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Spangenberg, Shibley & Liber, LLP | Apr 9, 2014

Here We Go Again

Categories: News

The US Supreme Court today granted cert in another class action case with the potential to adversely affect the rights of plaintiffs. In reviewing the 10th Circuit’s denial of en banc review in Dart Charokee Basin Operating Co. LLC v. Owens (http://www.scotusblog.com/case-files/cases/dart-cherokee-basin-operating-company-llc-v-owens) the Court will examine what must be pled (or proven, and to what standard) by a Defendant seeking to remove a case to federal court pursuant to CAFA (the “Class Action Fairness Act”).

Some Circuits, like the 9th and 3rd, have found that where Plaintiffs plead damages less than the $5,000,000 CAFA jurisdictional amount in their Complaint, that “the party seeking removal must prove with ‘legal certainty’ that the amount in controversy is satisfied, notwithstanding the prayer for relief in the complaint.” Lowdermilk v. U.S. Bank Nat'l Ass'n, 479 F.3d 994, 996 (9th Cir.2007). The 10th Circuit had previously announced that it would follow the more lenient standard, which requires the party seeking removal prove the jurisdictional amount only by a preponderance of the evidence. Frederick v. Hartford Underwriters Ins. Co., 683 F.3d 1242, 1246 (10th Cir. 2012)

In Dart Cherokee the Plaintiffs filed a complaint in state court alleging only that the state court jurisdictional amount was met. The Defendants filed a removal action alleging damages in excess of $5,000,000 and providing a narrative explaining the calculation. The Defendant did not, however, attach an affidavit or other documentary evidence to support that calculation or the amounts asserted. The Court held the pleading insufficient as a matter of law and remanded the case to state court because the Defendant had failed to provide evidentiary support, "such as an economic analysis . . . or settlement estimates."

As the petitioners frame the question presented to the High Court, it is “Whether a defendant seeking removal to federal court is required to include evidence supporting federal jurisdiction in the notice of removal, or is alleging the required ‘short and plain statement of the grounds for removal’ enough?” The likelihood, of course, is that the opinion will address not just the pleading standard but also the Circuit split as to the burden of proof. As such, there is a real likelihood that we come out of this with the rule for CAFA removal being that Defendants a) do not have to support their jurisdictional amount allegations in their notice of removal and b) if and when that amount is later challenged, it will need to be proven only by a preponderance of the evidence.

This is in certain ways not a major issue, in so far as a majority of cases will come in well above or below the jurisdictional amount and/or will be filed in Federal Court for practical or prudential reasons anyway. But it does represent another potential narrowing of Plaintiff’s rights – here to a forum of their own choosing – in the class-action arena.