9th Circuit Finds CAFA’s Home-State Exception Does Not Apply in Suit Alleging Illegal Recording of Telephone Calls

The U.S. Court of Appeals for the Ninth Circuit recently held that a plaintiff failed to satisfy the requirements of the Class Action Fairness Act’s (CAFA) home-state controversy exception because the plaintiff failed to show that two-thirds of all class members were California citizens.  The plaintiff initially brought a putative class action in California state court alleging that the defendant, a financial services company, recorded or monitored telephone conversations with her without giving her notice.  The defendant removed the action to federal court and the plaintiff subsequently moved to remand the case back to state court pursuant to the CAFA’s home-state controversy exception.

Congress passed CAFA with the overall intent to strongly favor the exercise of federal diversity jurisdiction over class actions with interstate ramifications.  However, under the home-state controversy exception, a district court must decline to exercise jurisdiction where two-thirds or more of the proposed class members and the primary defendants are citizens of the state in which the action was originally filed.

In this case, the plaintiff’s class definition included “all persons who, while physically located or residing in California and Washington,” made or received telephone calls with the defendant and did not receive notice that the conversation may be recorded or monitored.  The district court had concluded based on statistical evidence that at least two-thirds of the proposed class members were California citizens.  However, on appeal, the Ninth Circuit panel held that the district court erred because only a portion of the class met the two-thirds citizenship requirement.  The panel identified two subgroups contained in the class definition: those who were “residing” in California, and others who were merely “physically located” in California when the telephone calls were made.  The panel found that the list of proposed members upon which the district court relied included only those who were “residing in” California.  As for the additional class members who were “physically located” in California, the panel noted that the plaintiff failed to submit any evidence addressing their citizenship.  Therefore, the panel reasoned that, without knowing the size of this subgroup, it was impossible to determine whether two-thirds of all class members were California citizens.

Additionally, the panel noted that the plaintiff was on notice of her class definition problem when the defendant informed the court that it could not identify those who fell within the “located in” subgroup.  Thus, the panel stated that this was an issue of the plaintiff’s own making and held that the plaintiff did not meet her burden in showing that the home-state controversy exception applied.

The panel vacated the district court’s order, remanded the action to the district court for further proceedings and taxed the costs against the plaintiff.

The case is Brinkley v. Monterey Financial Services, Inc.