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CAFA Law Blog Information, cases and insights regarding the Class Action Fairness Act of 2005

The Court Rejects an Unreliable Method of Ascertaining Citizenship Under CAFA’s Local Controversy Exception.

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Hostetler v. Johnson Controls, 2016 WL 3662263 (N.D. Ind. July 11, 2016).

An Indiana District Court retained jurisdiction over a class action, finding that the local controversy exception of CAFA cannot be established if the citizenship requirement is not satisfied.

The plaintiffs brought this putative class action as a result of alleged environmental contamination that originated from a plant formerly owned by defendant Johnson Controls, Inc. (“Johnson Controls”). The plaintiffs were a number of individuals who owned property or resided in an area adjacent to the plant.  The plaintiffs allege that the contamination primarily consisting of trichloroethylene (“TCE”) entered the groundwater and migrated onto their properties.  In 2007, Johnson Controls sold the plant to defendant Tocon Holdings, LLC (“Tocon”) who briefly operated a manufacturing facility on the property, but more recently began demolishing the plant.  Plaintiffs argue that Tocon’s demolition of the plant caused additional environmental hazards.

The plaintiffs filed suit in the Indiana State Court (“State Court”) asserting claims arising under state law against the defendants including common law claims for trespass, nuisance, negligence, negligent infliction of emotional distress, punitive damages, and a statutory environmental legal action claim. Johnson Controls filed a motion to dismiss in August 2014, which the State Court denied.  The plaintiffs filed a motion for class certification in January 2015, and following discovery, Johnson Controls filed a Notice of Removal to the Northern District Court of Indiana (“District Court”) on May 28, 2015.  The plaintiffs in turn filed two motions to remand – the first for procedural deficiencies and the second for the lack of subject matter jurisdiction under the local controversy exception of CAFA.

The plaintiffs first argued that Johnson Controls’ Notice of Removal was untimely because the complaint was filed on May 30, 2014, but the Notice of Removal was not filed until May 28, 2015. However, the plaintiffs admitted that the complaint did not facially reveal any dollar figure as to the amount in controversy.  The District Court found that although the complaint described the relief sought, and Johnson Controls could have determined that the amount-in-controversy requirement was met, the complaint did not facially reveal the amount of monetary damages sought or the cost of complying with an injunction.  Additionally, the District Court found that the plaintiffs failed to identify any other filing that unambiguously revealed information regarding the amount in controversy that would trigger the 30-day removal clock.  Accordingly, the District Court concluded that the 30-day clock never began to run, and therefore, Johnson Controls’ Notice of Removal was timely.  Plaintiffs’ motion to remand was denied on this basis.

Next, the plaintiffs sought remand under the local controversy exception of CAFA. In dispute were the first two elements of the local controversy exception, (1) greater than 2/3rds of the members of all proposed plaintiff classes in the aggregate are citizens of the state in which the action is filed, and (2) at least one defendant is a defendant from whom a significant relief is sought, and whose alleged conduct forms a significant basis for the claims asserted, who is a citizen of the state where the action was originally filed.

The plaintiffs sought certification of a class consisting of all persons within the class area (meaning area impacted by the contamination) who owned, rented, or occupied property that had been impacted by the defendants’ contamination between 1992 and May 30, 2014. Thus, the proposed class spanned more than two decades of owners, renters, and occupants of over 100 homes within the class area.  The District Court observed that many of those individuals could have moved away years ago as even the complaint stressed the same.  The class area also included nine business properties and Goshen High School.  The District Court observed that by including all persons who had ever occupied any of the properties during that time period, the class would include short-term occupants or temporary guests.

Both parties submitted their own expert reports regarding the citizenship of the proposed class. The District Court remarked that the first step in conducting a reliable survey is defining the universe of people to be surveyed.  Here, the plaintiffs attempted to identify the potential class members by consulting three databases of public records to find people who were associated with any of the mailing addresses within the class area during the pertinent period.  The plaintiffs then ran the subject addresses through the Polk City Directory; a database that contained demographic data compiled from a variety of sources to determine the ownership of each home.  The plaintiffs consulted these sources extensively, and ultimately compiled a list of 2,130 individuals that the public records linked to any of the addresses in question.

While the plaintiffs appeared to have squeezed as much useful information out of those sources, at no point did they consider whether the individuals reflected in those records would represent a fair cross-section of the class as a whole. The District Court pointed to the deposition of the plaintiffs’ investigator which revealed that those records systematically failed to capture at least two groups of people: (1) individuals who were minors at the time they occupied the class area; and (2) individuals who were only temporary occupants in the class area.  This is because minors typically do not own property, have utilities in their name, or otherwise appear in the sorts of public records that these databases reflect.  Thus, for the most part, individuals who were minors during their occupancy in the class area did not appear in the public records list.  Similarly, temporary occupants are unlikely to appear in these databases unless some record happened to associate them with the address during their stay at the property.

The second step in conducting a reliable survey is to select an appropriate sample of the total population from which to take the survey. Here, the plaintiffs did not select a random sample of class members to administer the survey.  Instead, they took their list of 2,130 individuals from the public records and eliminated individuals who they could not contact by phone, to arrive at a sample of 1,314 potential class members.  The District Court stated that while such samples did not necessarily render a survey inadmissible, they at least require an analysis as to what effect they may have on the validity of the results.

The District Court observed that a reliable survey requires an analysis of whether the results were impacted by non-response bias which occurs when the nonresponses to a survey are not random, but correlated to a trait the survey was intended to measure. Here, the response rate was only 11.6% or 153 respondents out of the 1,314 individuals in the sample frame.  In sum, the District Court concluded that it was unclear what statistical expertise the plaintiffs’ expert brought to bear on this analysis other than plugging the numbers 153 (the number of survey respondents) and 117 (the number of Indiana citizens among those respondents) into a formula to calculate confidence intervals.  The District Court concluded that this was not a reliable method and that the plaintiffs had not shown that it could be relied upon to estimate the citizenship of the class.  Accordingly, the Court found that the plaintiffs failed to meet their burden of proof on this element.

Having failed to satisfy the citizenship requirement, the District Court concluded that the plaintiffs could not successfully move for remand under the local controversy exception. Regardless, the District Court addressed the substantial defendant requirement of the local controversy exception.  Here, Johnson Controls argued that Tocon (an Indiana citizen) was not a significant defendant because Tocon did not purchase the site until 2007 and did not use TCE during its operation of the plant.  Johnson Controls argued that because Tocon had a small role in causing the contamination, it is not a significant defendant in this action.

The District Court found that Johnson Controls misconstrued the plaintiffs’ claims. The District Court noted that the plaintiffs’ argument was not that the plant itself was contaminated, but that the TCE was allowed to migrate onto the plaintiffs’ properties, that it was not investigated and remediated, and that the defendants failed to warn the plaintiffs of the presence or dangers of the contamination.  Although Johnson Controls owned the property longer than Tocon, Tocon was alleged to have allowed the migration to continue and also to have failed to warn the plaintiffs of the hazards in their community.  Moreover, Tocon was the current owner of the property, and the plaintiffs allege that Tocon has continued to use the property in ways that will cause additional contamination and environmental dangers.  Under those circumstances, the District Court found that Tocon’s conduct forms a significant basis for these claims.

Accordingly, based on the allegations in the complaint, the District Court found that Tocon was a local defendant whose conduct formed a significant basis for the claims and from whom the significant relief was sought. Notwithstanding, the District Court denied the motion to remand because the plaintiffs failed to show the first element of the local controversy exception – that over 2/3rds of the putative class were from the form state.

-Mike Aleali