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In re Sprint Nextel Corp.

January 28, 2010

IN RE: SPRINT NEXTEL CORPORATION, PETITIONER.


Petition for Permission to Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 09 C 2192-Matthew F. Kennelly, Judge.

The opinion of the court was delivered by: Evans, Circuit Judge.

SUBMITTED OCTOBER 16, 2009

Before FLAUM, EVANS, and SYKES, Circuit Judges.

Sprint Nextel has petitioned for leave to appeal the district court's remand to state court of a class action against it. The complaint alleged violations of the Kansas Unfair Trade and Consumer Protection Act. The district court declined to exercise jurisdiction on the ground that the suit fell within the home-state exception to the Class Action Fairness Act (CAFA). See 28 U.S.C. § 1332(d)(4)(B).

The complaint, filed in Kansas state court, alleges that Sprint Nextel, a Kansas corporation, conspired with other cell phone providers to impose artificially high prices for text-message service. The plaintiffs declared that they were bringing the suit on behalf of themselves and "all Kansas residents" who purchased text messaging from Sprint Nextel or one of its alleged coconspirators between January 2005 and October 2008, when the suit was initiated. But they also specified that their class was limited only to those who (1) had a Kansas cell phone number, (2) received their cell phone bill at a Kansas mailing address, and (3) paid a Kansas "USF fee," which is applied to all long-distance calls within Kansas. It's not clear what the third factor adds to the first two. Regardless, the plaintiffs asserted that these three factors showed that all the class members were Kansas citizens.

Sprint Nextel removed the case to the United States District Court for the District of Kansas pursuant to CAFA, 28 U.S.C. § 1332(d)(2), (d)(5), contending, as required, that over $5 million was in controversy, the class contained more than 100 members, and at least one member of the putative class, though meeting the three criteria outlined above, was not a Kansas citizen. Sprint Nextel in fact came up with five non-Kansan putative class members, all of them national corporations that subscribed to Kansas cell phone service as part of their Kansas presence and received bills at a Kansas office. The panel on Multi-District Litigation transferred this case, along with over a dozen other similar suits against cell phone companies, to the Northern District of Illinois. The district court agreed with the plaintiffs that the home-state exception required it to remand the case.

The requirements of the home-state exception are simple: if "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," the district court should decline jurisdiction. 28 U.S.C. § 1332(d)(4)(B). In resisting remand, Sprint Nextel argued first that the plaintiffs had presented no evidence that two-thirds of their proposed class members were in fact Kansas citizens, as opposed to, say, local offices of national corpo-rations or out-of-state students at Kansas colleges, each of whom might have Kansas cell phones and Kansas mailing addresses. Second, Sprint Nextel argued that even if the plaintiffs had documented the Kansas citizen-ship of the members of the proposed class, CAFA required more. Sprint Nextel contended that when the statutory exception specifies that "two-thirds or more of the members of all proposed plaintiff classes in the aggregate" must be from the home state, it means two-thirds of the members of the proposed classes in all lawsuits alleging similar conduct, not just the proposed class in this suit. And there was no way, Sprint Nextel continued, that Kansas citizens constituted at least two-thirds of the members across the proposed plaintiff classes in all text-messaging antitrust cases.

The district court rejected both arguments. First, it ruled that even though the plaintiffs presented no evidence to counter Sprint Nextel's attacks on the com-position of their class, they "have defined the putative class in such a way as to leave little doubt that at least two-thirds of the class members are Kansas citizens." The court rejected the second argument on the ground that while the local-controversy exception requires district courts to inquire whether there have been other class actions with similar allegations in the past three years, 28 U.S.C. § 1332(d)(4)(A)(ii), the home-state exception does not. The district court concluded from this distinction that the home-state exception does not, as a rule, require consideration of other law-suits; consequently, the defendant's reading of the two-thirds provision, which would require the court to look beyond the four corners of the complaint, was untenable. In its petition, Sprint Nextel renews its arguments, which present issues of first impression for this court. Sprint Nextel also contends, in light of the other related suits and the fact that it is a nationwide cell phone provider, that this is a national controversy, and just the sort of dispute that CAFA was designed to keep in federal court.

We first address whether the denominator of the two-thirds provision is the total number of potential class members in this suit or in all suits with similar allegations. Sprint Nextel makes much of the language, "proposed plaintiff classes in the aggregate," suggesting that the only possible reason for Congress's reference to plural "classes in the aggregate" is to require a district court to search out similar cases. We join the First Circuit, the only appellate court to confront this issue, in rejecting that reading. See In re Hannaford Bros. Co. Customer Data Sec. Breach Litig., 564 F.3d 75, 78-79 (1st Cir. 2009). The First Circuit's response to this argument was that there can be more than one class in a single class action, and the plural language is meant to address that scenario. Id. at 79. We agree. For example, in a toxic tort case there could be both a medical monitoring class and a property remediation class. Without the requirement that the district court evaluate the citizenship of "the proposed classes in the aggregate," one might think that so long as at least two-thirds of the members of one of those classes were from the home state, the exception would apply. Preventing that misconception seems purpose enough for CAFA's reference to "classes in the aggregate."

Moreover, identical language is used in the local-controversy exception, and in that context it can't mean what Sprint Nextel says it does. The local-controversy exception is more intricate than the home-state exception, but for our purposes only two elements are important. First, as with the home-state exception, "greater than two-thirds of the members of all proposed plaintiff classes in the aggregate [must be] citizens of the State in which the action was originally filed." 28 U.S.C. § 1332(d)(4)(A)(i). Second, the exception applies only 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...." Id. at 1332(d)(4)(A)(ii). Under Sprint Nextel's reading, the first provision would require the district court to evaluate the fraction of home-state plaintiffs involved in all similar class actions. But, says the second provision, if there are similar actions, it's ipso facto not a local controversy. Thus, for purposes of the local-controversy exception, the composition of proposed plaintiff classes in other similar suits can never matter. If there aren't any other similar suits, the district court would of course evaluate only those in the current case, and if there are similar suits, the fact of their existence controls, regardless of the composition of the proposed classes in those suits. It would be surprising if the same language meant something different in the home-state exception. See Atlantic Cleaners & Dyers v. United States, 286 U.S. 427, 433 (1932).

We also reject Sprint Nextel's insinuation that federal jurisdiction is proper, regardless of the rules set forth in CAFA, because, it says, CAFA was enacted to ensure that national controversies, which it asserts this is, are decided in federal court. That may have been Congress's general goal, but it also provided for exceptions, and plaintiffs are free to "circumscribe their class definitions" so that they can fit within one of those exceptions and avoid federal jurisdiction. Johnson v. Advance Am., 549 F.3d 932, 937 (4th Cir. 2008); see also Palisades Collections LLC v. Shorts, 552 F.3d 327, 336 n. 5 (4th Cir. 2008) (collecting cases to the effect that any general policy embodied in CAFA in favor of removal jurisdiction gives way to canons of strict statutory construction).

Furthermore, because the home-state exception, unlike the local-controversy exception, is framed entirely in terms of the parties' citizenship, the fact that this suit may be but a slice of a bigger controversy is irrelevant. The First Circuit case, In re Hannaford Bros. Co. Customer Data Sec. Breach Litig., 564 F.3d 75, provides a good illustration of this point. That appeal involved one of 25 different suits that were filed in various district courts against a grocery chain based in Florida, another that operates in the Northeast, and their common Belgian parent company. Id. at 77. Despite the national, and even international, flavor of the controversy as a whole, the First Circuit looked only at the case before it and applied the citizenship requirements of the home-state exception. Because the primary defendant was a Florida corporation and at least two-thirds of the plaintiffs were citizens of Florida, the state in which the action was brought, the First Circuit affirmed the remand order. Id. at 80-81.

It's more difficult to say whether the district court's ruling on the evidentiary issue was correct. Once Sprint Nextel established that CAFA jurisdiction exists, the burden fell on the plaintiffs, who were seeking remand, to show that the home-state exception applies. See Hart v. FedEx Ground Package System, Inc., 457 F.3d 675, 680 (7th Cir. 2006). And to do that, the plaintiffs had to establish by a preponderance of the evidence that two-thirds of their proposed class members are Kansas citizens, that is, either individuals domiciled in Kansas or corporations organized there (or other business entities meeting the relevant tests). 28 U.S.C. § 1332(a), (c); Preston v. Tenet Healthsystem Mem'l Med. Ctr., Inc., 485 F.3d 804, 813-14 (5th Cir. 2007). The plaintiffs didn't submit any evidence about citizenship, but the district court thought that the class definition itself, keyed as it is to Kansas cell phone numbers and mailing addresses, made it more likely than not that two-thirds of the putative class members are Kansas citizens.

This approach has some appeal. People with Kansas cell phones presumably have them because they lived or worked in the state at some time, and the current Kansas mailing addresses suggest that they still do. Granted, being a resident isn't the same thing as being a citizen, that is to say, a domiciliary, Mississippi Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 48 (1989); Meyerson v. Harrah's East Chicago Casino, 299 F.3d 616, 617 (7th Cir. 2002), and people who work in Kansas but don't live there-such as commuters from Kansas City, Missouri-aren't Kansas citizens. Yet, one would think that the vast majority of individual Kansas cell phone users do in fact live in that state and that the vast majority of them view it as their true home. True, some of those residents are college students from other states or others, such as soldiers, who come to Kansas without the intent to remain indefinitely. But it's hard to believe that those nondomiciliaries are collectively more than a drop in the bucket when it comes to class composition. The population of Kansas is approximately 2.8 million people, http://quickfacts.census.gov/ qfd/states/20000.html, but the state's biggest military base, Fort Leavenworth, is home to ...


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