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CAFA Law Blog Information, cases and insights regarding the Class Action Fairness Act of 2005

District Court Follows Arbuckle in Determining that CAFA’s “Local Controversy” Exception Does Not Apply Where Ambiguities in Class Definitions Exist

Posted in Case Summaries

Municipal Water Authority of Westmoreland County v CNX Gas Co L L C , 2016 WL 5025752 (W.D. Pa. Sep. 20, 2016).

In  this case the U.S. District Court for the Western District of Pennsylvania (“District Court”) denied a plaintiff’s motion to remand determining that the plaintiff failed to establish the local controversy exception CAFA.

The plaintiff, a water utility company and owner of gas rights in Westmoreland County, Pennsylvania, brought a putative class action in the Pennsylvania state court against the defendants, two gas production companies and lessees of the plaintiff’s gas rights, alleging that the defendants breached the oil and gas lease agreement entered into by the parties.  Pursuant to the lease agreements, the plaintiff was entitled to royalties on natural gas used and sold by the defendants on property owned by the putative class members. The putative class was defined in the complaint as royalty owners under oil and gas lease entered into with defendants and pursuant to which natural gas had been produced.

The defendants removed the case under CAFA, asserting, among other things, that the minimal diversity of citizenship requirement was met because one of the defendants was a citizen of Texas, while the plaintiff was a citizen of Pennsylvania.  The plaintiff moved to remand the case on the basis that the local controversy exception to the court’s subject matter jurisdiction under CAFA applied to the case.  In particular, the plaintiff argued that more than two-thirds of the putative class were citizens of Pennsylvania as required under the local controversy exception because the complaint, when considered in its entirety, limited the class to only persons who owned royalties under leases for gas wells located in Pennsylvania.  The defendants argued that the local controversy exception did not apply because the class definition in the complaint was not limited to Pennsylvania lessees, but lessees of states other than Pennsylvania, and that the plaintiff failed to offer any evidence with respect to the citizenship of the putative class.

In light of the parties’ arguments, the District Court permitted the plaintiff limited discovery in connection with the location of the gas wells referenced in the class definition set forth in the complaint.

Following the limited discovery, the plaintiff acknowledged that it could not meet its burden to show that more than two-thirds of the putative class were citizens of Pennsylvania if the District Court were to only consider the class definition set forth in the complaint without reading the definition in conjunction with the other allegations in the complaint.  Nevertheless, the plaintiff argued that the District Court should consider the entirety of the complaint to determine the applicable putative class definition and should not limit its reading to the class definition alone.

In its ruling, the District Court relied on the Fifth Circuit decision in Arbuckle Mt. Ranch of Texas, Inc. v. Chesapeake Energy Corp., 810 F.3d 335 (5th Cir. 2016), in which the plaintiff argued that the local controversy exception applied despite conflicting class definitions set forth in the complaint. (Editor’s Note:  See the CAFA Law Blog analysis of Arbuckle posted on January 13, 2016). In Arbuckle, the Fifth Circuit elected to review the entirety of the complaint and determined that because a plaintiff has the burden of proof to prove the local controversy exception applies to a case, ambiguities should be resolved against the plaintiff and in favor of the defendants.

Adopting the Fifth Circuit’s analysis in Arbuckle, the District Court determined that it was not constrained to consider only the formal class definition set forth in the complaint, and that the complaint should be reviewed in its entirety.  However, upon review of the entirety of the complaint, the District Court held that the class definitions advanced by the plaintiff and the defendants were in conflict with each other, and where the complaint contained ambiguities with respect to class definitions, the plaintiff did not satisfy its burden to prove by a preponderance of the evidence that the local controversy exception applied.

Accordingly, the District Court denied the plaintiff’s motion to remand.

Posted By: Kevin Kim