Benko v. Quality Loan Serv. Corp., No. 13-15185 (9th Cir. 2015)
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Plaintiffs filed suit against the defendant companies, alleging that they engaged in illegal debt collection practices in the course of carrying out non-judicial foreclosures. Defendants removed the action to federal district court under the Class Action Fairness Act (CAFA), 28 U.S.C. 1332(d), 1453, 1711. The district court subsequently dismissed the complaint under Rule 12(b)(6). The court concluded that that Sparta Surgical Corporation v. NASD does not apply in the present circumstances and that the district court abused its discretion in denying plaintiffs leave to amend. The court's holding, that plaintiffs should be permitted to amend
a complaint after removal to clarify issues pertaining to federal jurisdiction under CAFA, is necessary in light of Coleman v. Estes Express Lines, Inc. In this case, a class of exclusively Nevada plaintiffs has filed suit against six defendants, one of which is Nevada
domiciled; the alleged misconduct took place exclusively in the state of Nevada; and the one Nevada domiciled defendant was allegedly responsible for between 15–20 percent of the wrongs alleged by the entire class. Therefore, the court concluded that plaintiffs have met their burden to show that this case qualifies for the “local controversy exception.” Accordingly, the court reversed and vacated the district court's judgment, remanding with instructions.
Court Description: Jurisdiction / Class Action Fairness Act. The panel reversed the district court’s Fed. R. Civ. P. 12(b)(6) dismissal of a class action, vacated the district court’s judgment, and remanded with instructions to the district court to remand the case to Nevada state court because there was no federal jurisdiction under the Class Action Fairness Act. The panel held that the court lacked jurisdiction because Meridian Foreclosure Services, a Nevada corporation, was a “significant” defendant for purposes of CAFA’s local controversy exception, 28 U.S.C. § 1332(d)(4)(A). The panel concluded that the plaintiffs met their burden to show that this case qualified for the local controversy exception where: a class of exclusively Nevada plaintiffs filed suit against six BENKO V. QUALITY LOAN SERVICE CORP. 3 defendants, one of which was Nevada domiciled; the alleged misconduct took place exclusively in the state of Nevada; and the one Nevada domiciled defendant was allegedly responsible for between 15-20% of the wrongs alleged by the entire class. The panel held that the district court abused its discretion in denying the plaintiffs leave to amend their complaint after removal to federal court, and erred in not considering the plaintiffs’ second amended complaint for purposes of analyzing jurisdiction under CAFA. Judge Wallace dissented from the majority’s holding that plaintiffs should be permitted to amend the complaint after removal, and the majority’s conclusion that the district court abused its discretion in denying plaintiffs leave to file the second amended complaint. Judge Wallace would hold that the district court, after properly limiting itself to considering only the allegations in the first amended complaint, did not err in concluding that plaintiffs failed to satisfy the requirements of CAFA’s local controversy exception.
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