Romano v. SLS Residential, Inc., No. 07 Civ. 0234 (KTD), 2011 WL 2671526 (S.D.N.Y. June 22, 2011).

In absence of the definition of “primary defendant” in CAFA, a District Court in New York held that when the defendants are each equally culpable and liable for the injuries purportedly suffered by the putative class members, there is no rational basis upon which to differentiate the defendants’ status as being primary or secondary.

The plaintiffs, former patients at the defendants’ mental health facility, brought a class action lawsuit in the federal district court against the defendants, SLS Residential, Inc., SLS Health, Inc., SLS Wellness, Inc., and others (collectively “SLS”). (Editors’ Note: we were unable to determine if any of the plaintiffs were named Randle Patrick Murphy or Chief).

SLS is a private mental health facility providing residential and out-patient treatment to young adults with psychiatric disorders.  The plaintiffs were patients of SLS during the certified class period of July 2004 to May 31, 2006.  The plaintiffs alleged that the defendants, rather than providing therapeutic treatment, engaged in a pattern of behavior whereby they illegally assaulted, restrained, punished and isolated patients. (Editor’s Note: we were unable to determine if Nurse Mildred Ratched was a named defendant).

The plaintiffs also amended the complaint adding the causes of action under the New York Executive Law § 296, as well as claims for deceptive business practices, negligent and intentional infliction of emotional distress, negligent administration, and breach of fiduciary duty.

While determining the plaintiffs’ motion for partial summary judgment, the District Court found that it had diversity-jurisdiction under CAFA, 28 U.S.C. § 1332(d).

The Court found that here, the plaintiffs met minimal diversity because the class representative was a citizen of New Jersey and SLS was a citizen of New York.  The amount in controversy exceeded $5 million and the list of putative class members contained over 250 names.

SLS contended, however, that that CAFA’s mandatory “local controversy,” “home state controversy,” exceptions and discretionary “interests of justice” exception precluded jurisdiction. Under the two mandatory exceptions set out in § 1332(d)(4)(A) and (B), a court must decline to exercise jurisdiction when two-thirds or more of the proposed class members, and the primary defendants, are citizens of the state in which the action was originally filed.

SLS submitted a list of potential class members to support its motion, but contended, citing to Mattera v. Clear Channel Communications, Inc., 239 F.R.D. 70, 80 (S.D.N.Y. 2006), that the court need not have definite evidence of the percentage of New York class members, since the facts indicated that it was “reasonably likely” that a significant number of the class members were from New York.  In Mattera, although the defendants presented no evidence concerning citizenship, the court concluded that it was “reasonably likely” that more than two-thirds of the class were New York citizens, since the class action was brought by New York employees of New York radio stations.

The Court remarked that the present case was distinguishable from Mattera.  Here, the class included residents of SLS facilities between July 2004 and May 31, 2006.  As more than four years had passed, it could not be as easily assumed that most of the class remained in New York. Also, the class members were former psychiatric patients.  Arguably, a residential psychiatric facility like SLS could attract out-of-staters seeking treatment and these patients would be less likely to remain in area once their treatment was completed.

Regardless, the Court observed that the presumption SLS proposed was undercut by its own evidence.  SLS’ list of potential class members contained 269 names, of which, 96 were New York residents.  This was barely above one-third and well below the requisite two-thirds needed for both mandatory exceptions.  Accordingly, the Court concluded that the mandatory “local controversy” and “home state controversy” exceptions were inapplicable.

SLS next argued that the Court remand the case under the discretionary “interests of justice” exception to CAFA.  The Court noted that under 28 U.S.C. § 1332(d)(3), a district court may “looking at the totality of the circumstances” decline jurisdiction over a class action, when more than one-third of the proposed class in the aggregate and the primary defendants are citizens of the State in which the action was originally filed. The Court observed that it was not clear that the minimum requirements for remand were met because the defendant Prichard was an out-of-state defendant, i.e., a citizen of Connecticut.

The Court noted that the term “primary defendant” is not defined in CAFA, and the courts have defined it variously as (1) who has the greater liability exposure; (2) is most able to satisfy a potential judgment; (3) is sued directly, as opposed to vicariously, or for indemnification or contribution; (4) is the subject of a significant portion of the claims asserted by plaintiffs; or (5) is the only defendant named in one particular cause of action.  Accordingly, when the defendants are each equally culpable and liable for the injuries purportedly suffered by the putative class members, there is no rational basis upon which to differentiate the defendants’ status as being primary or secondary.

Under this backdrop, the Court found that Prichard was deemed equally liable to the other defendants and was sued directly, rather than vicariously or for indemnification, and that there was no rational basis to differentiate Prichard from other defendants. Accordingly, the Court concluded that SLA did not meet the minimum requirements for the “interests of justice” exception.