Lowdermilk v. United States Bank National Association, No. 06-36085 (March 2, 2007)

Another burden of proof case from the Ninth Circuit. This time the Ninth takes its burden of proof precedent and identifies different standards of proof depending on how the plaintiff defines damages in their complaint.

On March 2, 2007, the Ninth Circuit Court of Appeals handed down an opinion addressing a question of first impression under CAFA: when the plaintiff has pled damages less than the jurisdictional amount, what must the defendant prove in order to remove the case to federal court? The Ninth Circuit answered the question that the party seeking removal must prove with “legal certainty” that the amount in controversy is satisfied, notwithstanding the prayer for relief in the complaint. In this particular case, the defendant failed to meet this burden, and the Ninth Circuit affirmed the judgment o the district court.

Willene Lowdermilk filed an Oregon state court complaint on behalf of a class of employees who worked for U.S. Bank as hourly employees in the past six years. She claimed that U.S. Bank had a policy whereby it rounded actual hours worked down to the nearest tenth of an hour resulting in employees not being compensated for one to five minutes of the time they worked per day. Also, Ms. Lowdermilk claimed that U.S. Bank failed to promptly pay her wages upon termination, for which she sought damages and penalty wages under Oregon statute. Her total damages, penalties, costs, attorneys’ fees and interest were claimed “in total, less than five million dollars.”

U.S. Bank removed the case to federal court under CAFA arguing that the actual amount in controversy far exceeded CAFA’s jurisdictional amount. The district court held that it was bound by the plaintiff’s complaint unless the plaintiff’s prayer is determined to have been made in bad faith. The district court found no bad faith and remanded the case to Oregon state court.

The Ninth Circuit reviewed the remand order pursuant to CAFA’s review provisions. The court began its opinion by noting that under CAFA the burden of establishing removal jurisdiction remains, as before, on the proponent of federal jurisdiction, citing Abrego, Morgan, Miedema, and Brill. (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.  As for the three Morgan cases, the district court opinion was analyzed on October 24, 2006, the first Third Circuit opinion was analyzed on December 7, 2006, and the second Third Circuit opinion was analyzed on January 19, 2007. You avid readers know our position on who bears the burden of proof, but if you have forgotten or if you are new, see our law review article on the subject.)

The court then examined whether the amount in controversy was met. The court identified three different scenarios in considering what level of proof a defendant must meet. First, when the plaintiff fails to plead a specific amount of damages, the defendant seeking removal must prove by a preponderance that the amount in controversy requirement is met.

Second, if the complaint alleges damages in excess of the jurisdictional requirement, then the requirement is presumed to be satisfied, unless it appears to a legal certainty that the claim is actually less than the requirement.

Third, if the complaint alleges less than the jurisdictional requirement, the Ninth Circuit found no precedent in the circuit.  So, what to do?  Two principles influenced the court’s decision. First, federal courts are courts of limited jurisdiction who strictly construe jurisdiction. Second, the plaintiff is master of her complaint and can plead to avoid federal jurisdiction.

The second principle is subject to a “good faith” requirement in pleading. Therefore, when the plaintiff has alleged her facts and pled her damages, and there is no evidence of bad faith, the defendant must not only contradict the plaintiff’s own assessment of damages, but must overcome the presumption against federal jurisdiction.

The Ninth Circuit stated that the best standard that captures what the defendant must prove is the “legal certainty” standard. By adopting this “legal certainty” standard of proof, the Ninth Circuit said it was guarding the presumption against federal jurisdiction and preserving the plaintiff’s prerogative, subject to the good faith requirement, to forgo a potentially larger recovery to remain in state court. The Ninth Circuit held that in the third scenario, when the plaintiff has pled an amount in controversy less than $5 million, the party seeking removal must prove with legal certainty that CAFA’s jurisdictional amount is met.

In this case, U.S. Bank attempted to meet this legal certainty standard of proof by filing a declaration by a human resource employee listing the number of employees terminated during the period in question and used that figure to calculate damages pursuant to Oregon statutory law. The Ninth Circuit, however, held that the figures were speculative as to class size, amount of unpaid wages and which members of the class qualify for penalty wages. This speculation did not meet the “legal certainty” standard. The Ninth Circuit held that U.S. Bank failed to prove with legal certainty that the amount in controversy met CAFA’s jurisdictional requirement.

Judge Andrew J. Kleinfeld filed a dissent to this opinion. He stated that the plaintiff’s complaint was poorly drafted and actually did not plead a specific amount in controversy. The complaint says that damages will not exceed $5 million, it does not say that the amount in controversy exceeds $5 million. In this case, attorneys’ fees are added to damages pursuant to Oregon statute. Damages could be $4,999,999.99 plus attorneys’ fees, which would confer federal jurisdiction. Judge Kleinfeld dissented that this complaint actually falls into the first scenario discussed by the court, when the complaint does not specify whether the amount in controversy exceeds $5 million.   In this instance the defendant should instead have to prove the jurisdictional requirement is met by the lower standard of proof of a preponderance of the evidence. Judge Kleinfeld wanted to remand the case to the district court in order for the district court to make its remand determination pursuant to the preponderance of the evidence standard.

(EDITOR’S NOTE: If the burden of proof was placed on the party opposing federal court jurisdiction the analysis would be simple. The plaintiff in this case would present evidence as to what the complaint is actually requesting as a total amount in controversy.)