Speed v. JMA Energy Company , 872 F.3d 1122 ( 2017 )

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT October 2, 2017
_________________________________
Elisabeth A. Shumaker
Clerk of Court
DAVID LANDON SPEED,
Plaintiff - Appellee,
v. No. 17-7040
JMA ENERGY COMPANY, LLC,
Defendant - Appellant.
_________________________________
Appeal from the United States District Court
For the Eastern District of Oklahoma
(D.C. No. 6:17-CV-00006-RAW)
_______________________________
Robert D. McCutcheon of JMA Energy Company, LLC, Oklahoma City, Oklahoma
(Mark D. Christiansen and Andrew J. Morris of McAfee & Taft, P.C., Oklahoma City,
Oklahoma, with counsel on the briefs), for Defendant-Appellant.
Reagan E. Bradford of Lanier Law Firm, Oklahoma City, Oklahoma (W. Mark Lanier,
Kevin P. Parker and M. Michelle Carreras of Lanier Law Firm, Houston, Texas, with
counsel on the brief), for Plaintiff-Appellee.
_________________________________
Before HARTZ, McKAY, and MATHESON, Circuit Judges.
_________________________________
HARTZ, Circuit Judge.
_________________________________
Plaintiff David Landon Speed filed a petition (the Petition) in the District
Court of Hughes County, Oklahoma, asserting a putative class action against
defendant JMA Energy Company, LLC. He alleged that JMA had willfully violated
an Oklahoma statute that requires payment of interest on delayed payment of revenue
from oil and gas production. He further asserted that JMA fraudulently concealed
from mineral-interest owners that it owed interest due under the statute, intending to
pay only those who requested interest. JMA removed the case to the United States
District Court for the Eastern District of Oklahoma, asserting that the district court
had jurisdiction under the Class Action Fairness Act (CAFA), 28 U.S.C. § 1332(d).
After conducting jurisdictional discovery, Mr. Speed filed an amended motion
to remand the case to state court. The district court granted this motion, relying on
an exception to CAFA that permits a district court to decline to exercise jurisdiction
over a class action meeting certain citizenship prerequisites “in the interests of justice
and looking at the totality of the circumstances,” based on its consideration of six
enumerated factors. Id. § 1332(d)(3). On appeal JMA challenges the district court’s
remand order. Because the district court properly considered the statutory factors
and did not abuse its discretion by remanding to state court, we affirm.
I.
A.
“In enacting CAFA, Congress sought to correct state and local court abuses in
class actions such as bias against out-of-State defendants by expanding federal
diversity jurisdiction over interstate class actions.” Arbuckle Mountain Ranch of
Tex., Inc. v. Chesapeake Energy Corp., 810 F.3d 335, 337 (5th Cir.), cert. denied,
136 S. Ct. 2522 (2016) (brackets and internal quotation marks omitted). In general,
CAFA permits a class action to be brought in or removed to federal court if the
proposed classes include at least 100 persons with claims, the aggregate amount in
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controversy on all claims exceeds $5 million, at least one proposed plaintiff and one
defendant have diverse citizenship, and the primary defendants are not governmental
entities or officials against whom a federal court cannot order relief. See 28 U.S.C.
§ 1332(d); Arbuckle Mountain Ranch, 810 F.3d at 337.
Even when these jurisdictional requirements are met, CAFA recognizes three
statutory exceptions. Two exceptions are mandatory. The home-state exception
requires the district court to decline jurisdiction when “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). And the local-controversy exception requires the district
court to decline jurisdiction when (1) greater than two-thirds of the proposed class
members and at least one defendant from whom significant relief is sought, and
whose alleged conduct forms a significant basis for the class members’ claims, are
citizens of the State in which the action was originally filed; (2) the principal injuries
resulting from the alleged or related conduct of the defendants were incurred in the
State in which the action was originally filed; and (3) no other class actions have
been filed asserting the same or similar factual allegations against any of the
defendants during the three-year period preceding the filing of the class action.
See id. § 1332(d)(4)(A). Neither of these exceptions is at issue here. In addition, a
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district court may decline to exercise jurisdiction under the discretionary exception in
§ 1332(d)(3), the exception the district court relied on here. 1
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B.
The Petition recites that Mr. Speed is the owner of an oil-and-gas well in
Oklahoma, which is operated by JMA. JMA is obligated to pay him royalty and
interest payments on revenue from the well’s oil and gas production. Mr. Speed
asserts that when operators such as JMA fail to pay proceeds to interest owners by
the deadline fixed by statute, Oklahoma law requires them to compensate the owners
by including interest on the untimely payments. See Okla. Stat. tit. 52, § 570.10(D)
(2010). The Petition further alleges on information and belief that JMA “routinely
delays payment of production proceeds and denies Owners the interest payments to
which they are entitled.” Aplt. App. at 16. It claims these actions amount to fraud,
because (1) JMA “knowingly and intentionally took on the duties associated with
such interests,” including the duty to pay the oil and gas proceeds to the owners as
required by Oklahoma law; (2) JMA was aware that under Oklahoma law “it owed
interest on Untimely Payments, but knowingly and intentionally suppressed the fact
that interest was owed”; (3) JMA “intended to avoid its obligation to pay the
statutorily mandated interest and only pa[id] when an Owner specifically request[ed]
1
This exception is also known as the “discretionary jurisdiction provision,”
Preston v. Tenet Healthsystem Mem’l Med. Ctr., Inc., 485 F.3d 804, 810 (5th Cir.
2007); the “‘interests of justice’ exception,” Hunter v. Medstar Georgetown Univ.
Hosp., 144 F. Supp. 3d 28, 28 (D.D.C. 2015) (quoting 28 U.S.C. § 1332(d)(3)); and
the “defendant’s home-state exception,” William B. Rubenstein, Newberg on Class
Actions § 6:21 (5th ed. 2017).
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payment of the statutory interest”; and (4) “Plaintiff and the Class relied on and
trusted JMA to pay them the full O&G [oil and gas] Proceeds to which they were
entitled under Oklahoma law.” Id. at 23–24. The Petition seeks equitable and
injunctive relief and damages on behalf of similarly situated interest owners who
have received untimely payments on which JMA failed to pay statutory interest. The
Petition defines the Class, and those excluded from it, as follows:
All non-excluded persons or entities who: (1) received Untimely Payments
from Defendant (or Defendant’s designee) for O&G Proceeds from
Oklahoma wells; and (2) whose payments did not include statutory interest.
The persons or entities excluded from the Class are: (1) agencies,
departments, or instrumentalities of the United States of America or the
State of Oklahoma; (2) publicly traded oil and gas companies and their
affiliates; (3) persons or entities that Plaintiff’s counsel may be prohibited
from representing under Rule 1.7 of the Oklahoma Rules of Professional
Conduct; and (4) officers of the court.
Id. at 18.
JMA removed the case to federal court under CAFA. Mr. Speed responded
with a motion to remand, arguing that the jurisdictional requirements of CAFA were
not met and that the mandatory and discretionary exceptions to CAFA, if proved,
required remand. The district court permitted the parties to conduct discovery on the
jurisdictional issues. The parties later stipulated that (1) the claims aggregated $5
million, and (2) more than one-third, but fewer than two-thirds, of the proposed class
members are citizens of the State of Oklahoma. As a result of this discovery and the
stipulation, Mr. Speed filed an amended motion to remand, asserting only the
discretionary exception to CAFA jurisdiction.
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The discretionary exception “allows a federal court to decline to exercise
jurisdiction over a class action that is otherwise covered by CAFA based on six
enumerated factors.” Dutcher v. Matheson, 840 F.3d 1183, 1194 (10th Cir. 2016).
“[T]o qualify for consideration of these factors, the plaintiffs must first establish two
prerequisites: [1] greater than one-third but less than two-thirds of the members of
all proposed plaintiff classes in the aggregate and [2] the primary defendants are
citizens of the State in which the action was originally filed.” Id. (brackets in
original, internal quotation marks omitted); see also 28 U.S.C. § 1332(d)(3). As
noted, the parties stipulated to the first prerequisite. And it is undisputed that JMA is
a citizen of the State of Oklahoma, which satisfies the second prerequisite. The
district court was therefore required to consider the following six factors:
(A) whether the claims asserted involve matters of national or interstate
interest;
(B) whether the claims asserted will be governed by laws of the State in
which the action was originally filed or by the laws of other States;
(C) whether the class action has been pleaded in a manner that seeks to
avoid Federal jurisdiction;
(D) whether the action was brought in a forum with a distinct nexus with
the class members, the alleged harm, or the defendants;
(E) whether the number of citizens of the State in which the action was
originally filed in all proposed plaintiff classes in the aggregate is
substantially larger than the number of citizens from any other State, and
the citizenship of the other members of the proposed class is dispersed
among a substantial number of States; and
(F) whether, during the 3-year period preceding the filing of that class
action, 1 or more other class actions asserting the same or similar claims on
behalf of the same or other persons have been filed.
28 U.S.C. § 1332(d)(3).
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II.
We review for abuse of discretion the district court’s order remanding under
the discretionary exception in § 1332(d)(3). See Preston v. Tenet Healthsystem
Mem’l Med. Ctr., Inc., 485 F.3d 804, 809 (5th Cir. 2007). “[A] district court always
abuses its discretion when it errs on a legal question, and we decide the presence or
absence of legal error de novo.” El Encanto, Inc. v. Hatch Chile Co., 825 F.3d 1161,
1162 (10th Cir. 2016). When applying § 1332(d)(3), the district court’s discretion is
not unfettered but must be guided by the six factors. See Preston, 485 F.3d at 810.
No single factor is dispositive; not all need to favor remand for the court to decline
jurisdiction. See William B. Rubenstein, Newberg on Class Actions § 6:21 (5th ed.
2017) (“The plaintiff need not satisfy all [six] factors; courts employ a balancing test,
taking into consideration the totality of the circumstances.”). So long as the district
court’s factual findings are not clearly erroneous and it applied the correct legal
standard, we will defer to its ruling if the “decision falls within the bounds of
rationally available choices given the facts and law involved.” Soseeah v. Sentry
Ins., 808 F.3d 800, 808 (10th Cir. 2015) (discussing abuse-of-discretion review of
class-certification decision under Fed. R. Civ. P. 23).
Because JMA established that the elements for removal under CAFA were
met, the burden shifted to Mr. Speed to show that remand was appropriate. See
Dutcher, 840 F.3d at 1190. In meeting this burden, he did not benefit from any
presumption against removal, because “Congress enacted [CAFA] to facilitate
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adjudication of certain class actions in federal court.” Dart Cherokee Basin
Operating Co. v. Owens, 135 S. Ct. 547, 554 (2014).
JMA would further amplify Mr. Speed’s burden in two ways. First, it argues
that courts should apply a sliding scale between retention and remand, so that “as the
percent of citizens of the State where the case was originally filed decreases toward
one-third, the presumption in favor of retention increases, and . . . as the percent of
citizens of the State where the case was originally filed increases toward two-thirds,
the presumption in favor of retention decreases.” Aplt. Opening Br. at 15. Perhaps,
but such a sliding scale would tell us almost nothing in this case, because Oklahoma
citizens constitute 48.46% of prospective plaintiffs, near the middle of the 1/3 to 2/3
range. See Aplt. App. at 55. We leave the issue for a later day.
Second, JMA argues that because Mr. Speed bears the burden to justify a
remand, a “neutral” factor should count against remand in the overall analysis rather
than being viewed as strictly neutral. We disagree. The district court is charged with
evaluating the factors in the aggregate. We see no statutory command, nor any sound
reason, to press an additional thumb on the scale.
III.
Thoroughly addressing each of the statutory factors, the district court
determined that all six weighed in favor of remand. We consider each in turn and see
no legal error or other abuse of discretion.
8
National or Interstate Interest
The first factor is “whether the claims asserted involve matters of national or
interstate interest.” 28 U.S.C. § 1332(d)(3)(A). The more a class action implicates
national or interstate interests, the more it serves Congress’s intent to subject the suit
to federal jurisdiction under CAFA. Conversely, the more the action involves purely
local interests, the more this factor favors state-court jurisdiction.
The statute does not define “matters of national or interstate interest.” But this
case is not a close one. Everything connects to Oklahoma. As the district court said
in weighing this factor in favor of remand, “[A]ll of the subject oil and gas wells are
located in Oklahoma, all class members own interests in the subject Oklahoma wells,
Plaintiff is an Oklahoma citizen (along with 48.46% of the class), JMA is an
Oklahoma citizen with its principal place of business in Oklahoma, the business
activities that gave rise to this case occurred in Oklahoma, and the claims are based
upon Oklahoma law.” Aplt. App. at 165. It further reasoned that national interests
are not implicated by either (1) the fact that courts in other jurisdictions consider the
rulings of Oklahoma courts in ruling on oil-and-gas issues or (2) the general interest
of the oil-and-gas industry and royalty owners in Oklahoma court rulings on
oil-and-gas issues. See id. at 165–66.
JMA argues that this suit involves matters of national and interstate interest
because the allegedly incorrect payments were distributed to putative class members
in nearly every State. It cites an example provided in the Senate Judiciary
Committee Report in support of CAFA: “[I]f a nationally distributed pharmaceutical
9
product is alleged to have caused injurious side-effects and class actions on the
subject are filed, those cases presumably should be heard in federal court because of
the nationwide ramifications of the dispute and the probable interface with federal
drug laws. . . .” S. Rep. No. 109-14, at 36 (2005), as reprinted in 2005 U.S.C.C.A.N.
3, 35. But to the extent that the Senate Report provides useful legislative history, 2 its
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example is easily distinguished from this case. The injuries discussed in the example
are associated with a defective pharmaceutical product placed by a manufacturer into
the stream of commerce, causing physical harm to downstream plaintiffs in many
different States who may have little or no connection with the forum State. By
contrast, the plaintiffs in this case, whatever their state citizenship, purposefully
availed themselves of Oklahoma and its laws by owning mineral-interest property in
Oklahoma, which ultimately formed the basis of their cause of action. This
represents a significantly stronger connection to the Oklahoma state forum than the
2
The Supreme Court and this court have cited Senate Report 109-14 as an aid to
discerning Congressional intent underlying CAFA. See Dart Cherokee Basin,
135 S. Ct. at 554; Shady Grove Orthopedic Assocs. v. Allstate Ins. Co., 559 U.S. 393,
458 (2010); Woods v. Standard Ins. Co., 771 F.3d 1257, 1262 (10th Cir. 2014). But
the value of the Report should perhaps not be overstated. The Report was issued ten
days after CAFA was signed into law, and therefore had not been formally issued at
the time the Senate deliberated and voted on CAFA. See, e.g., West Virginia ex rel.
McGraw v. CVS Pharm., Inc., 646 F.3d 169, 177 (4th Cir. 2011) (“Senate Report
109-14 . . . was issued 10 days after CAFA was signed into law, and for that reason
alone, it is a questionable source of congressional intent.”); Coll. of Dental Surgeons
v. Conn. Gen. Life Ins. Co., 585 F.3d 33, 38 n.2 (1st Cir. 2009) (noting ten-day delay
and characterizing Report’s “value as a means of discerning congressional intent” as
“clouded”). But see Lowery v. Ala. Power Co., 483 F.3d 1184, 1206 n.50 (11th Cir.
2007) (noting Report’s belated issuance, but asserting it was “submitted to the Senate
on February 3, 200[5]—while that body was considering the bill,” citing 151 Cong.
Rec. S978-01, S978, [2005 WL 264081]).
10
connection of nationwide plaintiffs to a particular state forum in the Senate Report
example. Cf. Monge v. RG Petro-Mach. (Grp.) Co., 701 F.3d 598, 613, 619
(10th Cir. 2012) (discussing degrees of defendant’s connection to forum in product-
liability case, for purpose of evaluating personal jurisdiction under due-process
principles). In addition, the example provided in the Report cites potential federal
regulation of the medical product, a factor not present in this case.
JMA also faults the district court for looking to the location of the oil and gas
wells rather than the physical location of the payees. But this ignores what the
proposed class plaintiffs have in common: all of them “own interests in the subject
Oklahoma wells.” Aplt. App. at 165. Absent such a common interest centered on
wells physically located in Oklahoma, the plaintiffs would have no cause to seek
redress from JMA in this action. The geographic dispersion of the class plaintiffs
should not be overemphasized as a factor favoring federal jurisdiction. After all,
Congress has authorized the district court to apply the discretionary exception to
disputes that are local in character, even if up to 2/3 of the plaintiffs are citizens of
other States, see 28 U.S.C. § 1332(d)(3); and, as we discuss below, under the fifth
factor of the discretionary analysis a broad dispersion of potential plaintiffs among
many States actually favors remand, see id. § 1332(d)(3)(E).
Finally, JMA argues that this case could have nationwide effects because
Oklahoma has a significant position in the oil-and-gas industry, and payments
nationwide from other producers operating in Oklahoma as well as producers
operating in other States could therefore be affected by the outcome of the case. But
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if a State’s laws are particularly influential, one would assume that it is because of
the prestige and expertise of the courts and legislature of that State. We see no need
to “protect” other States (who have every right and power to set different laws, and to
adopt their own judicial interpretations of those laws) by shielding them from the
influence of Oklahoma courts. And JMA fails to explain how there can be a
significant national interest in the mere allocation of interest between producers and
royalty owners. The only thing “national” or “interstate” about this case is that some
of the owners of Oklahoma property who are basing their claims on alleged
violations of an Oklahoma statute happen to live in other States and receive their
royalty checks there.
Governing State Law
The second factor is whether the claims asserted will be governed by
Oklahoma law or the laws of other States. See § 1332(d)(3)(B). The parties do not
dispute that the governing law should be determined under Oklahoma choice-of-law
principles, since Oklahoma is the forum State. JMA’s argument on the issue is that
the fraud claims against it may, under those principles, be governed by the law of a
State other than Oklahoma. The district court found the argument unpersuasive and
concluded that this factor weighed slightly in favor of Mr. Speed’s motion to remand.
If the district court erred, it was only in not giving the choice-of-law factor
greater weight in favor of remand. To begin with, the backbone of the class claim is
a claim—failure to pay interest—that undoubtedly must be decided under Oklahoma
law. The petition filed by Mr. Speed relies solely on an Oklahoma statute as the
12
source of the duty to pay interest. This reliance on state law for the principal claim in
itself argues for remand. See Newberg on Class Actions § 6:21 (“Courts have
generally held that the second factor . . . can weigh in favor of remand even if other
claims (including claims under federal statutes or the laws of other states) are
involved in the suit.”).
And the fraud claim merely piggybacks on that state-law claim, essentially
alleging only that JMA failed to inform the class that it was violating the Oklahoma
statute. It contains the following assertions:
Defendant owned and/or operated (and/or Defendant owned a
working interest in) numerous oil and/or gas wells throughout Oklahoma.
Thus, Defendant knowingly and intentionally took on the duties associated
with such interests, including the duty to pay O&G Proceeds to Owners in
accordance with Oklahoma law.
Defendant, however, took on such duties with the intent to deceive
Owners and not pay the full O&G Proceeds owed. Specifically, Defendant
knew it owed interest on Untimely Payments, but knowingly and
intentionally suppressed the fact that interest was owed to Plaintiff and the
Class members. Further, Defendant intended to avoid its obligation to pay
the statutorily mandated interest and only pay when an Owner specifically
requests payment of the statutory interest.
Plaintiff and the Class relied on and trusted Defendant to pay them
the full O&G Proceeds to which they were entitled under Oklahoma law.
Plaintiff and the Class have been damaged by Defendant’s actions
and violations of law.
Defendant’s failure to pay the interest it owes to Plaintiff and the
Class is a result of Defendant’s actual knowing and willful intent: (a) to
deceive the members of the Class, and/or (b) to deprive such interest from
persons Defendant knows, or is aware, are legally entitled thereto.
Aplt. App. at 23–24 (paragraph numbers omitted).
13
Although this litigation is in an early stage, we fail to see why the law of any
State other than Oklahoma would apply to any of the putative class members’ fraud
claims. In resolving choice-of-law issues, Oklahoma courts have looked to the
Restatement (Second) of Conflict of Laws (1971) (Restatement) for guidance. See,
e.g., Weber v. Mobil Oil Corp., 243 P.3d 1, 6–7 (Okla. 2010); Ysbrand v.
DaimlerChrysler Corp., 81 P.3d 618, 626 & n.6 (Okla. 2003). The district court
concluded that Oklahoma courts would apply Restatement § 148(2), governing fraud
and misrepresentation claims. 3 That provision is not a particularly good fit for the
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3
Section 148 states:
(1) When the plaintiff has suffered pecuniary harm on account of his
reliance on the defendant’s false representations and when the plaintiff’s
action in reliance took place in the state where the false representations
were made and received, the local law of this state determines the rights
and liabilities of the parties unless, with respect to the particular issue, some
other state has a more significant relationship under the principles stated in
§ 6 to the occurrence and the parties, in which event the local law of the
other state will be applied.
(2) When the plaintiff’s action in reliance took place in whole or in part in a
state other than that where the false representations were made, the forum
will consider such of the following contacts, among others, as may be
present in the particular case in determining the state which, with respect to
the particular issue, has the most significant relationship to the occurrence
and the parties:
(a) the place, or places, where the plaintiff acted in reliance upon the
defendant’s representations,
(b) the place where the plaintiff received the representations,
(c) the place where the defendant made the representations,
(d) the domicil, residence, nationality, place of incorporation and place of
business of the parties,
(continued)
14
unusual fraud claim alleged in this case. Although § 148 focuses on where
representations were made and where the plaintiff acted in reliance, Mr. Speed’s
petition does not identify any specific false or misleading statements made by JMA
concerning its obligations to pay statutory interest, nor does it identify any acts taken
by class members in reliance.
Nevertheless, the Oklahoma Supreme Court strongly suggested in Weber how
it would apply § 148 to fraud claims challenging underpayment of royalties and the
like on production of oil and gas from Oklahoma wells. The issue before the court
was whether a class should be certified and it is unclear whether some of the
discussion relates to class certification rather than choice of law, but it is clear that an
important factor favoring class certification was that Oklahoma law would govern
most, if not all, of the claims. See Weber, 243 P.3d at 7. The court did not recognize
any § 148 factor as substantially favoring the law of another State, and it
unambiguously identified at least two factors as favoring application of Oklahoma
law. Id. First, it treated as important that the representations were made in
Oklahoma. See id. Here, it seems appropriate to treat JMA’s alleged silence as
occurring in that State. And Weber applied in the royalty context a comment to § 148
(e) the place where a tangible thing which is the subject of the transaction
between the parties was situated at the time, and
(f) the place where the plaintiff is to render performance under a contract
which he has been induced to enter by the false representations of the
defendant.
15
recognizing the “particular importance” of the location of land that is the subject of
the tort action. Restatement § 148 cmt. i. The court wrote:
Other Restatement Comments also support allowing the fraud claim to go
forward as a class action. The comments provide that where the subject of
the transaction is a tangible thing, the place where the thing is situated at
the time of the transaction is a significant contact especially where both
parties are aware that the thing was situated in this place at that time.
Furthermore, the situs of the thing is particularly relevant if it involves an
interest in land [citing Comment i]. It is undeniable that the oil and gas
products sought to be unitized were to be pumped from the Putnam Oswego
Unit located entirely within the boundaries of Oklahoma. Upon their
production, they became tangible personal property collected and sold from
Oklahoma reservoirs.
Weber, 243 P.3d at 7 (footnotes omitted).
In any event, we need not travel too far into the weeds on this issue. Almost
everything about this case is suffused with the distinct aroma of Oklahoma. The
claims arise out of interests in property in Oklahoma. There is no allegation of any
act performed by JMA outside that State. The alleged misconduct consists of a
failure to comply with an Oklahoma statute and failure to announce that
noncompliance. The sole connection to other States is that some of the owners of
Oklahoma property live outside the State and receive their royalty checks there.
JMA cites no case law or other authority suggesting that in this context another
State’s law would apply to a fraud claim of any of the class members. We see no
abuse of discretion in the district court’s evaluation of this factor.
Attempts to Avoid Federal Jurisdiction
The third factor is “whether the class action has been pleaded in a manner that
seeks to avoid Federal jurisdiction.” § 1332(d)(3)(C). JMA asserts that Mr. Speed
16
attempted to avoid federal jurisdiction by excluding from the class any publicly
traded companies and affiliated entities that produced, gathered, processed, or
marketed oil and gas. The district court found this argument unpersuasive, reasoning
that Mr. Speed had proposed a “natural class” that “encompass[ed] all of the people
and claims that one would expect to include in a class action.” Aplt. App. at 167
(internal quotation marks omitted).
We agree with the district court. This factor favors retention in federal court
when the plaintiff has deliberately defined the prospective class or the relief sought
in order to frustrate removal under CAFA. See Preston, 485 F.3d at 822–23 (“[T]he
record does not indicate that the plaintiffs[] intentionally pleaded the case in a
manner to avoid federal jurisdiction and neither defendant asserts such an
allegation.”); cf. Freeman v. Blue Ridge Paper Prods., Inc., 551 F.3d 405, 409
(6th Cir. 2008) (aggregating, for purposes of CAFA’s jurisdictional
amount-in-controversy requirement, five complaints worded nearly identically but
seeking relief for discrete time periods, each claiming damages just below CAFA’s
threshold amount, “where there [was] no colorable basis for dividing up the sought-
for retrospective relief into separate time periods, other than to frustrate CAFA”).
The Senate Report on CAFA says that if the plaintiff “proposed a ‘natural’ class—a
class that encompasses all of the people and claims that one would expect to include
in a class action,” or, in other words, if the “class definition and claims appear to
follow a ‘natural’ pattern,” this factor would weigh in favor of the federal court’s
remanding the complaint to be handled by the state court. S. Rep. No. 109-14, at 37.
17
JMA argues that the proposed class is not a “natural class” because it excludes
“publicly traded oil and gas companies and their affiliates.” Aplt. Opening Br. at 25
(citing Pet. ¶ 18, Aplt. App. at 18). These entities, JMA contends, are the most likely
of all potential class members to be non-Oklahoma citizens. But Mr. Speed explains
to us, as he did to the district court, that he “excluded publicly-traded companies
because those companies are likely implementing the same improper late payment
practices as JMA.” Aplee. Br. at 19.
Mr. Speed also notes that the same entities have been excluded from the
proffered class in many cases either filed directly in federal court under CAFA or
removed without objection. JMA misses the point when it argues that these other
class definitions are irrelevant when the cases were filed in federal court where the
remand issues did not arise. The point is that the exclusion of publicly traded
companies from the class is “natural”—not motivated by a desire to avoid federal
jurisdiction—if counsel clearly have excluded these companies even when federal
jurisdiction was either desired or not a concern.
JMA responds that the district court should not have relied on prior cases filed
by the same counsel, because such reliance “creates the potential for a self-fulfilling
analysis.” Aplt. Opening Br. at 27. JMA’s apparent theory is that counsel could
define an “unnatural” class in cases where federal jurisdiction was acceptable just so
that the class definition could be used later to defeat federal jurisdiction. The theory
is speculative and unconvincing. And in any event, Mr. Speed points out that a
number of the cases he has cited were filed by other counsel.
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Finally, JMA notes that Mr. Speed failed to affirmatively allege in his Petition
the prerequisites for federal-court jurisdiction under CAFA, such as an amount in
controversy in excess of $5,000,000. Had Mr. Speed affirmatively alleged such facts,
it might have rebutted a contention that he was seeking to avoid federal-court
jurisdiction. But his failure to allege such facts in a state-court petition, where they
would be irrelevant, is unsurprising and adds little or nothing to the analysis of this
factor.
Forum’s Nexus to Class Members, Alleged Harms, and Defendants
The fourth factor is “whether the action was brought in a forum with a distinct
nexus with the class members, the alleged harm, or the defendants.”
§ 1332(d)(3)(D). The district court concluded that this factor weighed in favor of
remand because the action related to real-property interests in Oklahoma, the class
members owned royalty interests in Oklahoma property, JMA is a citizen of
Oklahoma, and the underlying alleged actions that gave rise to this suit took place in
Oklahoma. We agree that these factors demonstrated the required nexus between
Oklahoma and the class members, the alleged harms, and the defendant.
JMA argues, however, that the relevant forum for assessing this factor was not
the entire State of Oklahoma but Hughes County, Oklahoma, the county in which the
action was originally filed. The district court rejected JMA’s county-specific test as
contrary to the weight of authority and “virtually unworkable,” noting that under that
approach a court would “almost always” be compelled to “find the factor weigh[s] in
favor of federal jurisdiction.” Aplt. App. at 168. It reasoned that CAFA’s analysis
19
involves federalism—“the relationship between federal courts and state courts”—and
that “any county court in Oklahoma is viewed as an Oklahoma state court for
purposes of the forum analysis.” Id. (internal quotation marks omitted). It concluded
that under this factor the specific county in which the action was filed was irrelevant.
JMA responds with a textual argument supported by legislative history. First,
§ 1332(d)(3)(D) is the only provision of CAFA that uses the word forum, but State is
used several times in other provisions. See id. §§ 1332(d)(3)(B) (“whether the claims
asserted will be governed by laws of the State in which the action was originally filed
or by the laws of other States”); 1332(d)(3)(E) (“whether the number of citizens of
the State in which the action was originally filed in all proposed plaintiff classes in
the aggregate is substantially larger than the number of citizens from any other State,
and the citizenship of the other members of the proposed class is dispersed among a
substantial number of States”). JMA argues that we must follow the plain language
of § 1332(d)(3)(D), which refers to the “forum” rather than the “State,” and “[i]f
Congress meant for this factor to reference a State, instead of a county, Congress
would have said so.” Aplt. Opening Br. at 30.
JMA adds that its approach finds support in the Senate Report on CAFA,
which says that the purpose of this provision is to curb “magnet” state courts—local
courts that get a disproportionate share of filings because they are favorable to
plaintiffs:
This factor [nexus between the forum and the class members, alleged
harms, or defendants] is intended to take account of a major concern that
led to this legislation—the filing of lawsuits in out-of-the-way “magnet”
20
state courts that have no real relationship to the controversy at hand. Thus,
for example, if the majority of proposed class members and the defendant
reside in the county where the suit is brought, the court might find a distinct
nexus exists. The key to this factor is the notion of there being a distinct
nexus. If the selected forum’s nexus to the controversy is shared by many
other forums (e.g., some allegedly injured parties live in the locality, just as
allegedly injured parties live in many other localities), the nexus is not
distinct, and this factor would in that circumstance weigh heavily in favor
of the exercise of federal jurisdiction over the matter.
S. Rep. No. 109-14, at 37 (emphasis added).
Asserting that the term forum is unambiguous in this context, JMA contends
that there has been no affirmative factual showing that the District Court of Hughes
County, as opposed to the entire State of Oklahoma, has any distinct nexus with the
class members, the alleged harm, or the individual defendants.
We are skeptical of JMA’s argument. The term forum is ambiguous.
Although apparently no court has confronted the argument made by JMA, the term
has been used in CAFA cases to refer to both the local court division and the State as
a whole. Compare, e.g., Preston, 485 F.3d at 823 (“[A] distinct nexus exists between
the forum of Louisiana and the class members, alleged harm, and the defendants.”)
with, e.g., Sorrentino v. ASN Roosevelt Ctr., LLC, 588 F. Supp. 2d 350, 359
(E.D.N.Y. 2008) (“[T]he fourth factor points to remand as the chosen forum, the
Nassau County Supreme Court, bears a distinct nexus to the claims of over one
thousand former tenants of a multiple building apartment complex located within
Nassau County.”).
But even if the term forum could refer to the local court division and not just
the State as a whole, we cannot adopt JMA’s approach to this factor. We do not read
21
the factor to forbid remand whenever the proposed class is widely dispersed within a
State or the venue selected by the plaintiff contains only a small fraction of the class.
When there is, as here, an ample connection to the forum State, only a clear abuse of
the local forum could possibly justify a refusal to remand. After all, the choice
before the district court is between federal jurisdiction and state jurisdiction. The
court cannot require that the State choose a particular venue within its boundaries.
Once the case is remanded to state court, the venue could be moved. A federal court
should be reluctant to exercise its power to retain jurisdiction simply because it views
the State’s venue rules to be too lenient in that they permitted the case to be filed in
an “inappropriate” local court division. Principles of federalism counsel otherwise.
See West Virginia. ex rel. McGraw v. CVS Pharm., Inc., 646 F.3d 169, 178 (4th Cir.
2011) (“CAFA is . . . sensitive to deeply-rooted principles of federalism, reserving to
the States primarily local matters.”). Surely more must be required.
Thus, ordinarily there is a “distinct nexus” to the forum if there is a distinct
nexus to the State and there is no particular reason to distinguish the local court
where the case was originally filed from other local courts in the State. Perhaps the
general rule does not apply when, as suggested by the Senate Report, the local court
is a magnet court. But JMA has not even suggested, much less provided evidence,
that the Hughes County Court is in any way such a court. In that light, we cannot say
that the district court abused its discretion in weighing this factor in favor of remand.
22
Citizenship of Proposed Class Members
The fifth factor is “whether the number of citizens of the State in which the
action was originally filed in all proposed plaintiff classes in the aggregate is
substantially larger than the number of citizens from any other State, and the
citizenship of the other members of the proposed class is dispersed among a
substantial number of States.” 28 U.S.C. § 1332(d)(3)(E). The district court found
that this factor weighed in favor of remand. It noted that the number of Oklahoma
citizens was about 2.5 times the number of citizens from any other State. The district
court relied on a chart produced in Mr. Speed’s amended motion to remand, based on
jurisdictional discovery from JMA, which calculated the percentage of class members
residing in each State as follows: 4
3F
Oklahoma 48.46%
Texas 20.95%
California 5.68%
Colorado 4.05%
Kansas 2.61%
Arkansas 1.97%
4
The motion states that these percentages are based on the “residency of class
members by state.” Aplt. App. at 55. Citizenship, not residency, is the relevant
criterion for this factor. Cf. Hargett v. RevClaims, LLC, 854 F.3d 962, 965–67
(8th Cir. 2017) (distinguishing between “residency” and “citizenship” for purposes of
CAFA’s local-controversy exception). But JMA does not raise an issue concerning
this distinction and so we find it unnecessary to consider it.
23
Fla. 1.54%
New Mexico 1.25%
Arizona 1.20%
Missouri 1.11%
All Others 11.18%[ 5]
4F
Aplt. App. at 55.
JMA argues that the district court erred because (1) more out-of-state citizens
have a potential connection to this action than Oklahoma citizens; and (2) one or
more of the other States involved account for more than 5% of the prospective class
members. It points to the Senate Report on CAFA, which states:
If all of the other class members (that is, the class members who do not
reside in the state where the action was filed) are widely dispersed among
many other states (e.g., no other state accounted for more than five percent
of the class members), that point would suggest that the interests of the
forum state in litigating the controversy are preeminent (versus the interests
of any other state). . . . [S]uch a conclusion would favor allowing the state
court in which the action was originally filed to handle the litigation.
However, if a court finds that the citizenship of the other class members is
not widely dispersed, the opposite balance would be indicated. A federal
forum would be favored in such a case because several states other than the
forum state would have a strong interest in the controversy.
S. Rep. No. 109-14, at 37–38.
But the district court made precisely the calculations required by the
unambiguous statutory language for the fifth factor. The 5% figure in the Senate
Report is solely an example of when plaintiffs are widely dispersed among different
5
The motion noted that “[a]ll other states include class members with less than
1% of the total for each state.” Aplt. App. at 55 n.1.
24
States, not a mandatory threshold for evaluating dispersion. And the court’s analysis
captures the purpose of this factor—to ensure that no other State has as significant an
interest in the controversy as does Oklahoma. See Newberg on Class Actions § 6:21
(“The [fifth] factor embeds an assumption that if most of the class is from the forum
state—particularly if a disproportionate piece of a nationwide class is located there—
then there are stronger grounds for application of the exception. As a result, courts
. . . [look] in particular at whether any other state has an interest in the litigation on
par with the forum state.”). The court correctly determined that this factor weighed
in favor of remand.
Similar Class Actions
Finally, the district court must consider “whether, during the 3-year period
preceding the filing of that class action, 1 or more other class actions asserting the
same or similar claims on behalf of the same or other persons have been filed.”
28 U.S.C. § 1332(d)(3)(F). The Senate Report explains that “[t]he purpose of this
factor is efficiency and fairness: to determine whether a matter should be subject to
federal jurisdiction so that it can be coordinated with other overlapping or parallel
class actions.” S. Rep. No. 109-14, at 38. If other class actions involving the same
subject matter had been filed elsewhere, this would strongly favor federal
jurisdiction, because the combined litigation could be handled under the federal
court’s multidistrict-litigation process. See id. (citing 28 U.S.C. § 1407).
25
The district court noted that no other such actions had been filed during the
previous three-year period. JMA does not argue otherwise. This factor favors
remand.
IV.
The district court did not abuse its discretion in ruling that each factor supported
remand. We therefore affirm its decision remanding this case to state court. JMA’s
motion for a ten-day extension of the statutory decision period is granted. 6
5F
6
Under 28 U.S.C. § 1453(c)(2), this court must render judgment within 60 days
of the filing of the appeal. But the court may extend that deadline for up to ten days
“for good cause shown and in the interest of justice.” Id. § 1453(c)(3)(B). Finding
this standard satisfied, we grant the ten-day extension.
26