Ongstad v. Piper Jaffray & Co., No. 05-108, 2006 WL 14399 (D.N.D. Jan. 4, 2006).
The North Dakota federal district court has now weighed in on the issue of which party bears the burden of proof of federal jurisdiction under the Class Action Fairness Act in the removal context. Disgruntled clients of securities firm Piper Jaffray & Co. filed this class action seeking to recover “damages incurred as a result of a pattern and practice of unauthorized trading in brokerage accounts.” Piper Jaffray removed the purported class action to federal court under the CAFA, and the plaintiffs sought remand, arguing that Piper Jaffray could not prove that the litigation met CAFA’s amount in controversy and numerosity requirements.
Chief District Judge Daniel L. Hovland addressed the issues, tackling the burden of proof question first. He discussed the rationale of courts on both sides of the fledgling split, but eventually found the reasoning in Brill v. Countrywide and Judy v. Pfizer more persuasive. (Editor’s Note: See the CAFA Law Blog case summary posted on November 2, 2005 for a discussion of Brill and the CAFA Law Blog case summary posted on November 11, 2005 for a discussion of Judy.) Judge Hovland declined to alter the “traditional” burden of establishing diversity jurisdiction, which places the burden on the party seeking removal, and placing it instead on the party challenging the federal jurisdiction and attempting to avoid remand, which is the subject of parts of the Legislative History of CAFA, holding instead that the defendant removing this case should shoulder the burden of establishing federal jurisdiction. Then it got interesting – relatively speaking.
As a preliminary matter, the parties agreed that at least minimal diversity was present, leaving the issue of the amount in controversy ripe for a fight. Since the plaintiffs’ pleadings provided scant information regarding potential damages, the defendant was forced to pursue other avenues to prove that CAFA’s $5 million minimum amount in controversy mark was met. Relying on the affidavit of a Regulatory Affairs Analyst with the firm, Piper Jaffray represented to the court that its North Dakota offices (3 in all) “had approximately 16,243 open accounts, held by approximately 11,333 clients, managing in excess of 1 billion dollars in assets.” Based on these numbers, the firm argued that even if only a small percentage of the assets were implicated, including potential punitive damages and attorneys’ fees, the $5 million requirement was easily satisfied.
However, Judge Hovland took the more conservative approach, and found that Piper Jaffray’s affidavit was insufficient to satisfy CAFA’s amount in controversy requirement. Summarizing the figures presented, the judge opined, “Standing alone, there is little that can be drawn from such figures” and found no “inherent correlation between the total value of the assets and the amount of damages sustained as a result of the unauthorized transactions.” Since the securities firm presented no evidence directly related to the values of the unauthorized transactions, the court held there was no reliable method to determine the true amount in controversy. Moreover, he wrote, since federal jurisdiction is limited, all close calls on the issue go to the party seeking remand, and accordingly, remanded the case back to state court.