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CAFA Law Blog Information, cases and insights regarding the Class Action Fairness Act of 2005

Home Owners Will Fight Their Document Fee Claims In Their Home State

Posted in Case Summaries

Probola v. Long & Foster Real Estate, Inc., 2012 WL 194955 (D.N.J. Jan. 23, 2012).

While remanding the action to the state court, a District Court in New Jersey held that the amount in controversy is not measured by the low end of an open-ended claim, but rather by a reasonable reading of the value of the rights being litigated.

The plaintiffs filed a class action complaint in the Superior Court of New Jersey, Law Division of Mercer County, challenging Long & Foster Real Estate Inc.’s practice of charging participants in New Jersey real estate sales a $345 “Document Fee” at closing.  

The plaintiffs purported to represent themselves and a class of similarly situated persons who had bought or sold a home in New Jersey since September 7, 2005 using Long & Foster, or an affiliated independent contractor, as a broker.  The plaintiffs alleged that they were charged a commission percentage fee in addition to the Document Fee as payment for the real estate services provided to them by Long & Foster.  Although the plaintiffs noted that Long & Foster provides all customers with a standardized disclosure form describing its commission structure, the plaintiffs contended that Long & Foster performed no additional services in exchange for the Document Fee beyond those services which Long & Foster already performed—and which Long & Foster was obligated to perform.” 

Accordingly, the plaintiffs alleged that the “Document Fee” violated the New Jersey Consumer Fraud Act (“NJCFA”), the New Jersey Truth in Consumer Contract Warranty and Notice Act (“TCCWNA”), and New Jersey state law regarding the fiduciary duties owed by real estate brokers to their principals.  

The defendant, Long & Foster, filed a Notice of Removal asserting, inter alia, the jurisdiction under CAFA.  

The plaintiffs moved to remand this action to the Superior Court, and the District Court granted the plaintiffs’ motion.

The defendant asserted that the District Court had original jurisdiction over this action pursuant to CAFA, 28 U.S.C. § 1332(d).  The plaintiffs, however, had stated that they did not believe the maximum amount of controversy was anywhere near $5 million. Moreover, in their Complaint, the plaintiffs specifically attempted to allege that the amount in controversy was under $5 million.  

The plaintiffs and the defendant disagreed over which party bore the burden of proving whether the damages claimed in this action exceeded the amount-in-controversy requirement, and which evidentiary standard should apply.  The defendant argued that the Court should dismiss the plaintiffs’ action only if it appeared to a “legal certainty” that the plaintiffs could not recover the amount-in-controversy, or greater.  The plaintiffs, however, argued that the defendant, as the party asserting federal jurisdiction, bore the burden of proving, to a legal certainty, that the plaintiffs’ damages exceeded the amount-in-controversy in view of their pleading.  

The Court noted that where the relevant jurisdictional facts are not in dispute, or where fact-finding has occurred, the Court should employ the “legal certainty” test, which mandates dismissal of an action when “it is apparent, to a legal certainty, that the plaintiff cannot recover the amount claimed, or if, from the proofs, the court is satisfied to a like certainty that the plaintiff never was entitled to recover that amount.”  However, in cases where disputes over jurisdictional facts exist, the removing party must prove its allegations of jurisdiction by a “preponderance of evidence.” 

The Court observed that because there was a colorable dispute as to the underlying jurisdictional facts, the defendant, as the removing party, bore the burden to show by a “preponderance of the evidence” that the amount in controversy requirement was satisfied.  But the defendant did not meet this burden here, the Court concluded.

The defendant noted that the plaintiffs alleged at least three violations for which they were seeking monetary damages: (1) actual damages for breach of fiduciary duty; (2) treble damages and attorneys’ fees for violation of the NJCFA; and (3) actual damages, statutory damages in the amount of $100 per violation, and attorneys’ fees for the TCCWNA claim.  Based on this, the defendant claimed a maximum recovery amount of at least $1,825.00 per class member (before attorneys’ fees) and had worked backwards from the $5 million statutory minimum to suggest that a possible class size of roughly 2,740 and 2,108 would exceed the jurisdictional amount.  

By contrast, the plaintiffs suggested that the maximum recovery per class member before attorneys’ fees would be $1,035 (or the document fee trebled) and have suggested that the class size would be under 3,000, leading to a figure substantially under the amount in controversy threshold. While the amount in controversy “is not measured by the low end of an open-ended claim, but rather by a reasonable reading of the value of the rights being litigated,” the Court was not persuaded that the defendant had offered a reasonable valuation of the plaintiffs’ expected recovery.   

Further, the Court remarked that the defendant had not provided any affidavits or pointed to any data that would tend to show that the plaintiff’s claims would likely exceed $5 million, although the defendant had records showing exactly how many New Jersey real estate participants the defendant charged the $345 fee since 2005, which would clarify the matter for the Court. 

Moreover, the Court found persuasive the plaintiffs’ contention that the Complaint specifically alleged that the amount in controversy was under $5 million and their willingness to amend the complaint to so reflect.  Because CAFA does not change the proposition that the plaintiff is the master of his or her own claim, the Court declined to exercise jurisdiction based on an inaptly phrased pleading in the absence of compelling evidence that would suggest that the plaintiffs could recover more than $5 million.  

Next, the Court rejected the defendant’s argument that the plaintiffs’ claims “arose under” federal law – the federal Real Estate Settlement Practices Act (RESPA), 12 U.S.C. § 1601, et seq., as well as regulations promulgated by the U.S. Department of Housing and Urban Development pursuant to RESPA. As such, the Court concluded that the Complaint did not present a federal question jurisdiction. 

Accordingly, the Court granted the plaintiffs’ motion, and remanded the action the state court.