Preston v. Tenet Healthsystem Memorial Medical Center, Inc., No. 07-30132 (5th Cir. April 30, 2007)

The Fifth Circuit handed down an important opinion examining CAFA’s exceptions, the burden of proof under the exceptions, and evidence presented by the parties in this Hurricane Katrina related case.

On April 30, 2007, Circuit Judge Carl E. Stewart handed down an opinion for the Fifth Circuit Court of Appeals examining a case that was originally filed in Louisiana state court. On October 6, 2005, the plaintiff brought suit against Memorial Medical Center and Lifecare Hospital in the civil district court for the Parish of Orleans, Louisiana. 

On June 26, 2006, Lifecare filed a timely notice of removal. On August 22, 2006, the district court conducted a non-evidentiary hearing on the remand motion. The court declined to rule on the motion at the hearing, but instead ordered the parties to present additional evidence regarding the citizenship of the class members. 

After the hearing, the plaintiff withdrew his motion to remand, but Memorial filed a memorandum supporting remand and adopted the plaintiff’s withdrawn motion. On November 21, 2006, the district court remanded the case to Louisiana state court under the local controversy exception, the home state exception, and the discretionary jurisdiction provisions under CAFA. (Editors’ Note: See the CAFA Law Blog analysis of the district court’s opinion in Preston posted on January 24, 2007.) 

On February 5, 2007, the Fifth Circuit granted permission to appeal. (Editors’ Note:  the Fifth Circuit consolidated Preston with Weems v. Touro, No. 07-30160.  See the CAFA Law Blog analysis of Weems posted on June 7, 2007).   In the appeal, Lifecare contested the district court’s citizenship findings under CAFA’s exceptions to federal jurisdiction. 

The Court began its opinion by noting that the Fifth Circuit reviews a district court’s factual findings as to the citizenship of the parties for clear error. Outlining CAFA’s exceptions, the Fifth Circuit noted both the local controversy and the home state exceptions state that the district court shall decline to exercise jurisdiction while the discretionary provision provides that the district court may in the interest of justice and looking at the totality of the circumstances decline to exercise jurisdiction. Lifecare argued that the local controversy and home state exceptions should be construed narrowly and resolved in favor of federal jurisdiction based on the shall decline to exercise jurisdiction language. The Fifth Circuit noted, however, that under the discretionary jurisdiction provision, Congress permitted the district court greater latitude to remand class actions to state court. 

The district court remanded the class action lawsuit to state court under all three of CAFA’s exceptions. Each exception requires the Court to make an objective factual finding regarding the percentage of class members that were citizens of Louisiana at the time of filing the class petition. In this case, Lifecare conceded that the class action lawsuit satisfied the other elements of the exceptions. Citing Evans, the Fifth Circuit noted that Congress crafted CAFA to exclude only a narrow category of truly localized controversies, and provided a discretionary vehicle for district courts to ferret out the controversy that uniquely affects a particular locality to the exclusion of all others. (Editors’ Note: See the CAFA Law Blog analysis of Evans posted on May 25, 2006 and the critique of Evans posted on May 26, 2006). 

The district court determined that there was a distinct nexus exists between the forum of Louisiana, the defendants, and the proposed class. The Fifth Circuit observed, specifically, that the plaintiff alleged that Lifecare and Memorial, citizens of Louisiana, committed acts in Louisiana causing injuries and deaths to patients hospitalized in New Orleans, Louisiana, when Hurricane Katrina made landfall. The Fifth Circuit limited their review to whether Memorial presented sufficient evidence to show that at least one-third of the putative class members were citizens of Louisiana at the time that the suit was filed.

As to the burden of proof regarding the exceptions, under CAFA the removing party on the remand motion, not the defendant seeking federal jurisdiction, bears the burden of establishing the domicile of at least one-third of the class members at the time of filing the lawsuit. (Editors’ Note: The Fifth Circuit cited Frazier for this proposition. See the CAFA Law Blog analysis of Frazier posted on August 17, 2006).

The plaintiffs in this case, however, withdrew their motion to remand before the Court entered judgment. The district court reason that “whether or not the motion is viable in view of the plaintiffs’ withdrawal is of no consequence since the Court must sua sponte address the issue and remand the action back to state court if it determines at any time that it lacks subject matter jurisdiction.” With this in mind, the Fifth Circuit adopted the broader statement that “once federal jurisdiction has been established under CAFA the objecting party bears the burden of proof as to the applicability of any expressed statutory exception under the local controversy and home state exceptions.”

The Fifth Circuit then examined the evidentiary standard for proving citizenship. It noted that Memorial must prove that greater than one-third of the putative class members were citizens of Louisiana at the time of filing the class action petition. This means that Memorial, as the movant, must demonstrate by a preponderance of the evidence that at least one-third of the putative class members were citizens of Louisiana. The Fifth Circuit examined the evidence by Memorial and Lifecare as to residency and intent, the two elements of citizenship. Based on the record as a whole, the Fifth Circuit stated that the district court made a reasonable assumption that at least one-third of the class were Louisiana citizens at the time of filing the lawsuit on October 6, 2005, less than two months after the storm hit New Orleans. The Fifth Circuit did not find the district court’s findings of fact clearly erroneous.

Memorial also argued that based on the presumption of continuing domicile, Lifecare bore the burden to show that the displaced Hurricane Katrina victims possessed no intention of returning to New Orleans, Louisiana. The Fifth Circuit found this argument unpersuasive and found no support for the motion that a forced relocation destroys the presumption of continued domicile.  The Fifth Circuit specifically stated that the notion that the damage and destruction wrought by Hurricane Katrina warrants the Court’s incorporation of common sense as part of the calculus in determining the citizenship of the class members. “In light of the vast post Katrina diaspora and the undisputedly slow revitalization in parts of New Orleans, it is unreasonable to demand precise empirical evidence of citizenship in a class action lawsuit filed less than 60 days after the Hurricane and related flooding.” The Fifth Circuit continued stating many Hurricane Katrina victims may intend to return home yet are still disbursed throughout Louisiana and other states for reasons beyond their control, such as not having shelter and employment in the New Orleans area. Interestingly, the Fifth Circuit also examined census data both before and after Hurricane Katrina and deemed the census data as non probative on whether one-third of the class members were domiciled in Louisiana at the time of filing suit.

As to the determination of class size, Lifecare argued that Memorial failed to establish the number of people composing the proposed class. Without knowing the number of persons in the class, the court could not determine whether one-third of the class members were citizens of Louisiana. Citing Frazier and Evans, Lifecare asserted that the statute requires concrete proof of the number of class members as a prerequisite to ruling on the citizenship requirement. The Fifth Circuit disagreed concluding that the submitted evidence provided an adequate basis for the district court to make a credible estimate of the class members domiciled in Louisiana. The defined class clearly involved a finite group of persons: patients hospitalized in Memorial Medical Center at the time that Hurricane Katrina made landfall. This proposed class contemplated a concretely defined group. The Fifth Circuit concluded that the record reflected that the plaintiffs defined a reasonably confined class and the district court, based on a preponderance of the evidence, made a credible estimate that at least one-third of the class were citizens of Louisiana at the time of filing suit. 

The last issue examined by the Fifth Circuit was the interest of justice exception. First, the Fifth Circuit asked whether the claims involved a national or interstate interest. Under CAFA, the terms local and national connote whether the interest of justice would be violated by state court exercising jurisdiction over a large number of out of state citizens and applying the laws of other states. The Fifth Circuit stated that just because the nation takes interest in Hurricane Katrina, it does not mean that the legal claims at issue in this class action lawsuit qualify as national or interstate interest. “Although the nation may still be watching the ever evolving after affects of Hurricane Katrina, this class action lawsuit does not affect national interest as contemplated under the statute.”

Second, the Fifth Circuit asked whether the claims in the action were governed by Louisiana law and whether the class action was pleaded to avoid federal jurisdiction. Answering the question simply, the Fifth Circuit stated that the majority of the claims asserted in the class petition involved negligence issues governed under Louisiana law. Moreover, the record did not indicate that the plaintiffs intentionally pleaded the case to avoid federal jurisdiction and neither defendant asserted such an allegation.

Third, the Fifth Circuit concluded that a distinct nexus existed between the forum of Louisiana and the class members, alleged harm, and the defendants. Both Memorial and Lifecare were Louisiana corporations organized under the laws of the state, and based on the medical records, nearly 97% of the patients permanently resided in Louisiana at the time of admission to these health centers. In light of the localized events giving rise to the alleged negligent conduct and the undisputed residency and citizenship information of the patients and healthcare providers, the case met this third prong.

The Fifth Circuit quickly went through the fourth and fifth elements to the interest of justice exception. The Fifth Circuit concluded that the number of citizens of the state in which the action was originally filed in all proposed plaintiff classes in the aggregate is substantially larger than the number of citizens from any other state and the citizenship of the other members of the proposed class is disbursed among a substantial number of states. Further, the court found no evidence regarding similar actions filed in a preceding three year period and neither party raised the issue.

In concluding, the Fifth Circuit stated that “this particular Hurricane Katrina case symbolizes a quintessential example of Congress’ intent to carve out exceptions to CAFA’s expansive grant of federal jurisdiction when our court’s confront a truly localized controversy. We determined that the district court did not clearly air in finding that one-third of the class members were citizens of Louisiana at the time of filing suit.” Accordingly, the Fifth Circuit affirmed the district court’s judgment.