Class Actions

• Publication year: 2018

Class Actions

Thomas M. Byrne

Stacey McGavin Mohr

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Class Actions

by Thomas M. Byrne^* and Stacey McGavin Mohr^**

During 2017, the United States Court of Appeals for the Eleventh Circuit continued to address a familiar set of recurring issues in contemporary class action law, including the scope of jurisdiction under the Class Action Fairness Act (CAFA),¹ class action settlement controversies, and the impact of arbitration agreements on class actions.²

I. Exceptions to CAFA Jurisdiction

In Blevins v. Aksut,³ the Eleventh Circuit reinstated a federal Racketeer Influenced and Corrupt Organizations Act (RICO)⁴ case and approved the denial of a motion to remand the case to state court under CAFA. The court's opinion confirms that CAFA's local-controversy

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exception does not strip federal courts of jurisdiction over supposedly local class actions that include claims under federal law.⁵

Blevins involved allegations that the defendants violated RICO by performing and billing patients for unnecessary heart surgeries in Alabama. The defendants removed the case from state court on the basis of the federal RICO claims, and the United States District Court for the Southern District of Alabama denied the plaintiffs' motion to remand before dismissing the case on the ground that RICO excludes claims for personal (i.e., medical) injuries.⁶

Among other things, CAFA confers federal subject matter jurisdiction over all class actions with minimally diverse parties and more than $5 million in controversy.⁷ But the statute creates an exception to that rule by directing federal district courts to "'decline to exercise [CAFA] jurisdiction' . . . over class actions that involve local parties and controversies."⁸ This "local-controversy" exception applies where (1) greater than two-thirds of the proposed class members are citizens of the state in which the action was originally filed, (2) at least one defendant is a citizen of that state, (3) the local defendant's conduct forms a significant basis for the claims, (4) significant relief is sought from that defendant, (5) the principal injuries occurred in that state, and (6) no other similar class action against any of the defendants was filed in the preceding three years.⁹

The plaintiffs in Blevins argued on appeal that the local-controversy exception required the district court to remand the case to state court. Despite their federal RICO claims, the plaintiffs maintained that CAFA required the district court to decline jurisdiction over their "local" class action.¹⁰ The Eleventh Circuit disagreed.¹¹ Because the local-controversy provision is an exception to CAFA's extension of federal diversity jurisdiction under 28 U.S.C. § 1332,¹² "when the requirements of federal-question jurisdiction are met, district courts may exercise jurisdiction over class actions, even if they involve only local parties."¹³ Accordingly, the court affirmed the denial of the plaintiffs' remand motion.¹⁴

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The court of appeals was more forgiving with respect to the potential merits of the underlying RICO claims. The district court had dismissed those claims (and declined to exercise supplemental jurisdiction over the rest of the case)¹⁵ because private civil RICO claims are limited to injuries to "business or property."¹⁶ The Eleventh Circuit vacated the dismissal order on the ground that "[i]n the context of unnecessary medical treatment, payment for the treatment may constitute an injury to property."¹⁷ The court acknowledged that personal injuries and economic losses flowing from them fail to provide a basis for a RICO claim, citing its previous decision in Grogan v. Platt.¹⁸

In Life of the South Insurance Co. v. Carzell,¹⁹ the Eleventh Circuit, in denying a petition for interlocutory review, essentially affirmed the grant of a motion to remand to state court a class action against two insurance companies.²⁰ The court held that federal diversity jurisdiction does not exist under CAFA if all defendants and plaintiff class members are citizens of a single state—regardless of whether corporate defendants are deemed "citizens" of multiple states or whether some plaintiffs have dual citizenship in foreign countries.²¹ After the initial complaint was removed to federal court and then voluntarily dismissed, the plaintiffs refiled their complaint in state court, as allowed by Georgia law,²² asserting only state law claims and limiting their putative class to citizens of Georgia.²³ The defendant insurers, both of which were incorporated in Georgia but had principal places of business in Florida, then removed the case to federal court, invoking two of CAFA's minimal diversity provisions.²⁴

First, the defendants relied on 28 U.S.C. § 1332(d)(2)(A),²⁵ which gives federal district courts diversity jurisdiction over otherwise-qualifying large class actions in which "any member of a class of plaintiffs is a citizen of a State different from any defendant."²⁶ Despite their incorporation in Georgia, the defendants argued that maintaining their principal places of businesses in Florida meant that they were citizens of a different state

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from the class action's Georgia plaintiffs.²⁷ Second, the defendants relied on 28 U.S.C. § 1332(d)(2)(B),²⁸ which confers jurisdiction over large class actions in which "any member of a class of plaintiffs is . . . a citizen or subject of a foreign state and any defendant is a citizen of a State."²⁹ The defendants based this argument on the assertion that some of the Georgia citizens in the plaintiffs' proposed class maintained foreign dual citizenship.³⁰

The district court and the Eleventh Circuit rejected these arguments. The district court remanded to state court, and the Eleventh Circuit then denied the defendants' petition for interlocutory review for lack of jurisdiction.³¹ With respect to the defendants' corporate citizenship, the court held that "the defendants' dual citizenship is an insufficient basis to create federal diversity jurisdiction under CAFA when the defendants share a state of citizenship with all of the plaintiffs."³² The court thus read § 1332(d)(2)(A) "to bar corporate defendants from relying on only one citizenship when their other citizenship would destroy minimal diversity."³³ As for the defendants' assertion that some of the putative class members were really foreign citizens, the court held that "[i]t does not matter that some class members may hold dual citizenship with another country."³⁴ The court further noted that, "under either complete or CAFA minimal diversity, alienage jurisdiction is not available to the dual citizen who is American and thus would not suffer real or perceived bias in the state courts."³⁵

In a third 2017 CAFA decision, Hunter v. City of Montgomery,³⁶ the Eleventh Circuit affirmed the lower court's remand order under another CAFA exception—the "home state" exception.³⁷ The central issue was whether one of the defendants—which had different citizenship from most of the proposed plaintiff class—was one of the "primary defendants" within the meaning of the exception.³⁸ The case centered on a red-light

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camera program operated by Montgomery, Alabama, and American Traffic Solutions, Inc. (Traffic Solutions). The original plaintiff, Charles Hunter, sued Montgomery and Traffic Solutions in Alabama state court, alleging violations of the Alabama Constitution, state law, and 42 U.S.C. § 1983,³⁹ seeking damages (refunded fines) from Montgomery and declaratory and injunctive relief against both Montgomery and Traffic Solutions. Traffic Solutions removed the action to federal court based on both the federal claims and diversity jurisdiction under CAFA. Hunter then amended his complaint, adding a second plaintiff, Mike Henderson, and dropping the federal-law claims. Ten months after the removal, the United States District Court for the Middle District of Alabama requested supplemental briefing on the issue of its subject matter jurisdiction. The plaintiffs then claimed that both CAFA's local-controversy and home-state exceptions applied, which would require the court to remand the case to the Alabama state court. The district court agreed that both exceptions applied and remanded the case.⁴⁰

The Eleventh Circuit began by assessing its own jurisdiction to review the lower court's remand order.⁴¹ The court determined that 28 U.S.C. § 1447(d)⁴² did not bar it from reviewing the remand order because the order (1) had not been based on a timely motion—it was on the court's own initiative—and (2) had not been based on a lack of subject matter jurisdiction—it was rather a CAFA bar to the exercise of otherwise legitimate subject matter jurisdiction.⁴³ After determining that it had appellate jurisdiction, the Eleventh Circuit concluded that the home-state exception applied and did not reach the issue of the local-controversy exception.⁴⁴ The home-state exception applies where both two-thirds of the proposed plaintiff class and the "primary defendants" are citizens are citizens of the forum state.⁴⁵ The parties agreed that two-thirds of the plaintiff class and Montgomery were both citizens of Alabama and that Traffic Solutions was not.⁴⁶ So the dispositive issue was "whether Traffic Solutions [was] a 'primary defendant' under CAFA."⁴⁷ The court held that, where the class action seeks monetary

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relief, the "primary defendants" are those that have "substantial exposure . . . [or] would incur most of the loss if damages are awarded."⁴⁸ Because the plaintiffs sought damages only from Montgomery, Traffic Solutions was not a "primary defendant" under CAFA and remand was proper.⁴⁹

II. Arbitration Agreements and Class Actions

In the continuing arbitration wars implicating class actions, 2017 was an eventful year. The Consumer Financial Protection Bureau issued a final rule on July 19, 2017, generally prohibiting class action waivers in arbitration agreements subject to the bureau's jurisdiction...