Class Action Properly Removed to Federal Court under Class Action Fairness Act (CAFA) because Defendants Adequately Established $5 Million Amount in Controversy and because Plaintiffs Failed to Establish that Local Controversy Exception or Home-State Controversy Exception Applied Massachusetts Federal Court Holds
Plaintiffs filed a putative class action in Massachusetts state court against GMAC Mortgage and various other defendants challenging defendant’s mortgage foreclosure practices; specifically, the class action complaint alleges GMAC violated Massachusetts state law in connection with its foreclosure proceedings because “the foreclosed mortgages had not been validly assigned to the foreclosing banks at the time the foreclosure actions were undertaken.” Manson v. GMAC Mortgage, LLC, 602 F.Supp.2d 289, 291-92 (D. Mass. 2009). Plaintiffs’ class action seeks to represent some 1000 people, all residents of Massachusetts residents, “whose primary residence was foreclosed by a power of sale…by a defendant that did not contemporaneously possess a written assignment of the underlying mortgage at the time the Notice of Sale was served” or “who face a pending foreclosure initiated by a defendant that did not have a written assignment of the underlying mortgage when the Notice of Sale was served and/or when a Right to Cure notice was sent.” Id., at 292. According to the allegations underlying the class action complaint, “the defendant banks and law firms knew that the foreclosures violated: (i) the Statute of Frauds…; (ii) the statutory notice and sale requirements…; and (iii) the common-law duty of good faith and diligence.” Id. Defense attorneys removed the class action to federal court under CAFA (Class Action Fairness Act), id. Plaintiffs moved to remand the class action to state court on the grounds that the $5 million amount-in-controversy had not been shown and that CAFA’s “local controversy” or “home-state controversy” exceptions required that the district court “decline jurisdiction.” Id. The district court denied plaintiffs motion, concluding that the class action had been properly removed.
The federal court began by noting that CAFA, inter alia, creates federal jurisdiction over class actions with minimal diversity where the combined amount in controversy exceeds $5 million and the class action involves 100 members or more. GMAC, at 293. Plaintiffs conceded that minimal diversity was present and that the putative class contained more than 100 members, but insisted that it was not “reasonably probable” that the amount in controversy exceeded $5 million at the time of removal. Id. (In this regard, the district court observed that the time of removal was the relevant inquiry because “[e]vents subsequent to removal that reduce the amount in controversy do not divest a federal court of CAFA jurisdiction.” Id., at 293 n.5 (citing Coventry Sewage Assocs. v. Dworkin Realty Co., 71 F.3d 1, 6 (1st Cir. 1995)).) Under plaintiffs’ analysis, the class action seeks primarily injunctive and declaratory relief, and each class members’ monetary damage is approximately $1200; thus, the amount in controversy is only $1.2 million. GMAC, at 293. Defense attorneys countered that a total of 3,934 loans were “referred for foreclosure” during the putative class period, with 1,048 of these loans proceeding to foreclosure and 48 foreclosed properties being sold to third parties for more than $15 million. Id., at 293-94. GMAC argued that this fact went directly to “plaintiffs’ contingent claim that defendants may be liable for the collective replacement value of the homes that were foreclosed.” Id., at 294 n.8. In the alternative, defense attorneys argued that “the actual amount assessed foreclosed borrowers in costs and fees was approximately $8,000 per transaction,” not the $1200 figure provided by plaintiffs, which would make the amount in controversy approximately $8 million. Id., at 294. The district court found defendant’s evidence sufficient to meet the amount in controversy test, id.
The federal court also noted, however, that it was “required to decline the exercise of jurisdiction” if plaintiffs (as the party seeking remand) could demonstrate that either the “local controversy” exception or the “home-state controversy” exception applied. See GMAC, at 294-95. We do not detail the elements of these exceptions here; the district court opinion summarizes the statutory requirements, and interested readers may find other articles on this site that discuss CAFA. In sum, the district court rejected plaintiffs’ theory that it sought “significant relief” from a citizen of Massachusetts (the “Law Firm Defendants”) for purposes of the local controversy exception, see id., at 295-96, and rejected also the theory that the Law Firm Defendants were “the primary defendants” within the meaning of the home-state controversy exception, see id., at 296-97. Accordingly, the court denied plaintiffs’ motion to remand the class action to state court, id., at 297.