HMB Interests, L.L.C. v. Chesapeake Louisiana L.P., No. CIV.A. 08-1542, 2010 WL 3604008 (W.D. La. Sep 07, 2010).

A District Court in Louisiana declined to remand the action to state court under CAFA’s “local controversy exception” holding that if the class definition is expansive enough to include various types of persons, including out of state individuals, it cannot be presumed that more than two-thirds of the class members would be Louisiana citizens.

The plaintiffs brought a class action in Louisiana state court, individually and on behalf of all persons and entities who signed mineral leases with any of the defendants, affecting land within twelve parishes in Louisiana from July 1, 2006 through June 30, 2008 without knowledge of the presence under their lands of the Haynesville Shale natural gas formation. In other words, the plaintiffs suggest the class should be anyone who signed mineral leases within a certain geographical area with the defendants when the plaintiffs did not bother to think that the reason why the defendants may want a mineral lease with them is because there may be minerals under the land. Hmmmm.

The plaintiffs sought rescission of the mineral leases in question, arguing error as to the substantial quality of the contractual object of the mineral leases (the Haynesville Shale formation under their lands) within the meaning of La. Civ. Code Arts. 1949 and 1950.  The plaintiffs stated that they would have never entered into the leases in question had it not been for the error as to what mineral formations lay beneath their lands.

The defendants removed the action to the federal court under CAFA.  The plaintiffs then moved to remand pursuant to the “local controversy exception” of CAFA, 28 U.S.C. §1332(d)(4)(A).  The Court, however, found that “local controversy” exception was unavailing to the plaintiffs because they failed to establish that greater than two-thirds of the members of the proposed class and at least one significant defendant were from Louisiana.

First, the Court observed that the proposed class was not self-limiting to those persons or entities who were citizens of Louisiana because the proposed class consisted of “all persons and entities who signed mineral leases” affecting certain parishes in Louisiana. 

The plaintiffs, however, relied on Caruso v. Allstate Ins. Co., 469 F.Supp.2d 364, 367-68 (E.D. La. 2007), arguing that the definition of the proposed class in this case was sufficient for the Court to presume that more than two-thirds would be Louisiana citizens.  Because all of the plaintiffs in Caruso were Louisiana homeowners who purchased policies for homes located in Louisiana, the court had found that a reliable (and common sense) presumption existed that more than two-thirds of the class consisted of Louisiana citizens.

The Court remarked that this case was distinguishable from Caruso because the class was not limited to homeowners, but was inclusive of all persons and entities who signed mineral leases “affecting land” in Louisiana.  This language was expansive enough to include various types of property rights, and the class included residents and non-resident landowners, heirs, corporations, fractional owners, and even servitude owners.  Thus, the Court concluded that the possibilities were too great for it to presume that greater than two-thirds of the proposed class members were Louisiana citizens based on the definition of the class.

Further, the Court noted that there was no dispute that a majority of the leases in question listed a Louisiana address in the contact information.  The Court stated that a mailing address may be an indication of residence, but this is not sufficient by itself to establish citizenship.  For the purposes of diversity, although an individual’s citizenship is synonymous with domicile, both residence in fact and the intention of making the place of residence one’s home are essential elements of domicile.  Thus, the Court concluded that a mere fact that a majority of the lessors listed a Louisiana mailing address was not sufficient for the plaintiffs to meet their burden of proof as to the citizenship requirement.

Next, the Court noted that the plaintiffs named six defendants in this case: Chesapeake, Petrohawk, EnCana, Red River, Delta Lands, and Audubon.  The plaintiffs admitted that EnCana was not a Louisiana citizen, and the Court observed that Chesapeake was organized under the laws of Oklahoma, and its nerve center (place where corporations activities are controlled) was also located in Oklahoma.  Petrohawk was organized under the laws of Texas, and its nerve center was also located in Texas.  Thus, the only defendants that were Louisiana citizens were Red River, Delta Lands, and Audubon.

The Court stated that the Louisiana defendants (Red River, Delta Lands, and Audubon) could not be relied on as a defendant from whom significant relief was sought because all of their interests in the leases were assigned to other parties.  All of the named plaintiffs signed leases directly with Chesapeake, or a local mineral lease broker (Red River, Delta Lands, or Audubon), who then promptly assigned the leases to Chesapeake, Petrohawk, or EnCana.  The relief plaintiffs sought was rescission of the leases, or in the alternative, damages.  The plaintiffs could only obtain rescission of the mineral leases from the defendants who now hold the leases at issue–Chesapeake, Petrohawk, and EnCana.  Accordingly, the Court concluded that the plaintiffs could not demonstrate that the putative class was seeking “significant relief from at least one in-state defendant.