State of Louisiana v. i3 Verticals ( 2023 )


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  • 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,
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    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.
    15
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    No. 22-30553
    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
    16
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    No. 22-30553
    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.
    17
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    No. 22-30553
    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.
    18
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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
    19
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    No. 22-30553
    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
    20
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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
    21
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    No. 22-30553
    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).
    22
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    No. 22-30553
    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
    .
    23
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    No. 22-30553
    *        *         *
    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
    

Document Info

Docket Number: 22-30553

Filed Date: 9/1/2023

Precedential Status: Precedential

Modified Date: 9/2/2023