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

Local Defendants Must be Significant Defendants

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Lefevre v Connextions Inc., 2013 WL 6241732 (N.D. Tex. Dec. 3, 2013).

In this action, the United States District Court for the Northern District of Texas found that the plaintiffs failed to distinguish between a local defendant, and the other defendants in order to establish by a preponderance of evidence that the local defendant was the one from whom significant relief was being sought. Therefore, the district court refused to remand the case under the local controversy exception.

The plaintiffs filed a suit in Texas state court alleging that the defendants offered them jobs with a promise that they would earn between $17 and $25 per hour, as a combination of hourly wages, sales commissions, and performance bonuses, but in reality they were paid nowhere near that amount. The plaintiffs asserted that they only received hourly wages and were never paid commissions on the sales of two specific drug plans. The defendants removed the case under CAFA, and the plaintiffs moved to remand under CAFA’s local controversy exception.

The plaintiffs asserted that there were two local defendants – Ayaya Staffing Professionals Ltd., and Patrick Kerl. The plaintiffs, however, did not contend that Kerl was a significant defendant within the meaning of CAFA. The district court noted that 28 U.S.C. § 1332(d)(4)(A)(i)(II)(aa) requires that Ayaya be one from whom significant relief was sought by the members of the plaintiff class. Second, subsection (bb) requires that Ayaya be one who alleged conduct formed a significant basis for the claims asserted by the proposed plaintiff class. The plaintiffs maintained that Ayaya was a significant defendant because it satisfied the requirements of subsections (aa) and (bb).

The district court noted that the plaintiffs sought damages equally from Ayaya and the other defendants. The district court also noted that Ayaya was a local defendant, and therefore, subsection (aa) was satisfied. As to the subsection (bb) the district court noted that in Opelousas General Hospital Authority v. Multiplan, Inc., 2013 WL 3245169 (5th Cir. June 28, 2013), the Fifth Circuit held that the plaintiff failed to satisfy subsection (bb) because the complaint contained no information about the conduct of the local defendant relative to the conduct of the other defendants as it related to the claims of the putative class or even the lead plaintiff. (Editor’s Note: See the CAFA Law Blog analysis of Multiplan here).

Unlike Opelousas General Hospital Authority, the plaintiffs’ complaint included allegations to distinguish the conduct of Ayaya from that of the other defendants. For example, the complaint alleged that Ayaya recruited plaintiffs and the class to work for defendant Connextions, Inc., suggesting that Ayaya was a recruiting organization whereas Connextions was the actual employer. The district court noted that these distinctions, however, were insufficient to prove by a preponderance of the evidence that Ayava was a significant defendant under subsection (bb). In fact, the district court remarked that the distinguishing conduct – that Ayava recruited plaintiffs to work for Connextions – cuts against the finding that Ayava was a significant defendant. The allegations suggest instead that Ayava was merely a recruiting agency that did not itself hire or purport to hire any of the plaintiffs.

In addition, the district court noted that the vast majority of the allegations in the amended petition did not distinguish between the conduct of Ayava and the conduct of the other defendants.

Consequently, the district court found that that the plaintiffs failed to carry their burden under subsection (bb) because they did not prove by a preponderance of the evidence that Ayava was a local defendant “whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class.” Because plaintiffs did not meet their burden of proof as to all the essential elements of the local controversy exception, the court denied their motion to remand. –JR