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

Ninth Circuit’s Lowdermilk’s Legal Certainty Standard is Irreconcilable with Standard Fire

Posted in Case Summaries

Rodriguez v. AT&T Mobility Services, LLC, 2013 WL 4516757 (9th Cir. Aug. 27, 2013).

The Ninth Circuit’s decision that Lowdermilk’s imposition of the legal certainty standard was clearly irreconcilable with Standard Fire is a boon to defendants seeking to remove cases to federal court under CAFA.  (Editor’s Note: See the CAFA Law Blog analysis of Lowdermilk posted on July 30, 2007).    

Here, the Ninth Circuit noted that while Lowdermilk reasoned that the initial jurisdictional determination derives from the complaint, Standard Fire mandates that courts determine their jurisdiction by aggregating all potential class members’ individual claims, and in doing so to look beyond the complaint when the complaint alleges damages below the jurisdictional minimum, contrary to Lowdermilk’s instruction.  Thus, the Ninth Circuit held that a plaintiff in a class action no longer has the prerogative to forgo a potentially larger recovery to remain in state court, and that the plaintiff could not sue for less than the amount she may be entitled to if she wishes to avoid federal jurisdiction.  Accordingly, the Ninth Circuit overturned a rule requiring the defendants to show to a “legal certainty” that the jurisdictional amount in controversy is satisfied when a complaint alleges a lesser amount of damages. 

The plaintiff, a retail sales manager, brought an action under California law asserting unpaid wages, overtime compensation, and damages for statutory violations. 

The defendant removed the case from Los Angeles County Superior Court to the District Court under CAFA, 28 U.S.C. § 1332(d)(2).  The plaintiff moved to remand arguing that the total amount in controversy did not exceed $5 million, the minimum amount for federal jurisdiction as required by § 1332(d).   

The plaintiff in his First Amended Complaint alleged that the aggregate amount in controversy was less than $5 million, and also waived seeking more than $5 million regarding the aggregate amount in controversy for the class claims alleged.  To establish that the amount in controversy exceeded $5 million, the defendant submitted several sworn declarations from its representatives regarding the potential number of class members and size of their claims, and argued that the plaintiff’s allegations and the sworn declarations established that the amount in controversy could not be less than roughly $5.5 million. 

The District Court remanded the action holding that the plaintiff’s disclaimer of any recovery exceeding $5 million effectively foreclosed the jurisdictional issue.  On appeal, the Ninth Circuit reversed and vacated the order of the District Court. 

After the District Court entered its order, the Supreme Court in Standard Fire Insurance Company v. Knowles, 133 S. Ct. 1345 (2013), held that a lead plaintiff could not foreclose a defendant’s ability to establish the $5 million amount in controversy by stipulating prior to class certification that the amount in controversy is less than $5 million.  The Supreme Court stated that a plaintiff’s precertification stipulation does not bind anyone but himself, and that requiring courts to ignore a nonbinding stipulation requires the federal judge to aggregate the claims of the individual class members.  (Editor’s Note: see CAFA law blog analysis of Standard Fire posted on April 12, 2013).

Because the District Court’s order to remand the case to state court relied solely on the plaintiff’s waiver, the Ninth Circuit opined that it must be vacated, and accordingly remanded the action to District Court for further consideration.

Next, the Ninth Circuit determined the standard of proof to be applied on remand.

Under Lowdermilk v. U.S. Bank National Association, 479 F.3d 999 (9th Cir. 2007), when a class action complaint alleges damages below the jurisdictional minimum, the removing defendant must establish to a “legal certainty” that the amount in controversy exceeds the jurisdictional requirement.  Based on this, the Ninth Circuit opined that the District Court had been correct at that time.  The defendant, however, contended that the recent decision in Standard Fire undermines Lowdermilk’s legal certainty standard, and that it needed only establish that the amount in controversy exceeded $5 million by a preponderance of the evidence, the standard that ordinarily applies where a plaintiff fails to plead a specific amount of damages.

In Lowdermilk, because the plaintiff had alleged that the amount in controversy was less than $5 million, the Ninth Circuit had held that it need not look beyond the complaint to determine whether the CAFA jurisdictional amount was met.  Further, the Ninth Circuit had stated that the plaintiff, being the master of her complaint could sue for less than the amount she may be entitled to or forgo any damages above the jurisdictional minimum if she wishes to avoid federal jurisdiction.  Thus, the Ninth Circuit in Lowdermilk held that the legal certainty standard of proof applied. 

The Ninth Circuit stated that Lowdermilk was based on two principles, namely that federal courts are courts of limited jurisdiction, which is to be strictly construed, and that the plaintiff is the master of her complaint and can plead to avoid federal jurisdiction.

The Ninth Circuit, however, observed that Standard Fire contradicted the second principle holding that a plaintiff seeking to represent a putative class could not evade federal jurisdiction by stipulating that the amount in controversy fell below the jurisdictional minimum.  Thus, the Ninth Circuit opined that a plaintiff in a class action no longer had the prerogative to forgo a potentially larger recovery to remain in state court, and that the plaintiff could not sue for less than the amount she may be entitled to if she wishes to avoid federal jurisdiction. 

Further, Standard Fire instructed district courts to look to the potential claims of the absent class members, rather than plaintiff’s complaint, holding that §1332(d) requires the District Court to determine whether it has jurisdiction by adding up the value of the claim of each person who falls within the definition of the proposed class.

The Ninth Circuit noted that while Lowdermilk reasoned that the initial jurisdictional determination derives from the complaint, Standard Fire mandates that courts determine their jurisdiction by aggregating all potential class members’ individual claims, and in doing so to look beyond the complaint when the complaint alleges damages below the jurisdictional minimum, contrary to Lowdermilk’s instruction. 

Thus, the Ninth Circuit observed that Lowdermilk’s legal certainty standard which was a consequence of a plaintiff’s ability to plead to avoid federal jurisdiction was not viable in actions involving absent class members, and that the reasoning behind Lowdermilk’s imposition of the legal certainty standard was clearly irreconcilable with Standard Fire. 

The Ninth Circuit stated that Standard Fire had undermined the reasoning in Lowdermilk such that the latter had been effectively overruled, and thus a defendant seeking removal must demonstrate, by a preponderance of evidence, that the aggregate amount in controversy exceeded the jurisdictional minimum when the plaintiff does not plead a specific amount in controversy.

Accordingly, the Ninth Circuit now holds that on remand, the defendant must prove that the amount in controversy exceeded $5 million by a preponderance of evidence. –JR