Sixth Circuit Narrowly Construes CAFA’s Local Controversy Exception

by BakerHostetler

Congress passed the Class Action Fairness Act (CAFA) in 2005 to address a series of well-documented abuses of the class action process. Among the protections of the act were provisions enabling class action defendants to remove class action cases more readily than had been allowed before. 28 U.S.C. § 1332(d). The new CAFA removal provisions very generally permitted removal of class actions filed in state court when the amount in controversy exceeds $5 million, there are at least 100 class members and any class member is a citizen of a different state from any defendant. 28 U.S.C. § 1332(d)(2), (10). Desiring to keep such claims in state court, plaintiffs have devised ways to thwart removal by, for example, artificially deflating the amount in controversy or deliberately withholding demands for higher amounts until the time for removal has arguably passed. We’ve blogged some of these efforts here. While many of these cases have been decided in contexts outside employment, they apply with equal force in cases arising from workplace disputes.

A recent case from the Sixth Circuit, although not in the employment context, addresses another stratagem by plaintiffs’ counsel: reliance on CAFA’s local controversy exception. That exception, codified at 28 U.S.C. § 1332(d)(4)(A), provides that even if a case otherwise falls within CAFA, a district court must decline jurisdiction if a series of tests is met. That section specifically provides that a district court must decline to exercise diversity CAFA jurisdiction but contains, depending on how you count, somewhere between two and six elements, the last of which has nothing to do with location. More specifically, it provides that a district court should decline jurisdiction:

(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

(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.

As above, this last element does not focus on location but on the lack of any class actions arising out of the same facts in the previous three years. Given the frequency with which class actions are brought, pursuant to the very last element of the test, the question may arise whether prior actions assert “the same or similar factual allegations” as the one in dispute or how the exception will apply when the claim arises from a discrete location.

In Davenport v. Lockwood, Andrews & Newnam, Inc., Case No. 17-1200 (6th Cir. Apr. 25, 2017), the plaintiffs brought suit over the highly publicized problems arising out of lead contamination and other serious health issues involving the water supply in Flint, Michigan. Theirs was one of several class actions filed regarding the same matter generally, but it focused on water consultants who had rendered advice to the city of Flint. For obvious reasons, the plaintiffs brought suit in state court where the water problems arose and wanted it to stay there. The defendant removed the case to federal court, which applied the local controversy exception and remanded it for lack of subject matter jurisdiction. The defendants appealed.

The Sixth Circuit agreed that the case was largely a “local” one from a colloquial standpoint – its scope was limited to the water supply in a single local city, Flint. But the statute did not define local by a dictionary definition but by the test set out above. Finding that several class actions had been filed in the prior three years, the court found that the exception was not satisfied and reversed.

Davenport reflects the continued tension over CAFA, in which plaintiffs desire that their cases, particularly ones with localized or especially sympathetic facts, stay in state court, but the language and intent of the statute make it clear that the matter is one for the federal courts.

The bottom line:

Despite some missteps by lower courts, appellate courts continue to require enforcement of CAFA by its express terms.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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