A group of 214 plaintiffs sued Devon in Texas state court for underpayment of royalties. Devon, a citizen of Oklahoma, is a lessee Texas. There is no dispute that more than two-thirds of Plaintiffs are citizens of Texas but that some Plaintiffs reside outside of the State, (e.g. Alaska, Massachusetts, and the UK). Devon removed the case under CAFA. Plaintiffs sought remand based on the “local controversy” exception, and the District Court agreed.

The U.S. Fifth Circuit Court of Appeals, however, reversed:

“Plaintiffs allege that Devon underpaid their royalties on sales of hydrocarbons that were already severed from the subject real property. Their royalties consist of the ‘gross proceeds received for the sale of production from the Royalty Owners’ Leases.’ Underpayments of royalties owed thus comprise injuries to Plaintiffs’ personal property. That still leaves unanswered where Plaintiffs suffered injuries to their personal property. To be sure, most Plaintiffs reside in Texas. But approximately ten percent of Plaintiffs either reside outside of Texas, requested that they be paid at addresses outside of Texas, or both. Generally, a plaintiff sustains an economic injury where he resides…. Thus, the Plaintiffs who reside outside of Texas sustained their injuries outside of Texas.  Plaintiffs counter that … ‘All royalties, surface damages, and other payments due under this lease shall be payable in DeWitt County, Texas, unless otherwise herein provided.”  This argument misses the mark for two reasons. First, making royalties ‘payable’ in DeWitt County does not necessarily mean the leases required Devon to pay Plaintiffs there. Moreover, in no way does this lease provision mean all Plaintiffs were actually paid in DeWitt County.  Second, it is undisputed that Devon paid Plaintiffs from its offices in Oklahoma, and a number of Plaintiffs requested that Devon pay them at addresses outside of Texas. Plaintiffs also concede that under Texas law, a breach of contract injury occurs at the location specified for payment. Thus, at least some of the Plaintiffs sustained their injuries outside of Texas. Plaintiffs have failed to demonstrate they all sustained or ‘incurred’ injuries in the state in which they brought this lawsuit.

“The more challenging, and novel, question is how to interpret the ‘principal injuries’ that must have been incurred within the forum state under prong III of the local controversy exception. The parties join issue over whether ‘principal injuries’ means that all Plaintiffs, or some quantity of Plaintiffs, must have suffered their injuries in Texas.  Plaintiffs contend they satisfy the principal injuries prong because the vast majority of Plaintiffs were underpaid their royalties in Texas and, therefore, their ‘principal injuries’ occurred in the forum state. In other words, ‘principal’ means ‘most’ of the Plaintiffs who were injured. We hold, to the contrary…. Read as an adjective that describes ‘injuries,’ it is common sense that a defendant’s conduct can result in ‘principal injuries’ that are more important than others. The structure of CAFA also supports our interpretation of ‘principal injuries.’ First, CAFA ties the ‘principal injuries’ sustained to the entire class, not just a subset of it. CAFA requires plaintiffs to show that the ‘principal injuries … were incurred in the State in which the action was originally filed.’ There is no exception for cases in which most plaintiffs sustain the principal injury in the forum state but some do not….  In other parts of CAFA, Congress enumerated when fewer than all plaintiffs must meet certain requirements. Moreover, Congress explicitly carved out exceptions to federal jurisdiction based on injuries that occurred inside and outside the forum state. CAFA provides that ‘mass actions’ can be removed to federal court. But Congress provided that ‘the term “mass action” shall not include any civil action in which … all of the claims in the action arise from an event or occurrence in the State in which the action was filed, and that allegedly resulted in injuries in that State or in States contiguous to that State.’ Congress did not include similar language in the principal injuries prong. Finally, our interpretation of the local controversy exception complies with the requirement that we construe the exception narrowly and with all doubts resolved in favor of exercising jurisdiction over the case.

“Here, the ‘principal injury’ each Plaintiff sustained is obvious because there was only one type of injury: a financial harm resulting from Devon’s alleged underpayment of their royalties. While most Plaintiffs sustained that injury in Texas, others did not. Therefore, the principal injuries prong is not satisfied in this case, and Plaintiffs have failed to demonstrate that the local controversy exception applies.”

 

Cheapside Minerals v. Devon Energy, 94 F.4th 492 (5^th Cir. 2024).