March 16, 2018

Tenth Circuit: Case Properly Remanded to State Court Under the Class Action Fairness Act

The Tenth Circuit Court of Appeals issued its opinion in Speed v. JMA Energy Company, LLC on Monday, October 2, 2017.

Plaintiff Speed filed a petition in the District Court of Hughes County, Oklahoma, asserting a class action against JMA Energy Company, alleging that JMA had willfully violated an Oklahoma statute that requires interest payments of revenue from oil and gas production. Speed further asserted that JMA fraudulently concealed from mineral-interest owners that JMA owed interest to the owners, intending to pay only those who requested the 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). Speed then 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 prerequisites based on consideration of certain factors.

JMA appealed, challenging the district court’s remand order. The Tenth Circuit Court of Appeals found the district court properly considered the statutory factors and did not abuse its discretion by remanding to state court.

CAFA permits a class action to be brought in or removed to federal court if: (1) the proposed class includes at least 100 persons with claims; (2) the aggregate amount in controversy on all claims exceeds $5 million; (3) at least one proposed plaintiff and one defendant have diverse citizenship; and (4) the primary defendants are not governmental entities or officials against whom a federal court cannot order relief.

CAFA also recognizes three statutory exceptions. The exception at issue in this case is the discretionary exception. This 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. The Tenth Circuit considered each factor in turn to determine if there was a legal error or other abuse of discretion by the district court.

The first factor is whether the claims asserted involve a matter of national or interstate interest. The Tenth Circuit found that JMA failed to explain how there could 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. The Tenth Circuit determined that was not enough to reverse the district court’s finding.

The second factor was whether the claims asserted would be governed by Oklahoma law or the laws of other states. The district court found JMA’s argument that a fraud claim against Oklahoma may be governed by the law of a different state unpersuasive and concluded that this factor weighed in favor of Speed’s motion to remand. The Tenth Circuit concluded that Oklahoma law controlled.

The third factor was whether the class action had been pleaded in order to avoid federal jurisdiction. JMA asserted that Speed 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 Speed had proposed a class that encompassed all the people and claims that one would expect to include in a class action. The Tenth Circuit agreed.

The fourth factor was whether the action was brought in a forum with a distinct nexus with the class members, the alleged harm, or the defendants. The Tenth Circuit found no abuse of discretion by the district court, as the factors of this case demonstrated the required nexus between Oklahoma and the class members, the alleged harms, and the defendant, including that the action was 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.

The fifth factor was whether the number of citizens of the state in which the action was originally filed is substantially larger than the number of citizens from any other state for plaintiffs in the class, and whether the citizenship of the other members of the proposed class was dispersed among a substantial number of states. The Tenth Circuit found the district court correctly determined that this factor weighed in favor of remand, as the number of Oklahoma citizens was about 2.5 times the number of citizens from any other state.

The sixth, and last, factor was whether, during the three-year period preceding the filing of the class action, one or more other class actions asserting the same or similar claims on behalf of the same or other persons had been filed. No other actions have been filed; therefore, this factor favors remand.

The Tenth Circuit determined that the district court did not abuse its discretion in ruling that each factor supported remand.

The Tenth Circuit Court of Appeals AFFIRMED the decision remanding the case to state court.

Print Friendly, PDF & Email

Speak Your Mind