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CAFA Law Blog

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

District Courts Have Authority to Stay Remand Orders in Order to Facilitate Appeal

Posted in Case Summaries

Raskas v. Johnson & Johnson, 2013 WL 1818133 (E.D. Mo. April 29, 2013).

In this action, a District Court in Missouri held that it had authority to stay its own remand order.  The plaintiffs brought an action under the Missouri Merchandising Practices Act.  The plaintiffs alleged that the defendants placed expiration dates on their medications, causing consumers to discard products and replace them after the expiration dates had passed, with knowledge that the products remained safe and effective beyond those dates.

The defendants removed the action from the Circuit Court for St. Louis County to the District Court pursuant to CAFA.  The District Court, however, held that the defendants did not meet their burden of establishing an amount in controversy that was at least $5 million, and remanded the action to the state court.  The defendants then moved to stay the remand orders, arguing that equity favored issuance of a stay.  The defendants also argued that the stay would prevent the parties from having to expend resources to litigate the cases simultaneously in state court and on appeal, and that it would avoid any potentially inconsistent rulings from the state court.  The District Court agreed and granted the motion.

Under 28 U.S.C. § 1447(d), an order remanding a case to state court is generally not reviewable on appeal, and § 1447(c) states that when a remand order is issued by a district court, the district court is ordinarily divested of jurisdiction, allowing the state court to proceed with the case.  However, the District Court explained that pursuant to §1453(c) federal courts of appeals may exercise their discretion to accept an appeal from a remand order under CAFA notwithstanding §1447(d).

The District Court reasoned that to hold that a district court lacks the limited jurisdiction to stay its remand order in a CAFA case would render the statutory right to appeal a CAFA remand order worthless.  While deciding a motion to stay pending appellate review, courts must consider:

  1. the likelihood that a party seeking the stay will prevail on the merits of the appeal;
  2. the likelihood that the moving party will be irreparably harmed absent a stay;
  3. the prospect that others will be harmed if the court grants the stay; and
  4. the public interest in granting the stay.

The District Court determined that the defendants adequately demonstrated a sufficient likelihood of success on the merits to support their motions to stay because of the lack of authority on the issues.  The District Court also found that the burden of having to simultaneously litigate cases in state court and on appeal, as well as the potential for inconsistent outcomes if the state court ruled on any motions while the case was pending before the Eight Circuit, demonstrated irreparable harm and favored granting the stay.

Similarly, the District Court noted that the plaintiffs’ interests would be served by granting a stay because neither party would incur additional expenses from simultaneous litigation, and plaintiffs would not be harmed by a lengthy delay because of the expedited appellate review process set forth in § 1453(a).  Finally, the District Court explained that granting the stay would benefit the public’s interest by saving judicial resources and promoting judicial economy.

For these reasons, the District Court opined that a stay of the remand order was appropriate.  However, the District Court explained that the parties could not seek any further relief from it until the Eighth Circuit ruled on the merits of the appeal because it lacked subject matter jurisdiction.

A Removing Party Should Identify Statutes That Permit Attorney’s Fees

Posted in Case Summaries, Jurisdictional Amount

Otay Hydraulics, Inc. v. Safety-Kleen Systems, Inc., 2013 WL 1773955 (C.D. Cal. April 25, 2013).

In this matter, the plaintiff brought an action in the Los Angeles County Superior Court alleging that the defendant breached contracts with its California customers by charging unauthorized fuel surcharges and excessive fees.

The defendants removed the action to the District Court for the Central District of California asserting diversity jurisdiction under CAFA, 28 U.S.C. § 1332(d).  The District Court, however, remanded the action to state court on its own motion for lack of jurisdiction.  On appeal, the Ninth Circuit vacated the order.

As a result, the action came back to the District Court, and plaintiff again moved for remand.  Plaintiff argued that remand was appropriate because the defendant failed to establish that the amount in controversy exceeded $5,000,000, an issue the Ninth Circuit declined to address on appeal.

Plaintiff had not specified an amount in controversy; so, the defendant was required to establish by a preponderance of the evidence that the amount in controversy exceeded $5,000,000.  In its Notice of Removal, the defendant argued that the total amount it charged the putative class members during the four years preceding the filing of the action was $5,281,406.  The defendant calculated this figure by adding together the amounts it charged for fuel surcharges and fees, which were $3,527,781 and $1,753,625, respectively.

The plaintiff, on the other hand, argued that its putative class only included persons and entities residing in California who actually paid fuel surcharges and late-payment fees, and that the defendant only collected $3,239,822 in fuel surcharges and $317,215 in fees, totaling $3,557,037.

The District Court noted that the plaintiff is the master of the complaint, and because the plaintiff only proposed a class of persons and entities residing in California who paid the fuel surcharges and late-payment fees, the amount defendant charged but did not necessarily receive had little effect on the amount in controversy computation.  Also, the defendant admitted that it only collected $3,557,037 in questioned fees.

The defendant also assumed that every class member would continue to pay the questioned charges throughout the litigation.  The District Court calculated the amount defendant collected each month from the fuel surcharges and fees and multiplied those amounts by 5.7, the median number of months a case took to go from filing to disposition.  Yet, the amount in controversy ($3,962,587) was still below the jurisdictional threshold.

The defendant’s remaining arguments were flawed as well.  For example, the defendant valued the plaintiff’s claim for injunctive relief, namely prohibiting it from continuing its allegedly unfair, illegal, and fraudulent businesses practices in the future.  The defendant’s manager assumed that if the defendant was prohibited from assessing a fuel surcharge to its customers, the defendant would need to increase its service price, which would result in the defendant losing some of its current customers.  The manager estimated lost sales of $1,780,000 within one year of a potential injunction.  The District Court, however, declined to base its jurisdiction on the defendant’s speculation and conjecture, and noted that the defendant failed to produce any concrete evidence in support of its assertions.

Additionally, the defendant argued that it could include the value of the plaintiff’s requested recessionary relief, and contended that there was a reasonable likelihood that the total gross revenues generated by the defendant on contracts with putative class members who paid a fuel surcharge and/or a late payment fee exceeded $5 million.  Because the defendant, again, asserted a conclusion, without adducing any evidence to support its proposition, such as the value of its contracts, the District Court refused to take note.

Unfortunately for the defendant, it failed to identify any applicable statute that either required or permitted an attorneys’-fees award.  This was perhaps the defendant’s biggest mistake as such fees may be included in the amount in controversy.

Thus, because the defendant failed to prove by a preponderance of the evidence that the amount in controversy exceeded $5,000,000 as mandated by 28 U.S.C. § 1332(d)(2), the District Court granted the plaintiff’s motion for remand.

Lemy v. Direct General Finance Co., 2014 WL 903371 (11th Cir. March 10, 2014).

Posted in Case Summaries

Lemy v. Direct General Finance Co., 2014 WL 903371 (11th Cir. March 10, 2014).

 The Eleventh Circuit upheld the District Court’s denial of motion to remand, finding that when the percentage of recovery from a foreign defendant far exceeds the percentage of recovery from the local defendant, then significant relief is not being sought from the local defendant.

 The plaintiffs, Gardith Lemy and Marilyn Hill, brought a class action in state court, alleging that a group of defendants acted in concert to sell plaintiffs a worthless insurance product in violation of the Florida Insurance Code, specifically surplus lines insurance, which covers things such as ambulance services and hospital stay bills.  The Florida Insurance Code regulates surplus lines insurance and provides that surplus lines insurance may be sold to supplement general line insurance under certain conditions.

 The defendants removed the action to the federal court under CAFA, but the plaintiffs moved to remand the case under the local controversy exception, which withdraws federal jurisdiction where the class seeks significant relief from a local defendant.  The District Court found that the plaintiffs did not establish the applicability of this exception to federal jurisdiction and denied the motion to remand.

 On the merits, the District Court dismissed the plaintiffs’ complaint, with prejudice, holding that the Florida Insurance Code sections implicated did not provide for private enforcement.  Moreover, the District Court found that, even if the Florida Insurance Code did provide for private enforcement, the defendants’ conduct did not materially violate those sections.  The plaintiffs appealed.

 At the outset, the Eleventh Circuit noted that a local defendant is significant when, inter alia, the plaintiffs seek significant relief from him.  First, inasmuch as the relief that the plaintiffs sought was the restitution of the insurance premiums paid by the Florida class, the District Court compared the shares of the premiums retained by a local defendant to those retained by the foreign defendant.  The District Court determined that, as a matter of fact, the local defendant retained only 4.5% of the total premiums paid by the class, while the foreign defendant retained 80%.  In finding this fact, the District Court interpreted the evidence, credited certain testimony, and drew reasonable inferences, which it was entitled to do.

 The Eleventh Circuit noted that in Evans v. Walter Industries, Inc., 449 F.3d 1159 (11th Cir. 2006), it was explained that the plaintiffs must show that the relief they sought from a local defendant is significant portion of the entire relief sought by the class.  The Eleventh Circuit observed that this conclusion could be reached through comparing the relief sought from the local defendant to that sought from the foreign defendants.  In this case, the District Court concluded that 4.5% of the total relief sought against one of the local defendants was not significant as compared to the 80% sought against one of the foreign defendants.  The Eleventh Circuit found that this conclusion was not erroneous.  (Editors’ Note: See CAFA Law Blog analysis of Evans posted on May 25, 2006.)

 According to the Eleventh Circuit, the fact that the plaintiffs sought declaratory relief from the local defendants did not change this result. The complaint did not distinguish between the declaratory relief sought against the local as opposed to the foreign defendants.  Therefore, this claim did not militate against the conclusion that the leonine share of the relief sought was that from the foreign defendants.  Accordingly, the Eleventh Circuit upheld the denial of motion to remand.

The Eleventh Circuit similarly found that the District Court correctly held that the plaintiffs could not assert the claims that they had advanced in their complaint.  The Eleventh Circuit explained that their claims relied on code sections that did not provide for a private right of enforcement.  Furthermore, violations of these code sections do not render the sections void, thus, permitting the resurrection of common law claims.

Vogle v. Archstone Communities, LLC, 2014 WL 463532 (C.D. Cal. Feb. 5, 2014)

Posted in Case Summaries

Vogle v. Archstone Communities, LLC, 2014 WL 463532 (C.D. Cal. Feb. 5, 2014)

 A District Court in California refused to exercise federal jurisdiction by aggregating the claims against two defendants.  The District Court found that, under CAFA, aggregation of claims against the defendants is permitted only when the defendants were one legal entity, and there was no pleading in the complaint to show that the two defendants in question were a single unit.

 Seeking to represent a class of former tenants, who leased apartments from the defendants, Archstone Builders Inc., Archstone Property Management (California), Inc., Archstone–Smith Four, Inc., and Archstone–Smith Two, Inc., the plaintiffs brought an action asserting violations of California Civil Code § 1950.5, unjust enrichment, and violation of California Business and Professions Code §§ 17200 et seq.  The plaintiffs alleged that the defendants systematically charged tenants for cleaning, painting, and carpet cleaning at the conclusion of every tenancy, regardless of the apartment’s actual condition.  The defendants removed the case to the federal court, pursuant to CAFA. 

 In support of the removal, the defendants included a declaration of Chris Jenkins, who oversaw the processing of Archstone Defendants’s financial information and electronic data.  Jenkins alleged that over the time in question, approximately 69,000 tenants resided in their apartments, paid security deposits of approximately $34 million, and were charged approximately $21 million for apartment cleaning, painting and/or carpet replacement.  The plaintiffs filed a motion to remand. 

 The defendant Archstone Long Beach, L.P. (“LB Defendant”) alleged that this case could be removed because it satisfied the CAFA requirements, including that the amount-in-controversy exceeded $5 million.  Because the plaintiffs did not allege an amount-in-controversy, LB Defendant bore the burden of proving by a preponderance of the evidence that the amount-in-controversy had been met.

 LB Defendant calculated the amount-in-controversy by aggregating potential damages to all tenants who lived in any of the 70 multi-unit apartment complexes managed by defendant Archstone Communities, LLC (“Archstone Defendant”) not just the ones managed by LB Defendant.  The District Court, however, noted that, in order to be potentially liable for damages to all former tenants of Archstone Apartments, LB Defendant would have to be jointly liable with Archstone Defendant or both the defendants would need to be one legal entity.  The District Court remarked that it was not persuaded that the facts alleged in complaint were consistent with either joint liability or the existence of one entity.  Therefore, the District Court concluded that LB Defendant did not properly calculate its potential liability and did not satisfy the CAFA amount-in-controversy requirement.

 The District Court explained that, while CAFA permits aggregation of claims of separate plaintiffs, claims against multiple defendants could be aggregated only when the defendants were liable jointly.  The District Court found that, based on the facts in the complaint, there was no factual basis on which to conclude that LB Defendant could be liable for damages owed to any tenants outside the class of tenants who lived in LB Apartment.  Therefore, the District Court was not persuaded that potential damages against all Defendants should be aggregated when determining the amount-in-controversy.

Finding that both Archstone Defendant and LB Defendant were not one entity, the District Court ruled that the removal was improper and remanded the case to the state court.

Western District of Kentucky Analyzes CAFA’s Jurisdictional Requirements And Exceptions In Order Denying Remand

Posted in Uncategorized

Brown v. Paducah & Louisville Ry., Inc., 12-00818, 2013 WL 5273773 (W.D. Ky. Sept. 17, 2013)

In this case, a Kentucky district court held that defendants in a putative class action arising out of a train derailment satisfied their burden of establishing CAFA’s minimal-diversity and amount-in-controversy requirements.  The court also found that, because two thirds of the proposed class members, in the aggregate, were not citizens of Kentucky, plaintiffs failed to satisfy their burden of establishing that CAFA’s home-state and local-controversy exceptions defeated removal. Continue Reading

Dissent in Dart Cherokee Basin Operating Co., LLC v. Owens Paves Way For Third Supreme Court CAFA Decision

Posted in Uncategorized

Dart Cherokee Basin Operating Co., LLC v. Owens, 730 F.3d 1234 (10th Cir. 2013), cert. granted, 134 S.Ct. 1788, 188 L.Ed. 2d 757 (2014) 

In this appeal, four circuit judges – Judges Hartz, Kelly, Tymkovich, and Phillips – dissented from the Tenth Circuit’s refusal to grant rehearing with respect to a Tenth Circuit panel’s previous denial of  defendants’ request to appeal a district court’s remand order under 28 U.S.C. § 1453(c).  In the dissenting judges’ view, the district court’s underlying remand order contravened the principles that a defendant seeking removal under CAFA need only allege the amount in controversy in its notice of removal, and must then prove that amount only if the plaintiff challenges the defendant’s allegations.  On April 7, 2014, the Supreme Court granted certiorari in this matter, and the high Court’s upcoming ruling will likely determine how much proof, if any, a defendant must include with its notice of removal to satisfy CAFA’s jurisdictional requirements.  Dart Cherokee Basin Operating Co., LLC v. Owens, 134 S.Ct. 1788, 188 L.Ed. 2d 757 (2014). 

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Local Controversy Exception, Not Home State Exception Wins the Day

Posted in Case Summaries

Vodenichar v Halcon Energy Properties Inc., 733 F.3d 497 (3d Cir. Aug. 16, 2013).

In this action, the Third Circuit affirmed the remand of the case based on a local controversy exception rather than the applying the home state exception as the basis for the district court’s remand.

The plaintiffs, individuals along with the Grove City Country Club, filed a suit on behalf of themselves and other similarly situated landowners who sought to lease the oil and gas rights in their land in Mercer County, Pennsylvania.  Defendants Morascyzk & Polochak (“M & P”) and Co-eXprise, d/b/a/ “CX-Energy” agreed to act as the plaintiffs’ agents to negotiate leases of their oil and gas interests to energy companies under the Landowner Marketplace Agreements for a transaction fee.  M & P and CX-Energy entered into a Letter of Intent with Halcon, who agreed to lease up to 60,000 acres of the oil and gas rights from landowners.  Each landowner was guaranteed a $3,850 per acre plus 18% royalty on the net amount that Halcon realized from the oil and gas recovered from the property.

Plaintiffs claimed that Halcon rejected several leases for reasons other than mentioned under the Halcon agreement.  Accordingly, plaintiffs filed a putative class action against Halcon upon diversity jurisdiction in the District Court for the Western District of Pennsylvania alleging breach of agreement and duty of fair dealing.  The plaintiffs later added M & P and CX-Energy to the action, as this move would destroy diversity jurisdiction, the plaintiffs dismissed their own complaint.  On the same day, the plaintiffs filed their state action in the Mercer County, which was removed to federal court, and was assigned to the same district judge who had granted the plaintiffs’ motion to dismiss.

The plaintiffs filed a motion to remand based on CAFA’s local controversy exception.  The District Court however, found that the local controversy exception did not apply, but held that CAFA’s home state exception required remanding the case to the Court of Common Pleas.  Halcon then appealed.  The Third Circuit, reversed the District Court’s remand based on the home state exception, but still remanded the case.  Here’s the Third Circuit take on the CAFA’s exceptions.

The Third Circuit noted that the home state exception requires a federal court to decline subject matter jurisdiction where 2/3rd or more of the members of the proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.  Here, all the criterion were met, i.e., it was undisputed that over 2/3rd of the putative class members and the defendants M & P and CX-Energy were Pennsylvania citizens, and that Halcon was headquatered in Texas, hence, not a Pennsylvania citizen.  Having established this, the Third Circuit was faced with an issue as to which of the Defendants was the principal defendant.  As CAFA itself does not define the “primary defendant” the Third Circuit looked at precedents, and concluded as follows: A PRIMARY DEFENDANT MUST BE THE REAL TARGET OF THE PLAINTIFFS’ ACCUSATION.  The Third Circuit remarked that the courts should determine if the plaintiffs sought to hold the defendant responsible for its own actions, as opposed to seeking to have it pay for the actions of the others. 

Here, the Third Circuit found that the plaintiffs alleged that each defendant was directly liable, and appeared to apportion liability equally among the defendants, and sought similar from all defendants.  The Third Circuit noted that while more claims were asserted against M & P and CX-Energy than against Halcon, the claims against Halcon were as, if not more, significant in that the plaintiffs alleged Halcon breached its lease agreement with more than 1,000 landowners and owed damages exceeding $50,000 to each class member.  Accordingly, the Third Circuit concluded Halcon was the primary defendant, hence the home state exception was not applicable, and that the remand under this exception was improper.

Next, the Third Circuit turned to the other exception to CAFA’s subject matter jurisdiction: the local controversy exception.  The District Court had ruled that this exception did not apply because the class action had been filed arising from the same facts and asserting similar claims as the one filed before the District Court which the plaintiffs had got voluntarily dismissed.  The Third Circuit noted that the ingredients of a local controversy exception are (1) > 2/3rd putative class members from the state; (2) at least 1 defendant citizen of the state where action was filed; (3) local defendant’s conduct forms a significant basis for the claims; (4) significant relief from the local defendant; (5) principal injuries occurred in the state where the action was filed; and (6) no other class action was filed in the preceding three years.

Here, the Third Circuit found that all the elements are met.  First, over 2/3rd putative class members were from Pennsylvania.  Second, at least one defendant was local.  Third, each defendant’s alleged conduct did form a significant basis for the claim, because as agents for the putative class members, the local defendants entered into an agreement with Halcon.  Fourth, Plaintiffs were seeking significant relief from both local defendants.  And fifth, there was no dispute that the principal injuries were incurred in the Pennsylvania.

Accordingly, the only element in dispute was had the plaintiffs filed a similar class action in the last three years.  Here, the Third Circuit noted that CAFA does not define what constitutes an “other class action” other than to limit it to filed cases asserting similar factual allegations against a defendant.  By imposing this condition, the Third Circuit observes that the congress wanted to ensure that the defendants did not face copycat, or near copycat, suits in multiple forums.  Therefore, the question here was, did the previous action, which the plaintiffs had got voluntarily dismissed, qualify as an “other class action.” 

Here, when the plaintiffs filed a motion to get the first action dismissed, in order to include new parties, the District Court granted the motion without prejudice, but ordered the parties to participate in ADR (“Alternative Dispute Resolution”) and to retain the discovery that they had exchanged for use in both the ADR and the case that joined the two local defendants.  Thus, according to the Third Circuit, the District Court’s action showed that it considered the second filed action a continuation of the first action, and took practical steps to ensure that the act of filing the second complaint did not delay the parties’ ability to proceed.  In addition, the Third Circuit noted that this was not a copycat situation, rather the named plaintiffs’ action to file a separate action was no different from a situation where a party amended a pleading to join parties to an existing case.  In short, the Third Circuit concluded Halcon defending the new action did nothing radical in its approach vis-à-vis defending the first action.

Accordingly, the Third Circuit concluded that the second action was not a copycat action, and that the case qualified for a remand under CAFA’s local controversy exception.  – JR

Approved Settlement of Federal and State Wage Claims Did Not Implicate CAFA

Posted in Uncategorized

Juvera v. Salcido, 2013 WL 6628039 (D. Ariz. Dec. 17, 2013)

A District Court in Arizona granted approval to a $157,000 settlement holding that the Settlement Agreement reflected a fair and reasonable resolution of wage issues in the action.

Current and former cashiers who were employed with the defendants brought this action alleging violations of the Fair Labor Standards Act and Arizona’s minimum wage laws.  Their grouse stemmed from the cashiers having to reimburse the defendants when the cash drawer or till did not add up correctly; and from the employees having to repay the defendants for the cost of replacement uniforms, as well as employee name and security tags.  According to the plaintiffs, these policies reduced their wages below the minimum wage required by the FLSA and Arizona law.  The Parties ultimately settled their disputes, and in this order, the District Court granted the parties’ joint motion for final approval of the Settlement Agreement.

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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

Setting the Edges: Defending Against Plaintiff End Runs Around CAFA

Posted in Jurisdictional Amount, Legal Publications and Articles

Edward S. Sledge, IV & Christopher S. Randolph, Jr., Setting the Edges: Defending Against Plaintiff End Runs Around CAFA, 80 Def. Couns. J. 178 (April 2013).

In this article, Edward S. Sledge, IV, a shareholder at Maynard, Cooper & Gale, P.C. in Birmingham, Alabama, discusses the abusive practice that has allowed plaintiffs’ attorneys to evade CAFA jurisdiction.

The author begins the article by describing the state of class action litigation before CAFA came into force.  During that time, class action filings were concentrated in a few plaintiff-friendly venues, and plaintiffs’ attorneys typically sought “drive-by” certifications, whereby ex parte certification orders were issued on the same day or shortly after the filing of the class action complaint.  The defendants often spent millions of dollars complying with massive discovery requests, likely to cause bankruptcy.  Because of the possibility of bankruptcy, the defendants faced an unpleasant choice after certification, either settle meritless claims for large sums or risk trial.  Yet, when all was said and done, class members did not necessarily benefit from large class action settlements, and were often left with a release of their claims in exchange for a small share of a settlement that may have had little value after accounting for attorney fees and costs.

The author then highlights the objectives of CAFA.  CAFA aims to ensure that large class actions are litigated in a federal forum where procedural rules require greater consideration of the interests of defendants and unnamed plaintiffs.  Before CAFA was enacted, class action lawyers misused the jurisdictional threshold to keep their cases out of federal court and often included stipulations in complaints limiting the amount in controversy to less than the jurisdictional minimum.  Thus, by enacting CAFA, Congress sought to curtail this practice by requiring aggregation of the claims of putative class members in determining the amount in controversy.  CAFA extended federal jurisdiction to class actions where this aggregate value exceeds $5 million and minimal diversity exists.

The author noted that plaintiffs’ attorneys continued to dodge federal jurisdiction through other strategies, such as statements in or attached to complaints that purportedly stipulate that the named plaintiff will not seek more than $5 million for the class.  Federal courts have held that damage stipulations were effective to escape federal jurisdiction, reasoning that a plaintiff can disclaim the right to recover certain damages and that judicial estoppel or state procedural rules would bar a plaintiff from amending the stipulation once back in state court.  Federal courts have also reasoned that the amount in controversy in a class action may be limited to the amount stated in an ad damnum clause, regardless of whether a sworn stipulation was also filed.

State legislatures also facilitated skirting CAFA such that in 2011, Arkansas enacted a statute that provides that a statement of damages in a complaint is binding on the plaintiff with respect to the amount in controversy until the statement of damages is amended.  Also, some states have lax certification standards that allow certification of classes that could never be certified in federal court.  Further, the defendants in some state courts must also continue to spend millions of dollars to comply with discovery requests broader than those normally allowed in federal court, and most state courts maintain broad discretion to impose draconian sanctions for noncompliance with those discovery requests.  Despite statements purporting to limit the amount in controversy to $5 million, the plaintiffs are free to demand settlements several times that amount knowing that the costs of complying with discovery may run into the tens of millions of dollars.

The author also states that reliance on state rules of judicial estoppel and state rules regarding the effect of ad damnum clauses affects allowing state procedural rules to dictate whether federal jurisdiction exists.  State procedural rules are inapplicable in federal court, and State rules that limit recovery to the amount stated in an ad damnum clause are inconsistent with Rule 54(c).  Also, since rules on judicial estoppel, stipulations, and the effect of ad damnum clauses vary from state to state, reliance on state rules would necessarily lead to the inconsistent application of the federal removal statute–an outcome federal courts have sought to avoid.

The author opines that even assuming arguendo that a stipulation or ad damnum clause may limit the amount in controversy outside the class action context, such purported limitations would be irrelevant in the jurisdictional analysis in a class action removed under CAFA for several reasons.  First, a stipulation does not effect the valuation of the claims of the unnamed members of a putative class because it cannot bind persons who are not yet parties to a case.  A stipulation could only limit the amount in controversy if it could bind the unnamed members of the class at the time of removal, which would be prior to certification.  Since the Supreme Court has explained that an uncertified class action cannot bind proposed class members, the named plaintiff in a class action cannot waive the rights of the unnamed members of a putative class to certain relief.

Second, CAFA bars consideration of any purported waiver of relief by a named plaintiff.  Federal courts are directed to look at the aggregate value of the individual claims, not the amount that could be awarded to a certified class.  Thus, it is irrelevant whether a class action ultimately certified in state court would include only those plaintiffs who agreed to a damages stipulation.  A federal court must look at the aggregate value of the claims of both the plaintiffs who may ultimately choose to opt out and the plaintiffs who choose to be bound by a damages stipulation.

Third, a named plaintiff’s obligations to the unnamed class members bar his waiver of the damages available to class members.  He has a fiduciary duty to his fellow class members and cannot throw away what could be a major component of the class’s recovery.

The plaintiffs’ efforts to evade federal jurisdiction through damage stipulations undermine the purpose of CAFA and the jurisdictional gamesmanship that Congress sought to end.  As such, the author opines that the Supreme Court is positioned to end plaintiffs’ end runs around CAFA.

The Supreme Court granted certiorari in Standard Fire Insurance Co. v. Knowles to determine whether a named plaintiff may defeat a defendant’s right of removal under CAFA by stipulating that he will seek no more than $5 million for the putative class when the amount in controversy, absent the stipulation, would exceed $5 million.  The author states that Knowles has the potential to end an abusive evasion of CAFA which would also be the Supreme Court’s first discussion of the calculation of the amount in controversy under CAFA and its first meaningful discussion of the effect of damage stipulations since dicta penned in February 1938, prior to the effective date of the Federal Rules of Civil Procedure.  In Knowles, the Supreme Court held that the stipulation in a case that the class would seek less than $5 million in damages, which was intended to establish the amount in controversy, does not defeat federal jurisdiction under the CAFA.