E-Shops Corp. v. U.S. Bank, No. 10-4822(DSD/JJK), 2011 WL 1324574 (D. Minn. April 7, 2011).
Remember reading The Most Dangerous Game in high school about men hunting other men as sport? Well, the plaintiff in this case helps you hunt other people…with paintballs instead of bullets.
Denying the motion to remand, a District Court in Minnesota found that under the ‘preponderance of the evidence’ standard, the inquiry “is not whether the damages are greater than the requisite amount, but whether a fact finder might legally conclude that they are.”
E-Shops Corporation d/b/a Paintball Punks brought a putative class action concerning a dispute that arose out of chargebacks on credit cards issued by U.S. Bank National Association. (Editors’ Note: What a cool name for a business that provides equipment that enables you to hunt and “kill” other people.)
A chargeback occurs when a cardholder disputes a charge by a merchant, resulting in the return of charged funds from the merchant’s bank to the issuing bank (here U.S. Bank). E-shops sells paintball equipment through the internet. From August to December 2009, E-shops processed nine orders that turned out to be fraudulent. The persons who placed the orders used U.S. Bank credit cards. The value of the fraudulent charges was $11,259.91. When cardholders contested these charges, U.S. Bank initiated chargebacks, resulting in removal of the charges from cardholders’ accounts, and E-shops’ bank refunding $11,259.91 to U.S. Bank.
E-Shops filed this action in state court against U.S. Bank alleging claims of aiding and abetting fraudulent transactions, intentional interference with contract, violation of consumer protection statutes and unjust enrichment. E-shops alleged that the chargebacks were ‘unusual’ and that the fraudulent activity resulted from a data breach at U.S. Bank. E-shops alleged that two U.S. Bank employees admitted the bank’s system had been compromised, and that U.S. Bank was well aware of the problem and that it had been going on for a while.
U.S. Bank timely removed the action to federal court under CAFA. E-shops moved to remand, claiming that U.S. Bank did not meet its burden of establishing that the amount in controversy requirement was met.
The District Court denied E-shops’ motion.
The Court noted that a primary purpose in enacting CAFA was to open the federal courts to corporate defendants out of concern that the national economy risked damage from a proliferation of meritless class action suits. The party seeking removal must prove by a preponderance of the evidence that the amount in controversy exceeds $5 million. Under this standard, the inquiry “is not whether the damages are greater than the requisite amount, but whether a fact finder might legally conclude that they are.”
Under this legal background, the Court found that U.S. Bank had met its burden to show that a fact finder could reasonably conclude that the amount in controversy exceeded $5 million. The Court stated that E-shops’ putative class consisted of all merchants in the United States that received chargeback claims from U.S. Bank related to the alleged data breach, and E-shops reasonably believed the Class to number at least in the hundreds or thousands. Class members suffered chargebacks for individual fraudulent purchases exceeding $1,000, and the purchases continued for several months.
Taking E-shops’ damages as typical, the Court observed that the class must have approximately 450 members to yield total compensatory damages exceeding $5 million. Moreover, E-shops alleged in the complaint that large numbers of cardholders were victims of the purported data breach, supporting a determination that the number of class members exceeded 450. In addition, E-shops sought injunctive, declaratory, and equitable relief. Thus, the Court concluded that aggregating the value of relief sought, U.S. Bank had established by a preponderance of the evidence that CAFA’s amount in controversy requirement was satisfied.