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

When the Amount in Controversy is Disputed, the Propriety of Remand Comes Down to Math

Posted in Case Summaries, Uncategorized

Windom v. BorgWarner, Inc., 2014 WL 10290888 (S.D. Miss. Oct. 17, 2014).

In an action brought by clients against their former attorneys, the district court found that, in determining the amount in controversy in a mass action, the punitive damages claims of the putative class cannot be aggregated to meet the jurisdictional requirement and that, ultimately, the propriety of remand comes down to accurately doing the math.

Patsy Windom and 287 other plaintiffs brought a state court action claiming that they were wronged by a group of attorneys in a PCB contamination settlement gone awry.  The plaintiffs alleged that the defendant attorneys’ secret deals, obfuscation, and misrepresentations enriched the defendants and deprived the plaintiffs of settlement funds.

Specifically, the plaintiffs asserted that the defendants took the $14 million total settlement, placed the funds into a bank which they controlled in Alabama, and wrongfully took their own payout of $6.9 million in a variety of ways contrary to their duties to their clients before disbursing funds to their clients.  The plaintiffs brought claims for conversion, conspiracy, breach of fiduciary duty, fraudulent inducement, and bad faith.  The complaint sought the true value of each plaintiffs’ settlement amount of $8,070.11, costs, expenses, extra-contractual damages, and punitive damages of either more than $1 million or an amount to be determined by the finder of fact.  The complaint also sought a preliminary injunction forcing the defendants to return “all” settlement funds to a Mississippi bank for an accounting to be conducted with oversight by a court or the Mississippi Bar.

The defendants removed the case to the District Court claiming that it was a class action and mass action under CAFA.  The plaintiffs filed a motion to remand arguing that the defendants’ failed to put forward any evidence showing that the aggregate amount in controversy exceeded $5 million under the “class action” requirement, or that any of the plaintiffs’ individual amount in controversy exceeded $75,000 under the “mass action” requirement.  The District Court granted the plaintiffs’ motion to remand.

At the outset, the Court noted that a defendant seeking to sustain removal may follow either of two tracks: (i) Adduce summary judgment evidence of the amount in controversy, or (ii) demonstrate that, from the class plaintiffs’ pleadings alone, it is ‘facially apparent’ that CAFA’s amount in controversy is met.  Where the removing party chooses the latter method, its burden is to show not only what the stakes of the litigation could be, but also what they are given the plaintiffs’ actual demands.  The demonstration concerns what the plaintiffs are claiming (and thus the amount in controversy between the parties), not whether the plaintiffs are likely to win or be awarded everything they seek.

First, the Court found that a fair reading of the complaint did show that more than $5 million was at stake.  Specifically, under the wrongful conversion claim, the plaintiffs asserted that the defendants misspent $6.9 million of the settlement fund, and the plaintiffs sought a preliminary injunction to freeze “all” settlement monies.  The Court, however, remarked that the plaintiffs did not file this complaint under Federal Rule of Civil Procedure 23 or any analogous state statute or rule; indeed, Mississippi has no class action rule.  Therefore, the Court concluded that this case was not a “CAFA class action.”

Next, under “CAFA mass action,” the plaintiffs argued that the defendants failed to establish that any of the plaintiffs’ “individual amount in controversy” exceeded $75,000 under the mass action requirement.  The defendants, however, contended that the $1 million demand for punitive damages must be assessed against each plaintiff individually.  The defendants based their arguments on a 1995 Fifth Circuit decision, Allen v. R & H Oil & Gas Co., 63 F.3d 1326, 1333 (5th Cir.1995), which held that “the unique nature of punitive damages awards requires, at least in Mississippi, that the full amount of alleged damages be counted against each plaintiff in determining the jurisdictional amount.”  The Court, however, had previously concluded in Mississippi ex rel. Hood v. AU Optronics Corp., 876 F.Supp.2d 758, 775 (S.D. Miss.2012) (citing H & D Tire & Auto .-Hardware, Inc. v. Pitney Bowes Inc., 227 F.3d 326, 330 (5th Cir.2000)) that Allen conflicted with a previous panel decision and therefore was no longer good law as to that point.

Five years after Allen, the Fifth Circuit in H & D Tire & Auto clarified that under an even earlier decision, Lindsey v. Alabama Tel. Co., 576 F.2d 593 (5th Cir.1978), “the punitive damages claims of the putative class cannot be aggregated and attributed to each plaintiff to meet the jurisdictional requirement.”  Lindsey’s reasoning did not rely on a characterization of punitive damages under state law, but was instead based on the principle that “the claims of several plaintiffs, suing as members of a class, cannot be aggregated for the purpose of satisfying the jurisdictional predicate.”  In other words, the Court explained that a federal court evaluating an individual amount in controversy requirement must “first consider whether the plaintiffs’ individual actual damages plus individual punitive damages exceeds” the jurisdictional threshold.

Here, the defendants nevertheless claimed that imputing collective punitive damages to every plaintiff was appropriate, and the Fifth Circuit’s clarification meaningless, because in 2003 Judge Davidson found in Amos v. CitiFinancial Corp., 243 F.Supp.2d 587, 590 (N.D.Miss.2003) that Allen still applies in Mississippi.  The Court remarked that this argument was foreclosed by H & D and Lindsey, and the defendants had not explained why these cases were not binding.

Finally, the defendants contended that because the plaintiffs had a conversion claim for $6.9 million and sought to enjoin that sum, and because $6.9 million far exceeded $75,000, that the individual amount of controversy requirement was satisfied.  The Court, however, remarked that this argument conflated the aggregate and individual amount in controversy requirements.  If the aggregate amount of controversy could be imputed to each plaintiff, then CAFA’s individual amount of controversy would be rendered meaningless, the Court observed.

Coming down to math, the Court explained that if the aggregate amount of controversy was $6.9 million, the per-plaintiff amount of compensatory damages at stake would be just under $24,000.  The plaintiffs’ demand for $1 million in punitive damages would add another $3500 per-plaintiff making the total to $27,500 per plaintiff, which is less than $75,000.

Accordingly, the Court concluded that it lacked jurisdiction, and remanded the case to the state court.