Vodenichar v. Halcón Energy Props., Inc.

• Decision Date: 16 July 2013
• Docket Number: No. 13–2812.,13–2812.
• Citation: 733 F.3d 497
• Court: U.S. Court of Appeals — Third Circuit
• Parties: Jeffry S. VODENICHAR; David M. King, Jr. and Leigh V. King, husband and wife; Joseph B. Davis and Lauren E. Davis, husband and wife; Grove City Country Club; and Richard Broadhead, individually and on behalf of those similarly situated, v. HALCÓN ENERGY PROPERTIES, INC.; Morascyzk & Polochak; and Co–eXprise, dba CX–Energy Halcón Energy Properties, Inc., Appellant.

733 F.3d 497

Jeffry S. VODENICHAR; David M. King, Jr. and Leigh V. King, husband and wife; Joseph B. Davis and Lauren E. Davis, husband and wife; Grove City Country Club; and Richard Broadhead, individually and on behalf of those similarly situated,

v.HALCÓN ENERGY PROPERTIES, INC.; Morascyzk & Polochak; and Co–eXprise, dba CX–Energy

Halcón Energy Properties, Inc., Appellant.

No. 13–2812.

United States Court of Appeals,Third Circuit.

Submitted Under Third Circuit

L.A.R. 34.1(a) July 16, 2013.

Filed: Aug. 16, 2013.

Kevin L. Colosimo, Esq., Burleson LLP, Canonsburg, PA, for Appellant.

David A. Borkovic, Esq., Jones, Gregg, Creehan & Gerace, LLP, Richard A. Finberg, Esq., Pittsburgh, PA, for Appellees.

Before: RENDELL, SMITH, and SHWARTZ, Circuit Judges.

OPINION OF THE COURT

SHWARTZ, Circuit Judge.

Defendant Halcón Energy Properties, Inc. (“Halcón”) appeals the District Court's Order remanding this case to state court based on the “home state” exception to subject matter jurisdiction under the Class Action Fairness Act (“CAFA”). For the reasons stated below, we will affirm the District Court's remand order, but do so instead based on CAFA's “local controversy” exception.

I. FACTS & PROCEDURAL HISTORY

Plaintiffs Jeffry S. Vodenichar, David M. King, Jr., Leigh V. King, Joseph B. Davis, Lauren E. Davis, Grove City Country Club, and Richard Broadhead filed suit on behalf of themselves and other similarly situated landowners who sought to lease the oil and gas rights in their land in Mercer County, Pennsylvania. Defendants Morascyzk & Polochak (“M & P”) and Co-eXprise, d/b/a “CX–Energy,” (“CX–Energy”) agreed to act as Plaintiffs' agents to negotiate leases of their oil and gas interests to energy companies under the terms of Landowner MarketPlace Agreements (“LMAs”). In exchange for their successful marketing efforts, M & P and CX–Energy were to be paid a “transaction fee.”

M & P and CX–Energy entered into a Letter of Intent with Halcón (“Halcón Agreement”), an oil and gas company, pursuant to which Halcón would lease up to 60,000 acres of oil and gas rights from landowners who entered into LMAs and who had submitted lease documents to Halcón. Under the Halcón Agreement, each landowner who executed an LMA was guaranteed a $3,850 per acre payment plus an 18.5% royalty on the net amount Halcón realized from the oil and gas recovered from the property.

According to Plaintiffs, Halcón agreed to accept the leases absent a title defect, an adverse environmental claim, or restrictions on the ability to explore, drill for, or produce oil, gas, or hydrocarbons. Plaintiffs assert that Halcón rejected many of the leases for reasons other than those permitted under the Halcón Agreement. Halcón counters that the word “geology” was fraudulently omitted from the list of grounds upon which it could decline to lease the property, and that Halcón was within its bargained-for rights to reject the leases. Plaintiffs claim that this explanation was pretextual, as Halcón sought to extricate itself from the lease arrangement because it lost a bid to secure oil and gas rights in other nearby properties, which made the leases of Plaintiffs' land less attractive. Plaintiffs further claim that they did not know that any words were omitted from the agreements and if a change had been made, it was the fault of M & P and CX–Energy.

As a result of these events, Plaintiffs filed a putative class action against Halcón based upon diversity jurisdiction, 28 U.S.C. § 1332(a), in the United States District Court for the Western District of Pennsylvania (“first filed action”). In their complaint, Plaintiffs alleged that Halcón breached their agreement and the duty of fair dealing. Halcón filed an answer and the District Court convened a case management conference. During the conference, Halcón informed the District Court that it anticipated joining M & P and CX–Energy, claiming that they were “necessary parties.” Case Mgmt. Conf. Tr. 13–14, No. 12–1624 (W.D.Pa. Jan. 16, 2013), ECF No. 31.

Plaintiffs decided to file direct claims against M & P and CX–Energy. Knowing that adding these parties to the complaint would destroy diversity jurisdiction, Plaintiffs filed a motion to dismiss the first filed action without prejudice and with the intent of pursuing their claims against all defendants in state court. In response to the motion, Halcón stated that it did not oppose joining M & P and CX–Energy, agreed that the claims against all three defendants would benefit from being heard in a single proceeding, but asserted that the case should proceed in the District Court under CAFA, particularly given the discovery already produced and the ongoing alternative dispute resolution (“ADR”) activities.

The District Court granted the motion to voluntarily dismiss the first filed action without prejudice, reasoning that the parties agreed that the claims should proceed in one forum, federal diversity would be destroyed by the addition of M & P and CX–Energy, and CAFA had not been pled as a basis for jurisdiction. The District Court also ordered the parties to complete the ADR process and directed the parties to retain the discovery produced to both facilitate the ADR process and assist in the state court case.

On the day Plaintiffs filed their motion to dismiss the first filed action, they, through their same counsel, filed a state court class action complaint in the Court of Common Pleas of Mercer County, Pennsylvania, alleging that Halcón, M & P, and CX–Energy breached their agreements with, and duties to, the putative class (“second filed action”). The second filed complaint is identical to the first filed complaint, except with respect to the addition of two named plaintiffs, two defendants, the causes of action against the additional defendants, seven paragraphs setting forth the facts supporting those additional claims, and several exhibits relating thereto.

Halcón then removed the second filed action to the District Court, which was assigned to the same District Judge as the first filed action. On the cover sheet that accompanied the removal petition, Halcón indicated that the second filed action was related to the first filed action. In a text-entry order filed in the second filed action shortly after removal, the District Court made specific reference to the first filed action, including a directive that the parties inform the District Court of the status of the ADR process that the Court had ordered in the first filed action.

Plaintiffs filed a motion to remand the second filed action based upon CAFA's local controversy exception to federal subject matter jurisdiction. The District Court found that the local controversy exception did not apply, but held that CAFA's home state exception required remanding the case to the Court of Common Pleas. Halcón petitioned for review of the remand order pursuant to 28 U.S.C. § 1453(c)(1), which we granted.

II. JURISDICTION & STANDARD OF REVIEW

We have jurisdiction over this appeal pursuant to 28 U.S.C. § 1453(c) and review issues of subject matter jurisdiction and statutory interpretation de novo. Kaufman v. Allstate New Jersey Insurance Co., 561 F.3d 144, 151 (3d Cir.2009).

III. DISCUSSION

CAFA provides federal courts with jurisdiction over civil class actions if the “matter in controversy exceeds the sum or value of $5,000,000,” the aggregate number of proposed class members is 100 or more, and any class member is a citizen of a state different from any defendant. 28 U.S.C. § 1332(d)(2), (d)(2)(A), (d)(5)(B). Thus, the statute authorizes federal jurisdiction over class actions even in the absence of complete diversity between the parties, except where the “controversy is uniquely” connected to the state in which the action was originally filed. Kaufman, 561 F.3d at 149 & n. 4. To this end, the statute includes two mandatory exceptions to federal subject matter jurisdiction, known as the “local controversy” and “home state” exceptions. 28 U.S.C. § 1332(d)(4)(A)–(B). The party seeking to invoke an exception bears the burden of proving by a preponderance of the evidence that the exception applies.¹Kaufman, 561 F.3d at 153–54.

Upon determining that the local controversy exception was inapplicable, the District Court concluded that the home state exception applied to this case. For the reasons explained herein, we part company with the District Court and conclude that CAFA's home state exception is inapplicable to this case, but that remand is warranted under the local controversy exception.

A. Home State Exception

The home state exception requires a federal court to decline to exercise subject matter jurisdiction in CAFA class actions where “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). A party seeking to invoke this exception must therefore: (1) establish that the citizenship of the members of two-thirds or more of the putative class is the state in which the action was originally filed; (2) establish the citizenship of the defendants; (3) identify the primary defendants; and (4) demonstrate that two-thirds or more of the members of the putative class are citizens of the same state as the primary defendants. See Anthony, 535 F.Supp.2d at 514–15.

There is no dispute that the named plaintiffs, more than two-thirds of the class members,² CX–Energy, and M & P are all citizens of Pennsylvania, the state where the action was originally filed.³ Halcón is a Delaware Corporation with its principal place of business and headquarters in Texas, and thus it is not a citizen of Pennsylvania.

Having established the citizenships of the parties and two-thirds or more of the putative class, the Court must next identify the “primary defendants” under Section 1332(d)(4)(B). Here, the District Court concluded that the home state exception applied based upon its...