October 03, 2017

Citizenship under CAFA: Key Recent Decisions from the Sixth, Eighth, and Ninth Circuits

Russell Lewis, Amy Hefley, and Cornelius Sweers – October 3, 2017

Within the past year, the Sixth, Eighth, and Ninth Circuits have interpreted the scope of provisions in the Class Action Fairness Act of 2005 (CAFA) governing when and how plaintiffs can establish citizenship to invoke the “local controversy” exception to CAFA jurisdiction. These decisions have significant implications for plaintiffs and defendants alike. This article briefly summarizes and discusses those decisions, and offers a few practice pointers to consider based on them.

A Rebuttable Presumption of Citizenship—Applied by the Sixth Circuit, Rejected by the Eighth Circuit
In Mason v. Lockwood, Andrews & Newnam, P.C., 842 F.3d 383 (6th Cir. 2016), the Sixth Circuit became the first circuit to apply a rebuttable presumption of domicile—and therefore citizenship—based on residency for purposes of CAFA’s local controversy exception, which requires that “greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed.” 28 U.S.C. § 1332(d)(4)(A)(i)(I) (2012).

Mason arose out of the Flint water crisis as a state law professional negligence class action against the civil engineering firm that advised the city of Flint about its water supply. Mason, 842 F.3d at 387–88. The plaintiffs initially filed the matter in Michigan state court on behalf of a putative class of “residents and property owners in the City of Flint.” After the defendants removed the case, the plaintiffs sought remand based on CAFA’s local controversy exception. Id. at 388. The plaintiffs argued that because the complaint alleged that the proposed class consisted of Flint residents, the citizenship element was not in dispute. The defendants countered that the mere allegation of residency was insufficient to establish citizenship. The district court granted the plaintiffs’ motion to remand, applying a rebuttable presumption that a plaintiff’s averment of residency establishes domicile and noting the absence of any contrary evidence from the defendants.

The Sixth Circuit affirmed the district court’s order remanding the case. Id. at 386. It reasoned that the district court correctly applied a rebuttable presumption that each class member alleged to be a Flint resident was domiciled there. Id. at 390. Emphasizing the “historical pedigree of the residency-domicile presumption,” the court distinguished and rejected the contrary line of authority on which the defendants relied, holding that the “naked averment of . . . residence . . . is insufficient to show . . . citizenship.” Id. at 391 (quoting Robertson v. Cease, 97 U.S. 646, 648 (1878)). Despite acknowledging that other circuits had relied on that line of authority in explicitly rejecting the residency-domicile presumption in “many cases, including several from the CAFA context,” the court held that it did not warrant rejecting the residency-domicile presumption in the CAFA context. Id. at 391. The court reasoned that the “mere averment of residency” line of cases arose in the federal subject matter jurisdiction context, in which a presumption against federal jurisdiction exists, whereas CAFA’s local controversy exception was not jurisdictional and, thus, a party asserting the exception “does not encounter a similar countervailing presumption that neutralizes residency’s presumptive force in establishing domicile.” Id. at 392. The court also reasoned that other attributes of the plaintiffs’ putative class definition supported the inference that more than two-thirds were domiciled in Michigan, including that proposed class members had resided in Flint for several years and owned property there, and that Flint was nowhere near a state line. Id. at 395. As a result, and noting that the defendants offered no evidence to rebut the presumption that the putative class members were domiciled in Michigan, the court concluded that the district court “did not clearly err in finding that, more likely than not, more than two thirds of the proposed class of Flint residents were Michigan citizens.” Id.

In dissent, Judge Kethledge criticized the majority’s rule and reasoning as a departure from the five other circuits that had considered the issue and required “at least some facts in evidence from which the district court may make findings regarding the class members’ citizenship. . . .” Id. at 397–98 (Kethledge, J., dissenting). Judge Kethledge also characterized the majority’s application of the residency-domicile presumption as inconsistent with “the virtually unflagging obligation of the federal courts to exercise the jurisdiction given them” and argued that the court could not presume a fact allowing it to decline jurisdiction any more than the court could presume a fact in favor of jurisdiction. Id. (quoting Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976)).

Five months later, in Hargett v. RevClaims, LLC, 854 F.3d 962 (8th Cir. 2017), the Eighth Circuit expressly rejected Mason by holding that merely alleging a proposed class of state residents was insufficient to satisfy the plaintiff’s burden under the two-thirds citizenship element of CAFA’s local controversy exception. Hargett, 854 F.3d at 966–67. In Hargett, the plaintiff brought suit against several Arkansas hospitals in Arkansas state court on behalf of a putative class of “[a]ll persons who were Arkansas Medicaid-eligible beneficiaries,” alleging that “hundreds, if not thousands, of people geographically dispersed across Arkansas have been damaged by Defendants’ actions.” Id. at 964. After removal under CAFA, the district court remanded the case, finding that the plaintiff had met the requirements of the local controversy exception. In particular, the district court concluded that the plaintiff met her burden with respect to the two-thirds citizenship requirement because she alleged a class of Arkansas residents. Id. at 964–65. Nevertheless, the district court directed the plaintiff to amend her complaint to allege a class of Arkansas citizens, which she did before the case was remanded. Id. at 965.

The Eighth Circuit reversed, holding that the plaintiff failed to meet her burden to establish the two-thirds citizenship element of the local controversy exception. Id. at 966. The court reasoned that the local controversy exception incorporated the distinction drawn between residency and citizenship for purposes of diversity jurisdiction. Id. at 965–66. Rejecting the plaintiff’s invitation to apply a residency-domicile presumption and citing Judge Kethledge’s dissent in Mason, the court held that plaintiffs “remain free to meet their burden through evidence or through a class explicitly limited to local citizens, but they are not free to rest on guesswork.” Id. at 966. The court noted that the plaintiff did neither, instead relying only on residency allegations. The court also declined to consider the plaintiff’s amended complaint and its updated class definition on the grounds that allowing the plaintiff to redefine the class after removal would be inconsistent with the plain language of CAFA, which requires that class citizenship “be determined as of the date of the pleading giving federal jurisdiction.” Id. at 967.

The Sixth Circuit’s adoption of a rebuttable presumption that residency is equivalent to domicile is a significant departure from the majority rule articulated by the Eighth Circuit in Hargett―that plaintiffs must define their class to include only local state citizens or present evidence on the domicile issue. See Hargett, 854 F.3d at 966; Reece v. AES Corp., 638 F. App’x 755, 769 (10th Cir. 2016); Mondragon v. Capital One Auto Finance, 736 F.3d 880, 884 (9th Cir. 2013); Preston v. Tenet Healthsystem Mem’l Med. Ctr., Inc., 485 F.3d 793, 799–801 (5th Cir. 2007); Evans v. Walter Indus., Inc., 449 F.3d 1159, 1166 (11th Cir. 2006). Although no other circuit has adopted the analysis in Mason, defendants should be aware that they may be required to present evidence proving that less than two-thirds of the proposed class members are state citizens in the Sixth Circuit and in other circuits that have not expressly addressed the issue.

Minimal Diversity Determined by the Pleading at the Time of Removal in the Ninth Circuit
Unlike federal diversity jurisdiction, which requires complete diversity between the parties, CAFA jurisdiction requires only minimal diversity―i.e., the citizenship of any plaintiff class member must be diverse from the citizenship of any one defendant. 28 U.S.C. § 1332(d)(2) (2012). Applying the minimal diversity requirement, the Ninth Circuit held in Broadway Grill, Inc. v. Visa Inc. that a plaintiff may not amend its complaint after removal for the purpose of defeating CAFA jurisdiction. 856 F.3d 1274, 1279 (9th Cir. 2017). In that case, a California corporation brought a putative class action in California state court against several Visa entities (citizens of both California and Delaware) on behalf of all merchants located in California. Id. at 1276. After the case was removed and the district court denied the plaintiff’s motion to remand based on the local controversy exception, the plaintiff sought leave to amend the complaint to redefine the proposed class to include only California citizens. The district court granted leave to amend and ordered the case remanded, concluding that the plaintiff’s amendment eliminated the minimal diversity required for CAFA jurisdiction. In reaching this decision, the district court relied on Benko v. Quality Loan Service Corp., 789 F.3d 1111 (9th Cir. 2015), in which the Ninth Circuit held that post-removal amendments are permitted “in limited circumstances to add allegations of underlying facts that clarify the nature of the claims for purposes of determining CAFA jurisdiction.” Id.

The Ninth Circuit reversed, holding that the plaintiff was not entitled to amend its complaint and that remand was improper. Id. at 1279. Noting that “the circuits have unanimously and repeatedly held that whether remand is proper must be ascertained on the basis of the pleadings at the time of removal,” the court acknowledged that Benko allowed the plaintiff to amend the complaint post-removal to add allegations against a local defendant for purposes of clarifying CAFA jurisdiction. Id. at 1277. However, the court clarified that Benko did not encompass situations in which a plaintiff amended the complaint to change the definition of the class to defeat federal jurisdiction. Id. at 1277–78. As a result, citizenship for purposes of CAFA’s minimal diversity requirement must be measured by the live complaint at the time of removal. Id. at 1279. In support of its holding, the court cited with approval Hargett and its reasoning and noted that no other circuits had allowed post-removal amendments to affect the existence of federal jurisdiction or change the composition of the class. Id. at 1278.

Broadway Grill is significant. It represents a limitation of the potentially expansive Benko decision to its facts and reinforces the principle emerging across the circuits that the citizenship of the parties and proposed class is determined by the live complaint at the time of removal. As a result, class action plaintiffs should be aware of the probability that their state court pleadings will be fixed for at least some purposes at the time of removal and should not rely on the more liberal amendment rules of the Federal Rules of Civil Procedure when drafting initial complaints.

Practice Points and Observations
In light of these decisions, parties should consider the following points when assessing the possibility of removal and remand under CAFA.

  • At the outset, plaintiffs should draft carefully their state court class action complaints with the assumption that amendments will not be considered. As the Ninth Circuit noted in Broadway Grill, many circuits significantly limit a plaintiff’s ability to amend the complaint post-removal, and that trend likely will continue.
  • Plaintiffs should avoid the temptation to expand their class definition to encompass all state residents. Under Hargett and the majority rule, a class definition limited to state citizens may be necessary to establish the two-thirds citizenship element of the local controversy exception.
  • When faced with expansive class definitions, defendants should promptly remove matters to tie plaintiffs to their pleadings and maximize the potential for CAFA jurisdiction.

Russell Lewis, Amy Hefley, and Cornelius Sweers – October 3, 2017