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Speed v. JMA Energy Company, LLC

United States Court of Appeals, Tenth Circuit

October 2, 2017

DAVID LANDON SPEED, Plaintiff - Appellee,
v.
JMA ENERGY COMPANY, LLC, Defendant-Appellant.

         Appeal from the United States District Court For the Eastern District of Oklahoma (D.C. No. 6:17-CV-00006-RAW)

          Robert D. McCutcheon of JMA Energy Company, LLC, Oklahoma City, Oklahoma (Mark D. Christiansen and Andrew J. Morris of McAfee & Taft, P.C., Oklahoma City, Oklahoma, with counsel on the briefs), for Defendant-Appellant.

          Reagan E. Bradford of Lanier Law Firm, Oklahoma City, Oklahoma (W. Mark Lanier, Kevin P. Parker and M. Michelle Carreras of Lanier Law Firm, Houston, Texas, with counsel on the brief), for Plaintiff-Appellee.

          Before HARTZ, McKAY, and MATHESON, Circuit Judges.

          HARTZ, Circuit Judge.

         Plaintiff David Landon Speed filed a petition (the Petition) in the District Court of Hughes County, Oklahoma, asserting a putative class action against defendant JMA Energy Company, LLC. He alleged that JMA had willfully violated an Oklahoma statute that requires payment of interest on delayed payment of revenue from oil and gas production. He further asserted that JMA fraudulently concealed from mineral-interest owners that it owed interest due under the statute, intending to pay only those who requested interest. JMA removed the case to the United States District Court for the Eastern District of Oklahoma, asserting that the district court had jurisdiction under the Class Action Fairness Act (CAFA), 28 U.S.C. § 1332(d).

         After conducting jurisdictional discovery, Mr. Speed filed an amended motion to remand the case to state court. The district court granted this motion, relying on an exception to CAFA that permits a district court to decline to exercise jurisdiction over a class action meeting certain citizenship prerequisites "in the interests of justice and looking at the totality of the circumstances, " based on its consideration of six enumerated factors. Id. § 1332(d)(3). On appeal JMA challenges the district court's remand order. Because the district court properly considered the statutory factors and did not abuse its discretion by remanding to state court, we affirm.

         I.

         A.

         "In enacting CAFA, Congress sought to correct state and local court abuses in class actions such as bias against out-of-State defendants by expanding federal diversity jurisdiction over interstate class actions." Arbuckle Mountain Ranch of Tex., Inc. v. Chesapeake Energy Corp., 810 F.3d 335, 337 (5th Cir.), cert. denied, 136 S.Ct. 2522 (2016) (brackets and internal quotation marks omitted). In general, CAFA permits a class action to be brought in or removed to federal court if the proposed classes include at least 100 persons with claims, the aggregate amount in controversy on all claims exceeds $5 million, at least one proposed plaintiff and one defendant have diverse citizenship, and the primary defendants are not governmental entities or officials against whom a federal court cannot order relief. See 28 U.S.C. § 1332(d); Arbuckle Mountain Ranch, 810 F.3d at 337.

         Even when these jurisdictional requirements are met, CAFA recognizes three statutory exceptions. Two exceptions are mandatory. The home-state exception requires the district court to decline jurisdiction when "two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed." 28 U.S.C. § 1332(d)(4)(B). And the local-controversy exception requires the district court to decline jurisdiction when (1) greater than two-thirds of the proposed class members and at least one defendant from whom significant relief is sought, and whose alleged conduct forms a significant basis for the class members' claims, are citizens of the State in which the action was originally filed; (2) the principal injuries resulting from the alleged or related conduct of the defendants were incurred in the State in which the action was originally filed; and (3) no other class actions have been filed asserting the same or similar factual allegations against any of the defendants during the three-year period preceding the filing of the class action. See id. § 1332(d)(4)(A). Neither of these exceptions is at issue here. In addition, a district court may decline to exercise jurisdiction under the discretionary exception in § 1332(d)(3), the exception the district court relied on here.0F[1]

         B.

         The Petition recites that Mr. Speed is the owner of an oil-and-gas well in Oklahoma, which is operated by JMA. JMA is obligated to pay him royalty and interest payments on revenue from the well's oil and gas production. Mr. Speed asserts that when operators such as JMA fail to pay proceeds to interest owners by the deadline fixed by statute, Oklahoma law requires them to compensate the owners by including interest on the untimely payments. See Okla. Stat. tit. 52, § 570.10(D) (2010). The Petition further alleges on information and belief that JMA "routinely delays payment of production proceeds and denies Owners the interest payments to which they are entitled." Aplt. App. at 16. It claims these actions amount to fraud, because (1) JMA "knowingly and intentionally took on the duties associated with such interests, " including the duty to pay the oil and gas proceeds to the owners as required by Oklahoma law; (2) JMA was aware that under Oklahoma law "it owed interest on Untimely Payments, but knowingly and intentionally suppressed the fact that interest was owed"; (3) JMA "intended to avoid its obligation to pay the statutorily mandated interest and only pa[id] when an Owner specifically request[ed] payment of the statutory interest"; and (4) "Plaintiff and the Class relied on and trusted JMA to pay them the full O&G [oil and gas] Proceeds to which they were entitled under Oklahoma law." Id. at 23-24. The Petition seeks equitable and injunctive relief and damages on behalf of similarly situated interest owners who have received untimely payments on which JMA failed to pay statutory interest. The Petition defines the Class, and those excluded from it, as follows:

All non-excluded persons or entities who: (1) received Untimely Payments from Defendant (or Defendant's designee) for O&G Proceeds from Oklahoma wells; and (2) whose payments did not include statutory interest.
The persons or entities excluded from the Class are: (1) agencies, departments, or instrumentalities of the United States of America or the State of Oklahoma; (2) publicly traded oil and gas companies and their affiliates; (3) persons or entities that Plaintiff's counsel may be prohibited from representing under Rule 1.7 of the Oklahoma Rules of Professional Conduct; and (4) officers of the court.

Id. at 18.

         JMA removed the case to federal court under CAFA. Mr. Speed responded with a motion to remand, arguing that the jurisdictional requirements of CAFA were not met and that the mandatory and discretionary exceptions to CAFA, if proved, required remand. The district court permitted the parties to conduct discovery on the jurisdictional issues. The parties later stipulated that (1) the claims aggregated $5 million, and (2) more than one-third, but fewer than two-thirds, of the proposed class members are citizens of the State of Oklahoma. As a result of this discovery and the stipulation, Mr. Speed filed an amended motion to remand, asserting only the discretionary exception to CAFA jurisdiction.

         The discretionary exception "allows a federal court to decline to exercise jurisdiction over a class action that is otherwise covered by CAFA based on six enumerated factors." Dutcher v. Matheson, 840 F.3d 1183, 1194 (10th Cir. 2016). "[T]o qualify for consideration of these factors, the plaintiffs must first establish two prerequisites: [1] greater than one-third but less than two-thirds of the members of all proposed plaintiff classes in the aggregate and [2] the primary defendants are citizens of the State in which the action was originally filed." Id. (brackets in original, internal quotation marks omitted); see also 28 U.S.C. § 1332(d)(3). As noted, the parties stipulated to the first prerequisite. And it is undisputed that JMA is a citizen of the State of Oklahoma, which satisfies the second prerequisite. The district court was therefore required to consider the following six factors:

(A) whether the claims asserted involve matters of national or interstate interest;
(B) whether the claims asserted will be governed by laws of the State in which the action was originally filed or by the laws of other States;
(C) whether the class action has been pleaded in a manner that seeks to avoid Federal jurisdiction;
(D) whether the action was brought in a forum with a distinct nexus with the class members, the alleged harm, or the defendants;
(E) whether the number of citizens of the State in which the action was originally filed in all proposed plaintiff classes in the aggregate is substantially larger than the number of citizens from any other State, and the citizenship of the other members of the proposed class is dispersed among a substantial number of States; and
(F) whether, during the 3-year period preceding the filing of that class action, 1 or more other class actions asserting the same or similar claims on behalf of the same or other persons have been filed.

28 U.S.C. § 1332(d)(3).

         II.

         We review for abuse of discretion the district court's order remanding under the discretionary exception in § 1332(d)(3). See Preston v. Tenet Healthsystem Mem'l Med. Ctr., Inc., 485 F.3d 804, 809 (5th Cir. 2007). "[A] district court always abuses its discretion when it errs on a legal question, and we decide the presence or absence of legal error de novo." El Encanto, Inc. v. Hatch Chile Co., 825 F.3d 1161, 1162 (10th Cir. 2016). When applying § 1332(d)(3), the district court's discretion is not unfettered but must be guided by the six factors. See Preston, 485 F.3d at 810. No single factor is dispositive; not all need to favor remand for the court to decline jurisdiction. See William B. Rubenstein, Newberg on Class Actions § 6:21 (5th ed. 2017) ("The plaintiff need not satisfy all [six] factors; courts employ a balancing test, taking into consideration the totality of the circumstances."). So long as the district court's factual findings are not clearly erroneous and it applied the correct legal standard, we will defer to its ruling if the "decision falls within the bounds of rationally available choices given the facts and law involved." Soseeah v. Sentry Ins., 808 F.3d 800, 808 (10th Cir. 2015) (discussing abuse-of-discretion review of class-certification decision under Fed.R.Civ.P. 23).

         Because JMA established that the elements for removal under CAFA were met, the burden shifted to Mr. Speed to show that remand was appropriate. See Dutcher, 840 F.3d at 1190. In meeting this burden, he did not benefit from any presumption against removal, because "Congress enacted [CAFA] to facilitate adjudication of certain class actions in federal court." Dart Cherokee Basin Operating Co. v. Owens, 135 S.Ct. 547, 554 (2014).

         JMA would further amplify Mr. Speed's burden in two ways. First, it argues that courts should apply a sliding scale between retention and remand, so that "as the percent of citizens of the State where the case was originally filed decreases toward one-third, the presumption in favor of retention increases, and . . . as the percent of citizens of the State where the case was originally filed increases toward two-thirds, the presumption in favor of retention decreases." Aplt. Opening Br. at 15. Perhaps, but such a sliding scale would tell us almost nothing in this case, because Oklahoma citizens constitute 48.46% of prospective plaintiffs, near the middle of the 1/3 to 2/3 range. See Aplt. App. at 55. We leave the issue for a later day.

         Second, JMA argues that because Mr. Speed bears the burden to justify a remand, a "neutral" factor should count against remand in the overall analysis rather than being viewed as strictly neutral. We disagree. The district court is charged with evaluating the factors in the aggregate. We see no statutory command, nor any sound reason, to press an additional thumb on the scale.

         III.

         Thoroughly addressing each of the statutory factors, the district court determined that all six weighed in favor of remand. We consider each in turn and see no legal error or other abuse of discretion.

         National or ...


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