Tenth Circuit Affirms Denial of CAFA Remand

The Tenth Circuit recently affirmed a trial court's ruling in a putative class action raising the local controversy exception under the Class Action Fairness Act.  See Reece v. AES Corp., 2016 WL 521247 (10th Cir. Feb. 9, 2015).

Plaintiffs brought a putative class action in Oklahoma state court, alleging that several companies were responsible for environmental pollution stemming from the generation and disposal of coal-combustion waste (“CCW”) and fluid waste from oil and gas drilling (“produced fluid waste” or “PFW”).   Defendants removed the case to the United States District Court for the Eastern District of Oklahoma pursuant to CAFA, 28 U.S.C. § 1332(d)(2). Plaintiffs subsequently filed a motion for remand, claiming that their case fell within the “local controversy” and “home state” and "interest of justice" exceptions articulated in 28 U.S.C. § 1332(d), which require the court to refrain from exercising jurisdiction. To get remand, plaintiffs were obliged to demonstrate, inter alia, that a certain portion of the class members are Oklahoma citizens. See 28 U.S.C. § 1332(d)(3) (requiring a showing under the interest of justice exception that “greater than one-third but less than two-thirds of the members of all proposed plaintiff classes” are citizens of the state where the action was filed); id. § 1332(d)(4)(A)(i)(I) (requiring a demonstration under the local-controversy exception that “greater than two-thirds of the members of all proposed plaintiff classes” are citizens of the forum state); id. § 1332(d)(4)(B) (requiring under the home-state exception that “two-thirds or more of the members of all proposed plaintiff classes” be citizens of the forum state).

The district court held an evidentiary hearing on the motion, at which plaintiffs relied on their amended petition's class definition and summary exhibits based upon data that had been collected from various local and federal sources that purported to compare—as to the class area—the percentage of Oklahoma class members against the percentage of non-Oklahoma class members in that same area. The district court denied the motion for remand, finding that plaintiffs had not met their burden of proving by a preponderance of the evidence that any of the exceptions applied. The district court concluded that, with respect to the class definition itself, there were simply too many variables to assume that the class met the citizenship threshold for any of the exceptions. In particular, the court noted that the class definition included Oklahoma residents and property owners—two groups that could include people who were not Oklahoma citizens.

The district court also observed that the absence of limitations on the temporal period that encompassed the proposed class complicated the citizenship calculus and interjected an additional element of uncertainty into it. Specifically, the court reasoned that the difficulty in assuming citizenship based on residence or property ownership becomes significantly greater because the proposed class was not limited in time. Plaintiffs viewed the proposed class as embracing persons who had been residents in the mid–1990's, the time when the coal-related activities allegedly began, and those impacted as early as 2003 by the disposal of produced oil and gas fluids. Inclusion in the class definition of people who lived in, or owned property in, the class area within the last twenty years injects an additional and substantial amount of uncertainty into the citizenship determination. Some portion of former residents and/or owners will have since moved and become citizens of states other than Oklahoma. Even a relatively low annual rate of such turnover for an area could, over twenty years, substantially impact the citizenship composition of the proposed class.

Plaintiffs appealed.  Under CAFA, a federal district court has subject matter jurisdiction “over class actions involving [1] at least 100 members and [2] over $5 million in controversy when [3] minimal diversity is met (between at least one defendant and one plaintiff-class member).” Coffey v. Freeport McMoran Copper & Gold, 581 F.3d 1240, 1243 (10th Cir.2009) (per curiam); see 28 U.S.C. § 1332(a).

CAFA contains certain mandatory jurisdictional exceptions; where the requirements of those exceptions are met, the district court must eschew jurisdiction and remand the case. Notably, Plaintiffs argued the local-controversy exception, 28 U.S.C. § 1332(d)(4)(A).  The local-controversy exception requires plaintiffs seeking remand to show that “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”—here, Oklahoma. See 28 U.S.C. § 1332(d)(4)(A)(i)(I); see, e.g., Coffey, 581 F.3d at 1243 (describing the citizenship requirement as one of the “three main requirements for plaintiffs to meet in order to satisfy the ‘local controversy exception’ ”). Rather than divesting a court of jurisdiction, the local-controversy exception “operates as an abstention doctrine.” Graphic Commc'ns Local 1B Health & Welfare Fund “A” v. CVS Caremark Corp., 636 F.3d 971, 973 (8th Cir.2011). The local-controversy provision is “a narrow exception that was carefully drafted to ensure that it does not become a jurisdictional loophole” and “all doubts [are] resolved ‘in favor of exercising jurisdiction over the case.’ “ Evans v. Walter Indus., Inc., 449 F.3d 1159, 1163 (11th Cir.2006) (quoting S.Rep. No. 109–14, at 42 (2005)); see also Woods v. Standard Ins. Co., 771 F.3d 1257, 1262 (10th Cir.2014) (“[CAFA]'s provisions should be read broadly, with a strong preference that interstate class actions should be heard in a federal court if properly removed by any defendant.” (quoting S.Rep. No. 109–14, at 43 (2005)).

Plaintiffs defined the class as consisting of all citizens and/or residents and/or property owners' whose injuries occurred within LeFlore County, OK. Plaintiffs bear the burden of establishing the applicability of the local-controversy exception. See, e.g., Woods, 771 F.3d at 1262 (noting that “a party seeking remand to the state court bears the burden of showing jurisdiction in federal court is improper under one of CAFA's exclusionary provisions”); see also Serrano v. 180 Connect, Inc., 478 F.3d 1018, 1019 (9th Cir.2007) (“The structure of the statute and the long-standing rule on proof of exceptions to removal dictate that the party seeking remand bears the burden of proof as to any exception under CAFA.”). Several circuits have required plaintiffs to establish the elements of a CAFA jurisdictional exception by a preponderance of the evidence. See, e.g., Mondragon v. Capital One Auto Fin., 736 F.3d 880, 884 (9th Cir.2013); Vodenichar v. Halcon Energy Props., Inc., 733 F.3d 497, 503 (3d Cir.2013); Hollinger v. Home State Mut. Ins. Co., 654 F.3d 564, 570 (5th Cir.2011); In re Sprint Nextel Corp., 593 F.3d 669, 673 (7th Cir.2010). Some district courts, however, have required less proof, embracing a reasonable-probability standard or something akin to it. See, e.g., Dunham v. Coffeyville Res., LLC, No. 07–1186–JTM, 2007 WL 3283774, at *3 (D.Kan. Nov. 6, 2007) (requiring a “reasonable probability” that the citizenship threshold is satisfied).  Under either approach, the movant must make some minimal showing of the citizenship of the proposed class at the time that suit was filed. Preston v. Tenet Healthsystem Mem'l Med. Ctr., Inc., 485 F.3d 793, 802 (5th Cir.2007).

Plaintiffs' class here was not restricted to citizens; instead, it included “citizens and/or residents and/or property owners.” This definition encompasses groups who may not necessarily be Oklahoma citizens. A person is a citizen of a state if the person is domiciled in that state. Middleton v. Stephenson, 749 F.3d 1197, 1200 (10th Cir.2014). A person acquires domicile in a state when the person resides there and intends to remain there indefinitely, which is established by the “totality of the circumstances.” Id. at 1200–01 (emphasis added).  To be sure, the place of residence is prima facie the domicile. But “allegations of mere residence may not be equated with citizenship.“ Whitelock v. Leatherman, 460 F.2d 507, 514 (10th Cir.1972).  Domicile requires residence in the state and an intent to remain in the state.  And it is even more obvious that mere property ownership in a state does not necessarily equate to citizenship in that state; a person may own property in a state without either being a state resident or intending to remain there. See, e.g., Evans, 449 F.3d at 1165–66.

Accordingly, plaintiffs had to marshal and present some persuasive substantive evidence (extrinsic to the amended complaint) to establish the Oklahoma citizenship of the class members. See, e.g., Lafalier v. Cinnabar Serv. Co., No. 10–CV–0005–CVE–TLW, 2010 WL 1486900, at *5 (N.D.Okla. Apr.13, 2010) (“Mere allegations that plaintiffs are citizens of Oklahoma will not suffice, and plaintiffs must come forward with some evidence establishing their citizenship.”). Indeed, courts have required evidentiary proof even for “propositions that appear likely on their face.” Mondragon, 736 F.3d at 884.
Plaintiffs failed to do so; even sensible inferences are really just “guesswork,” and the district court properly refrained from engaging in such. In sum, the district court here did not err in insisting that plaintiffs demonstrate, through more than their broad pleading averments, that over two-thirds of the proposed class were Oklahoma citizens. And plaintiffs did not meet the burden. .

 

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