Think twice about whether the Class Action Fairness Act’s “local controversy” exception applies to your case. Even if more than two-thirds of the proposed class members are citizens of the forum state, there is a significant in-state defendant and the claims asserted arise from conduct in that state, that is not necessarily enough for the plaintiffs to avoid CAFA jurisdiction under a new Fifth Circuit decision. Under this decision, if any of the putative class members’ injuries occurred outside of the forum state, the “local controversy” exception does not apply. This decision could enable defendants to remove some single-state putative class actions that might have been thought unremovable under the “local controversy” exception. And, as the Fifth Circuit also concluded, a denial of remand on this issue was appealable as of right.

The “local controversy” exception provides that a federal district court “shall decline” jurisdiction over a putative class action if more than two-thirds of the proposed class are citizens of the state where suit was filed, at least one defendant is a citizen of that state and satisfies certain requirements, and no other class action “asserting the same or similar factual allegations” against any defendant has been filed during the prior three years. 28 U.S.C. § 1332(d)(4). The additional requirements to qualify as an in-state defendant are that the defendant is one “from whom significant relief is sought by members of the plaintiff class,” “whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class,” and “principal injuries arising from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed.” Id. (emphasis added). A lot of lawyers likely assumed that this exception would apply if more than two-thirds of the class are citizens of the forum state and their injuries (but not every single class member’s injury) were suffered in that state. Not so, according to a new Fifth Circuit decision.

In Cheapside Minerals, Ltd. v. Devon Energy Production Co., L.P., Nos. 23-40591, 24-40026, – F.4th –, 2024 WL 886951 (5th Cir. Mar. 1, 2024), the plaintiffs sued for underpayment of oil-and-gas royalties on Texas properties. As you might expect, more than two-thirds of the proposed class members were Texas citizens, but some class members were citizens of other states and the United Kingdom. The defendant successfully argued that that the “principal injuries” requirement means that all putative class members must have suffered their injuries in Texas for the exception to apply. The Fifth Circuit reasoned that the word “principal” means “primary” or “chief,” that “CAFA ties the ‘principal injuries’ sustained to the entire class, not just a subset of it,” and that “[t]here is no exception for cases in which most plaintiffs sustain the principal injury in the forum state but some do not.”  (Emphasis in original.) The court found support for its interpretation in other sections of CAFA that were more specific about how you count class members for certain purposes. The court also concluded that the exception must be construed narrowly. The court noted that CAFA’s legislative history appeared to be inconsistent with the court’s ruling, but found no ambiguity in the statute and therefore did not consider the legislative history.

Given that the only injury in this case was a financial harm, the court concluded that the injuries occurred wherever the class members resided. Because some putative class members were not Texas citizens, the local controversy exception did not apply.

Notably, this decision did not address the mandatory exception to CAFA jurisdiction applicable where “two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.” 28 U.S.C. § 1332(d)(4)(B).

The Fifth Circuit also agreed with the Eighth and Eleventh Circuits (see my blog post about the Eleventh Circuit decision) that an order remanding a case based on the “local controversy” exception is a remand based on “abstention principles” that is appealable as of right, without the need to petition for permission to appeal under CAFA.  

Overall, this decision seems likely to result in an increased number of single-state class actions being removable to federal court, at least in the Fifth Circuit. It might not be too late to remove such cases where the complaint did not clearly plead an amount in controversy over the $5 million threshold. See, for example, Cutrone v. Mortgage Electronic Reg. Sys., Inc., 749 F.3d 137, 145 (2d Cir. 2014) (blog post).

Tags: Fifth Circuit
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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and most of the class actions I’ve defended have been brought against insurance companies. I’ve also handled some involving products liability, managed care, health care, utilities, financial services, higher education and environmental issues.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at work, you might find me running lines or watching a musical with my teenage daughter who hopes to be a Broadway star (or taking her to voice or dance lessons) or reading a good book.

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