Eleventh Circuit Exercises Strong Presumption In Favor Of Federal Class Action Jurisdiction Under CAFA

            Eleventh Circuit analyzes CAFA’s expanded federal jurisdiction and reverses an order remanding a class action to Alabama state court because the putative class representatives failed to satisfy the “local controversy” exception to federal jurisdiction. Evans v. Walter Industries, Inc., No. 06-11974, 2006 WL 1374688 (11^th Cir. May 22, 2006)

This case involves a putative class action brought in the Circuit Court of Calhoun County, Alabama by persons who were allegedly exposed to toxic chemicals released by eighteen named defendants. Plaintiffs claim damages for personal injury and property damage under numerous state law causes of action, including nuisance, trespass, negligence, and breach of duty to warn. Four of the defendants removed the case to federal court under provisions of the Class Action Fairness Act (“CAFA”), Pub. L. 109-2, 119 Stat. 4 (2005), which expands federal jurisdiction for class actions and allows removal of class actions if the amounts in controversy exceed $5,000,000 and there is minimal diversity (at least one plaintiff and one defendant are from different states). In response, the plaintiffs moved to remand on the basis that the action qualified for remand under CAFA’s “local controvery” exception to federal jurisdiction. The federal district court granted the plaintiffs’ motion, and the defendants appealed to the Eleventh Circuit Court of Appeals pursuant to CAFA’s provision for interlocutory discretionary appeal from grants or denials of motions to remand class actions.

The Eleventh Circuit first addressed whether its decision satisfied CAFA’s 60-day time limitation on appellate review of remand orders. Under this limitation, if an appellate court accepts a party’s request for discretionary review of a remand order, the court must render judgment within 60 days “after the date on which such appeal was filed.” 28 U.S.C. § 1453(c)(2). The Court of Appeals court held that this 60-day period begins to run on the date that the appellate court accepts the discretionary application for an appeal, rather than the date that the application is filed. According to the court, this interpretation coincides with the Fifth, Ninth, and Tenth Circuit’s analysis of the same provision.

Regarding the merits of the case, the plaintiffs’ sole basis for remand of the case was their argument that the dispute satisfied CAFA’s local controversy exception. Notably, this exception is only satisfied if: (1) greater than two-thirds of the putative class members are citizens of the state in which the action was originally filed, (2) at least one of the defendants from whom significant relief is sought and whose conduct forms the basis of the claims is a citizen of the state at issue, (3) principal injuries resulting from the alleged conduct of each defendant were incurred in the same state, and (4) no other similar class action has been filed asserting similar factual allegations against any of the defendants on behalf of similar persons in the three-year period prior to the filing of the complaint. See 28 U.S.C. § 1332(d)(4)(A).

            The Eleventh Circuit first reviewed CAFA’s legislative history and determined that the statute’s “local controversy” exception was meant to be “a narrow exception that was carefully drafted to ensure that it does not become a jurisdictional loophole.”  2006 WL 1374688, at  * 3-4 (quoting S. Rep. 109-14, at 39).  As such, the court held that Congress contemplated that CAFA would provide broad federal court jurisdiction with narrow exceptions.

            Turning its attention to which party holds the burden of showing that CAFA’s “local controversy” exception was satisfied, the court held that this burden rests with the plaintiffs. While the court recognized that that defendants bear the initial burden of showing that the action meets CAFA's basic requirements for removal (i.e., at least $5,000,000 in controversy and minimal diversity) and that “[n]o other Circuit appears to have addressed the specific question of which party should bear the burden of proof on CAFA's local controversy exception,” it held that CAFA’s statutory framework is materially similar to 12 U.S.C. § 1819, under which the FDIC may remove actions brought against it to federal court and plaintiffs bear the burden of proving that there is a basis to remand under that statute’s limited “state action” exception to removal. Id. at * 4.  Moreover, the Eleventh Circuit held that their approach “places the burden on the party most capable of bearing it” because CAFA’s “local controversy” exception to federal jurisdiction requires evidence regarding the plaintiff’s class to which the putative class representatives have superior access.  Id. at * 8, n.3.

            Next, the Court of Appeals determined that the plaintiffs had not satisfied at least two of the requirements for the “local controversy” exception: (1) that two-thirds of the plaintiff class are  Alabama citizens and (2) that “significant relief” is sought from U.S. Pipe, the only Alabama defendant. The court noted that the only evidence that the plaintiffs produced on the first prong --- the residency of plaintiff class members --- was a perfunctory affidavit of the plaintiffs’ counsel indicating that, of the class members that he had interviewed, roughly 94% were Alabama residents. The court held that the affidavit provided no information regarding the method by which these prospective class members were selected or whether they were property owners or those suffering alleged personal injuries from defendants’ conduct. While the court acknowledged that satisfying the two-thirds requirement would be difficult, it stated that this was merely a “function of the composition of the class designed by plaintiffs.”  Id. at * 6.  Regarding the second prong of the “local controversy” exception --- whether U.S. Pipe was a “significant defendant” --- the Eleventh Circuit held that U.S. Pipe was not a significant defendant as defined by CAFA. The court determined that CAFA’s “significant relief” language contemplates that “the relief sought against that defendant is a significant portion of the entire relief sought by the class” and this determination requires “a comparison of the relief sought between all defendants and each defendant's ability to pay a potential judgment.” Id. at * 6-7. While the plaintiffs claimed that U.S. Pipe operated two foundries in the area purportedly affected by the toxic pollutants, the Court of Appeals noted that no evidence was provided regarding “the significance of the relief that is sought against U.S. Pipe, or its comparative significance relative to the relief sought from the other 17 named co-defendants.” Id. at * 7. Thus, the court held that “there [was] simply no evidence that U.S. Pipe was ‘significant’ with respect to liability.” Id. Indeed, the Eleventh Circuit held that the evidence suggested that U.S. Pipe was not a “significant defendant” because it sold one of the relevant foundry locations in 1951 and the other location appeared to be substantially south of the allegedly affected area. Id.  In addition, the court noted that “numerous other defendants have operations much nearer the largest concentration of identified class members, suggesting that U.S. Pipe's liability might not be significant compared to other defendants, and that the conduct of U.S. Pipe might not form a significant basis for the claims of the class.”  Id.

Consequently, the Eleventh Circuit reversed the district court’s remand order and remanded the case for further proceedings in federal court.

 

In response to the decision, Stephen Devereaux, counsel for Defendant-Appellant United Defense, L.P., stated that his client is “very pleased with the ruling and believe[s] the Court interpreted the Local Controversy Exception exactly as Congress intended by placing the burden of establishing each element of the exception squarely on the plaintiffs and by finding that the Plaintiffs here fell far short of their burden with respect to two of those elements."