In this case, a Kentucky district court held that defendants in a putative class action arising out of a train derailment satisfied their burden of establishing CAFA’s minimal-diversity and amount-in-controversy requirements. The court also found that, because two thirds of the proposed class members, in the aggregate, were not citizens of Kentucky, plaintiffs failed to satisfy their burden of establishing that CAFA’s home-state and local-controversy exceptions defeated removal.
On October 29, 2012, a train derailed near West Point, Kentucky, releasing a large amount of hazardous chemicals into the surrounding area. Local authorities were forced to close a nearby state highway, establish a non-fly zone over the derailment site, and halt maritime traffic on the Ohio River. All persons within a 1.2-mile radius of the crash site were forced to evacuate their homes.
The plaintiffs filed a putative class action in Kentucky state court, alleging this train wreck caused them to suffer, among other things, substantial property damages, economic losses, personal injuries, and lost income. The defendants removed under CAFA, and plaintiffs filed a motion to remand, which the district court denied.
The district court fist addressed plaintiffs’ argument that removal under CAFA was improper because there was no minimal diversity and the amount in controversy did not exceed $5 million. Minimal diversity, of course, requires that at least one plaintiff be a citizen of a different state than at least one defendant. Here, this requirement was clearly satisfied, as the four representative plaintiffs were citizens of Kentucky, whereas defendant CSX Transportation, Inc. (“CSX”) was a citizen of Virginia and Florida and defendant P&L Transportation, Inc. (“P&L”) was a citizen of Delaware.
Further, the district court found that defendants carried their burden of satisfying CAFA’s amount-in-controversy requirement, which may be established by drawing reasonable inferences from the nature and extent of the damages alleged in the complaint. Here, in addition to compensatory damages for thousands of class members, plaintiffs sought injunctive relief that would likely require defendants to spend a substantial amount of money to restore plaintiffs’ homes and businesses. Moreover, plaintiffs sought punitive damages under Kentucky law, which may be considered in determining the jurisdictional amount in controversy. Even applying a conservative 2:1 punitive-to-compensatory damages ratio, plaintiffs’ compensatory damages would only have to be $1,666,667 for the amount in controversy to exceed $5 million. Under a fair reading of these allegations, the amount in controversy would more likely than not exceed $5 million, and thus defendants established that removal was proper under CAFA.
Next, the court analyzed whether any of the three CAFA exceptions – the home-state, local-controversy, and discretionary exceptions – applied in this case and found that they did not.
CAFA’s exceptions requires a certain proportion of the class members to be citizens of the forum state. The district court noted that, because the class members’ citizenship is viewed on an aggregate basis, with the members of every proposed subclass taken into account, the existence of one subclass with a disproportionate number of non-forum citizens could preclude the application of CAFA’s exceptions.
Here, plaintiffs proposed to certify a subclass (Class III) of all businesses and commercial entities affected by the derailment, without placing any geographical limit on this subclass. Because the derailment required local authorities to halt maritime traffic, establish a no-fly zone, and close state highways, the district court noted the derailment potentially affected thousands of non-Kentucky businesses and commercial entities. Although Kentucky citizens made up at least two third of two other proposed subclasses (Class I and Class II), the potential non-forum class members in Class III reduced the aggregate proportion of Kentucky class members below the threshold necessary to trigger CAFA’s home-state and local-controversy exceptions.
Additionally, even if plaintiffs could establish that two thirds of the proposed class members were Kentucky citizens, they would nonetheless fail to satisfy the home-state exception because the primary defendants were not from Kentucky. For the home-state exception to apply, the primary defendants must also be citizens of the state where the action was originally filed. District courts in the Sixth Circuit define “primary defendant” as any defendant that is directly, versus vicariously or secondarily, liable to the class, or any defendant who may be liable to a substantial portion of the class. Although several defendants (CSX, P&L, and the Center for Toxicology and Environmental Health, LLC) fit within this definition, none of them were citizens of Kentucky.
For similar reasons, the district court held the local-controversy exception did not apply. In addition to the two-thirds-citizenship requirement, the local-controversy exception requires that the principal injuries resulting from the defendant’s conduct must be incurred in the forum state. CAFA’s legislative history reveals that this principal-injury requirement relates to the geographic scope of the putative class members’ alleged injuries. Because Class II included at least 700 Indiana residents and Class III included any business or commercial entity affected by the derailment, the plaintiffs’ injuries were not limited to Kentucky.
Finally, CAFA’s discretionary exception requires one third of the putative class members, as well as all primary defendants, to be citizens of the forum state. As it was unlikely that one third of the class members were Kentucky citizens, and because none of the primary defendants were Kentucky citizens, the district court held this exception was inapplicable.
For these reasons, the district court denied plaintiffs’ motion to remand. While the district court’s order in this case is not groundbreaking, it provides a thorough overview of CAFA’s jurisdictional requirements and exceptions under Sixth Circuit case law.