Establishing Amount in Controversy Under CAFAOctober 21, 2011 – Articles
As seen in the Fall issue of DRI’s In-House Defense Quarterly.
The Class Action Fairness Act (CAFA) was enacted in 2005 to assure fair and prompt recoveries for class members with legitimate claims, to restore the intent of the framers of the United States Constitution by legislating federal court consideration of interstate cases of national importance under diversity jurisdiction, and to benefit society by encouraging innovation and lowering consumer prices. Pub. L. No. 109-2, 119 Stat. 4 (2005). To achieve these stated purposes Congress amended 28 U.S.C. §1332 expanding diversity jurisdiction in class action litigation. Section 1332(d)(2) specifies that in class action cases involving 100 or more class members
(2) The district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which--
(A) any member of a class of plaintiffs is a citizen of a State different from any defendant;
(B) any member of a class of plaintiffs is a foreign state or a citizen or subject of a foreign state and any defendant is a citizen of a State; or
(C) any member of a class of plaintiffs is a citizen of a State and any defendant is a foreign state or a citizen or subject of a foreign state.
While CAFA expanded diversity jurisdiction, a party seeking to remove a state court action to a federal court still bears the burden of establishing the federal court's jurisdiction. The removing party must demonstrate that the requisite number of plaintiffs exist, minimal diversity, and the amount in controversy meets the statutory requirement. But what is a removing defendant to do when a complaint lacks allegations regarding the size of the class or the dollar amount of the requested relief? This article summarizes recent federal circuit court decisions addressing the burden of proof and the kinds of evidence needed to satisfy CAFA's amount in controversy requirement. This article does not address plaintiffs’ evidentiary standard when faced with a challenge from a defendant of the jurisdictional amount alleged in a federal court complaint.
Lesson 1—Determine the Applicable Evidentiary Standard
Determining the evidentiary standard that a removing defendant must follow in establishing CAFA's amount in controversy requirement is not always simple. The federal circuit courts follow different standards, and in some instances the applicable standard depends on the damages allegations in a complaint. Below is a chart summarizing the differences among the circuit courts that have addressed the issue since CAFA's enactment.
Preponderance of the Evidence Standard
|Fourth||Bartnikowski v. NVR, Inc., 307 Fed. Appx. 730, 734 (4th Cir. 2009).||Followed the preponderance of the evidence standard.|
|Fifth||Berniard v. Dow Chemical Co., No. 10-30497, 2010 U.S. App. Lexis 16515, at *7–8 (5th Cir. Aug. 6, 2010).||Followed the preponderance of the evidence standard when the amount of damages was not pleaded.|
|Sixth||Smith v. Nationwide Prop. & Cas. Ins. Co., 505 F.3d 401 (6th Cir. 2007).||Followed the preponderance of the evidence standard.|
|Eighth||Hartis v. Chicago Title Ins. Co., No. 09-1105, 2009 U.S. App. Lexis 5372, at *8 (8th Cir. Mar. 13, 2009).||Followed the preponderance of the evidence standard regardless of whether the complaint alleged an amount below the jurisdictional minimum.|
|Eleventh||Pretka v. Kolter City Plaza II, Inc., 608 F.3d 744 (11th Cir. 2010).||Followed the preponderance of the evidence standard when the amount of damages was not pleaded.|
Reasonable Probability Standard
|First||Amoche v. Guarantee Trust Life Ins. Co., 556 F.3d 41 (1st Cir. 2009).||Followed the reasonable probability standard when the amount of damages was not pleaded.|
|Second||Blockbuster, Inc. v. Galeno, 472 F.3d 53 (2d Cir. 2006).||Followed the reasonable probability standard.|
|Seventh||Brill v. Countrywide Home Loans, Inc., 427 F.3d 446 (7th Cir. 2005).||Followed the reasonable probability standard.|
Legal Certainty Standard
|Third||Frederico v. Home Depot, 507 F.3d 188 (3d Cir. 2007).||When a complaint specifies less than the jurisdictional amount, the removing party must prove to a legal certainty that the plaintiff can recover the jurisdictional amount. When the complaint does not specify the amount of damages, the case must be remanded if it appears to a legal certainty that the plaintiff cannot recover the jurisdictional amount.|
|Ninth||Lewis v. Verizon Commc'ns, Inc., 627 F.3d 395, 397-98 (9th Cir. 2010).||Followed the preponderance of the evidence standard when the amount of damages was not pleaded.|
|Ninth||Houpt v. Victoria Fire & Cas. Co., No. 11-55869, 2011 U.S. App. Lexis 14713, at *2 (9th Cir. 2011).||Followed the preponderance of the evidence standard when the amount of damages pleaded was ambiguous.|
|Ninth||Johnson v. U.S. Vision, Inc., 415 Fed. Appx. 841, 841 (9th Cir. July 14, 2011).||Followed the legal certainty standard when the complaint pleaded damages below the jurisdictional amount.|
Lesson 2—Limit the Evidence to Comparisons with Other Cases May Not Be Enough
In Berniard v. Dow Chem. Co., No. 10-30497, 2010 U.S. App. Lexis 16515 (5th Cir. Aug. 6, 2010), the class plaintiffs alleged injuries stemming from a brief aerial release of a chemical from a tank at a company facility and the related temporary road closures and evacuation of the surrounding area. The state court pleading requirements prohibited the plaintiffs from making allegations in the complaints about the amount of damages that the defendants owed them. The plaintiffs hurriedly filed seven class actions, two in federal court and five in the state court. The federal plaintiffs asserted jurisdiction under CAFA. The defendants removed the state court cases on CAFA, diversity, and supplemental jurisdiction grounds, and the cases were consolidated. The plaintiffs' motion for remand was granted. The defendants appealed, and the appellate court's review was limited to assessing the propriety of the CAFA removal. The appeal to the Fifth Circuit did not raise citizenship or class size issues so the Fifth Circuit focused on whether CAFA's amount in controversy requirement had been met.
The Fifth Circuit followed a preponderance of the evidence standard in assessing whether the defendants had met its burden of proof for CAFA's amount in controversy requirement. The defendants had had two options. They could either have “(1) [a]dduce[d] summary judgment evidence of the amount in controversy, or (2) demonstrate[d] that, from the class plaintiffs' pleadings alone, it [was] ‘facially apparent’ that CAFA's amount in controversy [requirement had been] met.” Id. at *8. The defendants chose the second option.
The defendants reviewed the allegations in the pleadings and relied on census data from the affected areas identified in the pleadings. The defendants then compared the pending class actions to “the quantum of recovery in previously reported cases” involving similar occurrences and injuries. But this did not persuade the court that the defendants had met the burden. The Fifth Circuit considered the methodology too speculative because they equated the geographic areas where “potential plaintiffs might reside . . . with the population of the plaintiff class itself.” Furthermore, the comparison to recoveries in other similar cases was too attenuated. Interestingly, even though attorneys originally had filed two of the seven actions in federal court alleging that the amount in controversy exceeded $5 million, and the plaintiffs in at least one state court case “did not dispute that the amount in controversy exceeded $5 million,” the Fifth Circuit observed that “[t]he mere recitation of jurisdictional facts” does not establish subject matter jurisdiction. Id. at *10–11 n.19.
The holding in Berniard stands in contrast to the Seventh Circuit case Blomberg v. Service Corp. International, 639 F.3d 761 (7th Cir. 2011). In that case the defendant appealed from an order remanding a proposed class action on behalf of employees who allegedly had not been compensated for all hours worked in violation of Illinois' wage laws. The defendant removed the case under CAFA, and the only jurisdictional issue was whether the defendant had satisfied the CAFA amount in controversy requirement.
The defendant offered evidence that the plaintiffs’ claims exceeded $5 million, including a list of the defendant's 538 Illinois employees, an affidavit from counsel, and pleadings from other related lawsuits. The defendant provided citations to the deposition testimony of two named plaintiffs in another class action case in Arizona involving similar allegations. The Arizona class plaintiffs claimed that collectively they had not been paid for 2,600 hours of work over a 12-month period. The defendant argued that if each of the 538 Illinois workers claimed that they had not been paid for 552 hours, during the Illinois statute of limitations period (between 3 and 5 years), the total amount in controversy would exceed $5 million. The district court dismissed this argument because the defendant had not demonstrated how the Arizona plaintiffs' claims were typical of the Illinois plaintiffs in terms of unpaid hours or the number of years employed. The Fifth Circuit disagreed, however, finding that the district court should have viewed the evidence more broadly “as an attempt to show the nature of the hours sought” and how “the scope of the plaintiffs’ claims” supported the defendant's amount in controversy argument. Id. at 736.
The defendant offered additional evidence comparing the case to another class action case pending against the company in federal court in Virginia. That case had an identical proposed class definition, and the plaintiffs alleged the amount in controversy satisfied CAFA, even though a class made up of only Virginia employees would have numbered roughly 300, which was much less than the 538 Illinois employees. The Seventh Circuit found that the defendant had presented evidence that the potential Virginia recovery was comparable with the potential Illinois recovery, except that Illinois actually allowed a slightly higher statutory recovery. The Seventh Circuit reversed the lower court's remand order but not without mentioning additional evidence that the defendant might have offered to support its jurisdictional argument. For instance, the defendant could have (1) better compared the plaintiffs' claims and potential recovery under the laws of Virginia and Illinois; (2) estimated the amount of overtime and liquidated damages; or (3) estimated the attorney's fees and punitive damages recoverable in unpaid wages cases. See also, ABM Security Services v. Davis, No. 11-8001, 2011 U.S. App. Lexis 12171 (7th Cir. June 16, 2011) (citing Blomberg for the proposition that "[o]nce the proponent of federal jurisdiction has explained plausibly how the stakes exceed $5 million, the case belongs in federal court unless it is legally impossible for the plaintiff to recover that much").
Lesson 3—The Detail Level in a Supporting Declaration May Make All the Difference
In Pretka v. Kolter City Plaza II, Inc., 608 F.3d 744 (11th Cir. 2010), the Eleventh Circuit addressed the types of evidence that a defendant can present to establish the jurisdictional amount in controversy. There seven plaintiffs filed a putative class action on behalf of themselves and all other similarly situated depositors who had placed deposits on the purchase of luxury condominiums in the defendant's development in West Palm Beach, Florida. The complaint alleged breach of contract and violation of Florida's Condominium Act, and it sought rescission of the purchase contracts and return of the deposits. The complaint stated that the class was believed to consist of over 300 members, but it did not include the amount in controversy. However, the plaintiffs attached their purchase contracts to the complaint, which showed an average deposit amount of roughly $105,000.
The defendant removed the case under CAFA. In support of the removal, the defendant attached a declaration of the CFO of its parent company indicating that the company had collected over $5 million in deposits from more than 100 prospective purchasers. The plaintiffs moved for remand arguing that the court could not consider the CFO's declaration because it was not a paper received from the plaintiffs. In its opposition brief, the defendant attached another declaration from its parent company's closing manager who had reviewed the closing contracts. She stated that those contracts showed that the defendant possessed purchase deposits totaling over $41 million.
The district court, relying on the Eleventh Circuit's previous decision in Lowery v. Alabama Power Co., 483 F.3d 1184 (11th Cir. 2007), held that it could not consider either the declaration evidence in support of the amount in controversy or the contracts of other putative class members because such documents had not been supplied by the plaintiffs. The district court also found that the first declaration impermissibly speculated “on the potential damage claim of all putative class members,” and the second declaration was improperly submitted because it had not been filed with the notice of removal. The district court remanded the case.
The defendant appealed, and the Eleventh Circuit held that the district court had erred in rejecting the defendant's evidence of the amount in controversy. In reaching this conclusion, it distinguished its holding in Lowery and disavowed statements in the dicta of Lowery that could have appeared contradictory to its holding in Pretka. The appellate court held that when a defendant seeks to remove a case under the first paragraph of 28 U.S.C. § 1446(b), meaning “within 30 days of receipt of an initial pleading setting forth a claim for relief,” that statutory language does not restrict the type of evidence that a defendant may use to satisfy the jurisdictional requirements for removal. This is in contrast, however, to seeking removal under the second paragraph of 28 U.S.C. § 1446(b), meaning within 30 days of receipt of an amended pleading, motion or other paper “from which it may first be ascertained” that the case is removable. In the second instance, the court can only consider “other paper” type evidence voluntarily provided by a plaintiff.
The Eleventh Circuit recognized that documents generated by a defendant do not necessarily involve impermissible speculation. For instance, the CFO's declaration contained specific knowledge of the total amount of the deposits collected from condominium purchasers, “non-speculative knowledge of the amount of every putative class member's claim,” which the defendant could use and the court could consider to determine whether the defendant fulfilled the amount in controversy requirement. Furthermore, the Eleventh Circuit also ruled that a defendant could offer and a court could consider evidence offered after removal. The defendant, therefore, had met its burden in establishing the CAFA amount in controversy.
In Lewis v. Verizon Communications, Inc., 627 F.3d 395 (9th Cir. 2010), the Ninth Circuit found that the removing defendant's declaration in support of the CAFA amount in controversy was sufficient and reversed the district court's remand of the class action to the state court. In Lewis, the named plaintiff filed suit on behalf of a class of customers who allegedly were charged by their land line telephone company for charges billed by aggregator for services offered by other companies, such as sports scores and traffic reports. The plaintiffs claimed that they had never agreed to the services nor requested them. The complaint failed to specify the amount of damages that the class plaintiffs sought. Ninth Circuit law requires a removing defendant to prove the amount in controversy by a preponderance of the evidence when a complaint fails to specify the amount of damages.
The defendant removed the case and supported the removal petition with an employee declaration. The declaration specified that the class had been billed more than $5 million excluding interest and costs by the aggregator during the relevant period. The named plaintiff challenged the sufficiency of the evidence arguing that the complaint only sought damages for the unauthorized charges, and the defendant’s declaration did not make a distinction between authorized and unauthorized charges. The named plaintiff did not argue, however, that the amount sought was less than $5 million, and she did not offer evidence that some of the total billings were unauthorized. Nevertheless, the district court agreed with the named plaintiff that the class only contested "unauthorized" charges. The district court assumed that the total billings included both authorized and unauthorized charges, and therefore, the declaration was inadequate. But the Ninth Circuit disagreed. It did not find evidence to support the district court's assumption and stated that "the Plaintiff is seeking recovery from a pot that defendant has shown could exceed $5 million and the Plaintiff has neither acknowledged nor sought to establish that the class recovery is potentially any less. The amount in controversy on this record therefore comprises the total billings and the jurisdictional amount is satisfied." Id. at 401.
Lesson —A Court Will Consider Both the Evidence That a Removing Defendant Presents and the Evidence That It Fails to Present
In the First Circuit, Amoche v. Guarantee Trust Life Insurance Co., 556 F.3d 41 (1st Cir. 2009), teaches that a court will look at both the evidence that a removing defendant presents and the evidence that it fails to present when evaluating whether the defendant has met the amount in controversy requirement. In Amoche, the plaintiffs filed a class action on behalf of New Hampshire consumers against the defendant, an insurance company, seeking a refund of unearned premiums on credit insurance policies sold in conjunction with loans to car buyers. The plaintiffs contended that the defendant had failed to issue unearned premium refunds to the class members who had repaid their loans before maturity. The plaintiffs prevailed in the state court on a motion for partial summary judgment on the defendant's liability. The plaintiffs then sought leave to amend the complaint to name nine lenders as defendants and to expand the class to include vehicle purchasers from other states. The state court issued an order allowing the amendment to the complaint to include up to 16 additional states. The plaintiffs next sought to amend the court's order so that it stated between 10 to 20 states rather than 16. The states were not identified by name.
Before the court could rule, the life insurance company removed the case to federal court under CAFA. First, the insurance company relied on the plaintiffs' allegations in the complaint. As to the size of the class, the plaintiffs had alleged that the defendant had issued "hundreds of thousands of credit insurance certificates" and that “a substantial percentage of” the car buyers had fully paid their credit-insured vehicle loans’ balances early without receiving refunds. The complaint also alleged that the insurance company had “harmed ‘thousands of class members.’" With respect to damages, the plaintiffs alleged that (1) the insurance company had failed to refund over $1 million in unearned premiums; (2) the damages of the individual class members were less than $1,000; and (3) based on other comparable lawsuits, individual class member damages were likely around $200. The insurance company urged that a fair reading of “substantial percentage” of “hundreds of thousands” would result in over 25,000 class members. Applying damages of $200 a piece to 25,000 class members would fulfill the $5 million amount in controversy requirement.
Second, the insurance company argued that since the beginning of the litigation over $450,000 in unearned premium refunds had been made or requested on behalf of those who had purchased vehicles from dealers in New Hampshire. By applying that figure to 10 to 20 additional states, the insurance company argued that the amount in controversy would easily satisfy CAFA's requirement. The insurance company offered the affidavit of its vice president of the credit insurance division, which explained the $450,000 figure. The insurance company acknowledged that it did not keep track of refunds by lender so it could not specify how many claims each of the nine named lender-defendants had responsibility for. However, the insurance company believed that the expanded class could include many purchasers in all of the 41 states where the company issued credit insurance because several of those lenders had a national presence.
The plaintiffs countered, arguing that the $450,000 figure was inflated because it included purchasers from New Hampshire who had not borrowed from one of the lenders named in the complaint. The plaintiff submitted an affidavit from a litigation project manager who calculated that the total damages demanded or paid to New Hampshire consumers was roughly half the amount asserted by the insurance company. When that figure was extrapolated to additional states, the total amount in controversy was still less than $5 million. The plaintiffs then proffered a declaration from the plaintiffs' counsel clarifying that the number of states covered by the amended complaint included just 13, not 10 to 20, and identifying the 13 states. The insurance company challenged the post-removal declaration as improper but noted that given the size of the 13 states covered in the complaint relative to New Hampshire, the amount in controversy would exceed CAFA's jurisdictional requirement.
The district court remanded the case, and the insurance company appealed. The First Circuit held that in the absence of specific damage allegations in the complaint the removing defendant, the insurance company, had to show to a reasonable probability that the amount in controversy exceeded the sum or value of $5 million, excluding interest and costs. The First Circuit then examined whether the defendant had met its burden in establishing CAFA's amount in controversy requirement. The First Circuit observed that "deciding whether a defendant has shown a reasonable probability that the amount in controversy exceeds $5 million may well require analysis of what both parties have shown. Merely labeling the defendant's showing as 'speculative' without discrediting the facts upon which it rests is insufficient. In the course of that evaluation, a federal court may consider which party has better access to the relevant information." Id. at 51 (citations omitted).
The insurance company had relied on the complaint, an employee affidavit, and the plaintiffs' statements that the amended complaint would add 10 to 20 more states. However, the plaintiffs eventually clarified the complaint by providing the number and identity of the states covered in the amended complaint. The appellate court noted that the clarification was a permissible “fleshing out of the vague language of the third amended complaint” rather than an impermissible, post-removal narrowing of the pleadings. 556 F.3d at 52. The First Circuit also noted, however, that the defendant did not provide the district court with additional information about its credit insurance business in the 13 states identified by the plaintiffs, even though the defendant was in a better position than the plaintiffs to know that information. The fact that the plaintiffs did not identify the states involved “until after the briefing on the motion to remand was complete” did not “relieve” the insurance company of its obligation to put forward evidence in support of the amount in controversy. Id. at 52 n.5
The First Circuit remarked that in making its determination it could consider any affirmative evidence that the insurance company presented, as well as the information that the insurance company failed to present. The First Circuit offered that a statistical analysis involving a sampling of the insurance company’s “credit insurance certificates could have provided a rough sense” of the class size, and “information its market share and revenues” in the 12 states other than New Hampshire “might have provided insight” into the amount in controversy. Id. at 52. The First Circuit cautioned that simply taking the $450,000 figure for New Hampshire and multiplying it by 13 would not have been adequate to meet the burden because the insurance company admitted that the $450,000 figure included some persons who did not match the class definition, and the plaintiffs had offered evidence that the figure was closer to $220,000.
The First Circuit affirmed the district court's remand order but still offered the insurance company some hope of future CAFA removal commenting that "successive attempts at removal are permissible where the grounds for removal become apparent only later in the litigation." Id. at 53. Furthermore, because CAFA is exempt from the traditional one-year limit on removal, the insurance could wait until the class allegations were more fully developed before attempting removal again.
In Johnson v. U.S. Vision, Inc., 415 Fed. Appx. 841 (9th Cir. 2011), the plaintiff filed a class action lawsuit in the state court on behalf of California employees of the named defendants for alleged violations of California's labor code. Those violations included allegations that the defendants had not paid all wages and overtime compensation due, had not provided appropriate rest breaks or meal breaks, had improperly imposed a use-it-or-lose it vacation policy, and had failed to furnish accurate and timely wage statements. The complaint specifically stated that the damages were less than $5 million. The Ninth Circuit follows a legal certainty standard when a complaint specifies that the amount in controversy is less than $5 million.
The defendants removed the case submitting evidence that the damages exceeded $5 million, including a declaration from an assistant controller who was responsible for enforcing payroll policies. The declaration provided the named plaintiff's most recent hourly rate of pay, the specific number of managers and technicians employed during the class period, the average hourly rates of pay for managers and technicians, the number of employees who left defendants’ employ, and the number of wage statements for each employee per year. The defendants then calculated the amount in controversy applying the allegations in the complaint to those numbers. The district court was satisfied that the defendants had met their burden and denied the motion to remand. See Johnson v. U.S. Vision, Inc., No. 10-CV-0690, 2010 U.S. Dist. Lexis 80107 (S.D. Cal. Aug. 9, 2010). The plaintiff appealed.
The Ninth Circuit disagreed with the district court. In remanding the case it noted that the defendants' evidence only “provided a snapshot of a potential workday” for the class plaintiff technicians and a potential workweek for the class plaintiff managers. Johnson v. U.S. Vision, Inc., 415 Fed. Appx. at 841. In addition, the defendants assumed, without support for that assumption, that all class members would be entitled to the maximum statutory damages. Id. Furthermore, even when the defendants did not assume maximum damages, they failed to provide evidence regarding the number of days worked per year by the technicians; the number of lost vacation days; the number of employees who worked longer than five-hour shifts, which made them eligible for meal breaks; the number of employees who used check-cashing services making them eligible to sue under certain sections of the state's labor code; and the average hourly pay of employees who separated from the company during the class period. Id. The Ninth Circuit found evidence simply insufficient to prove CAFA's amount in controversy requirement to a legal certainty.
A removing defendant sometimes may face a difficult evidentiary hurdle in fulfilling CAFA's amount in controversy. Fortunately, in the six years since CAFA's enactment, the federal circuit courts have started to provide some guidance on the evidentiary standard and the types of evidence that will satisfy the amount in controversy requirement. Knowing the relevant case law can help defense counsel assess their cases and determine if they can overcome the evidentiary hurdles.