Dart Cherokee Basin Operating Co., LLC v. Owens, 730 F.3d 1234 (10th Cir. 2013), cert. granted, 134 S.Ct. 1788, 188 L.Ed. 2d 757 (2014) 

In this appeal, four circuit judges – Judges Hartz, Kelly, Tymkovich, and Phillips – dissented from the Tenth Circuit’s refusal to grant rehearing with respect to a Tenth Circuit panel’s previous denial of  defendants’ request to appeal a district court’s remand order under 28 U.S.C. § 1453(c).  In the dissenting judges’ view, the district court’s underlying remand order contravened the principles that a defendant seeking removal under CAFA need only allege the amount in controversy in its notice of removal, and must then prove that amount only if the plaintiff challenges the defendant’s allegations.  On April 7, 2014, the Supreme Court granted certiorari in this matter, and the high Court’s upcoming ruling will likely determine how much proof, if any, a defendant must include with its notice of removal to satisfy CAFA’s jurisdictional requirements.  Dart Cherokee Basin Operating Co., LLC v. Owens, 134 S.Ct. 1788, 188 L.Ed. 2d 757 (2014). 

Facts and Background

The plaintiffs in this case are royalty owners who brought a putative class action in Kansas state court against defendants, Dart Cherokee Basin Operating Company, LLC and Cherokee Basin Pipeline, LLC (“defendants”), for underpaid royalties from working interests in Kansas oil wells.  The plaintiffs’ class-action complaint sought compensatory damages and various costs, but did not specify an amount in controversy.  The defendants removed, alleging the value of plaintiffs’ claims exceeded $8 million.  After plaintiffs filed a motion to remand, defendants submitted undisputed evidence that the amount in controversy exceeded $14 million.  Despite this uncontroverted evidence, the district court remanded the case on the basis that defendants’ initial notice of removal contained no evidence, e.g., economic analyses or settlement estimates, supporting defendants’ $8 million figure. 

Thereafter, defendants appealed the district court’s remand order under 28 U.S.C. § 1453(c), but a divided Tenth Circuit panel denied defendants’ request for review.  The defendants petitioned for an en banc rehearing, which the Tenth Circuit denied. 

Dissenting Opinion

In a spirited dissent, four Tenth Circuit judges opined that the district court’s remand order was contrary to well-established federal pleading standards and imposed an evidentiary burden on removal pleadings that was foreign to federal-court practice and that had never been recognized by any other federal appellate decision. 

Here, plaintiffs challenged the notice of removal, and in response, defendants produced a corporate officer’s declaration and accompanying calculations showing plaintiffs’ potential liability exceeded $5 million.  The district court did not find this declaration insufficient; instead, the court simply stated that defendants submitted it too late.  According to the district court, the notice of removal was insufficient because defendants were obligated to allege – and apparently prove – all necessary jurisdictional facts in their notice of removal.

The dissent remarked that the burden the district court imposed on removing defendants was excessive and unprecedented.  In this case, defendants adequately alleged subject matter jurisdiction under CAFA and subsequently submitted evidence to support those jurisdictional allegations.  There was simply no basis for requiring defendants to submit that evidence before plaintiffs challenged the notice of removal.

Under Federal Rule of Civil Procedure 8, all a party must do when initiating an action in federal court is submit a pleading that contains a short, plain statement of the court’s jurisdiction, as well as a short, plain statement of the claims showing the pleader is entitled to relief.  At the pleading stage, a party need not produce proof of the allegations in its complaint until the opposing party challenges those allegations.  The Supreme Court has never imposed any special burdens at the pleading stage with respect to jurisdictional allegations, nor has the Court imposed more onerous standards for alleging subject matter jurisdiction in removal pleadings.  Thus, no authority exists to support the district court’s conclusion that the removing party must submit evidence of its jurisdictional allegations before the plaintiff challenges those allegations.   

The dissent also observed that the district court’s reliance on McPhail v. Deere & Co., 529 F.3d 954 (10th Cir. 2008), was misplaced.  In McPhail, the Tenth Circuit held that a defendant who removes a case on the basis of diversity jurisdiction must establish the requisite amount in controversy by a preponderance of the evidence.  But McPhail did not change basic federal pleading standards, which merely require a short and plain statement of the basis for the district court’s subject matter jurisdiction.  Moreover, the McPhail court relied heavily on Meridian Security Insurance Co. v. Sadowski, 441 F.3d 536 (7th Cir. 2006), a case in which the Seventh Circuit held that evidence is not required at the pleading stage.  In short, McPhail did not address the questions presented here, namely how much does a defendant need to allege in its notice of removal, and after the notice of removal is challenged, in what circumstances, if any, can the removing defendant rely on evidence that was not submitted with its notice of removal.    

Finally, the dissent noted that Congress adopted the McPhail and Sadowski courts’ preponderance-of-the-evidence standard when it amended 28 U.S.C. § 1446(c)(2) via the Federal Courts Jurisdiction and Venue Clarification Act of 2011 (“JVCA”).  When Congress passed the JCVA, it emphasized that “defendants do not need to prove to a legal certainty that the amount in controversy requirement has been met.  Rather, defendants may simply allege or assert that the jurisdictional threshold has been met.”  While the JVCA explicitly applies to traditional diversity cases, and apparently does not apply to CAFA removals, the dissent stated, “there is no logical reason why we should demand more from a CAFA defendant than other parties invoking federal jurisdiction.” Frederick v. Hartford Underwriters Ins. Co., 683 F.3d 1242, 1247 (10th Cir. 2012). 

In sum, the dissenting judges would have granted defendants’ petition for rehearing so that the Tenth Circuit could inform the district courts and bar of the Tenth Circuit that a defendant seeking removal under CAFA need only allege the jurisdictional amount in its notice of removal and must then prove that amount only when the plaintiff challenges those allegation.

On April 7, 2014, the Supreme Court granted certiorari to review the district court’s remand order.  This recent cert. grant highlights the Court’s growing interest in CAFA’s jurisdictional requirements. See Mississippi ex rel. Hood v. AU Optronics Corp., 134 S.Ct. 736 (2014) (holding parens patriae action filed by state’s attorney general was not mass action under CAFA); Standard Fire Ins. Co. v. Knowles, 133 S.Ct. 1345 (2013) (holding plaintiffs cannot avoid CAFA jurisdiction by stipulating damages are less than $5 million).  Owens now provides the Court an opportunity to determine how much proof a removing defendant must submit with its notice of removal to establish CAFA’s jurisdictional prerequisites, and thus the Court’s decision should be of great interest to defendants who wish to remove and keep putative class actions in federal court.