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(Article from Insurance Law Alert, January 2017)

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The Ninth Circuit ruled that the interlocutory review provision in the Class Action Fairness Act (“CAFA”) is limited to orders granting or denying remand based on diversity, and does not extend to remand orders based on federal question jurisdiction.  Chan Healthcare Grp., PS v. Liberty Mut. Fire Ins. Co., 844 F.3d 1133 (9th Cir. Jan. 3, 2017).

Addressing a matter of first impression, the Ninth Circuit ruled that the CAFA provision that allows appellate review of a district court’s remand order (28 U.S.C. §1453(c)(1)) is limited to orders granting or denying remand of diversity class actions.  Therefore, the court ruled that it lacked jurisdiction under CAFA to review a district court’s remand order based on federal question jurisdiction.  The court based its decision on legislative history and statutory language, including two references in the CAFA that are “linked exclusively to diversity and fail[] to include similar provisions to federal question jurisdiction.”  The Fifth, Sixth and Eighth Circuits have reached the same conclusion.

Addressing a separate issue, the Ninth Circuit also ruled that the district court improperly awarded fees to the policyholder.  Federal statutory law allows a district court to award fees incurred in a removal motion where a case has subsequently been remanded back to state court, but only if the removing party lacked an “objectively reasonable basis” for seeking removal.  28 U.S.C. §1447(c).  Here, the district court had granted fees to the plaintiff based on the finding that the insurer’s notice of removal was untimely under the 30-day time limitation of the general removal statute.  28 U.S.C. §1446(b).  However, the Ninth Circuit ruled that the insurer’s notice of removal was not untimely, because no basis for removal existed until the plaintiff filed a reply brief, which raised a due process issue (i.e., an issue giving rise to federal question jurisdiction).  The court held that the notice of removal was timely because it was filed within 30 days of the filing of the reply brief.  Rejecting arguments that the clock started running earlier because the insurer had been put “on notice” that a due process claim would be raised, the court stated that such an approach “runs afoul of our precedent and would place a burden on defendants to read the tea leaves and anticipate claims where none had been asserted.”