Cedar Lodge Plantation LLC et al. v. CSHV Fairway View II LLC ,768 F.3d 425 (5th Cir. 2014).

The Fifth Circuit reversed an order remanding a class action to state court, holding that the application of the local controversy exception depends on the pleadings at the time the class action is removed, not on an amended complaint filed after removal.

The plaintiffs brought a putative class action on behalf of individuals and entities who were living or had lived, or who worked or owned property, in the immediate vicinity of an apartment complex. The original complaint alleged that the defendants, a group of apartment-owning and managing entities (the “Fairway Defendants”) exposed plaintiffs to underground sewage leaks that discharged higher than permitted levels of contaminants and hazardous substances.

The Fairway Defendants removed the case under CAFA. Thereafter, the plaintiffs amended their complaint to add Sewer Treatment Specialists, LLC (“STS”), a Louisiana citizen, as a defendant, asserting that the Fairway Defendants hired STS to maintain the apartment complex’s water treatment system, and that STS’s negligence caused injuries to the class.  Arguing that STS was a significant local defendant, the plaintiffs moved to remand the case based on the local controversy exception to CAFA.  The District Court agreed and remanded the case, leading to this appeal.

The Fairway Defendants contended that the amended complaint did not invoke the local controversy exception because, under the statutory language which embraces the “time-of-removal” rule, the local controversy exception must be determined at the time of removal and is not affected by subsequent events. The Fifth Circuit relied on State of Louisiana v. American National Property & Casualty Co., 746 F.3d 633 (5th Cir. 2014), for the position that post-removal events do not oust jurisdiction under CAFA.

The Fifth Circuit noted that CAFA defines a class action as any civil action filed under Rule 23 or a state class action statute. Thus, the Fifth Circuit found that what matters for the purpose of determining CAFA jurisdiction is “the status of an action when filed – not how it subsequently evolves.”  The Fifth Circuit noted that the Senate Judiciary Committee Report described the local controversy exception of CAFA as a narrow exception that was carefully drafted to ensure that it did not become a jurisdictional loophole.  The Court held that allowing plaintiffs to avoid federal jurisdiction through a post-removal amendment would undermine the policy underlying CAFA

Accordingly, the Fifth Circuit reversed the District Court’s order of remand.