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Sanchez v. Aviva Life and Annuity Co.


July 16, 2009


The opinion of the court was delivered by: Frank C. Damrell, Jr. United States District Judge


This matter is before the court on plaintiff Ernest P. Sanchez' ("plaintiff") motion to remand this class action, alleging defendants misrepresented and sold sham investments to plaintiff and others similarly situated.*fn1 On May 27, 2009, defendant Aviva Life and Annuity Company ("Aviva") removed this action on the basis of the Class Action Fairness Act of 2005 ("CAFA"). Under CAFA, a federal court has "original jurisdiction" over civil maters in which: the aggregate amount in controversy exceeds the sum or value of $5,000,000.00 (exclusive of interest and costs); the aggregate number of putative class members is 100 or greater; and any member of the putative class is a citizen of a state different from that of any defendant. 28 U.S.C. § 1332(d). Plaintiff concedes that these basic requirements are met in this case, but argues that remand is warranted because (1) Aviva's notice of removal is procedurally defective for failure to join all defendants who had been served; (2) the mandatory, "local controversy" exception to CAFA jurisdiction applies; and/or (3) the discretionary, "interests of justice" exception to CAFA jurisdiction applies.

For the reasons set forth below, the court DENIES plaintiff's motion. Aviva's notice of removal is not procedurally defective since CAFA expressly permits any defendant to remove an action without the consent or joinder of the other defendants (28 U.S.C. § 1453(b)), and plaintiff has not met his burden to show that either of the above exceptions to CAFA jurisdiction applies in this case.


The putative class, consisting of hundreds of members, allege they were defrauded of tens of millions of dollars through a real estate "Ponzi" scam masterminded by defendant Lawrence Leland Loomis ("Loomis"). (Compl., filed May 27, 2009, ¶s 1, 25(a).) Beginning in 2006, plaintiff, on his own behalf and on behalf of the class, alleges defendants Loomis, Loomis Wealth Solutions, Inc. ("LWS") and Aviva developed a multi-step investment scheme called the "Income Advantage Plan." (Id. at ¶s 13, 15.) During the first phase of the Plan, Loomis and LWS offered free seminars to potential investors and allegedly sold them "free" life insurance from Aviva at no cost because the Income Advantage Plan would pay all of their premiums. (Id. at ¶s 14-15.) Investors allegedly had to purchase an Aviva life insurance policy to become eligible to participate in the second phase of the Plan. (Id. at ¶s 13, 15, 19-20, 24.) During the second phase of the Plan, Loomis and LWS sold investors, who had purchased Aviva life insurance policies, shares of defendant NARAS Secured Fund #2, LLC ("Naras"), which was allegedly administered, funded and managed by defendants Lismar Financial Services ("Lismar") or Nationwide Lending Group ("Nationwide"). (Id. at ¶ 19.) Plaintiff asserts "defendants represented that the pooled money in the NARAS Fund was to be loaned out to subprime borrowers at 14%. This supposedly enabled [d]efendants to return 12% to investors, clearing a modest 2% as profit for the NARAS fund." (Id. at ¶ 20.) In or around 2008, investors allegedly learned their investments "were gone," and that they would have to pay their own premiums to maintain their Aviva life insurance policies. (Id. at ¶ 22.)

Based on these essential allegations, plaintiff commenced this putative class action on April 15, 2009 in Sacramento County Superior Court, alleging causes of action for breach of fiduciary duty, negligence, rescission for mistake and fraud, violation of the California Business and Professions Code § 17200 et seq. and violation of the Consumer Legal Remedies Act ("CLRA"), Cal. Civ. Code § 1750 et seq., against Loomis, LWS, Lismar, Nationwide, Naras and Aviva. Plaintiff sought on behalf of himself and the class, compensatory and punitive damages, rescission, restitution and injunctive relief, together with costs and attorneys' fees. To date, service of the summons and complaint has been effected only upon Aviva and Lismar.


With the enactment of CAFA, Congress adopted a new policy that broadened federal diversity jurisdiction over class actions, with any doubts resolved in favor of retaining federal jurisdiction. Lowery v. Ala. Power Co., 483 F.3d 1184, 1193 (11th Cir. 2007) (holding that "Congress enacted CAFA to address inequitable state court treatment of class actions and to put an end to certain abusive practices by plaintiffs' class counsel . . . [by] broadening federal diversity jurisdiction over class actions with interstate implications"). Indeed, the legislative history of CAFA instructs that CAFA's jurisdictional provisions "should be read broadly, with a strong preference that interstate class actions should be heard in a Federal court if removed by any defendant." In re Textainer Partnership Sec. Litig., 2005 WL 1791559, *3 (N.D. Cal. July 27, 2005) (internal quotations and citations omitted). Thus, courts recognize that if the propriety of federal court jurisdiction is uncertain, courts should "err in favor of exercising jurisdiction over the case." Id. Therefore, under CAFA, any doubt about federal jurisdiction is resolved in favor of removal.

A defendant has the burden of establishing removal jurisdiction under CAFA (Abrego Abrego v. Dow Chem. Co., 433 F.3d 676, 685 (9th Cir. 2006); however, a plaintiff seeking remand bears the burden of establishing that an exception to CAFA jurisdiction applies. Serrano v. 180 Connect, Inc., 478 F.3d 1018, 1019 (9th Cir. 2007) (reversing district court and joining all sister circuits to have addressed this issue in holding that the party seeking remand bears the burden of establishing the exceptions to CAFA jurisdiction).


1. Adequacy of Notice of Removal

Plaintiff contends Aviva's removal is procedurally defective because it lacks the consent/joinder of co-defendant, Lismar, who had been served at the time of the notice of removal. Plaintiff is incorrect. Under CAFA, the consent or joinder of other defendants to removal of a putative class action is not required.

28 U.S.C. § 1453(b) ("A class action may be removed . . . by any defendant without the consent of all defendants."); Abrego, 443 F.3d at 681 (noting that Section 1453(b) "overrides the judge-created requirement that each defendant consent to removal"). Therefore, the lack of consent or joinder by Lismar in Aviva's notice of removal is of no consequence and does not defeat removal as a matter of law. United Steel v. Shell Oil Co., 549 F.3d 1204, 1207-08 (9th Cir. 2008) (reversing district court's remand order because "CAFA entitles one defendant to remove the entire action").

2. "Local Controversy" Exception to CAFA Jurisdiction

Plaintiff argues that remand of this action is warranted pursuant to CAFA's mandatory "local controversy" exception to federal jurisdiction. The "local controversy" exception, 28 U.S.C. § 1332(d)(4)(A), requires a federal court to decline jurisdiction if (1) greater than two-thirds of the members of the putative class are citizens of the state in which the action was filed; (2) at least one defendant is a defendant from whom members of the class seek significant relief, whose alleged conduct forms a significant basis of the asserted claims, and who is a citizen of the original filing state; (3) the principal injuries were incurred in the original filing state; (4) no other class action asserting similar factual allegations has been filed against any of the defendants during the previous three years. "Congress intended the local controversy exception to be a narrow one, with all doubts resolved 'in favor of exercising jurisdiction over the case." Evans v. Walter Indus., Inc., 44 F.3d 1159, 1163 (11th Cir. 2006). All four criteria must be satisfied for the exception to apply. Thus, if any one of the four criteria is not met, remand should be denied. 28 U.S.C. § 1332(d)(4); Hart v. FedEx Ground Package Sys. Inc., 457 F.3d 675, 676 (7th Cir. 2006). Here, because the court finds that plaintiff cannot establish the first criteria for remand, it does not consider the remaining requirements.

Plaintiff concedes in his reply that based on the evidence proffered by Aviva in support of its opposition to the motion, plaintiff cannot demonstrate that greater than two-thirds of the members of the putative class are California citizens. (Stuetelberg Decl. in Supp. of Aviva's Opp'n, filed June 26, 2009, ¶ 3 [providing that from January 1, 2006 to April 15, 2009, only 58.71% of the Aviva life insurance policies purchased through or in association with Loomis were sold to California citizens; the remaining 41.27% were sold to non-California citizens, including 30.27% in Illinois, 6.42% in Washington and 4.58% in other states).

Instead, plaintiff argues that when properly read, his complaint limits the putative class to California residents only. (Pl.'s Reply, filed July 2, 2009, at 2-3.) Plaintiff asserts that to the extent his complaint is confusing on this issue, he seeks as part of this motion to "clarify" his pleading. (Id.) However, plaintiff cannot "clarify" away the plain language of his complaint, which asserts class claims on behalf of "all individuals who participated in the Income Advantage Plan and either purchased life insurance through AVIVA or one of its predecessors or purchased shares of the NARAS fund, or both" since 2006, regardless of their state of residence. (Compl., ¶s 13, 24.)

Moreover, the propriety of removal is based on the complaint as it existed at the time the notice of removal is filed. Hill v. Rolleri, 615 F.2d 886, 889 (9th Cir. 1980); Abrego, 443 F.3d at 686. Thus, plaintiff's last-ditch attempt to narrow the putative class is irrelevant. Plaintiff cannot oust this court of jurisdiction by selectively excising those allegations of the complaint that made removal proper in the first instance. Hill, 615 F.2d at 889. Here, when Aviva filed its notice of removal on May 27, 2009, plaintiff's complaint defined the putative class to include "all individuals" who had participated in Loomis' Income Advantage Plan since 2006, without regard to their state of residency. Aviva has shown that such a putative class would include at least 40% non-Californians. Accordingly, because fewer than two-thirds of those putative class members were California residents, the mandatory "local controversy" exception to CAFA jurisdiction is inapplicable. Plaintiff cannot defeat this court's CAFA jurisdiction after removal by seeking to narrow the putative class to California residents, since such post-removal amendments are not relevant for removal jurisdiction purposes.*fn2

Because plaintiff cannot establish at least one of the required elements of the "local controversy" exception to CAFA jurisdiction, his motion for remand on this basis must be denied.

3. "Interests of Justice" Exception to CAFA Jurisdiction

As an alternative to mandatory remand under the "local controversy" exception, plaintiff argues for discretionary remand under the "interests of justice" exception to CAFA jurisdiction. While plaintiff discusses the various factors listed in the CAFA discretionary exception (see 28 U.S.C. § 1332(d)(3)),*fn3 he fails to establish the threshold requirements, including: (1) that between one-third and two-thirds of the class members are California citizens, and (2) that all of the "primary defendants" are California citizens. Indeed, "consideration of the various factors is not implicated unless and until it is shown that the [discretionary] exception's initial requirements" are satisfied. Kendrick v. Stnd Fire Ins. Co., 2007 WL 1035018, *4 (E.D. Ky. Mar. 31, 2007); see also Preston v. Tenet Healthsystem Mem. Med. Ctr., 485 F.3d 804, 812 (5th Cir. 2007) (recognizing that the party moving for remand must first satisfy the citizenship requirements as a prerequisite to the district court weighing the statutory remand factors).

As set forth above, plaintiff provides no evidence regarding the citizenship of the putative class members, and thus, he fails to satisfy the first threshold requirement of the discretionary exception.*fn4 As to the second requirement, plaintiff also cannot demonstrate that all "primary defendants" are citizens of California. "Primary defendant" is not statutorily defined, but it has been interpreted to mean a defendant who is alleged to be directly liable to the plaintiff, rather than a mere indemnitor, contributor or third-party defendant. Kearns v. Ford Motor co., 2005 WL 1035018, *5 (C.D. Cal. Nov. 21, 2005); Hangarter v. Paul Revere Life Ins. Co., 2006 WL 213834, *3 (N.D. Cal. Jan. 26, 2006).

Here, all six named defendants are alleged to be directly liable to plaintiff and the putative class, and thus, all six are "primary defendants." Plaintiff does not dispute that defendants Aviva, Naras, Lismar and Nationwide are non-California citizens. Plaintiff alleges all five causes of action against these defendants, asserting that each directly engaged in tortious or improper conduct against plaintiff. For example, as to the Iowa-based Aviva, plaintiff alleges, inter alia:

[B]eginning in or about 2006, at least AVIVA, LWS and Loomis together concocted an investment scheme designed to generate millions of dollars in fees for themselves by promising free life insurance with lucrative investment potential and fabulous returns on the sale of securities. . . .

AVIVA's participation in this scheme was absolutely critical to the eventual success of the entire conspiracy because AVIVA's funding of the 'free' insurance products through the table kickbacks was the lynchpin in hooking investors.

(Compl., ¶s 13, 18.) Similar allegations of direct liability are made against Naras, Lismar, and Nationwide. (Compl., ¶s 19-22 [Naras], 19 [Lismar], 19 [Nationwide].) Thus, all four of these non-California citizens are "primary defendants," and as such, plaintiff cannot meet the second threshold requirement of the discretionary exception. See e.g. Adams v. Federal Materials Co., Inc., 2005 WL 1862378, *19 (W.D. Ky. July 28, 2005) (finding that because one count of the complaint was asserted directly against a non-resident defendant that was initially sued for indemnification, there was "simply no basis for treating [that defendant] as a secondary defendant in the case"); Robinson v. Cheetah Transportation, 2006 WL 3322580, *3 (W.D. La. Nov. 14, 2006) (finding that where the plaintiffs had made "essentially identical" claims against multiple defendants--both resident and non-resident--relating to the same "significant facet of the plaintiffs' claims," the home state exception was inapplicable). Since plaintiff cannot establish this second required element of the discretionary exception, consideration of the statutory, discretionary factors is not necessary.*fn5

Remand of this action is not permitted pursuant to the discretionary, "interests of justice" exception to CAFA.

4. Plaintiff's Request for Discovery

Finally, plaintiff argues that if the court is inclined to not remand the case, he should be permitted to conduct limited discovery in order to carry his burden of proof that a CAFA jurisdictional exception applies. Plaintiff asserts such discovery would permit him "to determine the location of potentially all class members, because each of those class members would have purchased life insurance from Aviva or one of its successors." (Pl.'s Mot., filed June 12, 2009, at 11:16-19.) Plaintiff contends that determining the state of residence of those putative class members would promptly resolve the issue of residency that is critical to the "local controversy" and discretionary exceptions to CAFA jurisdiction. (Id. at 11:19-21.)

Jurisdictional discovery, however, is only permissible "when the Court is unable to determine, on the existing record, whether it has jurisdiction." Rippee v. Boston Mkt. Corp., 408 F. Supp. 2d 982, 985 (S.D. Cal. 2005). Here, based on the evidence proffered by Aviva, demonstrating, among other things, that fewer than two-thirds of the putative class members are California citizens, there is sufficient information for this court to properly determine that it has CAFA jurisdiction over this case. (Stuetelberg Decl., ¶ 3.) Therefore, plaintiff's request for jurisdictional discovery is denied.


For the foregoing reasons, plaintiff's motion for remand is DENIED in its entirety.


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