Quicken Loans Incorporated v. Phillip Alig , 737 F.3d 960 ( 2013 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-342
QUICKEN LOANS INCORPORATED,
Petitioner,
v.
PHILLIP ALIG; SARA J. ALIG; ROXANNE SHEA; DANIEL V. SHEA,
Individually and on behalf of a class of persons,
Respondents.
On Petition for Permission to Appeal from the United States
District Court for the Northern District of West Virginia, at
Wheeling. John Preston Bailey, Chief District Judge. (5:12-cv-
00114-JPB; 5:12-cv-00115-JPB)
_______________
No. 13-1073
PHILLIP ALIG; SARA J. ALIG; ROXANNE SHEA; DANIEL V. SHEA,
Individually and on behalf of a class of persons,
Plaintiffs - Appellees,
v.
QUICKEN LOANS INCORPORATED,
Defendant – Appellant,
and
TITLE SOURCE, INCORPORATED, Title Source Inc. of West
Virginia, Incorporated; DEWEY V. GUIDA; APPRAISALS
UNLIMITED, INCORPORATED; RICHARD HYETT,
Defendants.
No. 13-1077
PHILLIP ALIG; SARA J. ALIG; ROXANNE SHEA; DANIEL V. SHEA,
Individually and on behalf of a class of persons,
Plaintiffs - Appellees,
v.
QUICKEN LOANS INCORPORATED,
Defendant – Appellant,
and
TITLE SOURCE, INCORPORATED, Title Source Inc. of West
Virginia, Incorporated; DEWEY V. GUIDA; APPRAISALS
UNLIMITED, INCORPORATED; RICHARD HYETT,
Defendants.
Appeals from the United States District Court for the Northern
District of West Virginia, at Wheeling. John Preston Bailey,
Chief District Judge. (5:12-cv-00114-JPB; 5:12-cv-00115-JPB)
_______________
Argued: September 17, 2013 Decided: December 19, 2013
Before NIEMEYER, WYNN, and FLOYD, Circuit Judges.
Vacated and remanded by published opinion. Judge Floyd wrote
the opinion, in which Judge Niemeyer and Judge Wynn joined.
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ARGUED: Meir Feder, JONES DAY, New York, New York, for Quicken
Loans Incorporated. John William Barrett, BAILEY & GLASSER,
LLP, Charleston, West Virginia, for Phillip Alig, Sara J. Alig,
Roxanne Shea, and Daniel V. Shea. ON BRIEF: Carte P. Goodwin,
GOODWIN & GOODWIN, LLP, Charleston, West Virginia; Tracy K.
Stratford, P. Nikhil Rao, JONES DAY, New York, New York, for
Quicken Loans Incorporated. Jonathan R. Marshall, BAILEY &
GLASSER, LLP, Charleston, West Virginia, for Phillip Alig, Sara
J. Alig, Roxanne Shea, and Daniel V. Shea.
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FLOYD, Circuit Judge:
In this appeal, Defendant-Appellant challenges the district
court’s granting of Plaintiffs-Appellees’ motion to remand this
case to state court. After Defendant-Appellant removed the case
to federal court pursuant to the Class Action Fairness Act
(CAFA), codified in relevant part at 28 U.S.C. § 1332(d),
Plaintiffs-Appellees filed a motion to remand under 28 U.S.C.
§ 1332(d)(4)(A), or the local controversy exception. The
district court granted Plaintiffs-Appellees’ motion, after which
Defendant-Appellant petitioned this Court for permission to
appeal the remand order pursuant to 28 U.S.C. § 1453(c). We
deferred ruling on the petition pending formal briefing of the
appeal and assignment of the petition and appeal to a merits
panel. We hereby grant the petition and, for the reasons that
follow, vacate the district court’s decision remanding the case
to state court and remand the case to the district court to
determine whether Plaintiffs-Appellees satisfy the “at least 1
defendant” requirement of the local controversy exception as
interpreted herein.
I.
Plaintiffs-Appellees Phillip Alig, Sara J. Alig, Roxanne
Shea, and Daniel V. Shea (Plaintiffs) filed this lawsuit in West
Virginia state court, both individually and on behalf of a class
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of West Virginia citizens. They subsequently filed an amended
complaint. In the amended complaint, the plaintiff class is
defined as follows:
All West Virginia citizens at the time of the filing
of this action who, within the applicable statute of
limitations preceding the filing of this action
through the date of class certification, obtained
mortgage loans from Defendant Quicken, and (a) were
provided unsigned loan documents at closing, (b) were
assessed loan discount, courier, or notary fees, or
(c) for whom Quicken obtained appraisals through an
appraisal request form that included an estimate of
value of the subject property.
Plaintiffs brought their lawsuit against Defendant-
Appellant Quicken Loans and defendants Title Source, Inc., d/b/a
Title Source Inc. of West Virginia, and a class of defendant
appraisers. The class of defendant appraisers was represented
by Appraisals Unlimited, Inc., Dewey V. Guida, and Richard
Hyett. In their amended complaint, Plaintiffs define the class
of defendant appraisers in the following manner:
All real estate appraisers who are citizens of the
State of West Virginia at the time of the filing of
this action and who performed appraisals in connection
with home-secured loans [i]n West Virginia on behalf
of Quicken after receiving an appraisal request form
with an estimate of value on it.
Plaintiffs brought eight claims for relief on behalf of all
of the plaintiffs, named and unnamed: civil conspiracy against
all defendants; violation of the West Virginia Unfair or
Deceptive Acts or Practices Act, W. Va. Code § 46A-6-104,
against all defendants; violation of the Residential Mortgage
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Lender, Broker and Services Act, W. Va. Code § 31-17-8(c), (g),
and (m)(1), against Quicken Loans; unconscionable contract
against Quicken Loans; violation of the Real Estate Appraiser
Licensing and Certification Act, W. Va. Code §§ 30-38-12(3) and
30-38-17, against the defendant appraiser class; unauthorized
charges, pursuant to West Virginia Code § 46-3-109(a) and § 46A-
1-102(7) and (28); breach of contract against Quicken Loans; and
negligence and negligence per se against all defendants.
Plaintiffs also make two claims on behalf of the named
plaintiffs only: fraud/intentional misrepresentation against
all defendants and illegal loans in excess of fair market value,
in violation of West Virginia Code § 31-17-8(m)(8).
In essence, Plaintiffs complain that Quicken Loans
originated unlawful loans in West Virginia and that Defendant
Appraisers, which includes both the named appraisers and the
unnamed class of appraisers, were complicit in the scheme.
Plaintiffs allege that, before Defendant Appraisers conducted an
appraisal, Quicken Loans would furnish them with a suggested
appraisal value. Then, after purportedly conducting the
appraisal, Defendant Appraisers arrived at the same appraisal
value as the suggested appraisal value. The problem with that
scheme, according to Plaintiffs, is that the borrower would then
close on a loan that was underwater from the beginning.
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After Plaintiffs filed the amended complaint, Quicken Loans
filed a notice of removal in the United States District Court
for the Northern District of West Virginia, claiming that the
district court had jurisdiction pursuant to CAFA. Thereafter,
Plaintiffs filed a motion to remand, arguing that the local
controversy exception applied. The district court agreed with
Plaintiffs and remanded the case to state court. Quicken Loans
then filed a petition for permission to appeal with this Court.
II.
Our review of the district court’s grant of a motion to
remand to state court is de novo. Francis v. Allstate Ins. Co.,
709 F.3d 362, 366 (4th Cir. 2013).
Removal pursuant to CAFA is allowed in any civil class
action as long as the following mandates are satisfied:
(1) “the matter in controversy exceeds the sum or
value of $5,000,000, exclusive of interest and costs,”
28 U.S.C. § 1332(d)(2); (2) “any member of a class of
plaintiffs is a citizen of a State different from any
defendant,” id. § 1332(d)(2)(A); and (3) there are 100
or more plaintiff class members, id. § 1332(d)(5)(B).
W. Va. ex rel. McGraw v. CVS Pharmacy, Inc., 646 F.3d 169, 174
(4th Cir. 2011) (emphasis omitted). The statute defines “class
action” as “any civil action filed under rule 23 of the Federal
Rules of Civil Procedure or similar State statute or rule of
judicial procedure authorizing an action to be brought by 1 or
more representative persons as a class action. § 1332(d)(1)(B).”
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Id. (emphasis omitted). The party removing an action to federal
court bears the burden of establishing that jurisdiction is
appropriate. Strawn v. AT&T Mobility LLC, 530 F.3d 293, 296-97
(4th Cir. 2008).
There is no debate between the parties that these
requirements were met. Hence, the district court had subject
matter jurisdiction over this case pursuant to CAFA. The
dispute arises, however, over whether the local controversy
exception to CAFA applies. If it is applicable, then the
district court was required to decline to exercise jurisdiction
over the action and remand it to state court. See 28 U.S.C.
§ 1332(d)(4).
The elements of the local controversy exception are as
follows: (1) more than two-thirds of the members of the proposed
plaintiff class are citizens of the state where the suit was
filed originally; (2) at least one defendant (a) is a defendant
from whom members of the plaintiff class are seeking
“significant relief,” (b) is a defendant whose conduct “forms a
significant basis” for the proposed plaintiff class’s claims,
and (c) is a citizen of the state in which the action originally
was filed; (3) the principal injuries stemming from the conduct
alleged in the complaint occurred in the state where the action
was filed originally; and (4) in the three years before the
filing of the class action complaint, no other similar class
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action was filed against any of the defendants on behalf of the
same or other class. 28 U.S.C. § 1332(d)(4)(A).
The parties agree that factors one, three, and four of the
local controversy exception are satisfied. It is the second
element—the “at least 1 defendant” rule—on which the parties are
unable to agree. There is no dispute that at least one
defendant is a citizen of West Virginia, where the action
originally was filed. Thus, the sole issue before us is whether
Defendant Appraisers qualify as a significant local defendant
(i.e. whether at least one defendant is a defendant from whom
members of the plaintiff class are seeking significant relief
and is a defendant whose conduct “forms a significant basis” for
the proposed plaintiff class’s claims).
According to Quicken Loans, it was improper for the
district court to aggregate Defendant Appraisers for the purpose
of satisfying the “at least 1 defendant” portion of the local
controversy exception. In response, Plaintiffs state that this
argument is waived because Quicken Loans failed to make it
below. There can be no doubt that Quicken Loans vigorously
argued before the district court that the second element of the
local controversy exception was not met. We certainly agree
with Plaintiffs that Quicken Loans did not “pellucidly
articulate this theory” below. Harris Trust & Sav. Bank v.
Salomon Smith Barney, Inc., 530 U.S. 238, 245 n.2 (2000)
9
(addressing theory not previously “pellucidly articulate[d]”).
But because the “at least 1 defendant” issue is “encompassed in
[Quicken Loans’] more general [argument that the second element
of the local controversy exception was not met] and no new
evidence is presented,” PCTV Gold, Inc. v. SpeedNet, LLC., 508
F.3d 1137, 1145 n.5 (8th Cir. 2007), under the facts and
circumstances of this case we reach the argument.
Quicken Loans asserts that the district court erred in
finding the “at least 1 defendant” requirement was satisfied by
relying on Defendant Appraisers as a group, not one significant
named local defendant. The plain language of the local
controversy exception specifies that “at least 1 defendant” must
satisfy the requirements. 28 U.S.C. § 1332(d)(4)(A)(i)(II).
Thus, according to Quicken Loans, this language cannot be
satisfied by aggregating claims against multiple defendants.
And, even if it could, unidentified members of an uncertified
purported class are not “defendants.”
As to the contention that the “at least 1 defendant” factor
must be read literally such that the exception applies only if a
single defendant satisfies the other requirements of the local
controversy exception, Plaintiffs make no argument other than to
rest on their general assertion of waiver. Nevertheless, we are
unable to agree with Quicken Loans’ suggestion that the “at
least 1 defendant” factor must mean only one defendant. Under
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common parlance, the term “at least” permits a reading that more
than one defendant could satisfy the stated criteria. Moreover,
to conclude otherwise would lead to an absurd result.
To highlight the absurdity of interpreting “at least 1
defendant” to mean only one defendant, we set forth the
following example that explicates our concern: There is a
putative class action wherein all twenty named defendants,
except one, reside in the same state. There is no dispute that
the one out-of-state defendant is an insignificant defendant for
purposes of relief and the basis of the suit. The remaining
nineteen in-state defendants are 99.99 percent liable and meet
the “significant relief” and “significant basis” factors as a
group and in equal proportion to each other–5.26 percent each.
The other factors of the local controversy exception are met.
With Quicken Loans’ reading of the “at least 1 defendant”
requirement, the local controversy exception would not apply,
even though 99.99 percent of the harm alleged was caused by the
local named defendants. This is an absurd reading of the
statute and one that we are unable to countenance.
Quicken Loans’ reading would also “produce[] an outcome
that is demonstrably at odds with clearly expressed
congressional intent.” In re Sunterra Corp., 361 F.3d 257, 265
(4th Cir. 2004). The legislative history demonstrates that the
purpose of the local controversy exception is to permit class
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actions with a truly local focus to remain in state court. See
S. Rep. No. 109-14, at 38 (2005) (stating that a federal court
should apply this exception to a case identified as “a truly
local controversy—a controversy that uniquely affects a
particular locality to the exclusion of all others”). A court’s
analysis for jurisdictional purposes should focus on whether the
case is a “truly local controversy” warranting remand or whether
it is an “interstate class action[] . . . involv[ing] more
people, more money, and more interstate commerce” that Congress
intended to place in federal court. Id. at 5, 38. As this
Court noted in McGraw:
CAFA does protect important federal interests in
addressing state abuses in interstate class actions.
It was enacted to prevent States from keeping cases of
national importance out of Federal court” and making
“judgments that impose their view of the law on other
States and bind the rights of the residents of those
states. It thus assures that federal courts decide
interstate cases of national importance. But CAFA is
also sensitive to deeply-rooted principles of
federalism, reserving to the States primarily local
matters.
646 F.3d at 178 (citations omitted) (quotation marks omitted).
Thus, here, where there is no question that all of the
named defendant appraisers are citizens of the same state where
the action originally was filed, all of the plaintiffs are
citizens of the same state where the action originally was
filed, and the principal injuries stemming from the conduct
alleged in the complaint occurred in the state where the action
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originally was filed, we are convinced that this is “a truly
local controversy—a controversy that uniquely affects a
particular locality to the exclusion of all others.” S. Rep.
No. 109-14, at 38. As such, it was proper for the district
court to aggregate the named defendant appraisers for purposes
of the local controversy exception. But, the district court
went further than that: it also combined the absent members of
the putative class. Therein lies the problem. An unnamed
member of a proposed but uncertified class is not a party to the
litigation. Smith v. Bayer Corp., 131 S. Ct. 2368, 2379 (2011).
Consequently, because the class of unnamed defendant appraisers
is not a party to this lawsuit, it was improper for the district
court to consider them in deciding whether Plaintiffs had
satisfied the “at least 1 defendant” requisite of the local
controversy exception.
As such, we are left with the question as to whether the
named defendant appraisers—Appraisals Unlimited, Inc., Dewey V.
Guida, and Richard Hyett—meet the “at least 1 defendant” portion
of the local controversy exception. But, we are unable to make
that determination on the record before us. Accordingly, we
remand this action to the district court to make that decision.
If the named defendant appraisers satisfy the “at least 1
defendant” criteria, then the district court should remand the
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case to state court. But, if not, then the case shall proceed
in the district court.
III.
For the foregoing reasons, the decision of the district
court remanding this case to state court is vacated and this
action is remanded for a determination by the district court as
to whether the named defendant appraisers satisfy the “at least
1 defendant” requirement of the local controversy exception.
VACATED AND REMANDED
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