Class action defendants usually prefer to have their cases heard in federal court, where the protections of Federal Rule of Civil Procedure 23 apply and where courts and juries are less likely to disfavor an out-of-state business. And as every class action defense lawyer knows, the Class Action Fairness Act of 2005 (“CAFA”) puts a significant thumb on the scale in favor of having large class actions heard in federal court, allowing for removal of most class actions in which the amount in controversy exceeds $5 million and there is minimal diversity of citizenship between the defendants and the members of the putative class. But how should CAFA apply when one business sues a consumer and the consumer files as a counterclaim a class action against a different business? Today, the Supreme Court heard oral arguments in Home Depot U.S.A., Inc. v. Jackson, a case presenting that question. (One of us attended the oral argument.)
Although the Class Action Fairness Act of 2005 (CAFA) permits most significant class actions to be heard in federal court, the law requires district courts to remand so-called “local controversies” to state court. A “local controversy” is a class action in which “greater than two-thirds of the members of the proposed classes” are “citizens” of the forum state and at least one defendant “from whom significant relief is sought” and whose “alleged conduct forms a significant basis for the claims asserted” is also a “citizen” of that state. 28 U.S.C. §1332(d)(4).
In an effort to come within this exception, plaintiffs’ lawyers sometimes will limit the putative class to citizens of a particular state and will attempt to portray an in-state defendant as a significant player in the alleged wrong.
Defendants have multiple strategies for resisting these attempts to evade federal jurisdiction. For example, sometimes the in-state defendant is merely a bit player rather than a “significant” one. Federal courts have made clear that CAFA’s “local controversy” exception bars the old tactic of defeating diversity jurisdiction by adding a minor local defendant to destroy complete diversity.
The Tenth Circuit’s recent decision in Reece v. AES Corp. makes clear that plaintiffs must also be held to their burden of proving that greater than two-thirds of the class members are actually citizens of the forum state. Reece involves a class action challenging the manner in which fracking waste was disposed. Although the plaintiffs suggested that the putative class consisted primarily of Oklahoma landowners, the Tenth Circuit pointed out that not all landowners are necessarily citizens—particularly because many putative class members would have become citizens of other states during the 20-year class period. The court also criticized the plaintiffs for failing to submit the data underlying their assertions that the landowners actually lived in Oklahoma.
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.
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.
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.
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.
Nine years after the Class Action Fairness Act of 2005 (“CAFA”) was enacted, parties continue to fight over when federal jurisdiction over significant class and mass actions is proper.
In this post, we provide a rundown of some of the most important recent cases involving CAFA.
When was the last time you saw a plaintiffs’ lawyer seeking to represent a class argue that the class couldn’t be certified? Readers might wonder whether this is a trick question. In a sense, it is. In Hoffman v. Nutraceutical Corp. (pdf), the Third Circuit upheld the denial of a motion to remand a class action to state court, rejecting the argument—made by the named plaintiff himself!—that a class could not be certified under controlling circuit precedent. The Third Circuit acknowledged that the plaintiff was right about the governing law, but pointed out that the relevant jurisdictional inquiry was whether the stakes placed in issue by the proposed complaint satisfy the Class Action Fairness Act’s $5 million amount-in-controversy requirement—not whether the requirements of Rule 23 are satisfied.
So what gives? It turns out that—according to the Third Circuit—named plaintiff Harold Hoffman “is an attorney who has made a habit of filing class actions in which he serves as both the sole class representative and sole class counsel.” And that’s what Mr. Hoffman had done here by filing a putative class action in New Jersey state court against a nutritional supplement company—offering to serve as both class representative and class counsel. The company removed the case to federal court, and Mr. Hoffman moved to remand the case to state court. The district court rejected that motion, and—after the case was dismissed on the merits—Hoffman contended on appeal that the case should have been returned to state court because it was a “legal certainty” that the $5 million amount in controversy could not be met in his case. As summarized by the Third Circuit, Mr. Hoffman argued that “because [he] is both the sole class representative and the sole attorney for the class, the purported class cannot possibly be certified under established Third Circuit law. … Thus, he reasons, the amount in controversy of the action—as least while the case remains in federal court—is tantamount to the value of Hoffman’s individual claim, roughly $200, rather than the aggregate value of the class members’ claims, which would easily exceed $5 million.”
Mr. Hoffman was correct that, under the Third Circuit’s precedent—like the prevailing rule in many other federal circuits—a named plaintiff cannot serve as class counsel. That is so because, as a number of federal courts have explained, a class representative cannot adequately monitor the class counsel—and guard against counsel’s incentives to maximize attorneys’ fees rather than the class’s recovery—when the class rep is class counsel.
The plaintiff in Hoffman suggested that state courts might tolerate class actions in which the named plaintiff is the class counsel even though federal courts will not. That argument, however, runs afoul of the very reason CAFA was enacted: to avoid the application of lax certification standards to class actions involving claims worth $5 million or more. For that reason, the Third Circuit rightly rejected Mr. Hoffman’s attempt at an end-run around CAFA.
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). Today, the Supreme Court granted certiorari in Dart Cherokee Basin Operating Co. v. Owens, No. 13-719, to decide whether a notice of removal must also include evidence supporting jurisdiction if the facts establishing jurisdiction do not appear on the face of the state-court complaint. The Court’s resolution of this issue will be important to all businesses seeking to remove state-court class actions to the federal courts.
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 sought. The defendants responded by filing a notice of removal that invoked the Class Action Fairness Act of 2005. The notice alleged that the royalties at issue exceeded $8.2 million, and thus satisfied the CAFA’s $5 million jurisdictional minimum. See 28 U.S.C. § 1332(d)(2). 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. Relying on Tenth Circuit precedent, the district court remanded the case on the ground that the defendants had not “establish[ed] by a preponderance of the evidence that the amount in controversy exceeds $5 million” because they had “fail[ed] to incorporate any evidence supporting [their] calculation in the notice of removal, such as an economic analysis of the amount in controversy or settlement estimates.” The district court refused to consider the evidence filed with the opposition to the motion to remand, holding that the defendants “were obligated to allege all necessary jurisdictional facts in the notice of removal.” A divided panel of the Tenth Circuit denied leave to appeal; and rehearing en banc was denied by an equally divided court, over a published dissent.
According to the petition for certiorari, the Fourth, Seventh, Eighth, Ninth, and Eleventh Circuits apply a notice-pleading standard, requiring that notices of removal include allegations but not evidence. Furthermore, the petition contends, the First, Fourth, Fifth, Seventh, Ninth, and Eleventh Circuits have either allowed or required district courts to consider post-notice removal evidence when deciding whether to remand.
The correct articulation of the procedures and evidentiary burdens for seeking removal, especially under the CAFA, will be of substantial interest to any business that may prefer a federal forum to state court. In many consumer class actions, it is a challenge to assemble sufficient evidence of the size of the putative class and the potential value of their claims by the 30-day deadline for a notice of removal. The Dark Cherokee case will determine whether defendants will continue to have the option, now available in most circuits, of pleading jurisdictional facts in the notice and establishing them with evidence some weeks later in the opposition to any motion to remand.
Over the years, the plaintiffs’ bar has used a wide variety of stratagems to try to prevent defendants from removing class actions to federal court. We’ve previously blogged about several of them. A recent Eleventh Circuit decision addresses yet another page from the plaintiffs’ playbook.
Defendants often can remove significant class actions under the Class Action Fairness Act (CAFA) when there is at least minimal diversity of parties and the amount in controversy exceeds $5 million. In South Florida Wellness, Inc. v. Allstate Insurance Co. (pdf), the plaintiffs tried to prevent the defendant from satisfying CAFA’s $5 million amount-in-controversy requirement by suing for only a classwide declaratory judgment. The plaintiffs’ theory of liability apparently would have put roughly $68 million at stake—the difference between the formula for reimbursement that the defendant insurance company had used and the formula the plaintiffs alleged should have been used. But the plaintiffs argued that because they weren’t directly seeking money damages, it would be “too speculative” to value the declaratory relief at issue as exceeding CAFA’s $5 million threshold; not every class member necessarily would capitalize on the declaratory judgment, the plaintiffs contended.
The district court agreed with the plaintiffs’ argument and remanded the case. But the Eleventh Circuit reversed, holding that the value of the declaratory judgment sought could be calculated concretely enough. The appropriate touchstone for that value is “how much will be put at issue,” not the expected value of the plaintiff’s claims “discounted by the chance[s] that the plaintiffs will lose on the merits,” that “the putative class will not be certified, or that some of the unnamed class members will opt out.” “[F]or amount in controversy purposes,” the Eleventh Circuit reaffirmed, “the value of injunctive or declaratory relief is the value of the object of the litigation measured from the plaintiff’s perspective.”
The defendant insurance company had offered unrebutted evidence that the difference between the amount in claims that it in fact had paid to class members and the amount that class members could receive if the theory outlined in plaintiffs’ complaint was entirely successful was $68 million. That calculation, the Eleventh Circuit held, satisfied CAFA’s $5 million amount-in-controversy requirement. In so holding, the Eleventh Circuit rejected the plaintiffs’ contention that the additional steps needed to convert the declaratory judgment into dollars in each class member’s pockets—i.e., mailing a demand letter and potentially filing a lawsuit supported by proof on some elements—made the value of the declaratory judgment too speculative for removal purposes.
The Eleventh Circuit’s decision in South Florida Wellness should be helpful to businesses trying to remove class actions that seek only declaratory relief. In fact, the court’s reminder that CAFA’s amount-in-controversy requirement looks to the maximum potential value of the claims rather than the discounted expected value following litigation should be helpful in explaining why removal is proper under CAFA in cases seeking all kinds of relief.