Gail L. Westover, Partner
Lewis S. Wiener, Partner
G. Brendan Ballard, Associate
November 6, 2009
Motions to Compel Individual Arbitration and Continuing
CAFA Jurisdiction: Be Careful What You Wish For, You
May Get It
This communication is for general informational purposes only and is not intended to
constitute legal advice or a recommended course of action in any given situation.
1
©2008 Sutherland
Purposes of Class Action Fairness
Act
 Address scenario where class counsel obtain
large fee awards while plaintiffs obtain little in
settlements.
 Halt forum shopping for notorious state court
jurisdictions.
 Facilitate adjudication of nationally important
cases in federal court.
2
©2009 Sutherland Asbill & Brennan LLP
CAFA Removal: Standard v. CAFA
Diversity Jurisdiction
Standard
28 U.S.C. §1332(a)
Class Action Fairness Act (CAFA)
28 U.S.C. §1332(d)
No requirement for removal
≥ 100
Citizenship
Complete Diversity
(all named plaintiffs, all defendants)
Minimal Diversity
(one putative class member, one defendant)
Amount in
Controversy
$75,000
(at least one named plaintiff, no
aggregation)
$5,000,000
(aggregated)
One year after commencement of the
action
No absolute limit; 30 days after receipt of complaint
or later paper from which removability may be
ascertained
None
By application to Court of Appeals within 7 days of
entry of remand order
Required
Not Required
Number of Class
Members
Time Limit for
Removal
Appeal of Remand
Order
Consent of all
Defendants
3
©2009 Sutherland Asbill & Brennan LLP
Exceptions/Exclusions to CAFA
Jurisdiction
 The Home State Exception
28 U.S.C. §1332(d)(3)
 The Local Controversy Exception
28 U.S.C. §1332(d)(4)
 The Securities Litigation Uniform Standards Act
(SLUSA) Exclusion
28 U.S.C. §1332 (d)(9)
 Sovereign Immunity Exclusion
28 U.S.C. §1332(d)(5)
4
©2009 Sutherland Asbill & Brennan LLP
The Home State Exception
28 U.S.C. §1332(d)(3)

If 2/3 or more of putative class members, and primary defendant(s), are
citizens of the state in which the action was filed, a district court shall
decline to exercise jurisdiction.

If more than 1/3 but less than 2/3 of putative class members, and
primary defendant(s), are citizens of the state in which the action was
filed, the district court may decline to exercise jurisdiction based on
considerations of:
 The role of the forum state’s law;
 The presence of national/interstate issues;
 The nexus between the forum and the class, the defendants, and
the alleged harm;
 The dispersion of class members among other states; and
 The existence during the past three years of actions involving the
same or similar claims.
5
©2009 Sutherland Asbill & Brennan LLP
The Local Controversy Exception
28 U.S.C. §1332(d)(4)
 A district court shall decline to exercise jurisdiction if:
 Greater than 2/3 of putative class members are citizens of the
state in which the action was filed;
 At least one defendant from whom significant relief is sought
is a citizen of the state in which the action was filed;
 The principal injuries allegedly caused by the defendants’
conduct occurred in the state in which the action was filed;
and
 There has been no class action asserting the same or similar
factual allegations against any of the defendants during the
three years preceding filing of the action.
6
©2009 Sutherland Asbill & Brennan LLP
CAFA Exceptions: Burden of
Persuasion
 The burden of establishing federal jurisdiction is
on the removing party.
 The burden of establishing that a CAFA exception
applies is on the party seeking remand.
7
©2009 Sutherland Asbill & Brennan LLP
Remand Under CAFA
28 U.S.C. §1447(c)
If at any time before final judgment, it appears
that the district court lacks subject matter
jurisdiction under CAFA, the case must be
remanded to state court.
8
©2009 Sutherland Asbill & Brennan LLP
Remand Under CAFA and Arbitration
The most effective strategy for many payday
lenders facing class actions in state court has
generally been to:
1) Remove the case to federal court based on the
Class Action Fairness Act.
2) Move to compel individual arbitration based on
the binding arbitration provision and enforce
the class action waiver included in the
customer loan agreement.
9
©2009 Sutherland Asbill & Brennan LLP
State v. Federal Court Enforcement
of Class Action Waivers
 State courts trend toward striking arbitration
provisions with class action waivers as
unconscionable.
 Federal courts more uniformly enforce arbitration
provisions with class action waivers based on the
Federal Arbitration Act.
10
©2009 Sutherland Asbill & Brennan LLP
Unforeseen Risks of Compelling
Arbitration After CAFA Removal
If the only basis for removal is a class allegation
under CAFA, after the court compels individual
arbitration based on an arbitration provision with a
class action waiver, plaintiffs may move to
remand to state court on the basis that the
grounds for removal under CAFA no longer exist.
11
©2009 Sutherland Asbill & Brennan LLP
Case Study: Trejo v. Advance
America (N.D. Ill. 2009)
 Plaintiff brought putative class action against Advance America
in Illinois state court alleging violations of payday lending laws.
 Advance America timely removed the case to the United States
District Court for the Northern District of Illinois, pursuant to
CAFA.
 Plaintiff did not seek remand.
 Advance America next moved to compel individual arbitration
based on the binding arbitration provision and class action
waiver in the parties’ loan agreement.
 Plaintiff argued that the arbitration provision was unconscionable
and thereby unenforceable.
 The federal court granted Advance America’s motion to compel
individual arbitration.
 Plaintiff then moved to remand the case to state court on the
ground that the court’s subject-matter jurisdiction ceased upon its
holding that the case could not proceed as a class action.
12
©2009 Sutherland Asbill & Brennan LLP
Case Study: Trejo v. Advance
America (N.D. Ill. 2009)
The Northern District of Illinois granted plaintiff’s
motion to remand holding:
“In granting the motion to compel arbitration, the Court
made the legal determination that no class action
could exist in this case. CAFA was the sole basis for
this Court’s subject matter jurisdiction upon removal
from state court. Federal Rule of Civil Procedure
12(h)(3) provides: ‘If the court determines at any time
that it lacks subject-matter jurisdiction, the court must
dismiss the action.’ Thus, as a matter of law, CAFA
jurisdiction never existed in this case, and the Court
lacks subject-matter jurisdiction.”
13
©2009 Sutherland Asbill & Brennan LLP
Split in Authority on CAFA Jurisdiction
After Class Claims Dismissed
On one side of the split are courts holding that
jurisdiction under CAFA continues after the court
has denied the plaintiff’s motion for class
certification or otherwise dismissed class claims on
the grounds that:
1) Jurisdiction is determined at the time the
complaint is filed or at the time of removal.
2) The denial of class certification is a change in a
jurisdictional fact, which does not affect
continued jurisdiction.
14
©2009 Sutherland Asbill & Brennan LLP
District Courts Holding CAFA
Jurisdiction Continues Without Class
Claims











15
Allen-Wright v. Allstate Ins. Co., 2009 WL 1285522 (E.D. Pa. May 5,
2009)
In re HP Inkjet Printer Litig., 2009 WL 282051 (N.D. Cal. Feb. 5, 2009)
Brinston v. Koppers Indus., Inc., 538 F. Supp. 2d 969 (W.D. Tex. 2008)
Colomar v. Mercy Hosp., Inc., 2007 WL 2083562 (S.D. Fla. Jul. 20,
2007)
Genenbacher v. Centurytel Fiber Co. II, LLC, 500 F. Supp. 2d 1014
(C.D. Ill. 2007)
Garcia v. Boyar & Miller, P.C., 2007 WL 155691 (N.D. Tex. May 30,
2007);
In re Welding Fume Prods. Liab. Litig., 245 F.R.D. 279 (N.D. Ohio
2007)
Davis v. Homecomings Fin., 2007 WL 905939 (W.D. Wash. Mar. 22,
2007)
Levitt v. Fax.com, 2007 WL 3169078 (D. Md. May 25, 2007)
Kitts v. Citgo Petroleum Corp., 2009 WL 192550 (W.D. La. Jan. 23,
2009)
Gonzalez v. Pepsico, Inc., 2007 WL 1100204 (D. Kan. Apr. 11, 2007)
©2009 Sutherland Asbill & Brennan LLP
Allen-Wright v. Allstate Ins. Co.
(E.D. Pa. May 5, 2009)
 After the federal court denied the plaintiff’s motion for class
certification, the plaintiff asked the federal court to remand the
action to state court for lack of CAFA jurisdiction.
 The court determined that the statutory language of CAFA was
consistent with established law regarding removal, which
weighed in favor of retaining CAFA jurisdiction:
 CAFA defines a “class action” as “any civil action filed under rule 23
of the Federal Rules of Civil Procedure or similar State statute or
rule of judicial procedure authorizing an action to be brought by 1 or
more representative persons as a class action.”
 Looking at the plain language, an action in which class certification
is later denied would still be defined as a “class action” because it
was filed as such.
 Well-settled law regarding removal is that the nature of the plaintiff's
claim and propriety of remand must be evaluated on the basis of the
record as it stands at the time the petition for removal is filed.
16
©2009 Sutherland Asbill & Brennan LLP
Allen-Wright v. Allstate Ins. Co.
(E.D. Pa. May 5, 2009)
 The court also noted that policy considerations weighed in favor
of retaining CAFA jurisdiction:
 If a federal court’s jurisdiction could be ousted by events occurring
after a case was removed, plaintiffs who believed the tide was
turning against them could simply amend their complaint months (or
even years) into the litigation to require remand to state court.
Therefore, a defendant could prevail on the merits, only to have the
federal court conclude that it lacks jurisdiction to enter judgment.
 Because the denial of class certification is an interlocutory order that
may only be appealed once a final judgment has been entered, the
potential procedural hurdles of appealing a certification upon a final
judgment while in state court weigh in favor of retaining jurisdiction.
17
©2009 Sutherland Asbill & Brennan LLP
Eleventh Circuit Dicta
“We note that the plaintiff's failure to make a showing of
numerosity with respect to the Florida-only class, which gives
rise to the possibility that there are fewer than 100 members
of the newly-narrowed Florida-only class, does not divest the
federal courts of subject matter jurisdiction under the CAFA.
See 28 U.S.C. § 1332(d)(5)(B). Even if it were later found
that the narrowed, Florida-only class numbers fewer than 100,
the § 1332(d)(5)(B) limitation applies only to ‘proposed’
plaintiff classes (as opposed to classes actually certified or
that go to trial); jurisdictional facts are assessed at the time of
removal; and post-removal events (including non-certification,
de-certification, or severance) do not deprive federal courts of
subject matter jurisdiction.”
Vega v. T-Mobile USA, Inc., 2009 WL 910411, at *25-26 n.12 (11th Cir. Apr. 7, 2009)
18
©2009 Sutherland Asbill & Brennan LLP
Split in Authority on CAFA Jurisdiction
After Class Claims Dismissed
On the other side of the split are courts holding that:
1) The denial of class certification is not a post-filing or
post-removal change in a jurisdictional fact, but is a
legal determination that the plaintiff’s claims did not
constitute an actual or potential class action.
2) Therefore, dismissal of class claims is effectively a
determination that there is not and never was CAFA
jurisdiction.
19
©2009 Sutherland Asbill & Brennan LLP
District Courts Holding CAFA
Jurisdiction Ceases After Dismissal of
Class Claims













20
Avritt v Reliastar Life Ins. Co., 2009 WL 1703224 (D. Minn. June 18, 2009)
Atkinson v. Wal-Mart Stores, Inc., 2009 WL 1458020 (M.D. Fla. May 26,
2009)
Muehlbauer v. Gen. Motors Corp., 2009 WL 874511(N.D. Ill. Mar. 31, 2009)
Salazar v. Avis Budget Group, Inc., 2008 WL 5054108 (S.D. Cal. Nov. 20,
2008)
Jones v. Jeld-Wen, Inc., 2008 WL 4541016 (S.D. Fla. Oct. 2, 2008)
Clausnitzer v. Fed. Express Corp., 2008 WL 4194837 (S.D. Fla. June 18,
2008)
Arabian v. Sony Elecs. Inc., 2007 WL 2701340 (S.D. Cal. Sept. 13, 2007)
Jin v. Ben Bridge-Jeweler, Inc., 2009 WL 981600 (E.D. Cal. Apr. 9, 2009)
Ronat v. Martha Stewart Living Omnimedia, Inc., 2008 WL 4963214 (S.D. Ill.
Nov. 12, 2008)
Falcon v. Philips Elecs. N.A. Corp., 489 F.Supp.2d 367 (S.D.N.Y. 2007)
McGaughey v. Treistman, 2007 WL 24935 (S.D.N.Y. Jan. 4, 2007)
Hoffer v. Cooper Wiring Devices, Inc., 2007 WL 2891401 (N.D. Ohio Sept.
28, 2007)
Giovanniello v. New York Law Publ’g Co., 2007 WL 2244321 (S.D.N.Y. Aug.
6, 2007)
©2009 Sutherland Asbill & Brennan LLP
Avritt v Reliastar Life Ins. Co.,
(D. Minn. June 18, 2009)
 After the federal court denied the plaintiff’s motion for class
certification, the plaintiff asked the federal court to remand the
action to state court for lack of CAFA jurisdiction.
 The court concluded that jurisdiction under CAFA no longer
existed and remanded the action to state court:
 Denial of class certification is effectively a determination that there is
not and never was CAFA jurisdiction.
 The ruling on class certification was final, and there was no
reasonably foreseeable possibility that class certification might be
reconsidered in the future.
 CAFA jurisdiction applies “to any class action before or after the
entry of a class certification order by the court with respect to that
action,” therefore, without a class certification order, the court was
divested of jurisdiction.
21
©2009 Sutherland Asbill & Brennan LLP
Second Circuit Dicta
“Without considering whether the County needed to
exhaust administrative processes to sustain
jurisdiction, we remand for consideration of a different
jurisdictional concern, which we raised nostra sponte
at oral argument: whether the complaint meets the
requirements for class certification under Fed. R. Civ.
P. 23, without which both we and the District Court
would lack jurisdiction over the suit as presently
constituted.”
County of Nassau, New York v. Hotels.Com, LP, 577 F.3d 89, 90 (2d Cir. 2009)
22
©2009 Sutherland Asbill & Brennan LLP
First Circuit Dicta

“[D]enial [of class certification] would . . . defeat
[CAFA] jurisdiction.”
In re TJX Cos. Retail Sec. Breach Litig., 564 F.3d 489, 492 (1st Cir. 2009)
 “There is an open question as to whether a later
denial of class certification will divest the district court
of CAFA jurisdiction. . . . We express no opinion on
this question.”
College of Dental Surgeons of Puerto Rico v. Connecticut Gen. Life Ins.
Co. & Metro. Life Ins. Co., 2009 WL 3384804, at *7 (1st Cir. Oct. 22, 2009)
23
©2009 Sutherland Asbill & Brennan LLP
Trejo Court Followed Second Line of
Cases
In holding that “CAFA jurisdiction . . . never
existed,” the Trejo court effectively applied the
second line of cases—holding that after class
certification is denied, the court loses CAFA
jurisdiction—to the context in which a court has
enforced an arbitration agreement with a class
action waiver.
24
©2009 Sutherland Asbill & Brennan LLP
Third (Discretionary) Approach
 At least one court has held that the decision to exercise
jurisdiction once a class action has been voluntarily
dismissed or a class certification has been denied is
discretionary.
 In Gianini v. Schering-Plough Corp., 2007 WL 1839780
(N.D. Cal. Jun. 26, 2007), the court set forth a two-part test
to determine whether it was appropriate to exercise its
discretion to remand:
 Whether the case fell under the enumerated elements of 28
U.S.C. §1367(c)
 Whether the values of economy, convenience, fairness, and
comity would be served by exercising jurisdiction
25
©2009 Sutherland Asbill & Brennan LLP
Potential Consequences of Trejo
Logic
 All cases involving mandatory arbitration
provisions and class action waivers—that are
properly removed to federal court under CAFA—
may be remanded to state court in the event the
federal court upholds the underlying arbitration
provision and class action waiver.
 State court is responsible for enforcing the federal
court’s orders compelling arbitration, thereby
giving the state appellate court the authority to
review, interpret, and even reverse the federal
court’s decision in any particular case.
26
©2009 Sutherland Asbill & Brennan LLP
Practice Tips: Removal
Always plead alternative basis for removal if
possible.
 Federal question jurisdiction
 Mass action provision of CAFA
27
©2009 Sutherland Asbill & Brennan LLP
Practice Tips: Compelling
Arbitration
 Always move to compel arbitration and stay
proceedings, instead of moving to compel
arbitration and dismiss.
 Strengthens the argument that the federal court
should maintain jurisdiction over the case after it
compels arbitration.
28
©2009 Sutherland Asbill & Brennan LLP
Practice Tips: Motions for Remand
 Set forth general propositions that: jurisdiction decided at time of
removal; and post-removal determinations that a plaintiff will be
unable to prove the jurisdictional facts alleged in the complaint,
such as class allegations, do not affect the court’s continued
jurisdiction.
 Distinguish case law holding that CAFA jurisdiction does not
continue upon the denial of class certification.
 CAFA jurisdiction applies “to any class action before or after the entry of a
class certification order by the court with respect to that action.”
 Where a case has been removed to federal court pursuant to CAFA and
then compelled to arbitration pursuant to an arbitration provision with a class
action waiver, the court has not yet ruled on a class certification motion, so
the procedural posture of the case remains “before . . . the entry of a class
certification order.”
29
©2009 Sutherland Asbill & Brennan LLP
Practice Tips: Post Remand
 Argue that the federal court’s order enforcing the
arbitration provision has collateral estoppel effect
and is binding on the state court.
 Appeal remand to Court of Appeals under 28
U.S.C. § 1453
30
©2009 Sutherland Asbill & Brennan LLP
Practice Tips: Future Cases
 Because most payday lending contracts include the availability of
a small claims tribunal for adjudication of disputes as a way to
ensure mutuality and equality of bargaining power between the
parties, payday lenders should not necessarily resist a plaintiff’s
attempt to seek adjudication in a small claims tribunal after
arbitration has been ordered.
 If a plaintiff requests remand to seek adjudication in a small
claims tribunal, payday lenders should ask that the federal court
stay the action pending adjudication in a small claims tribunal,
but not insist on arbitration at all costs.
 Do not want future plaintiffs to argue that the arbitration provision
is unconscionable because plaintiffs do not have access to a
small claims tribunal in practice.
31
©2009 Sutherland Asbill & Brennan LLP