Third Circuit upholds motion to remand class action lease dispute: applies “local controversy” exception

On August 16, 2013, the Third Circuit Court of Appeals upheld the United States District Court for the Western District of Pennsylvania’s order to remand a class action lease dispute to the Mercer County Court of Common Pleas. While the Third Circuit upheld the District Court’s decision to remand the action, it overturned the application of the “home state exception” to CAFA’s federal jurisdiction provision, and instead applied the “local controversy exception.” Vodenichar v. Halcon Energy Properties, Inc., 2013 WL 4268840 (3^rd Cir. Aug. 16, 2013).

The action before the Third Circuit arose from a dispute between various landowners in Mercer County, who had hired agents to negotiate oil and gas leases on their behalf with Halcon Energy. According to the record, the landowners argued that “Halcon 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.” The well operator, Halcon, however, argued that “geology” language in the recession provision was fraudulently omitted by the agents acting on behalf of the landowners.

After the landowners filed a putative class action against Halcon alleging breach of the lease and the duty of fair dealing, Halcon informed the landowners and the District Court it intended to join the landowner’s agents. The landowners voluntarily filed a motion to dismiss this action (the first action) without prejudice, and decided to file direct claims against both the agents and Halcon in the state court (the second action). The District Court granted these motions, and ordered the parties to continue current alternative dispute resolution and maintain discovery. The landowners filed suit in the Mercer County Court of Common Pleas, and Halcon removed the second action to the District Court for the Western District of Pennsylvania. Landowners filed for a motion to remand under CAFA’s “home state” and “local controversy” exceptions. The District Court granted the motion for the “home state exception.” It, however, denied the motion for the “local controversy exception” because it does not apply where “other class actions” have been pursued in a three year period. Halcon appealed.

The Third Circuit held that the “home state exception” did not apply in this case because Halcon, which is not a Pennsylvania citizen, was a primary defendant. The court found Halcon to be a primary defendant because the landowner’s sought equally apportioned and direct liability from all the Defendants, including Halcon. The Third Circuit also held that the “local controversy exception” did apply because the second action was not a separate action, but rather a continuation of the first action brought by the plaintiffs. The court explained that “no other action” was brought by the second complaint because the complaints from the two actions were nearly identical, and the District Court maintained ADR and discovery between the parties. These directives from the District Court signaled the second action was simply a continuation of the first, rather than an independent “other action.” Therefore, the landowner’s motion to remand was granted under the “local controversy exception” of CAFA.

Written by: Garrett Lent, Research Assistant

Agricultural Law Resource and Reference Center

August 2013