Benko v. Quality Loan Service Corp.

A federal court lacks jurisdiction to hear a removed case due to the “local controversy exception” when (1) more than two-thirds of the class is from the state of the original filing; (2) at least one defendant seeks significant relief from the plaintiff whose alleged conduct forms a significant basis for the claims asserted; and (3) principal injuries related to the conduct occurred in the state of filing.

Jeffrey Benko and several others (“the Class”) obtained loans to purchase real property in the state of Nevada. The Class defaulted on their loans, which were later foreclosed. Quality Loan Service (“QLS”) served as trustee on the foreclosed loans. The Class sued QLS in state court in Nevada for illegal debt collection practices due to the non-judicial foreclosures. QLS removed the case to federal district court. The Class attempted to amend their complaint. Without considering the amendment, the district court assumed jurisdiction and subsequently dismissed the case for failure to state a claim under Federal Rules of Civil Procedure 12(b)(6). On appeal, the Ninth Circuit held that a federal court lacks jurisdiction to hear a removed case due to the “local controversy exception.” The panel explained that when more than two-thirds of the class is from the state of the original filing, at least one defendant seeks significant relief from the plaintiff whose alleged conduct forms a significant basis for the claims asserted, and the principal injuries related to the conduct occurred in the state of filing a court lacks the jurisdiction to hear a removed case. Additionally, the panel held that a plaintiff should be allowed to amend a complaint after removal if it clarifies issues regarding federal jurisdiction. REVERSED and REMANDED.