Johnson v. Advance America

• Decision Date: 12 December 2008
• Docket Number: No. 08-2186.,08-2186.
• Citation: 549 F.3d 932
• Parties: Lisa A. JOHNSON; Gilbert A. Herbert, on behalf of themselves and all others similarly situated, Plaintiffs-Appellees, v. ADVANCE AMERICA, Cash Advance Centers of South Carolina, Incorporated, d/b/a Advance America Cash Advance Centers, d/b/a Advance America, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

549 F.3d 932

Lisa A. JOHNSON; Gilbert A. Herbert, on behalf of themselves and all others similarly situated, Plaintiffs-Appellees, v. ADVANCE AMERICA, Cash Advance Centers of South Carolina, Incorporated, d/b/a Advance America Cash Advance Centers, d/b/a Advance America, Defendant-Appellant.

No. 08-2186.

United States Court of Appeals, Fourth Circuit.

Argued: October 29, 2008.

Decided: December 12, 2008.

ARGUED:

Barry Goheen, Michael C. Russ, King & Spalding, L.L.P., Atlanta, Georgia, for Appellant. Joe R. Whatley, Jr., Whatley Drake & Kallas, LLC, New York, New York, for Appellees.

ON BRIEF:

Jonathan R. Chally, King & Spalding, L.L.P., Atlanta, Georgia; William Douglas Smith, Johnson Smith Hibbard & Wildman Law Firm, L.L.P., Spartanburg, South Carolina; Thomas C. Brittain, Hearn, Brittain & Martin, P.A., Myrtle Beach, South Carolina, for Appellant. J. Preston Strom, Jr., Mario A. Pacella, Strom Law Firm, L.L.C., Columbia, South Carolina, for Appellees.

Before NIEMEYER, TRAXLER, and AGEE, Circuit Judges.

Affirmed by published opinion. Judge NIEMEYER wrote the opinion, in which Judge TRAXLER joined. Judge AGEE wrote a separate opinion concurring in part, dissenting in part, and concurring in the judgment.

OPINION

NIEMEYER, Circuit Judge:

Lisa Johnson and Gilbert Herbert, citizens of South Carolina, filed an action on behalf of themselves and all other "citizens of South Carolina," who were similarly situated, against Advance America, Cash Advance Centers of South Carolina, Inc., alleging that Advance America, in making "payday loans" to the plaintiffs, violated South Carolina law, which prohibits unconscionable loans and requires good faith and fair dealing in contracts. Alleging minimal diversity under the Class Action Fairness Act of 2005 ("CAFA"), 28 U.S.C. § 1332(d)(2)(A), Advance America removed the action to federal court under 28 U.S.C. § 1453(b). It claimed that it satisfied the requirement of "minimal diversity," as defined in § 1332(d)(2)(A), because either (1) it is a citizen of Delaware, where it was incorporated, even though it is also a citizen of South Carolina, where it has its principal place of business, or (2) some of the class members had moved from South Carolina and were citizens of other States.

On the plaintiffs' motion to remand, the district court found that Advance America failed to establish minimal diversity under § 1332(d)(2)(A) because, even though Advance America is a citizen of Delaware, it is also a citizen of South Carolina, and all members of the plaintiff class are citizens of South Carolina. The court further found that the class action fell within the "home-state exception" to CAFA jurisdiction in 28 U.S.C. § 1332(d)(4)(B) because in a class limited by definition to "citizens of South Carolina," at least two-thirds of the class members necessarily are citizens of South Carolina. Accordingly, the district court remanded the case to state court. We granted Advance America's petition for permission to appeal the remand order under 28 U.S.C. § 1453(c).

Because Advance America cannot carry its burden of demonstrating that any member of the plaintiffs' class is a citizen of a State "different from" Advance America, as required by 28 U.S.C. § 1332(d)(2)(A), we affirm. Advance America is a citizen of South Carolina, albeit also a citizen of Delaware, and the class is defined to include only citizens of South Carolina, thus excluding persons who may have moved from South Carolina and established citizenship elsewhere at the time the action was commenced.

I

In their complaint, filed in the Georgetown County Court of Common Pleas in South Carolina, Johnson and Herbert alleged that they entered into numerous payday loans with Advance America and that under the loan agreements, they agreed to repay the principal amount plus 15% interest two weeks after receiving the loan. They alleged that they currently carry open loans with Advance America, which they renew every two weeks by paying only the interest with additional payday loans. Because of fixed financial obligations, which nearly equal their incomes, they alleged that they are now unable to pay the loans.

Johnson and Herbert claimed that Advance America, in issuing the payday loans, violated South Carolina statutory law prohibiting unconscionable loan agreements, S.C.Code § 37-5-108, and South Carolina common law duties of good faith and fair dealing. They alleged that Advance America failed to conduct credit checks to verify customers' finances and ability to repay loans before entering into the agreements and that the agreements contained unconscionable arbitration clauses. For relief, they seek a declaratory judgment that Advance America's conduct violated South Carolina law; injunctive relief prohibiting Advance America from issuing any payday loans until it modifies its business practices; and damages.

Johnson and Herbert purport to represent themselves and a class of other South Carolina citizens who are similarly situated. In their complaint, they defined the proposed class to contain three subclasses, each defined as follows:

Injunctive Relief Class: All citizens of South Carolina who are domiciled in South Carolina and who borrowed money from Defendant in the three years preceding the filing of the complaint or who will borrow money from Defendant in the future.

Damages Subclass One: All citizens of South Carolina who borrowed money from Defendant in the three years preceding the filing of this complaint whose total monthly obligations exceeded 55% of their gross monthly income.

Damages Subclass Two: All citizens of South Carolina who renewed a loan with Defendant by repaying only the interest and received a new loan.

Proceeding under CAFA, Advance America filed a notice of removal to federal court under the authority of 28 U.S.C. § 1453(b), alleging that federal jurisdiction was conferred by 28 U.S.C. § 1332(d)(2). Johnson and Herbert filed a motion to remand, claiming that Advance America had improperly removed the action to federal court because minimal diversity did not exist among the parties under § 1332(d)(2)(A). Moreover, they claimed that, even if there was minimal diversity under § 1332(d)(2)(A), CAFA's home-state exception, 28 U.S.C. § 1332(d)(4)(B), defeated federal jurisdiction.

The district court granted plaintiffs' motion by entry of an order of remand dated April 25, 2008. We granted Advance America's petition for permission to appeal by order dated October 29, 2008. This appeal is thus limited to whether minimal diversity under CAFA exists in this case and whether CAFA's home-state exception applies.

II

Congress enacted CAFA in 2005 to address abuses of the class action device. Such abuses, it found, had the effect of, among other things, "undermin[ing] ... the concept of diversity jurisdiction ... in that State and local courts are—

(A) keeping cases of national importance out of Federal court;

(B) sometimes acting in ways that demonstrate bias against out-of-State defendants; and

(C) making judgments that impose their view of the law on other States and bind the rights of the residents of those States."

CAFA § 2(a)(4), Pub.L. No. 109-2, 119 Stat. 4, 5 (2005), 28 U.S.C. § 1711 note. In light of these findings, Congress enacted CAFA to

restore the intent of the framers of the United States Constitution by providing for Federal court consideration of interstate cases of national importance under diversity jurisdiction.

CAFA § 2(b)(2). CAFA amended, among other things, the concept of diversity jurisdiction for class actions to require only minimal diversity, 28 U.S.C. § 1332(d)(2). It also liberalized the requirements for removing class actions to federal courts, 28 U.S.C. § 1453(b).

Specifically, as relevant to this appeal, the diversity requirements were amended to confer jurisdiction on district courts over "any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which ... any member of a class of plaintiffs is a citizen of a State different from any defendant." 28 U.S.C. § 1332(d)(2)(A).

The burden of establishing federal jurisdiction on the removal of a class action is on the removing party. See Strawn v. AT & T Mobility LLC, 530 F.3d 293, 298 (4th Cir.2008).

Advance America contends that the minimal diversity requirement is satisfied in this case. It argues first that because Advance America is incorporated under the laws of Delaware and is therefore a Delaware citizen, its citizenship is different from the citizenship of the class members. Although Advance America is also a citizen of South Carolina, where it has its principal place of business, it asserts that its "dual citizenship in South Carolina does not destroy the minimal diversity created by certain alleged South Carolina citizens suing a Delaware corporation." Stated otherwise, it maintains that "Advance America's dual citizenship is sufficient to establish minimal diversity under CAFA," regardless of the citizenship of the plaintiffs.

Advance America is correct in noting that it, as a corporation, has dual citizenship for purposes of determining diversity jurisdiction. "[A] corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business." 28 U.S.C. § 1332(c)(1) (emphasis added). The statute's use of the conjunctive gives dual, not alternative, citizenship to a corporation whose principal place of business is in a State different from the State where it is incorporated. Therefore, for purposes of diversity jurisdiction, Advance America is a citizen of both Delaware, its State of corporation, and South Carolina, the State of its principal place of business. Yet, Advance America relies on its Delaware citizenship to create minimal diversity, ignoring the fact that it is also a citizen of South Carolina. Whether it is entitled to...