FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS November 10, 2014
Elisabeth A. Shumaker
TENTH CIRCUIT Clerk of Court
BRETT F. WOODS and KATHLEEN
VALDES, for themselves and all others
similarly situated,
Plaintiffs - Appellees,
v. No. 13-2160
STANDARD INSURANCE COMPANY,
an Oregon insurance company; MARTHA
QUINTANA, a New Mexico resident,
Defendants - Appellants.
Appeal from the United States District Court
for the District of New Mexico
(D.C. No. 1:12-CV-01327-KBM-LAM)
Jill B. Davenport (Keith R. Verges with her on the briefs), Figari & Davenport, L.L.P.,
Dallas, Texas, for the Appellants
Elizabeth Radosevich, Peifer, Hanson & Mullins, P.A., Albuquerque, New Mexico
(Robert E. Hanson and Matthew E. Jackson, Peifer, Hanson & Mullins, P.A., and
William H. Carpenter, William H. Carpenter Law Office, Ltd., Albuquerque, New
Mexico, with her on the briefs) for the Appellees.
Before BACHARACH, McKAY, and McHUGH, Circuit Judges.
McHUGH, Circuit Judge.
This appeal requires us to evaluate whether remand to the state court pursuant to
the Class Action Fairness Act (CAFA) is required under either of two CAFA provisions:
the state action provision, which excludes from federal jurisdiction cases in which the
primary defendants are states; or the local controversy exception, which requires federal
courts to decline jurisdiction where, among other things, there is a local defendant whose
alleged conduct forms a significant basis for the claims asserted by plaintiffs and from
whom plaintiffs seek significant relief. See 28 U.S.C. 1332(d)(4), (5).
Exercising jurisdiction pursuant to 28 U.S.C. § 1453(c)(1),1 we conclude that
neither provision provides a basis for remand, and therefore we reverse the decision of
the magistrate judge2 remanding the case to state court. But because we cannot determine
whether Defendants have established the amount in controversy required to confer
federal jurisdiction, we remand to the district court for the resolution of that issue.
I. BACKGROUND
A. Factual History
Plaintiffs Brett Woods and Kathleen Valdes are state employees who are
representatives of the class of New Mexico state and local government employees
1
In general, an order remanding a case to state court is not appealable. See 28
U.S.C. § 1447(d). However, CAFA permits this court to review an order remanding a
case “if application is made to the court of appeals not more than 10 days after entry of
the order.” Id. § 1453(c)(1). Defendants filed a timely application to appeal, which we
granted. We therefore have appellate jurisdiction.
2
The parties consented to proceed before a United States Magistrate in the district
court.
2
(collectively, Plaintiffs) who allege they paid for insurance coverage through payroll
deductions and premiums pursuant to a policy issued by Standard Insurance Company
(Standard), but did not receive the coverage for which they paid and, in some cases, were
denied coverage entirely. Plaintiffs filed suit in New Mexico state court against three
defendants: Standard, an Oregon company that agreed to provide the subject insurance
coverage; the Risk Management Division of the New Mexico General Services
Department (the Division), the state agency that contracted with Standard and is
responsible for administering benefits under the policy; and Standard employee Martha
Quintana, who Plaintiffs allege is responsible for managing the Division’s account with
Standard and for providing account management and customer service to the Division
and state employees. We sometimes refer to Standard and Ms. Quintana, collectively, as
Defendants.3
Plaintiffs filed a ninety-one-paragraph complaint, stating causes of action against
Standard and the Division for breach of contract and unjust enrichment; against Standard
for breach of fiduciary duty, breach of the implied duty of good faith and fair dealing, and
Unfair Practices Act violations; and against Standard and Ms. Quintana for breach of the
New Mexico Trade Practices and Fraud Act. As factual support for these claims,
Plaintiffs allege the Division wrongfully deducted premiums from some state employees’
wages and remitted them to Standard without first obtaining the evidence of insurability
necessary to obtain term life insurance and accidental death and dismemberment
insurance. Plaintiffs further assert Standard retained those premiums without actually
3
The Division did not seek removal below and is not a party on appeal.
3
providing the paid-for coverage or reflecting in their records that Plaintiffs and other
class members were insured. As a result, Plaintiffs claim Standard denied some state
employees’ coverage on the erroneous basis that they were not insured. Plaintiffs also
allege Standard and the Division breached the terms of the insurance policy by failing to
provide the promised coverage or to inform state employees of their obligation to submit
evidence of insurability. In addition, they claim Standard created and the Division
approved a misleading employee handbook that failed to notify state employees they
were required to submit evidence of insurability as a prerequisite to obtaining coverage.
Plaintiffs mention Ms. Quintana only briefly in their complaint, describing in one
paragraph Ms. Quintana’s allegedly unlawful conduct. Specifically, Plaintiffs allege
Ms. Quintana did not require state employees to submit evidence of insurability in
exchange for Standard’s acceptance and retention of premiums paid, and she “knew or
should have known” that Standard was accepting premiums from the state employees
without providing coverage. Aplt. Appx. 264. As the factual basis for this allegation,
Plaintiffs generally allege Ms. Quintana “is Standard’s locally based employee . . . who is
responsible for providing account management and customer service” to the Division and
state employees. Aplt. Appx. 257.
Plaintiffs claim all defendants are jointly and severally liable for actual, punitive,
treble, and statutory damages, as well as for fees, costs, and interest. In addition, they
seek declaratory judgment, enjoining the Division and Standard to provide coverage to
the class members who wish to remain insured and to provide coverage for other class
members until Standard and the Division have refunded those class members’ premium
4
payments in full. Plaintiffs also seek general injunctive relief “as may be proper to
require the Defendants to remedy any acts or practices which the Court may find to
violate the rights of Plaintiffs and the Class,” but specifically request that Standard be
enjoined from denying Plaintiffs the insurance coverage for which they paid premiums.
B. Procedural History
After Plaintiffs filed suit in New Mexico state court, Defendants filed a notice of
removal, claiming the United States District Court for the District of New Mexico had
federal jurisdiction under CAFA, which authorizes the removal of certain class actions
from state to federal court, so long as the amount in controversy exceeds $5 million and
the plaintiffs have established minimal diversity. See Standard Fire Ins. Co. v. Knowles,
___ U.S. ___, 133 S. Ct. 1345, 1348 (2013). Before a federal magistrate, Plaintiffs sought
remand to state court, claiming that CAFA’s state action and local controversy provisions
precluded federal jurisdiction. Plaintiffs also sought remand on the alternate ground that
Defendants had failed to establish the amount in controversy exceeded $5 million as
required by CAFA. In response to Plaintiffs’ challenge to the amount in controversy,
Defendants pointed to an affidavit attached to their notice of removal, which they claimed
established Plaintiffs’ alleged damages exceeded $5 million.
The magistrate judge ordered the case remanded to state court. She held the state
action exception did not apply because Standard is a primary defendant who is not a state
entity, and the state action provision requires all primary defendants to be state entities.
However, the magistrate judge concluded remand was proper pursuant to the local
controversy exception because Ms. Quintana is a local defendant from whom Plaintiffs
5
sought “significant relief” and her conduct formed a “significant basis” for Plaintiffs’
claims. The judge reasoned Ms. Quintana was significant because, as the sole New
Mexico customer service representative, she could be the “key and ultimately solely
responsible for the alleged mismanagement of the policy.” Aplt. Appx. 614.
Because she ordered remand to the state court under the local controversy
exception, the magistrate judge did not reach the issue of whether Defendants had
established the requisite amount in controversy for federal CAFA jurisdiction.
Defendants appeal the magistrate judge’s order of remand.
II. DISCUSSION
Defendants assert the magistrate judge erred by concluding Ms. Quintana is a
significant local defendant. Defendants also urge this court to determine in the first
instance that they have established the amount in controversy threshold for CAFA
jurisdiction by showing Plaintiffs’ alleged damages exceed $5 million. In turn, Plaintiffs
ask us to affirm the decision of the magistrate judge under either CAFA’s state action or
significant local defendant provisions. They also claim Defendants have failed to
demonstrate the damages at issue exceed $5 million. Accordingly, we examine three
main issues to resolve this appeal. To begin, we consider whether the magistrate judge
correctly rejected the state action provision as inapplicable. Second, we review the
magistrate judge’s determination that remand is appropriate under the local controversy
exception. Because we conclude that neither provision requires remand to the state court,
we finally consider whether Defendants have established that the amount in controversy
exceeds $5 million.
6
A. Standard of Review
Our review of the magistrate judge’s interpretation of CAFA is de novo. See
Parson v. Johnson & Johnson, 749 F.3d 879, 886 (10th Cir. 2014) (“We review the
district court’s ruling on the propriety of removal de novo.” (internal quotation marks
omitted)); Coffey v. Freeport McMoran Copper & Gold, 581 F.3d 1240, 1245 (10th Cir.
2009) (per curiam) (reviewing district court’s interpretation of the local controversy
exception de novo).
B. Remand Pursuant to CAFA’s Exclusionary Provisions
“CAFA was enacted to respond to perceived abusive practices by plaintiffs and
their attorneys in litigating major class actions with interstate features in state courts.”
Coffey v. Freeport McMoran Copper & Gold, 581 F.3d 1240, 1243 (10th Cir. 2009) (per
curiam). Accordingly, CAFA allows a federal court to assume original jurisdiction “if the
class has more than 100 members, the parties are minimally diverse, and the ‘matter in
controversy exceeds the sum or value of $5,000,000.’” Standard Fire Ins. Co. v.
Knowles, ___ U.S. ___, 133 S. Ct. 1345, 1348 (2013) (quoting 28 U.S.C. § 1332(d)(2),
(d)(5)(B)).
In enacting CAFA, Congress intended to “expand substantially federal court
jurisdiction over class actions.” S. Rep. No. 109-14, at 43 (2005). Thus, “its provisions
should be read broadly, with a strong preference that interstate class actions should be
heard in a federal court if properly removed by any defendant.” Id. But mindful of
principles of federalism, CAFA reserved to the state courts jurisdiction over primarily
local matters. See Coffey, 581 F.3d at 1243. Of relevance to this case, the state action
7
provision excludes from federal jurisdiction cases in which the primary defendants are
states against which the district court may be foreclosed from ordering relief. See 28
U.S.C. § 1332(d)(5). CAFA also includes the local controversy exception, which “‘is
intended to respond to concerns that 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.’” Coffey, 581 F.3d at 1243 (quoting S. Rep. No. 109-14, at
39).
CAFA places the burden on removing parties to establish that its basic
requirements are met. However, once a defendant establishes removal is proper, a party
seeking remand to the state court bears the burden of showing jurisdiction in federal court
is improper under one of CAFA’s exclusionary provisions. Id. (stating plaintiffs must
show the elements of the significant local defendant exception are applicable); Coleman
v. Estes Exp. Lines, Inc., 631 F.3d 1010, 1013 (9th Cir. 2011) (placing the burden on the
plaintiffs to establish that remand is proper under CAFA); Greenwich Fin. Servs.
Distressed Mortg. Fund 3 LLC v. Countrywide Fin. Corp., 603 F.3d 23, 26 (2d Cir. 2010)
(same); Westerfeld v. Indep. Processing, LLC, 621 F.3d 819, 823 (8th Cir. 2010) (same);
Kaufman v. Allstate N.J. Ins. Co., 561 F.3d 144, 153 (3d Cir. 2009) (same); Hart v.
FedEx Ground Package Sys. Inc., 457 F.3d 675, 680 (7th Cir. 2006) (same); Evans v.
Walter Indus., Inc., 449 F.3d 1159, 1165 (11th Cir. 2006) (same).
Here, Plaintiffs bear the burden of establishing that remand is required under
CAFA’s state action provision or local controversy exception. For the reasons stated
below, we conclude Plaintiffs have failed to meet that burden under either provision.
8
1. The State Action Provision
The state action provision excludes from federal jurisdiction “any class action in
which . . . the primary defendants are States, State officials, or other governmental
entities against whom the district court may be foreclosed from ordering relief.” 28
U.S.C. § 1332(d)(5). Plaintiffs argue this provision presents an alternate ground on which
we may affirm the magistrate judge’s order of remand. They interpret the state action
provision more broadly than the magistrate judge—who thought the provision required
all primary defendants to be states, state officials, or state entities—and urge us to
interpret it as precluding federal CAFA jurisdiction if any primary defendant is a state or
state entity.4 According to Plaintiffs, a contrary interpretation is inconsistent with the
purpose of CAFA because it could allow a primary defendant—like the Division—to
wholly escape liability under principles of Eleventh Amendment immunity. In contrast,
Defendants advance an interpretation consistent with the magistrate judge’s holding,
contending the state action provision requires all primary defendants to be state entities
from whom the district court may be precluded from ordering relief under the Eleventh
Amendment. Defendants further argue Eleventh Amendment concerns are not relevant
here because, although the Division is a primary defendant and a state entity, Standard is
also a primary defendant, is not a state entity, and is thus subject to liability in the federal
court.
4
Although Plaintiffs challenge the magistrate judge’s interpretation of the
provision, they do not dispute that Standard is a primary defendant and is not a state
entity.
9
In interpreting this provision, our analysis must begin and end with the language
of the statute itself, “for where . . . the statute’s language is plain, the sole function of the
courts is to enforce it according to its terms.” United States v. Ron Pair Enters., Inc., 489
U.S. 235, 241 (1989) (internal quotation marks omitted); Coffey, 581 F.3d at 1245 (“[I]t
is our primary task in interpreting statutes to determine congressional intent, using
traditional tools of statutory construction. In ascertaining such congressional intent, we
begin by examining the statute’s plain language, and if the statutory language is clear, our
analysis ordinarily ends.” (internal quotation marks and alterations omitted)). Based on
the plain language of the state action exception, we conclude it requires all primary
defendants to be state entities.
The state action provision provides that CAFA jurisdiction “shall not apply to any
class action in which—(A) the primary defendants are States, State officials, or other
governmental entities against whom the district court may be foreclosed from ordering
relief.” 28 U.S.C. § 1332(d)(5)(A). The use of the definite article, “the,” before the plural
noun, “primary defendants,” and the use of the plural verb, “are,” leaves no doubt
Congress intended the state action provision to preclude CAFA jurisdiction only when all
of the primary defendants are states, state officials, or state entities. If Congress had
intended otherwise, it could have expressly stated that federal CAFA jurisdiction shall
not apply to any class action in which “a primary defendant is” a state, state official, or
state entity. See Mississippi ex rel. Hood v. AU Optronics Corp., ___ U.S. ___, 134 S. Ct.
736, 742 (2014) (determining CAFA’s mass action provision—which allows removal of
cases where “100 or more persons” are to be tried jointly—requires there be 100 or more
10
named plaintiffs, not 100 or more unnamed real parties in interest because if Congress
had intended the latter, it could have easily drafted language to that effect).
This interpretation is also consistent with that of the United States Court of
Appeals for the Fifth Circuit, which is the only federal circuit to have considered this
precise issue. See Frazier v. Pioneer Ams. LLC, 455 F.3d 542, 546 (5th Cir. 2006)
(holding the state action provision requires all primary defendants to be states, state
officials, or state entities). And Plaintiffs have directed us to no court that has reached a
contrary conclusion.5 In light of CAFA’s plain language, we see no reason to part
company with the Fifth Circuit on this issue. See Chrysler Credit Corp. v. Country
Chrysler, Inc., 928 F.2d 1509, 1521 (10th Cir. 1991) (“Splitting the circuits always is
something we approach with trepidation.”); United States v. Philip Morris USA, Inc., 396
F.3d 1190, 1201 (D.C. Cir. 2005) (noting that “we avoid creating circuit splits when
possible”).
Finally, although we are not unsympathetic to Plaintiff’s argument that under our
interpretation the Division may be shielded from liability under Eleventh Amendment
immunity principles, we are bound by the statute’s clear and unambiguous language. See
Frazier, 455 F.3d at 546 (recognizing the possibility that its interpretation of the statute
5
Rather, Plaintiffs cite Hangarter v. Paul Revere Life Ins. Co., No. C 05-04558
WHA, 2006 WL 213834 (N.D. Cal. Jan. 26, 2006), a case in which the court did not
interpret the statutory language, but instead examined only whether a party was actually a
primary defendant, and Gatti v. Louisiana, No. CIV.A. 10-329-JJB, 2011 WL 1827437
(M.D. La. Feb. 25, 2011) report and recommendation adopted, CIV.A. 10-329-JJB, 2011
WL 1827356 (M.D. La. May 12, 2011), a case in which the court recognized that the law
of the Fifth Circuit requires that all primary defendants must be state entities, but
examined whether a state was, in fact, a primary defendant. Neither case supports
Plaintiffs’ interpretation of the state action provision of CAFA.
11
could preclude relief from one defendant, but concluding “that is the price of sovereign
immunity, and in any event § 1332(d)(5)(A) is clear—all primary defendants must be
states”). The statute plainly provides that a federal court lacks jurisdiction under the state
action provision only if all primary defendants are state entities. Because it is undisputed
Standard is a primary defendant and is not a state entity, the magistrate judge correctly
determined the state action provision does not require remand of this class action to the
state court.
2. The Local Controversy Exception
We next examine whether the magistrate judge correctly remanded this action to
the state court under CAFA’s local controversy exception. There are three requirements
of the local controversy exception to federal CAFA jurisdiction:
(I) 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;
(II) at least 1 defendant is a defendant—
(aa) from whom significant relief is sought by members of the
plaintiff class;
(bb) whose alleged conduct forms a significant basis for the claims
asserted by the proposed plaintiff class; and
(cc) who is a citizen of the State in which the action was originally
filed; and
(III) 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; and . . . 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 . . . .
12
28 U.S.C. §1332(d)(4)(A). A federal district court must decline to exercise jurisdiction
under CAFA if the plaintiffs can satisfy all three of these requirements. Coffey, 581 F.3d
at 1243. The parties agree Plaintiffs have met the first and third requirements—all of the
members of the plaintiff class are New Mexico citizens, the principal injuries occurred in
New Mexico, and no other class action has been filed in the preceding three-year period.
See 28 U.S.C. § 1332(d)(4)(A)(i)(I), (III). Instead, the parties dispute whether Plaintiffs
have established the second requirement, identified by this court as the significant “‘local
defendant’” requirement. Coffey, 581 F.3d at 1242 (quoting S. Rep. No. 109-14, at 40).
With respect to the significant local defendant requirement, Plaintiffs concede
neither Standard nor the Division qualifies as a local defendant. And Defendants do not
challenge Ms. Quintana’s New Mexico citizenship. Thus, the narrow issue we must
decide is whether Ms. Quintana satisfies prongs (aa) and (bb); in other words, whether
her conduct forms a significant basis for the claims asserted by Plaintiffs, and whether
Plaintiffs seek significant relief from her.
“[I]t is our primary task in interpreting statutes to determine congressional intent,
using traditional tools of statutory construction.” Id. at 1245 (internal quotation marks
omitted). We begin our analysis by examining the statute’s plain language and if the
meaning of that language is clear, our inquiry is at an end. See Ron Pair Enters., Inc., 489
U.S. at 241. “If the statute’s plain language is ambiguous as to Congressional intent, ‘we
look to the legislative history and the underlying public policy of the statute.’” United
States v. Manning, 526 F.3d 611, 614 (10th Cir. 2008) (quoting United States v. LaHue,
170 F.3d 1026, 1028 (10th Cir. 1999)); see also Parson v. Johnson & Johnson, 749 F.3d
13
879, 889 (10th Cir. 2014) (finding CAFA’s legislative history relevant to an
interpretation of a CAFA provision that permits “mass actions” to be tried jointly, even
where the language was unambiguous).
CAFA itself does not describe the type or character of conduct that would form a
“significant basis” of plaintiffs’ claims or define the term “significant relief.” And the
scope of those terms is not apparent from the plain language of the statute, even when
read in context. Cf. Coffey, 581 F.3d at 1245 (concluding the phrase “defendant from
whom significant relief is sought” was not ambiguous such that it could be interpreted to
mean “defendant from whom significant relief may be obtained,” but not otherwise
addressing the meaning of the phrase “significant relief”). Accordingly, we must turn to
other sources to find its meaning. As discussed, Congress enacted CAFA to prevent
abuse by plaintiffs and their attorneys litigating in state court class actions with interstate
implications. Coffey, 581 F.3d at 1243. To further that purpose, we interpret the
significant local defendant requirement strictly so that plaintiffs and their attorneys may
not defeat CAFA jurisdiction by routinely naming at least one state citizen as a
defendant, irrespective of whether that defendant is actually a primary focus of the
litigation.
This approach is consistent with CAFA’s legislative history, which indicates
Congress intended the local controversy exception to be “narrow,” with all doubts
resolved “in favor of exercising jurisdiction over the case.” S. Rep. No. 109-14 at 39, 42.
The Senate Judiciary Committee report on CAFA explains that for the local controversy
exception to apply there must be “at least one real defendant . . . whose alleged conduct is
14
central to the class’s claims and from whom the class seeks significant relief.” Id. at 28
(emphasis added). It further explains, “the Committee intends that the local defendant
must be a primary focus of the plaintiffs’ claims—not just a peripheral defendant.” Id. at
38 (emphasis added). “The defendant must be a target from whom significant relief is
sought by the class (as opposed to just a subset of the class membership), as well as being
a defendant whose alleged conduct forms a significant basis for the claims asserted by the
class.” Id. (emphasis added); accord Kaufman, 561 F.3d at 157 (recognizing that the
statute requires defendant’s conduct to be “significant” and the word “significant” is
defined as “important, notable” (quoting Oxford English Dictionary (2nd ed. 1989)).
Of particular interest to the present case, the Senate Judiciary Committee report
provides the following example to illustrate the bounds of the significant local defendant
requirement:
[I]n a consumer fraud case alleging that an insurance company incorporated
and based in another state misrepresented its policies, a local agent of the
company named as a defendant presumably would not fit this criteria. He
or she probably would have had contact with only some of the purported
class members and thus would not be a person from whom significant relief
would be sought by the plaintiff class viewed as a whole. Obviously, from a
relief standpoint, the real demand of the full class in terms of seeking
significant relief would be on the insurance company itself. Similarly, the
agent presumably would not be a person whose alleged conduct forms a
significant basis for the claims asserted. At most, that agent would have
been an isolated role player in the alleged scheme implemented by the
insurance company. In this instance, the real target in this action (both in
terms of relief and alleged conduct) is the insurance company, and if that
company is not local, this criterion would not be met.
S. Rep. 109-14, at 38 (footnote omitted) (emphasis added). As in this example,
Ms. Quintana’s status as Standard’s local agent is not enough, standing alone, to meet the
15
significant defendant requirement. Instead, Ms. Quintana must also be a real target of the
litigation, rather than an isolated role player in the alleged scheme implemented by
Standard and the Division. See Coffey, 581 F.3d 1242–45 (holding a company that had
operated a smelter for many years on a property subsequently declared a superfund site,
and against which all plaintiffs had asserted claims for joint and several liability, was a
significant defendant for purposes of CAFA’s local controversy exception).
Furthermore, in considering Ms. Quintana’s significance as a defendant, we must
compare her conduct with that of the other named defendants. See id. at 1244 (“[C]ourts
generally have required that the local defendant’s conduct be significant when compared
to the alleged conduct of the other defendants and the relief sought against that defendant
is a significant portion of the entire relief sought by the class.” (internal quotation marks
omitted)); Westerfeld v. Indep. Processing, LLC, 621 F.3d 819, 825 (8th Cir. 2010)
(holding that the local defendant’s conduct must be significant when compared to that of
the class); Kaufman, 561 F.3d at 157 (same). When viewed under this lens, we have little
difficulty concluding Ms. Quintana is not a significant local defendant because Plaintiffs
have failed to carry their burden of establishing that her conduct forms a significant basis
for their claims and they seek significant relief from her.6
6
Plaintiffs urge us to limit our inquiry into whether Ms. Quintana is a significant
local defendant to the allegations contained in the complaint. Because we conclude
Plaintiffs have failed to carry their burden of establishing Ms. Quintana is a significant
local defendant even if we so limit our inquiry, we need not determine whether
consideration of extrinsic evidence would be appropriate. But see Coleman v. Estes Exp.
Lines, Inc., 631 F.3d 1010, 1019 (9th Cir. 2011) (recognizing that “Federal courts have
disagreed on the question whether a district court may look only to the complaint in
determining whether the criteria of subsections (aa) and (bb) have been satisfied” but
16
a. Ms. Quintana’s conduct does not form a significant basis for Plaintiffs’ claims.
Plaintiffs assert on appeal that because Ms. Quintana is alleged to be the sole
person Standard employs to provide customer service for the Division’s New Mexico
accounts, her actions—or more specifically her failure to act—form a significant basis for
Plaintiffs’ claims. But Plaintiffs do not allege it was part of Ms. Quintana’s job to collect
evidence of insurability, make coverage determinations, record who had purchased
insurance coverage, or verify that employees were in fact receiving coverage. Likewise,
the complaint contains nothing to suggest Ms. Quintana ever collected or retained
premiums, solicited any employee to purchase insurance, enrolled state employees, or
had any actual contact with Plaintiffs or class members. And Plaintiffs do not allege Ms.
Quintana made any false or misleading statements or disseminated any false or
misleading information. Cf. Vodenichar v. Halon Energy Props., Inc., 733 F.3d 497, 507
(3d Cir. 2013) (concluding two companies were significant local defendants where they,
as agents for the class members, entered into an agreement with another defendant, but
failed to ensure the agreement conformed to that defendant’s requirements and made
concluding that courts should look only to the allegations in the complaint). Compare 28
U.S.C. §1332 (d)(4)(A)(i)(II)(aa), (bb) (stating that at least one defendant must be a
defendant whose “alleged conduct forms a significant basis for the claims asserted,” and
from whom “significant relief is sought” (emphasis added)), Coffey v. Freeport McMoran
Copper & Gold, 581 F.3d 1240, 1245 (10th Cir. 2009) (focusing on the allegations in the
complaint in determining whether a company was a significant local defendant under
prong (aa), but considering extrinsic evidence under (cc)’s citizenship prong), and
Kaufman v. Allstate N.J. Ins. Co., 561 F.3d 144, 157 (3d Cir. 2009) (directing lower court
to focus on allegations in complaint, not extrinsic evidence in evaluating whether a party
is a significant local defendant), with Evans v. Walter Indus., Inc., 449 F.3d 1159, 1167–
68 (11th Cir. 2006) (considering extrinsic evidence when addressing the significant
conduct prong).
17
negligent misrepresentations to plaintiffs regarding the agreement). Rather, the sole basis
of Plaintiffs’ claim against Ms. Quintana is that she violated the New Mexico Trade
Practices and Fraud Act by failing to disclose the Division’s and Standard’s allegedly
unlawful practices to the state employees. This is inadequate to make her a significant
defendant.
Our decision in Coffey supports this conclusion. There, we examined whether a
defendant, Blackwell Zinc Company, which had operated a smelter in a town the
Environmental Protection Agency later declared a Superfund site, was a significant local
defendant for the purposes of the local controversy exception of CAFA. Coffey, 581 F.3d
at 1242–43. Although we agreed with the district court that it was, our analysis supports a
contrary result in the present case. In Coffey, we noted all class members had claims
against the company—as opposed to a mere subset of class members; all class members
were seeking to hold the company jointly and severally liable for all of plaintiffs’
damages, and, given the fact that the company was the operator of the smelter for a
significant period of time, it was reasonably likely it would be held at least equally
responsible for plaintiffs’ damages as the other defendants, if not more so. Id. at 1244–45.
Unlike the allegations against the smelter operator in Coffey, the allegations
against Ms. Quintana do not support the conclusion that she is a significant defendant.
From both a quantitative and qualitative perspective, Plaintiffs’ complaint makes clear
Standard and the Division, not Ms. Quintana, are the primary focus and targets of
Plaintiffs’ claims. Plaintiffs allege only one cause of action against Ms. Quintana—that
she and Standard violated the New Mexico Trade Practices and Frauds Act. In
18
comparison, they allege claims for breach of contract and unjust enrichment against
Standard and the Division, as well as claims for breach of fiduciary duty, breach of the
duty of good faith and fair dealing, and violations of the Unfair Practices Act against
Standard alone. And Plaintiffs refer to Ms. Quintana only briefly throughout the ninety-
one-paragraph complaint. Instead, the majority of the factual allegations relate to
Standard’s and the Division’s breach of the insurance contract, the allegedly misleading
information contained in the employee benefit handbook, and the Division’s and
Standard’s allegedly wrongful conduct in accepting and retaining premiums without
providing the paid-for coverage or listing employees as insured.
Furthermore, even when we examine the complaint’s brief references to
Ms. Quintana, her alleged actions do not form a significant basis for Plaintiffs’ claims.
The complaint describes Ms. Quintana’s allegedly unlawful conduct in only one
paragraph, which alleges she did not require state employees to submit evidence of
insurability in exchange for Standard’s acceptance and retention of premiums paid, and
she “knew or should have known” Standard was accepting premiums from the state
employees without providing coverage. However, absent from the complaint is any
allegation of conduct by Ms. Quintana illustrating she played a significant role in the
Division’s and Standard’s alleged scheme. Plaintiffs do not allege Ms. Quintana’s
participation in any discussions about the scheme, her knowledge that the Division and
Standard were not keeping records of employees who had paid premiums, or any
obligation she had to collect evidence of insurability, make coverage determinations,
record who had purchased insurance coverage, or verify employees were in fact receiving
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coverage. The complaint simply identifies Ms. Quintana as an account manager and
customer service representative. Moreover, although the complaint alleges Ms. Quintana
“knew or should have known” Standard retained the premiums without providing
coverage, it makes no factual allegations as to why Ms. Quintana knew or should have
known about Standard’s and the Division’s allegedly unlawful conduct, apart from the
fact that she is the account manager and customer service representative.
Thus, our holistic review of the complaint reveals Plaintiffs’ primary focus is the
Division’s and Standard’s creation and implementation of a scheme to accept and retain
premiums without providing the paid-for coverage, not Ms. Quintana’s failure to discover
and disclose to Plaintiffs this alleged scheme. For this reason, Plaintiffs have failed to
carry their burden of establishing Ms. Quintana’s conduct forms a significant basis of
their claims for the purposes of the local controversy exception.
b. Ms. Quintana is not a defendant from whom Plaintiffs seek significant relief.
Plaintiffs’ failure to carry their burden of establishing that Ms. Quintana’s conduct
forms a significant basis for Plaintiffs’ claims precludes application of the local
controversy exception. See 28 U.S.C. § 1332(d)(4)(A)(i)(II) (listing the significant relief
and significant conduct prongs as required elements); Evans, 449 F.3d at 1167 n.7
(concluding that even if plaintiffs established that they sought significant relief from a
defendant, remand was improper because they failed to establish the defendant’s
significant conduct). For reasons we now discuss, we also conclude Ms. Quintana is not a
defendant from whom Plaintiffs seek significant relief.
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The fact that Ms. Quintana may not have financial resources at the same level as
Standard or the Division is not dispositive of whether she is a defendant from whom
Plaintiffs seek significant relief. See Coffey, 581 F.3d at 1245. But irrespective of
Ms. Quintana’s financial ability to pay damages, Plaintiffs have primarily targeted the
Division and Standard as the parties from whom they seek significant relief.
As discussed, of the six causes of action asserted in Plaintiffs’ complaint, only one
is asserted against Ms. Quintana—that both she and Standard violated the New Mexico
Trade Practices Act. In contrast, Plaintiffs seek damages for breach of contract and unjust
enrichment from the Division and Standard. Plaintiffs seek declaratory relief against
Standard and the Division, and only the Division and Standard can refund premiums to
Plaintiffs, provide the paid-for coverage, or allow members of the class to remain insured.
Although Plaintiffs also seek injunctive relief “as may be proper to require the
Defendants to remedy any acts or practices which the Court may find to violate the rights
of Plaintiffs and the Class,” the specific injunctive relief they seek is that Standard be
enjoined from denying Plaintiffs the insurance coverage for which they paid premiums,
relief Ms. Quintana is in no position to provide. Furthermore, Plaintiffs’ assertion that the
defendants are jointly and severally liable cannot alter Ms. Quintana’s actual significance
as a defendant. Cf. id. at 1242–45 (company was a significant local defendant where
Plaintiffs sought to hold it jointly and severally liable for all damages and it was
reasonably likely that it would be held at least equally responsible for plaintiffs’ damages
as the other defendants, if not more so). As compared to the Division and Standard,
Plaintiffs simply do not seek significant relief from Ms. Quintana.
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In sum, Plaintiffs have failed to meet their burden of establishing Ms. Quintana is
a local defendant whose alleged conduct forms a significant basis for Plaintiffs’ claims or
that she is a defendant from whom they seek significant relief. Therefore, the local
controversy exception to CAFA jurisdiction does not apply and the magistrate judge’s
remand to the state court on this basis was improper.7
C. Amount in Controversy
Although remand is not mandated by the state action or local controversy
provisions, to establish federal jurisdiction under CAFA, Defendants bear the burden of
establishing by a preponderance of the evidence that the amount in controversy exceeds
$5 million. See Frederick v. Hartford Underwriters Ins. Co., 683 F.3d 1242, 1246–47
(10th Cir. 2012). The parties dispute whether Defendants have met this burden and the
magistrate judge declined to decide this factual issue. The parties disagree on the number
of state employees who make up the class, the value of the premiums paid, and the
admissibility of Defendants’ evidence related to the amount in controversy. Therefore,
calculation of the amount in controversy is impossible without resolution of those
disputes.8 We therefore remand to the district court to determine in the first instance
7
Defendants claim the magistrate erred by declining to consider the weakness of
Plaintiffs’ claims against Ms. Quintana under the New Mexico Trade Practices and Fraud
Act. But see Coffey, 581 F.3d at 1245 (cautioning against holding mini trials to evaluate
whether the local controversy exception applies). We do not decide this issue because,
even if we assume Ms. Quintana could be personally liable under the New Mexico Trade
Practices and Fraud Act, we would conclude Plaintiffs failed to carry their burden of
establishing she is a significant local defendant for the reasons already explained.
8
Plaintiffs have not challenged the sufficiency of Defendants’ notice of removal,
which alleged the amount in controversy exceeded $5 million and also included extrinsic
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whether the amount in controversy exceeds $5 million. See Dutcher v. Matheson, 733
F.3d 980, 989–90 (10th Cir. 2013) (whether CAFA’s requirements “have been met is a
question that is best left to the district court to decide in the first instance on remand.”). If
the district court finds it does, Defendants have established federal jurisdiction under
CAFA and the action should proceed. But if the amount in controversy does not exceed
$5 million, federal CAFA jurisdiction will not lie and the action must be remanded to the
state court.
III. CONCLUSION
For the foregoing reasons, neither the state action nor local controversy provisions
of CAFA require remand of this action to the state court. But until the factual disputes
concerning the amount in controversy are resolved, we are unable to determine whether
Defendants have established jurisdiction under CAFA. Accordingly, we REVERSE the
decision of the magistrate judge and REMAND for further proceedings consistent with
this decision.
evidence Defendants assert establishes the amount in controversy. Therefore, we assume
for the purposes of this appeal that the notice of removal is sufficient, and express no
opinion regarding whether extrinsic evidence of federal jurisdiction was required at the
removal stage. Whether such extrinsic evidence can be required at the removal stage is an
open question currently before the Supreme Court. See Owens v. Dart Cherokee Basin
Operating Co., No. 12-4157-JAR-JPO, 2013 WL 2237740 (D. Kan. May 21, 2013)
(granting motion to remand on the basis that a notice of removal was insufficient as a
matter of law where it failed to provide evidentiary support “such as an economic
analysis . . . or settlement estimates” establishing the amount in controversy), appeal
denied, No. 13-603, 2013 WL 8609250 (10th Cir. June 20, 2013), reh’g denied, 730 F.3d
1234 (10th Cir. 2013), cert. granted, 134 S. Ct. 1788 (2014).
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