Eighth Circuit Clarifies CAFA’s Local-Controversy Exception Applies to Local Citizens, Not Mere Residents

On April 14, 2017, in Hargett v. RevClaims, LLC, et al., the United States Court of Appeals for the Eighth Circuit addressed the circumstances under which the local-controversy exception to the Class Action Fairness Act of 2005 applies. The court in Hargett aligned with the Seventh Circuit in holding that the exception applies where two-thirds of the class are citizens—not residents—of the state in which the action was originally filed.

In Hargett, plaintiff Tammy Hargett was injured in an auto accident and was then required by St. Bernard’s Hospital to assign her rights as a Medicaid beneficiary to the hospital. The hospital subsequently engaged RevClaims to pursue Hargett’s legal claims against the driver who caused the auto accident instead of collecting a reduced but definite payment from Arkansas Medicaid. Hargett alleged that St. Bernard’s conduct violated Arkansas law and filed suit on behalf of a class of similarly situated Arkansas Medicaid beneficiaries in Arkansas state court.

The defendants removed under CAFA, and Hargett filed a motion to remand under the local-controversy exception, which provides that district courts must decline federal jurisdiction over a class action in which “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,” among other things. 28 U.S.C. § 1332(d)(4). The district court granted Hargett’s motion to remand, finding the two-thirds requirement satisfied because “Plaintiff has defined the class as all persons who were Arkansas residents” at the time of the events described in the complaint. Defendants appealed the remand order, and the Eighth Circuit granted review.

The Eighth Circuit held that the proper way to determine whether the local-controversy exception applies is to look to citizenship, which “requires permanence,” instead of residency, which the court described as a “more fluid concept” that does not involve “an intent to make a place home.” The court founded its holding on three primary factors:

1. In analyzing CAFA but not the local-controversy exception, courts have construed the word “citizen” in the statute as meaning something different than “resident;”
   
2. Congress has historically used the term “citizen” to refer to more than mere residency; and
   
3. The Seventh Circuit has distinguished between residency and citizenship for purposes of analyzing the local-controversy exception, holding that citizenship is the proper touchstone.

Accordingly, moving forward under Hargett, the proper way to approach the applicability of the local-controversy exception in the Eighth Circuit is to look to whether or not two-thirds of the class are citizens, and not just residents, of the state in which the action was filed.

Adam E. Polk is a partner with Girard Gibbs LLP in San Francisco, California.