A plaintiff will rarely be permitted to amend its class action complaint after removal to avoid federal jurisdiction under the Class Action Fairness Act (CAFA). That is the takeaway from the Ninth Circuit Court of Appeals’ decision in Broadway Grill, Inc. v. Visa Inc., 856 F.3d 1274 (9th Cir. 2017), which further narrowed the already slim exception to the general rule that a plaintiff is bound by its pre-removal jurisdictional allegations.
The Broadway Grill court addressed a class action complaint, originally filed in a California state court against credit card companies, that alleged certain charges violated antitrust laws. The proposed class included “all California individuals, businesses and others” that accepted the companies’ credit cards in California; the class definition was interpreted to include both California and non-California citizens. The case was subsequently removed to the District Court for the Northern District of California under CAFA, which provides for federal jurisdiction where a matter in controversy exceeds $5 million, the plaintiffs number more than 100 and “minimal diversity” exists because at least one class member is a citizen of a state different from that of any defendant. “Minimal diversity” existed because the defendant credit card companies were California citizens and the proposed class included non-California citizens. Relying on a “very narrow” exception set forth in Benko v. Quality Loan Serv. Corp., 789 F.3d 1111 (9th Cir. 2015) to the general rule barring post-removal amendments to avoid CAFA jurisdiction, the district court in Broadway Grill permitted the plaintiff to amend the complaint and limit the class to only “California citizens,” thus eliminating minimal diversity under CAFA and requiring remand to state court.
On appeal, the Ninth Circuit reversed the remand order and rejected the district court’s reliance on Benko. As the Broadway Grill court explained, Benko addressed CAFA’s “local controversy” exception, which prohibits a federal court from exercising jurisdiction that is otherwise proper under CAFA where more than two-thirds of the proposed class members, and a “significant” defendant, are from the state where the action was originally filed. In Benko, the Ninth Circuit had allowed a plaintiff’s post-removal amendment of a class action complaint to set out the percentage of claims asserted against the in-state defendant in order to show it was a “significant” defendant and, therefore, the local controversy exception applied. Although in Benko the Ninth Circuit had allowed the plaintiff’s post-removal “explanation of the allegations,” it clarified in Broadway Grill that the permissible explanation was constricted. Citing the principle that CAFA favors federal jurisdiction and referencing concerns over forum manipulation, the Ninth Circuit held in Broadway Grill that by changing the definition of the class, the plaintiff had “change[d] the nature of the action” itself, and therefore fell outside of the “explanation” rule provided in Benko. The Ninth Circuit noted that it did not find any circuit decisions “permitting post-removal amendment of the complaint to affect the existence of federal jurisdiction and certainly none permitting alteration of the makeup of the class,” and cited decisions from the Second, Seventh, Eighth and Tenth Circuits denying such amendments.
In her dissent, Circuit Judge Rawlinson accused the majority of “essentially engag[ing] in a stealth reversal of Benko, something a three-judge panel may not legitimately do.” Noting that the plaintiff’s proposed class was imprecise but could be construed to include non-California citizens, Judge Rawlinson opined that the plaintiff’s post-removal amendment was simply meant to “clarify issues pertaining to federal jurisdiction under CAFA,” and was therefore entirely consistent with Benko. Moreover, the plaintiff had not changed the nature of the action, because pre-amendment and post-amendment, its substantive claims remained the same.
The Broadway Grill decision shows that even in courts that will consider an exception to the general rule barring post-removal amendments to avoid CAFA jurisdiction, the exception will be construed narrowly. Once a class action has been removed to federal court, a plaintiff will have to contend with the jurisdictional allegations in the complaint.