If a putative class of plaintiffs, all citizens of State A, sues a corporate defendant, which the law considers to be a citizen of State A and State B, in state court, may the defendant remove the case to federal court under the Class Action Fairness Act (CAFA)? Recently, the Sixth Circuit became the third court of appeals to answer “no.”
CAFA, 28 U.S.C. § 1332(d), provides for federal jurisdiction over class actions involving at least 100 class members, with $5 million or more at stake, and in which “any member of a class of plaintiffs is a citizen of a State different from any defendant.” Unlike diversity jurisdiction in most other contexts, CAFA allows minimal diversity—as long as one plaintiff maintains citizenship in a state different from one defendant’s citizenship, diversity is satisfied, regardless of where all other parties reside. Frequently, diversity under CAFA is straightforward. If one plaintiff resides in California and one defendant resides in Tennessee, the case passes muster. In contrast, a class of plaintiffs from one state facing a defendant from the same state cannot satisfy even minimal diversity.
Sometimes, however, the nature of corporate citizenship creates a hybrid situation. Under § 1332(b), a corporation is a citizen of both its state of incorporation and the state where it maintains its principal place of business. Defendants in the Sixth, Fourth, and Eleventh Circuits have argued that minimal diversity exists within the meaning of CAFA when one of these places aligns with the citizenship of a class of plaintiffs but the other does not. The intent of CAFA to expand federal jurisdiction beyond the traditional confines of complete diversity is often relied upon in support of this argument. Under this “alternative-citizenship” theory of diversity, the corporation can pick between citizenship in one state or the other to either satisfy or defeat minimal diversity under CAFA.
Unfortunately for removing defendants, the theory has failed thus far in each of the three courts of appeals to squarely address it. The reasoning in each court follows similar lines: First, they say, the text of § 1332 is clear—a corporation is a citizen of its place of incorporation and where it maintains its principal place of business, not either-or. Second, the courts have reasoned, allowing jurisdiction based on the alternative-citizenship theory would not comport with the historical purpose behind federal diversity jurisdiction—to protect an out-of-state litigant from prejudice within a court in the opposing party’s home state. The Sixth Circuit’s opinion even suggests that the alternative-citizenship theory would push the limits of Article III. If that is right, even express Congressional legislation would not make the alternative-citizenship theory effective. And unless and until another Circuit rules differently, this issue is not likely to reach the Supreme Court for clearer resolution.