Arguing Class Actions is a monthly column by Adam J. Levitt for the National Law Journal.
Reprinted with permission from the December 2, 2024 edition of the National Law Journal. © 2024 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
Congress enacted the Class Action Fairness Act to confer federal jurisdiction over large, complex class action cases spanning across states. The law provides for removal of a class action to federal court, even without complete diversity, when the amount in controversy exceeds $5 million and any plaintiff is a citizen of a different state than any defendant. 28 U.S.C. § 1332(d)(2). Certain lawmakers heralded that the law would “take [certain] cases out of state courts, where there has been a record of prejudice to defendants, and take them to the [f]ederal courts where, in the historical tradition of diversity litigation … there is a better opportunity for an objective determination.” 151 Cong. Rec. S999-02, S1000, 2005 WL 283380 (daily ed. Feb. 7, 2005) (statement of Sen. Specter).
Other lawmakers, however, voiced concerns that CAFA’s expanded federal jurisdiction provisions would result in, for example, all environmental and mass tort cases ending up in federal court. Partially as a result of these concerns, Congress added the “local controversy exception” to CAFA, which allows class actions closely tied to one state to remain in state court. 28 U.S.C. § 1332(d)(4). In fact, the Committee on the Judiciary to which CAFA was referred used “a class action in which local residents seek compensation for property damage resulting from a chemical leak at a manufacturing plant in that community” as the primary demonstrative example to explain the local controversy exception. S. Rep. No. 14, 109th Cong., 1st Sess. 2005, 2005 WL 627977, 2005 U.S.C.C.A.N. 3, 28 (Leg. Hist.). “The purpose of [the local controversy] exception was to allow cases involving environmental torts such as a chemical spill to remain in state court if both the event and the injuries were truly local.”
The exception allows cases like these to remain in state court while streamlining class action procedures in other areas, ensuring the consistency the act was drafted to protect. The exception appears to best comport with CAFA’s original purpose and intent: “Class actions with a truly local focus should not be moved to federal court under this legislation because state courts have a strong interest in adjudicating such disputes.” Sen. Rpt. 109-14 (Feb. 5, 2005), 2005 U.S.C.C.A.N. 3, 38.
The local controversy exception applies if four requirements are met. First, “greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed.” Second, “at least [one] defendant” is “a citizen of the State in which the action was originally filed,” and class members seek “significant relief” from that defendant, whose conduct forms a “significant basis” for the class members’ claims. Although the conduct of this local defendant must be a basis for the class members’ claims, the presence of other out-of-state defendants in the action does not defeat the application of the exception. See Sen. Rpt. 109-14 (Feb. 5, 2005), 2005 U.S.C.C.A.N. 3, 44. Third, the “principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed.” Fourth, “during the 3-year period preceding the filing of [the] class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons.” A prior class action that was filed in either state or federal court defeats the application of the local controversy exception. See, e.g., McAteer v. DCH Regional Medical Center, No. 2:17-cv-00859-MHH, 2018 WL 1089873, at *5-6 (N.D. Ala. Feb. 26, 2018).
These four requirements all supposedly work in tandem to protect “States’ interests in adjudicating local disputes on behalf of their citizens.” 151 Cong. Rec. S999-02, S1006, 2005 WL 283380 (daily ed. Feb. 7, 2005) (statement of Sen. Hatch). However, one peculiar result of the exception’s requirements has been illuminated in recent years. Often, when a significant environmental disaster occurs, several class action lawsuits are filed in its wake. This undermines the value of the fourth of the local controversy exception requirements, which allows for removal if a similar class action has been filed within the last three years. Consequently, for environmental disasters affecting thousands of people, but contained within one state’s borders, some courts have determined that only the first class action filed meets the exception’s requirements and all subsequent class action cases are subject to removal. This result can conflict with the local controversy exception’s focus and intent—whether there is a “significant connection to a local issue or event or [whether] a significant number of plaintiffs are from a single State,” not on whether a given plaintiff filed suit first. 151 Cong.
Rec. S1225-02, S1226, 2005 WL 320889 (daily ed. Feb. 10, 2005) (statement of Sen. Vitter).
An example of this quirk occurred recently in the Northern District of Illinois. In Mackey v. Chemtool, three class actions were filed in state court following a massive fire at a chemical plant in Rockton, Illinois, which spewed toxic gases, dust, and smoke into the air and caused debris to litter nearby properties. The defendants removed the second- and third-filed class actions to federal court under CAFA. The court denied motions to remand because plaintiffs filed the second- and third-filed class actions one and 10 days, respectively, after the first class action was filed. 2022 WL 3290687 (N.D. Ill. Aug. 11, 2022). The fire and the class were located within Illinois and the first three elements of the local controversy exception were met. The court, however, found the local controversy exception to be “unambiguous,” and only the first-filed of the substantially similar class actions could remain in state court.
At least one other court has interpreted the term “other class action” in light of the legislative intent of the exception: Logan v. Club Metro USA LLC, 2015 WL 7253935, at *2 (D.N.J. Nov. 17, 2015). There, a class action had been previously filed in the same New Jersey state court from which Logan was removed, asserting the same claims against one of the same defendants sued in Logan. The court held that treating the previously-filed case as an “other class action” under the local controversy exception “would frustrate the statute’s purpose,” as the no-other-class-action requirement was intended to prevent “copycat…suits in multiple forums.” The court reasoned that allowing “two separate suits, alleging similar factual and statutory violations, in two separate forums” would be “plainly against Congress’s desire.”
Determining the appropriate jurisdiction in which to bring any case is an important decision that often needs to be made quickly after an environmental catastrophe. The unsettled interpretation of the fourth prong of the local controversy exception is one which legislators may not have foreseen.
Understanding the scope and limits of the local controversy exception is an important consideration that should be evaluated at the outset of any environmental class action.
Adam J. Levitt is a founding partner of DiCello Levitt, where he heads the firm’s class action and public client practice groups. He can be reached at [email protected].
Thank you to DiCello Levitt partner Daniel Rock Flynn, senior counsel Anna Claire Skinner and associates Elizabeth Carpenter and James Crisafulli for contributing to this column.