The Fifth Circuit recently adopted a presumption in favor of retaining federal jurisdiction under the Class Action Fairness Act ("CAFA") and placing the burden squarely on plaintiffs who seek to remand a case based on one of CAFA's limited exceptions. Specifically, the Court held that "[i]f the applicability of an exception is not shown with reasonable certainty, federal jurisdiction should be retained."
The controversy in Arbuckle Mountain Ranch of Texas, Inc. v. Chesapeake Energy Corp. arose from a dispute over the ownership of mineral interests. The defendants are a group of related oil and gas companies who operate oil wells in Texas and who leased property from mineral interest owners. The interest owners subsequently defaulted on their loans, and their lenders foreclosed upon and sold the mineral interests. The plaintiff acquired a mineral interest out of the foreclosure and objected to the defendants' continued well operation. The plaintiff filed suit seeking a declaration that the defendants' pre-foreclosure leases had terminated and brought claims for trespass and conversion.
The defendant removed the case to federal court pursuant to CAFA jurisdiction, and the plaintiffs then sought to remand under the local controversy exception of CAFA. The local controversy exception requires that two-thirds of the proposed class and at least one defendant be citizens of the state where the class action was originally filed, and the class's "principal injuries" must be incurred in that same state.
The district court granted the plaintiff's motion, remanding the case, but the Fifth Circuit reversed. The Fifth Circuit reviewed the plaintiff's state court petition and concluded that the petition was ambiguous as to the scope of the proposed class. Faced with this ambiguity, the Fifth Circuit noted that any lingering doubts must be resolved in favor of exercising federal jurisdiction. Because the plaintiff failed to prove that the local controversy exception applied, the Fifth Circuit held that federal jurisdiction should be retained.
The Troutman Sanders' Consumer Financial Services Law Monitor blog offers timely updates regarding the financial services industry to inform you of recent changes in the law, upcoming regulatory deadlines and significant judicial opinions that may impact your business. To view the blog, click here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
