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Blockbuster v. Galeno-Class Action Defense Cases: Defense Bears Burden Of Establishing Federal Court Jurisdiction Under Class Action Fairness Act (CAFA) Second Circuit Holds

Second Circuit Holds that CAFA (Class Action Fairness Act) did not Shift Burden of Proving Federal Jurisdiction to Plaintiff and Remands Class Action Case to District Court for Further Proceedings

Plaintiffs filed a putative class action against Blockbuster in New York state court challenging the company’s “No Late Fee” program as a deceptive business practice on the grounds that Blockbuster did not adequately inform customers that in order to avoid the late fees the transaction was converted from a video rental to a video sale. Blockbuster, Inc. v. Galeno, 472 F.3d 53, 2006 WL 3775326, *1 (2d Cir. 2006). Defense attorneys removed the action to federal court asserting both general diversity jurisdiction under 28 U.S.C. § 1332(a) and federal court jurisdiction under the Class Action Fairness Act of 2005 (CAFA), 28 U.S.C. § 1332(d). Id., at *2. Plaintiffs moved to remand the class action to state court, arguing that the defense had not established the requisite $5 million amount-in-controversy, id.; defense attorneys countered that “CAFA had reversed the traditional rule that the party seeking removal to federal court bears the burden of establishing federal jurisdiction,” id. The district court agreed with the defense, but its order denying the motion to remand the class action stated not only that “the defendant has met its burden” but also that “the plaintiff has not met [its] burden,” id. The Second Circuit held that the district court should not have assigned any burden to the plaintiff, and remanded the action for further proceedings in light of the ambiguity in the lower court’s order.

After summarizing CAFA and the appropriate standard of review of an order denying a motion to remand, Galeno, at *3, the Circuit Court addressed whether CAFA “shifted the burden of proof to the remand-requesting plaintiff to show that federal jurisdiction does not exist,” id., at *4. The Second Circuit’s analysis led it to the same conclusions reached by “[e]very other circuit court that has considered this issue,” id., at *5 – viz., that CAFA had not affected the defense burden of establishing federal court removal jurisdiction, id.

As to the merits, the Second Circuit observed that the parties did not dispute that the class action involved more than 100 putative members, but disagreed on whether the $5 million amount in controversy requirement had been met. Galeno, at *4. The Circuit Court noted that the district court failed to explain how the amount in controversy requirement had been met, and therefore it could not adequately determine whether the lower court’s finding was proper. It therefore remanded the action to the district court, and instructed that “[o]n remand the district court should explain its calculation of the reasonably probable damages.” Id., at *6.

NOTE: In order to comply with CAFA’s requirement that appeals from remand orders must be decided “not later than 60 days after the date on which such appeal was filed,” 28 U.S.C. § 1453(c)(2), the Second Circuit issued an order on March 23, 2006, that vacated the district court’s ruling, but issued is opinion explaining that order more than nine (9) months later. Galeno, at *1.

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