Katrina Suits Complicate CAFA Removal Rules

On the surface Weems v. Touro Infirmary and Preston v. Tenet Health Systems Memorial Medical Center Inc. are nearly identical cases. In both, a class of plaintiffs sued a New Orleans health care provider, alleging it was responsible for injuries and deaths because it failed to move patients out of the path of Hurricane Katrina.

But the two cases turned out quite differently--the defendant in Weems successfully removed the case to federal court, while the Preston plaintiffs won their fight to stay in Louisiana state court. In deciding the cases, the 5th Circuit provided insight into some lingering questions about the Class Action Fairness Act (CAFA).

Specifically, the 5th Circuit addressed the exceptions to CAFA's general requirement that federal courts should have jurisdiction over most large class actions. Under CAFA, a class action can stay in state court if it qualifies as a "local controversy," which the statute defines as a case in which two-thirds of the plaintiffs are citizens of the same state.

Plaintiffs in both Weems and Preston brought forth evidence that showed that more than two-thirds of potential class members were Louisiana citizens. The Weems plaintiffs produced medical records that showed 242 out of 299 patients at the Touro Infirmary had a Louisiana billing address at the time of the hurricane. The Preston plaintiffs provided medical records that showed Louisiana addresses plus emergency contact information for patients who had died. But they went one step further, obtaining eight affidavits from class members stating they intended to return to New Orleans.

That subtle difference in evidence turned out to be critical to the court's analysis of whether the cases should go to state or federal court. But some critics say the 5th Circuit's decision does little to clarify the requirements of CAFA's local controversy exception.

"I thought it was pretty confusing," says Nicole Duarte, a New Orleans-based attorney with Lemle & Kelleher who successfully argued for federal jurisdiction in Weems. "I didn't think there was much difference between our case and the Preston case."

Wild West

The 5th Circuit's analysis rested on whether the plaintiffs had proved not only that two-thirds of the class members resided in Louisiana, but also that they were domiciled in the state. Domicile, the court noted, requires a showing both that the class members lived in Louisiana and that they intended to remain there in the future.

The Circuit Court said that the Weems plaintiffs had not met that burden by simply showing that the plaintiffs had homes in Louisiana around the time the hurricane hit because some of those class members may have fled for good after Katrina. The court noted that plaintiffs brought forth no additional evidence, such as vehicle registrations or proof of extended Louisiana residency and employment prior to Katrina, to support a bid to stay in state court.

But how much evidence class members need to bring forward to show domicile under CAFA is hardly clear, and courts throughout the country are coming to differing conclusions.

For example, in Mattera v. Clear Channel Communications Inc., a Southern District of New York judge concluded in November 2006 it was "reasonably likely" the plaintiffs met the two-thirds benchmark, even though they produced no affidavits or other such evidence about the class members' intent to remain in the state. All of the class members work in the state, the judge noted, and that was sufficient to keep the case in state court.

The reasoning directly contradicts that of Weems, says Beth Boland, a partner in the Boston office of Bingham McCutchen. "This is kind of the Wild West right now, and there just seems to be no real gravitation around a given standard," Boland says.

Creating Clarity

Until recently, it was also unclear which party has the burden of proof in arguments over whether the local controversy exception applies. Experts say the 5th Circuit ruling in Weems helps clarify that issue.

Some courts initially ruled it was up to plaintiffs to show cases were ineligible for CAFA, says Russell Yager, a partner in Vinson & Elkins. However, he says rulings by the 2nd, 7th and 11th Circuits create a consensus view that the burden is on defendants to show CAFA applies.

But once initial CAFA jurisdiction is established, the plaintiffs seeking to then remove the case from federal court by invoking exceptions must prove those exceptions, the 5th Circuit held in Weems. On that issue the 5th Circuit cited its own 2006 ruling in Frazier v. Pioneer Americas and a 9th Circuit ruling in Serrano v. 180 Connect Inc. from 2007.

"The cases have played out pretty rationally in ways that are consistent with the purposes of the act and lead to results that litigants can analyze and predict," Yager says.

But as courts produce more case law under CAFA, plaintiffs are becoming more sophisticated in finding ways to evade federal court. For instance, plaintiffs are increasingly trying to avoid triggering CAFA by keeping damages less than $5 million or by filing multiple small classes of fewer than 100 plaintiffs each. But statistics suggest many defendants are successfully moving class actions into federal court under CAFA.

"I don't think class actions are going away," says Jason Sultzer, a partner in the White Plains, N.Y., office of Wilson Elser Moskowitz Edelman & Dicker. "The question is: Can we keep them out of the state courts that really weren't handling them properly? So far as I can see, that is working."

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