The 7th Circuit in Schutte v. Ciox Health, LLC., construed the Local Controversy Exception to the Class Action Fairness Act. CAFA’s Local Controversy Exception applies, in pertinent part, if “during the 3-year period preceding the filing of that class action, 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.” The Court interpreted this requirement broadly, finding that even when cases with different legal theories had been filed in different states, courts may refuse to remand if there are “the same or similar factual allegations” in those cases. There are three other situations that trigger the Local Controversy Exception but the court did not address them.
Appellant Schutte requested medical records from Appellee ProHealth. When ProHealth allegedly charged an impermissible fee for “electronic records”, Schutte filed the putative class action against Pro Health and its agent Ciox. Pro Health removed the case under CAFA, arguing that CAFA’s jurisdictional requirements were satisfied, and that the Local Controversy Exception does not apply because other class actions involving similar factual allegations were filed against both Defendants in the preceding three years. Schutte attempted remand under CAFA’s Local Controversy Exception arguing that the other cases’ differing legal theories, in different states, did not satisfy the “same or similar factual allegations” requirement.
The District Court denied Schutte’s attempted remand, finding that the other cases had the “same or similar factual allegations.” On appeal, the Court ruled that the Local Controversy Exception did not apply because the facts were similar. Different legal theories or causes of action will not put a complaint “outside the [exception’s] sweep.” In other words, if another complaint asserts the “same or similar factual allegations” against any of the defendants, a difference in legal theories does not satisfy the Local Controversy Exception. Moreover, the phrase “on behalf of the same or other persons,” did not require the class actions to have “some [extra] connection.”
CAFA was a hotly debated law. The Local Controversy Exception was a “price of the victory.” The Senate committee’s post-passage report explained that this exception was to “ensure that overlapping or competing class actions or class actions making similar factual allegations against the same defendant that would benefit from coordination are not excluded from federal court by the Local Controversy Exception and thus placed beyond the coordinating authority of the Judicial Panel on Multidistrict Litigation.” Consistent with this reasoning, the Court found that different causes of actions in different states can still share “the same or similar factual allegations.”
The Schutte court acknowledged the difficulty that arises in pollution cases in which two different environments are contaminated. But notes that those challenges are not present here. Both class actions asserted “nearly identical” allegations. Schutte and the other class action claimed that they had to pay per-page charges, electronic data archive fees, and other fees for electronic copies of medical records. Thus, even with different states and causes of action, there were “the same or similar factual allegations.”
Schutte also failed to show that the phrase “on behalf of the same or other persons,” implied the need for “some connection” between the class actions. This “some connection” standard would have “no basis in law and would be impossible to fairly apply.” This language is also not surplusage just because class actions are always brought on behalf of other persons. If Congress had omitted the language, courts and litigants might wonder whether a prior class action needed to involve the same class representatives or members to qualify. But Congress’s intent was clear—a prior class action qualifies regardless of whether it was “on behalf of the same or other persons.” The Senate committee report also supported this conclusion.
The first class action filed will avoid this issue with the Local Controversy Exception. Being the first, there would be no prior class action. Thus, it would not be removable (or be subject to remand). But subsequent class actions on a similar topic may be inoculated against remand pursuant to the Local Controversy Exception, given the 7th Circuit’s ruling. Class action trackers should consider this decision when attempting to avoid remand by looking for the “the same or similar factual allegations” in other class actions.