Recently, the United States Court of Appeals for the Seventh Circuit ruled that a plaintiff seeking to remand a putative class action under the Class Action Fairness Act’s (“CAFA”) home-state exception must produce evidence allowing the court to determine the putative class members’ citizenship as of the date the case was removed to federal court. The court suggested that a plaintiff might meet his or her burden by randomly sampling the citizenship of putative class members and extrapolating those results to the entire putative class.
In Myrick v. WellPoint, Inc., the plaintiffs filed a putative class action complaint in Illinois state court, alleging that an Illinois insurer violated state law by withdrawing from the Illinois market in 2002 and cancelling all insurance policies. The defendants removed the case to federal court pursuant to CAFA. Thereafter, the plaintiffs sought remand under CAFA’s home-state exception, 28 U.S.C. § 1332(d)(4). That section provides that a court shall not exercise CAFA jurisdiction if (1) at least two-thirds of the putative class members are citizens of the state in which the case was originally filed; and (2) at least one defendant from whom significant relief is sought, and whose alleged conduct forms a significant basis for the claims asserted, is a citizen of the same state.
The parties disagreed on whether two-thirds of the putative class members were citizens of Illinois. The plaintiffs argued that the home-state exception was satisfied because:
(1) Defendants’ policy was offered only to persons who represented that they lived in Illinois or, for group policies, to employers who represented that most beneficiaries lived in Illinois; and
(2) assuming that former policyholders left Illinois at the normal rate of 2% per year since 2002, about 87% of the putative class members were Illinois residents when the case was removed.
The district court denied the motion to remand.
The Seventh Circuit’s Decision
On appeal, the Seventh Circuit affirmed. The court held that the party seeking remand bears the burden of proof under the home-state exception. Therefore, the plaintiffs “needed to produce some evidence that would allow the [district] court to determine the class members’ citizenships on the date the case was removed.” Slip Op. at 4. The court concluded that the plaintiffs had failed to produce any evidence of the putative class members’ citizenship.
The court reasoned that the plaintiffs’ arguments rested on suppositions rather than evidence. The court noted that the plaintiffs expected the court to infer (1) that the policies were only issued to Illinois residents; (2) that all Illinois residents are also Illinois citizens; (3) that the defendants’ policyholders were no more likely to move than the average individual is; and (4) that employers who purchased group policies were all citizens of Illinois. The court held that “[t]hese propositions may or may not be right, but plaintiffs did not offer any evidence to support them.” Id. at 5.
The court rejected the plaintiffs’ argument that they should be excused from proving putative class members’ citizenship because doing so is “simply too expensive.” Id. The court stated: “Lawyers who launch class actions are not in a good position to complain about the expenses they entail; plaintiffs and their counsel must be prepared to meet them or be deemed inadequate representatives.” Id. The court further reasoned that Plaintiffs’ burden was not cost prohibitive because they could have relied on random sampling.
The court explained that the plaintiffs could have taken a random sample of perhaps 100 putative class members, determined the citizenship of those in the sample, and extrapolated those results to the putative class as a whole. Id. at 5-6. The court noted that, if the sample had yielded a lopsided result, “say, 90% Illinois citizens or only 50% Illinois citizens,” the outcome would have been clear without the need for further evidence. Id. If the result was close to the home-state exception’s two-thirds requirement, the court stated that plaintiffs could have done “more sampling and hire[d] a statistician to ensure that the larger sample produces a reliable result.” Id.
Implications for Businesses
The Seventh Circuit’s decision squarely places the burden to prove citizenship on a plaintiff seeking remand under CAFA’s home-state exception but minimizes that burden by suggesting a plaintiff might randomly sample putative class members to establish jurisdiction. Unfortunately, the decision leaves many questions unanswered. For example, the decision does not address whether or to what extent a plaintiff has the right to seek discovery from the defendant on putative class members. Nor does the decision address whether a plaintiff relying on random sampling must provide expert testimony in support and, if so, whether Daubert applies to that testimony. Businesses facing a motion to remand under the home-state exception should consider these issues when crafting their defense.