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Walsh v. Defenders, Inc.

United States Court of Appeals, Third Circuit

July 9, 2018

NORMAN WALSH, on behalf of himself and others similarly situated
DEFENDERS, INC., d/b/a Protect Your Home; ADT SECURITY SERVICES, INC.; B&R RECOVERY LLC Defenders, Inc.; ADT Security Services, Inc., n/k/a Tyco Integrated Security LLC; and ADT LLC, Appellants

          Submitted under Third Circuit L.A.R. 34.1(a) July 2, 2018

          On Appeal from the United States District Court for the District of New Jersey (D.C. Civ. No. 2-16-cv-00753) Honorable Esther Salas, District Judge

          Yongmoon Kim Kim Law Firm Hackensack, N.J. 07601 Henry P. Wolfe The Wolf Law Firm Counsel for Appellee

          Charles C. Eblen Gregory Wu Shook, Hardy & Bacon Counsel for Appellants

          BEFORE: CHAGARES, BIBAS, and GREENBERG, Circuit Judges




         Defendants Defenders, Inc., ADT LLC, and ADT Security Services, Inc. ("ADT SSI-Tyco")[1] (collectively, "defendants") appeal with leave of this Court from the District Court's January 25, 2018 Memorandum and Order granting plaintiff Norman Walsh's motion to remand the case. Walsh filed this action in the Superior Court of New Jersey and sought an order to remand the case to that court after Defenders, Inc. removed the case to the District Court under the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1332(d)(2). The District Court originally denied Walsh's motion to remand but, on Walsh's motion for reconsideration, granted the motion to remand based on CAFA's local controversy exception to district court class action jurisdiction in actions subject to CAFA. 28 U.S.C. § 1332(d)(4). Though we have granted defendants' petition for review of the remand order under 28 U.S.C. § 1453(c)(1), for the reasons set forth below, we will affirm that order.


         The issue on this appeal is whether the District Court should have retained jurisdiction or was required to remand the case to the Superior Court. District courts have jurisdiction, where requirements respecting diversity of citizenship and the amount in controversy are met, over class actions removed from state courts under CAFA, 28 U.S.C. § 1332(d)(2)(A). CAFA broadened federal diversity jurisdiction over interstate class actions of national importance. Standard Fire Ins. Co. v. Knowles, 568 U.S. 588, 595, 133 S.Ct. 1345, 1350 (2013). Specifically, 28 U.S.C. § 1332(d) provides district courts with original jurisdiction over cases that have (1) an amount in controversy over $5, 000, 000; (2) minimally diverse parties, meaning at least one member of the plaintiff class is a citizen of a state different from any defendant; and (3) a class consisting of at least 100 members. Id. at 592, 133 S.Ct. at 1348. The parties do not dispute, and we find that all three factors have been met, making this case subject to removal under CAFA unless there is an applicable exception to CAFA jurisdiction barring removal.

         The local controversy exception to CAFA jurisdiction, at issue here, requires a district court to decline to exercise jurisdiction under CAFA over a class action involving a uniquely local controversy. 28 U.S.C. § 1332(d)(4)(A). We have jurisdiction to review a district court's CAFA remand order under 28 U.S.C. § 1453(c)(1), and we review issues of subject matter jurisdiction and statutory interpretation de novo. Vodenichar v. Halcon Energy Props., Inc., 733 F.3d 497, 502 (3d Cir. 2013).


         In February 2016, Walsh, a New Jersey citizen, filed an amended putative class action complaint against defendants in the New Jersey Superior Court.[2] Walsh alleged that starting in December 2009 he and the class members purchased home security equipment and monitoring service from defendants and signed contracts that defendants prepared which contained illegal provisions relating to fees due on cancellation of the contracts. JA 92 (Am. Compl. ¶ 18). Walsh advances two claims based on the allegedly illegal provisions relating to fees due on cancellation of the contracts, one under New Jersey's Truth-in-Consumer Contract, Warranty and Notice Act ("TCCWNA"), N.J. Stat. Ann. §§ 56:12-14 et seq., and the other under the New Jersey Consumer Fraud Act ("NJCFA"), N.J. Stat. Ann. §§ 56:8-1 et seq.[3]

         After Defenders, Inc., an Indiana corporation with its principal place of business in that state, removed the case invoking CAFA diversity jurisdiction to the District Court, see 28 U.S.C. § 1332(d)(2), (d)(2)(A), (d)(5)(B), Walsh moved to remand the case to the Superior Court. In his motion he claimed that ADT SSI-Tyco's presence in the case triggered CAFA's local controversy exception under which a district court must decline to exercise jurisdiction if the controversy is uniquely connected to the state in which the plaintiff originally filed the state court action.[4] See Vodenichar, 733 F.3d at 506-07. Walsh argued that the exception applied, inter alia, because (1) ADT SSI-Tyco is a local defendant as it is a citizen of New Jersey, the state in which Walsh filed the case; (2) ADT SSI-Tyco's conduct forms a significant basis for the claims asserted; and (3) Walsh seeks significant relief from ADT SSI-Tyco. Walsh had to prevail on each argument to trigger the exception.

         The District Court originally denied Walsh's motion to remand, Walsh v. Defenders, Inc., No. 2:16-cv-753, 2016 WL 6775634 (D.N.J. Nov. 15, 2016) ("Walsh I"), adopting in part a report and recommendation of a magistrate judge, see Walsh v. Defenders, Inc., No. 2:16-cv-753, 2016 WL 6775706 (D.N.J. July 15, 2016), recommending that it do so. Nevertheless, the Court agreed that ADT SSI-Tyco, though a Delaware LLC had New Jersey citizenship and was a local defendant in this New Jersey case.[5] In fact, ADT SSI-Tyco has been a New Jersey citizen since 2012, when it converted from a Delaware corporation called ADT SSI, which was a citizen of Delaware and Florida, and consequently ADT SSI-Tyco was a local defendant when Walsh initiated this action. But the Court denied the motion to remand for reasons that we will explain below.

         In considering the matter, the District Court adopted the magistrate judge's report and recommendation observing that after ADT SSI-Tyco changed its corporate form and citizenship in 2012, it made another important change with respect to its business organization. It assigned its assets and liabilities under its residential contracts, including the contracts at issue in this case, to ADT LLC, a citizen of Delaware. But ADT SSI-Tyco remained a viable entity after the assignment as it retained its commercial contracts and continued its operations. The Court found that ADT SSI-Tyco continued to be a local defendant despite the partial transfer of its assets and liabilities because "an assignment does not let an assignor off the hook." Walsh I, 2016 WL 6775634, at *2. Elsewhere in its opinion, however, the Court suggested that the transfer could lead to a remand.

         In reliance on Johnson v. SmithKline Beecham Corp., 724 F.3d 337, 358 (3d Cir. 2013), where we said that "a federal court must disregard nominal or formal parties, and can base its jurisdiction only upon the citizenship of parties with a real interest in the litigation," the Court stated that "ADTSSI-Tyco appears to have no actual interest in the outcome of this litigation" because "ADTSSI-Tyco has transferred its liabilities to ADT LLC." Walsh I, 2016 WL 6775634, at *4 n.5. It is understandable that the Court ...

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