Federal Remand Decision Shows Potential Catch-22 for Defendants in CAFA Removals

Removing a case from state court to federal court rarely is groundbreaking news, but such a move may be an important tactical decision. Congress enacted the Class Action Fairness Act to provide defendants the opportunity to send big-ticket class actions to federal court. A significant component of CAFA was permitting removal in cases of minimal diversity, thereby short circuiting the practice of state-court plaintiffs naming a lone local defendant to defeat the normal complete diversity rules of removal. The Northern District of Ohio's remand decision in Kushner v. Nationstar Mortgage LLC, highlights a different pitfall for class-action defendants attempting to remove under CAFA: the $5 million amount-in-controversy requirement when paired with a class definition that effectively defines membership around liability.


In the Kushner case, the plaintiff sued the mortgage company in a putative class action claiming that the company violated an Ohio statutory provision, R.C. 5301.36(B), that bars imposing fees in excess of the actual recording fees or the amounts paid to third parties to record the mortgage, with a statutory penalty of $250 per violation. The defendant contended the potential class easily exceeded the $5 million amount-in-controversy threshold by multiplying the number of clients charged the recording fee by the $250 fine. The plaintiff countered that the class definition only included "those who were improperly charged the fee." The Court sided with the plaintiff, concluded that the defendant did not sufficiently show that the amount-in-controversy requirement was satisfied, and remanded the case back to state court.


This sort of class definition puts the defendant in a quandary. A class defined in terms of liability, e.g., those "charged more fees than expressly allowed by Applicable Law," would seem to be what the Ohio Supreme Court has called a "fail-safe class," which is a class where the "definition is one in which the putative class is defined by reference to the merits of the claim." Stammco, L.L.C. v. United Tel. Co. of Ohio, 136 Ohio St. 3d 231, 233 n.2 (2013). Such a class definition is improper because it "requires a court to rule on the merits of the claim at the class certification stage in order to tell who was included in the class." Id. When removing to federal court, however, a defendant bears the burden of showing that the amount-in-controversy requirement is met. The Sixth Circuit has held that a defendant seeking to remove does not need to satisfy the "daunting burden" of having "to research, state and prove the plaintiff's claim for damages." Hayes v. Equitable Energy Res. Co., 266 F.3d 560, 572 (6th Cir. 2001). But, when faced with a fail-safe class or something close, that very well may be what a defendant needs to do to satisfy its removal burden under the Class Action Fairness Act.

The Kushner case points out that "CAFA embodies a strong preference that federal courts hear class actions, but only where properly removed." Facing a fail-safe class, however, a defendant may be unable to remove the case without functionally proving the merits of the plaintiff's claims. This produces the seemingly backwards result that class-action plaintiffs can avoid federal court by pleading a class definition potentially inconsistent with state law.