Third Circuit Provides Guidance on Exceptions to CAFA Removal

In a precedential opinion, the Third Circuit in Vodenichar v. Halcón Energy Properties, Inc., clarified the “home state” and “local controversy” exceptions to federal subject matter jurisdiction under the Class Action Fairness Act (“CAFA”). The decision provides guidance on two undefined terms within CAFA, adopting broader interpretations for what makes a defendant a “primary defendant” for purposes of the home state exception and what constitutes an “other class action” for purposes of the local controversy exception.

Plaintiffs, Pennsylvania landowners, filed a putative class action in federal court based upon diversity jurisdiction against Halcón Energy Properties (“Halcón”), a Delaware corporation headquartered in Texas, for breach of certain lease agreements negotiated by Plaintiffs’ agents (the “Agents”) for the oil and gas rights on Plaintiffs’ land. After Halcón informed the District Court that it intended to join the Agents as necessary parties, which would have destroyed diversity, Plaintiffs voluntarily dismissed the action and re-filed in Pennsylvania state court. Defendants removed the second action pursuant to CAFA, but Plaintiffs sought remand under CAFA’s home state and local controversy exceptions. The District Court granted the motion to remand, concluding that remand was required under the home state exception, while also finding that the local controversy exception was inapplicable. The Third Circuit affirmed the remand order, but found that the District Court’s reasoning was flawed, holding that the local controversy exception, not the home state exception, required that the case be remanded.

The Third Circuit first examined the home state exception, which requires remand where all of the primary defendants and at least two thirds of the putative class are citizens of the state where the action was originally filed. The Third Circuit instructed that in determining whether a defendant is a “primary defendant,” courts should assume liability and focus on whether “the defendant is the ‘real target’ of the plaintiffs’ accusations,” as opposed to being vicariously or secondarily liable, as well as whether the defendant has “potential exposure to a significant portion of the class and would sustain a substantial loss as compared to other defendants.” Under this test, the Circuit Court concluded that Halcón was a primary defendant because the alleged breaches by Halcón affected each member of the putative class and were just as, if not more, significant than the allegations against the Agents. Based on its finding that Halcón was a primary defendant and because Halcón was not a citizen of Pennsylvania, the Third Circuit held that remand based on the home state exemption was not warranted.

The Third Circuit then turned to the local controversy exception, which requires, inter alia, that “no other class action asserting the same or similar allegations against any of the defendants had been filed in the preceding three years.” Although recognizing that Plaintiffs had filed two separate putative class action complaints against Halcón, the Third Circuit observed that the “other class action” factor cannot be read too narrowly and that the “act of filing a subsequent complaint does not necessarily mean that the earlier filed action bars invocation of the exception.” Rather, the relevant “‘inquiry is whether similar factual allegations have been made against the defendant in multiple class actions’—and hence they are facing separate distinct lawsuits—without regard to the procedural posture of the earlier filed cases or whether the putative classes in the cases overlap, their claims arise from an identical event, or involve the same causes of action or legal theories.” Applying this analysis, the Circuit Court concluded that the first filed action was not an “other class action,” and that the second filed action was simply a continuation of the first filed action, with the “same representative plaintiffs fil[ing] two complaints on behalf of an identically-defined putative class arising from the same factual allegations.” Because the first filed action was not an “other class action” as contemplated under CAFA, the Third Circuit held that the “no other class action” prong was satisfied and that the local controversy exception to CAFA jurisdiction mandated remand of “this truly local case.”

You may also like...