Sumatra Kendrick v. Conduent State and Local Solu. , 910 F.3d 1255 ( 2018 )

FILED
FOR PUBLICATION
DEC 13 2018
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
SUMATRA KENDRICK, an individual, No. 18-16988
Plaintiff-Appellee, D.C. No. 3:18-cv-00213-RS
v.
OPINION
CONDUENT STATE AND LOCAL
SOLUTIONS, INC., FKA Xerox State and
Local Solutions, Inc.,
Defendant-Appellant,
and
BAY AREA TOLL AUTHORITY, a
California public corporation; GOLDEN
GATE BRIDGE, HIGHWAY AND
TRANSPORTATION DISTRICT, a
California public corporation,
Defendants.
Appeal from the United States District Court
for the Northern District of California
Richard Seeborg, District Judge, Presiding
Argued and Submitted November 14, 2018
San Francisco, California
Before: Mary M. Schroeder and Paul J. Watford, Circuit Judges, and David A.
Ezra,* District Judge.
Opinion by Judge Schroeder
This is an appeal under the Class Action Fairness Act (“CAFA”), 28
U.S.C. § 1332(d), from an order granting plaintiffs’ motion to remand to the state
court. The plaintiffs seek to maintain this action in state court on behalf of a class
of users of the Golden Gate Bridge. They brought the action against the Bay Area
Toll Authority (“BATA”) and the Golden Gate Bridge Highway and
Transportation District (“GGB”), both entities of the state of California, and
against Conduent State and Local Solutions, Inc. (“Conduent”), a private company
that has contracted with the state entities to operate the bridge’s toll system.
Plaintiffs’ principle claims allege defendants are in violation of California privacy
statutes prohibiting the collection of personal data. Conduent appeals the remand.
While remand orders generally are not reviewable, 28 U.S.C. § 1447(d), we have
discretion to review actions removed under CAFA, 28 U.S.C. § 1453(c). We
granted Conduent’s petition to appeal.
Although the district court found that most of the requirements for
maintaining the case in federal court under CAFA were met, including the size of
*
The Honorable David A. Ezra, United States District Judge for the
District of Hawaii, sitting by designation.
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the class and the amount in controversy, it ruled that the principal defendants were
not subject to CAFA jurisdiction. The defendants included two state entities and
Conduent, which the district court held was acting for the state. Conduent appeals
and BATA and GGB, while agreeing they belong in state court, have filed an
amicus brief in support of Conduent’s remaining in federal court.
Conduent argues that the case against it belongs in federal court because the
district court’s conclusion that Conduent is a state actor was flawed. Conduent
points to the language of a CAFA exception that provides CAFA does not apply to
proposed classes where “the primary defendants are states, state officials or other
governmental entities against whom the district court may be foreclosed from
ordering relief.” 28 U.S.C. § 1332(d)(5)(A). Although the other two defendants
are clearly governmental entities within the meaning of the statutory exception,
Conduent contends it is not such an entity. Conduent therefore argues that the
district court erred and the case against Conduent must stay in federal court, even
though this results in the case being litigated simultaneously in both state and
federal court. There is no dispute that the plaintiffs’ case against the public
entities, BATA and GGB, is now properly in state court on claims similar to those
against Conduent, nor is there any dispute that Conduent is a “primary defendant.”
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The elements of CAFA jurisdiction are established in 28 U.S.C.
§ 1332(d)(2). A district court shall have jurisdiction over a class action when: (1)
the amount in controversy exceeds five million, and (2) any class member is a
citizen of a state different from any defendant. Id. CAFA creates an exception
from federal court jurisdiction for cases targeting state, local, and other
government entities that may claim immunity. Id. § 1332(d)(5)(A); see
Bridewell-Sledge v. Blue Cross of California, 798 F.3d 923, 927-928 (9th Cir.
2015). The exception is aimed at entities that may try to take advantage of
Eleventh Amendment immunity by removing to federal court. S. Rep. No.
109–14, at 41-42 (2005). The Senate Report describes what Congress intended to
do:
[P]revent states, state officials, or other governmental entities from
dodging legitimate claims by removing class actions to federal court
and then arguing that the federal courts are constitutionally prohibited
from granting the requested relief. This provision will ensure that
cases in which such entities are the primary targets will be heard in
state courts that do not face the same constitutional impediments to
granting relief.
Id. at 42.
This case began in state court. Plaintiffs/Appellees Sumatra Kendrick and
Michelle Kelly filed this putative class action in San Francisco Superior Court on
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November 21, 2017. They alleged Defendants invaded their privacy and collected
their personally identifiable information when they drove over bay area toll bridges
and then shared this information with various unauthorized third parties including
car rental companies, banks, credit bureaus, and law enforcement agencies, in
violation of California Streets and Highway Code § 31490, and they asserted other
related California claims. Section 31490 states in relevant part that “a
transportation agency may not sell or otherwise provide to any other person or
entity personally identifiable information of any person who subscribes to an
electronic toll or electronic transit fare collection system or who uses a toll bridge,
toll lane, or toll highway that employs an electronic toll collection system.” Id. §
31490(a).
Conduent removed the entire case from San Francisco Superior Court to the
Northern District of California under CAFA, 28 U.S.C. § 1332(d).
Plaintiffs/Appellees moved to remand, arguing, among other things, that removal is
precluded under 28 U.S.C. § 1332(d)(5)(A) because Conduent is acting on behalf
of the state even though it is a private company. The California agencies, BATA
and GGB, were undisputedly state entities, and the district court concluded that
Conduent was as well, because it was exercising the authority of the state with
respect to the alleged violation of plaintiffs’ privacy rights:
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[P]laintiffs allege that Conduent, BATA, and GGB are inextricably
intertwined such that the actions of one entity can be imputed to the
others. As the assessment of tolls on state-owned bridges arguably
exercises the coercive power of the state, to the extent plaintiffs
accuse Conduent of acting in concert with government agencies to
violate class members’ rights, they have alleged state action on the
face of the complaint.
The district court stated that Conduent had the burden of satisfying
§ 1332(d)(5)(A) and because that burden was not met, removal was improper.
Accordingly, the district court remanded the case to state court, where it has been
assigned to the same judge presiding over related actions. The state court
proceedings have been stayed pending this appeal.
In this appeal Conduent argues the district court erred because it relied on 42
U.S.C. § 1983 case law to determine that Conduent was a state actor, and that the
district court failed to address the language of CAFA’s statutory exception relating
to “other governmental entities against whom the District Court may be foreclosed
from ordering relief.”
Conduent’s position is that as a private entity it is outside the scope of §
1332(d)(5)(A). It accurately points out that Section 1983 cases are not controlling
because the § 1983 state actor analysis looks to an actor’s role and conduct while
the CAFA inquiry goes to the nature of the entity itself. The district court’s
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exclusive reliance on § 1983 case law was not appropriate. The issue is whether
Conduent may be considered an instrumentality of the state.
The district court’s analysis, however, also focused to some extent on the
relationship between Conduent and the state entities ultimately responsible under
California law for collecting bridge tolls. Conduent is an entity acting on behalf of
the state to perform toll related functions required by state statute. California law
expressly establishes civil penalties for the evasion of bridge tolls, California
Vehicle Code § 40250, recognizes the existence of contractual arrangements for
processing toll delinquencies with entities which it describes as “issuing
agenc[ies],” § 40252, and defines an “issuing agency” as “an entity, public or
private, authorized to collect tolls.” Id. § 40250(e)(1).
The Eleventh Amendment of the United States Constitution provides that
“[t]he Judicial power of the United States shall not be construed to extend to any
suit in law or equity, commenced or prosecuted against one of the United States by
Citizens of another State, or by Citizens or Subjects of any Foreign State.” U.S.
Const. amend. XI. This means that private individuals may not sue non-consenting
state entities in federal court. Bd. of Trs. of Univ. of Ala. v. Garrett, 531 U.S. 356,
363 (2001). The state need not be named as a defendant. The Supreme Court has
held that “the reference to actions ‘against one of the United States’ encompasses
not only actions in which a State is actually named as the defendant, but also
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certain actions against state agents and state instrumentalities.” Regents of the
Univ. of Cal. v. Doe, 519 U.S. 425, 429 (1997).
To determine whether an entity is able to invoke such immunity our Court
has said we generally look to a number of factors:
(1) whether a money judgment would be satisfied out of state funds,
(2) whether the entity performs central governmental functions, (3)
whether the entity may sue or be sued, (4) whether the entity has the
power to take property in its own name or only the name of the state,
and (5) the corporate status of the entity.
Beentjes v. Placer County Air Pollution Control Dist., 397 F.3d 775, 778 (9th Cir.
2005) (quoting Mitchell v. Los Angeles Community College Dist., 861 F.2d 198,
201 (9th Cir. 1988)). We examine these factors by looking at the way state law
treats the entity. Mitchell, 861 F.2d at 201.
On this record, Conduent satisfies the second factor of performing a central
government function and it has not asserted that it lacks any of the other
characteristics. Conduent performs the government function of processing bridge
tolls, collecting fines and imposing penalties in the name of the state. This record
does not reflect whether it may satisfy the other factors. We have observed,
however, that the Mitchell factors are not particularly useful when applied to a
private entity because a private entity cannot be an arm of the state when the
relationship to the sovereign is only by contract. See Del Campo v. Kennedy, 517
F.3d 1070, 1077 (9th Cir. 2008). Here Plaintiffs contend the relationship is more
8
than contractual because the state has enacted a special statutory scheme for the
collection of bridge tolls and has recognized the entities with whom the state
contracts for such purposes as “an issuing agency.” Our case law provides no
clear answer as to whether Conduent qualifies as a governmental entity within the
meaning of CAFA.
Conduent contends that even if it is a government entity, it waived any
immunity it might have had by removing the case to federal court. See Lapides v.
Bd. of Regents of Univ. System, 535 U.S. 613, 624 (2002). In deciding whether the
governmental entity exception applies, however, the existence or waiver of
immunity is not the issue; the only issue is whether the entity is such that a claim
of immunity may be made. Moreover the Supreme Court’s holding in Lapides’
was limited. A state waives Eleventh Amendment immunity by removal only for
state-law claims “in respect to which the State has explicitly waived immunity
from state-court proceedings.” Id. at 617. Here, the record does not reflect that
Conduent waived immunity in state court. Accordingly, Lapides is not dispositive.
See id. at 617-618 (“[n]or do we address the scope of waiver by removal in a
situation where the State’s underlying sovereign immunity from suit has not been
waived or abrogated in state court.”)
We need not decide whether the district court erred in remanding on the
“other governmental entit[y]” ground pursuant to § 1332(d)(5)(A) because there is
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a further justification for the remand. The plaintiffs correctly contend that the
result is required by provisions of CAFA calling for local actions to be heard in
state court. The local controversy exception is one of several exceptions to CAFA
removal jurisdiction. See Bridewell-Sledge, 798 F.3d at 928. It is defined at 28
U.S.C. § 1332(d)(4). The provision instructs that a district court is required to
decline jurisdiction over a class action when: (1) more than two-thirds of the
proposed plaintiff class(es) are citizens of the state in which the action was
originally filed, (2) there is at least one in-state defendant against whom
“significant relief” is sought and “whose alleged conduct forms a significant basis
for the claims asserted” by the proposed class, (3) the “principal injuries” resulting
from the alleged conduct of each defendant were incurred in the state of filing, and
(4) no other class action “asserting the same or similar factual allegations against
any of the defendants” has been filed within three years prior to the present action.
Id. § 1332(d)(4)(A). The exception’s purpose is to ensure that class actions with a
local focus remain in state court rather than being removed to federal court because
state courts have a strong interest in resolving local disputes. Bridewell-Sledge,
798 F.3d at 928.
Most of these requirements are met. Plaintiffs submitted evidence indicating
that more than two thirds of the traffic on the Golden Gate Bridge during rush hour
is comprised of California citizen motorists. 28 U.S.C. § 1332(d)(4)(A)(i). They
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seek relief from two in-state defendants, BATA and GGB, for injuries incurred in
California. Id. The district court refused to remand under this exception, however,
because it held the fourth requirement was not met. One of the plaintiffs in this
case, Michelle Kelly, had previously filed a class action in state court on
September 7, 2016, and removed to federal court on November 28, 2016, alleging
similar theories. The district court viewed that filing as disqualifying. We
conclude it is not because that case never proceeded independently and essentially
became part of this case. This is reflected in a close examination of the
proceedings in both state and federal court.
Shortly after Kelly filed her case in state court as a putative class action, it
was removed to federal court, where Kelly voluntarily dismissed the case as to her
claims only. When this, the Kendrick case, was filed in state court, Kelly became a
plaintiff in it. When the Kendrick case in turn was removed to federal court, the
district court ordered it joined with the remainder of the Kelly case as a related
case. See N.D. Cal. Civ. L.R. 3.12; see also Fed. R. Civ. P. 42. So when the
district court remanded this case to state court, it remanded one case that included
all the parties and potential parties to both the Kelly and Kendrick actions.
As we pointed out in Bridewell-Sledge, the reason for the no prior class
action prerequisite to remand is to ensure that controversies giving rise to multiple
class actions be heard in federal court in one proceeding. Id. at 932. In Bridewell-
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Sledge there was no “other class action” because the prior action and the pending
action had been consolidated. There can be no “other class actions” in this case
either, since the earlier Kelly action has been effectively succeeded by this one, in
which Kelly is a named party. There is here, as in Bridewell-Sledge, every
practical reason why the local action rule should apply, and it supports the district
court’s remand order. As in Bridewell-Sledge, we are dealing with a single case,
not two different class actions proceeding on different tracks before different
judges. Therefore, no “other class action” has been filed within the meaning of the
statute. See 28 U.S.C. § 1332(d)(4)(A)(ii); Bridewell-Sledge, 798 F.3d at 928-931.
The history, language, and purpose of CAFA reflects it is to provide a
federal forum for national issues, but keep smaller and more local issues in state
court. The Golden Gate Bridge may be a national treasure, but whether collection
of its tolls is a controversy that belongs in federal court is a different question.
Congress has provided that when the controversy is localized, the case belongs in
state court. See Bridewell-Sledge, 798 F.3d at 933. This is essentially a dispute
between those who use the bridge to travel between Marin County, California and
San Francisco, California, and defendants who are charged with operating the
bridge on behalf of the State of California. The district court properly ruled that
the case against Conduent, the toll collector, belongs in state court with the
California entities that manage the bridge’s maintenance and operation.
AFFIRMED.
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FILED
Kendrick v. Conduent State and Local Solutions, Inc., No. 18-16988
DEC 13 2018
WATFORD, Circuit Judge, dissenting: MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
I agree with my colleagues that this class action belongs in state court. But
in my view the plain text of the Class Action Fairness Act (CAFA) requires that
the case remain in federal court, as nonsensical as that result may seem.
In remanding this case to state court, the district court relied on a provision
that says CAFA jurisdiction shall not extend to any class action in which “the
primary defendants are States, State officials, or other governmental entities
against whom the district court may be foreclosed from ordering relief.” 28
U.S.C. § 1332(d)(5)(A). Although the majority does not squarely resolve the issue,
I think it’s clear that this provision does not divest the court of jurisdiction.
Everyone agrees that there are three primary defendants in this action: Bay Area
Toll Authority; Golden Gate Bridge, Highway and Transportation District; and
Conduent State and Local Solutions, Inc. The first two defendants are indisputably
entities of the State of California against whom the district court may be foreclosed
from ordering relief, as they might be entitled to assert Eleventh Amendment
immunity in federal court. Conduent, however, is not a state entity. It is a private
corporation that contracts with the State to collect tolls on public bridges in the
Bay Area. We have held that Eleventh Amendment immunity does not extend to
private corporations, even when they contract with the State to perform central
Page 2 of 5
governmental functions. Del Campo v. Kennedy, 517 F.3d 1070, 1076–79 (9th
Cir. 2008). As a result, Conduent does not qualify as a governmental entity
“against whom the district court may be foreclosed from ordering relief.” 28
U.S.C. § 1332(d)(5)(A).
The plaintiffs contend that § 1332(d)(5)(A) should be interpreted to preclude
CAFA jurisdiction even if just one of the primary defendants is a governmental
entity that may be immune from suit in federal court. That reading certainly seems
better suited to carrying out the purpose of this provision, which is to ensure that
class actions targeting defendants who would be entitled to Eleventh Amendment
immunity will remain in state court, where the claims against all of the defendants
can be resolved in a single forum. When a class action will have to proceed
against one or more of the primary defendants in state court anyway (because those
defendants can’t be sued in federal court), it makes little sense for the same claims
to be litigated simultaneously against the remaining defendants in a parallel federal
court proceeding. But, for reasons that remain a mystery, Congress used the
phrase “the primary defendants” in § 1332(d)(5)(A), rather than “a primary
defendant.” Courts have rightly held that in this context “the primary defendants”
must be read to mean all primary defendants. Woods v. Standard Insurance Co.,
771 F.3d 1257, 1263–64 (10th Cir. 2014); Frazier v. Pioneer Americas LLC, 455
F.3d 542, 546–47 (5th Cir. 2006). Since Conduent is a primary defendant but not
Page 3 of 5
one “against whom the district court may be foreclosed from ordering relief,”
§ 1332(d)(5)(A) does not preclude CAFA jurisdiction.
To uphold the district court’s remand order, the majority relies instead on a
different provision of CAFA, known as the local controversy exception. 28 U.S.C.
§ 1332(d)(4)(A). That provision is designed to ensure that class actions involving
residents predominantly of a single State will be litigated in the courts of that State.
Everyone agrees that the first three requirements of the local controversy exception
are met. The only issue is whether the last condition is satisfied. Remand is
required under that condition only if, during the three-year period preceding the
filing of this 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 or
other persons.” § 1332(d)(4)(A)(ii).
The phrase “other class action” is not defined. But the phrase does not seem
to contemplate some esoteric concept, so I assume it means simply a class action
other than the one that is now in federal court. My colleagues appear to accept that
reading. We disagree only on how to characterize the relationship between this
action and the earlier class action filed by named plaintiff Michelle Kelly.
In my view, if this action were merely a continuation of Kelly’s earlier-filed
action, we could fairly say that Kelly’s earlier action shouldn’t count as an “other
class action.” See Vodenichar v. Halcón Energy Properties, Inc., 733 F.3d 497,
Page 4 of 5
506–10 (3d Cir. 2013). But Kelly’s earlier action and this action strike me as
entirely distinct. Kelly voluntarily dismissed the earlier action shortly after the
defendants removed it to federal court. At that point the action was effectively
terminated.
Roughly a year later, Kelly and a new named plaintiff, Sumatra Kendrick,
filed this action in state court. The claims they assert undoubtedly arise out of the
same factual allegations that formed the basis for Kelly’s earlier action. But
neither Kendrick nor Kelly have claimed that Kelly’s earlier action “essentially
became part of this case.” Maj. op. at 11. In fact, they have stated basically the
opposite. When the defendants removed this action to federal court and asked that
it be assigned to the same judge who presided over Kelly’s earlier action, Kendrick
and Kelly asserted that the two actions were not even “related” for purposes of the
local court rule allowing such reassignment. They stressed that the two actions “do
not involve the same claims” and that “the earlier filed action has been
administratively closed.” The district court ultimately disagreed with that view
and found the cases to be related, but it did not order this action “joined with the
remainder of the Kelly case as a related case.” Maj. op. at 11. This action could
not be joined with any aspect of Kelly’s earlier action because that action had been
voluntarily dismissed.
Page 5 of 5
I am not saying that the result reached by my colleagues is an imprudent
one. It seems silly to hold that Kelly’s filing of the earlier action precludes remand
under the local controversy exception, given the decidedly local nature of the
claims at issue. For whatever reason, though, Congress dictated that remand is
required only if “no other class action” has been filed in the preceding three years,
and here another class action was filed during that period. I would therefore hold
that the district court erred by remanding this case to state court.