Jeffrey Benko v. Quality Loan Service Corp.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

JEFFREY BENKO; CAMILO No. 13-15185

MARTINEZ; ANA MARTINEZ; FRANK

SCINTA; JACQUELINE SCINTA; SUSAN D.C. No.

HJORTH; SANDRA KUHN; JESUS 2:12-CV-0024-

GOMEZ; SILVIA GOMEZ; DONNA MMD-GWF

HERRERA; ANTOINETTE GILL; JESSE

HENNIGAN; KIM MOORE; THOMAS

MOORE, Nevada residents; OPINION

RAYMOND SANSOTA; FRANCINE

SANSOTA, Ohio residents,

Plaintiffs-Appellants,

v.

QUALITY LOAN SERVICE

CORPORATION, a California

corporation; MTC FINANCIAL, INC.,

DBA Trustee Corps.; MERIDIAN

FORECLOSURE SERVICE, DBA

Meridian Trust Deed Service, DBA

MTDS, Inc.; NATIONAL DEFAULT

SERVICING CORPORATION;

CALIFORNIA RECONVEYANCE

COMPANY,

Defendants-Appellees.

Appeal from the United States District Court

for the District of Nevada

Miranda Du, District Judge, Presiding

2 BENKO V. QUALITY LOAN SERVICE CORP.

Argued and Submitted

March 13, 2015—San Francisco, California

Filed June 18, 2015

Before: J. Clifford Wallace, Milan D. Smith, Jr.,

and Paul J. Watford, Circuit Judges.

Opinion by Judge Milan D. Smith, Jr.;

Dissent by Judge Wallace

SUMMARY*

Jurisdiction / Class Action Fairness Act

The panel reversed the district court’s Fed. R. Civ. P.

12(b)(6) dismissal of a class action, vacated the district

court’s judgment, and remanded with instructions to the

district court to remand the case to Nevada state court

because there was no federal jurisdiction under the Class

Action Fairness Act.

The panel held that the court lacked jurisdiction because

Meridian Foreclosure Services, a Nevada corporation, was a

“significant” defendant for purposes of CAFA’s local

controversy exception, 28 U.S.C. § 1332(d)(4)(A). The panel

concluded that the plaintiffs met their burden to show that

this case qualified for the local controversy exception where:

a class of exclusively Nevada plaintiffs filed suit against six

*

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

BENKO V. QUALITY LOAN SERVICE CORP. 3

defendants, one of which was Nevada domiciled; the alleged

misconduct took place exclusively in the state of Nevada; and

the one Nevada domiciled defendant was allegedly

responsible for between 15-20% of the wrongs alleged by the

entire class.

The panel held that the district court abused its discretion

in denying the plaintiffs leave to amend their complaint after

removal to federal court, and erred in not considering the

plaintiffs’ second amended complaint for purposes of

analyzing jurisdiction under CAFA.

Judge Wallace dissented from the majority’s holding that

plaintiffs should be permitted to amend the complaint after

removal, and the majority’s conclusion that the district court

abused its discretion in denying plaintiffs leave to file the

second amended complaint. Judge Wallace would hold that

the district court, after properly limiting itself to considering

only the allegations in the first amended complaint, did not

err in concluding that plaintiffs failed to satisfy the

requirements of CAFA’s local controversy exception.

COUNSEL

Nicholas A. Boylan (argued), Law Office of Nicholas A.

Boylan, San Diego, California, for Plaintiffs-Appellants

Lawrence G. Scarborough (argued), Jessica R. Maziarz, and

Brian Cave LLP, Phoenix, Arizona; Kent F. Larsen and Katie

M. Weber, Smith Larsen & Wixom, Las Vegas, Nevada, for

Defendant-Appellee California Reconveyance Company.

4 BENKO V. QUALITY LOAN SERVICE CORP.

Kristin A. Schuler-Hintz (argued) and Melissa Robbins

Coutts, McCarthy & Holthus LLP, Las Vegas, Nevada, for

Defendant-Appellee Quality Loan Service Corporation.

Richard J. Reynolds (argued) and Fabio R. Cabezas, Burke,

Williams & Sorensen LLP, Santa Ana, California; Michael

Sullivan, Robison, Belaustegui, Sharp & Low, Reno, Nevada,

for Defendant-Appellee MTC Financial Inc.

Michael R. Brooks, I-Che Lai, and Arlene Casillas, Brooks

Bauer LLP, Las Vegas, Nevada, for Defendant-Appellee

Meridian Foreclosure Service

Gregory L. Wilde and Kevin S. Soderstrom, Tiffany & Bosco

P.A., Las Vegas, Nevada, for Defendant-Appellee National

Default Servicing Corporation.

OPINION

M. SMITH, Circuit Judge:

In this diversity class action, Jeffrey Benko and several

others (collectively the Plaintiffs) sued the Defendant

companies, alleging that they engaged in illegal debt

collection practices in the course of carrying out non-judicial

foreclosures. The Plaintiffs initially filed the action in the

Eighth Judicial Court of the State of Nevada, but the

Defendants removed the action to federal district court under

the Class Action Fairness Act (CAFA), 28 U.S.C. §§ 1332(d),

1453, 1711. The district court held that it had jurisdiction

over the class action, but then dismissed the Plaintiffs’ claims

under Federal Rule of Civil Procedure 12(b)(6).

BENKO V. QUALITY LOAN SERVICE CORP. 5

We reverse the district court, vacate the district court’s

judgment, and remand with instructions to the district court

to remand this case to the Eighth Judicial District Court of

Nevada for further proceedings. Because Meridian

Foreclosure Services (Meridian), a Nevada corporation, is a

“significant” defendant for purposes of CAFA’s local

controversy exception, 28 U.S.C. § 1332(d)(4)(A), we lack

jurisdiction over this action. The district court abused its

discretion in denying the Plaintiffs leave to amend their

complaint and erred in not considering the Plaintiffs’ Second

Amended Complaint (SAC) for purposes of analyzing

jurisdiction under CAFA.

FACTUAL AND PROCEDURAL BACKGROUND

I. Factual Background

The Plaintiff class members took out loans against

Nevada real properties, and later defaulted on those loans.

The Defendants, who served as trustees on the deeds of trust

that were foreclosed, are Quality Loan Services Corporation,

Appleton Properties, MTC Financial, Meridian, National

Default Servicing Corporation, and California Reconveyance

Company. Meridian is the only Defendant domiciled in

Nevada.

To foreclose on real property secured debt by private sale,

the Defendants were required by Nevada law to send the

Plaintiffs a “Notice of Default and Election to Sell Under

Deed of Trust.” Among other things, the notices stated that

a “breach of obligations . . . has occurred” and made a

“demand for sale” as a result of the default.

6 BENKO V. QUALITY LOAN SERVICE CORP.

In their SAC, the Plaintiffs alleged that, by virtue of

foreclosing on Nevada real property utilizing a private sale,

the Defendants engaged in “claim collection” under Nevada

Revised Statutes (NRS) Section 649. The Plaintiffs argue

that, since Nevada law requires that trustees be licensed, the

Defendants’ failure to register as “collection agencies,” as

defined in NRS Section 649.020, constituted a deceptive trade

practice. The Plaintiffs also claim that the Defendants

engaged in unjust enrichment, trespass, quiet title, and elder

abuse.

II. Prior Proceedings

On December 19, 2011, the Plaintiffs filed this class

action in the Eighth Judicial District Court of the State of

Nevada. Shortly thereafter, Defendant Meridian removed the

action to federal district court under CAFA. On April 12,

2012, the Plaintiffs attempted to amend their First Amended

Complaint (FAC), adding information concerning the claims

asserted against Meridian, an in-state Defendant.

The district court held that it had jurisdiction over the

class action, but ultimately dismissed the Plaintiffs’ FAC

under Rule 12(b)(6) for failure to state a claim. The court held

that the SAC did not alter the core allegations made in the

FAC and denied the Plaintiffs leave to amend, holding that

the amendments were futile.

This appeal followed.

ANALYSIS

In this case, we consider the circumstances under which

the CAFA “local controversy exception” requires remand to

BENKO V. QUALITY LOAN SERVICE CORP. 7

an originating state court. This is an issue that our circuit has

rarely confronted. See Mondragon v. Capital One Auto Fin.,

736 F.3d 880, 883 (9th Cir. 2013); Coleman v. Estes Exp.

Lines, Inc., 631 F.3d 1010, 1020 (9th Cir. 2011). Our sister

circuits, likewise, have considered this issue on only a few

occasions. See, e.g., Opelousas Gen. Hosp. Auth. v. FairPay

Solutions, Inc., 655 F.3d 358, 363 (5th Cir. 2011); Kaufman

v. Allstate New Jersey Ins. Co., 561 F.3d 144, 153 (3d Cir.

2009); Evans v. Walter Indus., Inc., 449 F.3d 1159, 1163

(11th Cir. 2006).

As a threshold matter, CAFA applies to any class action

where the aggregate number of members of a proposed

plaintiff class is 100 or more. See Serrano v. 180 Connect,

Inc., 478 F.3d 1018, 1020 (9th Cir. 2007). CAFA also

requires the removing party to show that “(1) the aggregate

amount in controversy exceeds $5,000,000, and (2) any class

member is a citizen of a state different from any defendant.”

Id. at 1020–21.

These three conditions are clearly met in the present case.

The alleged class includes all Nevada residents who were

purportedly subject to debt collection activities by the

Defendant companies, an aggregate number which is likely

in the thousands. Moreover, the claims alleged by the

Plaintiffs involve substantial monetary relief, which exceeds

the $5,000,000 requirement. For instance, the SAC states that

the claims made against Meridian are worth between

$5,000,000 and $8,000,000. Finally, there is diversity of

citizenship between class members, who are all Nevada

citizens, and the Defendants, only one of which is domiciled

in Nevada.

8 BENKO V. QUALITY LOAN SERVICE CORP.

CAFA, however, requires that federal courts remand

removed CAFA cases to the originating state court when the

following three conditions are met:

(I) “greater than two-thirds of the members of

all proposed plaintiff classes in the aggregate

are citizens of the State in which the action

was originally filed”;

(II) at least 1 defendant is a defendant–(aa)

from whom significant relief is sought by

members of the plaintiff class; (bb) whose

alleged conduct forms a significant basis for

the claims asserted by the proposed plaintiff

class; and (cc) who is a citizen of the State in

which the action was originally filed; and

(III) principal injuries resulting from the

alleged conduct or any related conduct of each

defendant were incurred in the State in which

the action was originally filed.

28 U.S.C. § 1332(d)(4)(A)(i).

The plaintiff bears the burden of showing that this

provision, known as the “local controversy exception,”

applies to the facts of a given case. See Mondragon, 736 F.3d

at 883; Coleman, 631 F.3d at 1013; Serrano, 478 F.3d at

1024.

We recognize that the “local controversy exception” is a

narrow one, particularly in light of the purposes of CAFA.

The Eleventh Circuit found, and we agree, that “CAFA’s

language favors federal jurisdiction over class actions, and

BENKO V. QUALITY LOAN SERVICE CORP. 9

CAFA’s legislative history suggests that Congress intended

the local controversy exception to be a narrow one.” Evans,

449 F.3d at 1163. Moreover, the Report issued by the Senate

Judiciary Committee in connection with the passage of CAFA

recognized, “that abuses are undermining the rights of both

plaintiffs and defendants. One key reason for these problems

is that most class actions are currently adjudicated in state

courts, where the governing rules are applied inconsistently

(frequently in a manner that contravenes basic fairness and

due process considerations) and where there is often

inadequate supervision over litigation procedures and

proposed settlements.” S. Rep. No. 109-14, 3, 2005 U.S.

Code Cong. & Admin. News 3, 5.

A. Which Allegations Should be Considered?

We begin our analysis by determining at what point in the

litigation the court should ascertain whether Meridian is

“significant” within the meaning of 28 U.S.C.

§ 1332(d)(4)(A)(i)(II). The Plaintiffs, who attempted to

amend their complaint after removal to federal court, contend

that we should focus on the allegations in their SAC. The

district court denied the Plaintiffs leave to amend the FAC

because it concluded that the amendments were futile. We

review the district court’s decision for an abuse of discretion.

See AE ex rel. Hernandez v. Cnty. of Tulare, 666 F.3d 631,

636 (9th Cir. 2012).

The Defendants urge us to follow the reasoning in Sparta

Surgical Corporation v. NASD, where we concluded that

“jurisdiction must be analyzed on the basis of the pleadings

filed at the time of removal without reference to subsequent

amendments.” 159 F.3d 1209, 1213 (9th Cir. 1998). Under

Sparta Surgical Corporation, we would consider only the

10 BENKO V. QUALITY LOAN SERVICE CORP.

allegations in the FAC, which was the operative complaint at

the time the Defendants removed this class action to federal

court.

We conclude that Sparta Surgical Corporation does not

apply in the present circumstances and that the district court

abused its discretion in denying the Plaintiffs leave to amend.

We, therefore, analyze Plaintiffs’ SAC to determine the

applicability of the local controversy exception. Where a

defendant removes a case to federal court under CAFA, and

the plaintiffs amend the complaint to explain the nature of the

action for purposes of our jurisdictional analysis, we may

consider the amended complaint to determine whether

remand to the state court is appropriate. Unlike the plaintiff

in Sparta Surgical Corporation, the Plaintiffs here did not

amend the FAC to eliminate a federal question so as to avoid

federal jurisdiction. Rather, the Plaintiffs amended the FAC

to elaborate on estimates of the percentage of total claims

asserted against Meridian, an in-state Defendant, and the

dollar value of those claims. The information added by the

Plaintiffs is directly related to CAFA’s local controversy

exception. Because no countervailing considerations—such

as undue delay, prejudice, bad faith, or futility—counseled

against amendment, the district court abused its discretion by

denying Plaintiffs leave to amend here. See Sonoma Cnty.

Ass'n of Retired Employees v. Sonoma Cnty., 708 F.3d 1109,

1117 (9th Cir. 2013) (“In general, a court should liberally

allow a party to amend its pleading.”); Bowles v. Reade,

198 F.3d 752, 758–59 (9th Cir. 1999).

BENKO V. QUALITY LOAN SERVICE CORP. 11

Our holding, that plaintiffs should be permitted to amend

a complaint after removal to clarify issues pertaining to

federal jurisdiction under CAFA, is necessary in light of

Coleman v. Estes Express Lines, Inc., 631 F.3d 1010 (9th Cir.

2011). Under Coleman, we may analyze only the allegations

in the complaint to determine whether plaintiffs seek

“significant relief” from an in-state defendant and whether

the in-state defendant’s “alleged conduct forms a significant

basis for the claims asserted.” Id. at 1015. As a result, there

is a possibility that a class action may be removed to federal

court, with a complaint originally drafted for state court. The

state court complaint, in turn, may not address CAFA-specific

issues, such as the local controversy exception. By amending

their complaint in these circumstances, plaintiffs can provide

a federal court with the information required to determine

whether a suit is within the court’s jurisdiction under CAFA.

B. Local Controversy Exception

1. Citizenship of Plaintiffs and Location of

Alleged Injuries

To qualify for the “local controversy exception,” the

Plaintiffs must first show that greater than two-thirds of the

proposed class members are Nevada citizens. 28 U.S.C.

§ 1332(d)(4)(A)(i)(I). That requirement is easily met here

because all the Plaintiffs are Nevada citizens. The Plaintiffs

must also demonstrate that the principal injuries they allege

occurred in the state of Nevada, 28 U.S.C.

§ 1332(d)(4)(A)(i)(III), a fact that the Defendants concede.

12 BENKO V. QUALITY LOAN SERVICE CORP.

2. Significant Defendant Test

We next consider whether Meridian’s conduct constitutes

“a significant basis” for the Plaintiffs’ claims and whether the

Plaintiffs seek “significant relief” from Meridian. 28 U.S.C.

§ 1332(d)(4)(A)(i)(II). When construing the meaning of a

statute, we begin with the language of that statute. The

Supreme Court has stated that “a legislature says in a statute

what it means and means in a statute what it says there.”

Connecticut Nat. Bank v. Germain, 503 U.S. 249, 253–54

(1992). If the statutory text is ambiguous, we employ other

tools, such as legislative history, to construe the meaning of

ambiguous terms. See United States v. Gonzales, 520 U.S. 1,

6 (1997).

“When a word is not defined by statute, [the Supreme

Court] normally construe[s] it in accord with its ordinary or

natural meaning,” which can often be discerned by reference

to the dictionary definition of that word. Smith v. United

States, 508 U.S. 223, 228 (1993). Several dictionaries offer

complementary definitions of “significant,” with each

suggesting that the word essentially means “important” or

“characterized by a large amount or quantity.” For example,

Black’s Law Dictionary states that “significant” means “[o]f

special importance; momentous, as distinguished from

insignificant.” Black’s Law Dictionary (10th ed. 2014). The

American Heritage Dictionary defines the word as “having or

expressing meaning; meaningful,” “having or likely to have

a major effect; important,” and “fairly large in amount or

quantity.” American Heritage Dictionary 1619 (4th ed. 2000).

We assume that, in CAFA, the word “significant” is used

consistently and with the same meaning, as a modifier of

“basis for the claims” and “relief.” See Atl. Cleaners & Dyers

v. United States, 286 U.S. 427, 433 (1932) (“[T]here is a

BENKO V. QUALITY LOAN SERVICE CORP. 13

natural presumption that identical words used in different

parts of the same act are intended to have the same

meaning.”).

To determine if the “basis for the claims” against

Meridian is important or fairly large in amount or quantity,

we compare the allegations against Meridian to the

allegations made against the other Defendants. CAFA

clarifies that we should look at a defendant’s “basis” in the

context of the overall “claims asserted.” 28 U.S.C.

§ 1332(d)(4)(A)(i)(II)(bb). This comparative approach is

consistent with the reasoning of the Third Circuit in Kaufman,

561 F.3d at 156 (“Whether [the significant basis] condition is

met requires a substantive analysis comparing the local

defendant’s alleged conduct to the alleged conduct of all the

Defendants.”). See also Opelousas, 655 F.3d at 363 (requiring

“more detailed allegations or extrinsic evidence detailing the

local defendant’s conduct in relation to the out-of-state

defendants”).

Meridian is one of just six Defendants referred to in the

SAC. In terms of the overall class, the Plaintiffs allege that

“Meridian conducted illegal debt collection agency activities

with respect to thousands of files each year,” and that

Meridian’s activities constituted between 15 to 20% of the

total debt collection activities of all the Defendants. In Evans,

the Eleventh Circuit reasoned that the “significant basis”

provision was not satisfied because the plaintiffs had not

shown that “a significant number or percentage of putative

class members may have claims against [a local defendant].”

Evans, 449 F.3d at 1167. By contrast, Meridian foreclosed

between 15 to 20% of the homes of all Plaintiffs in the class.

Several Plaintiffs then have colorable claims against

Meridian.

14 BENKO V. QUALITY LOAN SERVICE CORP.

To determine if the Plaintiffs claim “significant relief”

from Meridian, we look to the remedies requested by the

Plaintiffs in the SAC. See Coleman, 631 F.3d at 1020. The

Plaintiffs claim general damages of $10,000 from Meridian,

and punitive damages as a result of deceptive trade practices

and fraud. The Plaintiffs estimate that the total damages

recoverable from Meridian are between $5,000,000 and

$8,000,000. Meridian also concedes that the Plaintiffs seek

equitable relief, which would significantly increase the

overall value of the judgment against Meridian. Cf. id.

(“Further, the complaint seeks injunctive relief against [the

local defendant]. There is nothing in the complaint to suggest

either that the injunctive relief sought is itself insignificant,

or that [the local defendant] would be incapable of complying

with an injunction.”). The amounts sought are sufficient to

show that the Plaintiffs claim “significant relief” from a local

defendant.

Our analysis is further buttressed by the Senate Judiciary

Committee’s findings pertaining to the “local controversy

exception.” The Committee Report stated that “[t]his

provision is intended to respond to concerns that class actions

with a truly local focus should not be moved to federal court

under this legislation because state courts have a strong

interest in adjudicating such disputes. . . . [A] federal court

should bear in mind that the purpose of each of these criteria

is to identify a truly local controversy–a controversy that

uniquely affects a particular locality to the exclusion of all

others.” S. Rep. No. 109-14, 39, 2005 U.S. Code Cong. &

Admin. News 3, 38.

In this case, a class of exclusively Nevada Plaintiffs has

filed suit against six Defendants, one of which is Nevada

domiciled. The alleged misconduct took place exclusively in

BENKO V. QUALITY LOAN SERVICE CORP. 15

the state of Nevada. The one Nevada domiciled Defendant

was allegedly responsible for between 15–20% of the wrongs

alleged by the entire class. The Plaintiffs have met their

burden to show that this case qualifies for the “local

controversy exception.”

We reverse the district court, vacate the district court’s

judgment, and remand with instructions to remand the case to

the Eighth Judicial District Court of the State of Nevada, for

further proceedings. See Oregon v. Legal Servs. Corp.,

552 F.3d 965, 969 (9th Cir. 2009).

RE VE RS E D AND REMANDED WI T H

INSTRUCTIONS

WALLACE, Circuit Judge, dissenting:

I dissent from the majority’s holding in Part A that

“plaintiffs should be permitted to amend a complaint after

removal to clarify issues pertaining to federal jurisdiction

under CAFA.” Opinion p. 11. In considering whether

subsections (aa) and (bb) of CAFA’s local controversy

exception are satisfied, we should not depart from the bright-

line rule that “jurisdiction must be analyzed on the basis of

the pleadings filed at the time of removal without reference

to subsequent amendments.” Sparta Surgical Corp. v. NASD,

159 F.3d 1209, 1213 (9th Cir. 1998); see also Pullman Co. v.

Jenkins, 305 U.S. 534, 537 (1939). The majority errs in

carving out an inappropriate exception to that rule, based

solely on non-binding dicta from Coleman v. Estes Express

Lines, Inc., 631 F.3d 1010, 1020–21 (9th Cir. 2011), which

merely speculates that it “may” be wise, in the district court’s

16 BENKO V. QUALITY LOAN SERVICE CORP.

discretion, to “permit the plaintiff to file an amendment to the

complaint that addresses any relevant CAFA criteria.” The

majority’s rule departs from controlling precedent and will

frustrate Congress’s intent that the local controversy

exception be a narrow one, carefully drafted to ensure that it

does not become a jurisdictional loophole. See Senate Report

on CAFA, S. Rep. 109-14, at 39.

I also dissent from the majority’s conclusion in Part B

that the district court abused its discretion in denying

Plaintiffs leave to file the SAC. The district court did not

abuse its discretion because its denial comports with the

bright-line jurisdictional rule stated above. Additionally, we

have consistently held that a district court does not abuse its

discretion under Fed. R. Civ. P. 15 by denying proposed post-

removal amendments that would destroy federal jurisdiction,

as the proposed SAC does here.

Finally, even if the district court had abused its discretion

in denying leave to file the SAC (which it did not), the

majority should have remanded to the district court with

orders to grant Plaintiffs leave to amend, and then to

decide—in the first instance, once the SAC becomes

operative—whether the allegations in the SAC satisfy the

local controversy exception.

I.

The majority errs in departing from the clear rule that

certain jurisdictional questions under CAFA are determined

based on the pleadings operative at the time of removal,

and are unaffected by later developments, including—

especially—artful amending of the complaint. See United

Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus.

BENKO V. QUALITY LOAN SERVICE CORP. 17

& Serv. Workers Int’l Union v. Shell Oil Co., 602 F.3d 1087,

1091–92 (9th Cir. 2010). I fully agree with the Seventh

Circuit’s observations that it is a “well-established general

rule . . . that jurisdiction is determined at the time of removal,

and nothing filed after removal affects jurisdiction,” and that

“removal cases present concerns about forum manipulation

that counsel against allowing a plaintiff’s post-removal

amendments to affect jurisdiction.” In re Burlington N. Santa

Fe Ry. Co., 606 F.3d 379, 380–81 (7th Cir. 2010). I also agree

with the Fifth Circuit’s maxim that “[a]llowing [plaintiffs] to

avoid federal jurisdiction through a post-removal amendment

would turn the policy underlying CAFA on its head.” Cedar

Lodge Plantation, LLC v. CSHV Fairway View I, LLC, 768

F.3d 425, 429 (5th Cir. 2014).

In Doyle v. OneWest Bank, FSB, 764 F.3d 1097 (9th Cir.

2014), for example, our court concluded that the district court

erred by considering an amended complaint that was filed

post-removal to determine the citizenship of the plaintiff

class. Id. at 1098. We specifically held that “[f]or the purpose

of considering the applicability of the exceptions to CAFA

jurisdiction, the District Court should have determined the

citizenship of the proposed plaintiff class based on Doyle’s

complaint ‘as of the date the case became removable.’” Id.,

quoting Mondragon v. Capital One Auto Fin., 736 F.3d 880,

883 (9th Cir. 2013). This was not dicta, as relied on by the

majority, but a holding of our court which should govern this

appeal.

Similarly, in United Steel, a putative class action was

properly removed under CAFA but, after removal, class

certification was denied. Our court held that remand to state

court was improper—despite the failure of class

certification—because “post-filing developments do not

18 BENKO V. QUALITY LOAN SERVICE CORP.

defeat [CAFA] jurisdiction if the jurisdiction was properly

invoked [based on the pleadings] at the time of filing.” United

Steel, 602 F.3d at 1091–92. This, too, was a prior holding of

our court.

Nevertheless, the majority holds that district courts must

allow plaintiffs to amend after removal if their complaint, as

originally filed in state court, fails to address the “significant

basis” and “significant relief” elements of CAFA’s local

controversy exception. Opinion p. 11. Recognizing that

allowing such a post-removal amendment is a clear departure

from Sparta Surgical’s long-standing rule, the majority states

that its conclusion “is necessary in light of Coleman.”

Opinion p.11. Far from it. The passage the majority cites

from Coleman is pure dicta. And it must be rejected because

it conflicts with the Supreme Court’s rule in Pullman Co. as

well as this court’s holding in United Steel and other cases

cited above.

A.

Determining whether the local controversy exception

applies should be a quick and simple process for district

courts. See Coleman, 631 F.3d at 1016 (“Congress was

particularly concerned that subject matter jurisdiction

determinations be made quickly under CAFA”). District

judges should simply look at the pleadings “as of the date the

case became removable,” Doyle, 764 F.3d at 1098, and

decide whether subsections (aa) and (bb) of the local

controversy exception are satisfied. This is because, as a

textual matter, CAFA’s local controversy exception applies

to the district court’s jurisdiction “over a class action.”

28 U.S.C. § 1332(d)(4)(A)(I). The term “class action,” in

turn, refers to the “civil action filed.” Id. § 1332(d)(1)(B)

BENKO V. QUALITY LOAN SERVICE CORP. 19

(emphasis added). Thus, when Congress said that district

courts are to decline to entertain jurisdiction over certain

“class actions,” it meant that the “courts are to look at the

action when it was filed in order to determine whether the

conditions of abstention are present.” Cedar Lodge, 768 F.3d

at 428 (emphasis added); see also Doyle, 764 F.3d at 1098

(“For the purpose of considering the applicability of the

exceptions to CAFA jurisdiction, the District Court should”

look to the “complaint as of the date the case became

removable” (internal quotation marks omitted)). As a result,

if the district judge cannot discern whether the local

controversy conditions are present on the face of the

pleadings at the time of removal, the judge should conclude

that the plaintiffs have failed to carry their burden to show

that the local controversy exception applies. See Mondragon,

736 F.3d at 883.

This procedure is compelled by the critical difference

between a federal court’s duty to find jurisdictional facts and

its duty to identify and assess jurisdictional allegations. As

Coleman explained, “some questions of subject matter

jurisdiction are questions of fact, the determination of which

may depend on evidence.” 631 F.3d at 1016 (listing, for

example, a defendant’s citizenship or the amount in

controversy). These jurisdictional facts, which exist

independent of the complaint, may require evidentiary

clarification if the pleadings themselves are insufficient.

Other questions of subject matter jurisdiction, however,

including those at issue here, simply ask a court to identify

what the plaintiff has alleged, and then to assess whether

those allegations meet a jurisdictional standard. Id. (CAFA’s

“use of the words ‘sought’ and ‘alleged,’” in subsections (aa)

and (bb) indicates “that the district court is to look to the

20 BENKO V. QUALITY LOAN SERVICE CORP.

complaint rather than to extrinsic evidence”). Identifying

what a plaintiff has alleged requires no clarification: the

complaint says what it says. For this reason, having a fixed

point in time at which we assess the pleadings is essential.

The Supreme Court has so recognized. See Pullman Co.,

305 U.S. at 537 (A post-removal “second amended complaint

should not have been considered in determining the right to

remove, which . . . was to be determined according to the

plaintiffs’ pleading at the time of the petition for removal”).

If we allow plaintiffs to amend these particular jurisdictional

allegations post-removal, we are permitting them not merely

to “clarify” the existing jurisdictional nature of the suit, but

rather to shift the very ground upon which we make our

jurisdictional determination. This is why post-removal

amendments with respect to subsections (aa) and (bb) are

tantamount to post-filing developments that we uniformly

consider irrelevant to our jurisdictional determination. See,

e.g., United Steel, 602 F.3d at 1091.

We generally refuse to consider post-removal

amendments in analyzing our jurisdiction because doing so

would invite plaintiffs to plead artfully, after the fact, what is

necessary to defeat federal jurisdiction. See In re Burlington,

606 F.3d at 381 (“[R]emoval cases present concerns about

forum manipulation that counsel against allowing a plaintiff’s

post-removal amendments to affect jurisdiction”). The

present case demonstrates the very potential for manipulation

that our rule in Sparta Surgical seeks to prevent.

Because applicability of the local controversy exception

depends on a vague definition of the local defendant’s

“significance,” and because “significant relief” and

“significant basis” can be shown through subjective

estimates, plaintiffs have every incentive to “estimate” in a

BENKO V. QUALITY LOAN SERVICE CORP. 21

post-removal amendment as much as necessary to defeat

CAFA jurisdiction. Indeed, Plaintiffs here sought to amend

their complaint after removal to “elaborate on estimates of the

percentage of total claims asserted against” the local

defendant. Opinion p. 10. Predictably, this post-filing

amendment resulted, in the majority’s view, in Plaintiffs

successfully defeating CAFA jurisdiction, which was

properly invoked based on the operative complaint at the time

of removal. This manufactured result is clearly at odds with

Sparta Surgical and its underlying principles.

B.

The concern the majority shares with Coleman’s dicta, of

course, is that it may appear unfair to hold plaintiffs to their

pleadings at the time of removal since their “state court

complaint . . . may not address CAFA-specific issues, such as

the local controversy exception.” Opinion p. 11. But that

concern is unfounded, and in any event cannot overcome

CAFA’s text or our jurisdictional rules. Congress chose

language clearly indicating that judges are to look at the

action as filed—in state court—when making CAFA’s

jurisdictional determinations at the time of removal. See

supra Part I.A. Our cases consistently follow this principle.

In Doyle, for example, we adhered to CAFA’s textual

directive that we determine the parties’ citizenship “as of the

date of the filing of the complaint or amended complaint.”

764 F.3d at 1098. Even in Coleman our court recognized that

“under long-established law,” in a related jurisdictional

context, “the district court looks to the ‘well-pleaded

complaint,’ rather than to any subsequent pleading or

evidence, in determining whether there is federal question

subject matter jurisdiction.” Coleman, 631 F.3d at 1016

(emphasis added).

22 BENKO V. QUALITY LOAN SERVICE CORP.

It should not surprise informed plaintiffs, therefore, when

we similarly require them to carry their burden to satisfy the

“significant relief” and “significant basis” elements of the

local controversy exception based upon their pleadings at the

time of removal, without regard to “any subsequent

pleading.” Id. If plaintiffs fail to carry that burden, it is no

excuse that their “putative class action in state court need[ed]

satisfy only the pleading standards of that court.” Coleman,

631 F.3d at 1020. Perhaps if state pleading standards

somehow prevented plaintiffs from pleading the necessary

facts, a narrow exception might be warranted. But the

majority fails to cite a single example of a state court

pleading standard that would somehow preclude a plaintiff

from clearly alleging in their state-filed complaint that at least

one locally domiciled defendant is one “from whom

significant relief is sought” and “whose alleged conduct

forms a significant basis” for the plaintiffs’ claims. 28 U.S.C.

§ 1332(d)(4)(B)(II)(aa), (bb).

Accordingly, class action plaintiffs and their attorneys

who are making CAFA-eligible claims in state court should

be held to understand that CAFA removal is always a

possibility, and that if they wish to remain in state court, they

must plead accordingly. If unsavvy plaintiffs or careless

lawyers are caught unawares, that is unfortunate. But such

lack of foresight does not justify our departure from the

bright-line rule in Sparta Surgical. Having bright-line rules

on jurisdictional matters permits attorneys to know in

advance what action they should take. Federal courts, and

litigants who appear before us, are better served by our

adherence to bright-line jurisdictional rules, rather than our

making excuses for those who have failed to follow our

procedural mandates.

BENKO V. QUALITY LOAN SERVICE CORP. 23

In sum, jurisdictional determinations that depend

exclusively on allegations in the complaint should be

determined based on the pleadings operative at the time of

removal. Sparta Surgical, 159 F.3d at 1213. CAFA contains

no indication that Congress wanted us to deviate from this

long-standing rule. In fact, the majority’s departure from this

bright-line rule defeats CAFA’s purpose by converting the

ostensibly narrow local controversy exception into a tool for

plaintiffs to plead out of the very jurisdiction Congress

intended CAFA to bestow. Moreover, it will embroil future

courts in making fundamentally artificial determinations

about whether any particular post-removal amendment is

simply “clarifying” or is rather “manipulating.” Finally, the

majority’s departure is in no way “necessary in light of

Coleman,” because the relevant passage from Coleman is

pure dicta. I therefore dissent from the majority’s holding in

Part A.

II.

A.

I also dissent from the majority’s conclusion that the

district court abused its discretion in denying Plaintiffs leave

to file the SAC. Rule 15 of the Federal Rules of Civil

Procedure says that leave to amend “shall be given when

justice so requires,’” so we accordingly review a denial of

leave to amend “strictly in light of the strong policy

permitting amendment.” Bowles v. Reade, 198 F.3d 752, 757

(9th Cir. 1999). The majority interprets that “strict” standard

as requiring leave to amend unless “countervailing

considerations—such as undue delay, prejudice, bad faith, or

futility—counsel[] against amendment.” Opinion p. 10. But

even under that standard, the proposed amendments in the

24 BENKO V. QUALITY LOAN SERVICE CORP.

SAC would be “futile” if our case law forbade courts from

considering them. Such is the case here.

Our consideration of post-removal amendments is a

narrow one-way street in favor of those that support rather

than avoid federal jurisdiction. For example, on rare

occasions we have considered post-removal amendments that

“solidify” federal jurisdiction, even though removal appeared

improper under the operative complaint at the time of

removal. See Chabner v. United of Omaha Life Ins. Co.,

225 F.3d 1042, 1046 n.3 (9th Cir. 2000); Retail Prop. Trust

v. United Bhd. of Carpenters & Joiners of Am., 768 F.3d 938,

949 (9th Cir. 2014). But in doing so, we explained that we

would be unwilling to consider a post-removal amendment

that sought to destroy rather than to “solidify” federal

jurisdiction. Chabner, 225 F.3d at 1046 n.3, quoting Sparta

Surgical, 159 F.3d at 1213. In light of this precedent, the

district court did not abuse its discretion in denying leave to

file the proposed SAC. Plaintiffs’ proposed amendments

would have been futile because we do not consider post-

removal amendments that “would destroy federal jurisdiction

after the case has been properly removed.” Chabner, 225 F.3d

at 1046 n.3.

The majority apparently would not apply this principle

here, however, because it believes “Plaintiffs . . . did not

amend the FAC . . . so as to avoid federal jurisdiction.”

Opinion p. 10. I disagree—that is exactly what Plaintiffs

attempted to do. They sought to amend their complaint to

“elaborate on estimates of the percentage of total claims

asserted against Meridian . . . and the dollar value of those

claims,” Opinion p. 10. The clear purpose of those

amendments was to add new allegations that would satisfy

the local controversy exception and thereby foreclose federal

BENKO V. QUALITY LOAN SERVICE CORP. 25

jurisdiction under CAFA. Indeed, according to the majority,

Plaintiffs’ amendments accomplished that very intended

result. Under these circumstances the district court did not

abuse its discretion in denying leave to amend.

B.

The above reasoning seems clear to me. But even if the

district court had abused its discretion in denying Plaintiffs

leave to file the SAC, the proper course would be for us to

remand to the district court, rather than to analyze the SAC’s

allegations in the first instance.

As an initial matter, although Plaintiffs moved to amend

their FAC on April 12, 2012, the district court denied that

motion in all material respects in its omnibus order dated

January 2, 2013. Thus, the proposed SAC was not operative,

and indeed never became operative. This fact is a problem for

the majority’s analysis in Part B because Coleman requires

federal courts “to look to the complaint rather than to

extrinsic evidence” in resolving whether a significant local

defendant exists. Coleman, 631 F.3d at 1016. The

“complaint” referenced in Coleman clearly refers to an

operative complaint, not to a proposed one, like the SAC. As

a result, until it is properly filed with the district court, the

SAC is evidence extrinsic to the operative FAC, which cannot

be considered in analyzing subsections (aa) and (bb) of the

local controversy exception. Id.

If the majority believes the district court’s denial was an

abuse of discretion, it should not decide whether extrinsic

evidence in the proposed SAC satisfies the local controversy

exception in the first instance on appeal. Rather, it should

remand for the district court to to address that question in the

26 BENKO V. QUALITY LOAN SERVICE CORP.

first instance, once its alleged error has been corrected.

Zivotofsky ex rel. Zivotofsky v. Clinton, 132 S. Ct. 1421, 1430

(2012) (“[W]hen we reverse on a threshold question, we

typically remand for resolution of any claims the lower

courts’ error prevented them from addressing.”).

III.

In my view, the district court correctly considered only

the allegations in the operative complaint at the time of

removal—without regard to subsequent attempted

amendments—in analyzing whether Plaintiffs met their

burden under subsections (aa) and (bb) of the local

controversy exception. See Sparta Surgical, 159 F.3d at 1213.

For this reason alone, I would hold that the district court did

not abuse its discretion in denying leave to amend.

Alternatively, however, I would hold that district court did

not abuse its discretion because Plaintiffs’ proposed

amendments would have been futile, since we are not

permitted to consider those that would have eliminated

federal jurisdiction. See Chabner, 225 F.3d at 1046 n.3.

I would hold that the district court, after properly limiting

itself to considering only the allegations in the FAC, did not

err in concluding that Plaintiffs failed to satisfy the

requirements of CAFA’s local controversy exception. I

therefore dissent.