Kyla Asbury Nov. 24, 2014, 10:03am

DENVER (Legal Newsline) - A federal appeals court has ruled that disputes concerning the amount in controversy must be resolved in a class action lawsuit before the court can establish jurisdiction under the Class Action Fairness Act.

The appeal required the three-judge panel to evaluate whether remand to the state court was required under either of two CAFA provisions, according to an opinion filed Nov. 10 in the U.S. Court of Appeals for the Tenth Circuit.

Circuit judges Robert E. Bacharach, Monroe G. McKay and Carolyn B. McHugh voted in the majority, with McHugh authoring the opinion.

The two CAFA provisions are the state action provision, which excludes from federal jurisdiction cases in which the primary defendants are states, and 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.

"Exercising jurisdiction pursuant to 28 U.S.C. § 1453(c)(1), we conclude that neither provision provides a basis for remand, and therefore we reverse the decision of the magistrate judge, remanding the case to state court," the opinion states. "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."

Brett F. Woods and Kathleen Valdes are New Mexico state employees who claimed they paid for insurance coverage through payroll deductions and premiums pursuant to a policy issued by Standard Insurance Company, but did not receive the coverage for which they paid and, in some cases, were denied coverage entirely.

The class action lawsuit was originally filed on Nov. 20, 2012, in Santa Fe County Circuit Court and was removed to the U.S. District Court for the District of New Mexico on Dec. 28, 2012.

The class action was remanded to state court on June 17, 2013, by Magistrate Judge Karen B. Molzen.

Standard and Martha Quintana, who is one of Standard's locally based employees responsible for providing account management and customer service to the New Mexico state employees, appealed Molzen's order to remand the case back to state court.

"Before a federal magistrate, plaintiffs sought remand to state court, claiming that CAFA’s state action and local controversy provisions precluded federal jurisdiction," the opinion states. "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 the plaintiffs' challenge to the amount in controversy, the defendants pointed to an affidavit attached to their notice of removal, which they claimed established the plaintiffs' alleged damages exceeded $5 million.

Molzen 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 sought 'significant relief' and her conduct formed a 'significant basis' for plaintiffs’ claims," the opinion states. "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.'"

Because she ordered remand to the state court under the local controversy exception, the magistrate judge did not reach the issue of whether the defendants had established the requisite amount in controversy for federal CAFA jurisdiction, according to the opinion.

"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," the opinion states. "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 the defendants' evidence related to the amount in controversy.

"Therefore, calculation of the amount in controversy is impossible without resolution of those disputes," the opinion states. "We therefore remand to the district court to determine in the first instance whether the amount in controversy exceeds $5 million."

If the district court finds it does, the defendants have established federal jurisdiction under CAFA and the action should proceed, according to the opinion. 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.

"For the foregoing reasons, neither the state action nor local controversy provisions of CAFA require remand of this action to the state court," the opinion states. "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."

Woods, Valdes and the class members are represented by Elizabeth Radosevich, Robert E. Hanson and Matthew E. Jackson of Peifer, Hanson & Mullins P.A. in Albuquerque, N.M., and William H. Carpenter of William H. Carpenter Law Office Ltd. in Albuquerque, N.M.

Standard and Quintana are represented by Jill B. Davenport and Keith R. Verges of Figari & Davenport LLP in Dallas.

U.S. Court of Appeals for the Tenth Circuit case number: 13-2160

From Legal Newsline: Kyla Asbury can be reached at

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