Class Action Alleging Improper Credit Card Charges does not Implicate “Securities Exception” to Federal Court Jurisdiction under CAFA (Class Action Fairness Act) so Defense Removal of Class Action was Proper California Court Holds
Plaintiff filed a putative class action against Chase Bank alleging improper finance charges in connection with retail purchases made with a “rewards” credit card arising out of a no-interest promotional offer Chase extended to cardholders. Davis v. Chase Bank U.S.A., N.A, 453 F.Supp.2d 1205, 1207 (C.D. Cal. 2006). Defense attorneys removed the action to federal court under the Class Action Fairness Act (CAFA), and the district court sua sponte issued an order to show cause why the case should not be remanded to state court. Id., at 1206. Following briefing, the district court concluded that the defense properly removed the class action.
Plaintiff made a $2000 purchase at Circuit City using his Chase “Rewards Card,” taking advantage of a no-interest promotional offer whereby no finance charges would be assessed if the balance was paid in full prior to January 2008. Davis, at 1207. At the time of the purchase, plaintiff had an outstanding balance on his credit card account, and the billing statement he received following his Circuit City purchase included a finance charge which, he alleges, included interest on the $2,000 “no-interest” amount as well as his otherwise outstanding balance. Id. Plaintiff filed a class action lawsuit in California state court, and the defense removed the action asserting that it involved more than $5,000,000 and thus fell within the scope of CAFA. Id. In response to the federal court’s OSC on the issue of whether the class action indeed involved more than $5 million, plaintiff’s lawyer argued that even if it did the class action complaint fell within the securities exception to CAFA and therefore remand was appropriate. Id. The district court disagreed.
Preliminarily, the district court recognized that CAFA permits the defense to aggregate damage claims of individual class members in order to satisfy the $5 million jurisdictional threshold, Davis, at 1207 (citing 28 U.S.C. § 1332(d)(6)), and that the burden is on the defense to demonstrate that this requirement has been met under a “more likely than not” standard, id., at 1208. Defense attorneys submitted evidence that the amount in controversy was $20 million, and plaintiff’s lawyer admitted that the amount in controversy exceeded $5 million. Id., at 1208-09.
The federal court then turned to plaintiff’s claim that the action fell within the securities exception to CAFA. That exception provides that CAFA does not apply if the complaint “solely” involves claims relating to “the rights, duties . . ., and obligations relating to or created by or pursuant to any security (as defined under section 2(a)(1) of the Securities Act of 1933 and the regulations thereunder).” 28 U.S.C. §§ 1332(d)(9)(A) and (C). The district court held that the securities exception did not apply, agreeing with defense attorneys that “credit card agreements and billing statements cannot be considered ‘securities’ under the 1933 Act.” Davis, at 1209. The federal court explained at page 1209:
Reviewing the definition of “security” under the Act, it is clear that credit card agreements, billing statements, and finance charges are not what Congress had in mind when it provided examples of “securities”. Nor do they function as securities in the traditional sense of the word. They are not sold or marketed as investments. They are subject to alternate regulatory schemes, such as the Truth in Lending Act, the Fair Credit Billing Act, and the Fair Credit Reporting Act. Given these differences, the Court concludes that they cannot be deemed “securities” under 15 U.S.C. § 77(b)(a)(1).
The district court also held that plaintiff’s characterization of the class action complaint as “securities litigation” was “disingenuous at best,” because the complaint plainly alleged consumer fraud claims. Davis, at 1209.
NOTE: The district court also addressed the “minimal diversity” requirement of CAFA, finding that it was satisfied because “[plaintiff] is a California citizen, Chase is a Delaware citizen, [and] Circuit City is a Virginia citizen.” Davis, at 1208. However, the district court refused to address defense arguments that CAFA shifted to plaintiff the burden of proving whether the securities exception to federal jurisdiction applies. Id., at 1209-10.