Commercial Litigation and Arbitration

Local Controversy Exception of CAFA May Be Proved “Practically” — Wide Discretion Accorded Trial Court to Determine Evidence — No Need for Exhaustive Discovery

From Graphic Commc’ns Local 1B Health & Welfare Fund "A" v. CVS Caremark Corp, 2010 U.S. Dist. LEXIS 73459 (D. Minn. July 19, 2010):

The pharmacies suggest the Class Action Fairness Act (the "Fairness Act") grants subject matter jurisdiction because there is minimal diversity, and an aggregate amount in controversy of $5 million or more. 28 U.S.C. § 1332(d)(2). Plaintiffs concede these requirements are met. The Fairness Act, however, contains an exception for local controversies. 28 U.S.C. § 1332(d)(4). Plaintiffs argue the exception divests the Court of subject matter jurisdiction.

The Court agrees. Section (d)(4) provides, "[a] district court shall decline to exercise jurisdiction under paragraph (2)" if certain conditions are met. *** For the local controversy exception, those conditions are: (1) more than two-thirds of the proposed class members are Minnesota citizens; (2) at least one defendant is a Minnesota citizen whose alleged conduct forms a "significant basis" for the class claims, and from whom "significant relief" is sought; and (3) no similar class action has been filed in the preceding three years. 28 U.S.C. § 1332(d)(4)(A). The third point is not disputed. The Fairness Act itself does not require any particular amount or type of proof, see 28 U.S.C. § 1332(d)(4)(A), and neither the U.S. Supreme Court nor the Eighth Circuit Court of Appeals has considered the degree of proof required.

When considering whether more than two-thirds of the proposed class are Minnesotans, the Court is mindful that "class action lawsuits may become totally unworkable in a diversity case if the citizenship of all members of the class, many of them unknown, had to be considered." Preston v. Tenet Healthsystem Mem. Med. Ctr., Inc., 485 F.3d 804, 816 (5th Cir. 2007). Thus, the evidentiary standard for establishing the domicile of the plaintiff class "must be based on practicality and reasonableness," and courts must have "wide, but not unfettered, discretion to determine what evidence to use" in determining jurisdiction. Id. at 816-17. "At this preliminary stage, it is unnecessary for the district court to permit exhaustive discovery capable of determining the exact class size to an empirical certainty." Id. at 821.

The Court finds, for purposes of considering jurisdiction, plaintiffs have offered a sufficient factual basis from which to conclude that two-thirds of the proposed plaintiff class are Minnesota citizens. The class includes those who have purchased or paid for generic drugs "dispensed by Defendants in the state of Minnesota on or after July 28, 2003" with certain exceptions, including drugs purchased through Medicare and Medicaid (Compl. P 136). Both individual purchasers and third-party payors are potential class members. The two named plaintiffs allege they engaged in more than 34,000 prescription drug transactions with defendants in 2008, and approximately 200,000 transactions "over the six-year statute of limitations period." (Compl. P 62.)

Plaintiffs have submitted census data showing 87% of prescription drug sales to individual consumers in Minnesota occur within the state's most populous region, the Twin Cities metropolitan area (which includes a small part of Wisconsin). This evidence suggests prescription drug sales in Minnesota track population density, permitting an inference that individuals who purchase prescription drugs tend to do so close to home. Plaintiffs have also presented census data tending to show Minnesota has a relatively low rate of out-migration. For purposes of this motion, the Court finds plaintiffs can make a prima facie case that over two-thirds of individuals buying prescription drugs in Minnesota lived in Minnesota at the time, and are likely to be citizens of Minnesota.

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