Broadway Grill, Inc. v. Visa Inc. , 856 F.3d 1274 ( 2017 )

FILED
FOR PUBLICATION
MAY 18 2017
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
BROADWAY GRILL, INC., a California No. 17-15499
Corporation,
D.C. No. 4:16-cv-04040-PJH
Plaintiff-Appellee,
v. OPINION
VISA INC.; VISA INTERNATIONAL
ASSOCIATION; VISA USA INC.,
Defendants-Appellants.
Appeal from the United States District Court
for the Northern District of California
Phyllis J. Hamilton, Chief Judge, Presiding
Argued and Submitted April 21, 2017
San Francisco, California
Before: Mary M. Schroeder and Johnnie B. Rawlinson, Circuit Judges, and Steven
Paul Logan,* District Judge.
Opinion by Judge Schroeder, Circuit Judge:
We deal with provisions of the Class Action Fairness Act (“CAFA”) to
ensure that large class action cases are heard in federal court. 28 U.S.C. § 1332(d).
*
The Honorable Steven Paul Logan, United States District Judge for
the District of Arizona, sitting by designation.
The issue before us is whether plaintiffs may amend their complaint, after a case
has been removed to federal court, to change the definition of the class so as to
eliminate minimal diversity and thereby divest the federal court of jurisdiction.
We hold plaintiffs may not do so and clarify that the range of amendments
permitted under our prior opinion in Benko v. Quality Loan Service Corp., 789
F.3d 1111 (9th Cir. 2015), upon which the district court relied, is very narrow.
Plaintiff, a California restaurant, filed this action in California state court
against Visa Inc. and related corporations claiming that Visa is violating the state
antitrust laws by fixing rates and preventing merchants from applying a surcharge
for the use of credit cards. The complaint described the class as “all California
individuals, businesses and other entities who accepted Visa-branded cards in
California since January 1, 2004 . . . .” Defendant companies (“Visa”) are citizens
of California and Delaware. Plaintiff class as described in the original state court
complaint included both California and non-California citizens. Broadway Grill is
the named plaintiff and is a California corporation. Visa removed to federal
district court because CAFA’s minimal diversity requirement was satisfied. Under
CAFA there is sufficient diversity to establish federal diversity jurisdiction so long
as one class member has citizenship diverse from that of one defendant. 28 U.S.C.
§ 1332(d)(2)(A). Since many merchants doing business in California, and
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members of the class as originally described, are not citizens of California, the
requirement was met.
After Visa removed to the District Court for the Northern District of
California, Broadway Grill moved to remand on the theory that the case qualified
as one of CAFA’s exceptions to the exercise of federal jurisdiction. The relevant
exception is the so-called “local controversy” exception for cases in which two-
thirds of the class members are citizens of the state of filing and a “significant”
defendant is a citizen of that state as well. 28 U.S.C. § 1332(d)(4). The district
court correctly denied the motion to remand because the class, on its face, included
many non-citizens of California, and Broadway Grill could not establish two-thirds
were California citizens.
It was at this point that Broadway Grill sought leave to amend the complaint
to change Plaintiff class to include only “California citizens,” in order to eliminate
minimal diversity. The district court granted leave to amend and ordered the case
remanded to the state court. While the district court acknowledged the general rule
that jurisdiction is determined at the time of removal, and post-removal
amendments cannot eliminate jurisdiction, the court relied on an exception,
apparently unique to our circuit, permitting amendment in limited circumstances to
add allegations of underlying facts that clarify the nature of the claims for purposes
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of determining CAFA jurisdiction. See Benko, 789 F.3d at 1117 (holding that in
certain circumstances “plaintiffs should be permitted to amend a complaint to
clarify issues pertaining to federal jurisdiction under CAFA”). In Benko, the
plaintiffs were permitted to set out the percentage of claims that were against the
in-state defendant in order to show it was a “significant defendant” within the
CAFA exception to federal jurisdiction.
Benko has created some uncertainty in the district courts as to when post-
removal amendments may be allowed. See Lopez v. Aerotek, Inc., 2017 WL
253948, at *2 (C.D. Cal. Jan. 19, 2017) (not allowing an amendment that added a
new defendant to potentially qualify for the local controversy exception); Rossetti
v. Stearn’s Prod. Inc., 2016 WL 3277295, at *1 (C.D. Cal. June 6, 2016) (not
allowing an amendment that would change the class from a national class to a
California citizen class); Chen v. eBay, Inc., 2016 WL 835512, at *2 n.1 (N.D. Cal.
Mar. 4, 2016) (effectively allowing amendment and ordering remand of a
complaint that restricted a class to citizens of California, rather than residents); In
re Anthem Inc. Data Breach Litig., 129 F.Supp. 3d 887, 894–96 (N.D. Cal. 2015)
(allowing amendment of a complaint so that a class represented only Missouri
citizens rather than residents and ordering remand).
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The basic jurisdictional provisions of CAFA are simple. Under 28 U.S.C.
§§ 1332 (d)(2), (d)(5), the matter in controversy must exceed $5,000,000, the
number of plaintiffs must be 100 or more and diversity is established when “any
member of a class of plaintiffs is a citizen of a state different from any defendant.”
Thus, unlike other civil actions, where there must be complete diversity between
named plaintiffs and defendants, CAFA requires only what is termed “minimal
diversity.” The law provides minimal diversity is to be determined as of the time
of removal. 28 U.S.C. § 1332 (d)(7).
Congress’s intent to broaden federal court class action jurisdiction is
illustrated by the provision for expedited appellate review when a district court
orders remand. 28 U.S.C. § 1453(c). Such appeals must be decided within sixty
days. We have appellate jurisdiciton pursuant to that provision. We have held our
review of remand orders is de novo. Bridewell-Sledge v. Blue Cross of Cal., 798
F.3d 923, 927 (9th Cir. 2015).
In exercising that appellate jurisdiction, the circuits have unanimously and
repeatedly held that whether remand is proper must be ascertained on the basis of
the pleadings at the time of removal. The rule goes back to Pullman Co. v.
Jenkins, 305 U.S. 534, 537– 38 (1939). Our leading case in the CAFA context is
Mondragon v. Capital One Auto Fin., 736 F.3d 880, 883 (9th Cir. 2013). See also
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Doyle v. OneWest Bank, FSB, 764 F.3d 1097, 1098 (9th Cir. 2014) (“[T]he District
Court should have determined the citizenship of the proposed plaintiff class based
on Doyle’s complaint as of the date the case became removable.”) (internal
quotation omitted). The other circuits are in complete agreement. As the Seventh
Circuit has said, “removal cases present concerns about forum manipulation that
counsel against allowing a plaintiff’s post-removal amendments to affect
jurisdiction.” In re Burlington Northern Santa Fe Ry., Co., 606 F.3d 379, 381 (7th
Cir. 2010). See also Hargett v. RevClaims, LLC, — F.3d —, 2017 WL 1405034, at
*3 (8th Cir. Apr. 14, 2017); In Touch Concepts, Inc. v. Cellco P’ship, 788 F.3d 98,
101 (2d Cir. 2015); Cedar Lodge Plantation, L.L.C. v. CSHV Fairway View I,
L.L.C., 768 F.3d 425, 429 (5th Cir. 2014) (“Allowing Cedar Lodge to avoid federal
jurisdiction through a post-removal amendment wold turn the policy underlying
CAFA on its head.”). This unanimity seems firmly to establish that plaintiffs’
attempts to amend a complaint after removal to eliminate federal jurisdiction are
doomed to failure.
In Benko, however, this court allowed plaintiffs to amend the complaint after
removal, in order to clarify jurisdiction. We did so when the amendment did not
alter the definition of the class, but, rather, had the effect of explaining the impact
of the complaint’s allegations on one of the defendants. This impact was
6
jurisdictionally significant because CAFA contains an exception to the exercise of
jurisdiction on the basis of minimal diversity, where a local defendant will be
especially impacted, the “local controversy” exception. See Benko, 789 F.3d at
1117. Our opinion in Benko explained that the amendment served only to provide
some amplification, for federal jurisdictional purposes, of the nature of plaintiffs’
allegations. The amendment provided “estimates of the percentage of total claims
asserted against [the in-state defendant]” in order to show that the in-state
defendant was “significant,” for purposes of § 1332(d)(4). Id.
The amendment in this case, however, did not provide an explanation of the
allegations, but changed the definition of the class itself. Instead of being
composed of all the merchants in the state of California, regardless of citizenship,
the class, as defined in the amended complaint, became exclusively composed of
California citizens. We conclude such an amendment is outside the exception
recognized in Benko and thus cannot affect the removability of the action.
Benko itself recognized that CAFA “favors federal jurisdiction” and that
only certain “CAFA-specific issues,” such as whether a particular in-state
defendant was “significant,” that were highly unlikely to be addressed in a state
court complaint, justified allowing amendments. Id. at 1116–17. It was only under
those limited circumstances, where the “plaintiffs can provide a federal court with
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the information” that amendments that could potentially affect jurisdiction were
allowed. Id. A class definition, however, will always be present in any class
action complaint, state or federal. The amendment in this case did not merely
provide relevant information. It changed the nature of the action.
We have not found any other circuit decisions permitting post-removal
amendment of the complaint to affect the existence of federal jurisdiction and
certainly none permitting alteration of the make up of the class. A very recent
decision of the Eighth Circuit dealt with an issue very similar to the issue before
us. That court refused to consider a post-removal amendment that would have
narrowed the original class of Arkansas “residents” to Arkansas “citizens.” See
Hargett, 2017 WL 1405034, at *3. Indeed, those plaintiffs made many of the same
arguments Broadway Grill makes here, including contending that the original class
definition referring to Arkansas residents could have been understood to mean only
citizens. In that case, the district court had, as in this case, permitted an
amendment before remanding. See id. at *1–2. The Eighth Circuit rejected the
amendment, noting that CAFA’s language demands that class citizenship “must be
determined as of the date of the pleading giving federal jurisdiction.” Id. at *3,
(citing 28 U.S.C. § 1332(d)(7)). That meant the class included non-citizens and
hence minimal diversity was satisfied. We agree.
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The Tenth Circuit, in an unpublished disposition, reached essentially the
same decision. See Reece v. AES Corp., 638 F. App’x 755, 775 (10th Cir. 2016).
There plaintiffs’ state court complaint described a class of Oklahoma residents.
After removal, plaintiffs sought leave to amend the class to cover only Oklahoma
citizens, but the district court denied the motion. In affirming, the Tenth Circuit
noted that “[a]lthough this class definition might have been effective if employed
when the case was first filed, post-removal amendments are ineffective to divest a
federal court of jurisdiction.” Id.In a similar spirit, the Second and Seventh Circuits have refused to give
effect to amendments that would have eliminated the claims alleged on behalf of a
class. See In Touch Concepts, Inc., 788 F.3d at 102; Burlington Northern Santa Fe
Ry., 606 F.3d at 381. The courts ruled jurisdiction was established as of the time of
removal.
All of these decisions are in accord with CAFA’s legislative history, a
history that is often cited. See, e.g., Benko, 789 F.3d at 1116; Cedar Lodge
Plantation, 768 F.3d at 428. The history shows that Congress was well aware of
the concern that expanding federal class action jurisdiction to require only minimal
diversity would create instability, as class membership could change during the
course of litigation. See Senate Report, S. Rep. 109-14, S. Rep. No. 14, 109th
9
Cong. 1st Sess. 2005, 2005 WL 627977 *68 (Feb. 28, 2005) (“Senate Report”).
The Senate Report observed that this concern was groundless, precisely because of
the rule that post-removal amendments cannot affect jurisdiction. Id. at *70.
Congress specifically noted that, under CAFA, if minimal diversity exists at the
time of removal, jurisdiction could not be divested, even if the situation changed as
a result of a later event, “whether beyond the plaintiff’s control or the result of his
volition.” Id. at *70–71. In this case plaintiffs have attempted to do what CAFA
was intended to prevent: an amendment changing the nature of the class to divest
the federal court of jurisdiction.
We therefore remain in agreement with the other circuits in holding that
CAFA means what it says—citizenship of the class for purposes of minimal
diversity must be determined as of the operative complaint at the date of removal.
See 28 U.S.C. § 1332(d)(7) (“Citizenship of the members of the proposed plaintiff
class shall be determined . . . as of the date of the complaint or amended complaint
. . . indicating the existence of Federal jurisdiction.”). In Benko, we created a small
exception to the general rule that bars post-removal amendments related to
jurisdiction, and this understandably created some uncertainty in the district courts.
Benko allowed amendments for purposes of clarifying the relationship between the
parties and the effect of the class claims on particular defendants. This was
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permitted in Benko so that the district court could decide whether remand to state
court was appropriate under the local controversy exception. Benko did not,
however, strike a new path to permit plaintiffs to amend their class definition, add
or remove defendants, or add or remove claims in such a way that would alter the
essential jurisdictional analysis. Recognizing such a path in this circuit would
conflict with statutory language and with the decisions of the other circuits. See,
e.g., Hargett, 2017 WL 1405034.
Because the existence of minimal diversity in this case must be determined
on the basis of the pleadings at the time of removal in accordance with the general
rule, the order of the district court remanding the case on the basis of a post-
removal amendment must be reversed. The district court correctly recognized that
the complaint, as of the time of removal, covered all California merchants, and not
just merchants who were California citizens. That complaint remained the only
one which should have been considered for determining the existence of minimal
diversity. Accordingly, we respect rather than overrule Benko. Were we to
interpret it as broadly as the dissent, we would not only disagree with other
circuits, but overrule our own precedent in Doyle. Our decision in Benko did not
sanction post-removal amendments that change the nature of the claims or the
make up of the class.
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We therefore REVERSE the order of the district court remanding this case
to state court, and REMAND for further proceedings.
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FILED
Broadway Grill, Inc. v. Visa, Inc., Case No. 17-15499
MAY 18 2017
Rawlinson, Circuit Judge, dissenting:
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
I respectfully dissent. I agree with the district court that the amendment of
the Complaint in this case fit within the parameters recently articulated by us in
Benko v. Quality Loan Serv. Corp., 789 F.3d 1111 (9th Cir. 2015).
The thrust of Broadway Grill’s Complaint, before and after amendment, was
that the Visa defendants engaged in anticompetitive behavior in setting the rates for
interchange fees charged to merchants in violation of California antitrust and
unfair competition laws. Broadway Grill alleged that it was a California
corporation, that its action was premised solely on violations of California law and
that Broadway Grill conducted business only in San Mateo County, California.
Broadway Grill described the class as consisting solely of California merchants,
and noted that the Visa defendants were headquartered in California. Broadway
Grill averred that Visa’s unlawful activities “occurred in and have substantially
affected California commerce.”
Finally, Broadway Grill defined the class as “[a]ll California individuals,
businesses and other entities who accepted Visa-Branded Cards in California.” No
cause of action was pled under any federal law.
Of course, because Broadway Grill originally filed its action in state court,
1
the citizenship of the parties was irrelevant. However, once the case was removed
to federal court, an issue arose regarding whether the class included only California
citizens. The district court determined that because the language in the Complaint
defining the class was imprecise, it could be fairly read to include “non-California
citizens.” Specifically, the court explained that the Complaint failed to “explicitly
limit the class’s scope based on state citizenship.” However, the court
subsequently allowed Broadway Grill to amend the Complaint to clarify the class
of California citizens. The court relied on our holding in Benko that “[w]here a
defendant removes a case to federal court under CAFA [the Class Action Fairness
Act], and the plaintiffs amend the complaint to explain the nature of the action for
purposes of our jurisdictional analysis, we may consider the amended complaint to
determine whether remand to the state court is appropriate. 789 F.3d at 1117.
The district court’s reliance on this language from Benko was entirely
warranted. As the district court noted, Broadway Grill amended the Complaint “to
explain the nature of the action for purposes of our jurisdictional analysis.” Id.
Pre-amendment, the Complaint defined the class as “All California individuals,
businesses and other entities who accepted Visa-Branded Cards.” Post-
amendment, the Complaint defined the class as “All California citizens who are
individuals, businesses and other entities who accepted Visa-Branded Cards.” The
2
amendment in no way changed the nature of the action against the Visa defendants.
Pre-amendment and post-amendment, the Complaint asserted the exact same claim
against the Visa defendants: engaging in anticompetitive behavior through setting
the interchange fees charged to California merchants. The amendment was entirely
consistent with our holding in Benko that a plaintiff “should be permitted to amend
a complaint after removal to clarify issues pertaining to federal jurisdiction under
CAFA.” Id.
In Benko, we expressly acknowledged that pleadings originally filed in state
court need not, and often do not, “address CAFA-specific issues,” such as diversity
of citizenship. Id. “By amending their complaint in these circumstances, plaintiffs
can provide a federal court with the information required to determine whether a
suit is within the court’s jurisdiction under CAFA.” Id.
My colleagues in the majority conclude that the amendment was
inappropriate because it “changed the definition of the class.” Majority Opinion,
p. 7. But that is exactly the type of change countenanced in Benko–“information
required to determine whether a suit is within the court’s jurisdiction under
CAFA.” 789 F.3d at 1117. The majority also mistakenly maintains that the
amendment “changed the nature of the action.” Majority Opinion, p. 8. However,
as noted above, the nature of the action remained one of alleged anticompetitive
3
behavior in violation of California statutes. The description of the class was
defined more precisely without in any way expanding or modifying the allegations
underlying the asserted cause of action. Our analysis in Benko approves of just
such an amendment, that clarifies jurisdictional facts without altering the nature of
the action. See Benko, 789 F.3d at 1117.
Unlike my colleagues in the majority, I am not persuaded by the cases from
our sister circuits. The reason is simple. All of these cases were decided on the
premise that post-removal amendment to pleadings is prohibited. Rather, in these
cases, jurisdiction under CAFA is “determined as of the date of the pleading giving
federal jurisdiction.” Hargett v. RevClaims, LLC, Nos. 17-1339, 1340, 2017 WL
1405034 at *3 (8th Cir. April 14, 2017); see also In Touch Concepts, Inc. v. Cellco
P’ship, 788 F.3d 98, 102 (2d Cir. 2015) (same); Cedar Lodge Plantation, L.L.C. v.
CSHV Fairway View I, L.L.C., 768 F.3d 425, 429 (5th Cir. 2014) (same); In re
Burlington N. Santa Fe Ry. Co., 606 F.3d 379, 381 (7th Cir. 2010) (per curiam)
(noting that “nothing filed after a notice of removal affects jurisdiction”). In
Benko, we expressly and definitively disavowed reliance on this premise. We
explained that the defendants urged us to conclude that “jurisdiction must be
analyzed on the basis of the pleadings filed at the time of removal without
reference to subsequent amendments.” Benko, 789 F.3d at 1117 (citation omitted).
4
We rejected that argument and allowed amendment to clarify jurisdictional issues.
See id. Benko compels our adherence to its holding rather than to the contrary
approach of other circuits. See Hart v. Massanari, 266 F.3d 1155, 1170 (9th Cir.
2001) (“Binding authority must be followed . . .”). By following the reasoning of
out-of-circuit authority that conflicts with binding precedent in this circuit, the
majority essentially engaged in a stealth reversal of Benko, something a three-judge
panel may not legitimately do. See Miller v. Gammie, 335 F.3d 889, 899 (9th Cir.
2003).
Because the district court’s ruling fits squarely within our decision in Benko,
I would affirm the district court’s decision allowing amendment of the Complaint.
5