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

District Court Holds “Local Controversy Exception” Applies And Remands Case Back to State Court

Posted in Case Summaries

Rhodes v. Kroger Co. 2015 WL 5006070 (E.D. Ark., 2015)

An Arkansas district court reluctantly remanded a putative class action back to state court based on the “local controversy exception” to the CAFA. Plaintiffs’ complaint alleged that “significant relief” was sought from the defendants’ local district managers, and the district managers’ alleged conduct formed a “significant basis for the claims asserted by the proposed plaintiff class.” The court held remand was necessary after analyzing only the allegations contained in Plaintiffs’ complaint.

Complaint Allegations: 

This class action lawsuit alleges that 32 Arkansas Kroger stores, as well as two Arkansas Kroger District Managers, violated Ark. Code Ann. § 4-75-501(a)(2). This statute makes it unlawful for any person or corporation to willfully refuse or fail to allow to any person, corporation, or company making purchases of the manufactured product all rebates and discounts which are granted by them to other purchasers of like quantities.

The complaint alleged Kroger Plus Card members were given discounts not available to non-Card members, and that Kroger Plus Card members over 55 were allowed an extra 5% discount one day a week. The complaint alleges the two district managers of the 32 Arkansas stores were responsible for the discount programs, as well as compliance with Arkansas law.

Procedural History: 

The defendants removed the action arguing that CAFA conferred jurisdiction upon this Court. The defendants argued in the alternative that the district managers were fraudulently joined leaving only The Kroger Co., an Ohio-based corporation, giving the court diversity jurisdiction.

Plaintiffs responded by invoking the local controversy exception, alleging that the district managers made the discount pricing decisions that are a significant basis of the plaintiffs’ claims. Plaintiffs also argued the Court’s analysis must be restricted to only the complaint in deciding whether “significant relief” is sought from the district managers, and whether the district managers’ alleged conduct formed a “significant basis” for the plaintiffs’ claims.

The defendants submitted affidavits stating the discounted pricing decisions were made by Kroger’s corporate office, and they were powerless to override those decisions. If true, the district managers’ conduct could not be a significant basis for the plaintiffs’ claims.

District Court’s Holding: 

The court held, as a matter of statutory interpretation, that they could not look beyond the complaint’s allegations when determining if remand is necessary. Thus, based solely on the complaint, the Court held that the district managers’ alleged conduct formed a significant basis for the plaintiffs’ claims. The Court also held that it lacked diversity jurisdiction because state law might impose liability on the district managers, so the district managers were not fraudulently joined. Accordingly, the Court granted the plaintiffs’ motion to remand the action to the state court.

The Court was reluctant to remand for two reasons.  First, restricting a courts’ analysis to the complaint’s “alleged conduct” risks creating a jurisdictional loophole that will transform the local controversy exception from a narrow exception to a broad one, contrary to Congress’s intent. Second, and most importantly, analyzing the “alleged conduct” rather than “actual conduct” may necessitate disregarding the truth which may be easily ascertained, and possibly undisputed, after a bit of discovery.

Posted by Nicholas Kopcho