The First Circuit recently held as a matter of first impression that denial of class certification does not strip a federal court of jurisdiction under the Class Action Fairness Act (“CAFA”), consistent with earlier decisions from the Second, Third and Seventh Circuits. The opinion also addressed two exceptions to CAFA—the “home state” and “local controversy” exceptions—ultimately finding that the latter did defeat CAFA jurisdiction in the case before it and required remand to state court. See Kress Stores of Puerto Rico, Inc. v. Wal-Mart Puerto Rico, Inc., — F.4th —-, 2024 WL 4750774 (1st Cir. Nov. 12, 2024).
The CAFA issues arose through an appeal of summary judgment granted for defendants in a putative class action against Costco, Wal-Mart Puerto Rico, and two other large retailers. Before the summary judgment decision, all but one of the claims had been dismissed on the pleadings, and the district court had denied class certification. The plaintiffs appealed, asserting that the district court (and First Circuit) lacked jurisdiction under CAFA because class certification had been denied, or alternatively, because the CAFA “home state” or “local controversy” exceptions applied.
The court first rejected the plaintiffs’ argument that the district court’s denial of class certification had destroyed CAFA jurisdiction. It wrote that “the key language in CAFA—’shall apply to any class action before or after the entry of a class certification order’—does not indicate that jurisdiction is affected by whether the district court grants or denies class certification. Id. at *4 (quoting CAFA, 28 U.S.C. § 1332(d)(8)). The statutory text instead signals clearly that CAFA jurisdiction, when properly invoked, continues to apply regardless whether the court grants or denies class certification.” Id.
The court then held that the CAFA home state exception did not apply, rejecting the plaintiffs’ argument that Costco was not a primary defendant because it faced liability of only around $65 million compared to Wal-Mart’s potential liability of more than $265 million. CAFA’s text is “clear that more than one defendant can be ‘primary,’” and circuit precedent requires that “courts look at the allegations to identify the defendants expected to sustain the greatest loss if liability were found, and whether such defendants have substantial exposure to significant portions of the proposed class, again plural.” Id. at *7 (internal quotation omitted). Under this standard, the court held, Costco was properly viewed as a “primary defendant.”
However, the court found that CAFA jurisdiction was lacking under the local controversy exception, because Wal Mart was a “local defendant.” The First Circuit had not previously applied the CAFA local controversy exception in cases where local and non-local defendants were alleged to have engaged in the same conduct, but it held the exception applied in the circumstances of this case, because all claims asserted in the case were brought against Wal Mart, and all putative class members had claims against Wal Mart. As a result, the court held, the “significant basis” requirement of the CAFA local controversy exception was satisfied. Id. at *8-*9.