Moralez v. Kern Schools Federal Credit Union
1:15-cv-01444
E.D. Cal.May 12, 2016Background
- Plaintiff Christina Moralez filed a putative California class action in Kern County Superior Court alleging Kern Schools Federal Credit Union improperly charged overdraft fees by using "available balance" instead of "actual balance."
- Complaint asserts five causes of action, including a UCL claim (unlawful and unfair theories) and defines subclasses including a "Regulation E Class."
- Defendant removed to federal court asserting federal-question jurisdiction tied to alleged violations of federal regulations (Regulation E and related regs) and the safe-harbor defense to the UCL.
- Plaintiff moved to remand for lack of subject-matter jurisdiction; defendant opposed, arguing resolution of plaintiff’s UCL claim necessarily requires adjudication of federal law.
- The district court evaluated whether the UCL claims "arise under" federal law (well-pleaded complaint rule) and whether alternative state-law theories permit remand.
- Court concluded defendant failed to carry its burden to show federal jurisdiction and remanded the case to state court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal-question jurisdiction exists over the UCL claim | Moralez: UCL claim rests on state-law unfairness; does not necessarily raise federal questions | Kern: UCL claim (and safe-harbor defense) requires resolving whether federal regs (Regulation E) were violated, creating a substantial federal question | No federal-question jurisdiction; remand granted because plaintiff can prevail under state-law unfairness without resolving federal law |
| Whether the "safe harbor" (federal regulation) removes plaintiff's UCL claim from state law | Moralez: Safe-harbor is a defense and does not create federal jurisdiction | Kern: If federal safe-harbor exists, court must interpret federal regs, supplying federal question jurisdiction | Court: Safe-harbor is essentially an affirmative defense; its potential presence does not confer jurisdiction on its own |
| Whether the UCL "unlawful" prong ties plaintiff’s claim to federal law | Moralez: Complaint alleges unlawfulness but does not plead state-law bases for illegality | Kern: Unlawful prong relies on violation of federal regs => federal question | Court: Plaintiff’s unlawful theory, as pleaded, rests solely on federal-law violations, so that theory would require resolution of federal law—but alternative theories exist |
| Whether the UCL "unfair" prong provides an independent state-law basis | Moralez: Alleges unfairness under both tethering and balancing tests; balancing test supplies a state-law route | Kern: Plaintiff’s unfair allegations derive from federal violations and thus raise federal issues | Court: Under the balancing test plaintiff pleaded sufficient state-law facts (harm vs. utility) independent of federal law, so federal jurisdiction does not attach |
| Whether class definitions (Regulation E subclass) force federal adjudication | Moralez: Class definitions identify cohorts but do not definitively require proof of federal violations to define membership | Kern: Regulation E subclass requires deciding whether Regulation E was violated, creating federal question | Court: Class labels alone do not confer jurisdiction; definitions could have been framed without asserting federal-law violations, so they do not establish federal jurisdiction |
Key Cases Cited
- City of Chicago v. Int’l Coll. of Surgeons, 522 U.S. 156 (jurisdictional removal principles)
- Caterpillar Inc. v. Williams, 482 U.S. 386 (well-pleaded complaint rule for federal-question jurisdiction)
- Grable & Sons Metal Prods. v. Darue Eng’g & Mfg., 545 U.S. 308 (when state claim necessarily raises substantial federal issue)
- Merrell Dow Pharm. Inc. v. Thompson, 478 U.S. 804 (presence of federal issue in state claim insufficient alone for federal jurisdiction)
- Rivet v. Regions Bank of La., 522 U.S. 470 (scope of federal-question removal)
- Lozano v. AT & T Wireless Servs., Inc., 504 F.3d 718 (UCL unfair-prong standards and Ninth Circuit guidance)
- Cel-Tech Commc’ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163 (safe-harbor doctrine and limits on UCL)
- Bruns v. NCUA, 122 F.3d 1251 (remand is mandatory for lack of subject-matter jurisdiction)