Commercial Disputes – Class Action
Defense Alert
April 2009
Authors:
R. Bruce Allensworth
bruce.allensworth@klgates.com
+1.617.261.3119
Andrew C. Glass
andrew.glass@klgates.com
+1.617.261.3107
David D. Christensen
david.christensen@klgates.com
+1.617.951.9077
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Recent Third Circuit Decision Explores Scope
of CAFA’s Local Controversy Exception
In Kaufman v. Allstate New Jersey Insurance Company,1 a decision of first
impression among the federal circuit courts, the Third Circuit Court of Appeals
recently explored the scope of the local controversy exception to the Class Action
Fairness Act (“CAFA”). Under CAFA’s local controversy exception, a district court
must remand a class action, which otherwise satisfies the requirements for federal
court jurisdiction,2 where at least one “significant” defendant and more than twothirds of the members of the putative class are citizens of the forum state.3 A
significant defendant is, in pertinent part, one “whose alleged conduct forms a
significant basis for the claims asserted by the proposed plaintiff class.”4 In
Kaufman, the Third Circuit held that this exception applies if a local defendant’s
alleged conduct is a significant part of the alleged conduct of all the defendants, even
though not all the putative class members could assert a claim against the local
defendant.5 The decision may tempt class plaintiffs to join a local defendant as a
means of trying to evade federal court jurisdiction. Accordingly, when unrelated
defendants are named in a single class action, they may wish to undertake an early
analysis of whether they have been properly joined in the suit.
The Kaufman plaintiffs brought suit in New Jersey state court against unrelated
automobile insurance companies, including Allstate New Jersey Insurance Company
(“Allstate New Jersey”). Allstate New Jersey is a New Jersey citizen and thus, a
local defendant for CAFA jurisdiction purposes.6 The plaintiffs alleged that the
defendants’ insurance policies violated New Jersey law by failing to cover the
plaintiffs’ claims for the diminished value of their automobiles after repair.7 Because
each named plaintiff had an insurance contract with only one insurer, the putative
class was actually comprised of three distinct groups, one for each defendantinsurer.8 After one of the defendants removed the matter to federal court pursuant to
CAFA, the plaintiffs moved to remand the matter to state court. The district court
granted the plaintiffs’ motion, finding that it lacked CAFA jurisdiction because the
plaintiffs had named a “significant” local defendant. The Third Circuit granted the
defendants’ petition for review of the remand order.9
The central issue on appeal in Kaufman was whether CAFA’s “significant basis”
provision requires that every putative class member be able to assert a claim against
the local defendant, which the Kaufman plaintiffs could not.10 The Third Circuit
held that the significant basis provision contains no such requirement.11 Rather, the
court ruled that a defendant’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.”12
According to the Third Circuit, the local controversy exception is satisfied so long
as: (1) the claims asserted by the class “reflect the alleged conduct of all
[d]efendants”;13 and (2) “the local defendant’s alleged conduct is a significant part of
the [collective] alleged conduct.”14 The Third Circuit sent the matter back to the
district court for determination as to whether Allstate New Jersey’s alleged conduct
formed a significant part of the alleged conduct of all of the defendants.15
Commercial Disputes – Class Action Defense Alert
The Third Circuit emphasized, however, that the
applicability of CAFA’s local controversy exception
has no bearing on whether the class plaintiffs have
properly joined the local and non-local defendants in
a single suit.16 Accordingly, the Kaufman decision
highlights the need for non-local class action
defendants to undertake an early analysis of whether
they have a basis to challenge their joinder with a
defendant who is a citizen of the forum state.
R. Bruce Allensworth, Andrew C. Glass, and David
D. Christensen are members of K&L Gates LLP’s
Class Action Litigation Defense practice area.
K&L Gates comprises multiple affiliated partnerships: a limited liability partnership with the full name K&L Gates LLP qualified in Delaware and
maintaining offices throughout the U.S., in Berlin and Frankfurt, Germany, in Beijing (K&L Gates LLP Beijing Representative Office), in Singapore
(K&L Gates LLP Singapore Representative Office), and in Shanghai (K&L Gates LLP Shanghai Representative Office); a limited liability partnership
(also named K&L Gates LLP) incorporated in England and maintaining our London and Paris offices; a Taiwan general partnership (K&L Gates)
which practices from our Taipei office; and a Hong Kong general partnership (K&L Gates, Solicitors) which practices from our Hong Kong office.
K&L Gates maintains appropriate registrations in the jurisdictions in which its offices are located. A list of the partners in each entity is available for
inspection at any K&L Gates office.
This publication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon
in regard to any particular facts or circumstances without first consulting a lawyer.
©2009 K&L Gates LLP. All Rights Reserved.
1
561 F.3d 144 (3d Cir. 2009).
The primary requirements for establishing federal
jurisdiction under CAFA are: (1) at least one member of the
class is a citizen of a state different from any defendant;
and (2) the aggregate amount in controversy exceeds
$5,000,000. 28 U.S.C. § 1332(d)(2) & (6).
3
561 F.3d at 149 & n.4; 28 U.S.C. §
1332(d)(4)(A)(i).
4
28 U.S.C. § 1332(d)(4)(A)(i)(II)(bb).
5
561 F.3d at 155.
6
Id. at 150.
7
Id.
8
Id.
9
Id. at 150-51.
10
Id. at 149.
11
Id. at 155. The Third Circuit also held that the
applicability of the CAFA local controversy exception
depends on the defendants named in the action at the time
a district court’s jurisdiction is challenged rather than on
those named at the time the action was commenced. Id. at
153.
12
Id. at 156.
13
Id.
14
Id.
15
Id. at 157. The Third Circuit rejected the simple
market share analysis that the district court had performed
to determine if the local defendant’s alleged conduct was
“significant.” A market share analysis, without more,
cannot establish that the local controversy exception is met
because it does not address the relationship of the alleged
conduct itself to that of the other defendants. Id. at 156-57.
16
Id. at 156 n.11.
2
April 2009
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