Stephenson v. Consolidated Rail Corp., 2013 WL 1750005 (D.N.J. April 23, 2013).

The plaintiffs brought this class action in the Superior Court of New Jersey, Gloucester County, alleging that huge quantities of toxic, dangerous, and ultra-hazardous substances were released when defendants bridge collapsed and train derailed.  As a result, 700 individuals were forced to temporarily evacuate; a shelter in place order was mandated for the entire population of Paulsboro, NJ for three days, and some residents of West Deptford, NJ were also ordered to shelter in place.

The plaintiffs asserted claims based on the defendants’ negligence, nuisance, trespass, and strict liability; plaintiffs also sought punitive damages.  The defendants removed the action to the District Court under CAFA.  The plaintiffs argued that the defendants failed to establish that the amount in controversy exceeded the jurisdictional threshold of $5,000,000, and they moved to remand.

The defendants aggregated the individual claims for which the plaintiffs sought compensation and determined the amount in controversy by considering alleged business income loss, losses to residents, punitive damages, and attorney fees.  The District Court assessed each category of damages.

The plaintiffs’ potential class included all businesses inGloucesterCountythat experienced income loss of less than $75,000.  Using sales records and business listing data, the defendants estimated that the business income loss claims from businesses in Paulsboro would be $1,480,768.  The defendants based their analysis on the number of days of the evacuation orders and the number of businesses in Paulsboro.  The defendants attempted to eliminate duplicative entries and business that might have claims above $75,000.

The plaintiffs argued that the defendants’ business income loss numbers were inappropriate because they accounted for lost “sales” and not lost “net income.”  Although the District Court agreed that sales refer to the gross receipts of a business, while net income involves deducting operating expenses and taxes from gross receipts, it noted that the plaintiffs’ Complaint specifically stated members of the second sub-class lost income, not net income, thus undermining their argument.  The District Court remarked that the plaintiffs could not now constructively amend their Complaint to avoid federal subject matter jurisdiction, and the defendants could rely on sales figures to reach the jurisdictional threshold.

The plaintiffs then argued that the defendants’ numbers were based on a 100% loss of sales and that the defendants should have identified a more realistic percentage for lost sales.  The District Court agreed and declined to aggregate the claims based on a 100% loss of sales and adopted 25% as the appropriate figure, which brought business loss claim to $370,192, a conservative figure supported to a legal certainty.

The plaintiffs also sought compensation for the income thatGloucesterCountyresidents lost because of the train derailment.  The defendants used census data from Paulsboro on the number of residents, number of households, and the median household income to develop a figure for potential loss of resident income of $492,159.  The defendants accounted for the fact that residents received evacuation orders and shelter in place orders of varying lengths, and the defendants excluded the potential claims of anyone that lived outside of Paulsboro. The District Court reasoned that the potential claim for $492,159 in lost income for Paulsboro residents was supported to a legal certainty.

Plaintiffs did not seek damages for loss of use and discomfort and argued that defendants calculation was inappropriate.  The plaintiffs had sought compensation for the defendants’ alleged nuisance and trespass, and specifically requested any and all damages available by statute or common law.  Under New Jersey law, a claimant asserting a cause of action for nuisance or trespass can seek three different categories of compensation: diminution of property value, loss of use and discomfort, and annoyance.  The District Court observed that there was no reason to exclude these numbers when determining the amount in controversy, and the defendants had correctly included those figures when calculating the total resident income loss.

Further, the defendants calculated a potential award of $37,149 for loss of use, which was based on the median monthly gross rent for Paulsboro, and proven to a legal certainty.  Also, to quantify discomfort and annoyance, the defendants proposed a figure of $56 per day in damages per person which the District Court opined was an appropriate estimate of the potential recovery.  Thus, the District Court stated that the defendants’ figure of $1,026,984 was supported to a legal certainty.

Next, the District Court noted that punitive damages should be considered when calculating the amount in controversy.  New Jersey law allows for punitive damages per claim of up to five times the amount of compensatory damages.  Here, the defendants proved the underlying compensatory damages to a legal certainty and sought to employ a figure of double the amount of compensatory damages to represent the potential punitive damages.  The District Court accepted the request, and using the figures that were proven to a legal certainty, stated that the punitive damages would be $3,852,968.7.

Finally, the District Court observed that attorney fees could be as much as 30 percent of the judgment, which would be an additional $1,733,856.8.

While the defendants calculations were somewhat speculative, the District Court observed that the defendants need not demonstrate to an absolute certainty that the plaintiffs would recover more than $5 million; they must establish to a legal certainty that the plaintiffs can recover more than $5 million.  Because the defendants showed that the amount in controversy exceeded $5 million by a legal certainty, the District Court denied the plaintiff’s motion for remand.