Mason, et al., v. Lockwood, Andrews & Newman, 2016 WL 6777325 (6th Cir. Nov. 16, 2016).

The Sixth Circuit affirmed an order remanding the action to the state court finding that the district court rightly applied the local controversy exception holding that, when all the plaintiffs were from the same city, it is all but obvious that the controversy is local.  This is one such case where the circuit court reiterated that a defendant must come forward with much more than their “assumptions” to get over CAFA’s local controversy exception.

The plaintiffs, a group of residents of the City of Flint, Michigan, brought a class action alleging one count of professional negligence against the defendants.  In April 2013, the City of Flint decided to switch its primary water provider from Detroit Water and Sewerage Department (“DWSD”) to the newly formed Karengnondi Water Authority (“KWA”).  The KWA would not be operational for another three years, however, so the City of Flint needed an interim source of drinking water.  The City, therefore, decided to draw from the Flint River, which had previously supplied back-up water services to the City.

Relying only on the Flint River had its own problems.  According to several reports, the river was a highly sensitive drinking water source that required anti-corrosive treatment in order to prevent heavy metals from leaching into the water.  On top of that, these issues needed to remedied quickly, as the City’s contract with the DWSD was set to expire a year later in April 2014.

The City, then turned to Lockwood, Andrews & Newnam, Inc., (“LAN”) a Texas based corporation that touted itself as a national leader in the heavy civil infrastructure engineering industry, and its Michigan-based affiliate, Lockwood, Andrews & Newnam, P.C. (collectively, the “defendants”) for assistance.  On June 26, 2013, the City entered into a contract with the defendants for design engineering services in connection with rehabilitating Flint’s Water Treatment Plant (“the Plant”).  After confirming with the City officials that they could make the necessary improvements and provide the necessary “quality control” in time for the April 2014 switch, the defendants proceeded to develop rehabilitation plans for the Plant.

In April 2014, the Michigan Department of Environmental Quality approved the defendants’ rehabilitation plans.  The plan, however, did not include necessary upgrades for anti-corrosive treatment measures.  In April 2014, the City began supplying its residents drinking water from the Flint River, and the harmful effects were as swift as they were severe.  Within days, the residents complained of foul smelling and tasting water; within weeks, some residents’ hair began to fall out and their skin developed rashes; and within a year, there were positive tests for E. Coli, a spike in deaths from Legionnaires’ disease, and worst of all, reports of dangerously high blood lead levels in Flint children.

All of this resulted, according to one expert who studied the crisis, because the water from the Flint River was 19 times more corrosive than the water pumped from Lake Huron by the DWSD, and without corrosion control treatment, lead was leaching out of the lead-based service lines at alarming rates and finding its way to the homes of Flint’s residents.  In the expert’s view, this was predictable, but preventable.

In this action, the plaintiffs alleged that the defendants failed to implement safeguards when they provided design engineering services in connection with rehabilitating Flint’s Water Treatment Plant (“the Plant”).  The plaintiffs contended that because of the defendants’ failure, no anti-corrosive treatment measures were taken at the plant, the residents of the City became sick, and there was a spike in deaths from Legionnaires’ disease as a result of lead contamination.  The defendants removed the action on the basis of diversity jurisdiction under the CAFA. The District Court remanded the action.  The defendants appealed to the Sixth Circuit.

The plaintiffs argued the District Court correctly found that the CAFA’s local controversy exception applied in this case, and therefore, remand was appropriate. The Sixth Circuit observed that the first element of local controversy exception was that greater than two-thirds of the proposed the plaintiffs were citizens of the state in which the action was originally filed.  Here, the plaintiffs sought to represent all residents and property owners of the City, who used water from the Flint River, and were injured by the defendants’ professional negligence.  The defendants argued that the plaintiffs failed to prove that over two-thirds of the putative class members were citizens of the City. In its citizenship analysis, the Sixth Circuit opined that the law of domicile has long been one of presumptions, and emphasized that case law authorities have historically leaned toward a residency-domicile presumption.  Because the class in this action consisted of only the residents of the City of Flint, the Sixth Circuit held that the District Court was correct to afford the plaintiffs the rebuttable presumption that each resident class member was domiciled there.

The Sixth Circuit observed that the local controversy exception was not jurisdictional; therefore, a party asserting the exception does not encounter a countervailing presumption that neutralizes residency’s presumptive force in establishing domicile.  The Sixth Circuit remarked that, in this context, it would function, like a rebuttable presumption does in any other setting, i.e., shifting the burden to the opposing party to rebut the inference and permitting, but not requiring, the District Court to find the ultimate fact.  The Sixth Circuit pointed to judgments of other federal circuits, which have rejected the rebuttable presumption in the CAFA context, had relied on case law addressing federal subject-matter jurisdiction. Under this rationale, the Sixth Circuit opined that rebuttable presumptions would cease to exist, since the only circumstance in which they served any purpose is when the beneficiary of the presumption bears the burden of proof.

Moreover, the defendants failed to submit any evidence to rebut the presumption; the Sixth Circuit, therefore, concluded that the putative class members were citizens.  The defendants also contested the District Court’s finding that the defendants’ alleged conduct formed a significant basis for the claims asserted by the plaintiffs. The Sixth Circuit remarked that this case involved a single claim of professional negligence against three of the defendants, including LAN, P.C. (a Michigan corporation), LAN, Inc. (a Texas corporation), and Leo A. Daly Co. (a Nebraska corporation).

The plaintiffs did not allege that Leo A. Daly Co. engaged in any engineering services; instead they alleged that Leo A. Daly Co. was LAN P.C.’s and LAN, Inc.’s corporate alter ego, thereby making Leo A. Daly Co. vicariously liable for LAN’s tortious conduct.  The Sixth Circuit observed that the complaint alleged that all engineering work was conducted through LAN, P.C., and that it was formed to conduct LAN, Inc.’s work in Michigan, and that the City relied on LAN, P.C., as the LAN entity that worked with several water systems around the state to perform quality control.  Accordingly, the Sixth Circuit agreed with the District Court that LAN, P.C., a Michigan corporation, was the significant Defendant in this action, and that the CAFA’s local controversy exception was appropriately applied in this action.

Accordingly, the Sixth Circuit affirmed the District Court’s order remanding the action.

— Colleen M. Colton