David Landon SPEED, Plaintiff-Appellee, v. JMA ENERGY COMPANY, LLC, Defendant-Appellant.
No. 17-7040
United States Court of Appeals, Tenth Circuit.
FILED October 2, 2017
1122
Before HARTZ, McKAY, and MATHESON, Circuit Judges.
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 briefs), for Plaintiff-Appellee.
Here, the district court found that “in light of the limited size of any potential financial recovery for any particular class member and the possibility of inconsistent results, a class action [was] a far superior method of resolving the claims compared to individual suits.” App. vol. 27, 7498-99. And again, even assuming we might disagree with the district court on this point, Alkon fails to establish that the district court‘s decision is so unreasonable as to constitute an abuse of discretion. See Queen v. TA Operating, LLC, 734 F.3d 1081, 1086 (10th Cir. 2013) (explaining that district court abuses its discretion only if “it makes a clear error of judgment, exceeds the bounds of permissible choice, or when its decision is arbitrary, capricious or whimsical, or results in a manifestly unreasonable judgment” (quoting Eastman v. Union Pac. R. Co., 493 F.3d 1151, 1156 (10th Cir. 2007))).
CONCLUSION
The settlement agreements at issue here are unusual. But the decision to approve them rests with the sound discretion of the district court. Under the unique facts of this case, we can‘t say the district court abused that discretion. Accordingly, we affirm the district court‘s approval of the 10 settlement agreements that Alkon has demonstrated standing to challenge. We likewise affirm the district court‘s order refusing to allow Costco to adopt the terms of the Stipulation under Section 4.7 of the Costco Agreement.
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),
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 jurisdic
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, ___ U.S. ___, 136 S.Ct. 2522, 195 L.Ed.2d 844 (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
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.”
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
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
(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;
(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.
II.
We review for abuse of discretion the district court‘s order remanding under the discretionary exception in
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, 574 U.S. 81, 135 S.Ct. 547, 554, 190 L.Ed.2d 495 (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,
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 Interstate Interest
The first factor is “whether the claims asserted involve matters of national or interstate interest.”
The statute does not define “matters of national or interstate interest.” But this case is not a close one. Everything connects to Oklahoma. As the district court said in weighing this factor in favor of remand, “[A]ll of the subject oil and gas wells are located in Oklahoma, all class members own interests in the subject Oklahoma wells, Plaintiff is an Oklahoma citizen (along with 48.46% of the class), JMA is an Oklahoma citizen with its principal place of business in Oklahoma, the business activities that gave rise to this case occurred in Oklahoma, and the claims are based upon Oklahoma law.” Aplt. App. at 165. It further reasoned that national interests are not implicated by either (1) the fact that courts in other jurisdictions consider the rulings of Oklahoma courts in ruling on oil-and-gas issues or (2) the general interest of the oil-and-gas industry and royalty owners in Oklahoma court rulings on oil-and-gas issues. See id. at 165-66.
JMA argues that this suit involves matters of national and interstate interest because the allegedly incorrect payments were distributed to putative class members in nearly every State. It cites an example provided in the Senate Judiciary Committee Report in support of CAFA: “[I]f a nationally distributed pharmaceutical product is alleged to have caused injurious side-effects and class actions on the subject are filed, those cases presumably should be heard in federal court because of the nationwide ramifications of the dispute and the probable interface with federal drug laws....” S. Rep. No. 109-14, at 36 (2005), as reprinted in 2005 U.S.C.C.A.N. 3, 35. But to the extent that the Senate Report provides useful legislative history,2 its example is easily distinguished from this case. The injuries discussed in the example are associated with a defective
JMA also faults the district court for looking to the location of the oil and gas wells rather than the physical location of the payees. But this ignores what the proposed class plaintiffs have in common: all of them “own interests in the subject Oklahoma wells.” Aplt. App. at 165. Absent such a common interest centered on wells physically located in Oklahoma, the plaintiffs would have no cause to seek redress from JMA in this action. The geographic dispersion of the class plaintiffs should not be overemphasized as a factor favoring federal jurisdiction. After all, Congress has authorized the district court to apply the discretionary exception to disputes that are local in character, even if up to 2/3 of the plaintiffs are citizens of other States, see
Finally, JMA argues that this case could have nationwide effects because Oklahoma has a significant position in the oil-and-gas industry, and payments nationwide from other producers operating in Oklahoma as well as producers operating in other States could therefore be affected by the outcome of the case. But if a State‘s laws are particularly influential, one would assume that it is because of the prestige and expertise of the courts and legislature of that State. We see no need to “protect” other States (who have every right and power to set different laws, and to adopt their own judicial interpretations of those laws) by shielding them from the influence of Oklahoma courts. And JMA fails to explain how there can be a significant national interest in the mere allocation of interest between producers and royalty owners. The only thing “national” or “interstate” about this case is that some of the owners of Oklahoma property who are basing their claims on alleged violations of an Oklahoma statute happen to live in other States and receive their royalty checks there.
Governing State Law
The second factor is whether the claims asserted will be governed by Oklahoma law or the laws of other States. See
If the district court erred, it was only in not giving the choice-of-law factor greater weight in favor of remand. To
And the fraud claim merely piggybacks on that state-law claim, essentially alleging only that JMA failed to inform the class that it was violating the Oklahoma statute. It contains the following assertions:
Defendant owned and/or operated (and/or Defendant owned a working interest in) numerous oil and/or gas wells throughout Oklahoma. Thus, Defendant knowingly and intentionally took on the duties associated with such interests, including the duty to pay O & G Proceeds to Owners in accordance with Oklahoma law.
Defendant, however, took on such duties with the intent to deceive Owners and not pay the full O & G Proceeds owed. Specifically, Defendant knew it owed interest on Untimely Payments, but knowingly and intentionally suppressed the fact that interest was owed to Plaintiff and the Class members. Further, Defendant intended to avoid its obligation to pay the statutorily mandated interest and only pay when an Owner specifically requests payment of the statutory interest.
Plaintiff and the Class relied on and trusted Defendant to pay them the full O & G Proceeds to which they were entitled under Oklahoma law.
Plaintiff and the Class have been damaged by Defendant‘s actions and violations of law.
Defendant‘s failure to pay the interest it owes to Plaintiff and the Class is a result of Defendant‘s actual knowing and willful intent: (a) to deceive the members of the Class, and/or (b) to deprive such interest from persons Defendant knows, or is aware, are legally entitled thereto. Aplt. App. at 23-24 (paragraph numbers omitted).
Although this litigation is in an early stage, we fail to see why the law of any State other than Oklahoma would apply to any of the putative class members’ fraud claims. In resolving choice-of-law issues, Oklahoma courts have looked to the Restatement (Second) of Conflict of Laws (1971) (Restatement) for guidance. See, e.g., Weber v. Mobil Oil Corp., 243 P.3d 1, 6-7 (Okla. 2010); Ysbrand v. DaimlerChrysler Corp., 81 P.3d 618, 626 & n.6 (Okla. 2003). The district court concluded that Oklahoma courts would apply Restatement § 148(2), governing fraud and misrepresentation claims.3 That provision
Nevertheless, the Oklahoma Supreme Court strongly suggested in Weber how it would apply § 148 to fraud claims challenging underpayment of royalties and the like on production of oil and gas from Oklahoma wells. The issue before the court was whether a class should be certified and it is unclear whether some of the discussion relates to class certification rather than choice of law, but it is clear that an important factor favoring class certification was that Oklahoma law would govern most, if not all, of the claims. See Weber, 243 P.3d at 7. The court did not recognize any § 148 factor as substantially favoring the law of another State, and it unambiguously identified at least two factors as favoring application of Oklahoma law. Id. First, it treated as important that the representations were made in Oklahoma. See id. Here, it seems appropriate to treat JMA‘s alleged silence as occurring in that State. And Weber applied in the royalty context a comment to § 148 recognizing the “particular importance” of the location of land that is the subject of the tort action. Restatement § 148 cmt. i. The court wrote:
Other Restatement Comments also support allowing the fraud claim to go forward as a class action. The comments provide that where the subject of the transaction is a tangible thing, the place where the thing is situated at the time of the transaction is a significant contact especially where both parties are aware that the thing was situated in this place at that time. Furthermore, the situs of the thing is particularly relevant if it involves an interest in land [citing Comment i]. It is undeniable that the oil and gas products sought to be unitized were to be pumped from the Putnam Oswego Unit located entirely within the boundaries of Oklahoma. Upon their production, they became tangible personal property collected and sold from Oklahoma reservoirs. Weber, 243 P.3d at 7 (footnotes omitted).
In any event, we need not travel too far into the weeds on this issue. Almost everything about this case is suffused with the distinct aroma of Oklahoma. The claims arise out of interests in property in Oklahoma. There is no allegation of any act performed by JMA outside that State. The alleged misconduct consists of a failure to comply with an Oklahoma statute and failure to announce that noncompliance. The sole connection to other States is that some of the owners of Oklahoma property live outside the State and receive their royalty checks there. JMA cites no case law or other authority suggesting that in this context another State‘s law would ap
Attempts to Avoid Federal Jurisdiction
The third factor is “whether the class action has been pleaded in a manner that seeks to avoid Federal jurisdiction.”
We agree with the district court. This factor favors retention in federal court when the plaintiff has deliberately defined the prospective class or the relief sought in order to frustrate removal under CAFA. See Preston, 485 F.3d at 822-23 (“[T]he record does not indicate that the plaintiffs[] intentionally pleaded the case in a manner to avoid federal jurisdiction and neither defendant asserts such an allegation.“); cf. Freeman v. Blue Ridge Paper Prods., Inc., 551 F.3d 405, 409 (6th Cir. 2008) (aggregating, for purposes of CAFA‘s jurisdictional amount-in-controversy requirement, five complaints worded nearly identically but seeking relief for discrete time periods, each claiming damages just below CAFA‘s threshold amount, “where there [was] no colorable basis for dividing up the sought-for retrospective relief into separate time periods, other than to frustrate CAFA“). The Senate Report on CAFA says that if the plaintiff “proposed a ‘natural’ class—a class that encompasses all of the people and claims that one would expect to include in a class action,” or, in other words, if the “class definition and claims appear to follow a ‘natural’ pattern,” this factor would weigh in favor of the federal court‘s remanding the complaint to be handled by the state court. S. Rep. No. 109-14, at 37.
JMA argues that the proposed class is not a “natural class” because it excludes “publicly traded oil and gas companies and their affiliates.” Aplt. Opening Br. at 25 (citing Pet. ¶ 18, Aplt. App. at 18). These entities, JMA contends, are the most likely of all potential class members to be non-Oklahoma citizens. But Mr. Speed explains to us, as he did to the district court, that he “excluded publicly-traded companies because those companies are likely implementing the same improper late payment practices as JMA.” Aplee. Br. at 19.
Mr. Speed also notes that the same entities have been excluded from the proffered class in many cases either filed directly in federal court under CAFA or removed without objection. JMA misses the point when it argues that these other class definitions are irrelevant when the cases were filed in federal court where the remand issues did not arise. The point is that the exclusion of publicly traded companies from the class is “natural“—not motivated by a desire to avoid federal jurisdiction—if counsel clearly have excluded these companies even when federal jurisdiction was either desired or not a concern.
JMA responds that the district court should not have relied on prior cases filed by the same counsel, because such reliance “creates the potential for a self-fulfilling analysis.” Aplt. Opening Br. at 27. JMA‘s apparent theory is that counsel could define an “unnatural” class in cases where federal jurisdiction was acceptable just so that the class definition could be used later to defeat federal jurisdiction. The theory is speculative and unconvincing. And in any event, Mr. Speed points out that a number
Finally, JMA notes that Mr. Speed failed to affirmatively allege in his Petition the prerequisites for federal-court jurisdiction under CAFA, such as an amount in controversy in excess of $5,000,000. Had Mr. Speed affirmatively alleged such facts, it might have rebutted a contention that he was seeking to avoid federal-court jurisdiction. But his failure to allege such facts in a state-court petition, where they would be irrelevant, is unsurprising and adds little or nothing to the analysis of this factor.
Forum‘s Nexus to Class Members, Alleged Harms, and Defendants
The fourth factor is “whether the action was brought in a forum with a distinct nexus with the class members, the alleged harm, or the defendants.”
JMA argues, however, that the relevant forum for assessing this factor was not the entire State of Oklahoma but Hughes County, Oklahoma, the county in which the action was originally filed. The district court rejected JMA‘s county-specific test as contrary to the weight of authority and “virtually unworkable,” noting that under that approach a court would “almost always” be compelled to “find the factor weigh[s] in favor of federal jurisdiction.” Aplt. App. at 168. It reasoned that CAFA‘s analysis involves federalism—“the relationship between federal courts and state courts“—and that “any county court in Oklahoma is viewed as an Oklahoma state court for purposes of the forum analysis.”
JMA responds with a textual argument supported by legislative history. First,
JMA adds that its approach finds support in the Senate Report on CAFA, which says that the purpose of this provision is to curb “magnet” state courts—local courts that get a disproportionate share of filings because they are favorable to plaintiffs:
This factor [nexus between the forum and the class members, alleged harms, or defendants] is intended to take account of a major concern that led to this legislation—the filing of lawsuits in out-of-the-way “magnet” state courts that have no real relationship to the controversy at hand. Thus, for example, if the majority of proposed class members and the defendant reside in the county
where the suit is brought, the court might find a distinct nexus exists. The key to this factor is the notion of there being a distinct nexus. If the selected forum‘s nexus to the controversy is shared by many other forums (e.g., some allegedly injured parties live in the locality, just as allegedly injured parties live in many other localities), the nexus is not distinct, and this factor would in that circumstance weigh heavily in favor of the exercise of federal jurisdiction over the matter. S. Rep. No. 109-14, at 37 (emphasis added).
Asserting that the term forum is unambiguous in this context, JMA contends that there has been no affirmative factual showing that the District Court of Hughes County, as opposed to the entire State of Oklahoma, has any distinct nexus with the class members, the alleged harm, or the individual defendants.
We are skeptical of JMA‘s argument. The term forum is ambiguous. Although apparently no court has confronted the argument made by JMA, the term has been used in CAFA cases to refer to both the local court division and the State as a whole. Compare, e.g., Preston, 485 F.3d at 823 (“[A] distinct nexus exists between the forum of Louisiana and the class members, alleged harm, and the defendants.“) with, e.g., Sorrentino v. ASN Roosevelt Ctr., LLC, 588 F.Supp.2d 350, 359 (E.D.N.Y. 2008) (“[T]he fourth factor points to remand as the chosen forum, the Nassau County Supreme Court, bears a distinct nexus to the claims of over one thousand former tenants of a multiple building apartment complex located within Nassau County.“).
But even if the term forum could refer to the local court division and not just the State as a whole, we cannot adopt JMA‘s approach to this factor. We do not read the factor to forbid remand whenever the pro
Thus, ordinarily there is a “distinct nexus” to the forum if there is a distinct nexus to the State and there is no particular reason to distinguish the local court where the case was originally filed from other local courts in the State. Perhaps the general rule does not apply when, as suggested by the Senate Report, the local court is a magnet court. But JMA has not even suggested, much less provided evidence, that the Hughes County Court is in any way such a court. In that light, we cannot say that the district court abused its discretion in weighing this factor in favor of remand.
Citizenship of Proposed Class Members
The fifth factor is “whether the number of citizens of the State in which the action was originally filed in all proposed plaintiff classes in the aggregate is
Oklahoma 48.46%
Texas 20.95%
California 5.68%
Colorado 4.05%
Kansas 2.61%
Arkansas 1.97%
Florida 1.54%
New Mexico 1.25%
Arizona 1.20%
Missouri 1.11%
All Others 11.18%5
Aplt. App. at 55.
JMA argues that the district court erred because (1) more out-of-state citizens have a potential connection to this action than Oklahoma citizens; and (2) one or more of the other States involved account for more than 5% of the prospective class members. It points to the Senate Report on CAFA, which states:
If all of the other class members (that is, the class members who do not reside in the state where the action was filed) are widely dispersed among many other states (e.g., no other state accounted for more than five percent of the class members), that point would suggest that the interests of the forum state in litigating the controversy are preeminent (versus the interests of any other state).... [S]uch a conclusion would favor allowing the state court in which the action was originally filed to handle the litigation. However, if a court finds that the citizenship of the other class members is not widely dispersed, the opposite balance would be indicated. A federal forum would be favored in such a case because several states other than the forum state would have a strong interest in the controversy. S. Rep. No. 109-14, at 37-38.
But the district court made precisely the calculations required by the unambiguous statutory language for the fifth factor. The 5% figure in the Senate Report is solely an example of when plaintiffs are widely dispersed among different States, not a mandatory threshold for evaluating dispersion. And the court‘s analysis captures the purpose of this factor—to ensure that no other State has as significant an interest in the controversy as does Oklahoma. See Newberg on Class Actions § 6:21 (“The [fifth] factor embeds an assumption that if most of the class is from the forum state—particularly if a disproportionate piece of a nationwide class is located there—then there are stronger grounds for application of the exception. As a result, courts ... [look] in particular at whether any other state has an interest in the litigation on
Similar Class Actions
Finally, the district court must consider “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.”
The district court noted that no other such actions had been filed during the previous three-year period. JMA does not argue otherwise. This factor favors remand.
IV.
The district court did not abuse its discretion in ruling that each factor supported remand. We therefore affirm its decision remanding this case to state court. JMA‘s motion for a ten-day extension of the statutory decision period is granted.6
HARTZ
Circuit Judge