Tuesday, February 2, 2010

Decision of Interest on the Class Action Fairness Act (CAFA)

BNA's U.S. Law Week reports today on the Fourth Circuit's recent decision in Ferrell v. Express Check Advance, No. 09-2401, ___ F.3d ___, 2010 WL 60903, 2010 U.S. App. LEXIS 424 (Jan. 8, 2010).

The panel held that a limited liability company (LLC) is an "unincorporated association" for purposes of the Class Action Fairness Act (CAFA) and, therefore, "shall be deemed to be a citizen of the State where it has its principal place of business (PPB) and the State under whose laws it is organized." 28 U.S.C. § 1332(d)(10). It then held that Express Check had its PPB in South Carolina. The panel used a "place of operations" test for determining PPB, although it recognized that the U.S. Supreme Court was currently grappling with the PPB issue in the recently-argued case of Hertz Corp. v. Friend (covered here, here, and here).

Accordingly, the Fourth Circuit found that minimal diversity was lacking because the plaintiff class was exclusively South Carolina citizens, and the defendant Express Check was a South Carolina citizen as well. It reached this conclusion even though Express Check, having been organized under Tennessee law, was also a Tennessee citizen. Treatment of dual-citizen litigants for purposes of CAFA's minimal-diversity requirement appears to be an unresolved question. See, e.g., In re Hannaford Bros. Co. Customer Data Security Breach Litigation, 592 F. Supp. 2d 146, 147 (D. Me. 2008) (describing "some uncertainty under CAFA whether a corporate defendant with dual citizenship . . . creates minimal diversity with a plaintiff who is a citizen of one of those states). Under the approach used by some lower federal courts (but not the Fourth Circuit), Express Check's Tennessee citizenship would have created minimal diversity with the South Carolina plaintiff class despite the fact that Express Check was also a citizen of South Carolina.

The Supreme Court has yet to resolve this question. But it has acknowledged the possibility that a litigant's multiple citizenship could mean that minimal diversity is satisfied even when all adverse parties are also citizens of the same state (although it stated that this was "far from clear"). Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 577 n.6 (2004) ("It is possible, though far from clear, that one can have opposing parties in a two-party case who are co-citizens, and yet have minimal Article III jurisdiction because of the multiple citizenship of one of the parties.")

--A

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