California Court Limits Removal under Class Action Fairness Act – Westwood Apex v. Contreras

“Location, location, location” isn’t just a mantra for real estate agents and house hunters. When it comes to litigation, venue is an important issue to consider for both plaintiffs and defendants alike. In Westwood Apex v. Contreras, the Court of Appeal for the Ninth Circuit explains an important federal law bearing on venue and, in particular, a class action defendant’s ability to change it.

Westwood Apex, a subsidiary of the for-profit higher-education institution Westwood College (Westwood) which operates campuses in 14 states including California, filed a breach of contract action against Jesus Contreras in state court, seeking to recover roughly $20,000 in unpaid student loan debt. In response, Contreras filed a class action counterclaim on behalf of all current and former Westwood students against the school as well as a number of affiliated entities alleging fraud as well as unfair and deceptive business practices in violation of various California consumer protection laws.

All of the counterclaim defendants except Westwood filed a notice of removal, transferring the action to a federal court, the District Court for the Central District of California. The Defendants asserted that removal was appropriate under a federal law called the Class Action Fairness Act (CAFA). The law grants federal courts jurisdiction over class action lawsuits where the amount in controversy exceeds $5 million and the opposing parties are minimally diverse (at least one plaintiff must live in a different state than one defendant).

After issuing an order to show cause as to why the case should not be removed, the District Court remanded the case back to the state court, ruling that CAFA does not permit a counterclaim defendant to remove an action to federal court. On appeal, the Ninth Circuit upheld this decision and the underlying reasoning.

Enacted in 2005, CAFA – codified at 28 U.S.C. ยง 1453 – was intended to fight perceived abuses (so-called “junk lawsuits”) in the class action litigation process. Although the statute allows “any defendant” to remove a qualifying class action, the Court held that it does not extend the removal power to counterclaim defendants. “[A] counterclaim defendant who is also a plaintiff to the original state action may not remove the case to federal court,” the Court ruled, citing the Supreme Court’s 1941 decision in Shamrock Oil & Gas Corporation v. Sheets as well as the Ninth Circuit’s more recent opinion in Progressive West v. Preciado (2007). As a result, the Court upheld the District Court’s ruling, leaving the action in state court.

While CAFA may change the venue in which some class actions are ultimately decided, it does not change the fact that this type of lawsuit remains an effective tool for consumers to fight fraud and enforce their rights. At Nationwide Consumer Rights, our consumer fraud attorneys draw on decades of experience handling consumer rights claims, including class action lawsuits. We are dedicated to protecting your rights and exposing rip-offs. Please schedule a free consultation with one of our staff attorneys by calling us toll free at 630-333-0333, or filling out our intake form on our Contact Us page.

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