Defendants FairPay Solutions, Inc. (FairPay), LEMIC Insurance Company (LEMIC) and Zurich American Insurance Company (Zurich) appeal the judgment of the district court holding that the local controversy exception to federal court jurisdiction under the Class Action Fairness Act applies to this class action suit filed by Opelousas General Hospital Authority (Opelousas General) and remanding this case to Louisiana state court. Based on our conclusion that Opelousas General failed in its burden to establish that the conduct of LEMIC, the sole local defendant, forms a significant basis of the claims of the potential class, we vacate the remand order and direct that the case be reinstated on the district court's docket.
Plaintiff Opelousas General Hospital sued three defendants in Louisiana state court for violations of the Louisiana Racketeering Act. The plaintiff class argues that FairPay, a Texas bill review company, reviews the bills from Louisiana hospitals (the plaintiff class) and calculates a recommended payment below the rate required
Defendants removed the case to federal court, asserting jurisdiction under the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2) (CAFA), and diversity jurisdiction because of the fraudulent joinder of LEMIC. Plaintiff requested discovery to assist in briefing the remand issues. After discovery, Plaintiff moved to remand under CAFA's local controversy exception. The district court concluded that the local controversy exception applied and granted the motion to remand at a hearing, followed by a written order. It did not mention the defendants' arguments of fraudulent misjoinder. The defendants requested permission to appeal, which this court granted.
We review de novo whether the local controversy exception to CAFA jurisdiction should apply in this case. Preston v. Tenet Healthsystem Mem. Med. Center, Inc., 485 F.3d 793, 796 (5th Cir.2007); Admiral Ins. Co. v. Abshire, 574 F.3d 267, 272, n. 5 (5th Cir.2009). The plaintiffs bear the burden of establishing that they fall within CAFA's local controversy exception. Preston, 485 F.3d at 797; Frazier v. Pioneer Americas, LLC, 455 F.3d 542, 546 (5th Cir.2006). Other courts addressing this question recognize that the exception is intended to be narrow, "with all doubts resolved in favor of exercising jurisdiction over the case." Evans v. Walter Indus. Inc., 449 F.3d 1159, 1163 (11th Cir.2006); Westerfeld v. Independent Processing, LLC, 621 F.3d 819, 822 (8th Cir. 2010) (narrow exception).
Only two aspects of the local controversy exception are at issue in this case.
As a preliminary matter, Opelousas General argues that our inquiry should be limited solely to the allegations of the complaint and that extrinsic evidence should not be considered. This argument is based on the statute's use of the words "sought" and "alleged" in the key provisions of the local controversy exception. 28 U.S.C. § 1332(d)(4)(A)(i)(II)(aa) and (bb); Coleman v. Estes Exp. Lines, Inc., 631 F.3d 1010, 1019 (9th Cir.2011); Kaufman v. Allstate New Jersey Insurance Company, 561 F.3d 144 (3d Cir.2009). Whatever the merits of that argument, Opelousas General did not object to the use of extrinsic evidence before the district court and in fact requested discovery and relied on the results of its own discovery as well as the affidavits submitted by the defendants to establish the local controversy exception. We do not consider arguments on appeal not presented to the district court. AG Acceptance Corp. v. Veigel, 564 F.3d 695, 700 (5th Cir.2009). Also the doctrine of judicial estoppel bars Opelousas General from asserting a position in this appeal that is contrary to the position it previously took in the district court. Ergo Science, Inc. v. Martin, 73 F.3d 595, 598 (5th Cir.1996).
Whether we limit our inquiry to the allegations of the complaint or examine the evidence before the district court, we conclude that Opelousas General, who has the burden of proof, has failed to establish that LEMIC's conduct forms a significant basis for the claims asserted. The plain text of 28 U.S.C. § 1332(d)(A)(i)(II)(bb)
Kaufman, 561 F.3d at 156. Opelousas General's complaint contains no information about the conduct of LEMIC relative to the conduct of the other defendants, FairPay and Zurich, as it relates to the claims of the putative class of Louisiana hospitals or even lead plaintiff Opelousas General. The allegations center on the legality of FairPay's calculations of payments owed on the workers' compensation claims submitted by the plaintiff hospitals. FairPay recommends reduced reimbursement amounts at rates that FairPay claims meet the requirements of the LWCA. The plaintiffs allege that the recommended reimbursements do not meet the statutory requirements of the LWCA and that FairPay and the Defendant Insurers, LEMIC
We reach the same result if we look to the evidence submitted by the parties, which adds little to the above analysis. The foundation of plaintiff's claims rest on the allegation that FairPay's review of the claims for reimbursement does not comply with Louisiana law and that LEMIC's and Zurich's reliance on FairPay's reimbursement recommendation results in them underpaying Louisiana hospitals for the workers' compensation outpatient services. Other than conclusory arguments, Opelousas General presents nothing to support any direct contact or communication between the defendants as a group to support its claim of an illegal racketeering enterprise to accomplish these underpayments and the evidence submitted by the defendants tends to show that no enterprise exists. The plaintiff submitted a single Explanation of Reimbursement on which plaintiffs allege that LEMIC misrepresented the method of calculation of the reimbursement. The form also refers questions to FairPay. Although Opelousas General argues that LEMIC and Zurich occupy identical roles in the enterprise, none of this evidence connects LEMIC to Zurich or provides any basis to compare LEMIC's conduct to that of the other defendants to determine whether LEMIC's conduct is significant to the plaintiff's claims.
Nor does it establish that LEMIC's conduct affected all or a significant portion of the putative class. Kaufman, 561 F.3d at 156, citing Evans, 449 F.3d at 1167 ("[T]he significant basis provision could be satisfied even if not every member of the putative class had a claim against the local defendant, as long as a `significant number or percentage of putative class members' did have such a claim.") As described by Opelousas General, FairPay is the hub of the alleged enterprise and LEMIC and Zurich are the spokes. FairPay submitted an affidavit stating that LEMIC is one of more that 100 insurers across the country for whom FairPay reviewed charges by Louisiana hospitals for Louisiana workers' compensation outpatient services. The plaintiff class asserts claims for all of those charges based on FairPay's conduct. However only two insurers, LEMIC and Zurich, are named as defendants. These facts fail to establish that LEMIC's conduct forms a significant basis of the plaintiff's claims.
Opelousas General argues that because the Louisiana Racketeering Act imposes solidary liability on all the defendants who are part of an enterprise violating the act,
This opinion should not be read to require a definitive analysis of the measure of damages caused by each defendant. But more detailed allegations or extrinsic evidence detailing the local defendant's conduct in relation to the out-of-state defendants must be provided than plaintiffs produced in this case to establish this statutory exception.
Plaintiff Opelousas General failed to meet its burden to establish that the conduct of LEMIC, the local defendant, forms a significant basis for the claims asserted by the plaintiff class and thus that the local controversy exception to CAFA jurisdiction applies in this case. Accordingly we vacate the judgment of the district court remanding this case to state court and direct that the case be reinstated on the district court's docket.