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7th Cir. Affirms Denial of Remand in CAFA Putative Class Action, Holds ‘Local Controversy’ Exception Inapplicable  

class action fairness actThe U.S. Court of Appeals for the Seventh Circuit recently affirmed the denial of a motion to remand to state court a putative class action removed to federal court under the federal Class Action Fairness Act.

In so ruling, the Seventh Circuit held that:

  • The defendant provided a “plausible good faith estimate” that the amount in controversy exceeded CAFA’s $5 million threshold; and
  • The local controversy exception did not apply because the factual allegations in a recent Montana class action suit against the agent were “identical” to the plaintiff’s here.

A copy of the opinion in Schutte v. Ciox Health, LLC is available at:  Link to Opinion.

The plaintiff retained a law firm to seek compensation for personal injuries. The law firm requested electronic copies of the plaintiff’s medical records from one of the defendants, a Wisconsin health care provider.

The healthcare provider responded to the request through its agent, the other defendant. The agent produced the electronic copies, but it charged the plaintiff and her lawyers “Per Page Copy (Paper)” charges totaling $59.23 and an “Electronic Data Archive Fee” of $2.

Alleging that she should not have been charged fees for electronic copies, the plaintiff filed a putative class action, claiming that the class includes several thousand persons and entities.  In addition to compensatory damages, the plaintiff sought exemplary damages up to $25,000 per claimant, as authorized by Wisconsin law for knowing and willful violations of Wis. Stat. § 146.83(3f)(b).

The agent removed the action to federal court under the federal Class Action Fairness Act, asserting that the plaintiff’s proposed class had at least 100 members, there was at least minimal diversity of citizenship between the plaintiff and the defendants, and based on the complaint’s allegations the amount in controversy exceeded $5 million. 28 U.S.C. 1332(d).

The agent’s notice of removal also asserted that the CAFA local controversy exception, which would have required the trial court to decline jurisdiction, did not apply because several class actions involving similar factual allegations have been filed against both defendants in the preceding three years.

The plaintiff moved to remand to state court on two grounds. First, she argued that the agent failed to establish that the amount in controversy exceeded $5 million. Second, she asserted that the local controversy exception applied.

The trial court denied the motion to remand, holding that the plaintiff had put forth a “plausible good faith estimate” that the amount in controversy exceeded $5 million and that the local controversy exception did not apply because the factual allegations in a recent Montana class action suit against the agent were “identical” to the plaintiff’s claims. The plaintiff timely appealed.

The parties agreed that the class exceeded 100 members and that there was minimal diversity. See 28 U.S.C. 1332(d). The first disputed question instead was whether the amount in controversy exceeded $5 million, as required under CAFA.

Where the amount in controversy is contested, removal is proper if the trial court finds, by the preponderance of the evidence, that the amount in controversy exceeds the jurisdictional threshold. Roppo v. Travelers Commercial Insurance Co., 869 F.3d 568, 579 (7th Cir. 2017), quoting Dart Cherokee Basin Operating Co. v. Owens, 574 U.S. 81, 88 (2014). The removing party needs to provide only a “good-faith estimate” that is “plausible and adequately supported by the evidence.”  Blomberg v. Service Corp. International, 639 F.3d 761, 763 (7th Cir. 2011).

To satisfy the amount in controversy requirement, a removing defendant may rely on the complaint’s allegations, the plaintiff’s informal estimates, affidavits from employees or experts, or other sources. Roppo, 869 F.3d at 579-80. Once the removing party meets its burden, “the case belongs in federal court unless it is legally impossible for the plaintiff to recover that much.”  Spivey v. Vertrue, Inc., 528 F.3d 982, 986 (7th Cir. 2008).

The Seventh Circuit first held that the allegations in this complaint alone were enough to show plausibly that more than $5 million was in controversy. The Court concluded that the agent was entitled to take at face value the complaint’s allegation of “several thousand” class members, each with “multiple separate claims.”  See Roppo, 869 F.3d at 581. A class of 2,000 members, for instance, would have needed to recover an average of only around $2,501 in exemplary damages, to say nothing of compensatory damages, to surpass the $5 million threshold.

The Seventh Circuit also reasoned that the trial court’s task in deciding a remand motion is not to predict the plaintiff’s prospects on the merits.  Instead, what matters is the amount “in controversy,” not the amount that plaintiff is most likely to recover. See, e.g., Back Doctors Ltd. v. Metropolitan Property & Casualty Insurance Co., 637 F.3d 827, 830 (7th Cir. 2011). Furthermore, to satisfy CAFA’s requirements, a removing party does not need to “establish” the class’s damages.  Instead, it needs only to provide a “good faith estimate” that the potential recovery exceeds $5 million. Roppo, 869 F.3d at 579; see also Blomberg v. Service Corp. International, 639 F.3d 761, 763 (7th Cir. 2011).

Even if the allegations in the complaint were not enough, the Seventh Circuit also held that the declaration submitted by the agent’s senior vice president of operations satisfied CAFA’s amount in controversy requirement. The declaration asserted that the agent had fulfilled about 727,500 relevant requests for medical records in Wisconsin from late January 2015 to late January 2021. To reach the $5 million threshold on compensatory damages alone, these requests would have needed to average only around $6.88 in overcharges. Given that the plaintiff’s claimed compensatory damages were $61, the Court determined that this estimate was sufficient to meet the agent’s burden.

The plaintiff also argued on appeal that remand was proper based on CAFA’s local controversy exception.

Even where CAFA’s jurisdictional requirements are met, the mandatory local controversy exception requires a federal trial court to decline jurisdiction under certain circumstances. 28 U.S.C. 1332(d)(4)(A).  The exception has several requirements, but only one was in dispute in this case: the exception applies only if “during the 3-year period preceding the filing of that 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.”  See 28 U.S.C. 1332(d)(4)(A)(ii).

The Seventh Circuit agreed with the trial court that this case and a case filed in the U.S. District Court for the District of Montana, Deming v. Ciox Health, LLC, 475 F. Supp. 3d 1160 (D. Mont. 2020), aff’d mem., No. 20-35744, 2022 WL 605691 (9th Cir. Mar. 1, 2022), involved “the same or similar factual allegations”.  See 28 U.S.C. 1332(d)(4)(A)(ii).

The Deming plaintiffs alleged that they had to pay per-page charges, electronic data archive fees, and other fees for electronic copies of medical records. Likewise, the plaintiff here alleged that class members had to pay “paper copies” fees, electronic archive data fees, and other fees for electronic copies of medical records. The Seventh Circuit concluded that this overlap easily fell within any reasonable definition of “similar factual allegations.”

The Seventh Circuit also agreed with the Tenth Circuit that differences in the legal theories asserted do not place two complaints with similar factual allegations outside the provision’s sweep. See Dutcher v. Matheson, 840 F.3d 1183, 1191-92 (10th Cir. 2016). Therefore, the fact that the Deming complaint alleged violations of Montana law while the present complaint alleged violations of Wisconsin law was not relevant.

The plaintiff also asserted that the statutory language “on behalf of the same or other persons” in 28 U.S.C. 1332(d)(4)(A)(ii) indicated that a connection between the two classes in the prior and current action was required to avoid the local controversy exception.

However, the Seventh Circuit observed that the plaintiff offered no meaningful guidance about what sort of connection would suffice. Nor did she offer a basis in the statutory text or even the history of CAFA’s enactment for answering that question. Ultimately, the Court held that the plaintiff’s proposed “some connection” standard would have no basis in law and would be impossible to apply fairly. See Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 493-95 (1985).

Thus, the Seventh Circuit concluded that the Deming case precluded application of the local controversy exception.

Accordingly, the Seventh Circuit affirmed the trial court’s order denying remand.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.

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