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

CAFA Causing Tension In The Eleventh Circuit – Recent Decision Says Prior Case Full of Dicta (And Not Even Persuasive Dicta)

Posted in Case Summaries

Pretka v. Kolter City Plaza II, Inc., No. 10-11471, 2010 WL 2278358 (11th Cir. June 8, 2010)

Litigants, who don’t like a binding opinion and who can’t muster up some cogent reason to distinguish the case, often find themselves labeling the unfavorable portions of the opinion as non-precedential “dicta.” It is somewhat rare, however, for a federal circuit court to spend several pages of an opinion analyzing whether portions of a prior opinion by that same court were dicta. Nonetheless, that is what happened in the Eleventh Circuit’s recent decision in Pretka v. Kolter City Plaza II, Inc

In Pretka, prospective purchasers of luxury condominiums in West Palm Beach, Florida sued the condo developer in Florida state court, alleging that the developer failed to let them out of their purchase contracts despite extensive delays in construction. (The recent downturn in the South Florida real estate market may also have prompted the plaintiffs’ attempt to escape from their purchase contact and may have fueled the developer’s reluctance to letting them out.) In any event, the plaintiffs sued on behalf of approximately 300 purchasers of condo units who had not yet closed on their purchase. The plaintiffs sought rescission of their purchase contracts, as well as damages for their Initial Deposit and Construction Payment, each of which was 10% of the purchase price.

Within 30 days of the filing of the initial complaint, Kolter (the condo developer) removed the case to the Southern District of Florida, invoking federal jurisdiction under CAFA. In its removal notice, Kolter alleged that CAFA’s $5 million amount in controversy requirement was satisfied because it had collected purchase deposits for condo units at the condo building that exceeded $5 million. Kolter supported this factual assertion with a sworn declaration from its Chief Financial Officer. 

The plaintiffs filed a motion for remand, primarily arguing that the Eleventh Circuit’s decision in Lowery v. Alabama Power Co., 483 F.3d 1184 (11th Cir. 2007) prohibited Kolter from supporting its removal notice with documents that had not been received from the plaintiffs. (Editors’ Note: See the CAFA Law Blog analysis of Lowery posted on May 15, 2007). 

Kolter responded to the plaintiffs’ motion by arguing (1) the $5 million amount in controversy could be extrapolated simply by reviewing the damages allegations in the plaintiffs’ complaint, (2) the rule set forth by the Lowery decision did not apply to contract-related disputes, and (3) the district court could consider additional evidence that Kolter supplied in its remand opposition. 

After holding a hearing, the district court granted the plaintiffs’ remand motion and rejected all three contentions made by Kolter. See Pretka v. Kolter City Plaza II, Inc., No. 09-80706, 2009 WL 4547042 (S.D. Fla. Nov. 30, 2009). (Editors’ Note: See the CAFA Law Blog analysis of the district court decision in Pretka posted on February 17, 2010).

Kolter filed a petition for leave to appeal under 28 U.S.C. § 1453, which the Eleventh Circuit granted.

The Eleventh Circuit began its analysis by distinguishing the two types of removal that exist in the general removal statute, 28 U.S.C. § 1446(b). The first paragraph of that provision deals with cases that are removable at the time they are commenced, allowing defendants to remove a case within 30 days after receipt of the initial pleading that sets forth the claim for relief. The second paragraph, however, contemplates removal in situations in which the suit was not initially removable but subsequently became removable due to “an amended pleading, motion, order or other paper.” That paragraph allows the defendant to remove within 30 days of receipt of the amended pleading or other paper from which it may first be ascertained that the case is removable. The Court emphasized that each paragraph used different language for determining whether a case could be removed – the first paragraph just requires the pleading to “set forth” a claim that is removable, while the second paragraph requires the defendant to be able to “ascertain” from the amended pleading that the case is removable. 

Based on this distinction, the Court was able to distinguish Lowery’s rule that the removal evidence be received from plaintiffs, because Lowery dealt with the second paragraph of § 1446(b) while Pretka involved the first paragraph. 

The Court then made sure to spend the time to emphasize that the Lowery opinion had gone beyond the facts of that case when the Lowery panel had opined that the “receipt from plaintiffs” rule would also apply to cases under the first paragraph of § 1446(b). The Pretka Court concluded that these statements were dicta that were not necessary to the Lowery decision and were not even of persuasive value, because the Lowery statements were inconsistent with the language of the removal provision and were based upon erroneous readings of prior circuit opinions. 

Similarly, the Pretka Court also labeled as dicta statements in Lowery that the “receipt from the plaintiff” rule would apply in any case in which the complaint seeks unliquidated damages. Again, the Court held that this statement was not necessary for the Lowery decision and was based upon a misreading of Supreme Court precedent.

Having distinguished Lowery and having labeled a chunk of its opinion as dicta, the Pretka Court held that when a case is removed based on the first paragraph of § 1446(b), the defendant is not limited to evidence that it received from the plaintiff when attempting to establish federal jurisdiction. Accordingly, the Court concluded that it was permissible for Kolter to rely on the declaration of its Chief Financial Officer to support its factual assertion that more than $5 million in initial deposits had been received for the condo building at issue. As such, the Court reversed the district court’s remand decision.  

  • Sadat

    Lowery’s days are numbered, as the 1446(b) first paragraph-second paragraph distinction doesn’t hold up in cases where (like Lowery) the removing defendant is brought in on an amended complaint, the complaint (unlike Lowery, but like Pretka) seeks contract damages, and the defendant has the contracts that establish to the cent what the damages/amount in controversy is. In that ‘second paragraph case, the district court should be permitted to accept the contracts as evidence of the amount in controversy, but under Lowery and Pretka, it would be barred from doing so. Eventually the 11th will have to go en banc and reverse Lowery in its entirety. Good riddence!