Lafalier v. Cinnabar Service Co., Inc., Slip Copy, 2010 WL 1486900 (N.D. Okla., Apr 13, 2010) (NO. 10-CV-0005-CVE-TLW)

While remanding the action to state court under CAFA’s local controversy exception, the District Court in Oklahoma observed that when the defendant did not raise the misjoinder issue—that the local defendant was joined to defeat CAFA jurisdiction – in the notice of removal, and if the complaint has sufficient allegations to establish that a joinder of parties to a law suit, such a joinder was appropriate.

In April 2009, around 52 plaintiffs brought an action in Tulsa County District Court alleging that the Lead-Impacted Communities Relocation Assistance Trust (the Trust) colluded with insurance companies to defraud Oklahoma residents who participated in the buyout of homes in or near the Tar Creek Superfund Site. (My gosh. Who would want to leave near a place called Tar Creek? With a name like Tar Creek, is there any surprise it was a Superfund Site?)

The plaintiffs alleged that the Trust used artificially low appraisals by the defendant Cinnabar Service Company Inc. and Van Tuyl and Associates to reduce payments to homeowners eligible to participate in the buyout. The plaintiffs also alleged that a tornado on May 10, 2008, damaged many homes in Picher, Oklahoma, and the Trust improperly reduced payments under the buyout by the amount paid by homeowner’s insurers for property claims. 

On the same day, the attorneys filed a putative class action in Ottawa County District Court (the Ottawa County case) against the Trust only, where the plaintiffs, Johnny and Patty Lafalier, alleged that the Trust violated the Oklahoma Open Meetings Act and improperly reduced payments to affected residents using amounts paid by homeowners. In this case, the plaintiffs amended their petition twice and named a total of 207 plaintiffs. 

One of the defendants, State Farm Fire and Casualty Company (State Farm), removed the case to federal court under CAFA, stating that this case was a mass action involving 100 or more plaintiffs and the amount in controversy exceeded $ 5 million.

The District Court, sua sponte, asked the parties to brief if this case was subject to remand under the local controversy exception to CAFA. (At this point, hum “I Get By With a Little Help From My Friends” by the Beatles.) 

As if the idea was all of their own, the plaintiffs asked the District Court to remand the case to Tulsa County District Court on three grounds: 1) this case was not a mass action as defined by CAFA; 2) the case fell within the local controversy exception (duh); and 3) the case should be remanded in the interests of justice. (Well, at least the plaintiffs came up with two ideas of their own.)

The District Court noted a mass action is one which had over 100 claimants and one that involved common issues of law or fact. However, CAFA excludes cases that meet these requirements as a mass action, if all of the claims in the action arose from an event in the State in which the action was filed or in States contiguous to that State. 

The plaintiffs argued that their claims arose out of a single event that occurred in Oklahoma and that their alleged injury occurred solely in Oklahoma, therefore it was not a mass action. 

The District Court found that the plaintiffs’ claims were based on a series of events and numerous alleged denials or reductions of insurance claims following the tornado, and subsequent reductions of payments by Trust based on the insurance claims. Therefore, the District Court concluded that this case qualified as a mass action under CAFA.

The District Court found that of 207 named plaintiffs, the plaintiffs submitted affidavits of 176 individual plaintiffs stating that they were citizens of Oklahoma on December 21, 2009, and this was sufficient to establish the first requirement of the local controversy exception. The parties did not dispute the second requirement of the exception that the plaintiffs’ alleged injury occurred in Oklahoma. 

The District Court found that the defendants, J.D. Strong, Larry Roberts, and Cinnabar, satisfied the local defendant requirement for the local controversy exception. In doing so, the District Court noted that plaintiffs alleged that Strong, Roberts, and Cinnabar were citizens of Oklahoma and that their conduct formed a significant basis for the plaintiffs’ claims, and State Farm did not dispute these allegations on these two issues. 

State Farm, however, argued that the plaintiffs had fraudulently misjoined the Trust Defendants – Strong, Roberts, Van Tuyl, and Cinnabar – in this case in an attempt to defeat the Court’s jurisdiction under CAFA, and the Court should sever the plaintiffs’ claim against the Insurer Defendants and retain jurisdiction over that part of the case. 

The District Court disagreed finding that the second amended complaint included sufficient allegations to establish that joinder of claims against the Trust Defendants and Insurer Defendants was proper and that State Farm did not contest this issue in the notice of removal. Therefore, the District Court remarked that it would not consider this issue. 

Finally, State Farm argued that the local controversy exception did not apply because the plaintiffs’ counsel filed the Ottawa County case asserting similar allegations. The District Court found that although the allegations in both cases were similar, the Trust and Roberts were not named as a defendant in this case. The plain language of the statute showed that similar factual allegations must be made against the same defendant in both cases. Because the circumstances were different in both cases, the District Court concluded that there was no class or mass action against any defendant in this case concerning the same or similar factual allegations pending at the time this case was filed. 

Therefore the District Court concluded that the plaintiffs established that each element of the local controversy exception, and remanded the case to the district court of Tulsa County.