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Woods v. Standard Insurance Co.

United States Court of Appeals, Tenth Circuit

November 10, 2014

BRETT F. WOODS and KATHLEEN VALDES, for themselves and all others similarly situated, Plaintiffs - Appellees,
STANDARD INSURANCE COMPANY, an Oregon insurance company; MARTHA QUINTANA, a New Mexico resident, Defendants - Appellants

Page 1258

Appeal from the United States District Court for the District of New Mexico. (D.C. No. 1:12-CV-01327-KBM-LAM).

Jill B. Davenport (Keith R. Verges with her on the briefs), Figari & Davenport, L.L.P., Dallas, Texas, for the Appellants.

Elizabeth Radosevich, Peifer, Hanson & Mullins, P.A., Albuquerque, New Mexico (Robert E. Hanson and Matthew E. Jackson, Peifer, Hanson & Mullins, P.A., and William H. Carpenter, William H. Carpenter Law Office, Ltd., Albuquerque, New Mexico, with her on the briefs) for the Appellees.

Before BACHARACH, McKAY, and McHUGH, Circuit Judges.


Page 1259

McHUGH, Circuit Judge.

This appeal requires us to evaluate whether remand to the state court pursuant to the Class Action Fairness Act (CAFA) is required under either of two CAFA provisions: the state action provision, which excludes from federal jurisdiction cases in which the primary defendants are states; or the local controversy exception, which requires federal courts to decline jurisdiction where, among other things, there is a local defendant whose alleged conduct forms a significant basis for the claims asserted by plaintiffs and from whom plaintiffs seek significant relief. See 28 U.S.C. 1332(d)(4), (5).

Exercising jurisdiction pursuant to 28 U.S.C. § 1453(c)(1),[1] we conclude that neither provision provides a basis for remand, and therefore we reverse the decision of the magistrate judge[2] remanding the case to state court. But because we cannot determine whether Defendants have established the amount in controversy required to confer federal jurisdiction, we remand

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to the district court for the resolution of that issue.


A. Factual History

Plaintiffs Brett Woods and Kathleen Valdes are state employees who are representatives of the class of New Mexico state and local government employees (collectively, Plaintiffs) who allege they paid for insurance coverage through payroll deductions and premiums pursuant to a policy issued by Standard Insurance Company (Standard), but did not receive the coverage for which they paid and, in some cases, were denied coverage entirely. Plaintiffs filed suit in New Mexico state court against three defendants: Standard, an Oregon company that agreed to provide the subject insurance coverage; the Risk Management Division of the New Mexico General Services Department (the Division), the state agency that contracted with Standard and is responsible for administering benefits under the policy; and Standard employee Martha Quintana, who Plaintiffs allege is responsible for managing the Division's account with Standard and for providing account management and customer service to the Division and state employees. We sometimes refer to Standard and Ms. Quintana, collectively, as Defendants.[3]

Plaintiffs filed a ninety-one-paragraph complaint, stating causes of action against Standard and the Division for breach of contract and unjust enrichment; against Standard for breach of fiduciary duty, breach of the implied duty of good faith and fair dealing, and Unfair Practices Act violations; and against Standard and Ms. Quintana for breach of the New Mexico Trade Practices and Fraud Act. As factual support for these claims, Plaintiffs allege the Division wrongfully deducted premiums from some state employees' wages and remitted them to Standard without first obtaining the evidence of insurability necessary to obtain term life insurance and accidental death and dismemberment insurance. Plaintiffs further assert Standard retained those premiums without actually providing the paid-for coverage or reflecting in their records that Plaintiffs and other class members were insured. As a result, Plaintiffs claim Standard denied some state employees' coverage on the erroneous basis that they were not insured. Plaintiffs also allege Standard and the Division breached the terms of the insurance policy by failing to provide the promised coverage or to inform state employees of their obligation to submit evidence of insurability. In addition, they claim Standard created and the Division approved a misleading employee handbook that failed to notify state employees they were required to submit evidence of insurability as a prerequisite to obtaining coverage.

Plaintiffs mention Ms. Quintana only briefly in their complaint, describing in one paragraph Ms. Quintana's allegedly unlawful conduct. Specifically, Plaintiffs allege Ms. Quintana did not require state employees to submit evidence of insurability in exchange for Standard's acceptance and retention of premiums paid, and she " knew or should have known" that Standard was accepting premiums from the state employees without providing coverage. Aplt. Appx. 264. As the factual basis for this allegation, Plaintiffs generally allege Ms. Quintana " is Standard's locally based employee . . . who is responsible for providing account management and customer service" to the Division and state employees. Aplt. Appx. 257.

Plaintiffs claim all defendants are jointly and severally liable for actual, punitive,

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treble, and statutory damages, as well as for fees, costs, and interest. In addition, they seek declaratory judgment, enjoining the Division and Standard to provide coverage to the class members who wish to remain insured and to provide coverage for other class members until Standard and the Division have refunded those class members' premium payments in full. Plaintiffs also seek general injunctive relief " as may be proper to require the Defendants to remedy any acts or practices which the Court may find to violate the rights of Plaintiffs and the Class," but specifically request that Standard be enjoined from denying Plaintiffs the insurance coverage for which they paid premiums.

B. Procedural History

After Plaintiffs filed suit in New Mexico state court, Defendants filed a notice of removal, claiming the United States District Court for the District of New Mexico had federal jurisdiction under CAFA, which authorizes the removal of certain class actions from state to federal court, so long as the amount in controversy exceeds $5 million and the plaintiffs have established minimal diversity. See Standard Fire Ins. Co. v. Knowles, __ U.S. __, 133 S.Ct. 1345, 1348, 185 L.Ed.2d 439 (2013). Before a federal magistrate, Plaintiffs sought remand to state court, claiming that CAFA's state action and local controversy provisions precluded federal jurisdiction. Plaintiffs also sought remand on the alternate ground that Defendants had failed to establish the amount in controversy exceeded $5 million as required by CAFA. In response to Plaintiffs' challenge to the amount in controversy, Defendants pointed to an affidavit attached to their notice of removal, which they claimed established Plaintiffs' alleged damages exceeded $5 million.

The magistrate judge ordered the case remanded to state court. She held the state action exception did not apply because Standard is a primary defendant who is not a state entity, and the state action provision requires all primary defendants to be state entities. However, the magistrate judge concluded remand was proper pursuant to the local controversy exception because Ms. Quintana is a local defendant from whom Plaintiffs sought " significant relief" and her conduct formed a " significant basis" for Plaintiffs' claims. The judge reasoned Ms. Quintana was significant because, as the sole New Mexico customer service representative, she could be the " key and ultimately solely responsible for the alleged mismanagement of the policy." Aplt. Appx. 614.

Because she ordered remand to the state court under the local controversy exception, the magistrate judge did not reach the issue of whether Defendants had established the requisite amount in controversy for federal CAFA jurisdiction. Defendants appeal the magistrate judge's order of remand.


Defendants assert the magistrate judge erred by concluding Ms. Quintana is a significant local defendant. Defendants also urge this court to determine in the first instance that they have established the amount in controversy threshold for CAFA jurisdiction by showing Plaintiffs' alleged damages exceed $5 million. In turn, Plaintiffs ask us to affirm the decision of the magistrate judge under either CAFA's state action or significant local defendant provisions. They also claim Defendants have failed to demonstrate the damages at issue exceed $5 million. Accordingly, we examine three main issues to resolve ...

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