Seventh Circuit Addresses Mandatory Local Controversy Exception To The Class Action Fairness Act

• Published date: 22 March 2022
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Class Actions
• Law Firm: Foley & Lardner
• Author: Mr Thomas Shriner, Jr., Andrew J. Wronski and Aaron R. Wegrzyn

Since its enactment in 2005, the Class Action Fairness Act (CAFA) has provided defendants with additional opportunities to remove state-law claims to federal court. Among other things, the statute expands federal courts' diversity jurisdiction to cases where at least one proposed class member is a citizen of a state different than at least one defendant, as long as the amount in controversy exceeds $5 million. But CAFA includes a number of mandatory and discretionary exceptions to the diversity jurisdiction that it provides.

Yesterday, in Schutte v. Ciox Health, LLC, No. 22-1087, 2022 WL 792258 (7th Cir. Mar. 16, 2022), the Seventh Circuit tackled an issue of first impression for the court concerning CAFA's mandatory "Local Controversy" exception, 28 U.S.C. 1332(d)(4)(A).

The Posture of the Case

The plaintiff alleged that a Wisconsin health care provider and its medical records contractor violated Wisconsin's patient health care records act by charging her lawyers for electronic copies of records relating to her treatment following a car accident.¹ The complaint sought certification of a class of all persons who requested medical records from a Wisconsin health care provider and were charged fees by the defendants for electronic copies. In response, the medical records contractor removed the case to the Eastern District of Wisconsin under CAFA, and the plaintiff moved to remand to state court based on (among other arguments) the Local Controversy exception. When Judge Adelman denied the plaintiff's remand motion, the Seventh Circuit accepted her petition for interlocutory review under 28 U.S.C. ' 1453(c) - another provision added by CAFA - because the court had "not yet construed the relevant provision" of the Local Controversy exception.

The Local Controversy Exception

The Local Controversy exception strips federal courts of jurisdiction that would otherwise be provided by CAFA if several conditions exist: (1) more than two-thirds of the class members are citizens of the state in which the case was originally filed, (2) at least one defendant from whom "significant relief is sought" and whose "alleged conduct forms a significant basis for the claims" is a citizen of that state, (3) the "principal injuries" sustained by class members were incurred in that state, and (4) "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" within the previous three...