Lowery v. Alabama Power Company, Nos. 06-16324 and 06-16325 (11^th Cir. April 11, 2007)

Want to know about mass actions, jurisdictional burden of proof, and discovery for the amount in controversy?  Boy, oh, boy!  We have the case for you.  The Eleventh Circuit handed down a 77 page opinion regarding multiple CAFA issues. Aren’t you glad we are here to do the heavy lifting? We have done an outstanding job of summarizing several CAFA issues for you. 

On April 11, 2007, the 11th Circuit handed down an opinion addressing multiple CAFA issues. In this case, the plaintiffs sued the defendants in Alabama Circuit Court alleging various tort claims under state law. The defendants subsequently removed the case to federal court pursuant to CAFA. The District Court, upon motion to remand, found that the defendants did not carry their burden of establishing jurisdiction under the Act, and it remanded the case to Alabama state court. The defendants petitioned the Eleventh Circuit for leave to appeal, and the Eleventh Circuit granted their petition.

Here is the trial court background.  On January 24, 2003, Katie Lowery and eight other residents of Jefferson County, Alabama filed suit against twelve corporations and 120 fictitious entities for discharging pollutants into the atmosphere and ground water. The complaint alleged six counts that the pollution caused them to suffer injuries.  Each plaintiff demanded compensatory and punitive damages of $1,250,000.00. The plaintiffs amended their complaint three times with the final amendment removing the specific dollar amount claim in exchange for claiming an amount in excess of the court’s minimum jurisdictional limit. The final amendment on June 20, 2006 added two new defendants, Alabama Power and Filler Products Company. 

On July 17, 2006, Alabama Power filed a notice of removal under the mass action provision of CAFA in the District Court for the Northern District of Alabama. On August 3, 2006, the plaintiffs responded by filing a motion to remand.  Despite the fact that the plaintiffs had previously plead an amount in excess of $5 million, they argued that Alabama Power had not met its burden of establishing federal jurisdiction because nothing in the notice of removal or complaint indicated the specific amount of damages that the plaintiffs were claiming. Alternatively, the plaintiffs argued that the case fell within the “local controversy” exception to CAFA. Alabama Power supplemented its notice of removal stating three reasons why it believed the court had subject matter jurisdiction. First, the case involved claims of more than one hundred persons. Second, the minimum total of five million in value was easily met because each plaintiff’s claims would need to yield only $12,500. Third, the defendants pointed out that plaintiffs in recent mass tort actions in Alabama had either received jury verdicts or settlements greater than five million dollars. In addition to this supplement, Alabama Power also moved the court for leave to engage in discovery regarding jurisdiction. The plaintiffs responded by requesting discovery in the form of depositions of the defendant corporations that were citizens of the State of Alabama to support their theory of CAFA’s “local controversy” exception. 

On August 11, 2006, the district court held a hearing regarding jurisdiction. At the hearing, plaintiffs counsel orally withdrew their motion to remand the case and conceded jurisdiction. Despite the plaintiffs’ withdrawal, the court ordered the plaintiffs to file the names of all plaintiffs whose claims would reasonably be expected to exceed $75,000. At a hearing on August 22, plaintiffs’ counsel orally moved the court to reinstate their motion to remand contending that they never conceded federal jurisdiction and that it was Alabama Power’s burden to show that each plaintiffs’ claims amounted to more that $75,000. The district court reinstated the motion to remand over Alabama Power’s objection.

On October 12, 2006, the district court entered an order remanding the case to Alabama state court and Alabama Power moved the court to reconsider its decision. The court granted the motion, and issued a substitute order and accompanying memorandum opinion on October 24, 2006. The memorandum opinion held that the court lacked jurisdiction over the claims against the defendants who had been made parties prior to CAFA’s effective date. Therefore, only Alabama Power and Filler Products, the defendants added after CAFA’s effective date, were properly before the court. But the court also observed that CAFA had not changed the rule that when a state court complaint is uncertain or silent on the amount being sought, the removing defendant had the burden of proving the jurisdictional amount by preponderance of the evidence. The court held that Alabama Power had failed to prove that CAFA’s jurisdictional amounts were satisfied. 

Finally, we get to the 11th Circuit.  Not sure about you, but we are out of breath at this point.  Alabama Power moved the Eleventh Circuit for leave of appeal on October 19. On October 20, a group consisting of all but two of the pre-CAFA defendants also petitioned for appeal. The Eleventh Circuit granted both motions on December 8, 2006 and consolidated the appeals. The Eleventh Circuit stated that the appeals required them to address four distinct issues. First, whether the removal of an action under CAFA by a defendant added as a party after CAFA’s effective date removes the claims against all of the defendants. Second, the requirements for subject matter jurisdiction under CAFA’s mass action provisions. Third, the applicable burden of proof in establishing subject matter jurisdiction in a removed case in which damages are unspecified and who bears that burden. Fourth, what a district court may consider in reviewing a propriety of removal that is timely challenged by a motion to remand.

After outlining CAFA’s general provisions, the court began its opinion asking whether the pre-CAFA defendants could, as a procedural matter, properly join in the removal to federal court initiated by Alabama Power.  The district court held, that because the action against the pre-CAFA defendants “commenced” before the acts effective date, those defendants could not join in the removal, regardless of whether Alabama Power was itself entitled to remove the action. The Eleventh Circuit, following the Fifth Circuit in Braud, held that in light of the plain language of CAFA, removal under the statute encompasses all of the claims in action as a whole, not simply the claims against a removing defendant. (Editor’s Note: See the CAFA Law Blog analysis of Braud posted on May 24, 2006).

The Eleventh Circuit stated that their interpretation of the removal language in CAFA was consistent with the acts overall statutory purpose as well as removal practice outside the CAFA context. Congress expressly intended CAFA to expand federal diversity jurisdiction over class actions. The Eleventh Circuit stated that to read the plain language of the removal provisions narrowly, such that removal would only be available as to claims against the particular removing defendants, would frustrate congressional intent that CAFA would be used to provide for more uniform federal disposition of class actions affecting interstate commerce. The court held that in light of that expansive construction of the removal provisions, the district court erred in holding that the pre-CAFA defendants were not properly included in Alabama Power’s removal.

The second issue addressed by the Eleventh Circuit surrounded the defendant’s contention that the district court’s remand order was improper because the action met the requirements for federal diversity jurisdiction under CAFA. The court noted that in this particular action, the plaintiffs did not seek class certification and the plaintiffs asserted that the action did not qualify for treatment as a mass action. Interpretation of CAFA’s mass action provisions was a matter of first impression in the Eleventh Circuit. 

After outlining CAFA’s provision surrounding mass actions, the Eleventh Circuit outlined four requirements for mass actions: (1) an amount in controversy requirement of an aggregate of five million dollars in claims; (2) a diversity requirement of minimal diversity; (3) a numerosity requirement that the action involved a monetary claims of one hundred or more plaintiffs; and (4) a commonality requirement that the plaintiffs’ claims involved common questions of law or fact. The Eleventh Circuit stated that it is clear from the plain language of the text that for an action to qualify as a mass action, at least these four requirements must be met. 

The court examined the Senate Judiciary Committee report of CAFA noting that while the report was issued ten days following CAFA’ enactment, it was submitted to the Senate on February 3, 2006 – while that body was considering the bill. (Editors’ Note: FANTASTIC!—its about time someone caught on! Take a look at our analysis of the issue when CAFA’s Senate report was authored posted on January 26, 2007).  With the Senate report in mind, the Eleventh Circuit stated that the four requirements were threshold requirements for a district court to have subject matter jurisdiction over the action as a whole. The court noted that they need not decide whether the $75,000 provision might yet create an additional threshold requirement that the party bearing the burden of establishing the court’s jurisdiction must establish at the outset, i.e. that the claims of at least of the one plaintiffs exceed $75,000, because the court held that the defendants had not established the five million aggregate amount in controversy. 

Next, the court asked which party bears the burden of establishing jurisdiction, what is that party’s burden of proof, and what may a district court look to in deciding whether that burden has been met. The court pointed to the traditional rule and noted since CAFA’s passage that court’s have struggled with the question of whether CAFA shifts the burden of establishing jurisdiction in the removal context to the removed plaintiffs. The court pointed to the specific shifting language in the Senate’s Committee Report, but noted that courts of appeal have been reluctant to make the shift. The court cited the opinions in Abrego, Blockbuster, Morgan and Brill.  (Editors’ Note:  See the CAFA Law Blog analysis of Abrego posted on May 25, 2006, the CAFA Law Blog analysis of Blockbuster posted on January 24, 2007, the district court opinion of Morgan analyzed on October 24, 2006, the first Third Circuit opinion in Morgan analyzed on December 7, 2006 and the analysis of the second Third Circuit opinion in Morgan posted on January 19, 2007, and the CAFA Law Blog analysis of Brill posted on November 2, 2005). 

The court also noted that they had recently joined these opinions of the Second, Third, Seventh and Ninth Circuits in following the settled practice of placing the burden of proof on the removing defendant. The court pointed to their recent opinions in Miedema and Evans. (Editor’s Note: See the CAFA Law Blog analysis of Miedema posted on August 22, 2006 and the CAFA Law Blog critique of the Miedema decision posted on August 22, 2006. See also, the CAFA Law Blog analysis of Evans posted on May 25, 2006 and the critique of Evans posted on May 26, 2006).     

(Editor’s Note: It is interesting to note that the Eleventh Circuit went into great detail in analyzing the purposes behind CAFA and its legislative history, yet when it came to analyzing the burden of proof issue, there was no analysis.   We think the court just skipped over Section 2 of CAFA in its analysis. Check out our Law Review Article on the subject).  

Establishing that CAFA did not shift the burden of proof in removal actions, the court attempted to clarify what the burden is. In the removal context where damages are unspecified, the removing party bears the burden of establishing the jurisdictional amount by a propounderance of the evidence in the Eleventh Circuit. The court concluded that if the jurisdictional amount is either stated clearly on the face of the documents before the court, or readily deducible from them, then the court has jurisdiction. If not, the court must remand. Under this approach, jurisdiction is either evident from the removing documents or remand is appropriate. Significantly, the court stated, if a defendant can only carry the burden of establishing jurisdiction under these circumstances, then the defendant could have satisfied for higher burden that poponderous of the evidence.

About half way through the opinion, the Eleventh Circuit took a moment to summarize its holdings. First, with its notice of removal, Alabama Power removed this action as a whole, including the plaintiffs’ claims against both the pre-CAFA defendants and the post-CAFA defendants. Second, the defendants bear the burden of establishing the jurisdictional requirements for a CAFA mass action. Third, because this case involved a complaint for unspecified damages, the defendants have to establish jurisdiction by a preponderance of the evidence.

The last issue addressed by the Eleventh Circuit looked at what evidence a removing defendant may rely on in asserting jurisdiction and, if that evidence is found wanting, whether discovery may be conducted to supplement that evidence. The Eleventh Circuit stated in assessing the propriety of removal, “the court considers the document received by the defendant from the plaintiff – be it the initial complaint or a later received paper – and determines whether that document and the notice of removal unambiguously establishes federal jurisdiction. A district court has before it only the limited universe of evidence available when the motion to remand is filed – i.e., the notice of removal and accompanying documents.” 

The Eleventh Circuit stated if that evidence is insufficient to establish that removal was proper or that jurisdiction was present, neither the defendants nor the court may speculate in an attempt to make up for the notice’s failings. The absence of factual allegations pertinent to the existence of jurisdiction is dispositive. As to post-removal discovery, the Eleventh Circuit stated that this type of discovery for the purpose of establishing jurisdiction in diversity cases cannot be squared with the delicate balance struck by Federal Rules of Civil Procedure 8 and 11. Judicial discovery could avoid problems of jurisdictional speculation by courts, but the sound policy and notions of judicial economy and fairness dictates that courts not follow this course. The Eleventh Circuit called post-removal discovery fishing expeditions which could clog the federal judicial machinery frustrating the limited nature of federal jurisdiction by encouraging defendants to prematurely and, at worse, remove cases in which they would never be able to establish jurisdiction. the Eleventh Circuit held that a district court should not insert itself into the fray by granting leave for the defendant to conduct discovery or by engaging in its own discovery. Doing so impermissibly lightens the defendant’s burden of establishing jurisdiction. A court should not participate in a one-sided subversion of the rules. The proper course for a court is to remand the case.

As to the merits of the case, the Eleventh Circuit held that the defendants were unable to meet their burden of establishing federal jurisdiction over a mass action because they were unable to establish that the plaintiffs’ claims were potentially valued at more than five million dollars. The defendant’s notice of removal contained no document clearly indicating that the aggregate value of the plaintiffs’ claims exceeded the amount in controversy and, as such, the defendants were unable to establish jurisdiction by a preponderance of the evidence. The court remanded the action to state court and affirmed the district court’s order.

We don’t know about you, but we feel like we just ran a marathon.