The Second Circuit recently weighed in on CAFA, and its home state exception. See Gold v. N.Y. Life Ins. Co., No. 12-2344-cv (2d Cir., 9/18/13).
Not our usual mass tort context, and more up the alley of our colleague Bill Martucci, but plaintiff filed a complaint alleging wage and hour violations against his former employer, New York Life, individually and on behalf of a putative class of agents. The case was litigated for a number of years, and in 2012, New York Life moved to dismiss the complaint based on CAFA’s home state exception. Concluding that the exception applied, the district court dismissed the complaint. Gold appealed, contending that New York Life had waived the home state exception by failing to raise it within a reasonable time. The Second Circuit held that CAFA’s home state exception is not jurisdictional and must be –and in this case was– raised within a reasonable time.
CAFA confers original federal jurisdiction over class actions involving (1) an aggregate amount in controversy of at least $5,000,000; and (2) minimal diversity, i.e., where at least one plaintiff and one defendant are citizens of different states. 28 U.S.C. § 1332(d)(2). CAFA includes several exceptions, including the home state exception which provides that: “[a] district court shall decline to exercise jurisdiction . . . over a class action in which . . . two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.” 28 U.S.C. § 1332(d)(4)(B).
While plaintiff argued this exception was jurisdictional, the court found that the “‘decline to exercise’” language “‘inherently recognizes [that] the district court has subject matter jurisdiction’” but must actively decline to exercise it if the exception’s requirements are met. Reviewing this issue de novo, the Second Circuit agreed with the district court’s conclusion, and aligned itself with the Seventh and Eighth Circuits, in concluding that Congress’s use of the term “decline to exercise” means that the exception is not jurisdictional.
But, said the court, motions to dismiss under CAFA’s home state exception must also be made within a reasonable time. Here, nearly three years after the complaint was filed, New York Life moved to dismiss based on the home state exception. Under most circumstances, the court said it would have some doubts that a delay of this length would be deemed reasonable. But, the application of the exception was, to a certain extent, complicated by the discovery schedule imposed by the district court here. Gold had apparently requested that individual discovery proceed first, followed by class discovery. The trial court agreed, and as a result, class discovery did not start until 2011. New York Life claimed that it learned only through class discovery that more than two-thirds of the class–New York Life agents employed in New York–were New York citizens, and then moved to dismiss based on the home state exception.
The district court held that because of the agreed upon bifurcated discovery plan, New York Life had not had the opportunity to discover the citizenship of class members until it undertook class discovery in 2011 and that, under these circumstances, New York Life’s delay was excused. While noting that nearly three years may not always be a reasonable time for an employer to determine where its own sales force lives, the district court was in a better position than the court of appeals was to evaluate when New York Life’s motion could have been made, based on its greater familiarity with the course of the litigation, especially scheduling and discovery matters. Thus, the court of appeals was not prepared to say that the district court abused its discretion. It did note that there are numerous instances where the home state exception was raised much more promptly than it was in this case, and without full blown class discovery.