Class Action Plaintiff Has High Bar to Avoiding Federal Courts

Under the Class Action Fairness Act (CAFA), federal courts have jurisdiction over class action claims. There are exceptions, however, including what is known as the “local controversy exception.”

The plaintiff, Opelousas General Hospital Authority, sued in state court three defendants, located in Texas, Illinois and Louisiana, for violations of the Louisiana Racketeering Act. The defendants removed the case to a federal district court under the Class Action Fairness Act and diversity of jurisdiction. The defendants were able to claim diversity of jurisdiction because they asserted that joinder of the only in-state defendant, LEMIC, was fraudulent. The plaintiffs then attempted to remand the case back to state court, asserting that the case fit within CAFA’s narrow “local controversy exception.”

The “local controversy exception” of the CAFA allows a plaintiff to bring a class action lawsuit in state court rather than federal court when several requirements are satisfied. These requirements are that: 1) more than 2/3 of the proposed plaintiffs (as a class) are citizens of the state in which the action was originally filed; 2) principal injuries resulting from the alleged or related conduct of each defendant occurred in-state, and 3) at least one defendant falls under a very specific category. This category covers defendants who meet all of the following: 1) significant relief is being sought from that defendant, 2) the defendant’s conduct forms a significant basis for the claims, 3) it is a citizen of the originally-filed state, and 4) the principal injuries the plaintiffs suffered happened in the originally-filed state. In such a case, the federal district court will “decline to exercise its jurisdiction” and the case will go back to state court. Additionally, for the 3 years before the original class action is filed, no other similar class action, alleging similar facts, can have been filed against any of the defendants.

Clearly, the plaintiff has quite a hurdle to surpass if it wants to claim the local controversy exception. Because the plaintiff must show that one of the defendants fits the above criteria (and LEMIC was the only possible candidate), it had to show that LEMIC’s behavior formed a significant basis for the claim. At the district court, however, the plaintiff did not present enough evidence to satisfy the appellate court. The fact that LEMIC and the other defendants may have been acting in concert was not enough to show that LEMIC’s behavior was significant enough.

Therefore, the United States Court of Appeals for the Fifth Circuit vacated the order to remand and reinstated the case on the federal district court’s docket. If you face a similar ordeal, it is important to hire the proper attorney to make sure that your case is maintained and that you receive the ruling you deserve.

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