A Private Entity May Be Treated As a State Actor Under Section 1332(d)(5) When Intertwined With State Actors Such That the Actions of One Can Be Imputed On Others

Kendrick v. Xerox State and Local Solutions, Inc., et al., 18-cv-00213 (N.D. Cal. 2018).

In granting plaintiffs’ motion to remand, a district court in California found that an action may be deemed a state action under section 1332(d)(5) if there is such a close nexus between the State and the challenged action that private behavior may be fairly treated as actions of the State.

Plaintiffs brought a putative class action asserting state law claims against defendants Bay Area Toll Authority (“BATA”), Golden Gate Bridge Highway and Transportation District (“GGB”), and Conduent State and Local Solutions, Inc. f/k/a Xerox State & Local Solutions (“Conduent”). At issue was the collection of toll on the Golden Gate Bridge and other Bay Area bridges, and the alleged disclosure of consumers’ personally identifiable information.

Conduent removed the action to federal court pursuant to CAFA, contending an amount in controversy in excess of $5 million. Plaintiffs moved for remand. Among other theories, plaintiffs argued that removal was precluded under 28 U.S.C. § 1332(d)(5) because the primary defendants were state actors. While there was no dispute that BATA and GGB were government agencies, plaintiffs argued that Conduent – a private corporation – acted under color of state law when it participated in assessing, collecting, and adjudicating tolls and penalties, thereby meeting the state action requirement. In support of this argument, plaintiffs alleged that Conduent physically operated within the facilities of the other defendants, wielded the authority of the other defendants to report toll violations and to administer toll proceedings, and was compensated based on each notice of violation it sent. The complaint further alleged that Conduent was a “processing agency” within the meaning of California Vehicle Code 40250 and had accordingly been delegated a public function by BATA and GGB. In essence, plaintiffs alleged that Conduent, BATA, and GGB were inextricably intertwined such that the actions of one entity could be imputed to the others.

The District Court found that as the assessment of tolls on state-owned bridges arguably exercised the coercive power of the state, plaintiffs had alleged state action on the face of the complaint. Apart from merely asserting that Conduent was a private corporation and that government contractors were not necessarily state actors, the Court found that the defendants failed to address the issue of state action with the requisite depth. Accordingly, the District Court found section 1332(d)(5)’s jurisdictional requirements lacking, and granted plaintiffs’ motion to remand.