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Ganezer v. DirectBuy

February 11, 2009

PHIL GANEZER ET AL.
v.
DIRECTBUY, INC ET AL



The opinion of the court was delivered by: The Honorable Gary Allen Feess

CIVIL MINUTES - GENERAL

Renee Fisher None N/A

Deputy Clerk Court Reporter / Recorder Tape No.

Proceedings: (In Chambers)

ORDER RE: MOTION TO REMAND

Defendant DirectBuy, Inc. ("DBI"), sells franchises to individuals who in turn operate outlets through which they market a direct-buying service to members of the public through a club membership program. Plaintiffs Phil Ganezer and Lynnette Sohl, purchasers of memberships in the program, bring suit against DBI and one of its franchisees claiming that the benefits of membership in the direct-buying organization are misrepresented. The suit was filed in Superior Court; DBI removed to this Court under the provisions of the Class Action Fairness Act ("CAFA"). Plaintiffs now move to remand claiming that the CAFA amount in controversy and minimal diversity requirements have not been met.

The Court concludes that DBI has easily established that more than $5 million is in controversy. The issue of minimal diversity is slightly more complicated because DBI maintains a presence in California through its franchisees rather than company-owned stores. However, the Ninth Circuit in Tosco Corp. v. Communities for a Better Environment, 236 F.3d 495, 501 n.3 (9th Cir. 2001) indicates that the operation of franchise locations should be considered for purposes of determining diversity jurisdiction. Here DBI ignores the activities of its franchise locations and fails to provide the Court with the information sufficient to satisfy the multi-factor test for determining its principal place of business. Industrial Tectonics, Inc. v. Aero Alloy, 912 F.2d 1090, 1094 (9th Cir. 1990). Because the burden is on DBI to establish jurisdiction, and because it has provided no comparative data regarding its business activities in the various states, it has failed to meet its burden of proving that its principal place of business is outside California. The motion to remand is therefore GRANTED. The Court's reasoning is set forth

BACKGROUND

On behalf of "all consumers in the State of California who purchased discount buying organization memberships from Defendants," Plaintiffs filed a class action lawsuit in Superior Court against DBI, an Indiana corporation, The Sequoia Group, a California limited liability company and citizen of California, and Does 1-100, alleging violation of several of California's unfair competition laws. Plaintiffs contend, among other things, that the defendants falsely represent that their DirectBuy club provides its members the opportunity to buy goods and services directly from manufacturers and suppliers at cost, and that the club otherwise defrauds its members through improper fees and overcharges. DBI removed the case to this Court pursuant to CAFA, and Plaintiffs now move to remand the action to state court.

Plaintiffs contend that DBI has failed to prove that the case meets CAFA's amount in controversy threshold of $5 million, and that it has not established minimum diversity because it has failed to prove that DBI's principal place of business is outside California. Though Plaintiffs raise both issues, the only potentially meritorious issue is that of minimal diversity, which requires the Court to determine whether DBI has presented sufficient evidence to prove that it is not a California citizen. The Court is satisfied that DBI has established the amount in controversy by presenting evidence that it has more than 29,000 members in California, that Plaintiff seeks $1,000 for each class member for each violation or three times the amount of actual damages plus restitution. Plaintiffs' complaint plainly puts more than $5 million in controversy. The Court therefore turns to the question of DBI's citizenship.

DISCUSSION

1. CAFA Jurisdiction

CAFA provides in pertinent part:

(d)(2) The district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of ...


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