Tuesday, April 18, 2017

FYI: 8th Cir Holds "Citizen" Does Not Equal "Resident" Under CAFA's "Local Controversy" Exception

The U.S. Court of Appeals for the Eighth Circuit recently held that "citizen" is not synonymous with "resident" under the Class Action Fairness Act (CAFA), 28 U.S.C. 1332(d), such that the class action lawsuit at issue could not be remanded to state court under CAFA's "local controversy" exception but rather should remain in federal court.


A copy of the opinion is available at:  Link To Opinion


The plaintiff was injured in a car accident and received treatment at a hospital which required her to assign her Medicaid beneficiary rights to it. The hospital later contracted with a service provider to pursue any claims the plaintiff may have had against the responsible driver in lieu of collecting a reduced but certain payment from Arkansas Medicaid.


The plaintiff sued the hospital and the service provider on behalf of a class of "Arkansas-Medicaid beneficiaries" asserting that their attempt to recover under an assignment of the plaintiff's rights violated Arkansas law and that thousands who  had been treated across the state of Arkansas had been similarly damaged.  


The defendants removed the case to federal under CAFA. The plaintiff moved to remand under CAFA's local controversy exception, 28 U.S.C. 1332(d)(4), and the trial court agreed that more than two-thirds of the proposed class were citizens of the state.  The trial court noted that the plaintiff should amend to the complaint to assert that the class consisted of citizens rather than residents.  The plaintiff amended the complaint as instructed and the trial court ordered the case remanded to state court. The defendants sought permission to appeal, which was granted.


On appeal, the Eighth Circuit noted that the CAFA issue at hand was novel: how does the "resident" versus "citizen" distinction that appears in 28 U.S.C. 1332 play out in the local controversy exception?


The Appellate Court provided its five guiding principles behind its reasoning. First, the Eighth Circuit noted, CAFA provides broad diversity jurisdiction over class actions and the local controversy exception is narrow so that, once the defendant establishes the CAFA jurisdictional requirements, it is the plaintiff's burden to establish the local controversy requirements and any doubt should be resolved against the plaintiff.  


Second, the Eight Circuit held, the terms "citizen" and "resident" must be differentiated as citizenship requires permanency and residency does not require "an intent to make a place a home."  A person can be a resident of multiple states but a citizen of only one.  Thus, the Court held, residency is insufficient to establish citizenship for diversity jurisdiction.    


Third, the Appellate Court noted, a court must assume that Congress intended to apply the accumulated, settled meanings of terms under common law unless the statute states otherwise.  Here, the Eighth Circuit assumed Congress intended to use the common law meaning of the term "citizen" in CAFA.  


Fourth, at least one other ruling in the Seventh Circuit had addressed the issue of the meaning of "citizen" versus "resident" and had reached the same conclusion.  


Fifth, the Eighth Circuit noted, citizenship may be established by either defining the class as citizens (as opposed to residents) or by providing sound evidence of citizenship during class discovery, but cannot be based on "guesswork".  The Appellate Court explained that the trial court erred by allowing the plaintiff to amend her class definition, which the Eighth Circuit deemed "guesswork", and wrongly resolved the doubt in plaintiff's favor.  


The Appellate Court further pointed out that the trial court did not have the authority to permit the plaintiff to amend the complaint as the class definition prior to removal must include only local citizens in order for the local controversy exception to apply, and cited to section 1332(d)(7) which requires that for the local-controversy exception to apply, "class citizenship must be determined as of the date of the pleading giving federal jurisdiction."  


The Eighth Circuit concluded by pointing out that the plaintiff's lack of citizenship allegations did not defeat the district court's jurisdiction because the defendants pled in the notice of removal that the plaintiff was an Arkansas citizen, which was sufficient for federal jurisdiction.


Accordingly, the trial court's remand order was reversed and the appeal was returned to the trial court for further proceedings.




Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com


Admitted to practice law in Illinois




Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   Michigan   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin



NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates and webinar presentations are available on the internet, in searchable format, at:


Financial Services Law Updates




The Consumer Financial Services Blog








California Finance Law Developments