United States: Tenth Circuit holds that environmental contamination case doesn't require remand under Class Action Fairness Act's "local controversy" exception

Although the Class Action Fairness Act of 2005 (CAFA) permits most significant class actions to be heard in federal court, the law requires district courts to remand so-called "local controversies" to state court. A "local controversy" is a class action in which "greater than two-thirds of the members of the proposed classes" are "citizens" of the forum state and at least one defendant "from whom significant relief is sought" and whose "alleged conduct forms a significant basis for the claims asserted" is also a "citizen" of that state. 28 U.S.C. §1332(d)(4).

In an effort to come within this exception, plaintiffs' lawyers sometimes will limit the putative class to citizens of a particular state and will attempt to portray an in-state defendant as a significant player in the alleged wrong.

Defendants have multiple strategies for resisting these attempts to evade federal jurisdiction. For example, sometimes the in-state defendant is merely a bit player rather than a "significant" one. Federal courts have made clear that CAFA's "local controversy" exception bars the old tactic of defeating diversity jurisdiction by adding a minor local defendant to destroy complete diversity.

The Tenth Circuit's recent decision in Reece v. AES Corp. makes clear that plaintiffs must also be held to their burden of proving that greater than two-thirds of the class members are actually citizens of the forum state. Reece involves a class action challenging the manner in which fracking waste was disposed. Although the plaintiffs suggested that the putative class consisted primarily of Oklahoma landowners, the Tenth Circuit pointed out that not all landowners are necessarily citizens—particularly because many putative class members would have become citizens of other states during the 20-year class period. The court also criticized the plaintiffs for failing to submit the data underlying their assertions that the landowners actually lived in Oklahoma.

For more details on Reece, please see the report authored by Mayer Brown attorneys Mark Ter Molen, Evan Tager, and Sarah Reynolds.

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