Growing Consensus in the Courts of Appeals against Alternative-Citizenship Theory of Diversity under CAFAIf 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.

7th Circuit Affirms Plaintiff’s Own Estimates of Class Size Can Satisfy CAFAIn Roppo v. Travelers Commercial Insurance Company, the Seventh Circuit held that even after a motion to remand CAFA removal jurisdiction can be sufficiently established by a defendant’s “good faith estimates” of the amount in controversy based on the number of class members plaintiff had alleged in the complaint. The lawsuit challenged Travelers’ alleged practice of not disclosing the existence of umbrella policies in settlement discussions. The complaint alleged that there were at least 500 members of the Illinois-only class. Nevertheless, the plaintiff argued that once removal was challenged, the burden fell on the defendant to prove with independent evidence the actual number of class members, or at least that the size of the class exceeded CAFA’s minimum of 100. The Seventh Circuit disagreed, even while acknowledging that although a defendant’s mere good faith allegation of the amount in controversy will suffice in the notice of removal, more proof is generally required from the defendant once the plaintiff challenges that jurisdictional allegation (see Dart Cherokee Basin Operating Co., LLC v. Owens, 135 S. Ct. 547, 554 (2014)). Specifically, the court found that the duties of candor and due diligence associated with filing a complaint under the Illinois analogue of Rule 11 made reliance on class size estimates contained in a complaint permissible and probative even after the plaintiff challenged the propriety of CAFA removal. Thus, the complaint’s allegation that the class was comprised of at least 500 members, combined with an affidavit from Travelers that its minimum umbrella face amount was $1 million, was enough to carry the day jurisdictionally, especially given the complaint’s further allegation that insurance limits were the “de facto cap” on the personal injury cases placed at issue in the complaint. The court went on to affirm dismissal of the complaint for failure to state a claim.