
requires that “at least 1 [local] defendant is a defendant . . .
whose alleged conduct forms a significant basis for the claims
asserted by the proposed plaintiff class.” 28 U.S.C. §
22
1332(d)(4)(A)(i)(II) (emphasis added). The plain text of this
provision relates the alleged conduct of the local defendant, on
one hand, to all the claims asserted in the action, on the other.
The provision does not require that the local defendant’s alleged
conduct form a basis of each claim asserted; it requires the
alleged conduct to form a significant basis of all the claims
asserted. While assessing the quantity of claims based on the
local defendant’s alleged conduct may be useful to the analysis,
the significant basis provision does not establish an absolute
quantitative requirement. Nor is it necessary to imply such a
quantitative requirement to make sense of the provision, for 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.
In relating the local defendant’s alleged conduct to all the
claims asserted in the action, the significant basis provision
effectively calls for comparing the local defendant’s alleged
conduct to the alleged conduct of all the Defendants. Indeed, all
the claims asserted by the Plaintiffs reflect the alleged conduct
of all the Defendants. If the local defendant’s alleged conduct is
a significant part of the alleged conduct of all the Defendants,
then the significant basis provision is satisfied. Whether this
condition is met requires a substantive analysis comparing the
local defendant’s alleged conduct to the alleged conduct of all
the Defendants. We therefore reject the interpretation proposed
by GEICO and Allstate NJ.11
11
In the present case, the putative class and sub-class are
comprised of members asserting claims against different and
23
Although no other court of appeals has considered
whether the significant basis provision requires every member
of the plaintiff class to assert a claim against the local defendant,
in Evans v. Walter Industries, Inc., 449 F.3d 1159 (11th Cir.
2006), the Eleventh Circuit had occasion to otherwise apply the
provision. The reasoning in Evans suggests that the Eleventh
Circuit would not interpret the provision as GEICO and Allstate
NJ propose. In that case, numerous defendants were accused of
polluting the environment over many years. The Eleventh
Circuit concluded that plaintiffs failed to show that the local
defendant played a significant role in the alleged contamination,
so the significant basis provision was not satisfied. Id. at 1167.
The accused facilities of the local defendant had either ceased
operations by 1951 or were not near the location of the class
members and the other defendants, so that the “evidence d[id]
not indicate that a significant number or percentage of putative
class members m[ight] have a claim against [the local
defendant], or indeed that any plaintiff ha[d] such a claim.” Id.
Thus, it appears that, in the view of the Eleventh Circuit, the
significant basis provision could be satisfied even if not every
unrelated insurers. Each member entered into a contract with
only one insurer so that many putative class members did not
enter into a contract with the local defendant, Allstate NJ. Here,
we are not deciding the question of whether Plaintiffs have
properly joined Defendants. Moreover, a ruling that the
significant basis requirement is satisfied does not imply that the
Defendants are properly joined. Defendants’ joinder question
may be resolved independently by the court, state or federal,
properly exercising jurisdiction.
24
member of the putative class had a claim against the local
defendant, as long as a “significant number or percentage of
putative class members” did have such a claim. Our conclusion
here is consistent with Evans.
Although the District Court correctly declined to adopt
Defendants’ interpretation, its significant basis analysis is
flawed. The District Court analyzed whether Allstate NJ’s
alleged conduct formed a significant basis of the claims asserted
in the action by considering the number of automobile insurance
policies Allstate NJ had sold in New Jersey, as reflected in a
document furnished by Plaintiffs.12 Allstate NJ’s more than
650,000 policies in force as of June 30, 2007 represented 13%
of all the automobile insurance policies sold in New Jersey as of
that date. Only one other insurer had more automobile insurance
policies in force in New Jersey on that date.
From these numbers, the District Court concluded that
Allstate NJ was a local defendant satisfying the significant basis
provision because it had issued “substantially more policies”
than other defendants and because it could not be considered
“trivial or of no importance.” Kaufman v. Allstate Ins. Co., No.
07-cv-6160, 2008 WL 4224911, at *5 (D.N.J. Sept. 10, 2008).
In this, the District Court simply used the number of insurance
policies sold, and the percentage share of the market that
number represented, as a proxy for the alleged conduct of the
local defendant and of all the Defendants, whereas it is alleged
conduct which must be demonstrated to satisfy the significant
basis provision. The District Court took for granted that every
12
As explained above, the District Court applied the local
controversy exception to a previously dismissed defendant but
noted its analysis would also apply to Allstate NJ. Because the
analysis must apply to the Defendants currently in the action, we
focus on the District Court’s analysis as applied to Allstate NJ.
25
insurance policy sold by each Defendant violated New Jersey
law and that no Defendant ever paid an insurance claim for
diminished value, as alleged in Plaintiffs’ complaint. That is, the
District 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 Allstate NJ’s alleged conduct
to the alleged conduct of all the Defendants.
The District Court’s reliance on nothing more than
generic market share numbers does not comport with the
language of the statute. As explained above, the significant basis
provision relates the local defendant’s “alleged conduct” to the
alleged conduct of all the Defendants. 28 U.S.C. §
1332(d)(4)(A)(i)(II). The District Court’s focus here must be the
alleged conduct. Some of Allstate NJ’s policies might not
exclude diminished value automobile insurance claims. Or
Allstate NJ might have made payments for such claims in some
instances. In either case, the conduct alleged against Allstate NJ
would be overstated if it were simply equated to the total
number of policies sold by Allstate NJ. The same considerations
apply to the alleged conduct of all the Defendants.
We also reject the assumption that the local defendant’s
conduct is significant as long as it is “more than trivial or of no
importance.” Kaufman, 2008 WL 4224911, at *3 (citing Caruso
v. Allstate Ins. Co., 469 F. Supp. 2d 364, 369 (E.D. La. 2007)).
Whether the local defendant’s alleged conduct is significant
cannot be decided without comparing it to the alleged conduct
of all the Defendants. The word “significant” is defined as
“important, notable.” Oxford English Dictionary (2d ed. 1989).
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.
Finally, the fact that the local defendant is a major player
26
in a particular market is also not determinative. The significance
of the local defendant’s alleged conduct must always be
assessed in comparison to the alleged conduct of all the
Defendants. We will therefore remand the case to the District
Court to clarify its analysis of the “significant basis” provision
consistent with this opinion.13
D.
So far, we have considered the arguments of only
Defendants GEICO and Allstate NJ. Defendant Liberty raises a
separate question. Liberty contends that the local controversy
exception does not apply because the principal injuries provision
is not satisfied. This provision requires that “principal injuries
resulting from the alleged conduct or any related conduct of
each defendant were incurred in the State in which the action
was originally filed.” 28 U.S.C. § 1332(d)(4)(A)(i)(III).
13
By way of example, the District Court could, on
remand, inform its comparison of the local defendant’s alleged
conduct to the alleged conduct of all the Defendants by
considering such possible areas of inquiry as: 1) the relative
importance of each of the claims to the action; 2) the nature of
the claims and issues raised against the local defendant; 3) the
nature of the claims and issues raised against all the Defendants;
4) the number of claims that rely on the local defendant’s
alleged conduct; 5) the number of claims asserted; 6) the
identity of the Defendants; 7) whether the Defendants are
related; 8) the number of members of the putative classes
asserting claims that rely on the local defendant’s alleged
conduct; and 9) the approximate number of members in the
putative classes. Whether the District Court considers any or all
of these factors, it must in every case still provide a reasoned
analysis that focuses on the conduct of the Defendants—local
and non-local—as alleged in the complaint.
27
Liberty argues that the District Court must interpret this
provision to require that principal injuries resulting from the
alleged conduct and any related conduct of each defendant be
incurred in the state in which the action was originally filed. In
other words, Liberty interprets the disjunctive “or” as a
conjunctive “and.” Liberty explains that it issues insurance
policies providing identical coverage in other states and that its
issuance of those policies constitutes “related conduct” for the
purpose of the principal injuries provision. Under this
interpretation, Plaintiffs cannot satisfy the local controversy
exception because principal injuries resulting from some of
Liberty’s related conduct would be incurred outside of New
Jersey. The District Court correctly rejected Liberty’s argument.
Liberty’s interpretation is at odds with the plain language
of the provision. We need not inquire beyond that language.
Conn. Nat’l Bank, 503 U.S. at 253–54 (“[i]n interpreting a
statute, the Court looks first to the statute’s plain meaning and,
if the statutory language is clear and unambiguous, the inquiry
comes to an end.”). The provision invokes “the alleged conduct
or any related conduct” in the disjunctive. As such, it is satisfied
either 1) when principal injuries resulting from the alleged
conduct of each defendant were incurred in the state in which
the action was originally filed, “or” 2) when principal injuries
resulting from any related conduct of each defendant were
incurred in that state. In the instant case, the alleged conduct
comprises the failure to insure or pay for diminished value
claims in New Jersey. Plaintiffs are all citizens of New Jersey,
the insurance policies were issued in New Jersey, and the
putative class would be comprised of members with insurance
policies issued in New Jersey. To the extent there are any
injuries resulting from the alleged conduct, those injuries were
incurred in New Jersey. Hence, the principal injuries provision
28
is satisfied.14
For the reasons stated, we will vacate in part the
judgment of the District Court and remand this case for further
consideration consistent with this opinion.
14
Plaintiffs also countered that there could be no related
conduct outside of New Jersey because the complaint targeted
insurance policies issued under New Jersey law to New Jersey
citizens. Plaintiffs essentially dispute Liberty’s definition of
“related conduct.” We need not address the meaning of “related
conduct” to resolve the issue Liberty raises, and leave that
question for another day.
29