by Scott Nelson
The Class Action Fairness Act has, in the 20 months since its passage, been the subject of a large number of reported federal decisions at both the trial and appellate levels, and many of the opinions have relied in interpreting the statute on the Senate Judiciary Committee Report (S. Rep. No. 109-14), which did not appear until after the statute was passed by both houses of Congress and signed by the President. Some of us have been using every available opportunity to question the authority of such post hoc legislative history. Now Judge Stephen G. Larson of the U.S. District Court for the Central District of California has picked up on the issue and published an opinion, Lao v. Wickes Furniture Co., _ F. Supp. 2d _, 2006 WL 2879763 (C.D. Cal. Oct. 4, 2006), that strongly suggests that the Senate Report is, as legislative history, not worth the paper it's printed on.
Significantly, the opinion goes on to disagree with three courts of appeals (the Fifth, Eleventh, and Seventh) on the issue of who bears the burden of proof of establishing the applicability of CAFA's so-called "home state" and "local controversy exceptions." According to Lao, when a defendant removes under CAFA and is faced with a motion for remand, the defendant has the burden of establishing that federal jurisdiction is not barred by the "home state" and "local controversy" provisions, just as it bears the burden of establishing other elements of CAFA jurisdiction.
Both for its discussion of legislative history and its holding on the burden of proof, the decision may have significant influence on how some of the key CAFA issues percolating through the courts are ultimately resolved. Moreover, the case itself may be a vehicle for the Ninth Circuit to weigh in both on the legislative history question and the burden of proof, because the defendants have sought leave to appeal within the statutory 7-day deadline.
What the Case Is About
Because I'm a bit pressed for time, I won't summarize the case at length. Suffice it to say that the Lao case was removed, and the principal issue determining whether it would be remanded was whether it fell within the "home state" or "local controversy" provisions, which say that if 2/3 of the class members and either the primary defendants or a significant defendant are residents of the forum state, the federal court "shall decline to exercise jurisdiction." 28 U.S.C. 332(d)(4). (It's a little more complicated than that, but that's good enough for these purposes.) Because the case turned out to be, in the court's view, a close one, the court considered the issue of who bore the burden of proof -- did the plaintiffs have to prove applicability of the "exceptions," or did the defendants have to show that the provisions permitted exercise of federal jurisdiction?
The Legislative History Question
As in other cases concerning the burden of proof in CAFA remands, the defendants' argument for placing the burden on the plaintiffs rested in significant part on statements in the Senate Report. Judge Larson began his discussion of the Senate Report by noting that since nothing in the statute discusses burden of proof on remand, "legislative history" purporting to bear on the issue is of dubious value because it "speaks to nothing in the statute itself; instead, the report seeks to fill in the gaps caused by the statute's silence on the point. Such use of legislative history is ill-advised."
Other courts, including the Ninth Circuit, have already made that point in various contexts. But Judge Larson went on to say that "use of the committee's report in interpreting CAFA's provisions is particularly problematic on a more fundamental level." Because the report was issued "nearly two weeks after CAFA was enacted into law," using it "arguably runs afoul of the canon that legislative history unconnected to the enactment of a particular statute is given little interpretive weight." In support of this view, Judge Larson cited an extensive portion of a Scalia opinion that concludes with the statement that "arguments based on subsequent legislative history, like arguments based on antecedent futurity, should not be taken seriously, not even in a footnote."
Judge Larson went on to say that this view was "particularly cogent" with respect to CAFA because the timing "should give pause as to whether the legislative history truly reflects the views of the enacting Congress, or whether the issuance of the report was meant to declare the intent of particular members, their staff, or lobbyists seeking to achieve what they could not through passage of the statutory text itself." Judge Larson invoked language from Justice Kennedy's opinion in Exxon Mobil v. Allapattah Services, 125 S. Ct. 2611, 2626 (2005), expressing similar concerns. Such concerns, he added, were particularly warranted here given that CAFA was a statute that was enacted only after a number of failed efforts, suggesting that its backers were limited in their ability to geet everything they wanted in the statutory language and hence might have attempted to use the committee report to accomplish objectives that could not be achieved through the legislative process itself.
The Burden of Proof Issue
Turning to the question of burden of proof on the "home state" and "local controversy" provisions, Judge Larson bucked the trend established by three appellate decisions placing the burden on the plaintiff seeking to invoke those provisions as the basis for remand: Hart v. FedEx Ground Package Sys., 457 F.3d 675 (7th Cir. 2006); Frazier v. Pioneer Americas LLC, 455 F.3d 542 (5th Cir. 2006); Evans v. Walter Indus., Inc., 449 F.3d 1159 (11th Cir. 2006). Judge Larson's analysis of the issue is lengthy and more thorough than in any of the three appellate opinions. His bottom line is that the "home state" and "local controversy" provisions are not truly "exceptions" to federal jurisdiction that would otherwise exist, but are actually part and parcel of the statutory provisions defining what cases the federal courts have power to hear under CAFA. Thus, just as the courts of appeals have unanimously placed on CAFA defendants the burden of establishing diversity, class size, and amount in controversy, defendants should also bear the burden of showing that the "home state" and "local controversy" exceptions permit the exercise of federal jurisdiction.
(Having addressed the burden issue, the court ultimately remanded, finding that the case fell within the "local controversy" provision because one of the significant defendants was a California citizen. The principal disputed issue on that point was whether the defendant's principal place of business was Illinois or California. The court's ultimate resolution of that factual question didn't turn significantly on the burden of proof, but rather on the evidence. However, the court noted that the defendant submitted most of the evidence on the point only after the court had tentatively indicated that the defendant bore the burden.)
The Court's View of CAFA
Aside from its discussion of the legislative history and the burden of proof, the Lao opinion deserves mention for its opening paragraph, which probably speaks for a lot of the many federal judges who have been forced to deal with CAFA issues since the Act's passage:
This case requires the Court to examine the Class Action Fairness Act of 2005 ('CAFA'), a statute in which some major terms are left undefined, certain of the provisions of which have been aptly characterized as 'bewildering' or 'clumsily crafted,' and whose legislative history is, in part, of questionable interpretive value. In short, it is a statute that is a headache to construe.