Judge Smith Says “Smell You Later,” Remanding Noxious Odor Class Action Back to State Court.

Sundy v. Renewable Environmental Solutions, LLC, et al., No. 07-5069, 2007 WL 2994348 (W.D. Mo. October 10, 2007).

This case stinks like….turkey guts! The plaintiff, on behalf of herself and a putative class of owners/renters of residential property near the defendant Renewable Environmental Solutions’ (“RES”) facility from April 31, 2003 to the date of class certification, originally filed this suit in a Missouri state court. According to her complaint, the defendant’s facility emits noxious and offensive odors due to its daily receipt and use of hundreds of tons of turkey offal. For those agriculturally challenged readers (which should include all of our readers), offal is the entrails and internal organs of a butchered animal. (Of course, you are reading this with a belly full of turkey from yesterday’s Thanksgiving feast. Our timing is impeccable.) Also made defendants were the RES’ facility manager and fictitious defendants, known as AA through ZZ, identified as individuals, entities, etc. who may have contributed to the contamination. As defendants are known to do, the defendants removed the case to federal court alleging jurisdiction under CAFA.

As you already know, CAFA provides federal jurisdiction for class actions if the amount in controversy exceeds $5 million and “any member of [the class] is a citizen of a State different from any defendant.” Because the amount in controversy in this case exceeded $5 million, the main issue before the court was the defendants’ citizenship.

It was conceded that RES’ facility manager was a citizen of Missouri. According to CAFA, RES is deemed to be “a citizen of the State where it has its principal place of business and the State under whose laws it is organized.”

RES was formed under the laws of Delaware, thus making it a citizen of Delaware. Its office is located in New York, where all decisions are made and its books and records are maintained, and it has one plant, located in Carthage, Missouri. The 8th Circuit endorsed the “total activity test” for determining an organization’s principal place of business. Citing to the Capitol Indemnity Corp. v. Russellville Steel Co. case, the court noted that the total activity test looks at all corporate activities, paying particular attention to “the degree to which the corporation’s activities bring it into contact with the community.”

RES put up a good fight, giving many reasons why Missouri should not be deemed its principal place of business. First, it claimed that Missourians were not involved in the company’s formation. Second, it averred that those persons forming the company conducted significant amounts of business outside Missouri. Finally, it argued that Missouri offered it no incentives or particular benefit for constructing and operating its Missouri facility. However, the court didn’t find any of these arguments to be convincing.

The court noted that the total activity test points to Missouri as being RES’ principal place of business. While its headquarters were located outside the state, all of its operations occurred at its single facility located within the state. RES’ future plans to open additional facilities did not change the fact that its present principal place of business was in Missouri. Moreover, the court found that the nature and degree of RES’ activities brought it into significant contact with Missouri. While its bank accounts are located in and its financial decisions are made in New York, the actual performance of its operations occur only in Missouri. In addition, RES employs a significant number of Missouri employees who work in its Missouri plant where it produces the product it sells, performs its contracts, and generates its revenues. In sum, this was a no-brainer for the court – RES’ principal place of business was in Missouri. Thus, RES is also a citizen of Missouri.

Having determined that the named defendants were citizens of Missouri and Delaware, the court next looked to whether RES demonstrated the minimal diversity required by CAFA. Minimal diversity is satisfied if at least one member of the class is not a citizen of Delaware or Missouri. RES urged the court to find that the class definition was broad enough to include those persons that may have lived near the RES plant at the time in question, but subsequently moved to another state. Again the court found this argument unconvincing, noting that it was inappropriate to speculate, without any evidence, that such a person existed. Therefore, it found that the defendants failed to meet their burden of demonstrating minimal diversity, thus defeating federal jurisdiction under CAFA.

However, the court didn’t stop here. It noted that even if the defendants could have somehow established minimal diversity to justify federal jurisdiction, it would lose that jurisdiction under the “home state exception” to CAFA jurisdiction. This exception provides that federal jurisdiction should be declined if two-thirds or more members of the class and the primary defendants are citizens of the state in which the action was originally filed. Here, because at least two-thirds of the class and the two named defendants were citizens of Missouri where the case was originally filed, the exception was applicable in defeating federal jurisdiction under CAFA.

So in the end, the court “passed” on the noxious gas case, instead remanding it back to the state court.