Limits on Federal-Officer Removal and CAFA Minimal Diversity in Health-Data Privacy Suits

Introduction

In the consolidated appeals of Donna Cheesman v. Capital Health System Inc. and Hillary Barnett v. Valley Health System, Inc., the Third Circuit addressed two removal doctrines invoked by New Jersey hospital systems. Both defendants had been sued in state court by patients alleging that the hospitals’ websites auto-routed personal health information to Facebook, resulting in targeted ads. Capital Health and Valley Health removed to federal court under the federal–officer removal statute, 28 U.S.C. § 1442(a)(1); Valley Health also asserted jurisdiction under the Class Action Fairness Act (CAFA). The district courts remanded both cases for lack of subject-matter jurisdiction. On March 19, 2025, the Third Circuit affirmed.

Key issues:

• Whether voluntary participation in the HITECH Act’s electronic-records incentive program brings a private hospital “under” federal authority for § 1442 removal.
• Whether CAFA jurisdiction exists when a putative class is limited to citizens of a single state.

Summary of the Judgment

The Third Circuit held unanimously that neither removal ground was available. First, participation in the HITECH Act’s incentive scheme did not satisfy the “acting under” requirement for federal-officer removal because hospitals did not act at the government’s command or control. Second, Valley Health’s CAFA claim failed for lack of minimal diversity: the class comprised only New Jersey residents, and federal jurisdiction under CAFA requires at least one plaintiff and one defendant to be citizens of different states. The court affirmed the remand orders.

Analysis

Precedents Cited

• Mohr v. Trustees of University of Pennsylvania (3d Cir. 2024) – Held that mere participation in the HITECH Act incentive program does not create an “acting under” federal-officer relationship.
• Watson v. Philip Morris Cos. (2007) – Established the four-part test for removal under § 1442(a)(1): (1) person status; (2) acting under federal officer; (3) acts under color of federal office; and (4) colorable federal defense.
• Maglioli v. Alliance HC Holdings (3d Cir. 2021) – Affirmed the requirement of a colorable federal defense for removal under § 1442(a)(1).
• Kaufman v. Allstate N.J. Ins. Co. (3d Cir. 2009) – Summarized CAFA’s jurisdictional prerequisites: $5 million in controversy, minimal diversity, and at least 100 class members.
• BP P.L.C. v. Mayor & City Council of Baltimore (2021) – Confirmed that all removal grounds are reviewable on appeal from remand orders.

Legal Reasoning

Federal-Officer Removal (§ 1442(a)(1))
To invoke this statute, a defendant must show:

1. It is a “person” within the meaning of the statute (private hospitals qualify);
2. The claims are “based upon” the defendant “acting under” the United States or its officers;
3. The challenged conduct was performed “under color of” federal office; and
4. There is a colorable federal defense to the claims.

The Court held that hospitals did not act under federal direction merely by opting into the HITECH Act incentive scheme—no direct command, no regulatory compulsion, only financial encouragement.

CAFA Jurisdiction
Valley Health argued that borderless website-based practices created a nationwide class exceeding $5 million. However, CAFA requires “minimal diversity”: at least one plaintiff and one defendant must have different state citizenship. Barnett’s complaint expressly limited the class to New Jersey citizens. Under 28 U.S.C. § 1332(d)(7), class citizenship is fixed at the time the complaint is filed, so no out-of-state plaintiffs could be shoe-horned in. Consequently, CAFA jurisdiction was absent.

Impact

This decision clarifies two important points:

• Private-Party Removal Limits: Entities cannot bootstrap themselves into federal court under § 1442(a)(1) by participating in incentivized federal programs absent direct official control or compulsion.
• CAFA Class-Definition Control: Plaintiffs retain the power to define a class to avoid federal court. Excluding non-resident class members defeats minimal diversity.

Future litigants will need to demonstrate actual federal direction to use the federal-officer removal statute and should carefully define class membership to determine CAFA’s applicability.

Complex Concepts Simplified

• Federal-Officer Removal (§ 1442(a)(1)): A special removal path when a suit arises from actions taken under the authority, directive, or control of a federal officer. Not a catch-all for any federally related activity.
• HITECH Act Incentive Program: A federal scheme that pays or penalizes healthcare providers to deploy electronic health records. Participation is voluntary, not mandatory, for removal purposes.
• CAFA Minimal Diversity: Unlike ordinary diversity jurisdiction, CAFA requires only one plaintiff and one defendant to be citizens of different states, but citizenship is judged at the time the complaint is filed.
• Colorable Federal Defense: A plausible argument under federal law that could defeat the plaintiff’s claim—e.g., that federal policy preempts or immunizes the challenged conduct.

Conclusion

The Third Circuit’s decision in Cheesman and Barnett reaffirms that: (1) private entities cannot invoke federal-officer removal based on incentive-based compliance alone; and (2) carefully circumscribed class definitions can defeat CAFA’s minimal-diversity requirement. These rulings preserve state-court jurisdiction over data-privacy claims against healthcare providers and guide future removal strategies.