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CAFA Class Action Defense Cases-Progressive West v. Preciado: Class Action Fairness Act Of 2005 (CAFA) Does Not Permit Cross-Defendant To Remove Class Action Cross-Complaint Ninth Circuit Holds

Ninth Circuit Holds that Amendment of Class Action Cross-Complaint did not “Commence” New Action for Purposes of Removal under CAFA (Class Action Fairness Act of 2005), and that CAFA would not Avail a Plaintiff/Cross-Defendant Because CAFA Permits only a “Defendant” to Remove a Class Action to Federal Court

In December 2004, Progressive West Insurance Company filed a breach of contract lawsuit against its insured in California state court; on February 17, 2005 – the day before the effective date of the Class Action Fairness Act of 2005 (CAFA) – the insured filed a cross-complaint alleging violations of California’s Unfair Competition Law (UCL) and seeking to prosecute the cross-complaint as a class action. Progressive West Ins. Co. v. Preciado, 479 F.3d 1014 (9th Cir. March 6, 2007) [Slip Opn., 2]. The initial class action allegations were deficient, and in August 2006 the trial court granted plaintiff leave to amend the cross-complaint to assert the necessary allegations for a class action. Id. Progressive responded by removing the class action to federal court on the basis of CAFA, id.; the federal court remanded the class action to state court and the Ninth Circuit granted Progressive’s request for leave to appeal, id., at 3. The Court of Appeals affirmed the district court order, holding that CAFA did not confer federal court jurisdiction over the putative class action.

Urging the Ninth Circuit to follow the Seventh Circuit opinion in Knudsen v. Liberty Mut. Ins. Co., 411 F.3d 805 (7th Cir. 2005), Progressive argued that CAFA governed the class action complaint because under California’s “relation back” doctrine the “amended cross-complaint commenced a new action because it substantially changed the nature of the action from an individual action to a representative [class] action.” Slip Opn., at 4-5. The Ninth Circuit declined the invitation. The appellate court reaffirmed that a class action is “commenced” for purposes of removal under CAFA “when a suit becomes ‘a cognizable legal action in state court’ under ‘[a] state’s own laws and rules of procedure.’” Id., at 4 (citation omitted). California law deems an action “commenced” as of the date the complaint, or cross-complaint, is filed with the court, id. (citations omitted). Under California law, then, the class action complaint against Progressive “commenced” for purposes of CAFA on February 15, 2005 – the date the initial cross-complaint was filed. Id.

Perhaps more importantly, however, the Ninth Circuit held that even if the class action cross-complaint had been filed after CAFA’s effective date, Progressive would not be able to invoke federal court jurisdiction because only a “defendant” – not a plaintiff/cross-defendant – may invoke CAFA’s removal provision. Slip Opn., at 7-8. The Court reasoned as follows: in Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100 (1941), the Supreme Court held that a plaintiff/cross-defendant may not remove an action to federal court because of a counterclaim; CAFA section 1453(b) permits removal of a class action only “in accordance with [28 U.S.C.] section 1446”; and section 1446 provides that only “defendant or defendants” may remove a civil action to federal court. Id., at 8-9 (citations omitted). Based on this analysis, the Ninth Circuit held that “Progressive would lack statutory authority to remove the [class] action pursuant to CAFA even if the action had commenced after CAFA’s effective date.” Id., at 9-10.

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