Bradford v. Samsung Telecommunications America, LLC, et al., No. CV 10-01882 MMM (OPx), 2011 WL 245582 (C.D. Cal. Jan. 21, 2011).
In this case, a District Court in California while finding that the defendant had failed to prove with legal certainty that CAFA’s jurisdictional amount was met concluded that the “legal certainty” standard sets a high bar for defeating a plaintiff’s right to frame his complaint and ensures that plaintiffs retain their power to limit recovery to avoid federal jurisdiction.
The plaintiff, John Bradford, brought a putative class action alleging that the defendants, Samsung Telecommunications America, LLC and T-Mobile USA, Inc., engaged in unlawful, unfair, and fraudulent business acts related to the advertising and sale of its Samsung Behold II mobile phone (“Behold II”) in violation of California Business & Professions Code §§17200, 17500 and the Consumer Legal Remedies Act. Specifically, the plaintiff contended that the defendants misrepresented the upgrade capabilities of the Behold II in internet-based promotions and the statements of its sales representatives.
The complaint alleged that consumers decided to purchase the Behold II, rather than other telephones, due to the defendants’ false representation that the Behold II would upgrade wirelessly from Android version 1.5 to Android version 2.0 when the newer version became available. When version 2.0 was released on October 26, 2009, Behold II did not automatically upgrade. In response to consumer complaints, the defendants made version 1.6 available during the week of June 21, 2010; version 1.6 purportedly lacked some of the capabilities of version 2.0.
The plaintiff sought to represent a class consisting of “all residents of California who purchased one or more Samsung Behold II mobile phones after having been exposed to a statement from the defendants that the Behold II would update to Android 2.0.”
The defendants removed the action to the federal court under CAFA, 28 U.S.C. §1332(d). The District Court, upon examining the removal notice, found that the defendants had failed to show to a ‘legal certainty’ that the value of the plaintiff’s claims exceeded $5 million.
The Court found that the allegation of the complaint showed that the parties were diverse and that the class size exceeded 100 in the aggregate. The plaintiff alleged that his individual claim did not exceed the $75,000 threshold for federal diversity jurisdiction and that aggregate class claims did not exceed the $5 million threshold for federal jurisdiction under CAFA. Thus, the Court concluded that the defendants must prove with ‘legal certainty’ that CAFA’s jurisdictional amount was met.
While concluding so, the Court noted that Lowdermilk v. United States Bank Nat’l Assoc., 479 F.3d 994, 998-99 (9th Cir. 2007) stated that federal courts are courts of limited jurisdiction and will strictly construe their jurisdiction; second, the plaintiff is ‘master of her complaint’ and can plead to avoid federal jurisdiction. Taking these principles together, the Ninth circuit concluded that “subject to a ‘good faith’ requirement in pleading, a plaintiff may sue for less than the amount he may be entitled to if he wishes to avoid federal jurisdiction and remain in state court.” (Editors’ Note: See the CAFA Law Blog analysis of Lowdermilk posted on July 30, 2007).
Because jurisdiction is strictly construed, the bar for defeating a plaintiff’s right to frame his complaint is high. The “legal certainty” standard sets such a high bar and ensures that plaintiffs retain their power to limit recovery to avoid federal jurisdiction. In measuring the amount in controversy, a court must assume that the allegations of the complaint are true and that a jury will return a verdict for the plaintiff on all claims made in the complaint. The ultimate inquiry is what amount is put ‘in controversy’ by the plaintiff’s complaint, not what a defendant will actually owe.”
In their notice of removal, the defendants offered a calculation of damages purportedly showing that the amount in controversy requirement was satisfied to a legal certainty. Specifically, they asserted that the plaintiff’s prayer for restitution, including disgorgement of profits, resulted in potential damages of more than $5 million. As support for this claim, the defendants reported that they sold 12,000 Behold II telephones at an average price of $218.00 per unit. The Court observed that restitution of the sales price, therefore, would place $2,616,000 at issue, below the statutory amount in controversy minimum.
The defendants asserted, however, that the amount in controversy exceeded $5 million because the telephones were sold with T-Mobile voice and/or data plans, typically under 1-2 year contracts, yielding average revenue of $564.00 per subscriber per year. T-Mobile’s average net revenue was somewhat less, however, since T-Mobile incurred an average loss of $142 per phone. Subtracting this amount, T-Mobile’s average net revenue per Behold II sold was $422. The defendants argued that the amount in controversy was the product derived by multiplying the number of Behold II units sold (12,000) by the average net revenue ($422). Because this totaled $5,064,000, the defendants concluded that the plaintiff’s alleged disgorgement claim against T-Mobile alone put the amount in controversy at over $5 million.
Because only the retail value of the phones ($218.00 per unit) was at issue, not the net revenue derived from the sale of phones plus voice and/or data plans ($422.00 per unit), the Court found that T-Mobile’s revenue from voice and/or data plans could not be considered part of the amount in controversy.
As a consequence, the Court found that the defendants had failed to show to a legal certainty that the value of the plaintiff’s claims exceeded the jurisdictional minimum under CAFA. Accordingly, the Court ordered the defendants to show-cause why the action should not be remanded to state court for lack of subject-matter jurisdiction.