General Statistical Evidence of “Local Controversy” Held Insufficient for Jurisdiction Under Class Action Fairness Act

Can class-action plaintiffs avoid federal court by relying on general economic studies and  population statistics to prove that their case should be in state court? Not in the Eleventh Circuit. In Smith v. Marcus & Millichap, Inc., 2021 WL 939184 (11th Cir. Mar. 12, 2021), the court held that “studies, surveys, and census data—which do not directly involve the plaintiffs”—are not “sufficient to establish that a certain percentage of the plaintiff class are citizens of a particular state for the purposes of CAFA’s local controversy and discretionary exceptions.”

Smith concerned the Class Action Fairness Act, which gives federal courts jurisdiction over class actions involving more than $5 million as long as the parties are minimally diverse—i.e., at least one plaintiff resides and intends to remain in a different state than at least one defendant, 28 U.S.C. § 1332(d)(2). But CAFA also requires federal district courts to decline to exercise jurisdiction over certain cases in which more than two-thirds of the proposed class are citizens of the state where the case was filed (CAFA’s “local controversy” exception, id. § 1332(d)(4)) and permits district courts to decline jurisdiction over certain cases in which more than one-third of the proposed class are citizens of that state (the “discretionary” exception, id. § 1332(d)(3)).

The Smith plaintiffs were past and present residents of skilled-nursing facilities marketed and sold in Florida by an out-of-state defendant. After the defendants removed the case to federal court under CAFA, the plaintiffs filed a motion to remand to state court under the statute’s local-controversy and discretionary exceptions. And in an effort to carry their burden of proving that one- or two-thirds of the proposed class were Florida citizens, the plaintiffs presented federal census data, economic studies, and population surveys, which—according to the district court—showed that residents of nursing facilities typically “hale from the proximate area” and that senior citizens do not often move out of state. Having found that the plaintiffs had “shown by a preponderance of the evidence that two-thirds of the class members are citizens of Florida,” the district court had remanded the case to state court under CAFA’s local-controversy exception.

The Eleventh Circuit reversed. In an opinion by Judge Lisa Branch, the court noted that the plaintiffs had not limited their proposed class to Florida citizens and held that, without such a limitation, “generalized evidence cannot be the sole basis of the citizenship determination.” The court thus rejected the plaintiffs’ emphasis on “common sense” and supposedly “logical inferences” and instead cited reasoning from the Ninth Circuit: “[T]here must ordinarily be at least some [specific] facts in evidence from which the district court may make findings regarding class members’ citizenship for purposes of CAFA’s local controversy exception.” Mondragon v. Capital One Auto Fin., 736 F.3d 880, 884 (9th Cir. 2013). As Judge Branch wrote, “We cannot rely only on a series of purportedly reasonable inferences to determine citizenship; we cannot base our determination of citizenship on ‘sensible guesswork.’”

Although the court rejected the plaintiffs’ arguments about class citizenship, it also rejected one of the defendant’s arguments that he could not afford to pay a judgment and was therefore a not a “significant” defendant for purposes of the local-controversy exception—which is further limited to actions in which the plaintiff seeks “significant relief” from an in-state defendant, 28 U.S.C. § 1332(d)(4)(A)(i)(II)(aa). The court thus held that “CAFA does not require the district court to examine a defendant’s ability to pay based on the unambiguous plain meaning of the statute’s text.”

Finally, in addressing CAFA’s discretionary exception—which is further limited to cases in which “the primary defendants are citizens of the State in which the action was originally filed,” 28 U.S.C. § 1332(d)(3)—the court concluded that the plaintiffs’ assertion of significant claims against an out-of-state defendant “destroys plaintiffs’ ability to invoke the discretionary exception.”

Smith shows that courts in the Eleventh Circuit will not allow plaintiffs to avoid CAFA jurisdiction by relying on mere assumptions about class citizenship: “While we do not hold that a district court may never consider evidence of a general nature in determining citizenship of the class, such generalized evidence cannot be the sole basis of the citizenship determination.” On the contrary, class-action plaintiffs are more likely to satisfy CAFA’s citizenship-based exceptions by citing at least some “evidence relating directly to the putative class, such as declarations of class members’ intent to remain in Florida, property records, or tax records.”

Posted by Lee Peifer.

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