Kendrick v. Standard Fire Insurance Company, 2:06-cv-00141-DLB (E.D. Ky. March 31, 2007)

Calvin Borel was not the winning jockey in this Race for the Roses in Kentucky.  The Eastern District of Kentucky handed down an unpublished opinion discussing CAFA’s discretionary exception, but side stepping burden of proof issues.

On March 31, 2007, United States District Court Judge David L. Bunning authored an opinion not intended for publication or citation on the plaintiffs’ motion to remand and several motions to dismiss filed by the defendants. 

The plaintiffs filed their action on June 19, 2006 as a class action in Kenton County District Court in the State of Kentucky. The lawsuit surrounded defendant insurers adding local tax charges to their insurance premiums. The plaintiffs allege that the tax was supposed to be based on actual premiums paid to insure a risk in a particular geographic area, but the defendants had failed to correctly administer these taxes. The plaintiffs proposed a defendant class of insurers who are authorized to do business in Kentucky and who had been improperly charging local tax premiums. The plaintiffs’ complaint alleged eight insurers under Kentucky law only.

The lawsuit was removed to the United States District Court for the Eastern District of Kentucky on July 14, 2006 by State Farm Auto and State Farm Fire & Casualty.  Travelers Insurance and Standard Fire Insurance, other defendants, also removed the case on the same date, but both actions were consolidated. The defendants removed under the provisions of CAFA and filed separate motions to dismiss. The plaintiffs filed their motion to remand the case to Kenton District Court.  The court noted that it must first ensure it had subject matter jurisdiction by deciding the motion to remand before addressing the motions to dismiss filed by the defendants.

The court began its opinion by addressing the plaintiffs’ arguments in their motion to remand. The plaintiffs argued that the defendants had not met their burden of establishing the jurisdictional requirements of CAFA and, alternatively, requested that the court decline to exercise subject matter jurisdiction under CAFA under the “interests of justice” exception. 

Outlining CAFA’s jurisdictional requirements, the court noted that as the removing party, the defendants bear the burden of establishing jurisdiction.   (Editors’ Note: Even though the court delved into the legislative history of CAFA regarding the burden of proof to CAFA’s exceptions, it did not address any burden of proof issues regarding general jurisdiction. The Kentucky District Court cited two Sixth Circuit cases from 1994 and 1996 stating that “as the removing party, Defendants bear the burden of establishing jurisdiction.” We are not sure why the court did not address the issue; maybe it was not briefed. We think this is a mistake. See the law review article by CAFA Law Blog Editors Hunter Twiford, Anthony Rollo and John Rouse entitled “CAFA’s New ‘Minimal Diversity’ Standard For Interstate Class Actions Creates A Presumption That Jurisdiction Exists, With The Burden Of Proof Assigned To The Party Opposing Jurisdiction.”)

The plaintiffs raised two points in opposition to CAFA jurisdiction. First, the plaintiffs argued that the defendants did not provide sufficient evidence to establish their action consisted the requisite number of putative plaintiffs. Second, they contended that the defendants had failed to establish the amount in controversy exceeded by a million dollars in aggregate. As to the number of plaintiffs, the defendants pointed out in their notices of removal that the plaintiffs’ complaint asserted that their were likely tens of thousands of members of the plaintiffs’ class. The defendants did not come forward with any actual evidence regarding the class size, but the court found that it was not necessary for them to do so. The court assumed that the plaintiffs’ had asserted in good faith a sufficient putative class size to fall within CAFA.

Next, the face of the plaintiffs’ complaint did not set forth an estimate of aggregate damages. The defendants noted that the plaintiffs’ alleged damages for erroneously collected premium taxes averaged $56.04 per year. The court noted that since the complaint alleged that there were tens of thousands of putative class members, a 20,000 member class with this average of damages would result in an aggregate of approximately $5.6 million. The defendants also pointed to other damages sought in the complaint. The plaintiffs sought punitive damages and attorneys’ fees, which the Sixth Circuit has noted are included in considering the amount of controversy. Given all these circumstances, the court concluded that the defendants had established the requisite requirements for CAFA jurisdiction. 

The next issue addressed by the court was the mandatory and discretionary exceptions under CAFA. The court pointed to the “home state” exception, “the local controversy” exception, and “the discretionary interests of justice” exception. The court noted that there has been some difference of opinion as to who bears the burden of establishing these exceptions. The court looked briefly at CAFA’s legislative history and noted that the Sixth Circuit had not ruled on the issue. However, the court stated that the Circuits that have examined the question have placed the responsibility of demonstrating an exception on the plaintiff. The court cited Evans from the 11th Circuit, Frazier from the 5th Circuit, and Hart from the 7th Circuit. (Editors’ Note: See the CAFA Law Blog analysis of Frazier posted on August 17, 2006 and the CAFA Law Blog analyses of Evans posted on May 25, 2006 and May 26, 2006. Also, see the CAFA Law Blog analysis of the Hart case posted on August 21, 2006.)

The opinion notes specifically that the legislative history of CAFA supports the position of these circuits. The plaintiffs’ remand motion proposed that the court remand the case under the “discretionary interests of justice” exception. The court stated that the consideration of the interests of justice exception called for certain initial requirements. The plaintiff had to show that between 1/3 and 2/3 of the plaintiffs’ classes are Kentucky citizens and that the primary defendants are Kentucky citizens. The plaintiffs acknowledged that they were unable to demonstrate these requirements at the time of their remand reply. The plaintiffs suggested that the issue could resurface when certification of the defendant class is taken up. The court realized that this was a unique situation because the plaintiffs were seeking a defendant class. The term “primary defendant” is not defined in CAFA and the courts that have interpreted the term have imposed fairly high evidentiary requirements. In Robinson v. Cheetah Transport, the court concluded that the plaintiff had to show that all of the primary defendants were residents of the particular state, as opposed to just a single primary defendant. (Editors’ Note: See the CAFA Law Blog analysis of Robinson posted on March 28, 2006).

The court examined CAFA’s legislative history noting that primary defendants are those believed to be liable for the vast majority of class members and that all of the primary defendants must be residents of the home state. The court concluded that the plaintiffs had not met the requirement of  determining who were the primary defendants.  The court recognized that this requirement was particularly problematic when the defendant class had been proposed, but its membership had not yet been defined or identified. The court held that remand pursuant to the interest of justice exception was inappropriate.

The court continued its opinion for another 25 pages regarding the defendants’ motion to dismiss. The short version is that the defendants’ motions to dismiss were denied and the case was set by Judge Bunning for case management conference.