A Guide to Navigating CAFA's Home-State Exception
By Christopher E. Roberts – June 20, 2013
The Class Action Fairness Act (CAFA) expanded federal court diversity jurisdiction with respect to class action disputes. Specifically, CAFA provides federal courts jurisdiction over all class action matters in which the amount in controversy exceeds $5 million and any class member is a citizen of a different state than the defendant. CAFA is frequently invoked by defense counsel who consider federal court to be a more favorable forum than state court.
However, there are exceptions to the general rule, such as the “home-state” exception. If properly utilized, the home-state exception can prevent a federal court from exercising jurisdiction over a class action case.
Requirements for the Home-State Exception and Burdens of Proof
There are two requirements for the home-state exception to apply. First, two-thirds of the proposed class members must be citizens of the forum state. Second, the primary defendants also must be citizens of the forum state. 28 U.S.C. § 1332(d)(4)(B). If these two requirements are fulfilled, the case cannot be removed to federal court.
Citizenship of the proposed class members is determined at the time the complaint is filed or at the time any paper is filed indicating the existence of federal jurisdiction. 28 U.S.C. § 1332(d)(7). For purposes of the home-state exception, courts generally consider citizenship and domicile as similar, if not identical, concepts. An individual is considered to be a citizen of a given state if he or she resides in the state and intends to remain in that state. The citizenship of a business defendant is both the place it is incorporated and its principal place of business.
The party invoking the home-state exception has the burden of establishing by a preponderance of the evidence that the exception applies. See generally Preston v. Tenet Healthsystem Mem’l Med. Ctr., Inc., 485 F.3d 804 (5th Cir. 2007); Breuer v. Jim’s Concrete of Brevard, Inc., 538 U.S. 691 (2003). If this burden is not satisfied, the case will likely remain in federal court.
Proving that the Home-State Exception Applies
The moving party must present competent evidence to the court that the home-state exception applies. While different types of evidence can be used to establish that two-thirds of the proposed class members are citizens of a state, the following list identifies some of the more common types of evidence considered by courts on this issue:
Addresses. Providing the court a list of the proposed class members’ addresses could help establish the state citizenship of proposed class members. However, some courts have held that addresses by themselves do not reflect an individual’s intent to remain in the state. In re Sprint Corp., 593 F.3d 669 (7th Cir. 2010). This information is more persuasive if used in conjunction with other evidence, such as census data.
Census Data. An effective piece of evidence that can be used in conjunction with address data is census data. Specifically, census data addressing the percentage of people who relocate from a state can be useful because it may establish that only a small percentage of the proposed class members would likely relocate from their present address. Census data is also effective because courts can take judicial notice of the data. Hollinger v. Home State Mut. Ins. Co., 654 F.3d 564 (5th Cir. 2011).
Affidavits. Affidavits may be persuasive depending on their content and who submits them. Counsel should always consider submitting affidavits from all of the named plaintiffs concerning their current residence and intent to remain in the state. On the other hand, counsel should be cautious about submitting their own affidavits. For example, one court did not find counsel’s affidavit persuasive where it concerned counsel’s own analysis of the percentage of proposed class members residing in the state. Evans v. Walter Indus., Inc., 449 F.3d 1159 (11th Cir. 2006).
Class Definitions. While class definitions are not evidence of citizenship, they can be useful in guiding a court’s analysis of the evidence. Some courts note that defining a class as citizens of a certain state is more effective than defining members as residents of a state or as persons with specific area codes.
Property Ownership. Evidence concerning ownership of real property, such as a home, is persuasive evidence of citizenship in a state. Although not as persuasive, ownership of personal property in the state, such as an automobile, may also be used as evidence of a party’s citizenship. This information can usually be obtained from county tax records.
Surveys. Survey data concerning population trends has also been considered by courts. However, courts may not find the survey methodology proper and therefore may not find the survey data reliable. While survey data can be useful, courts have tended to find census data concerning population trends more persuasive.
Shifting the Burden of Proof
If the party invoking the home-state exception presents evidence establishing the proposed class members’ citizenship in a state, the opposing party may present evidence suggesting that the class members are no longer citizens of the state. At this point, the burden of proof shifts to the opposing party. The opposing party may then use the types of evidence discussed above to satisfy its burden.
A Potential Escape Valve: the Discretionary Jurisdiction Exception
Even if a preponderance of the evidence does not establish that two-thirds of the proposed class members are citizens of the state, a fallback position is available for remaining in state court. This fallback position is known as the discretionary jurisdiction exception.
The discretionary jurisdiction exception allows a district court to decline jurisdiction over certain cases, even if two-thirds of the proposed class members are not citizens of the state in which the action was filed. For the exception to apply, more than one-third of the proposed class members must be citizens of the state in which the action was filed and the primary defendants must be residents of the state. 28 U.S.C. § 1332(d)(3). The one-third threshold may be established by the same types of evidence discussed above. The court then considers a number of factors to determine whether the exception applies:
Whether the claims asserted involve matters of national or interstate interest. If the claim concerns a national or an interstate interest, a court is less likely to apply the exception.
Whether the state’s laws in which the action was filed govern the dispute. If the forum state’s laws will govern the dispute, a court is more likely to apply the exception to allow the action to remain in that state’s court. A court is less likely to apply the exception if another state’s laws govern.
Whether the class action is pleaded in a manner that seeks to avoid federal jurisdiction. If the allegations are pleaded in an attempt to avoid federal jurisdiction, a court is less likely to apply the exception. See Standard Fire Ins. Co. v. Knowles, 133 S. Ct. 1345 (2013) (providing an example of a case pled in a manner to avoid federal jurisdiction).
Whether the action was brought in a forum with a nexus to the class members, the harm, or the defendant. If the forum has a connection to the class members, the harm, or the defendant, the court is more likely to apply the exception. Forum shopping will decrease the likelihood that a court will apply the exception.
Whether a larger number of the proposed class members are citizens of the forum state. If the state in which the action was filed has significantly more class citizens than other states, a court is more likely to apply the exception.
Whether the same or similar class action claims have been filed within three years of the current class action. In this circumstance the court may look to the forum where the prior action was filed for guidance concerning jurisdiction.
If a case is removed to federal court under CAFA, class counsel should closely analyze the case to determine if the home-state exception applies. If the exception applies, counsel can continue to successfully litigate the case in state court rather than federal court.
Keywords: litigation, class actions, derivative suits, CAFA, home-state exception
Christopher E. Roberts is a partner at Butsch Roberts & Associates, LLC, in St. Louis, Missouri.