O’Shaughnessy v. Cypress Media, LLC, 2014 WL 1791065 (W.D. Mo. May 6, 2014).

A district court in Missouri denied the plaintiffs’ motion to remand based on CAFA’s local controversy exception finding that when the lone defendant in the action is not the citizen of a state where the class action was originally filed, the requirements of the exception cannot be satisfied.

The three named plaintiffs in this case originally filed this putative class action lawsuit on April 16, 2013 in the Circuit Court of Jackson County, Missouri against the McClatchy Company, the sole shareholder of Cypress Media, Inc.  The McClatchy Company removed the lawsuit to the federal court, asserting jurisdiction under CAFA and traditional diversity jurisdiction.  After the Court denied the plaintiffs’ motion for remand, the plaintiffs voluntarily dismissed their lawsuit, without prejudice.  The plaintiffs then filed the present lawsuit in the Circuit Court of Jackson County, Missouri against Cypress Media, L.L.C. (“Cypress”). 

This putative class-action lawsuit alleged that the defendant, a publisher of three newspapers in three different states, unlawfully double billed some of its subscribers in the period between when their original subscription ended and a renewed subscription began.  The defendant removed the action to the federal court under CAFA, and the plaintiffs moved to remand.

The plaintiffs contended that: (i) traditional diversity jurisdiction does not exist because the parties are not citizens of different states and that the amount in controversy of any one the named plaintiff did not exceed $75,000; and (ii) CAFA jurisdiction did not exist because the parties are not minimally diverse, and the total amount in dispute did not exceed $5 million.  And, even if CAFA jurisdiction existed, the plaintiffs argued, the Court should decline to hear the dispute under CAFA’s “local-controversy” exception.

Turning first to the question of diversity jurisdiction, the District Court found that the defendant failed to meet its burden of demonstrating that the amount in dispute between any named plaintiff and defendant exceeds $75,000.  The District Court explained that the maximum that could be in dispute in this case was approximately $20,000, well short of the jurisdictional threshold.  The plaintiffs suggested, which the defendant did not dispute, that compensatory damages were approximately $9.24 per plaintiff for wrongful subscription charges.  With respect to punitive damages, the Court noted that any award that exceeds a single-digit ratio between punitive and compensatory damages presumptively violates a defendant’s due process rights, unless the act being punished is particularly egregious and has resulted in only a small amount of economic damages.

While the compensatory damages here were small, the District Court observed that the defendant’s alleged actions were not so egregious that the Court would consider awarding punitive damages at a ratio exceeding one 100 to 1, such that $924 would be the upper-limit for any punitive damage award.  Thus, the District Court remarked that the outer-limits of an individual named plaintiff’s total damages in this case were $20,933.24, an amount that did not meet the jurisdictional threshold.  Accordingly, the District Court ruled that it lacked jurisdiction to hear this case pursuant to its diversity jurisdiction.

On the other hand, the District Court found that the defendant had established CAFA jurisdiction.  Regarding the amount-in-controversy, the District Court observed that there were approximately 763,313 potential class members who had subscribed to one of the three Cypress-owned newspapers.  The District Court remarked that assuming compensatory damages of $9.24 per class member, the compensatory damages in dispute alone exceed $7 million, not including punitive damages or attorneys’ fees.  Therefore, the jurisdictional threshold was satisfied.

The District Court also found that minimal diversity was satisfied.  The Court explained that for purposes of determining diversity jurisdiction under CAFA, a limited liability company such as Cypress is considered to be a citizen of the state under whose laws it is organized and of the state in which it has its principal place of business.  

The District Court observed that while the parties agreed Cypress was organized under Delaware law, they hotly disputed as to where its principal place of business was.  Because Congress chose to treat LLC’s like corporations for purposes of determining citizenship under CAFA, the Court remarked that it would use the “nerve center” approach to determine the principle place of business.  Under the “nerve center” approach, the corporation’s principal place of business is that single place, where the corporation’s high-level officers direct, control, and coordinate the company’s operations.  Here, the Court noted that Cypress’ officers oversaw the publishing of its three newspapers from its offices in Sacramento, California.  The Court also found that the preponderance of the evidence indicated that Cypress’ nerve center is in Sacramento, California.  Consequently, Cypress is a citizen of Delaware and California.  Since the proposed class consists of individuals from Missouri, Kansas, Texas, and Illinois, the District Court found that there was at least one class member who was not a citizen of Delaware or California, and so there was minimal diversity here.

The plaintiffs also attempted to invoke the local-controversy exception.  The Court, however, found that the plaintiffs could not establish the exception because two of its four requirements were not met.  First, more than two-thirds of the proposed class members were not citizens of the state in which the action was originally filed (Missouri).  Only 201,122, or 26%, of the proposed class were Missouri citizens; the remainder were citizens of Kansas, Texas, Illinois, or other states.  Second, there was no defendant from whom significant relief was sought and whose conduct formed a significant basis for the class members’ claims who was a citizen Missouri, where the class action was originally filed.  Because Cypress was the only defendant in this case and it was not a Missouri citizen, the requirements of the local-controversy exception were not satisfied. 

Accordingly, the District Court denied the plaintiffs’ motion to remand and retained jurisdiction.