DiTolla v. Doral Dental IPA of New York, LLC, No. 06-2324-cv (2d Cir. November 17, 2006).

Nine out of Ten Dentists Agree that CAFA Does Not Apply to their New York Class Action.
A group of New York dentists challenge the administration of a New York state fund along with the jurisdictional requirements of the Class Action Fairness Act and come out shinning their pearly whites to the Second Circuit.   The makers of Trident must be very pleased.

Circuit Judge Peter W. Hall handed down an opinion for the Second Circuit Court of Appeals regarding a New York class action removed to federal court and examined CAFA’s 60 day time limit for appeals, the burden of proof under CAFA, and CAFA’s amount in controversy requirement as applied to suits for accounting.

In February 2006, the named plaintiff, a New York licensed dentist, filed a class action in Nassau County Supreme Court on behalf of all dentists receiving funds from the New York Dental Panel Reimbursement Pool. That is a pool of state and federal funds from which participating dentists are paid monthly on a pro rata basis for treating patients eligible under Medicaid or Medicare. The defendant, Doral Dental, is a third party administrator who, according to their provider agreements, may subtract associated consulting or brokerage fees from the pool prior to distributing the remaining monies to the dentists.

The New York state court complaint sought an accounting of all amounts paid in and out of the pool noting that the Doral Dental was the subject of federal grand jury investigations in several states for deducting improper or sham consulting fees from the pools in other states. Doral removed the case to the Eastern District of New York pursuant to CAFA. Doral’s notice of removal stated that the amount funded and reduced during the class period exceeded $40 million. DiTolla argued in his motion to remand that the complaint sought only an accounting for which no value could be assigned and therefore the amount in controversy could not be met.

The district court remanded the case back to state court holding that CAFA had not altered the traditional rule as the allocation of the burden of proof and because DiTolla sought only information, the value of that information could not be estimated to meet CAFA’s jurisdictional requirements. Doral Dental petitioned for the Second Circuit’s permission to appeal the district courts decision.

The Second Circuit began its opinion by discussing the 60 day limit for appeals under CAFA. Following the Fifth, Seventh, Ninth and Eleventh Circuits, the court held that CAFA’s 60-day clock for rendering judgment starts running on the day that the court’s order granting permission to appeal is filed.

The Second Circuit  then turned its attention to the burden of proof under CAFA. As an issue of first impression in the Second Circuit, the court pointed to the Seventh Circuit’s opinion in Brill, the Ninth Circuit’s opinion in Abrego and the Eleventh Circuit’s Opinion in Miedema. (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.  Also, see the CAFA Law Blog critique of the Miedema decision posted on August 22, 2006).

Without any original analysis, the Second Circuit simply stated that it would be thoroughly unsound to reject the longstanding traditional rule as to the burden of proof for federal jurisdiction without an explicit directive from Congress. The Second Circuit presumed that Congress knew of the traditional burden of proof when it enacted CAFA. (Editors’ Note: For further discussion on the concept of Minimal Diversity and why Abrego is incorrectly decided, see the CAFA Law Blog’s recent analysis, “Hot Off the Press,” posted May 5, 2005, which introduces the recently published law review article entitled “CAFA’s New Minimal Diversity Standard For Interstate Class Actions Creates A Presumption That Jurisdiction Exists, With The Burden Of Proof Assigned To The Party Opposing Jurisdiction,” authored by CAFA Law Blog Editors Hunter Twiford, Anthony Rollo and John Rouse).

The court’s opinion then turned to the amount in controversy requirement under CAFA. In this case, the court examined a cause of action for an accounting. The court pointed out that the amount in controversy was not listed in the complaint. The defendants argued that the entire New York Pool was in controversy in the case. The plaintiff, however, did not claim an interest in the entire $40 million Reimbursement Pool, but an amount to be determined by the accounting. The court held that it could not say beyond mere speculation whether the amount to be determined would be more than the $5 million requirement imposed by CAFA. The district court’s holding was affirmed and the case was remanded to New York state court.