Kress Stores of Puerto Rico, Inc. v. Wal-Mart Puerto Rico, Inc.

121 F.4th 228

• Court: Court of Appeals for the First Circuit
• Decided: November 12, 2024
• Docket: 23-1060
• Status: Published

Opinion

United States Court of Appeals For the First Circuit No. 23-1060

KRESS STORES OF PUERTO RICO, INC.; J.M.J. APPLIANCES CORPORATION; VALIJA GITANA, INC.; HUMBERTO VIDAL, INC.; and ALMACENES KRESS DE CAYEY, INC.,

Plaintiffs, Appellants,

J. PICA Y CIA, INC., d/b/a Capri; ANTONIO BAYON, d/b/a Tienda Junelba; and ELBA CASIANO, d/b/a Tienda Junelba,

Plaintiffs,

v.

WAL-MART PUERTO RICO, INC., and COSTCO WHOLESALE CORPORATION,

Defendants, Appellees,

WALGREEN OF PUERTO RICO, INC., and PUERTO RICO CVS PHARMACY, LLC,

Defendants.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO

[Hon. William G. Young,* U.S. District Judge]

Before

Montecalvo, Hamilton,** and Rikelman, Circuit Judges.

* Of the District of Massachusetts, sitting by designation. ** Of the Seventh Circuit, sitting by designation. Gretchen L. Alvarado-González, with whom Luis N. Saldaña- Román, Fernando Sabater-Clavell, and Saldaña, Carvajal & Vélez- Rivé, PSC were on brief, for appellants.

Salvador J. Antonetti-Stutts, with whom Ubaldo M. Fernández Barrera, Laura E. Díaz González, and O'Neill & Borges LLC were on brief, for appellee Costco Wholesale Corporation.

Paul J. Berks, with whom Suyash Agrawal, Schuyler C. Davis, and Massey & Gail LLP were on brief, for appellee Wal-Mart Puerto Rico, Inc.

November 12, 2024

- 2 - PER CURIAM. On the merits, this appeal presents unfair

competition claims brought by local Puerto Rico merchants against

major big-box retailers in Puerto Rico based on events during the

COVID-19 pandemic. Plaintiffs-Appellants allege that Defendants-

Appellees Costco Wholesale Corp. and Wal-Mart Puerto Rico, Inc.,

failed to comply with the Governor's executive orders limiting

retail sales for 72 days to only essential goods, thus violating

what plaintiffs say were defendants' duties of fair competition

under Puerto Rico law. The executive orders required most brick-

and-mortar retailers to close but exempted some "essential"

retailers including supermarkets and pharmacies. Because Wal-Mart

and Costco qualified as supermarkets, they remained open. They

continued to offer nearly all their merchandise to the public,

including what plaintiffs have alleged were "non-essential" goods.

Plaintiffs' theory is that defendants took advantage of

the closure orders to sell non-essential goods, which plaintiffs

say violated the executive orders and breached a duty to avoid

unfair competition, causing defendants to capture sales that

otherwise would have gone to the local retailers. The executive

orders remained in effect from March 15 to May 25, 2020. The local

retailer plaintiffs seek damages for lost sales.

The plaintiffs filed this case as a putative class action

in Puerto Rico's Court of First Instance. Costco, the only

non-local defendant, removed the case to federal district court

- 3 - under the Class Action Fairness Act, also known as "CAFA," 28

U.S.C. § 1332(d)(2). Costco immediately moved to sever the claims

against it, but the district court denied that motion.

The plaintiffs moved for remand, arguing on several

grounds that federal subject-matter jurisdiction was lacking under

CAFA. The district court denied that motion as well. Defendants

then moved to dismiss for failure to state a claim, and only

plaintiffs' unfair competition claim survived. Plaintiffs then

moved for class certification on that claim, which the district

court denied. Finally, the district court granted summary judgment

for defendants on the lone remaining claim, finding that the

executive orders did not create an enforceable duty on the part of

Costco and Wal-Mart.

We resolve the appeal on jurisdictional grounds. First,

we join other circuits in holding that CAFA jurisdiction is not

lost when a district court denies class certification. Second, we

hold that CAFA's "home state" exception in 28 U.S.C.

§ 1332(d)(4)(B) does not apply here because a non-local defendant

(Costco) was a "primary" defendant. Third, however, we hold that

CAFA's "local controversy" exception in § 1332(d)(4)(A)(i)(II)(bb)

applies because, among other conditions, alleged conduct of a local

defendant (Wal-Mart Puerto Rico) "forms a significant basis for

the claims asserted by the proposed plaintiff class." We also

conclude that the district court did not abuse its discretion by

- 4 - denying Costco's motion to sever, so the entire case belongs in

the Puerto Rico courts where plaintiffs filed it.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Undisputed Facts

On March 12, 2020, the Governor of Puerto Rico declared

a state of emergency because of the COVID-19 pandemic. On March

15, the Governor issued the first of four executive orders

requiring businesses to close and residents to stay at home to

protect public health. The last of the four orders remained in

force until May 25, 2020, so they were in effect for a total of 72

days.

The executive orders required most businesses to close

but exempted certain categories of retailers, including pharmacies

and supermarkets. The orders also permitted Puerto Rico residents

to leave their homes only for specified purposes, including

"[p]urchasing food, pharmaceutical, and basic necessity products,"

alternatively phrased as "to acquire food, pharmaceutical

products, and essential supplies." None of the orders further

defined "basic necessity products" or "essential supplies." Each

executive order also included a provision entitled "Non-Creation

of Enforceable Rights" stating:

This Executive Order is not intended to create any rights, substantive or procedural, enforceable at law or equity, by any person or entity, in any matter, civil, criminal, or administrative, against the Government of

- 5 - Puerto Rico or its agencies, officials, employees, or any other person.

Plaintiffs are local retailers in Puerto Rico. They

were among the businesses that closed for the 72 days the executive

orders remained in effect. Defendants Wal-Mart and Costco were

not required to close because both sold essential supplies.

Wal-Mart included both a supermarket and a pharmacy, and Costco

included a supermarket. Both Wal-Mart and Costco remained open

during the entire 72 days the executive orders were in place. Wal-

Mart continued to sell its full array of merchandise. Costco

limited the categories of products it sold, but it consistently

maintained that the terms of the executive order did not clearly

require it to do so.

After the first executive order was issued, Wal-Mart and

Costco sought clarification from Puerto Rico officials as to what

merchandise they could and could not sell, but they did not receive

responses as to most categories of merchandise. Puerto Rico police

and compliance officials from the Department of Consumer Affairs

visited Wal-Mart regularly while the executive orders were in

effect. The government of Puerto Rico never directed Wal-Mart or

Costco to stop any of their sales, never suggested that they might

be breaking the law, and never brought any enforcement action

against them.

- 6 - B. Procedural History

On August 6, 2020, plaintiffs filed a putative class

action complaint in Puerto Rico’s Court of First Instance, alleging

that defendants Wal-Mart, Costco, Walgreens, and CVS leveraged

their status as exempt retailers to sell non-essential goods while

the executive orders were in place.1 Plaintiffs alleged these

sales violated duties defendants owed to refrain from unfair

competition against local retailers like plaintiffs. Plaintiffs

alleged that defendants sold non-essential items like clothes,

shoes, televisions, and appliances in violation of the executive

orders. Plaintiffs argued that defendants' sales of non-essential

items while plaintiffs were ordered not to do so amounted to unfair

competition. Plaintiffs sought damages from Wal-Mart and Costco

for the income plaintiffs say they and other local retailers would

have received during the 72 days of the executive orders based on

claims of unfair competition, unjust enrichment, and equity.

On September 8, 2020, Costco removed the case to federal

court, invoking jurisdiction under the Class Action Fairness Act,

28 U.S.C. § 1332(d)(2). The same day, Costco moved to sever the

claims against it from the claims against all other defendants

under Federal Rules of Civil Procedure 20(a) and 21. Costco

1 Two of the three local defendants, Walgreen of Puerto Rico, Inc., and Puerto Rico CVS Pharmacy, LLC, were later dismissed from the case and are not parties to this appeal.

- 7 - asserted that the local defendants (Wal-Mart, Walgreens, and CVS)

had been misjoined in violation of the permissive joinder rule.

Costco asked the district court to sever the claims against all

misjoined defendants under Rule 21 while retaining jurisdiction

over the claims against Costco, for which diversity and CAFA

jurisdiction were available. Some months later, in a minute order

on June 1, 2021, the district court denied Costco's motion to

sever, without prejudice to renewal but also without explanation.

After Costco's removal to federal court, plaintiffs

moved to remand, arguing that two CAFA exceptions independently

barred federal jurisdiction: the "home state" exception in 28

U.S.C. § 1332(d)(4)(B) and the "local controversy" exception in

§ 1332(d)(4)(A)(i)(II)(bb). The district court ruled that neither

exception applied. Kress Stores of Puerto Rico, Inc. v. Wal-Mart

Puerto Rico, Inc., 2021 WL 2912436, at *3–5 (D.P.R. July 9, 2021).

The court recognized that the home state exception applies only

when all "primary" defendants are local. Id. at *2–3 (citing Singh

v. American Honda Financial Corp., 925 F.3d 1053, 1068 (9th Cir.

2019)). The court found that Costco, a non-local defendant, was

"clearly a primary defendant," so it held the home state exception

did not apply. Id. at *3. The court then held that the local

controversy exception did not apply because plaintiffs failed to

show that "the conduct of a local defendant is a 'significant

basis'" of their claims. Id. at *4. Instead, the plaintiffs had

- 8 - alleged identical and undifferentiated wrongful conduct by each

defendant, including Costco, the non-local defendant: "all four

Megastore[s] are alleged to have sold prohibited articles." Id. at

*5.

After the district court denied remand, the defendants

moved to dismiss plaintiffs' claims on the merits. The court

dismissed the claims for unjust enrichment and equity on the

pleadings, and plaintiffs have not argued these theories on appeal.

Id. at *5, 9–10. The district court then denied class

certification on plaintiffs' remaining unfair competition claims.

Kress Stores of Puerto Rico, Inc. v. Wal-Mart Puerto Rico, Inc.,

573 F. Supp. 3d 604, 607 (D.P.R. 2021). Following the denial of

class certification, plaintiffs renewed their motion to remand the

case to the Puerto Rico courts, arguing that the denial of class

certification eliminated the district court's jurisdiction under

CAFA. The district court denied plaintiffs' renewed motion and

retained jurisdiction over the case.

Wal-Mart and Costco then moved for summary judgment on

the plaintiffs' only remaining claim, for unfair competition. The

district court granted summary judgment for Wal-Mart and Costco on

the unfair competition claim. The court held that exempt retailers

had no duty under the executive orders or Puerto Rico's unfair

competition law to refrain from selling certain merchandise. The

- 9 - court entered judgment in favor of Wal-Mart and Costco and denied

plaintiffs' motion for reconsideration. This appeal followed.

II. JURISDICTION UNDER CAFA

The existence of federal subject-matter jurisdiction

under CAFA is a question of law subject to de novo review. Amoche

v. Guarantee Trust Life Insurance Co., 556 F.3d 41, 48 (1st Cir.

2009) (citing Lowery v. Alabama Power Co., 483 F.3d 1184, 1193

(11th Cir. 2007)). The district court resolved no factual disputes

relevant to jurisdiction, so we review de novo the district court's

CAFA holdings. See id.

The plaintiffs raise three distinct jurisdictional

issues. Plaintiffs argue first that the district court erred in

retaining jurisdiction under CAFA after denying class

certification. Plaintiffs argue second that CAFA's home state

exception applies and third that its local controversy exception

applies. We address plaintiffs' arguments in that order.

A. Jurisdiction After Denial of Class Certification

CAFA provides that its grant of federal jurisdiction

"shall apply to any class action before or after the entry of a

class certification order by the court with respect to that

action." 28 U.S.C. § 1332(d)(8). Plaintiffs argue that even if

CAFA jurisdiction was proper when the case was filed in or removed

to federal court, CAFA does not extend jurisdiction to federal

courts after a denial of class certification.

- 10 - This is a question of first impression for this circuit.

See Wilkins v. Genzyme Corp., 93 F.4th 33, 43 (1st Cir. 2024)

(citing College of Dental Surgeons of Puerto Rico v. Conn. Gen.

Life Insurance Co., 585 F.3d 33, 42 (1st Cir. 2009) (expressing

"no opinion" on issue)). In approaching such a question of

statutory interpretation, we start of course with the statutory

text, while keeping in mind that the larger statutory context and

structure often provide useful indicators of legislative intent.

E.g., City of Providence v. Barr, 954 F.3d 23, 31 (1st Cir. 2020).

Here, the key language in CAFA — "shall apply to any class action

before or after the entry of a class certification order" — does

not indicate that jurisdiction is affected by whether the district

court grants or denies class certification. The statutory text

instead signals clearly that CAFA jurisdiction, when properly

invoked, continues to apply regardless whether the court grants or

denies class certification.

All other circuits that have decided the question

interpret CAFA as requiring federal courts to retain proper CAFA

jurisdiction after denying certification. E.g., F5 Capital v.

Pappas, 856 F.3d 61, 76 (2d Cir. 2017) ("We . . . must decide

whether district courts may retain jurisdiction over state-law

claims with minimally diverse parties where the class-action

component of the complaint is dismissed after the case is removed

- 11 - to federal court. We conclude that they may.").2 The Third Circuit

started with the statutory text:

District courts have "original jurisdiction" over "class actions," 28 U.S.C. § 1332(d)(2), which the statute defines as "civil actions filed under Rule 23 . . . or a similar State statute or rule of judicial procedure authorizing an action to be brought . . . as a class action," id. § 1332(d)(1)(B) (emphasis added). This conferral of jurisdiction plainly encompasses a suit like [plaintiffs'], which was "filed under Rule 23," notwithstanding its eventual failure to become certified under Rule 23. See Metz v. Unizan Bank, 649 F.3d 492, 500 (6th Cir. 2011) ("The 'filed under' language shows that it is the time of filing that matters for determining jurisdiction under CAFA."); Cunningham Charter Corp. v. Learjet, Inc., 592 F.3d 805, 806 (7th Cir. 2010) (noting that § 1332(d)(1)(B) "defines class action as a suit filed under a statute or rule authorizing class actions, even though many such suits cannot be maintained as class actions because the judge refuses to certify a class"). Indeed, "[h]ad Congress intended that a properly removed class action be remanded if a class is not eventually certified, it could have said so." United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus.

2 Accord, Coba v. Ford Motor Co., 932 F.3d 114, 118–20 (3d Cir. 2019); Metz v. Unizan Bank, 649 F.3d 492, 500–01 (6th Cir. 2011); Cunningham Charter Corp. v. Learjet, Inc., 592 F.3d 805, 806–07 (7th Cir. 2010); Buetow v. A.L.S. Enters., Inc., 650 F.3d 1178, 1182 n.2 (8th Cir. 2011); United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus. & Serv. Workers Int'l Union, AFL-CIO, CLC v. Shell Oil Co., 602 F.3d 1087, 1091–92 (9th Cir. 2010); Vega v. T-Mobile USA, Inc., 564 F.3d 1256, 1268 n.12 (11th Cir. 2009); see also Louisiana v. American Nat'l Property & Casualty Co., 746 F.3d 633, 635 (5th Cir. 2014) (CAFA jurisdiction extends to individual cases voluntarily severed out of class action by plaintiffs "because at the time of removal CAFA supplied federal subject matter jurisdiction" over original class action).

- 12 - & Serv. Workers Int'l Union, AFL-CIO, CLC v. Shell Oil Co., 602 F.3d 1087, 1091 (9th Cir. 2010).

True, § 1332(d)(8) states that CAFA "shall apply to any class action before or after the entry of a class certification order by the court with respect to that action," but, as the Seventh Circuit has aptly noted, that subsection refers to "a" certification order, not "the" certification order, and the former connotes an indefinite expectation that a certification order may issue. Cunningham, 592 F.3d at 806 (explaining that subsection (d)(8) at most suggests that a class "may be certified eventually" (emphasis added)). Moreover, unlike subsection (d)(2), subsection (d)(8) omits reference to "jurisdiction," indicating it pertains not to the scope of jurisdiction conferred by the statute, but to the timing of certification in relation to removal. See id.

Coba v. Ford Motor Co., 932 F.3d 114, 119 (3d Cir. 2019) (cleaned

up).

This reading of CAFA's text fits well with more general

jurisdictional principles. As the Second Circuit reasoned,

the Supreme Court has consistently held that if jurisdiction exists at the time an action is commenced, such jurisdiction may not be divested by subsequent events. At the time of removal, [plaintiff's] complaint contained a class-action claim that met CAFA's other jurisdictional requirements, including a $5 million amount in controversy and minimal diversity. It therefore follows that the later failure of the class claim did not divest the district court of subject matter jurisdiction because CAFA anchored jurisdiction at the time of removal.

- 13 - F5 Capital, 856 F.3d at 76 (internal quotations, citations, and

footnote omitted).

Further, because class certification may be revisited

both in the district court and on appeal (including interlocutory

appeals), plaintiffs' theory would cause jurisdiction to bounce

back and forth between federal and state courts, perhaps several

times. Suppose, for example, that a federal district court denied

class certification and remanded to state court under plaintiffs'

theory, and the state courts then granted class certification.

Could a defendant then remove again? And upon return to federal

court, suppose the district court or circuit court found class

certification erroneous and decertified the class. Would the case

need to be remanded to state court again?

That confusing and unseemly prospect is not required, or

even suggested, by CAFA's text. It would also tend to undermine

the core purpose of CAFA, "providing for Federal court

consideration of interstate cases of national importance under

diversity jurisdiction." Class Action Fairness Act of 2005, Pub.

L. No. 109–2, § 2(b), 119 Stat. 4, 5 (enacted purposes of Act);

see also Cunningham, 592 F.3d at 807 ("Behind the principle that

jurisdiction once obtained normally is secure is a desire to

minimize expense and delay. If at all possible, therefore, a case

should stay in the system that first acquired jurisdiction. It

- 14 - should not be shunted between court systems; litigation is not

ping-pong.").

Consistent with the statutory text, we agree with the

uniform rule among the circuits. If jurisdiction is otherwise

proper under CAFA when the action is filed in or removed to federal

court, district courts retain CAFA jurisdiction after denying a

motion for class certification. The district court here did not

err by exercising jurisdiction under CAFA after it denied class

certification.

B. CAFA'S Exceptions

Plaintiffs argue next that CAFA's "home state" exception

and "local controversy" exception both independently bar federal

jurisdiction over their case. We address each exception in turn.

1. The Home State Exception

CAFA's home state exception provides: "A district court

shall decline to exercise jurisdiction [over a class action in

which] two-thirds or more of the members of all proposed plaintiff

classes in the aggregate, and the primary defendants, are citizens

of the State in which the action was originally filed." 28 U.S.C.

§ 1332(d)(4)(B). Again, we begin with the statutory text. E.g.,

City of Providence, 954 F.3d at 31.

The first requirement for plaintiffs' citizenship is

satisfied here. The proposed plaintiff class was limited to "legal

and natural persons who reside and have businesses throughout

- 15 - Puerto Rico." For the reasons we explain below, the second

requirement is not met here because "the primary defendants" are

not all citizens of Puerto Rico. The plural phrase in the

statutory text — "the primary defendants" — signals that the

exception requires that all primary defendants be citizens of the

forum state.

Plaintiffs originally sued three Puerto Rico citizens,

Wal-Mart Puerto Rico, Inc., Walgreen of Puerto Rico, Inc., and

Puerto Rico CVS Pharmacy, LLC. They also sued Costco Wholesale

Corporation, which is not a citizen of Puerto Rico. The district

court held that plaintiffs' allegations had rendered Costco a

"primary" defendant in this case. Because not all the primary

defendants were local, the district court found that the home state

exception did not bar jurisdiction. We agree.

CAFA does not define "primary" defendants in statutory

text, and this appeal presents a question of first impression in

this circuit. Other courts have used different language to

describe when a defendant is "primary." "Some courts have embraced

the definition of primary to mean direct and construed the words

'primary defendants' to capture those defendants who are directly

liable to the proposed class, as opposed to being vicariously or

secondarily liable based upon theories of contribution or

indemnification." Vodenichar v. Halcon Energy Props., Inc., 733

F.3d 497, 504 (3d Cir. 2013) (collecting cases). Other courts

- 16 - have relied on complaints to identify which defendants are

"expected to sustain the greatest loss if liability were found."

Id. at 505. Combining these approaches, the Ninth Circuit has

explained that

a court analyzing whether a defendant is a "primary defendant" for purposes of CAFA's home state exception should first assume that all defendants will be found liable. The court should then consider whether the defendant is sued directly or alleged to be directly responsible for the harm to the proposed class or classes, as opposed to being vicariously or secondarily liable. The court should also consider the defendant's potential exposure to the class relative to the exposure of other defendants. Courts should not treat these considerations as exhaustive or apply them mechanistically. The inquiry is whether a defendant is a "'principal,' 'fundamental', or 'direct'" defendant. Finally, we agree that "by using the word 'the' before the words 'primary defendants' rather than the word 'a,' CAFA requires remand under the home state exception only if all primary defendants are citizens of" the alleged home state. It is insufficient that only some of the primary defendants are citizens of that state.

Singh v. American Honda Finance Corp., 925 F.3d 1053, 1068 (9th

Cir. 2019) (brackets and citations omitted).3

This approach is supported by CAFA's legislative history, 3

which indicates that Congress chose the phrase "the primary defendants" to allow flexible, pragmatic application. See Hunter v. City of Montgomery, 859 F.3d 1329, 1336 (11th Cir. 2017). The Senate Judiciary Committee report on CAFA explained: The Committee intends that "primary defendants" be interpreted to reach those

- 17 - Applying that test to this case, the district court

correctly found that Costco is a primary defendant. Kress Stores,

2021 WL 2912436, at *3. First, "the complaint concerns the direct

and personal conduct of Costco, as opposed to Costco's vicarious

or secondary liability." Id. Plaintiffs do not dispute this point

on appeal. Second, as for comparable exposure to liability, the

plaintiffs had "failed to show that Costco is not a primary

defendant." Id. Plaintiffs bear the burden on this issue. In re

defendants who are the real "targets" of the lawsuit —— i.e., the defendants that would be expected to incur most of the loss if liability is found. Thus, the term "primary defendants" should include any person who has substantial exposure to significant portions of the proposed class in the action, particularly any defendant that is allegedly liable to the vast majority of the members of the proposed classes (as opposed to simply a few individual class members). Id. (quoting S. Rep. No. 109-14, at 43 (2005) (alterations omitted). We recognize that the committee report was issued ten days after enactment, which certainly weakens its value for "divining legislative intent." Blockbuster, Inc. v. Galeno, 472 F.3d 53, 58 (2d Cir. 2006). We also recognize, however, that CAFA was the product of an unusually long legislative process and was the subject of a finely balanced set of compromises. In re Hannaford Bros. Co. Customer Data Security Breach Litig., 564 F.3d 75, 80 (1st Cir. 2009) ("Our job [in interpreting CAFA] is to effectuate the intent expressed in the plain language Congress has chosen, not to effectuate purported policy choices regardless of language."); see also Schutte v. Ciox Health, LLC, 28 F.4th 850, 858–59 (7th Cir. 2022) (interpreting CAFA exceptions; "courts should not put a thumb on the scale in either direction but should try to respect the compromises struck in Congress") (citing S. Rep. No. 109-14).

- 18 - Hannaford Bros. Co. Customer Data Security Breach Litig., 564 F.3d

75, 78 (1st Cir. 2009).

To revive the home state exception on appeal, plaintiffs

argue only that they believe Costco's potential liability is about

$65 million, while Wal-Mart's potential liability is more than

$265 million. Plaintiffs cite testimony from their expert witness

on this point. This argument fails. It assumes incorrectly that

only one defendant, the one with the single greatest exposure, can

be "primary." The statutory text makes clear that more than one

defendant can be "primary" within the meaning of 28 U.S.C.

§ 1332(d)(4)(B), even under the comparable-liability-exposure

approach. The home state exception specifically contemplates

"primary defendants," plural. Id. (emphasis added). Case law

also rejects plaintiffs' assumption. To determine whether a

defendant is "primary," courts "look at the allegations to identify

the defendants expected to sustain the greatest loss if liability

were found, and whether such defendants have substantial exposure

to significant portions of the proposed class," again plural.

Vodenichar, 733 F.3d at 505 (internal quotations, citations, and

footnote omitted; emphases on plurals added).

Plaintiffs alleged that all class members were likely to

be adversely affected by Costco's sales of non-essential goods

while the executive orders were in effect. As plaintiffs

themselves note, Costco could face direct liability to class

- 19 - members on the order of tens of millions of dollars, which would

surely be a substantial loss. See id. We agree with the district

court that these plaintiffs failed to show that Costco is not a

"primary" defendant within the meaning of 28 U.S.C.

§ 1332(d)(4)(B). Because one of the "primary defendants" in this

suit is not a citizen of Puerto Rico, federal subject-matter

jurisdiction is not barred by CAFA's home state exception.

2. The Local Controversy Exception

The district court also found that CAFA's "local

controversy" exception, 28 U.S.C. § 1332(d)(4)(A), does not apply

to bar jurisdiction in this case. The local controversy exception

requires federal courts to "decline to exercise jurisdiction . . .

over a class action in which," among other conditions, a local

defendant's "alleged conduct forms a significant basis for the

claims asserted by the proposed plaintiff class." 28 U.S.C.

§ 1332(d)(4)(A)(i)(II)(bb).4 Again, it is plaintiffs' burden to

4 In its entirety, the local controversy exception provides: (4) A district court shall decline to exercise [diversity jurisdiction]—— (A)(i) over a class action in which—— (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;

- 20 - establish that the local controversy exception applies. In re

Hannaford Bros. Co., 564 F.3d at 78.

In their motion to remand this case, plaintiffs asserted

that the conduct of Wal-Mart, a local defendant, was "a significant

basis" for their claims. The district court disagreed, finding

that plaintiffs had failed to meet their burden to show that

"Walmart's conduct [was] 'broader than the conduct of the rest of

the co-defendants,'" and accordingly, was not a significant basis

(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; and (ii) during the 3-year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons . . . .

28 U.S.C. § 1332(d)(4)(A).

- 21 - of plaintiffs' claims. This "a significant basis" element is the

only disputed element of the exception here.

CAFA does not define "a significant basis" in the

statutory text, and this circuit has not yet addressed its meaning.

See Manson v. GMAC Mortgage, LLC, 602 F. Supp. 2d 289, 295 (D.

Mass. 2009). To highlight the choices we face, we first explore

how other circuits have approached the phrase. We then define our

standard for this inquiry by evaluating CAFA's text and apply our

standard to plaintiffs' allegations against Wal-Mart.

a. "A Significant Basis" in the Circuits

In a leading case on the local controversy exception,

the Third Circuit explained that CAFA's use of the word

"significant" means that "[t]he local defendant's alleged conduct

must be an important ground for the asserted claims in view of the

alleged conduct of all the Defendants." Kaufman v. Allstate New

Jersey Ins. Co., 561 F.3d 144, 157 (3d Cir. 2009) (citing Oxford

English Dictionary (2d ed. 1989) (defining "significant" as

"important, notable")). The test is relative: "Whether the local

defendant's alleged conduct is significant cannot be decided

without comparing it to the alleged conduct of all the Defendants."

Id. "If the local defendant's alleged conduct is a significant

part of the alleged conduct of all the Defendants, then the

significant basis provision is satisfied. Whether this condition

is met requires a substantive analysis comparing the local

- 22 - defendant's alleged conduct to the alleged conduct of all the

Defendants." Id. at 156.5

Other circuits have largely followed the Third Circuit's

approach to the "a significant basis" element of CAFA's local

controversy exception.6 Kaufman's comparative analysis is not

difficult to apply where a local defendant's conduct plays only a

peripheral role in plaintiffs' claims. In such cases, a

defendant's conduct is clearly not "a significant basis" for the

5 Factors that the Third Circuit considered relevant to this analysis included: 1) the relative importance of each of the claims to the action; 2) the nature of the claims and issues raised against the local defendant; 3) the nature of the claims and issues raised against all the Defendants; 4) the number of claims that rely on the local defendant's alleged conduct; 5) the number of claims asserted; 6) the identity of the Defendants; 7) whether the Defendants are related; 8) the number of members of the putative classes asserting claims that rely on the local defendant's alleged conduct; and 9) the approximate number of members in the putative classes. Kaufman, 561 F.3d at 157 n.13. 6 See Opelousas General Hosp. Authority v. FairPay Solutions, Inc., 655 F.3d 358, 361–62 (5th Cir. 2011); Mason v. Lockwood, Andrews & Newnam, P.C., 842 F.3d 383, 395–97 (6th Cir. 2016); Roppo v. Travelers Commercial Insurance Co., 869 F.3d 568, 584 & n.51 (7th Cir. 2017); Westerfeld v. Independent Processing, LLC, 621 F.3d 819, 825 (8th Cir. 2010); Benko v. Quality Loan Serv. Corp., 789 F.3d 1111, 1118–19 (9th Cir. 2015); Woods v. Standard Insurance Co., 771 F.3d 1257, 1265–1267 (10th Cir. 2014); see also Evans v. Walter Industries, Inc., 449 F.3d 1159, 1166–68 (11th Cir. 2006) (predating Kaufman but adopting similar comparative test).

- 23 - claims. See, e.g., Opelousas General Hosp. Authority v. FairPay

Solutions, Inc., 655 F.3d 358, 361–62 (5th Cir. 2011) (local

defendant's conduct not "a significant basis" where local

defendant was only one of over one hundred insurers nationwide who

allegedly participated in racketeering scheme).7 The analysis is

similarly straightforward where the local defendant's conduct

plays an outsized role in the plaintiffs' claims. In those cases,

7 This outcome with a "peripheral defendant" is supported by an example supplied by Congress in the committee report on CAFA. See S. Rep. No. 109-14, at 40 (2005) (explaining local controversy exception's "a significant basis" and "significant relief" elements). The committee wrote: For example, in a consumer fraud case alleging that an insurance company incorporated and based in another state misrepresented its policies, a local agent of the company named as a defendant presumably would not fit this criteria [sic]. He or she probably would have had contact with only some of the purported class members and thus would not be a person from whom significant relief would be sought by the plaintiff class viewed as a whole. Obviously, from a relief standpoint, the real demand of the full class in terms of seeking significant relief would be on the insurance company itself. Similarly, the agent presumably would not be a person whose alleged conduct forms a significant basis for the claims asserted. At most, that agent would have been an isolated role player in the alleged scheme implemented by the insurance company. In this instance, the real target in this action (both in terms of relief and alleged conduct) is the insurance company, and if that company is not local, this criterion would not be met. Id. (footnote omitted).

- 24 - the defendant's conduct clearly is "a significant basis" for the

plaintiffs' claims, so the exception applies. See, e.g., Mason v.

Lockwood, Andrews & Newnam, P.C., 842 F.3d 383, 396 (6th Cir. 2016)

(negligent conduct of local subsidiary formed expressly to perform

all of non-local parent company's quality control work was "a

significant basis" when "quality control [was] the very core of

plaintiffs' professional negligence claim").

But courts adopting Kaufman's comparative approach have

split over its application to cases like this one: claims alleging

that local and non-local defendants "all engaged in the same

conduct." Kitchin v. Bridgeton Landfill, LLC, 3 F.4th 1089, 1094

(8th Cir. 2021) (internal quotation omitted). Courts considering

complaints of this nature under CAFA have reached different

results. Id. at 1094–95 (collecting cases and noting split

outcomes). "Some courts . . . have adopted the view that

allegations that the local and nonlocal defendants all engaged in

the same conduct suffice to show that the local defendant's conduct

meets the significant-basis requirement." Id. at 1094 (quotation

marks omitted); see also, e.g., Benko v. Quality Loan Serv. Corp.,

789 F.3d 1111, 1118–19 (9th Cir. 2015); Coleman v. Estes Express

Lines, Inc., 631 F.3d 1010, 1020 (9th Cir. 2011). But "a number

of courts taking the opposite view" have "found that a complaint

that did not allege any substantive distinctions between the

conduct of the local and nonlocal defendants failed to indicate

- 25 - whether the local defendants' alleged conduct is an important

ground for the asserted claims in view of the alleged conduct of

all the Defendants." Kitchin, 3 F.4th at 1095 (internal quotations

omitted).

Courts taking the latter view have required some sort of

plus-factor in the allegations of a local defendant's conduct (as

compared to non-local defendants' conduct) to count the local

defendant's conduct as "a significant basis" of the plaintiffs'

claims. "If 'nothing in the complaint distinguishes the conduct

of [the local defendant] from the conduct of the other defendants,'

then the allegations in the complaint do not satisfy the

significant-basis requirement." Id. (quoting Opelousas, 655 F.3d

at 362); 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" to

satisfy significant basis requirement).8

b. "A Significant Basis" and CAFA's Text

This circuit has not previously applied CAFA's local

controversy exception where local and non-local defendants are

Accord, Atwood v. Peterson, 936 F.3d 835, 840–41 (8th Cir. 8

2019) ("CAFA removal is not foreclosed by the complaint's conclusory allegations that the local defendants engaged in the same conduct as the diverse defendant . . . ."); Evans, 449 F.3d at 1167 (requiring evidence showing whether local defendant "played a significant role in the alleged [misconduct], as opposed to a lesser role, or even a minimal role").

- 26 - alleged to have engaged in the same conduct. We begin with the

statutory text. Penobscot Nation v. Frey, 3 F.4th 484, 490–91

(1st Cir. 2021) (en banc). When Congress enacts its purposes and

findings into the text, "[w]e cannot interpret federal statutes to

negate their own stated purposes." King v. Burwell, 576 U.S. 473,

493 (2015) (quoting New York State Dep't of Social Servs. v.

Dublino, 413 U.S. 405, 419–20 (1973)). "Of course, words are given

meaning by their context, and context includes the purpose of the

text." A. Scalia & B. Garner, Reading Law 56 (2012); accord, e.g.,

Gundy v. United States, 588 U.S. 128, 141 (2019) (Court interprets

words in statute in context and often looks to history and purpose

of statute); 1 W. Blackstone, Blackstone's Commentaries on the

Laws of England *59 (Morrison ed. 2001) ("The fairest and most

rational method to interpret the will of the legislator, is by

exploring his intentions at the time when the law was made, by

signs the most natural and probable. And these signs are either

the words, the context, the subject-matter, the effects and

consequences, of the spirit and reason of the law.").

In relevant part, the text of CAFA's local controversy

exception requires that a local defendant's "alleged conduct forms

a significant basis for the claims asserted by the proposed

plaintiff class." 28 U.S.C. § 1332(d)(4)(A)(i)(II)(bb). The

focus of the text is on the defendant's "alleged conduct" in the

case at hand, not on "generic market share numbers" or other

- 27 - proxies for the relative size of a defendant's business. Kaufman,

561 F.3d at 157. Nor is the "a significant basis" element

concerned with defendants' potential exposure to the class, since

that is the express focus of the preceding clause. See 28 U.S.C.

§ 1332(d)(4)(A)(i)(II)(aa) (local controversy exception applies

only if plaintiff class seeks "significant relief" from a local

defendant). Rather, the text of the "a significant basis" element

focuses on the relationship between a local defendant's alleged

conduct and the plaintiffs' claims.

CAFA's use of the phrase "a significant basis" requires

a comparative analysis to determine whether the defendant's

alleged conduct is "an important ground for the asserted claims in

view of the alleged conduct of all the Defendants." Kaufman, 561

F.3d at 157. But it does not follow that the test must be

superlative, as the requirement of a plus-factor would have it.

Requiring special, more detailed, or additional

allegations about the local defendant's conduct would rewrite "a

significant basis" in the statute into "the most significant

basis." Under CAFA's plain text, more than one defendant's conduct

can constitute "a significant basis" for the plaintiffs' claims.

First, the exception's requirement that "at least 1 defendant"

must satisfy its provisions clearly implies that more than one

defendant may do so. See 28 U.S.C. § 1332(d)(4)(A)(i)(II)

(emphases added). Second, Congress determined that, to trigger

- 28 - the local controversy exception, defendant's conduct must be "a

significant basis" of plaintiffs' claims, without saying it must

be "the most significant basis." 28 U.S.C. § 1332(d)

(4)(A)(i)(II)(bb) (emphasis added). The statutory text assumes

that more than one defendant's conduct can form "a significant

basis for the claims asserted." Id. We agree with Kaufman's

comparative approach, but such comparisons must admit the

possibility (clear from CAFA's text) that more than one defendant's

conduct can be "a significant basis" of the plaintiffs' claims.

From CAFA's text, we see no need for a plus-factor to

satisfy the "a significant basis" element of CAFA's local

controversy exception. Nor does this contradict the Third

Circuit's comparative approach as set out in Kaufman and adopted

by many circuits. Plaintiffs allege here that the local defendants

and the non-local defendant pursued parallel courses, without

distinguishing between their roles. This situation easily

satisfies Kaufman's comparative formulation of the "a significant

basis" requirement. See 561 F.3d at 157 n.13 (factors include

ratio of "claims that rely on the local defendant's alleged

conduct" to total "number of claims asserted" and "number of

members of the putative classes asserting claims that rely on the

local defendant's alleged conduct" to total "number of members of

the putative classes"); see also Evans, 449 F.3d at 1167 ("a

significant basis" turned on whether "a significant number or

- 29 - percentage of putative class members may have claims against" local

defendant).

Under CAFA's text, the "a significant basis" element

must remain comparative without sliding down a slippery slope to

become superlative. To preserve that limit, courts should not

collapse the inquiry into a mechanistic search for a plus-factor

distinguishing the conduct of a local defendant. We agree with

the Ninth Circuit: where a complaint makes undifferentiated

allegations that a local defendant and a non-local defendant

violated the same provisions of law in the same way and caused the

same alleged harm, the conduct of the local defendant is not

automatically rendered "insignificant." See Coleman, 631 F.3d at

1020. To the contrary, when all defendants are alleged to have

engaged in identical conduct forming the basis for all of

plaintiffs' claims, a proper application of CAFA's text and

Kaufman's key factors will often mean that each defendant's

conduct, including local defendants, counts as "a significant

basis" of the claims.

Still, often is not always. In every case, a holistic

evaluation of factors like those identified in Kaufman remains

central to determine whether a local defendant's conduct forms "a

significant basis" of plaintiffs' claims. We remain sensitive to

Congress's suggestion that the local controversy exception is a

"narrow" one, "carefully drafted to ensure that it does not become

- 30 - a jurisdictional loophole." S. Rep. 109-14, at 39; see also

Westerfeld v. Independent Processing, LLC, 621 F.3d 819, 823 (8th

Cir. 2010) ("[A]ny doubt about the applicability of CAFA's

local-controversy exception" should be resolved "against . . . the

party who seeks remand."). We next apply this comparative approach

to determine whether Wal-Mart's conduct as the relevant local

defendant forms "a significant basis" of the plaintiffs' claims in

this case.

c. Wal-Mart's Conduct as a Significant Basis

Wal-Mart is the key local defendant whose conduct was

relevant for the "a significant basis" requirement. As the

district court noted in denying remand under the local controversy

exception, plaintiffs brought identical claims against each of the

four initial defendants — three local (Wal-Mart, Walgreens, and

CVS), and one non-local (Costco). Kress Stores, 2021 WL 2912436,

at *4. The parties and the district court all looked for some

plus-factor to differentiate Wal-Mart's conduct from the conduct

of the other defendants, particularly Costco, as the lone non-local

defendant.

To distinguish Wal-Mart's conduct, plaintiffs relied on

press statements by a high-ranking Wal-Mart official in Puerto

Rico admitting that the executive orders forbade the sale of

non-essential goods. Id. Plaintiffs argued that the local

- 31 - retailers had relied on those statements as a promise that Wal-Mart

would not sell non-essential merchandise.

The district court was not persuaded. Even putting aside

our doubts about plaintiffs' supposed reliance, we agree with the

district court that the Wal-Mart official's statements were not a

"promise binding Walmart not to sell certain items." Id. We also

agree with the district court's additional finding that these

statements, "even if promissory, would [not] make Walmart's

conduct a 'significant basis' relative to the conduct of the other"

large retailer defendants, since "all four Megastore[s] are

alleged to have sold prohibited articles." Id. at *5.

While we agree with those observations, we disagree with

the district court's further conclusion that plaintiffs had

"failed to meet their burden of showing that the conduct of a local

defendant is a 'significant basis' for the claim asserted." Id.

at *4. As explained above, the local controversy exception's "a

significant basis" element does not require such a plus-factor.

In this complaint, local and non-local defendants were

referred to jointly by a collective noun that was the subject of

all the allegations of the conduct forming the basis of the

plaintiffs' claims. Applying Kaufman's factors to this situation,

all the claims run against Wal-Mart, and all the plaintiffs in the

putative class have claims against Wal-Mart. See Kaufman, 561

F.3d at 157 n.13. Plaintiffs' allegations against Wal-Mart, a

- 32 - local defendant, suffice to satisfy the "a significant basis"

requirement of CAFA's local controversy exception in 28 U.S.C.

§ 1332(d)(4)(A).

The district court thus erred in finding that the local

controversy exception did not apply merely because plaintiffs did

not point to an adequate plus-factor in Wal-Mart's conduct.

Because the district court's decision not to apply the exception

was based entirely on plaintiffs' failure to establish this

element, and because defendants do not challenge plaintiffs'

arguments as to any other elements on appeal, the local controversy

exception applies here.

III. Costco's Motion to Sever

Because CAFA's local controversy exception applies, we

must remand at least a portion of this case to the Puerto Rico

courts. Before determining the scope of any remand, however, we

turn to Costco's alternative argument for affirming summary

judgment in its favor.

In Costco's view, the district court should have granted

its motion to sever, thus permitting plaintiffs' claims against

Costco to proceed in federal court, regardless of the outcome of

the court's CAFA analysis. As we explain below, we disagree.

Contrary to Costco's arguments, there is a logical connection

between the claims against it and Wal-Mart beyond the mere

allegation that they both engaged in unfair trade practices. Thus,

- 33 - the district court did not abuse its discretion in denying Costco's

motion to sever.

To recap, when Costco removed this case to federal court,

it also filed a motion to sever under Federal Rules of Civil

Procedure 20(a) and 21, arguing that plaintiffs had misjoined local

defendants Wal-Mart, Walgreens, and CVS in violation of the

permissive joinder rule, Rule 20(a). Costco asked the district

court to sever the claims against all misjoined defendants under

Rule 21 while retaining jurisdiction over the claims against

Costco, for which it argued both ordinary diversity jurisdiction

and CAFA jurisdiction applied. Some months later, in a minute

order, the district court denied Costco's motion without

prejudice.

We review the district court's ruling denying Costco's

motion to sever for an abuse of discretion. Cruz v. Bristol-Myers

Squibb Co., P.R., Inc., 699 F.3d 563, 568-69 (1st Cir. 2012). An

abuse of discretion occurs: (1) "when a relevant factor deserving

of significant weight is overlooked"; (2) "when an improper factor

is accorded significant weight"; (3) "when the [district] court

considers the appropriate mix of factors, but commits a palpable

error of judgment in calibrating the decisional scales"; or (4)

when it commits "a material error of law." United States v.

Walker, 665 F.3d 212, 222-23 (1st Cir. 2011) (first quoting United

- 34 - States v. Nguyen, 542 F.3d 275, 281 (1st Cir. 2008), then citing

United States v. Snyder, 136 F.3d 65, 67 (1st Cir. 1998)).

A. Waiver

On appeal, plaintiffs ignore the merits of Costco's

arguments about the district court's ruling on its motion to sever

and instead focus on waiver. Without citing any authority, they

contend that Costco has waived its challenge to this ruling by

failing to file a notice of appeal or "any further motion" in the

district court on this issue.

We disagree that Costco has waived a challenge to this

ruling. Costco did not need to file a cross-appeal from the final

judgment to preserve this challenge. Because the district court's

final judgment was favorable to Costco, a cross-appeal by Costco

on the motion to sever would have been both unnecessary and

improper. See Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. W.

Lake Acad., 548 F.3d 8, 23 (1st Cir. 2008) ("A cross-appeal is

generally not proper to challenge a subsidiary finding or

conclusion when the ultimate judgment is favorable to the party

cross-appealing."). Under well-established principles, Costco is

free to raise on appeal any argument made manifest in the record

as an alternative ground for affirming the district court's

judgment dismissing the claims against it. See Haley v. City of

Boston, 657 F.3d 39, 53 (1st Cir. 2011) ("It is black-letter law

that . . . an appellee can argue in support of a lower court's

- 35 - ruling in his favor on any ground made manifest in the record . . .

without a cross-appeal . . . ."). Here, Costco argued to the

district court in its motion to sever that federal jurisdiction

exists, regardless of CAFA, because Costco is diverse from all

plaintiffs, and plaintiffs had misjoined the non-diverse, local

defendants. Thus, Costco can pursue this same argument on appeal

as an alternate ground for affirmance.

B. Merits of the District Court's Denial of the Motion to Sever

We now turn to whether the district court abused its

discretion in denying Costco's motion to sever. Costco brought

its motion under Federal Rule of Civil Procedure 21, which grants

a district court discretion to, "[o]n motion or on its

own, . . . at any time, on just terms, add or drop a party" and

"sever any claim against a party." Fed. R. Civ. P. 21.

When considering a motion to sever under Rule 21, we

have looked to Rule 20, which provides the legal standard for

permissive joinder, for guidance. See Abdullah v. Acands, Inc.,

30 F.3d 264, 268 & n.5 (1st Cir. 1994) (in ruling on motion to

dismiss, applying Rule 20 requirements when evaluating argument to

sever under Rule 21 based on misjoinder). Rule 20(a)(2) governs

the permissive joinder of defendants and states:

"Persons . . . may be joined in one action as defendants if:

(A) any right to relief is asserted against them jointly, severally, or in the alternative

- 36 - with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences; and

(B) any question of law or fact common to all defendants will arise in the action."

Fed. R. Civ. P. 20(a)(2) (emphasis added). The parties agree that

plaintiffs did not assert any claims under a theory of joint or

several liability that could satisfy the first clause in subpart

A of the rule but that there are "question[s] of law or fact common

to all defendants" sufficient to satisfy subpart B. Thus, the

only issue in dispute is whether the claims against Costco and

Wal-Mart "aris[e] out of the same transaction, occurrence, or

series of transactions or occurrences" within the meaning of Rule

20(a)(2)(A).

We have not previously construed the "transaction or

occurrence" requirement for permissive joinder under Rule

20(a)(2)(A). But in deciding questions under Rule 20(a) courts

often look to interpretations of the similar "transaction or

occurrence" requirement for compulsory counterclaims in Rule

13(a). See Fed. R. Civ. P. 13(a)(1) ("A pleading must state as a

counterclaim any claim that . . . the pleader has against an

opposing party if the claim: (A) arises out of the transaction or

occurrence that is the subject matter of the opposing party's

claim . . . ."); 7 Charles Alan Wright & Arthur R. Miller, Federal

Practice and Procedure § 1653 (3d ed. 2012); see, e.g., Mosley v.

- 37 - Gen. Motors Corp., 497 F.2d 1330, 1333 (8th Cir. 1974) (holding,

based on analogy to Rule 13(a), that Rule 20(a)'s "transaction or

occurrence" standard permits "all reasonably related claims" to be

tried together). We do the same here.

Turning to Rule 13(a)'s similar "transaction or

occurrence" provision, we interpreted that provision broadly in

our most recent decision on the issue, Iglesias v. Mutual Life

Insurance Co. of New York, 156 F.3d 237 (1st Cir. 1998), abrogated

on other grounds by Global NAPS, Inc. v. Verizon New England Inc.,

603 F.3d 71 (1st Cir. 2010). In that case, we held that the

"transaction or occurrence" standard requires only a "logical

relation" between the claims, id. at 241, as the U.S. Supreme Court

had stated many years earlier in Moore v. N.Y. Cotton Exchange,

270 U.S. 593 (1926). See id. at 610 (noting that "'[t]ransaction'

is a word of flexible meaning" when interpreting Rule 13(a) and

holding that two claims arise from the same "transaction" when

there is a "logical relationship" between them). We then explained

that a "logical relation" between claims exists when "the same

aggregate of operative facts serves as the basis of both claims."

Iglesias, 156 F.3d at 241-42 (quoting McCaffrey v. Rex Motor

Transp., Inc., 672 F.2d 246, 249 (1st Cir. 1982)).9

9 Iglesias also discussed a second requirement to establish a "logical relation" under Rule 13(a): "that the aggregate core of

- 38 - In Iglesias, we concluded that the "transaction or

occurrence" standard was not met because the claim and counterclaim

at issue did not arise out of the same aggregate of operative facts

and instead rested on "entirely different" sets of facts with

little to no overlap. Id. at 241-42. As we explained, Iglesias's

discrimination and contract claims involved his employment

contract and role as a sales representative in Puerto Rico,

defendant's decision to limit the products it sold in Puerto Rico,

and Iglesias's eventual termination for poor performance. Id. at

239-40, 242; Brief for Appellant at *5, Iglesias v. Mutual Life

Insurance Co. of New York, 156 F.3d 237 (1st Cir. 1998) (No. 97-

1648), 1997 WL 33770663 (describing Iglesias's "poor performance"

review prior to termination). By contrast, defendant's

counterclaim focused on expense reports submitted by Iglesias,

which the defendant only realized Iglesias "padded" after his

termination, and whether the reports complied with its

reimbursement policies. Id. at 240, 242. The dissenting opinion

views the outcome in Iglesias as supporting its conclusion. But

other than the fact that the claim and counterclaim were between

facts upon which the original claim rests activates additional legal rights in a party defendant that would otherwise remain dormant." 156 F.3d at 242. This requirement is specific to counterclaims in that it asks whether the success of the counterclaim "depend[s] on the success or failure of [the original] claim," id., so we do not consider it here.

- 39 - the same parties, which of course is always true when it comes to

Rule 13(a) analysis, there was no other connection between the

claims in Iglesias. Thus, as we concluded, there was no reasonable

way to view a dispute about expense vouchers Iglesias submitted

and a dispute about the defendant's decisions to limit its product

offerings in Puerto Rico and terminate Iglesias for poor sales as

arising out of the same “transaction or occurrence.”

Here, unlike in Iglesias, it was reasonable for the

district court to conclude that plaintiffs' claims against Costco

and Wal-Mart related to the same occurrence: the break-out of the

COVID-19 pandemic in Puerto Rico in March 2020, and the Governor’s

Executive Orders limiting business operations for eleven weeks in

response. Thus, the district court did not abuse its discretion

in concluding that the claims arise out of the same aggregate of

operative facts.

Although portions of plaintiffs' evidence related to

breach and causation may be defendant-specific, the Supreme Court

has confirmed that the "transaction or occurrence" standard does

not require that the exact same body of evidence be used to prove

all claims for joinder to be proper. See Moore, 270 U.S. at 610

("That [the essential facts to constitute the claims] are not

precisely identical, or that the counterclaim embraces additional

allegations . . . does not matter."). And review of the case law

on this issue demonstrates that our court and other federal

- 40 - appellate courts most often conclude that the "transaction or

occurrence" requirement has not been met such that joinder is

improper in cases with an unusually large number of parties or

without any factual overlap between the claims. See, e.g.,

Abdullah, 30 F.3d at 268 & n.5 (affirming ruling finding misjoinder

and severing parties in case with 1,000 plaintiffs and ninety-three

defendants because plaintiffs had failed to satisfy "transaction

or occurrence" requirement when "[t]he Complaint is bereft of

factual allegations indicating why [1,093 parties] belong in the

same action"); AF Holdings, LLC v. Does 1-1058, 752 F.3d 990, 993,

998 (D.C. Cir. 2014) (finding misjoinder in case with 1,058 unnamed

Doe defendants, identified only by their IP addresses, because

plaintiffs had not satisfied "transaction or occurrence"

requirement); see also Alston v. Town of Brookline, Mass., No. CV

15-13987, 2016 WL 5745091, at *11, 14 (D. Mass. Sept. 30, 2016)

(severing eight plaintiffs' claims because they had "no facts in

common"). Neither factor is present here.

The dissenting opinion disagrees with our joinder

analysis because it determines that plaintiffs' claims against

Costco and Wal-Mart are connected only by an allegation that

defendants "committed the exact same violation of the law in

exactly the same way." Dissent, infra, at 54 (quoting Botero v.

Commonwealth Limousine Serv. Inc., 302 F.R.D. 285, 286-87 (D. Mass.

2014). In support, the dissent cites cases in which "a patent,

- 41 - trademark, or copyright holder tries to sue multiple independent

competitors for infringing the same patent, trademark, or

copyright," and courts then find that such claims fail the

"transaction or occurrence" requirement. Dissent, infra, at 56–

61.

But in our view, the cases the dissent cites do not

demonstrate that the district court abused its discretion here.

For example, the dissenting opinion relies on In re EMC Corp., 677

F.3d 1351 (Fed. Cir. 2012), for the principle that when a plaintiff

merely alleges that "independent defendants independently

violat[ed] the same law in the same way, but in separate

transactions," it has not met the "transaction or occurrence"

standard of Rule 20(a). Dissent, infra, at 58. The decision in

EMC Corp. was based on the particular set of facts in that case,

however, rather than on a disagreement with the actual legal test.

In EMC Corp., the Federal Circuit applied the same

"logical relationship" and "aggregate of operative facts" standard

that our court applied in Iglesias. Id. at 1358. Importantly,

though, on appeal it was unclear if there was any logical

relationship between the claims against the defendants in EMC

Corp.; instead, it appeared possible they had been joined in a

single action merely because plaintiffs claimed that they all had

infringed the same patent. See id. at 1353, 1357-58. For example,

the defendants were scattered around the country and allegedly

- 42 - violated the patent at different times. See Complaint at 2-5,

Oasis Rsch., LLC v. Carbonite, Inc., 2010 WL 9460794 (E.D. Tex.

Aug 30, 2010) (No. 4:10-CV-435) (underlying complaint noting that

EMC Corp.'s defendant-petitioners' principal places of business

span Massachusetts, Arizona, and California); id. at 6-27 (failing

to identify when alleged patent violations occurred). To determine

whether the Rule 20(a) standard was satisfied, the Federal Circuit

identified six "pertinent factual considerations" for the district

court to apply with "considerable discretion" on remand. EMC

Corp., 677 F.3d at 1359-60. Although three of these factors were

patent-specific, the other three focused on whether alleged

violations "occurred during the same time period," whether there

was "some relationship among the defendants," and "whether the

case involves a claim for lost profits." Id. Of these three

non-patent-specific factors, at least two support plaintiffs'

joinder of its claims against Costco and Wal-Mart in this case.

For example, Costco and Wal-Mart's alleged violations of the Orders

did occur during the same time period. And plaintiffs are asking

for lost profits as damages.

Further, the dissenting opinion does not cite and we

have not found any cases in which a sister circuit relied upon EMC

Corp. to reject joinder in a non-intellectual property case.

Instead, only two circuits have relied on the joinder analysis in

EMC Corp., and, in both cases, the circuits held that joinder was

- 43 - proper.10 See Courthouse News Serv. v. Schaefer, 2 F.4th 318, 325

(4th Cir. 2021) (finding that claims in First Amendment case arise

out of the "same transaction or occurrence" when plaintiffs

"alleged identical claims against similarly situated defendants");

Viahart, L.L.C. v. GangPeng, No. 21-40166, 2022 WL 445161, at *4

(5th Cir. Feb. 14, 2022) (finding that claims arise out of the

"same transaction or occurrence" when plaintiffs alleged that

defendants were "working together").

One of the two circuit decisions citing EMC Corp.

supports the district court's ruling permitting joinder in this

case: the Fourth Circuit's decision in Courthouse News Service.

There, a news organization brought First Amendment claims against

the clerks of two Virginia state courts after observing delays in

accessing newly filed complaints over a period of several months.

Courthouse News, 2 F.4th at 322. The clerks, who lost below,

appealed on multiple grounds, including misjoinder. Id. at 325.

Applying Rule 20(a)'s "transaction or occurrence" requirement and

the same "logical relationship" test we used in Iglesias, the

Fourth Circuit found that the claims against both defendants "arose

The limited reliance on EMC Corp. may be due to the Federal 10

Circuit's own caution that its decision had limited precedential weight. Because Congress adopted the Leahy-Smith America Invents Act, 125 Stat 284, in September 2011 to govern joinder in patent cases, the 2012 EMC Corp. decision "only govern[s] a number of cases that were filed before the passage of [the 2011 Act]." EMC Corp., 677 F.3d at 1356.

- 44 - out of Courthouse News's coverage of Virginia courts" over the

same time period and in the same geographic place. Id. Thus, the

Fourth Circuit ruled, the plaintiff's "identical claims against

similarly situated defendants" met the joinder standard and the

district court did not abuse its discretion in so concluding. Id.

We point out the decision in Courthouse News not because

the facts are identical to this case; we realize that the court

clerks who were the defendants there were not competitors. But

Courthouse News does support the conclusion that it is not an abuse

of discretion for a district court to permit joinder when a

plaintiff has sued multiple defendants for similar but independent

conduct that occurred in the same time period and in the same

place. That is exactly what happened here, and thus Courthouse

News counsels in favor of affirming the district court’s ruling

denying Costco’s motion to sever.

The dissenting opinion also cites seven district court

decisions that apply EMC Corp. in intellectual property cases to

conclude that Rule 20(a)'s "transaction or occurrence" requirement

is not satisfied. These cases stand for the proposition that

plaintiffs cannot join entirely unrelated defendants, located in

different states, on the sole ground that they infringed the same

patent, trademark, or copyright at various points in time. In our

view, these cases do not counsel for reversing the district court's

joinder ruling here.

- 45 - Take Golden Scorpio Corp. v. Steel Horse Bar & Grill,

596 F. Supp. 2d 1282 (D. Ariz. 2009), for example. In that case,

the plaintiff, who operated a restaurant and bar named "STEEL

HORSE" and had registered the "STEEL HORSE with design" trademark

for its restaurant services, joined thirteen defendants from all

over the country in a single trademark action. Id. at 1283-84.

To support its claims, Golden Scorpio alleged that these thirteen

defendants violated its trademark at different times in thirteen

different states. Id. at 1284. It did not identify any

relationship or factual connection between the thirteen defendants

other than the allegation that they had infringed the same

trademark. See id. Accordingly, the district court determined

that Golden Scorpio's claims did not satisfy Rule 20(a)'s

"transaction or occurrence" requirement and granted a defendant's

motion to sever. Id. at 1284-85.

This case is not like Golden Scorpio. Both Costco and

Wal-Mart's violations occurred in Puerto Rico, during the same

eleven weeks of the COVID-19 pandemic, in response to the same set

of Executive Orders governing business operations during the

earliest phases of the pandemic. Thus, there is a connection to

the claims against these two parties beyond the mere allegation

that they both engaged in unfair trade practices against

plaintiffs. In our view, the intellectual property cases in which

plaintiffs joined defendants based solely on their wholly separate

- 46 - violations, spanning different locations and time periods, are

just not dispositive here.

Costco presents two additional arguments for why the

claims against it should be severed from the claims against

Wal-Mart. Neither establishes that the district court's denial of

Costco's motion to sever amounted to an abuse of discretion.

Costco's first argument -- that joinder is inappropriate

where plaintiffs do not allege joint or several liability or

concerted action by defendants -- ignores the plain text of Rule

20(a). Although it is true that plaintiffs did not assert a theory

of joint or several liability, or allege that the defendants acted

in concert, neither is required under Rule 20(a). To be sure,

alleging joint or several liability would be sufficient to fulfill

the first clause of Rule 20(a)(2)(A), but it is not necessary.

Instead, plaintiffs may also prove "in the alternative [that claims

arise] out of the same transaction, occurrence, or series of

transactions or occurrences." Fed. R. Civ. P. 20(a)(2)(A).

Similarly, although plaintiffs may satisfy the "transaction or

occurrence" requirement by plausibly alleging that defendants

acted in concert, they do not need to do so. As we discussed

above, plaintiffs also may satisfy the requirement by proving that

claims against the joined defendants are otherwise "logical[ly]

relat[ed]" or share an "aggregate of operative facts." See

Iglesias, 156 F.3d at 241-42.

- 47 - Costco next argues that "Costco would clearly be

prejudiced by a loss of the federal forum to which it is entitled

by virtue of diversity of citizenship," but again, we are not

persuaded. Costco does not identify any unusual prejudice

considerations or address the fact that it can still file a motion

to sever in the Puerto Rico court on remand. See In re Prempro

Prods. Liab. Litig., 591 F.3d 613, 623-24 (8th Cir. 2010) (noting

that, when federal diversity jurisdiction depends on a question of

joinder, "the proper procedure" may be for parties to argue the

joinder issue in state court). Further, Costco does not cite and

we did not find any cases with analogous facts in which a circuit

court overturned a district court's denial of a motion to sever on

prejudice grounds. Thus, Costco has failed to demonstrate that

the district court's ruling on its motion to sever was an abuse of

discretion. The district court therefore lacked jurisdiction over

the claims against either defendant. We therefore may not reach

the merits of plaintiffs' claims.

IV. CONCLUSION

The district court's denial of plaintiffs' motion to

remand is REVERSED, the judgment on the merits is VACATED for lack

of jurisdiction, and this action is REMANDED to the district court

with instructions to remand this action to the Puerto Rico courts.

Costs are taxed in favor of plaintiffs-appellants.

-Opinion Concurring in Part/Dissenting in Part Follows-

- 48 - HAMILTON, Circuit Judge, concurring in part and

dissenting in part. I agree with the majority opinion on the Class

Action Fairness Act issues and with the remand of plaintiffs'

claims against Wal-Mart to the Puerto Rico courts. I also agree

that Costco preserved for appeal its challenge to the district

court's denial of its motion to sever.

I respectfully disagree, however, with the majority's

decision to affirm the denial of Costco's motion to sever. As

explained below, plaintiffs' claims against Costco did not arise

from the same series of transactions as their claims against Wal-

Mart. Plaintiffs do not even claim, let alone offer evidence,

that Wal-Mart and Costco acted jointly. At most, plaintiffs allege

that Wal-Mart and Costco — acting independently and in competition

with each other — violated the same alleged legal duty in similar

ways at the same time. The best guidance for such questions of

joinder and misjoinder comes from patent and other intellectual

property cases where plaintiffs allege that multiple defendants

acted separately and infringed the same patent, copyright, or

trademark. Sound practice should require severance of claims

against such multiple defendants, even if some pretrial

coordination of discovery and other matters might be sensible.

Further, because in my view the district court had

jurisdiction over the claims against Costco, I would reach the

- 49 - merits of those claims and affirm the district court's grant of

summary judgment in favor of Costco.

I. Misjoinder and Severance

In a class action against multiple defendants, a

district court should be on the lookout for possible misjoinder

designed to defeat application of CAFA. I believe that is what we

see in this case. If plaintiffs had brought their claims against

Costco in a separate class action, Costco would certainly have

been entitled to remove to federal court under CAFA. The local

controversy exception would not apply.

The district court had the power to sever the claims

against the non-local defendant, Costco, and should have done so

to protect Costco's rights under CAFA from the misjoinder. That

would have allowed the court to retain federal jurisdiction over

the non-local defendant while remanding the claims against local

defendants back to the Puerto Rico courts.

Federal Rules of Civil Procedure 20(a) and 21 entrust

decisions related to permissive joinder to the sound discretion of

the district court. See Hearts with Haiti, Inc. v. Kendrick, 856

F.3d 1, 4 (1st Cir. 2017) (district court's decision on a Rule 21

motion to add or drop a party is reviewed for abuse of discretion),

citing Perry v. Blum, 629 F.3d 1, 16 (1st Cir. 2010). "An abuse

of discretion occurs 'when a relevant factor deserving of

significant weight is overlooked, or when an improper factor is

- 50 - accorded significant weight, or when the court considers the

appropriate mix of factors, but commits a palpable error of

judgment in calibrating the decisional scales.'" United States v.

Walker, 665 F.3d 212, 222–23 (1st Cir. 2011) (quoting United States

v. Nguyen, 542 F.3d 275, 281 (1st Cir. 2008)). "In addition, 'an

error of law is always tantamount to an abuse of discretion.'"

Janney Montgomery Scott LLC v. Tobin, 571 F.3d 162, 166 (1st Cir.

2009) (quoting De Jesús Nazario v. Morris Rodríguez, 554 F.3d 196,

199 (1st Cir. 2009)).

On appeal, Costco argues that denial of severance here

was an abuse of discretion because plaintiffs cannot meet the "same

transaction, occurrence, or series of transactions or occurrences"

requirement of Rule 20(a). As Costco sees the case, plaintiffs

have not alleged or offered evidence of any collective or concerted

activity by the different defendants, who are after all competitors

of one another. Plaintiffs have alleged only that the different

defendants committed the same alleged legal wrongs in the same

way, which has repeatedly been held insufficient to justify even

permissive joinder. Costco Br. at 20 (citing United States ex

rel. Doe v. Taconic Hills Central School Dist., 8 F. Supp. 3d 339,

344 (S.D.N.Y. 2014) (citing in turn Peterson v. Regina, 935 F.

Supp. 2d 628, 638 (S.D.N.Y. 2013))).

Plaintiffs did not respond to this argument on the

merits. Instead, they argue only, without citing authority, that

- 51 - Costco waived the argument by failing to file a notice of appeal

or "any further motion" in the district court regarding severance.

The majority opinion explains sufficiently why plaintiffs' waiver

argument is wrong. Ante at 35–36.

Perhaps because of the district court's initial legal

error in denying application of CAFA's local controversy exception

to the claims against Wal-Mart, the court did not address

significant factors weighing in favor of Costco's motion to sever.

See Walker, 665 F.3d at 222–23 (quoting Nguyen, 542 F.3d at 281).

Under the district court's view of CAFA, severance of Costco would

have produced two similar cases in the federal court rather than

one case in the Puerto Rico courts and one case in the federal

court. Our application of the local controversy exception to this

case should require recalibration of the "decisional scales" on

Costco's motion to sever. Id. The district court did not have

occasion to consider the prejudicial effects of denying Costco a

federal forum for the claims against it. While one option might

be to remand the claims against Costco to have the district court

reconsider the severance question, the grounds for severance here

are so strong that the denial amounted to an abuse of discretion.

I must also note, however, that even though my colleagues and I

disagree on this point, my colleagues do not suggest that granting

the motion to sever would have been an abuse of discretion.

- 52 - Federal Rule of Civil Procedure 20(a)(2) governs

permissive joinder of defendants: "Persons . . . may be joined in

one action as defendants if: (A) any right to relief is asserted

against them jointly, severally, or in the alternative with respect

to or arising out of the same transaction, occurrence, or series

of transactions or occurrences; and (B) any question of law or

fact common to all defendants will arise in the action." "The

purpose of permissive joinder of parties is 'to promote trial

convenience and expedite the final determination of disputes.'"

Third Degree Films v. Does 1-47, 286 F.R.D. 188, 196 (D. Mass.

2012) (quoting 7 Charles Alan Wright & Arthur R. Miller, Federal

Practice and Procedure § 1652 (3d ed. 2012)).

Plaintiffs' claims satisfy the second prong of Rule

20(a) because they present some questions of fact and law common

to all defendants. The key issue here is the first prong of Rule

20(a) and its "threshold requirement" "that the plaintiffs' claim

for relief arise out of 'the same transaction, occurrence, or

series of transactions or occurrences.'" Abdullah v. Acands, Inc.,

30 F.3d 264, 268 n.5 (1st Cir. 1994) (quoting Fed. R. Civ. P.

20(a)).

Rule 20(a)'s transaction-or-occurrence test has been

construed as requiring "a logical relationship between the

claims." In re EMC Corp., 677 F.3d 1351, 1357–58 (Fed. Cir. 2012)

(quotation marks and citation omitted). To establish the required

- 53 - logical relationship, "[p]laintiff must show 'substantial

evidentiary overlap in the facts giving rise to the cause of

action'" against the defendants. Botero v. Commonwealth Limousine

Serv. Inc., 302 F.R.D. 285, 286 (D. Mass. 2014) (analyzing

identical "transaction or occurrence" provision governing

permissive joinder of plaintiffs under Rule 20(a)(1)) (quoting EMC

Corp., 677 F.3d at 1358). "Thus, joinder is not warranted simply

because defendants allegedly 'committed the exact same violation

of the law in exactly the same way.'" Id. at 286–87 (quoting New

Sensations, Inc. v. Does 1–175, 947 F. Supp. 2d 146, 148 (D. Mass.

2012)). Joinder is improper in those circumstances because, if

claims against multiple defendants have no logical connection,

then combining those defendants into a single proceeding will not

"foster the objectives" of Rule 20(a) but instead "will result in

prejudice, expense or delay." 7 Charles Alan Wright and Arthur R.

Miller, Federal Practice & Procedure § 1652 (3d ed. 2012).

Here, plaintiffs do not claim that Costco and the other

defendants engaged in any form of coordinated behavior. Plaintiffs

did not allege or offer evidence to support a theory that Costco

worked together with Wal-Mart, CVS, or Walgreens to sell

non-essential goods in possible violation of the executive

- 54 - orders.11 Nor do the defendant retailers' sales of non-essential

goods share any logical relation. After all, the different

defendants are competitors. They were competing with each other

in retail sales, before, during, and after the COVID-19 pandemic.

Accordingly, plaintiffs would need entirely non-overlapping

evidence to establish the breach, causation, and damages elements

of their tort claims with respect to each defendant retailer. See

Park Club, Inc. v. Resolution Trust Corp., 967 F.2d 1053, 1058

(5th Cir. 1992) (evaluating parallel transaction-or-occurrence

test in Fed. R. Civ. P. 13(a) by considering, in part, "whether

substantially the same evidence" will support or refute the claims)

(internal quotations omitted).

When stated in terms of a "logical relationship," the

standard for proper joinder is admittedly rather abstract. But

case law has added a substantial gloss that should guide us here.

The joinder-or-severance issue in this case alleging unfair

competition is similar to issues federal courts have faced in many

11The closest plaintiffs came to alleging concerted action was their allegation that the various defendants formed an "oligopoly" that "co-monopolized" [sic] the market. But parallel oligopolistic behavior does not require or necessarily imply coordinated conduct. See Kleen Products LLC v. Georgia-Pacific LLC, 910 F.3d 927, 931 (7th Cir. 2018) ("Oligopolies have always posed problems for conventional antitrust law: without something that can be called an agreement, they elude scrutiny under section 1 of the Sherman Act . . . .").

- 55 - cases alleging various forms of unfair or unlawful competition

against multiple, independent competitors.

The best parallels to this case are cases where a patent,

trademark, or copyright holder tries to sue multiple independent

copyright. Such infringement cases all allege forms of illegal

conduct to compete against the plaintiffs. Those cases invoke

federal statutes, whereas plaintiffs here claim a form of unfair

competition based on alleged violations of the Governor's

executive orders and a broad Puerto Rico tort statute. For

purposes of joinder v. severance, though, the key similarities are

that the plaintiffs allege that separate competitors have taken

unlawful action to obtain competitive advantages over the

plaintiff, but have done so independently of one another.

Patent, copyright, and infringement cases against

multiple, independent competitors often raise misjoinder issues

very similar to the issue here. District courts decide such issues

often. The issues rarely reach the circuit courts of appeals. A

review of relevant case law shows, however, that the plaintiffs'

allegations here do not permit proper joinder of the claims against

Costco and the other defendants.

One of the rare circuit cases, the Federal Circuit's

decision in In re EMC Corp., is especially instructive. In EMC

Corp., a patent holder tried to join in one action its claims

- 56 - against several competing defendants for infringement of the same

patent. 677 F.3d at 1353. The district court in the case held

joinder proper on the theory that the plaintiff's claims arose out

of the same series of transactions. The district court found it

sufficient that the defendants' allegedly infringing services were

"not dramatically different." Id. at 1354.

The Federal Circuit rejected that standard and applied

instead the "logical relationship" standard. Id. at 1358–59. The

court explained that the district court's "not dramatically

different" standard would always be satisfied, even where the

accused products and processes were different:

We agree that joinder is not appropriate where different products or processes are involved. Joinder of independent defendants is only appropriate where the accused products or processes are the same in respects relevant to the patent. But the sameness of the accused products or processes is not sufficient. Claims against independent defendants (i.e., situations in which the defendants are not acting in concert) cannot be joined under Rule 20's transaction-or-occurrence test unless the facts underlying the claim of infringement asserted against each defendant share an aggregate of operative facts. To be part of the "same transaction" requires shared, overlapping facts that give rise to each cause of action, and not just distinct, albeit coincidentally identical, facts. The sameness of the accused products is not enough to establish that claims of infringement arise from the "same transaction." Unless there is an actual link between the facts underlying each claim of infringement, independently developed products using differently sourced parts are not part of the same transaction,

- 57 - even if they are otherwise coincidentally identical.

Id. at 1359 (emphases added).

Based on that analysis, the Federal Circuit ordered the

district court to reconsider the issue of severance under the

proper standard. On remand, the district court ordered severance,

making clear that joinder required more than the theories of

parallel but independent infringement offered by plaintiff:

In conclusion, the Court finds that the creation of five (5) separate lawsuits is appropriate in this case based on the lack of a logical relationship between the claims against each Defendant. According to the motions before the Court, each Defendant's accused product is different, Defendants are competitors of each other, Defendants worked independently to create their accused products, and there is no aggregate of operative facts that would indicate joinder is appropriate in this case. Under Rule 20, the unrelated Defendants in this case were improperly joined and should be severed into their own cases.

Oasis Research, LLC v. Carbonite, Inc., No. 4:10-CV-435, 2012

WL 3544881, at *6 (E.D. Tex. Aug. 15, 2012)(emphasis added).

The thrust of EMC Corp. is that a plaintiff cannot

establish a "series of transactions" for purpose of Rule 20(a)

by alleging that independent defendants independently

violated the same law in the same way, but in separate

transactions. If the law were otherwise — i.e., if the common

questions of law and fact were sufficient to establish a

- 58 - series of transactions or occurrences — the separate and

independent requirements of Rule 20(a) would be merged.

The principle applied in EMC Corp. has been

anticipated, followed, and applied to reject severance in a

host of infringement cases against multiple competitors.

E.g., Pinpoint, Inc. v. Groupon, Inc., No. 11 C 5597, 2011 WL

6097738, at *1 (N.D. Ill. Dec. 5, 2011) (severing claims

against "unrelated companies that have nothing in common

except [plaintiff's] allegation that they have infringed the

same . . . patents"); Rudd v. Lux Prod. Corp. Emerson Climate

Techs. Braeburn Sys., LLC, No. CIV.A. 09-CV-6957, 2011 WL

148052, at *3 (N.D. Ill. Jan. 12, 2011)(collecting cases: "a

party fails to satisfy Rule 20(a)'s requirement of a common

transaction or occurrence where unrelated defendants, based

on different acts, are alleged to have infringed the same

patent"); ThermaPure, Inc. v. Temp-Air, Inc., No. 10-CV-4724,

2010 WL 5419090, at *4 (N.D. Ill. Dec. 22, 2010) (finding

Rule 20(a)'s common transaction or occurrence requirement not

satisfied "where multiple defendants are merely alleged to

have infringed the same patent or trademark."); Golden

Scorpio Corp. v. Steel Horse Bar & Grill, 596 F. Supp. 2d

1282, 1285 (D. Ariz. 2009) (following "authority from other

courts provid[ing] that allegations against multiple and

unrelated defendants for acts of patent, trademark, and

- 59 - copyright infringement do not support joinder under Rule

20(a)"); Androphy v. Smith & Nephew, Inc., 31 F. Supp. 2d

620, 623 (N.D. Ill. 1998) (finding misjoinder in patent

infringement claim involving "separate companies that

independently design, manufacture and sell different products

in competition with each other."); New Jersey Mach. Inc. v.

Alford Indus. Inc., 21 U.S.P.Q. 2d 2033, 2034–35 (D.N.J. 1991)

("claims of infringement against unrelated defendants,

involving different machines, should be tried separately

against each defendant"); Siemens Aktiengesellschaft v.

Sonotone Corp., 370 F. Supp. 970, 974 (N.D. Ill. 1973).12

12 The cited patent cases all pre-date the Smith-Leahy America Invents Act of 2011, P.L. 112-29, which added 35 U.S.C. § 299, restricting joinder of parties in patent cases consistent with the cited cases. Section 299(b) provides that "accused infringers may not be joined in one action as defendants or counterclaim defendants, or have their actions consolidated for trial, based solely on allegations that they each have infringed the patent or patents in suit." The accompanying committee report explained that the provision was intended to adopt the majority view described in the Rudd v. Lux Products case cited above and to reject a minority view then common in the Eastern District of Texas and a few others. See H.R. Rep. 112-98 at 54-55 & n.61, as reprinted in 2011 U.S.C.C.A.N. 67, 85–86 & n.61 (expressly approving majority view summarized in Rudd). The Rudd court noted its agreement that the more expansive approach to permissive joinder eviscerated the same-transaction-or-occurrence requirement and made it indistinguishable from the requirement that there be a common issue of law or fact. 2011 WL 148052, at *2. My approach here is consistent with Rudd and Section 299. A series of decisions dealing with attempts to join copyright infringement claims based on BitTorrent helps illustrate the

- 60 - The course followed by most courts gives independent

meaning to both requirements for permissive joinder under Rule

20(a), thus avoiding treating either requirement as surplusage.

See generally, e.g., United States v. Holmquist, 36 F.3d 154, 160

(1st Cir. 1994) (interpretation should avoid rendering statutory

words or phrases redundant). Accordingly, plaintiffs' claims

against Costco and Wal-Mart for unfair competition do not "aris[e]

out of the same transaction, occurrence, or series of transactions

or occurrences." Fed. R. Civ. P. 20(a)(2)(A). Plaintiffs have

not offered allegations or evidence that the defendant competitors

engaged in joint or collective action that might have justified

treating their alleged actions as being "a series of transactions

or occurrences."

Against this weight of persuasive authority rejecting

joinder in other cases alleging that independent competitors

competed with the plaintiff unfairly by violating the same patent,

trademark, or copyright, the majority must look even further afield

importance of joint or concerted action to justify joinder, as explained in AF Holdings, LLC v. Does 1-1058, 752 F.3d 990, 998 (D.C. Cir. 2014). See also, e.g., New Sensations, Inc. v. Does 1- 175, 947 F. Supp. 2d 146, 150 (D. Mass. 2012) (rejecting similar attempt at joinder); Liberty Media Holdings, LLC v. Swarm Sharing Hash File, 821 F. Supp. 2d 444, 451 (D. Mass. 2011) (allowing similar attempt at joinder based on collective "swarm" under BitTorrent). Plaintiffs here have not offered allegations or evidence comparable to the BitTorrent "swarms" that have divided a number of district courts.

- 61 - for support for denying severance here. The majority relies on

general language from Iglesias v. Mutual Life Insurance Co. of New

York, 156 F.3d 237 (1st Cir. 1998), abrogated on other grounds by

Global NAPS, Inc. v. Verizon New England Inc., 603 F.3d 71 (1st

Cir. 2010), but at the same time must distinguish Iglesias on its

facts, and on the Fourth Circuit's conclusory treatment in a quite

different context in Courthouse News Service v. Schaefer, 2 F.4th

318, 325 (4th Cir. 2021).

Iglesias applied the difference between compulsory and

permissive counterclaims between the same parties. Even where

plaintiff's claims and the defendant's counterclaim in Iglesias

arose between the same parties, arose out of the same employment

relationship, and arose at the same time, that was not enough to

treat the counterclaim as compulsory. 156 F.3d at 241–42. In

this case, plaintiffs' claims against the different defendants

arose at the same time, but here we are also dealing with the quite

different problems posed by joining claims against multiple and

independent defendants, with the accompanying effects on

jurisdiction that we see here. Iglesias offers little support.

The most remarkable feature of the majority's treatment

of the severance question is the absence of support from any

remotely analogous case. The majority's best offering is

Courthouse News Service, where the Fourth Circuit allowed joinder

of the plaintiff's First Amendment claims against the clerks of

- 62 - two county courts in Virginia. 2 F.4th at 325. The Fourth Circuit

quoted the phrase "logical relationship" and allowed the joinder

because the plaintiff alleged identical claims against similarly

situated defendants, without further explanation. The Courthouse

News Service case was not against two competitors acting

independently of one another. It was against two similarly

situated public officials pursuing the same course of conduct. It

is not difficult to understand the Fourth Circuit's impatience

with the severance issue, especially in the absence of any argument

for resulting prejudice to either defendant, but it offers little

insight for cases of alleged unfair competition like this one.

The majority also takes aim at the patent, trademark,

and copyright cases that offer us the closest guidance here. It

targets one of the district court cases, Golden Scorpio Corp. v.

Steel Horse Bar & Grill, 596 F. Supp. 2d 1282 (D. Ariz. 2009), for

close attention, ante at 46, but even that shot at the selected

target misfires. The plaintiff in Golden Scorpio sued thirteen

independent defendants for infringing its trademark. The district

court ordered severance, invoking the general proposition that

"allegations against multiple and unrelated defendants for acts of

patent, trademark, and copyright infringement do not support

joinder under Rule 20(a)." 596 F. Supp. 2d at 1285. The majority

tries to distinguish Golden Scorpio, but on grounds that were not

relied upon in Golden Scorpio itself: the defendants were in

- 63 - different states, and the complaint was silent about the time for

the presumably contemporaneous and ongoing alleged trademark

violations. The attempted distinctions are not persuasive for

Golden Scorpio, let alone for so many other cases.

Given the absence of remotely comparable precedents for

joinder here and the weight of persuasive authority from cases

alleging unfair competition by independent competitors infringing

the same patent, trademark, or copyright, I respectfully submit

that severance was certainly the better course here and even the

only sound course, once the jurisdictional consequences are

understood.13

The stakes under CAFA for this question of misjoinder of

these claims under state law may well be even higher than under

13While I believe the district court erred in denying severance, I recognize that the common factual and legal issues in plaintiffs' claims against Wal-Mart and Costco could easily lead a court to coordinate discovery and other pretrial proceedings for the sake of efficiency, or perhaps coordination and/or consolidation under Federal Rule of Civil Procedure 42(a) and state-court analogues. Such arrangements are the heart of multi- district litigation under 28 U.S.C. § 1407 and are common in many ad hoc arrangements in federal and state courts. But coordination for the sake of efficiency does not require or justify full-fledged joinder. The choice between formal joinder or severance can often have powerful procedural consequences, including venue, personal jurisdiction, and control of the timing of appeals, and in a case like this one, federal jurisdiction. For the different consequences of consolidation under Rule 42(a), see Hall v. Hall, 584 U.S. 59 (2018) (reviewing limited effects of consolidation and allowing separate appeal from final judgment in one of two consolidated cases).

- 64 - patent and copyright cases, in which federal courts will have

jurisdiction over all the claims, whether they are joined or

severed. Under CAFA, the severance issue may control whether a

defendant can actually exercise the right to have the case heard

in federal court, as it would in a stand-alone case against that

defendant. That right to have more actual and putative class

actions heard in federal courts is the central goal of CAFA. See

Pub. L. 109-2, § 2, 119 Stat. 4 (2005) (congressional findings and

purposes to assure fair adjudication of class actions by hearing

more in federal courts).

Costco was the only non-local defendant among the four

co-defendants originally named by the plaintiffs (Costco,

Wal-Mart, Walgreens, and CVS). If the claims against Costco had

been severed as requested, the district court would have retained

jurisdiction over plaintiffs' claims against Costco by relying

either on its standard diversity jurisdiction, 28 U.S.C.

§ 1332(a)(1), or CAFA jurisdiction under 28 U.S.C. § 1332(d).

Because the local controversy exception applies to the joined case,

the district court's denial of severance deprived Costco of a

federal forum to which it was otherwise entitled.

To be clear, I do not contend that denial of a federal

forum should always entitle a defendant to severance. Instead,

courts must "examine whether permissive joinder would comport with

the principles of fundamental fairness or would result in prejudice

- 65 - to either side." Coleman v. Quaker Oats Co., 232 F.3d 1271, 1296

(9th Cir. 2000) (internal quotations omitted). In a case like

this one, where plaintiffs allege no concerted conduct and their

claims against various defendants lack any logical relationship,

the case fails the requirements for permissive joinder of

defendants under Rule 20(a)(2) and borders on fraudulent

misjoinder. Given the absence of a series of common transactions

or occurrences, plus the clear bases for federal jurisdiction over

plaintiffs' claims against Costco in the absence of joinder, denial

of a federal forum to Costco would result in prejudice. The

district court thus abused its discretion in denying Costco's

motion to sever. The district court's continued exercise of

federal jurisdiction over the claim against Costco was proper.

This means that only plaintiffs' claims against Wal-Mart should be

remanded to Puerto Rico courts under CAFA's local controversy

exception.

II. Summary Judgment for Costco

Because I believe the district court had jurisdiction

over plaintiffs' claims against Costco, I would also address the

merits of the district court's grant of summary judgment to Costco.

I would affirm summary judgment for Costco for the reasons given

by the district court.

Summary judgment was proper if "there is no genuine

dispute as to any material fact and the movant is entitled to

- 66 - judgment as a matter of law." Fed. R. Civ. P. 56(a). As the

parties opposing summary judgment, plaintiffs needed to offer

evidence of "specific facts sufficient to deflect the swing of the

summary judgment scythe." Theidon v. Harvard Univ., 948 F.3d 477,

494 (1st Cir. 2020) (quoting Mulvihill v. Top-Flite Golf Co., 335

F.3d 15, 19 (1st Cir. 2003)). "For this purpose, [they] cannot

rely on 'conclusory allegations, improbable inferences,

acrimonious invective, or rank speculation.'" Id. (quoting Ahern

v. Shinseki, 629 F.3d 49, 54 (1st Cir. 2010)).

On appeal, plaintiffs assert only their claim of unfair

competition under Article 1802 of the Puerto Rico Code, P.R. Laws

Ann. tit. 31 § 5141, which establishes a general tort action under

Puerto Rico law: "A person who by an act or omission causes damage

to another through fault or negligence shall be obliged to repair

the damage so done." Id. To recover under Article 1802, a

plaintiff must show "(1) a duty requiring the defendant to conform

to a certain standard of conduct, (2) a breach of that duty, (3)

proof of damage, and (4) a causal connection between the damage

and the tortious conduct." Baum-Holland v. Hilton El Con Mgmt.,

LLC, 964 F.3d 77, 87 (1st Cir. 2020) (footnote omitted) (quoting

Blomquist v. Horned Dorset Primavera, Inc., 925 F.3d 541, 547 (1st

Cir. 2019)).

Here, plaintiffs argue that Costco had a duty to avoid

unfair competition, which they locate in the Puerto Rico Antitrust

- 67 - Act ("Act 77"). Section 259(a) of Act 77 provides: "Unfair methods

of competition, and unfair or deceptive acts or practices in trade

or commerce are hereby declared unlawful." P.R. Laws Ann. tit. 10

§ 259(a). Act 77 does not itself create a private cause of action.

See id. § 268(a); Diaz-Ramos v. Hyundai Motor Co., 501 F.3d 12, 15

(1st Cir. 2007) (affirming dismissal of § 259 claim: "The [Puerto

Rico] Antitrust Act explicitly states that there is no private

right of action for a violation of section 259(a) . . . .").

Plaintiffs argue, however, that a violation of Act 77

triggers the right to bring an action under Article 1802, Puerto

Rico's general tort statute. Relying on Puerto Rico case law, the

district court agreed with the general proposition that claims for

unfair competition are cognizable under Article 1802. In the

hearing on cross-motions for summary judgment, the district court

said it was "persuaded by" defendants' argument that the language

of the executive orders did not create a specific duty on the part

of exempt retailers like Costco to avoid selling non-essential

goods. The court found that a duty to refrain from non-essential

sales "cannot be found simply in the . . . broad language of [Act]

77," with its generic duty to avoid unfair competition. Thus, the

district court concluded that plaintiffs' unfair competition claim

against Costco under Article 1802 failed for lack of any duty.

In a nutshell, I agree. In addition, plaintiffs have

not plausibly alleged that Costco actually violated the terms of

- 68 - the executive orders. Costco was allowed to remain open because

it sold essential goods. The executive orders did not expressly

or implicitly require a merchant like Costco to divide its

inventory into "essential" and "non-essential" categories and to

refuse to sell non-essential goods. Moreover, each executive order

included a provision entitled "Non-Creation of Enforceable Rights"

stating:

This Executive Order is not intended to create any rights, substantive or procedural, enforceable at law or equity, by any person or entity, in any matter, civil, criminal, or administrative, against the Government of Puerto Rico or its agencies, officials, employees, or any other person.

Plaintiffs' claims against Costco run directly contrary

to this disclaimer. Plaintiffs seek to leverage the executive

orders to create substantive rights in favor of plaintiffs

enforceable at law against "any other person," i.e., Costco, for

selling non-essential goods when it was properly open to sell

essential goods.

Even if plaintiffs could overcome those problems, we

could still affirm summary judgment for Costco on an alternative

ground that it argued before the district court and in this court

— causation. Plaintiffs failed to offer any evidence from which

a reasonable factfinder could conclude that Costco's actions

caused any injury to any plaintiffs. Article 1802 requires a

- 69 - plaintiff to prove that the defendant's breach of its duty was a

proximate cause of the damage suffered by plaintiffs.

Baum-Holland, 964 F.3d at 88. "This causation analysis requires

that two elements be met: (1) the defendant's breach of its duty

of care must be the actual cause of the injury suffered by the

plaintiff, and (2) the injury suffered must have been reasonably

foreseeable to the defendant." Id.

To defeat summary judgment on the merits here,

plaintiffs needed to offer evidence that losses they suffered

during the 72-day partial lockdown were both actually and

proximately caused by Costco's sales of non-essential goods.

Plaintiffs themselves allege that their shops were required to

close by the executive orders, not because of Costco's conduct.

Plaintiffs' theory of causation is that if Costco had refrained

from selling non-essential goods, Puerto Rico consumers would have

delayed their purchases of non-essential goods until the executive

orders expired and then would have purchased equivalent goods from

the local retailer plaintiffs instead of from Costco and other

On this record, a jury finding of causation on that

theory would be unreasonable. First, there is no evidence that,

if Costco had refrained from selling non-essential goods,

consumers would have merely delayed such purchases rather than

either forgoing the purchases or buying through channels other

- 70 - than brick-and-mortar stores. For instance, plaintiffs pointed to

a particularly high volume of lost revenue from Mother's Day in

May 2020. To recoup those lost profits, however, plaintiffs'

theory of causation required them to show that consumers would

have delayed their Mother's Day purchases until after the executive

orders had expired, well after Mother's Day. The record contains

no support for this implausible premise. In addition, customers

unable to buy non-essential items might have bought them online

and had them shipped directly to their homes, an especially common

practice during the pandemic that was permitted under the executive

orders.

The district court declined to dismiss plaintiffs'

claims based on this creative theory of harm, but at summary

judgment, they did not supply evidence to support it. They seek

to recover revenue on every product they claim they would have

sold over the 72 days, but they do not identify which of these

products Costco also sold and did not seek to prove that Costco

sold reasonable substitutes for every item plaintiffs claim they

would have sold. To prove that the plaintiffs' lost sales went to

Costco, plaintiffs would have needed to meet a substantial burden

by offering evidence on "the universe of products" that both they

and Costco sold "that are considered 'reasonably interchangeable

by consumers for the same purposes.'" Flovac, Inc. v. Airvac,

Inc., 817 F.3d 849, 854 (1st Cir. 2016) (quoting United States v.

- 71 - E.I. du Pont de Nemours & Co., 351 U.S. 377, 395 (1956)).

Generally, to determine which products are "in the same market"

and "interchange[able]" for consumers, a party must ask "expert

economists to testify." U.S. Healthcare, Inc. v. Healthsource,

Inc., 986 F.2d 589, 599 (1st Cir. 1993). Experts look to "[u]sage

patterns, customer surveys, actual profit levels, comparison of

features, ease of entry, and many other facts" to measure the

"interchangeability of products" within a market. Id.

Plaintiffs did not offer any expert testimony on these

factual elements, as would have been needed to support their theory

of causation. After plaintiffs failed to submit expert reports by

the case management deadline, the court denied their requests for

an extension. Plaintiffs do not challenge that denial. They rely

instead on general assertions from their own accountants that

plaintiffs' and defendants' stores sell some similar items and are

in close proximity. (Some of these assertions are made in "unsworn

statements," but let's bypass that flaw.) This evidence is not

sufficient to meet plaintiffs' burden of producing evidence of

specific facts to defeat summary judgment. Theidon, 948 F.3d at

494. The only reasonable conclusion from this record is that many

of plaintiffs' sales were permanently lost for reasons wholly

unrelated to Costco's conduct. The district court correctly

granted summary judgment for Costco on plaintiffs' unfair

competition claim under Article 1802.

- 72 - For these reasons, I respectfully dissent from the

remand of plaintiffs' claims against Costco to the Puerto Rico

courts. I would affirm summary judgment for Costco on the merits.

- 73 -