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

A “Resident” Is Not The Same As A “Citizen” For Purposes Of CAFA’s Local Controversy Exception

Posted in Case Summaries

White Knight Diner, LLC v. Arbitration Forums, Inc. No. 4:17-cv-02406 (E.D. Mo. Jan. 12, 2018).

In this action, while denying the plaintiffs’ motion to remand, a District Court in Missouri found that the plaintiffs could meet their burden under the CAFA’s Local Controversy Exception by presenting evidence of citizenship or by defining the class to include only citizens of the relevant state, however, merely alleging residency was not enough.

The plaintiffs brought a putative class action in the Circuit Court of St. Louis County, Missouri, on behalf of various Missouri insureds, for damages incurred as a result of the alleged misconduct of their respective insurance companies, and the insurance companies for unnamed third-party tortfeasors, in connection with an arbitration services company. The plaintiffs named as the defendants Arbitration Forums, Inc., State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Company (collectively “State Farm”), Owners Insurance Company, Safeco Insurance Company, Zurich Insurance Company, Acuity Insurance Company, and AAA Insurance Company.

State Farm removed the action to the federal court pursuant to CAFA. The plaintiffs moved to remand, which the District Court denied.

The plaintiffs argued that the District Court must remand the case pursuant to the local controversy exception to CAFA jurisdiction.

The defendants did not dispute that the plaintiffs satisfied the third and fourth requirement under the local controversy exception that the principal injuries occurred in Missouri, and that no other class action with similar facts had been filed within the three years prior to the present action commencing respectively. The defendants, however, disputed that the plaintiffs satisfied the first and the second requirement under the local controversy exception.

The District Court noted that for the first requirement, the plaintiffs must establish by a preponderance of the evidence that more than two-thirds of the plaintiffs’ class members were citizens of Missouri as of the date of the operative complaint. The plaintiffs in their motion to remand, stated that at the very least, well over ninety percent of the putative plaintiff class members would have been residents of the State of Missouri at the time this action was filed.  The District Court, however, found that the plaintiffs’ proposed class definition contained no such Missouri-based limitation, and instead, the class consisted broadly of all persons who suffered a property damage loss caused by a third party; were insured by one of the defendant insurance companies; and whose insurer made a subrogation claim against the third-party or his insurer following payment to the insured for property loss.  The District Court further found that the only connection to Missouri was the location of the alleged subrogation claims between the defendants and the insurers of the alleged tortfeasors.

Additionally, the District Court found that the Eighth Circuit in Hargett v. RevClaims, LLC, 854 F.3d 962 (8th Cir. 2017) held that a “resident” is not the same as a “citizen” for purposes of CAFA’s local controversy exception.  (Editor’s Note: See the CAFA Law Blog analysis of Hargett posted on June 2, 2017).  In Hargett, the Eighth Circuit remanded the case to the district court because the record did not contain sufficient evidence to determine the citizenship of the class members, and whether they triggered the local controversy exception.  The Eighth Circuit instructed that plaintiffs like Hargett could meet their burden by presenting evidence of citizenship or by defining the class to include only citizens of the relevant state, however, merely alleging residency was not enough.  The District Court therefore ruled that the plaintiffs had not met their burden of establishing predominantly local citizenship, which precluded a finding that the local controversy exception applied.

Next, for the second requirement, the District Court noted that at least one defendant “from whom significant relief is sought by members of the plaintiff class” and “whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class” is a citizen of the state in which the class action was originally filed.

In support of their contention that AAA, the only local defendant, was a “significant defendant,” the plaintiffs submitted a number of exhibits with their motion to remand, offering matters outside the pleadings. The District Court, however, noted that in determining if a defendant is “significant” under the local controversy exception, the majority of circuits found that the district court should consider only the allegations in the plaintiff’s complaint or petition for damages.  The District Court thus confined itself to the plaintiffs’ pleadings and the allegations contained therein in considering whether AAA was a “significant defendant.”

The plaintiffs’ petition alleged that all defendants engaged in the same negligent or fraudulent conduct and sought the same relief from all defendants. The defendants argued that nothing in the petition distinguished AAA’s conduct from the conduct of the other out-of-state defendants.

The District Court explained that the plaintiffs could have satisfied their burden, for example, by including in their petition the number of Missouri residents AAA insured compared to the other insurance company defendants, and an estimate of the alleged subrogation payments received by AAA in comparison to those made by the non-Missouri defendants. The District Court, however, found that the only AAA specific allegation in the petition was that AAA was “a Missouri insurance company duly authorized and existing in accordance with Missouri Statute and, as such, writes, sells, and processes casualty and liability insurance claims in the State of Missouri.”  The District Court thus opined that it had no means of determining whether AAA’s activity formed a significant basis for the claims asserted.  The District Court therefore ruled that the plaintiffs had not demonstrated that AAA, a local defendant, was a significant defendant, which also precluded a finding that the local controversy exception applied.

The District Court concluded that the plaintiffs had failed to meet their burden of proving that CAFA’s local controversy exception applied in this case, and accordingly, denied their motion to remand.

-Melissa M. Grand