Morgan v. Gay, 2006 WL 2265302, 06-1371 (D.N.J. August 7, 2006).

Captain Morgan vs. Mount Gay: In a blind taste test the District of New Jersey decided they didn’t even like rum and sent the case back to state court. Not really, but it sure sounds like fun.  Chief United States District Judge Garrett E. Brown, Jr. of the District of New Jersey examined the Class Action Fairness Act’s threshold jurisdictional burden of proof issue, and without any original analysis, followed Brill, Abrego and Miedema, holding that the burden fell on the removing defendants to prove jurisdiction exists.    (Editors’ Note:  See the CAFA Law Blog analysis of Brill posted on November 2, 2005, the CAFA Law Blog analysis of Abrego posted on May 25, 2006, and the CAFA Law Blog analysis of Miedema posted on August 22, 2006.  See also the CAFA Law Blog critique of the Miedema decision posted on August 22, 2006).

This case began as an action based on false advertising claims by New Jersey purchasers of the skin cream StriVectin-SD. The plaintiffs asserted violations of the New Jersey Consumer Fraud Act as well as common law causes of fraud, unjust enrichment, and breach of express and implied warranties. The original action was filed as a nationwide class with representatives in New York, Ohio, Indiana, Mississippi, Texas, New Jersey, Illinois, and Vermont.

The plaintiffs originally filed in the United States District Court for the Southern District of New York, but the case was transferred to the District of Utah upon motion of the defendants because all of the defendants maintained residences and/or principal places of business in Utah. The plaintiffs in turn voluntarily dismissed, modified, and refiled the action as a more limited New Jersey state class action. One month after refiling, the defendants removed the case to federal court. The plaintiffs filed a motion to remand the case back to New Jersey state court and the defendants moved to transfer to the District of Utah.  (Editors’ Note:  Could this be an example of the “abuse of the class action device” detailed by Congress in Section 2 of the Class Action Fairness Act?)

The refiled complaint was carefully drafted to avoid jurisdiction under CAFA. The complaint addressed the amount in controversy by stating: “this action . . . seeks . . .trebled compensatory damages; including, but not limited to a refund of the purchase price that each member of the class paid for StriVectin-SD, respectively; punitive damages, and injunction, interest; court costs; and attorneys fees; however, the total amount of monetary relief for the class as a whole shall not exceed $5 million in sum or value.” The plaintiffs pled the amount in controversy so as not to invoke the $5 million CAFA trigger for minimal diversity jurisdiction, similar to what plaintiffs have done for years to avoid the $75,000 trigger invoking complete diversity jurisdiction.

Chief United States District Judge Garrett E. Brown, Jr. began his analysis with the plaintiffs’ Motion to Remand. The thrust of the plaintiffs’ argument was that the complaint limited the monetary relief to $5 million or less, and therefore the court lacked subject matter jurisdiction.

Judge Brown started his analysis (under the heading “Standard for Removal”) by citing to a pre?CAFA Third Circuit case in the complete diversity context for the proposition that the removing defendant bears the burden of proof of demonstrating that removal was proper and that the Court has subject matter jurisdiction.

The Court then noted the split among the courts as to which party carries the threshold jurisdictional burden under CAFA. The Judge cited Waitt v. Merck and Harvey v. Blockbuster for placing the burden on the party seeking remand, and Brill, Abrego and Miedema for placing the burden on the removing party.  (Editors’ Note:  See the CAFA Law Blog analysis of Waitt posted on November 3, 2005 and the CAFA Law Blog analysis of Blockbuster posted on September 20, 2005.  See also the law review article by CAFA Law Blog Editors Hunter Twiford, Anthony Rollo and John Rouse entitled “CAFA’s New ‘Minimal Diversity’ Standard For Interstate Class Actions Creates A Presumption That Jurisdiction Exists, With The Burden Of Proof Assigned To The Party Opposing Jurisdiction.”

Judge Brown then conducted his own examination of CAFA. First, he pointed out that there is no statutory language in CAFA addressing which party carries the burden of proof. Second, he pointed to CAFA’s legislative history, specifically the Senate Judiciary Committee Report, which clearly states the burden of proof is on the named plaintiff to demonstrate that the removal was improvident. Judge Brown cited Berry v. American Express and Natale v. Pfizer for their reliance on CAFA’s legislative history to place the burden of proof on the party seeking remand.  (Editors’ Note:  See the CAFA Law Blog analysis of Berry  posted on September 5, 2005 and the CAFA Law Blog analysis of Natale posted on August 14, 2006).  The Judge ultimately followed the Brill, Abrego, and Miedema rulings, finding that the statements found in the Senate Judiciary Committee report were inadequate in force or effect to alter years of precedent.

After finding that the threshold jurisdictional burden of proof on removal is unchanged by CAFA, the Judge examined the amount in controversy, along with the “standard of proof” and “evidence” that defendants must now establish under the burden he assigned to them. In looking at the “standard of proof” and “evidence” questions, the Court again cited principally to pre-CAFA jurisprudence governing complete diversity jurisdiction. The plaintiffs argued that the complaint specifically capped the amount of damages to no more than $5 million. Judge Brown stated he is convinced that the recovery the plaintiffs could receive would not exceed $5 million, because that is the maximum amount the plaintiffs alleged was the amount in controversy. Whether or not the plaintiffs’ allegations are disingenuous, the Court stated that limits on recovery are a legitimate and recognized practice. With the burden on the defendants, the Judge stated that the defendants did not offer any factual support to prove that the plaintiffs could obtain more than the $5 million maximum as pled in the complaint. The case was remanded back to New Jersey Superior Court for failing to meet the monetary requirements of CAFA.

Editors’ Note:  Chief Judge Brown’s holding regarding burden of proof follows the Brill, Abrego, and Miediema decisions on the subject, but in doing so also overlooks Section 2 of CAFA. The decision has two points: (1) “There is nothing in the CAFA statute indicating that Congress intended to alter which party carries the burden of proof” and (2) “legislative statements found in the Senate Judiciary Committee report accompanying the CAFA statute are inadequate in force or effect to alter years of precedent.” But as discussed on our law review article, and critique of Miedema, Section 2 of CAFA (codified at 28 U.S.C. 1711), states that one of the Findings and Purposes behind Congressional intent in passing the statute is to “restore the intent of the framers of the United States Constitution” regarding class actions, i.e., to change the existing jurisdictional status quo of the complete diversity jurisdiction rules. Additionally, the “years of precedent” referred to by Chief Judge Brown all discuss pre-CAFA 1332(a) complete diversity, not 1332(d) minimal diversity. Just like 1332(d), 1332(a) has nothing in it stating which party bears the burden of proof.

Brill and Abrego completely overlooked Section 2 in their analyses, and applied an overly restrictive standard of statutory interpretation. While Miedema did acknowledge the existence of Section 2, it merely said that if Congress really intended to change the threshold removal burden of proof, it would have specifically added a provision saying so in its text, as opposed to in the legislative history. Miedema, however, failed to acknowledge the existence of the ambiguities created by Section 2 with respect to burden of proof which, under any doctrine of statutory interpretation, would have opened wide the door to review of the Senate Judiciary Committee Report and House Sponsor’s Statement. The outcome in Morgan is precisely the kind of class action forum gaming that the Congress sought to prevent under CAFA, as it articulated in Section 2 of the Act and in the legislative history.

(Editors’ Note:  Everyone is getting onto the blog bandwagon…even Captain Morgan had a blog, however, it seems that it is no longer active.  If your left leg is beginning to rise at the knee, then you will want to check out what is left of Captain Morgan’s blog.  Click here for the Captain’s blog and click here for a review of it.)