Nowak v. Innovative Aftermarket Systems, Inc., 2007 WL 2454118 (E.D. Mo. Aug. 23, 2007)

Size does matter when it comes to the amount in controversy. In this case out of the Eastern District of Missouri, the district court remanded a class action because it found the defendants failed to establish that the case satisfied the amount of controversy requirement under CAFA.

The plaintiffs in this case filed a class action against three defendants in Missouri Circuit Court, asserting claims arising out of the sale and administration of guaranteed automobile contracts issued by Innovative Aftermarket Systems in Missouri. The contracts included a clause under which Innovative Aftermarket agreed to release purchasers of a vehicle from liability for any “outstanding deficiency” on their retail installment contract, loan or lease, if the vehicle was totaled or stolen. Certain car dealerships, including the two other defendants, acted as agents for Innovative Aftermarket and sold the contracts to customers who bought vehicles from them. The plaintiffs alleged that the terms of the contract contained misrepresentations and violated a Missouri statute and that, after their vehicles were totaled, Innovative Aftermarket improperly lowered the payout figure or denied any payment of their claims. 

The defendants removed the case under CAFA, and the plaintiffs moved to remand, arguing the amount in controversy did not meet CAFA’s $5 million amount in controversy requirement.

Before getting down to the math, the district court first considered whether CAFA shifted the burden of proof of establishing amount in controversy. It determined that the party opposing remand bears the burden of proving the existence of federal jurisdiction and that the preponderance of the evidence standard applied. Then it was time to break out the calculators.

The removing defendants supported the assertion that $5 million was at issue by looking at the plaintiffs’ allegations. The two representative plaintiffs claimed that the claims they had submitted that were wrongfully denied totaled $744.40 and $6,716.83. The defendants averaged these two figures to reach an average economic damages claim of $3,730.63 per class member. Then, they pointed to the plaintiffs’ allegation that the class included “at least hundreds, if not thousands” of members. At an average of $3,730.62 each, the class would need 1,341 members to satisfy the $5 million threshold just on economic damages. (Trust us, we checked the math.)

The court declined to adopt the defendants’ calculation, though. It found that the defendants “erroneously” relied on the average claim amount of the class representatives to calculate the other class members’ damages and that to do so amounted to “conjecture” insufficient to satisfy the preponderance of the evidence standard. Nor did it agree that the plaintiffs’ assertion as to class size was enough to “prove the actual number of class members.” 

The defendants had also submitted a declaration in which a corporate representative of Innovative Aftermarket stated that 38,150 Missouri customers had purchased the type of contract at issue. However, because it failed to state how many of those customers had either submitted a claim under the contract or submitted a claim that was reduced or denied payment, the court found it provided no evidence as to the putative class’ size.

Finally, the court knocked out the removing defendant’s claim that attorney’s fees of $350,000 should be included in the amount in controversy because in this court, much like in grade school, there’s no partial credit if you don’t show your work. Rather than explaining how it arrived at this figure, the defendants provided “no evidence in support of [the] calculation and relie[d] solely on prior dealings with Plaintiffs’ counsel in a separate class action.” The court was not impressed. Similarly, since the court had already found the defendants failed to establish the actual economic damages amount by a preponderance of the evidence, it tossed out the defendants’ punitive damage calculation at 200% of the actual damages.

So it’s back to school for these defendants—in state court.