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

CAFA’s Home-State Controversy Exception Applies When All “Primary Defendants” Are From the Same State

Posted in Case Summaries

McCracken v Verisma Systems Inc, 2017 WL 2080279 (W.D.N.Y. May 15, 2017).

In retaining jurisdiction over the plaintiffs’ case pursuant to CAFA, a New York District Court found that the homestate exception refers to “primary defendants” in the plural; thus, the plain language of the statute requires remand only when all of the primary defendants were residents of the same state in which the action was originally filed.

Background Facts: 

The plaintiffs brought a putative class action against the defendants Verisma Systems, Inc. (“Verisma”), Highland Hospital (“HH”), Strong Memorial Hospital (“SMH”), and the University of Rochester (“UR”) based on their alleged systematic overcharging of patients who requested copies of their medical records, in violation of New York Public Health Law (“NYPHL”).  HH, SMH, and UR are collectively referred to as the “Rochester Healthcare defendants.”  The plaintiffs alleged that Verisma and the Rochester Healthcare defendants ignored the restriction in the statute that limited the amount that might be charged to “a reasonable charge … not exceeding the costs incurred,” and not to exceed $0.75 per page to produce the records.  Instead, the plaintiffs alleged that Verisma and the Rochester Healthcare defendants imposed an across-the-board, uniform charge of $0.75 per page for all copies of medical records, even those produced electronically, in excess of their actual costs and in violation of NYPHL.

Procedural History:

Verisma moved for summary judgment, inter alia, on the basis that CAFA mandated that the District Court decline to exercise subject matter jurisdiction over the instant lawsuit under the “Home State” and “Local Controversy” exceptions to CAFA. The District Court denied the motion.

Home State Exception Analysis:

First, Verisma argued that the home state exception to CAFA precluded the District Court from assuming jurisdiction over the plaintiffs’ case.  The District Court noted that the home state exception provided that a district court shall decline to exercise jurisdiction over a class action in which (1) two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the (2) primary defendants, are citizens of the State in which the action was originally filed.  The plaintiffs argued that Verisma, which was a non-domiciliary of New York, was the “primary defendant.”  The District Court noted that although the Second Circuit had not weighed in on this discussion, the statute’s use of the phrase “the primary defendants” rather than “a primary defendant” meant that “the plain language of the statute required remand only when all of the primary defendants were residents of the same state in which the action was originally filed.”

The District Court found that the home state exception referred to primary defendants in the plural, and the plaintiffs’ complaint alleged direct liability against all of the named defendants, not just Verisma.  The District Court further found that Verisma was one of the three “primary defendants” in the instant action because all three named defendants faced direct liability.  The District Court thus found that Verisma was a non-domiciliary of New York, which created diversity between the putative class and the primary defendants.  The District Court therefore found that Verisma had not met its burden with regard to the second prong of the home state exception.

Local Controversy Exception Analysis: 

Next, Verisma argued that local controversy exception to CAFA precluded the District Court from assuming jurisdiction over the plaintiffs’ case.  The plaintiffs disputed only one element of the local controversy exception, namely, that “no other class action,” had been filed within three years of the filing date of the instant action.  The plaintiffs argued that Lagas v. Verisma Systems, Inc., Cause No. 4:13-CV-01082-SWH, (W.D. Mo. Nov. 4, 2013), was an “other class action” filed within the relevant time-frame.  The proposed class in Lagas consisted of all persons and businesses that paid a ‘Certification Fee’ to Verisma in connection with the furnishing of medical records in the State of Missouri.

Verisma contended that the proof necessary for the plaintiffs in Lagas to prevail was different than the proof required for the plaintiffs to prevail in the instant case, which lead to the conclusion that it was not an “other class action.”  The District Court, however, found that CAFA does not define what constitutes an ‘other class action’ other than to limit it to filed cases asserting similar factual allegations against a defendant.  The District Court further found that the representative plaintiff in Lagas and the representative plaintiffs in the instant case asserted “similar factual allegations” against Verisma, namely that Verisma overcharged them for copies of medical records requested and paid for through their personal injury attorneys, in violation of the respective state’s medical records law.  The District Court therefore held that Verisma had not shown that the home state exception or the local controversy exception to CAFA precluded it from assuming jurisdiction over the plaintiffs’ case.

Accordingly, the District Court denied Verisma’s motion for partial summary judgment and retained jurisdiction under CAFA.