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Cutting-Edge Issues in Class Action Law and Policy

Supreme Court Holds That Defendants Need Not Submit Evidence with a Notice of Removal Under the Class Action Fairness Act

Posted in CAFA, U.S. Supreme Court

To remove a civil action from state court to federal court, the defendant must “file … a notice of removal … containing a short and plain statement of the grounds for removal.” 28 U.S.C. § 1446(a). Under the Class Action Fairness Act of 2005 (CAFA), federal courts have jurisdiction over certain class actions if, among other things, the amount in controversy exceeds $5 million. 28 U.S.C. § 1332(d)(2). Today, the Supreme Court held in Dart Cherokee Basin Operating Co. v. Owens (pdf), that a defendant’s notice of removal need only contain a “plausible allegation” that the amount in controversy exceeds CAFA’s $5 million jurisdictional minimum. The defendant must submit evidence supporting the alleged amount in controversy only “when the plaintiff contests, or the court questions, the defendant’s allegation.”

Owens, the plaintiff in Dart Cherokee, filed a class action in Kansas state court seeking to recover oil and gas royalties but did not specify the amount of damages sought. The defendants responded by filing a notice of removal under CAFA. The notice alleged that the royalties at issue exceeded $8.2 million and thus satisfied CAFA’s $5 million jurisdictional minimum. When Owens moved to remand the suit to state court, the defendants filed a declaration supporting the jurisdictional facts alleged in their notice of removal. The district court held that under Tenth Circuit precedent, the party seeking removal must attach evidence of the amount in controversy to the notice of removal itself, and therefore remanded the case. The district court thus refused to consider the evidence that the defendants filed with their opposition to the motion to remand, concluding that Tenth Circuit precedent barred the use of factual allegations or evidence outside the notice of removal to establish the amount in controversy. The defendant petitioned the Tenth Circuit for leave to appeal the remand order under CAFA (see 28 U.S.C. § 1453(c)(1)), but “[u]pon careful consideration of the parties’ submissions, as well as the applicable law,” a divided panel of the Tenth Circuit denied leave to appeal. Rehearing en banc was denied by an equally divided court, over a published dissent.

By a 5-4 vote, the Supreme Court vacated the judgment of the Tenth Circuit and remanded for further proceedings.

The opinion for the Court, authored by Justice Ginsburg, first addressed the merits issue by describing the relevant procedures for seeking removal. The Court explained that Section 1446(a)’s “short and plain statement” requirement—which CAFA incorporates—was designed to track the general pleading requirements stated in Rule 8(a) of the Federal Rules of Civil Procedure. Congress borrowed Rule 8(a)’s pleading requirements to “simplify” removal and “clarify that courts should ‘apply the same liberal rules [to removal allegations] that are applied to other matters of pleading.” Under this rule, a court should accept the defendant’s plausible allegations regarding the amount in controversy unless the plaintiff contests them or the court itself questions them. If the plaintiff does contest removal, both sides should submit proof of the amount in controversy and the court should decide by a preponderance of the evidence whether the jurisdictional minimum is satisfied.

In so ruling, the Supreme Court has brought courts within the Tenth Circuit into line with the overwhelming majority rule, which requires only that a defendant file a notice of removal alleging that CAFA’s jurisdictional requirements—including the amount in controversy—have been satisfied. Because removals to federal court usually must take place within 30 days after a lawsuit is served, the Court’s decision protects defendants that wish to remove cases to federal court from having to gather evidence to support removal on an abbreviated time frame.

The Court’s opinion also contains additional language that should be helpful for business defendants in future cases. In the course of addressing CAFA procedures and requirements, the Court emphasized that “no anti-removal presumption attends cases invoking CAFA, which Congress enacted to facilitate adjudication of certain class actions in federal court.” That holding should dispatch arguments often made by plaintiffs that a so-called “presumption against removal” applies to CAFA.

Although Dart Cherokee is a 5-4 decision, the Justices did not appear to disagree about the merits. Instead, as the oral arguments in this case foreshadowed, the Court divided over whether it was proper to reach the merits at all. Specifically, under 28 U.S.C. § 1254(1), the Supreme Court has jurisdiction to review by certiorari only “[c]ases in the courts of appeals.” Because the Tenth Circuit did not grant permission to appeal, an amicus curiae (Public Citizen) contended either that there was no case “in” the Tenth Circuit at all, or that all that could be reviewed was the Tenth Circuit’s discretionary decision to deny permission to appeal the district court’s remand order.

The principal dissent—authored by Justice Scalia and joined by Justices Kennedy and Kagan, and by Justice Thomas “as to all but the final sentence”—agreed with the latter point. According to Justice Scalia, the case posed only the question whether the Tenth Circuit abused its discretion under CAFA when it denied permission to appeal the district court’s remand order. Because, in Justice Scalia’s view, the Tenth Circuit’s order did not say why permission was denied, there was no way to determine whether an abuse of discretion had occurred. Justice Thomas filed an additional dissent that accepted Public Citizen’s first argument, concluding that an application for permission to appeal a remand order did not constitute a “case” “in the court of appeals” that the Court could properly review.

In response to these dissents, the majority explained that “[d]iscretion to review a remand order is not rudderless,” and lower courts necessarily abuse their discretion when they rely on an “erroneous view of the law.” The Court noted the presence of “many signals that the Tenth Circuit relied on [a] legally erroneous premise” based on its prior precedent, and therefore concluded that the order denying permission to appeal “was infected by legal error.”

The Court’s holding that it was proper to reach the merits is significant: If the courts of appeals could insulate controversial and important questions under CAFA from Supreme Court review by simply refusing to grant permission to appeal, the Supreme Court’s ability to shape uniform nationwide rules governing federal jurisdiction over class actions could be impeded significantly. By reaching the merits, the Court has signaled that it is prepared to review such questions when appropriate.

Standing Without Injury? Washington Legal Foundation Webinar Addresses “No-Injury” Class Actions

Posted in U.S. Supreme Court

The Supreme Court is currently considering a petition for certiorari in Spokeo Inc. v. Robins (pdf), which raises the question whether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm, and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private right of action based on a bare violation of a federal statute. This question of Article III standing potentially impacts a wide variety of lawsuits that we (and others) view as “no-injury” class actions.

In Spokeo (in which we represent the petitioner), the Supreme Court recently called for the views of the Solicitor General concerning whether certiorari should be granted. It is already clear that the business community views Supreme Court review as essential—at least ten amicus briefs representing the views of seventeen amici were filed in support of the petition.

As observers on all sides watch to see what the Supreme Court will do, the Washington Legal Foundation will be conducting a webinar next Tuesday (December 9) discussing the Spokeo case and the issue of “no-injury” class actions. My colleague Andy Pincus, who is counsel of record in Spokeo, will be speaking on the webinar. More information about the webinar is available here (pdf).

Update:  A video of the webinar is available here.

 

Ninth Circuit Holds That State AGs and Prosecutors Can’t Seek Restitution On Behalf Of A Class That Already Settled Its Private Claims, But Can Seek Injunctive Relief and Penalties

Posted in CAFA

A decade ago, California’s unfair competition law (UCL) and its closely related false advertising law (FAL) were the ideal plaintiff’s tools.  Any person—even one with no connection to a particular asserted violation or harm—was able to bring a claim on behalf of the “general public” and recover restitution for thousands of people (and, of course, attorney’s fees) without going through the hassle of class certification. But in 2004, the California voters changed that; private plaintiffs who want to sue on behalf of others must certify a class. The statutes still work the old way for public prosecutors, who can invoke the public’s rights without meeting the requirements for class certification.

Sometimes a plaintiff’s attorney and a prosecutor fasten on the same target. Then what?  What if the private plaintiffs get there first, settling for the class before a prosecutor brings an action on behalf of the general public?

The Ninth Circuit recently addressed this scenario in People v. Intelligender, LLC.  Intelligender makes a test designed to predict a baby’s gender.  The test’s accuracy allegedly disappointed some of its purchasers, who brought a class action under the UCL and FAL.  Intelligender removed the case to federal court under the Class Action Fairness Act of 2005 (CAFA), and eventually settled the class action.  As part of the settlement approval process, the parties notified the California Attorney General, as CAFA requires (see 28 U.S.C. § 1715).  The AG did not seek to challenge the settlement—which involved both monetary and injunctive relief—and the district court approved it.

Enter the San Diego City Attorney, who decided that Intelligender had not paid enough.  The City Attorney brought a new action in state court on behalf of the general public and in the name of the State, seeking not only a broader injunction and civil penalties but also restitution for same class of buyers that had settled the federal case.

But Intelligender did feel that enough was enough.  After removing the case to federal court under CAFA, Intelligender asked the district court to enjoin the entire lawsuit.  The district court declined and remanded the case to state court. Intelligender then asked the district court to enjoin only the State’s pursuit of restitution, but the district court declined again.

The Ninth Circuit affirmed in part and reversed in part. The court of appeals agreed that California could pursue its own injunction and could seek civil penalties because the private settlement did not have res judicata effect over a public entity.  The court reasoned that law enforcement cannot be shut down by a private settlement, and the private plaintiffs could not and did not pursue civil penalties.

But the Ninth Circuit drew the line at the pursuit of duplicative restitution, which failed under “longstanding principles of res judicata.”  Citing the Supreme Court’s admonition in EEOC v. Waffle House, Inc. that “it goes without saying that the courts can and should preclude double recovery by an individual” even when a public agency litigates on the individual’s behalf, the Ninth Circuit turned back the State’s effort to increase the private payout.  Because the certified class of all purchasers had settled all their claims for restitution, the State could not step in and seek greater compensation for the same injury.  This was so even though the settlement only compensated those whose test results were inaccurate, while the State also sought “restitution” of the entire purchase price for buyers who got everything they paid for—persons who were in the settlement class, but received no payment under the settlement.  The time for the State to challenge the lack of payment to uninjured buyers was in the private case after receiving the CAFA-required notice of the settlement.

The Ninth Circuit—joining a long list of district court decisions, including one we blogged about last year—was right to prevent the State from reopening the issue of compensation for class members.  Whatever a State may do in pursuing public law enforcement remedies, it cannot try to extract greater payments to individuals whose own claims have been decided or settled.  So while defendants cannot altogether stop follow-on UCL actions by public prosecutors, any additional pecuniary liability must run to the State, not to the plaintiffs who sued—and settled—first.

En Banc Ninth Circuit Permits Removal Under CAFA of a Subdivided Mass Action

Posted in CAFA

Over the past few years, a number of plaintiffs’ lawyers have attempted—with some success—to circumvent the “mass action” provisions in the Class Action Fairness Act of 2005 (“CAFA”), which allow defendants to remove to federal court certain cases raising “claims of 100 or more persons that are proposed to be tried jointly.” 28 U.S.C. § 1332(d)(11)(B)(i).  Although these lawyers represent 100-plus clients with substantively identical claims, they subdivide their mass actions into multiple parallel cases, often with just under 100 plaintiffs each.  And to avoid the “proposed to be tried jointly” language of CAFA, they remain coy about—or sometimes deny—any intention to try the cases jointly.  Instead, they toe up to the joint trial line by seeking to have the cases treated together for as many purposes as possible short of directly calling for a joint trial.  But an en banc decision by the Ninth Circuit earlier this week represents a welcome step towards limiting such efforts to evade federal jurisdiction.

That en banc decision springs from a pair of cases we discussed last December: Romo v. Teva Phamaceuticals USA, Inc., and its companion case, Corber v. Xanodyne Pharmaceuticals, Inc.—in which a divided panel approved the remand of 40 just-under-100-plaintiff cases as to which plaintiffs had invoked a California state-law procedure that allows for coordination of complex civil actions “for all purposes.”  Although the plaintiffs did not limit their coordination request to pretrial proceedings, the panel majority held that that the plaintiffs’ request was insufficient to trigger removal, effectively requiring that plaintiffs expressly request a single joint trial before defendants may remove a mass action under CAFA.  Judge Gould dissented; in his view, the practical result of plaintiffs’ proposal for coordination was dispositive—rather than whether plaintiffs had used the magic words of asking for a joint trial.

As we noted in a blog post last February, the Ninth Circuit had granted rehearing en banc in both Romo and Corber to resolve the circuit split that the panel had created with the Seventh Circuit’s decision in In re Abbott Laboratories, Inc. and the Eighth Circuit’s decision in Atwell v. Boston Scientific Corp.

This week, the en banc Court (pdf)—adopting a pragmatic approach to what counts as a “joint trial” for purposes of CAFA—held that the defendants had properly removed the cases.  Writing for the Court this time, Judge Gould agreed with the Seventh and Eighth Circuits that a proposal for a joint trial may be made implicitly as well as explicitly.  The Court explained that although a rule requiring the plaintiffs to invoke the magic words “joint trial” “would be easy to administer,” the problem with that rule is that it “would ignore the real substance” of plaintiffs’ proposals and how the mass actions were likely to be litigated in practice.  And the Court observed that, as a practical matter, plaintiffs’ request to coordinate all of the cases “for all purposes”—and their arguments before the state court that coordination was needed to avoid “the danger of inconsistent judgments and conflicting determinations of liability”—was a request for a joint trial.

That holding is good news for defendants facing mass actions in the Ninth Circuit.  That said, we would have liked to see the Ninth Circuit go further to curb the attempts by plaintiffs’ lawyers to circumvent CAFA.  Amici argued in Romo/Corber—as we have also contended—that the Supreme Court’s admonition in Standard Fire Insurance Co. v. Knowles not to “exalt form over substance” in assessing CAFA jurisdiction forecloses plaintiffs’ lawyers from gerrymandering their 100-plus clients into parallel smaller actions.

Equally troubling, the Ninth Circuit left open the possibility that plaintiffs may be able to evade CAFA by asserting that their request for coordination is “intended to be solely for pre-trial purposes.”  In our view, that distinction is likely to prove illusory in practice:  Even if plaintiffs never formally move to coordinate or consolidate parallel cases all the way through trial, the cases would still effectively be tried jointly because the judgment in the first action might well have preclusive effect on the trials in any subsequent actions, which surely would be presided over by the same judge and involve similar witnesses and evidence.  As the Seventh and Eighth Circuits have made clear in Abbott Labs and Atwell, even a single-plaintiff trial may qualify as a joint trial if the intent is to use it as a bellwether trial on liability or for preclusive effect in subsequent trials.

The fight over this issue is far from over:  Plaintiffs’ lawyers will continue to subdivide their mass actions artificially to avoid federal jurisdiction, and defendants will seek to convince federal courts that such slicing-and-dicing is improper under CAFA.  Nonetheless, the Ninth Circuit’s willingness to take—as the court of appeals itself said—a more “realistic” view of mass actions is a step in the right direction.

Yes, you really did settle all your claims when you said you did: Ninth Circuit dismisses appeal of class certification denial by plaintiff who accepted Rule 68 offer

Posted in Employment, Motions Practice

A plaintiff hopes to represent a class to pursue two sets of wage-and-hour claims but runs into headwinds in the district court.  First, one set of claims disappears because his legal theory doesn’t withstand a motion to dismiss.  Then class certification is denied on what was left.  After that, the defendant— invoking Rule 68 of the Federal Rules of Civil Procedure—offers to settle “any liability claimed in this action.”  Under Rule 68, if the case goes to judgment and the plaintiff wins less than the offer, he would be liable for the defendant’s costs for any proceedings after the offer was made.

What is to be done?  The plaintiff in Sultan v. Medtronic, Inc. thought that he could simply accept the offer of judgment and associated payment and then proceed as if he hadn’t done so.  Forging ahead with an appeal of the partial dismissal and the denial of class certification, the plaintiff principally relied on a Ninth Circuit decision that permitted a settling plaintiff to appeal because the accepted offer lacked broad language addressing all claims—and in fact, during negotiations in that case, the parties had deleted an explicit reference to class claims.

Sometimes a settlement really is a settlement, however, and the Ninth Circuit held that this was one of those times.  Rejecting the plaintiff’s arguments that the Rule 68 judgment did not moot the class claims because they were not specifically identified in its terms, the court held (in an unpublished opinion) that a settlement of “any liability claimed in this action” was enough to end the entire case.  Along with my colleagues John Zaimes and Ruth Zadikany, I was counsel for Medtronic on this appeal.

Eleventh Circuit adopts broad view of businesses’ potential liability under TCPA for faxes sent by third parties

Posted in Class Action Trends, Motions Practice

One of the hottest areas in class actions is litigation under the Telephone Consumer Protection Act (TCPA).  And one of the most significant issues in TCPA litigation is the existence and scope of vicarious liability.  The key question is to what extent are businesses liable for the actions of third-party marketers who, without the consent of the recipient, send text messages or place calls using autodialers or prerecorded voices or transmit faxes?

Some plaintiffs had argued that businesses are strictly liable for TCPA violations committed in their name by third-party marketers.  Last year, the FCC rejected that approach in a declaratory ruling.  As we explained in our report, the FCC instead concluded that plaintiffs instead must prove liability under “federal common law principles of agency.”

But that declaratory ruling was decided in the context of telemarketing.  Should the same rule apply to alleged TCPA violations involving unsolicited marketing faxes?  Can plaintiffs revive their old arguments that businesses are strictly liable for faxes advertising their services sent by others?  Or are businesses not liable for TCPA violations that they themselves don’t commit?

The Eleventh Circuit recently considered this issue in Palm Beach Golf Center-Boca, Inc. v. John G. Sarris, D.D.S., P.A.  In that case, a marketer had allegedly sent several thousand unsolicited faxes advertising the services of a dental practice.  When a recipient of a fax sued the dental practice under the TCPA, the district court granted summary judgment in part because the plaintiff had failed to show that the dental practice was vicariously liable for the marketers actions.

The Eleventh Circuit reversed.  The court explained that the FCC’s prior declaratory ruling that the limited scope of vicarious liability for TCPA violations applied only to telemarketing calls.  But rather than decide what the vicarious-liability standard should be for faxes, the court held—based on a letter brief (pdf) submitted by the FCC—that the recipient of the fax didn’t need to prove vicarious liability at all.  Instead, the court held that  the dental practice could be viewed as the sender itself and therefore the recipient could attempt to show that the dental practice had directly violated the TCPA itself.

That result is hard to swallow.  The dental practice, after all, hadn’t actually sent any faxes itself.  And although it had hired the marketer, the evidence presented to the district court apparently showed that the dental practice had no direct role in the fax campaign—it didn’t decide to whom to send faxes or even approve the final language of the fax itself.  And it certainly didn’t press the button to send the faxes.

Nonetheless, the court held—based on the FCC’s letter brief—that the recipient of the fax could proceed to trial on the theory that the dental practice had committed a direct violation of the TCPA.  The TCPA makes it unlawful “to use any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement.”  Under a natural reading of this language, one would think that the dental practice itself neither “use[d]” a fax machine nor “sen[t]” a fax.  But in the FCC’s view, a business is the “send[er]” of a fax transmitted by a third party so long as the fax was either sent on the business’s “behalf” or if the fax “advertise[s] or promote[s]” the business’s “goods or service.”

The FCC’s position conflates direct and vicarious liability for alleged TCPA violations involving faxes.  There are accordingly strong reasons to think that other courts should refuse to defer to the FCC’s interpretation.  That said, businesses whose marketing activities may include third-party fax campaigns should be aware of the potential that courts will, like the Eleventh Circuit in Palm Beach Golf Center, adopt the FCC’s position and authorize claims for direct liability under the TCPA.

NLRB Refuses To Yield On Anti-Arbitration Ruling Despite Near-Unanimous Rejection By Courts

Posted in Arbitration, Employment

Today is Halloween, an occasion when our thoughts turn to jack o’lanterns, ghosts, and zombies.  We are particularly fascinated by zombies—the dead returned to life. But we’re not the only ones.  In a decision earlier this week, a majority of the National Labor Relations Board voted to reanimate the dead.

The Board’s zombie of choice?  Its decision nearly three years ago in D.R. Horton (pdf), in which the Board sought to push back on arbitration agreements that require individual arbitration rather than class or collective actions.  As our readers know by now, most courts have accepted the Supreme Court’s clear and emphatic message that the Federal Arbitration Act protects the right of contracting parties to agree to resolve any disputes through arbitration on an individual basis.  But the NLRB, which hears complaints alleging unfair labor practices, came to a different conclusion in D.R. Horton, concluding that individual arbitration interferes with the right of employees to engage in “concerted activities” under Section 7 of the National Labor Relations Act— and that its interpretation of the NLRA trumps the FAA.  Yet, for reasons we—along with many other critics—have discussed, that approach gets it exactly backward.  The Supreme Court has held that the FAA takes precedence in the absence of a contrary congressional command.  Nothing in the NLRA itself (as opposed to the Board’s own policy views) evinces a clear congressional command to override the FAA.  And the Board itself cannot override a congressional enactment like the FAA.

For these reasons, the Board’s D.R. Horton ruling has been rejected by almost every court to consider it: by the Fifth Circuit (on direct review), by the Second Circuit, by the Eighth Circuit, by more than a dozen federal district courts, and— most recently— by the California Supreme Court.

But the Board, rather than acquiescing in the face of this avalanche of judicial authority, has sought to resurrect it.  Earlier this week, by a 3–2 vote, the Board issued its decision in Murphy Oil USA (pdf), reaffirming D.R. Horton and rejecting the views of the courts.  The Board dismissed most of the contrary authority in cavalier fashion—disparaging the Second and Eighth Circuit’s decisions for their “abbreviated” analysis, and refusing to engage with the California Supreme Court’s decision or any federal district court decision because those courts don’t typically exercise direct review over Board decisions.

As for the Fifth Circuit’s decision, the Board complained that the court gave “too little weight to [Board] policy” and that “[t]he costs to Federal labor policy imposed by the Fifth Circuit’s decision would be very high.”  But this assessment simply underscores the error in the Board’s ways:  An agency’s general policy views, no matter how strongly felt, cannot override the powerful congressional mandate favoring the enforcement of arbitration agreements that is embodied in the FAA.  And even though the Board has authority to set policy under the NLRA, the Board’s view of what the FAA requires is not entitled to any weight at all, because Congress has never given the agency authority to interpret or administer that statute.

In response to the Fifth Circuit’s legal analysis, the Board did little more in Murphy Oil than repeat its view— resting on nothing more than the Board’s say so in D.R. Horton— that the right to engage in “concerted activities” under Section 7 includes an unwaivable substantive right to class-action procedures.  But nothing in the text of the NLRA commands or even suggests that result.  Although the Board purported to find an “inherent conflict” between the NLRA and the FAA, the purported conflict in fact arises only from the Board’s questionable interpretation of the NLRA, not from anything inherent in the statute itself.  At bottom, the Board’s position rests on its own view of federal labor policy, not any congressional command, and an agency’s views cannot override what Congress enacted in the FAA.  (Moreover, as the Fifth Circuit pointed out, the agency’s insistence that the purported right to class-action procedures is a nonwaivable substantive right under the NLRA is questionable even on its own terms.)

The Board’s decision will not be the last word on this matter.  As in D.R. Horton, this latest decision is subject to direct review by a federal court of appeals, which will be free to reject the Board’s position and deny enforcement of its order.  Given the weight of judicial authority rejecting D.R. Horton and the Board’s failure to respond to that authority in a convincing manner, the Board’s position will likely continue to be met with skepticism in the courts.  For now, however, employers that use arbitration agreements with their employees may face possible challenges from the Board or from employees seeking to pursue class or collective actions.  In short, the D.R. Horton zombie will continue to stalk the land for the immediate future.

Supreme Court May Clarify Procedures For Removal Under CAFA—If It Decides To Answer The Question Presented in Dart Cherokee Basin Operating Co. v. Owens

Posted in CAFA, U.S. Supreme Court

This morning I attended oral arguments at the Supreme Court in Dart Cherokee Basin Operating Co. v. Owens.  The issue presented in Dart Cherokee is whether a defendant who wishes to remove a case to federal court under the Class Action Fairness Act (CAFA) is required to submit evidence supporting federal jurisdiction along with the notice of removal.    Here’s my key takeaway from the argument:  The answer will be “no”—defendants need not attach evidence to a notice of removal—but only if the Court concludes that it has the power to reach the merits.

In most circuits, when a defendant seeks to remove a class action to federal court under CAFA, all the defendant has to do is file a notice of removal alleging that CAFA’s jurisdictional requirements have been satisfied—most significantly, that the amount in controversy exceeds $5 million.  More often than not, plaintiffs—who, as Justice Ginsburg put it memorably at the argument today, are “looking for big bucks”—do not contest that showing.  Of course, sometimes plaintiffs resist removal by moving for a remand to state court. In such situations, the defendant (who bears the burden of proving that federal jurisdiction exists) can come forward with evidence in opposing removal, and plaintiffs can contest that showing (including by responding with their own evidence.

But the prevailing rule in the Tenth Circuit is different.  There, district courts—applying Tenth Circuit precedent—routinely hold that a defendant must attach evidence supporting removal to the notice of removal itself.  That can be challenging for defendants, who typically are required to file a removal notice within 30 days of being served with a complaint—and the 30-day deadline is (usually, although not always) mandatory and jurisdictional.

In Dart Cherokee, the defendant did not do so; instead, it removed the case and alleged in its notice of removal that the amount in controversy exceeded $8.2 million (that is, greater than CAFA’s $5 million threshold).  After the plaintiff moved to remand, the defendant submitted uncontested evidence in opposition to the remand motion to shore up the allegation that the amount in controversy had been met.  The district court remanded the case to state court, concluding that the evidence defendant had submitted was too late to be considered.  The defendant sought leave to appeal under 28 U.S.C. § 1453(c), which provides that, for removals under CAFA, “a court of appeals may accept an appeal from an order of a district court granting or denying a motion to remand a class action to the State court from which it was removed.”  A divided panel of the Tenth Circuit denied leave to appeal, and rehearing en banc was denied by a divided 4-4 vote, over a vigorous dissent by Judge Hartz.

The Supreme Court granted certiorari, presumably to resolve the (lopsided) split among the circuits.  Today’s oral argument—transcript available here (pdf)—revealed two things.  First, if the Supreme Court reaches the merits of the issue presented, Dart Cherokee will almost certainly win.  Not one Justice asked questions reflecting any sympathy for the Tenth Circuit’s rule.   To the contrary, the Justices who spoke about the issue seemed to find it an easy one.  The statute governing notices of removal, 28 U.S.C. § 1446, provides that “[a] defendant . . . desiring to remove any civil action from a State court shall file in the district court of the United States . . . a notice of removal . . . containing a short and plain statement of the grounds for removal…” As Justice Ginsburg pointed out at oral argument, that language tracks Federal Rule of Civil Procedure 8(a), which governs pleadings; under Rule 8, it is clear that a complaint must have sufficient factual allegations but need not be—and rarely is—accompanied by evidence.

That said, it is possible that the Supreme Court may not answer the question at all.  Why not?  The potential wrinkle—one that received the most air time during today’s argument—has to do with whether the underlying merits have properly been  presented to the Supreme Court at all.  And the credit (or blame) for this wrinkle belongs to Public Citizen, whose amicus brief (pdf)  in support of the respondent first raised this question.

In that amicus brief, Public Citizen first argues that the Supreme Court lacks any jurisdiction to consider the case at all.   Under 28 U.S.C. § 1254, the Supreme Court has jurisdiction to review only “[c]ases in the court of appeals”; Public Citizen contends that because the Tenth Circuit denied leave to appeal, the case was never “in” the court of appeals.  At the argument, the Justices showed little sympathy for this position, but many Justices seemed intrigued by Public Citizen’s backup position, which is that all that was “in” the Tenth Circuit was whether leave to appeal should be granted, and that issue is one that is reviewed for an abuse of discretion.  In assessing that more limited question—whether the Tenth Circuit abused its discretion in denying review—the Justices seemed conflicted.  On the one hand, if the Tenth Circuit had agreed with the district court on the merits, then (assuming that Dart Cherokee is right about the merits) the Tenth Circuit’s refusal to review the district court’s order rested on an error of law—which always amounts to abuse of discretion.  On the other hand, if the denial rested on other factors (for example, docket congestion, factual issues, lack of interest, etc.) then it seems less likely that an abuse of discretion could be found.

So will the Court reach the underlying merits in Dart Cherokee?  My own take is that it’s a toss-up.  For most practitioners, it would be a bizarre result indeed if the oral argument revealed that there is an easy answer to the question presented but, for far more complicated reasons, the Court cannot deliver that answer.  As Justice Kagan put it to Dart Cherokee’s counsel after grilling him on jurisdictional issues:  “I sympathize with you. Because the next half hour”—in which counsel for respondents would argue—“is going to reveal that, actually, most of us agree with you on the merits,” or, at minimum, that “I agree with you on the merits.”

Furthermore, the Supreme Court’s past practice suggests that whether or not the court of appeals grants leave to appeal should not be an obstacle to the Supreme Court’s plenary review of the merits.  After all, just last term, a unanimous Supreme Court held in Standard Fire Insurance Co. v. Knowles that an order remanding the case to state court violated CAFA in a case where the Eighth Circuit—just like the Tenth Circuit here—denied the defendant leave to appeal the district court’s remand order.  Moreover, if Public Citizen is right that a court of appeals can insulate questions arising under CAFA from Supreme Court review by denying leave to appeal, that will create perverse incentives for the lower courts and may hamper the development of uniform rules governing CAFA removals—a result that seems at odds with CAFA’s purpose of ensuring that cases of national importance are easily removed to federal court.  Indeed, it is telling that Public Citizen’s brief focuses entirely on the jurisdictional issue, avoiding any effort to defend the judgment on the merits.

Will the Court answer the issue presented?  We’ll have to wait and see.

Despite Wal-Mart Stores v. Dukes, Ninth Circuit approves statistical sampling to prove that an “unofficial” common policy exists

Posted in Class Certification, Commonality, Employment

There seem to be two prevailing conceptions of class actions.  In one view, a class action is a way of determining many similar claims at once by evaluating common evidence that reliably establishes liability (and lays a ground work for efficiently calculating damages) for each class member.  That is, the class device produces the same results as individual actions would, but more efficiently.  In the other view—one we consider misguided—a “class” of plaintiffs complaining about similar conduct can have their claims determined through statistical sampling even if no common evidence will provide a common answer to common factual or legal questions. Instead, this theory holds, the results of mini-trials can simply be extrapolated to the entire class, even if individual results would vary widely.

Last week, the Ninth Circuit took a step deeper into the second camp in Jimenez v. Allstate Insurance Co. (pdf), delivering a ringing endorsement of statistical sampling as a way to establish liability as well as damages.

Fourth Circuit puts teeth into ascertainability, commonality, and predominance requirements for class certification

Posted in Ascertainability, Class Certification, Commonality, Predominance

Sometimes it’s hard to know who’s in a class without substantial individualized inquiries.  Can a court certify a class of persons with allegedly similar injuries by pigeonholing the question of class membership as a question of damages to be determined later?  Not so fast, the Fourth Circuit held in EQT Production Co. v. Adair (pdf).  A class that is not ascertainable ex ante is not a class at all.

And the Fourth Circuit also decided another question that has led to different answers from different courts.  When the rule of law proposed by plaintiffs would permit a controlling question to be answered in common for the class, but the competing rule proposed by defendants would require individualized inquiries, can the trial court treat the dispute of law as itself a common question supporting class certification?  On this point, the Fourth Circuit held that the court must first determine the correct rule and then decide whether it is susceptible to a common answer.  In a recent post, we described a California Court of Appeal decision taking the contrary view; the California Supreme Court has since denied review. (We submitted an amicus letter (pdf) on behalf of the U.S. Chamber of Commerce supporting the petition.)

Finally, the Fourth Circuit outlined a qualitative rather than a quantitative, issue-counting approach to predominance.  Under this approach, it is not how many circumstances are common among class members, but whether the common circumstances or other, individualized ones will be more significant in determining class members’ entitlement to relief.

EQT arises from a series of disputes about who was entitled to royalties for coal-based methane, a coal byproduct that is an energy source in its own right; wells are drilled to extract methane gas. The owners of surface rights to real property often sever coal mining rights (the “coal estate”) from subsurface gas rights (the “gas estate”). The disputes in EQT focus on who owns the rights to coal-based methane when the owner of the gas estate and the owner of the coal estate for a particular tract differ.  The plaintiffs are gas estate owners who assert that they are entitled to royalties for coal-based methane.

The district court certified five classes.  Four consist of current and former gas estate owners who were never paid coal-based methane royalties; the members of the fifth class assert that they were underpaid.  The Fourth Circuit reversed all five certifications.

First, the court of appeals held that you can’t certify a class if you can’t tell who is in it.  The Fourth Circuit held that the district court had not properly considered whether identifying class members “would render class proceedings too onerous” in light of a variety of “heirship, intestacy, and title-defect issues” affecting many potential class members’ claims. The Fourth Circuit understood ascertainability to require a way to “readily identify the class members in reference to objective criteria”—which means something less individualized than tract-by-tract ownership analyses.

Plaintiffs often like to recharacterize the deficiencies in a class definition as pertaining only to damages calculations—and that’s what the EQT plaintiffs did to get around their inability to determine who was in the class and who was out.  Plaintiffs contended that it would not be necessary to resolve the individualized ownership issues until the damages phase, but the court of appeals disagreed:  “The fact that verifying ownership will be necessary for the class members to receive royalties does not mean it is not also a prerequisite to identifying the class.”

Second, the court held that a dispute over the dispositive rule of law is not automatically a common issue if one competing rule could be resolved only upon individualized inquiries.  In certifying the four classes who had never been paid royalties, the district court found that the overriding common issue was a dispute over whether Virginia law entitled the owners of the gas estate to coal-bed methane royalties.  One legal rule would entitle all gas-estate owners to those royalties; the other would make the answer hinge on particular deed language.  The Fourth Circuit held that the district court should have resolved the question, and went ahead to hold that deed language was paramount.  The court of appeals left open the possibility of subclasses organized around deeds for which the relevant language was materially similar.

Finally, the Fourth Circuit rejected the finding of predominance for the class of owners claiming underpayment. On that issue, the district court had pointed to a large number of uniform practices by the defendants that were relevant to the royalty calculation.  The Fourth Circuit rejected this quantitative approach because the dispositive questions again hinged on the specific contract language, again recognizing that subclasses perhaps could be constructed around materially similar terms.

EQT provides some welcome structure and discipline to class certification analysis. Let’s hope that other courts of appeals will provide similar guidance.