Case: 22-30553 Document: 00516882126 Page: 1 Date Filed: 09/01/2023
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
FILED
____________
September 1, 2023
No. 22-30553 Lyle W. Cayce
____________ Clerk
State of Louisiana, By and Through its Division of Administration;
East Baton Rouge Law Enforcement District;
Claiborne Parish Law Enforcement District; Rapides
Parish Law Enforcement District; East Feliciana
Parish Law Enforcement District; West Feliciana
Parish Law Enforcement District; Grant Parish Law
Enforcement District; Acadia Parish Law Enforcement
District; Tangipahoa Parish Law Enforcement
District; Franklin Parish Law Enforcement District;
Ascension Parish Law Enforcement District; Sid J.
Gautreaux, III, in his official capacity as Sheriff of East Baton Rouge
Parish; Samuel A. Dowies, in his official capacity as Sheriff of Claiborne
Parish; Mark Wood, in his official capacity as Sheriff of Rapides Parish;
Jeff Travis, in his official capacity as Sheriff of East Feliciana Parish;
Brian Spillman, in his official capacity as Sheriff of West Feliciana
Parish; Steven McCain, in his official capacity as Sheriff of Grant Parish;
K. P. Gibson, in his official capacity as Sheriff of Acadia Parish; Daniel
Edwards, in his official capacity as Sheriff of Tangipahoa Parish; Kevin
Cobb, in his official capacity as Sheriff of Franklin Parish; Bobby Webre,
in his official capacity as Sheriff of Ascension Parish,
Plaintiffs—Appellees,
versus
i3 Verticals Incorporated; i3 Verticals, L.L.C.; i3-
Software & Services, L.L.C.; 1120 South Pointe
Properties, L.L.C., formerly known as Software and Services
of Louisiana, L.L.C.; Gregory Teeters; Scott
Carrington,
Case: 22-30553 Document: 00516882126 Page: 2 Date Filed: 09/01/2023
Defendants—Appellants.
______________________________
Appeal from the United States District Court
for the Middle District of Louisiana
USDC No. 3:21-CV-572
______________________________
Before Elrod, Ho, and Oldham, Circuit Judges.
James C. Ho, Circuit Judge:
The Class Action Fairness Act excludes federal jurisdiction over class
actions with “less than 100” plaintiff class members. See 28 U.S.C.
§ 1332(d)(5)(B). In this class action brought by Louisiana sheriffs and law
enforcement districts, we hold that the law enforcement districts are separate
entities from the sheriffs, and that together, they bring the total number of
Plaintiffs over the hundred-plaintiff threshold.
We nevertheless conclude that this class action does not belong in
federal court. That’s because the Act also establishes a local controversy
exception to federal jurisdiction. 28 U.S.C. § 1332(d)(4). This exception
requires at least one in-state defendant “whose alleged conduct forms a
significant basis for the claims asserted” and “from whom significant relief
is sought.” Id. § 1332(d)(4)(A)(i)(II).
Plaintiffs allege harm from unlawful conduct spanning from 2015 to
2020. Defendants include an in-state business allegedly responsible for all of
Plaintiffs’ harms until 2018, when it was acquired by an out-of-state business.
We must decide whether the in-state Defendants’ conduct forms a
“significant basis” for Plaintiffs’ claims, and whether Plaintiffs are seeking
“significant relief” from the in-state Defendants. We answer yes to both
questions and therefore affirm the district court in remanding this case to
state court under the local controversy exception.
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I.
This is a class action brought by Louisiana sheriffs and Louisiana law
enforcement districts against purveyors of software. The sheriffs and law
enforcement districts allege that the software purveyors sold them defective
software and then failed to administer the software properly. This failure to
service the software properly took place continuously over a period from
2015 to 2020.
Crucially for this appeal, Defendants include both in-state and out-of-
state software purveyors. From 2015 to late 2018, only in-state Defendants
were responsible for the alleged wrongdoing—South Pointe, a Louisiana
company, and its owner, Gregory Teeters, a Louisiana individual. In late
2018, out-of-state company i3-Software and Services acquired South
Pointe’s software business. As a result, i3-Software and Services—together
with its alter egos, out-of-state entities i3 Verticals, LLC and i3 Verticals,
Inc., and its Louisiana owner, Scott Carrington—bears responsibility for the
alleged conduct after 2018.
Plaintiffs originally sued in Louisiana state court. But Defendants
removed to federal district court. Plaintiffs then sought remand to Louisiana
state court, arguing that the local controversy exception to the Class Action
Fairness Act applied. The magistrate issued a report that recommended
remand under the local controversy exception. The district court adopted
the magistrate’s report. Defendants now appeal the district court’s remand
to state court.
II.
To be heard in federal court, a class action must have at least a
hundred plaintiff class members. That’s because the Class Action Fairness
Act excludes federal subject-matter jurisdiction over a class action where
“the number of members of all proposed plaintiff classes in the aggregate is
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less than 100.” 28 U.S.C. § 1332(d)(5)(B). See Mississippi ex rel. Hood v. AU
Optronics Corp., 571 U.S. 161, 169 (2014) (“CAFA provides that in order for
a class action to be removable, ‘the number of members of all proposed
plaintiff classes’ must be 100 or greater.”).
Plaintiffs argue that this class action is not removable to federal court
because it has fewer than a hundred class members. This argument goes to
subject-matter jurisdiction, so we are duty-bound to consider it, even though
Plaintiffs raise it for the first time on appeal. See Capron v. Van Noorden, 6
U.S. 126, 126–27 (1804).
As Plaintiffs explain, you can reach the hundred-person jurisdictional
threshold only by adding the sixty-four Louisiana law enforcement districts
to the sixty-four Louisiana sheriffs. And Plaintiffs urge that the law
enforcement districts are not separate entities capable of suit. Instead,
Plaintiffs claim, each law enforcement district is one with its sheriff. Take
away the law enforcement districts as separate juridical persons, and you’re
left with the sixty-four sheriffs—far fewer than the hundred plaintiffs
required for federal jurisdiction.
State law determines whether a local government entity, such as a law
enforcement district, is a person capable of suit. Under the Federal Rules, an
entity’s “[c]apacity to sue or be sued is determined . . . by the law of the state
where the court is located.” Fed. R. Civ. P. 17(b)(3). See Edmiston v.
Louisiana Small Business Development Center, 931 F.3d 403, 406 (5th Cir.
2019) (“[T]he capacity of an entity which is neither an individual nor a
corporation to be sued in federal court is determined by state law.”); Darby
v. Pasadena Police Dep’t, 939 F.2d 311, 313 (5th Cir. 1991) (applying Texas
state law to determine whether a Texas local government entity had the
capacity to sue or be sued in an appeal from the Southern District of Texas).
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This is an appeal from the Middle District of Louisiana. So Louisiana
state law governs whether the Louisiana law enforcement districts can sue as
plaintiffs, distinct from the Louisiana parish sheriffs.
“Under Louisiana law, a governmental entity is an independent
juridical entity when ‘the organic law grants it the legal capacity to function
independently and not just as the agency or division of another governmental
entity.’” Edmiston, 931 F.3d at 407 (quoting Roberts v. Sewerage & Water Bd.
of New Orleans, 634 So. 2d 341, 347 (La. 1994)).
Louisiana law, including the organic law that establishes the law
enforcement districts, grants the districts the capacity to function
independently from the sheriffs. So the law enforcement districts are distinct
juridical persons capable of suit.
The sheriffs and the law enforcement districts stem from distinct
sources of organic law. The state constitution directly creates the office of
parish sheriff. See La. Const. art. 5, § 27 (“In each parish a sheriff shall
be elected for a term of four years. He shall be the chief law enforcement
officer in the parish.”). The law enforcement districts, by contrast, are
creatures of statute. See La. Stat. Ann. § 13:5901 (“There is hereby
created, in each parish . . . a special district to be known as a law enforcement
district for the purpose of providing financing to the office of sheriff for that
parish.”).
State statute empowers law enforcement districts to “execute . . .
contracts and other instruments.” La. Stat. Ann. § 13:5904(A)(1). And
it makes those contracts “binding upon the district . . . notwithstanding that
the term of such contract . . . extends beyond the expiration of the term of the
current ex officio chief executive officer,” that is, the sheriff. Id.
§ 13:5904(B).
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As the state Attorney General has explained, this means that a law
enforcement district is distinct from the sheriff. The organic statutes “create
a public entity known as the ‘Law Enforcement District’ for each parish,
separate from the Sheriff, which has perpetual existence and which is
therefore capable of entering into obligations exceeding the term of a
Sheriff.” Louisiana Attorney General Opinion No. 09-0003 (Apr. 30, 2009),
2009 WL 1416444, at *2 (quoting Louisiana Attorney General Opinion No.
08-0072 (Apr. 10, 2008)).
A sheriff’s contracts only bind that sheriff, and not his successor. By
contrast, a law enforcement district’s contracts may bind that district even
past the current sheriff’s term of office. See id. at *2–3. And that’s why the
state legislature created separate law enforcement districts: as a workaround
for the problem of a sheriff’s contracts binding only the current sheriff. Id.
at *2.
So a law enforcement district can enter contracts that bind the district
beyond the sheriff’s term. Similarly, a law enforcement district can own
property, see La. Stat. Ann. § 13:5522(D)—property that the sheriff
himself does not own, see Cozzo v. Tangipahoa Parish Council, 279 F.3d 273,
283 (5th Cir. 2002). So it would be surprising if a law enforcement district
lacked the capacity to sue and be sued as a distinct juridical person.
Unsurprisingly, Louisiana courts treat law enforcement districts as
capable of suit. See, e.g., Law Enforcement District of Jefferson Parish v. Mapp
Construction, LLC, 296 So. 3d 1260, 1262 (La. Ct. App. 2020) (law
enforcement district sues contractor for breach); Natchitoches Parish Law
Enforcement District v. Decimal, Inc., 124 So. 3d 549, 553 (La. Ct. App. 2013)
(affirming sanctions against defendant in suit brought by law enforcement
district).
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By contrast, a sheriff’s office has no status independent from that of
the sheriff himself. See Edmiston, 931 F.3d at 407 (“Louisiana sheriffs are
juridical entities that can be sued, but Louisiana sheriff’s offices are not.”).
Accordingly, when a sheriff’s office is listed as a defendant, Louisiana courts
either dismiss claims against the sheriff’s office, see Markley v. Town of Elton,
829 So. 2d 1213, 1214 n.1 (La. Ct. App. 2002), or they substitute the sheriff
as the correct defendant, see Chandler v. Ouachita Parish Sheriff’s Office, 121
So. 3d 1216, 1219 n.1 (La. Ct. App. 2013).
Plaintiffs here argue that a law enforcement district, like a sheriff’s
office, is one with the sheriff. That’s because the sheriff is “ex officio the
chief executive officer of the district,” which is “coterminous with the
boundaries of the parish.” La. Stat. Ann. § 13:5901. But the fact that
the sheriff is the CEO of the law enforcement district does not vitiate the
district’s separate juridical personhood. Unlike the sheriff’s office, which is
“simply an office operated by the Sheriff . . . whose authority is derived from
the state constitution,” Edmiston, 931 F.3d at 407 (quoting Ferguson v.
Stephens, 623 So. 2d 711, 715 (La. Ct. App. 1993)), the law enforcement
district is a separate creation of the state legislature.
The law enforcement district’s distinct organic law, La. Stat.
Ann. § 13:5901–5912, grants it capacities distinct from those of the sheriff
himself—including, implicitly, the capacity to sue. This means that the
Louisiana law enforcement districts can be plaintiffs, bringing the number of
Plaintiffs past the hundred-plaintiff minimum jurisdictional threshold.
Accordingly, we reject Plaintiffs’ contention that we must remand to state
court for lack of subject-matter jurisdiction under § 1332(d)(5)(B).
III.
Nevertheless, Plaintiffs are right that remand is appropriate under
CAFA’s local controversy exception to federal jurisdiction. This exception
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requires that federal courts decline to hear certain class actions of a local
nature. It ensures that a state court will hear a class action that, among other
requirements, involves largely in-state plaintiffs and at least one in-state
defendant. See 28 U.S.C. § 1332(d)(4).
CAFA’s local controversy exception, 28 U.S.C. § 1332(d)(4)(A),
reads as follows:
A district court shall decline to exercise jurisdiction . . . over a
class action in which . . . 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; [and] . . . at
least 1 defendant is a defendant . . . from whom significant relief
is sought by members of the plaintiff class; . . . whose alleged
conduct forms a significant basis for the claims asserted by the
proposed plaintiff class; and . . . who is a citizen of the State in
which the action was originally filed.
To put it simply, “the local controversy exception requires a local
defendant (a) from whom significant relief is sought; and (b) whose alleged
conduct forms a significant basis for the claims asserted.” Williams v.
Homeland Ins. Co. of N.Y., 657 F.3d 287, 291–92 (5th Cir. 2011) (citing 28
U.S.C. § 1332(d)(4)(A)(i)(II)). These are known as the “significant relief”
and “significant basis” prongs of the local controversy exception. The
exception also requires, inter alia, a supermajority of in-state plaintiffs, but it
is undisputed that Plaintiffs have met that requirement.
When the district court remands a case to state court under the local
controversy exception, we review the remand de novo. Arbuckle Mountain
Ranch of Tex., Inc. v. Chesapeake Energy Corp., 810 F.3d 335, 337 (5th Cir.
2016). Where, as here, the plaintiffs are seeking remand, “[t]he plaintiffs
bear the burden of establishing that they fall within CAFA’s local controversy
exception.” Opelousas Gen. Hosp. Auth. v. FairPay Sols., Inc., 655 F.3d 358,
360 (5th Cir. 2011) (per curiam).
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Defendants allege that the district court erred by remanding to state
court under the local controversy exception. Defendants argue that the
district court applied a more lenient burden of proof to Plaintiffs’ allegations
than what CAFA allows. Defendants also deny that Plaintiffs have satisfied
the “significant basis” prong. The in-state Defendants’ conduct, they argue,
does not form a “significant basis” of the claims. Finally, Defendants deny
that Plaintiffs satisfied the “significant relief” prong of the local controversy
exception. Plaintiffs, they argue, do not seek “significant relief” from the in-
state Defendants.
We reject Defendants’ arguments against remand to state court.
A.
Defendants argue that the district court erred by holding Plaintiffs to
a more lenient burden of proof than CAFA allows. On Defendants’ view,
circuit precedent requires plaintiffs to prove the applicability of the local
controversy exception “with reasonable certainty.” Arbuckle, 810 F.3d at
338. By using a “preponderance of the evidence” standard, the district court
(so the argument goes) flouted precedent.
We reject Defendants’ argument. We hold that a preponderance of
the evidence suffices to establish the applicability of the local controversy
exception.
To be sure, our court’s panel in Arbuckle observed that “[i]f the
applicability of an exception [to CAFA] is not shown with reasonable
certainty, federal jurisdiction should be retained.” Id.
But caselaw prior to Arbuckle stated the standard as “preponderance
of the evidence.” See, e.g., Hollinger v. Home State Mut. Ins. Co., 654 F.3d
564, 569–70 (5th Cir. 2011) (“CAFA requires federal courts to decline
jurisdiction over a proposed class action if . . . the [local controversy]
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exception[] is proven by a preponderance of the evidence.”). And under our
circuit’s rule of orderliness, Arbuckle was bound by this previous panel
decision. See Gahagan v. USCIS, 911 F.3d 298, 302 (5th Cir. 2018).
Likewise, our caselaw since Arbuckle has continued to state the
standard as “preponderance of the evidence.” See, e.g., Stewart v. Entergy
Corp., 35 F.4th 930, 932 (5th Cir. 2022) (“The party seeking remand bears
the burden of establishing, by a preponderance of the evidence, that the local
controversy . . . requirements are met.”).
As we now read Arbuckle, it simply restates the same preponderance
standard in different language. After all, “the language of an opinion is not
always to be parsed as though we were dealing with the language of a statute.”
Brown v. Davenport, 142 S. Ct. 1510, 1528 (2022). We need not take
“reasonable certainty” to mean something different from “preponderance
of the evidence.”
Arbuckle itself equivocates between “reasonable certainty” and
“preponderance of the evidence.” Compare 810 F.3d at 338 (exception must
be shown “with reasonable certainty”) with id. at 339 (requirement must be
proven “by a preponderance of the evidence”).
And circuit precedent treats the two terms as synonyms in other
contexts. See Mobil Expl. & Producing U.S., Inc. v. Cajun Constr. Servs., Inc.,
45 F.3d 96, 101–02 (5th Cir. 1995) (“[T]he plaintiff must prove damages with
reasonable certainty, but this merely means that the plaintiff must prove
damages by a preponderance of the evidence as in other civil contexts.”)
(footnote omitted). So here too we hold that this circuit’s invocation of
“reasonable certainty” simply means “preponderance of the evidence”
when it comes to the burden of proof for the local controversy exception.
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B.
For the local controversy exception to apply, an in-state defendant’s
alleged conduct must “form[] a significant basis for the claims asserted by
the proposed plaintiff class.” 28 U.S.C. § 1332(d)(4)(A)(i)(II)(bb).
Plaintiffs and Defendants agree that our decision in Opelousas
provides the correct standard for the “significant basis” prong of the local
controversy exception. Under Opelousas, the plaintiffs must provide
“information about the conduct of [an in-state defendant] relative to the
conduct of the other defendants.” 655 F.3d at 361. That is, they must
“distinguish[]” an in-state defendant’s alleged conduct and “estimate” the
alleged conduct attributable to an in-state defendant versus the out-of-state
defendant. Id. at 362. By doing all this “in the allegations of the complaint,”
the plaintiffs can “establish that [the in-state defendant’s] conduct forms a
significant basis of [their] claims.” Id.
In their first amended petition, the operative complaint, Plaintiffs
allege that “Sheriffs unknowingly purchased defective cybersecurity
hardware and software products . . . . The Products were purchased
exclusively, or almost exclusively, from [in-state] defendants 1120 South
Pointe and Gregory R. Teeters.”
The original sale contracts stipulated that in-state Defendants South
Pointe and Teeters “would provide, for a limited time after the delivery of
the Products, cybersecurity services in support of the Products.” And,
“[a]fter the obligation to deliver such cybersecurity services in the
Products[’] sale contracts expired by their terms, The Sheriffs made new
agreements with [in-state Defendants] 1120 South Pointe and Gregory R.
Teeters for the sole purpose of delivering cybersecurity services.”
Only “[i]n 2018 [was] the business of [in-state defendant] 1120 South
Pointe . . . acquired from [in-state-defendant] Gregory Teeters by [out-of-
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state] defendants i3-Software & Services, i3-Verticals, Inc., and i3-Verticals,
LLC.” Following this acquisition, “[out-of-state defendant] i3-Software &
Services and [in-state defendant] Scott Carrington assumed [in-state
defendant] 1120 South Pointe’s prior role as the provider of cybersecurity
services to the Sheriffs.”
Thus, while the petition alleges that “[a]t times between 2015 and
2020, the Cybersecurity Administrators and their employees engaged in the
following [unlawful] activities,” all the unlawful conduct prior to the 2018
acquisition is attributable solely to in-state defendants South Pointe and
Teeters. And after the 2018 sale, the unlawful conduct is partially
attributable to in-state Defendant Carrington, who “personally negotiated
and/or signed” service agreements with Sheriffs and oversaw the company’s
activities. 1
Moreover, the sheriffs bring their redhibition claim—a claim for the
sale of a defective product, see La. Civ. Code Ann. art. 2520 et. seq.—
solely against in-state Defendants South Pointe and Teeters. That’s because
only the in-state Defendants were responsible for the sale of the defective
products, which occurred prior to the 2018 acquisition. 2
As to claims involving deficient cybersecurity services, Plaintiffs
allege that “[a]ll class members . . . received substantially the same
cybersecurity services from all Defendants.” The “deficient conduct,
_____________________
1
Because the dissent believes that the post-acquisition conduct is most important,
it characterizes this a “dispute . . . predominantly between Louisiana plaintiffs and i3
Verticals, which is a citizen of Delaware and Tennessee.” Post, at _. This ignores the fact
that, even after the 2018 acquisition, a Louisiana defendant was at the helm of the out-of-
state business and thus was allegedly responsible for the unlawful conduct as well.
2
In arguing that “South Pointe’s conduct was far from a significant portion of
plaintiffs’ claims,” post, at _, the dissent glosses over this redhibition claim.
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practices, and protocols of Defendants . . . equally impacted and caused
damage to all class members.”
Plaintiffs, then, easily satisfy our circuit’s standard for the “significant
basis” prong. From 2015 to 2018, in-state Defendants South Pointe and
Teeters were solely responsible for the defective cybersecurity practices.
Only in 2018 did out-of-state Defendants i3-Software & Services, i3
Verticals, Inc., and i3 Verticals, LLC acquire the cybersecurity business and
became responsible for the unlawful cybersecurity practices. Of the
continuous unlawful conduct between 2015 to 2020, all conduct prior to the
2018 acquisition is attributable solely to in-state Defendants—as is the initial
unlawful sale of the defective products.
The 2018 business acquisition cleanly “distinguishes” the conduct
attributable solely to the in-state Defendants from that attributable to out-of-
state Defendants. Opelousas, 655 F.3d at 362. And this dividing line likewise
provides an “estimate” of how much unlawful conduct is on the in-state
Defendants versus the out-of-state Defendants. Id.
As Plaintiffs explained in the district court below, “Louisiana
Defendants (1120 South Pointe and Gregory Teeters) were exclusively
responsible for the sale of defective software products, and all negligent and
wrongful conduct related to the provision of cybersecurity services,
occurring between 2015 and ‘late 2018.’” The “harm . . . caused by this . . .
conduct was ongoing, and continued unabated until 2020.” Out of some five
years of continuous unlawful conduct, about three are attributable solely to
the in-state Defendants.
The dissent alleges that we are treating “time [as] the basis of
comparison,” when “Congress told us to evaluate the relative significance of
South Pointe’s conduct.” Post, at _. But we are not looking to time instead
of the in-state Defendants’ conduct. We are looking to time to determine the
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significance of the in-state Defendants’ conduct. Time is relevant to the
inquiry in a case such as this one, where Plaintiffs allege a continuing tort,
with in-state Defendants and out-of-state Defendants responsible for that
continuous unlawful conduct at different times.
We hold that Plaintiffs have satisfied the “significant basis” prong of
the local controversy exception.
C.
The local controversy exception also requires at least one in-state
defendant “from whom significant relief is sought by members of the plaintiff
class.” 28 U.S.C. § 1332(d)(4)(A)(i)(II)(aa). Defendants argue that the in-
state defendant must have a “greater ability to pay” than the out-of-state
defendants. In other words, they say the in-state defendant must have “deep
pockets.” We disagree.
When it comes to CAFA’s local controversy exception, the
“significant relief” prong means what it says. Any plaintiff who seeks
significant relief from an in-state defendant satisfies the prong, regardless of
how much the in-state defendant can actually pay.
The interpretation of the “significant relief” prong is an issue of first
impression in our circuit. We begin where we always do—with the text. And
all the text requires is that “significant relief is sought” from an in-state
defendant. Id. It says nothing about the in-state defendant’s ability to pay.
That’s enough to end our inquiry. But it’s worth noting that our sister
circuits have taken the same view. See Coffey v. Freeport McMoran Copper &
Gold, 581 F.3d 1240, 1245 (10th Cir. 2009) (per curiam) (“The statutory
language is unambiguous, and a ‘defendant from whom significant relief is
sought’ does not mean a ‘defendant from whom significant relief may be
obtained.’”); Coleman v. Estes Express Lines, Inc., 631 F.3d 1010, 1016 (9th
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Cir. 2011) (rejecting the argument that “a determination whether ‘significant
relief is sought’ against the local defendant under subsection (aa) requires a
factual determination about the respective ability of the various defendants
to satisfy a judgment”); Walsh v. Defs., Inc., 894 F.3d 583, 592 (3rd Cir. 2018)
(“[B]ased on the plain language of the statute, ‘a defendant from whom
significant relief is sought does not mean a defendant from whom significant
relief may be obtained.’”) (quoting Coffey); Smith v. Marcus & Millichap, Inc.,
991 F.3d 1145, 1161 (11th Cir. 2021) (“Nothing in the statute indicates that
district courts must conduct a factual inquiry into whether a defendant has
the financial means to pay the damages alleged in the complaint. CAFA does
not require the district court to examine a defendant’s ability to pay based on
the unambiguous plain meaning of the statute’s text.”). The dissent’s
contrary view would create a circuit split. We decline to break with our sister
circuits, which have thoughtfully analyzed the relevant statutory language.
So we hold that an in-state defendant’s ability to pay is irrelevant to
the “significant relief” prong of the local controversy exception. All that
matters is what the plaintiffs seek in damages—not whether there’s any
likelihood that they will obtain what they seek. If plaintiffs seek significant
relief from an in-state defendant, then they satisfy the prong.
Under this standard, Plaintiffs have easily shown that they are seeking
significant relief from the in-state Defendants. In their petition for damages,
Plaintiffs have alleged that all class members were harmed by the in-state
Defendants’ actions between 2015 and 2018. The in-state Defendants were
solely responsible for the harm to Plaintiffs during that period—over half of
the time period, from 2015 to 2020, during which Plaintiffs allege continuing
injury. Thus, as the district court found, at least half of the damages Plaintiffs
allege are sought from the in-state Defendants.
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The dissent claims that we are misconstruing the term “sought.” We
certainly agree with the dissent that “hyper-literalism is bad textualism.”
Post, at _. But we reject the notion that our reading of “sought” is hyper-
literalistic. We are simply applying the ordinary meaning of the verb “to
seek.”
As used by Subparagraph (aa), “to seek” means “[t]o ask for,
demand, request (from a person).” Oxford English Dictionary
(2nd ed. 1989), s.v., seek, sense 1.8.a. See also Matthew 7:7 (“Ask, and it
shall be given you; seek, and ye shall find; knock, and it shall be opened unto
you.”). And although the Bible teaches that those who seek from the Lord
shall find, when we seek something from our fellow man, we don’t always get
it.
The dissent theorizes that no one ever “seeks” anything “without at
least an infinitesimal hope of finding” it. Post, at _. But that defies common
usage of the term.
When a prospective student applies to an academic program, we say
that he is “seeking” admission. See, e.g., Applications Remain High, Harv.
Gazette (Feb. 3, 2014) (“This year, 34,295 people sought admission to the
Class of 2018. Last year, a record 35,023 applied . . . .”); Lindsay Ellis, Justice
Dept. Slams Harvard Admissions in Affirmative-Action Filing, Chron.
Higher Educ. (Aug. 30, 2018) (discussing “a lawsuit brought on behalf
of Asian-American students who had sought admission to the university”).
And that is so even though it’s common knowledge that an applicant with
grades and test scores below a certain level may not have even an
“infinitesimal hope” of obtaining the admission he seeks. So too here: A
plaintiff without realistic hope of getting the defendant to transfer money into
his account can still seek significant relief from that defendant. This is
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especially so because the court has the power to award a judgment of money
damages even against an insolvent defendant.
The dissent’s understanding of the term “seek” also runs into 28
U.S.C. § 1332 itself. Consider § 1332(d)(3)(C). That provision directs courts
to consider “whether the class action has been pleaded in a manner that seeks
to avoid Federal jurisdiction” when deciding if they should decline to
exercise jurisdiction. Id. Surely a pleading that aims to avoid Federal
jurisdiction falls within the reach of this provision, even if that goal is unlikely
to succeed. 3
We hold that Plaintiffs have easily satisfied the “significant relief”
prong of the local controversy exception.
***
We affirm.
_____________________
3
We also disagree with the dissent as a factual matter. The dissent claims that it is
“literally impossible” for Plaintiffs to recover from South Pointe. But South Pointe
remains a limited liability company in good standing. We do not presume to know what
additional employees or assets the company might acquire in the future.
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Andrew S. Oldham, Circuit Judge, dissenting:
I agree with the majority that this case satisfies the Class Action
Fairness Act’s (“CAFA’s”) 100-plaintiff requirement. See 28 U.S.C.
§ 1332(d)(5)(B). But my esteemed colleagues and I part ways on the rest.
This dispute is predominantly between Louisiana plaintiffs and i3 Verticals,
which is a citizen of Delaware and Tennessee. That means this case belongs
in federal court.
In holding otherwise, the majority points to CAFA’s local controversy
exception, id. § 1332(d)(4)(A). That exception provides that federal
jurisdiction sometimes does not extend to a class action involving a local
defendant—that is, a defendant who is a citizen of the State where the class
action was filed. See id. § 1332(d)(4)(A)(i)(II)(cc). To prevent artful pleading
that would destroy CAFA jurisdiction, however, Congress placed careful
limits on which local defendants trigger the exception. Two of those limits
are relevant here. First, to belong in state court, the action must involve a
local defendant “from whom significant relief is sought by members of the
plaintiff class.” Id. § 1332(d)(4)(A)(i)(II)(aa). And second, to belong in state
court, the action must involve a local defendant “whose alleged conduct
forms a significant basis for the claims asserted by the proposed plaintiff
class.” Id. § 1332(d)(4)(A)(i)(II)(bb).
Here, the purportedly local defendant is “South Pointe,” a defunct
shell LLC in Louisiana with no assets, facilities, business, or employees. In
my view, South Pointe does not satisfy either (I) the “seeks significant relief”
requirement of Subparagraph aa or (II) the “significant conduct”
requirement of Subparagraph bb.
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I.
A.
Start with the “seeks significant relief” prong in Subparagraph (aa).
For the exception to apply, the defendant must be one “from whom
significant relief is sought by members of the plaintiff class.” Id.
§ 1332(d)(4)(A)(i)(II)(aa). “Sought” is the past tense and past participle of
“seek.” And “seek” means “to go in search of,” “to try to reach or come
to,” or “to endeavor to make discovery of.” Seek, Webster’s New
International Dictionary 2266 (2d. ed. 1934; 1950) [hereinafter
“Webster’s Second”]. Each of these definitions features a referent
object—“of” or “to” [the object]. The actor “go[es] in search of”
[something], or “endeavor[s] to make discovery of” [something] or “tr[ies]
to reach” [something or somewhere]. Said differently, no one seeks without
at least an infinitesimal hope of finding. Likewise, when we consider what a
plaintiff “seeks,” we ought not blind ourselves to their literal impossibility of
finding.
It is literally impossible for plaintiffs to get any relief (let alone
significant relief) against South Pointe. It is true, I suppose, that plaintiffs
could be said to “seek relief” from South Pointe in the sense that they sued
that defunct shell with no assets, facilities, business, or employees. But if that
is what Subparagraph (aa) means, then Subparagraph (aa) means nothing
because a plaintiff can always sue someone for something—even if they are
guaranteed with 100% certainty to recover nothing. That turns the limit on
artful pleading in Subparagraph (aa) into a nullity. And in the process, it
offends both the surplusage canon and hyper-literalist canon. See Wash. Mkt.
Co. v. Hoffman, 101 U.S. 112, 115–16 (1879) (“As early as in Bacon’s
Abridgment, sect. 2, it was said that ‘a statute ought, upon the whole, to be
so construed that, if it can be prevented, no clause, sentence, or word shall be
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superfluous, void, or insignificant.’”); United States v. Palomares, 52 F.4th
640, 648–49 (5th Cir. 2022) (Oldham, J., concurring in the judgment)
(hyper-literalism is bad textualism).
B.
The majority opinion counters that my reading of Subparagraph (aa)
“defies common usage of the term [seek]” and would create a circuit split.
See ante, at 14–16. I’m not persuaded by either contention.
First, the majority opinion’s examples support my understanding of
Subparagraph (aa). The Bible says “seek, and ye shall find” precisely because
God gives us hope and faith, Matthew 7:7—two things that plaintiffs do
not have in “seeking” to recover from a defunct shell company. And when a
student “seeks” admission to a college or university, he or she obviously
hopes to get in even if the odds are long—again, a hope that plaintiffs do not
have in “seeking” to recover from a defunct shell company. True, a plaintiff
can “seek” to get rich by playing the lottery, even “without any realistic hope
of” winning it. Ante, at 16. But even the lottery player has a non-zero chance
of winning, which is more than plaintiffs’ chance of recovering from South
Pointe.
Second, the majority opinion notes other circuits have said a
defendant’s ability to pay is irrelevant to the “significant relief” inquiry. See
ante, at 14–15 (citing Coffey v. Freeport McMoran Copper & Gold, 581 F.3d
1240, 1245 (10th Cir. 2009) (per curiam); Coleman v. Estes Exp. Lines, Inc.,
631 F.3d 1010, 1020 (9th Cir. 2011); Walsh v. Defenders, Inc., 894 F.3d 583,
592 (3rd Cir. 2018); Smith v. Marcus & Millichap, Inc., 991 F.3d 1145, 1161
(11th Cir. 2021)). But one of those cases involved an entity whose ability to
satisfy a judgment was not in question. See Walsh, 894 F.3d at 592 (noting
only that defendant’s liability might technically be satisfied through another
entity by virtue of a corporate reorganization). And the others involved
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persons or entities of uncertain financial status, such that it would have
required jurisdictional mini-trials to determine the defendants’ abilities to
pay. See Coffey, 581 F.3d at 1245 (inquiring about defendant’s financial status
would require a “mini trial[ ] involving consideration of multiple insurance
coverage litigation settlement agreements, the solvency of different carriers,
pollution and other policy exclusions, etc.”); Coleman, 631 F.3d at 1020
(“There is nothing in the complaint to suggest that [defendant] is a nominal
defendant, or that [defendant] has so few assets . . . that [plaintiff] is not
seeking significant monetary relief from it.”); Marcus & Millichap, 991 F.3d
at 1160 (noting nothing indicated the defendant lacked means to satisfy any
potential judgment). And it was wariness of these factual inquiries that
motivated the courts’ holdings. See, e.g., Coffey, 581 F.3d at 1245 (“[T]here
is nothing in the language of the statute that indicates Congress intended
district courts to wade into the factual swamp of assessing the financial
viability of a defendant as part of this preliminary consideration . . . .”).
South Pointe, by contrast, is a defunct, asset-less, shell company that
obviously cannot pay. We do not need a mini-trial or any factual inferences
to determine whether plaintiffs can recover anything (let alone something
significant) because the facts are undisputed. And while the Ninth Circuit
held evidence of a defendant’s ability to pay should not be considered in the
“significant relief” inquiry, it also explained defendants (like South Pointe)
who obviously lack any ability to pay would not satisfy the test. Coleman, 631
F.3d at 1019–20. So it’s unclear that my reading of Subparagraph (aa) would
create a circuit split.
II.
Next consider the significant conduct prong in Subparagraph (bb).
That prong requires that, for a suit to belong in state court, the class action
must involve a local defendant “whose alleged conduct forms a significant
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basis for the claims asserted” by plaintiffs. See 28 U.S.C.
§ 1332(d)(4)(A)(i)(II)(bb).
Significant means something with significance. See Significant,
Webster’s Second, supra, at 2335. And significance means having
“importance” or “weight.” Significance, Webster’s Second, supra, at
2335. Ideas like “importance” or “weight” invite relativistic comparison,
which makes sense in this context. CAFA’s local controversy exception tasks
us with deciding whether the character of the controversy is holistically local,
not whether any fiber of it might be.
The majority seems to agree with me, so far. That is presumably why
the majority bases its judgment on a relativistic comparison: the length of
time of South Pointe’s alleged involvement versus that of i3 Verticals’
involvement. Plaintiffs allege the hazy contours of various misdeeds from
2015 to 2020; South Pointe was the relevant defendant for more than half
that five-year interval. The majority looks at the resulting fraction (above ½)
and deems South Pointe significant. See ante, at 11–13. *
But I am not sure that’s right. Congress did not say time is the basis of
comparison. Rather, Congress told us to evaluate the relative significance of
South Pointe’s conduct. See 28 U.S.C. § 1332(d)(4)(A)(i)(II)(bb) (“whose
alleged conduct forms a basis for the claims asserted” (emphasis added)). To
evaluate the relative significance of South Pointe’s conduct, we look at the
complaint. Ibid. (“the claims asserted”). And the complaint makes clear that
_____________________
*
The majority also deems it relevant that Scott Carrington, a Louisiana resident,
managed i3 Verticals from 2018–2020. Ante, at 12 & n.1. But the complaint does not explain
what, other than managing i3, Carrington did wrong. And without “detailed allegations or
extrinsic evidence” demonstrating the significance of Carrington’s conduct relative to the
other defendants, the fact that he ran the Company during the time period in question
simply has no bearing on the “significant conduct” inquiry. Opelousas Gen. Hosp. Auth. v.
FairPay Sols., Inc., 655 F.3d 358, 363 (5th Cir. 2011).
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South Pointe’s conduct was far from a significant portion of plaintiffs’
claims. According to the complaint, South Pointe periodically bypassed
antivirus programs, failed to moderate third-party comments on a website,
failed to renew an email filtering subscription, and used EU- instead of USA-
licensed software. ROA.618–20 (plaintiff’s Amended Petition). While that
conduct may fall short of upright deportment, plaintiffs barely allege, much
less show, that any of those supposed transgressions have any causal
connection whatsoever to the millions of dollars in damages plaintiffs
demand. Cf. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 557, 570 (2007)
(plaintiffs should state a claim “plausible on its face” and “show” their case
for relief).
So where, if not from South Pointe’s misadventures, do plaintiffs’
millions in claimed damages originate? Plaintiffs’ complaint does contain one
specific thread of facts, detailing the fallout from a cybersecurity incident that
plaintiffs trace back to December 2019—more than a year after South Pointe
had ceased business with the plaintiffs. This incident, and its remediation,
forms the near-entirety of plaintiffs’ demands for relief. See ROA.620–25.
Plaintiffs’ counterparty for this specific narrative, for this one thread of facts
with arguable connection to plaintiff’s damages, was i3 Verticals. In other
words, the conduct underlying the claims asserted appears almost exclusively
attributable to i3 Verticals—a decidedly non-local defendant. Far from being
“significant,” South Pointe’s conduct is all but irrelevant.
And even if the complaint alleges that plaintiffs’ claimed damages
arise from a continuing tort, see ante, at 14, 15, it still fails to connect South
Pointe’s conduct to plaintiffs’ injuries in any meaningful way. It is hard to see
how general assertions that South Pointe’s actions somehow harmed
plaintiffs count as the “detailed allegations” required by our precedent to
satisfy the “significant conduct” test. See Opelousas, 655 F.3d at 363.
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* * *
Even if all of that is wrong, we must resolve any doubt “in favor of
exercising [CAFA] jurisdiction over the case.” Opelousas, 655 F.3d at 360
(citations omitted). With deepest respect for my learned colleagues, I think
this case belongs in federal court.
I respectfully dissent.
24