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

District Court Provides Primer on the Origins of Local Controversy Exception and Explains the Purpose of “No Other Class Action” Element of the Exception

Posted in Case Summaries

Carter_v_CIOX_Health_LLC, 2017 WL 2334886 (W.D.N.Y. May 30, 2017).

When denying a defendant’s request to remand a putative class action for lack of subject matter jurisdiction under CAFA, a district court in New York educates the parties on the origins, purposes, and applicability of the local controversy exception and explains when the “no other action” element of the local controversy exception applies and why it exists.In Carter v. CIOX Health, LLC, the plaintiffs brought a putative class action in federal court, seeking jurisdiction under CAFA. They alleged that the defendants, healthcare providers and medical companies, overcharged patients when patients requested copies of their medical records in violation of two New York statutes.

After the plaintiffs filed suit, the defendants sought dismissal of the putative class action, arguing, among other things, that CAFA’s local controversy exception applied. The local controversy exception, 28 U.S.C. § 1332(d)(4)(A), provides that the district court must decline to exercise CAFA jurisdiction

(i) over a class action in which—

            (I) greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed;

            (II) at least 1 defendant is a defendant—

                        (aa) from whom significant relief is sought by members of the plaintiff class;

                        (bb) whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and

                        (cc) who is a citizen of the State in which the action was originally filed; and

            (III) principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed; and

(ii) during the 3-year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons.

The parties focused their dispute on the second part of the exception, which provides that the local controversy exception can only apply if in the preceding three-year period, “no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons.”

The plaintiffs argued that a suit filed two months prior to their filing of the instant action involved similar factual allegations and included some of the same defendants as the case at bar. In turn, the defendants asserted that the two cases were not “sufficiently similar” in part because in the previously filed case, the court refused to certify a statewide class. The court did not find the defendant’s rationale convincing and undertook an informative discussion on the purpose of the local controversy exception.

The court traced the driving force behind enacting CAFA, which was to expand federal jurisdiction over class actions because plaintiffs brought factually similar cases in different state courts and state courts “inconsistently applied governing rules,” “inadequately supervised litigation procedures and class settlements,” and “issued rulings with nationwide implications.” However, Congress still wanted to make sure that local cases stayed within the realm of state courts, so it crafted the local controversy exception. The court explained that the local controversy exception also served to prevent “plaintiffs from evading federal jurisdiction in order to ‘wage national litigation’ on a state-by-state basis.” Congress included the “no other action” requirement “to prevent plaintiffs from using the local controversy exception to avoid federal jurisdiction, remand cases to state courts, and bring ‘copycat’ class actions in various states across the country.”

After educating the parties on the purposes and uses of the local controversy exception, the District Court denied the defendants’ request for remand.

Laura Cannon