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CAFA Law Blog Information, cases and insights regarding the Class Action Fairness Act of 2005

Interest Payments Tied Solely To Delay In Paying Amounts In Controversy Insufficient To Establish CAFA Jurisdiction

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Whisenant v. Sheridan Production Co., LLC, 627 F. App’x. 706 (10th Cir. 2015)

This decision concerns the reversal of a denial of a motion to remand. Plaintiff brought a putative class action in Oklahoma state court against a natural gas production company, alleging that it failed to pay or underpaid royalties for natural gas wells. The defendant removed the action under CAFA.  The plaintiff filed a motion to remand, which the District Court denied. 

In determining the amount in controversy, the District Court added over $1.5 million as interest on the sought-after unpaid royalties, pursuant to state law that allows for a 12% per annum interest on unpaid royalties. This calculation brought the amount in controversy over CAFA’s jurisdictional threshold. Plaintiff appealed the District Court’s addition of the interest to the amount in controversy.

Finding that the interest obligation arises only if the defendant is required to pay the royalties, the Tenth Circuit reversed the District Court’s decision and remanded the case to state court. At the very outset, the Tenth Circuit observed that CAFA directs that the amount in controversy be calculated exclusive of interest and costs. See 28 U.S.C. § 1332(d)(2). While it could not find CAFA cases construing this provision, the Tenth Circuit relied on State Farm Mutual Automobile Insurance Co. v. Narvaez, 149 F.3d 1269 (10th Cir. 1998), which analyzed identical language in 28 U.S.C. § 1332(a). In Narvaez, the two insurance policies at issue had limits totaling $50,000, rather than exceeding $50,000 as required for jurisdiction at that time. However, the plaintiff insurance company urged the court also to consider its claim that it did not owe the interest that the insured claimed was due on unpaid motorist benefits.  In that case, the Tenth Circuit rejected this suggestion, stating that interest is not counted if it was an incident arising solely by virtue of a delay in payment of the underlying amount in controversy.  The Tenth Circuit concluded that if the insurer was ultimately obligated to pay the insured the uninsured motorist benefits, the interest on the unpaid policies would arise solely by virtue of the insurer’s delay in paying the insurance claim.  The court remarked that this was precisely the type of interest that § 1332(a) prohibited it from considering.

Here, the court further observed that other circuits had adopted the view that interest for purposes of § 1332(a) was a sum that becomes due because of delay in payment. Under these circumstances, the Tenth Circuit found that the District Court erred in holding that Oklahoma’s statutory interest provision could be considered in determining the amount in controversy in this action.