January 25, 2015 Practice Points

Ninth Circuit Clarifies Evidentiary Requirements When CAFA Removal Is Challenged

The case is Ibarra v. Manheim Investments, Inc.

By Aaron T. Morris

A month after the Supreme Court’s decision in Dart Basin Operating Co. v. Owens, 135 S. Ct. 547 (2014), the Ninth Circuit has provided further guidance as to the evidentiary requirements that apply when removal pursuant to the Class Action Fairness Act (CAFA) is challenged on a motion to remand.  In Ibarra v. Manheim Investments, Inc., No. 14-56779, 2014 WL 74995131 (Dec. 8, 2014), the Ninth Circuit reiterated that where CAFA’s $5 million amount-in-controversy threshold is disputed, both parties must tender evidence in support of their calculations and rely on reasonable assumptions supported by record evidence.  Although the parties in Ibarra each submitted some evidence in support of their positions, the evidence was insufficient for the court to determine whether CAFA’s amount-in-controversy requirement was satisfied.

The plaintiff in that case had filed a complaint in state court alleging labor law violations and that the amount in controversy did not exceed $5 million. The defendant’s calculation of the amount in controversy differed, and it removed the case to federal court. The district court considered whether removal pursuant to CAFA was appropriate on three occasions—after the plaintiff moved to remand, after the defendant removed for a second time following the Supreme Court’s decision in Standard Fire Insurance Co. v. Knowles, 133 S. Ct. 1345 (2013), and again after the Ninth Circuit vacated the second remand in light of its decision in Rodriguez v. AT&T Mobility Services LLC, 728 F.3d 975 (9th Cir. 2013). On each occasion, the district court determined that the amount-in-controversy requirement was unsatisfied.  After the third remand, the Ninth Circuit granted permission to appeal.

Although the Supreme Court’s decision in Dart primarily addressed the standard applicable to a defendant’s notice of removal, which the Court held is satisfied by “a plausible allegation that the amount in controversy exceeds the jurisdictional threshold,” the Court further clarified that a more robust evidentiary proceeding must follow “only when the plaintiff contests, or the court questions, the defendant’s allegation.” 135 S. Ct. at 554. Applying that framework, the Ninth Circuit determined that both sides were entitled to submit proof of the amount in controversy, and that the court must “decide[], by a preponderance of the evidence, whether the amount-in-controversy requirement has been satisfied.” Id. at 554.  The Ninth Circuit further held that after a dispute over the amount in controversy arises, “CAFA’s requirements are to be tested by consideration of real evidence and the reality of what is at stake in the litigation, using reasonable assumptions underlying the defendant’s theory of damages exposure.” Ibarra, 2014 WL 7495131 at *3.

The Ninth Circuit declined to make a substantive ruling with respect to the amount in controversy in Ibarra, however, because of the insufficiency of the parties’ evidence.  Instead, the court remanded the case to allow further submissions based on assumptions with “some reasonable ground underlying them.” Id. at *4.

The Ninth Circuit’s decision is informative for counsel on both sides of the aisle.  After Knowles, plaintiffs’ counsel should be wary of relying on stipulations and complaint allegations in an effort to avoid removal, and after Dart, defendants’ counsel may feel more confident in relying on allegations in a notice of removal. Yet, when the amount in controversy is contested on a motion to remand, Ibarra anticipates an evidentiary submission by both sides that will allow the district court to peek beyond the pleadings and ascertain “the reality of what is at stake” in the case. This heightened scrutiny of a litigation’s potential exposure may be an uncomfortable development for defendants seeking a federal venue, but the Supreme Court has undoubtedly charted a course in this direction in an effort to ensure that CAFA is fairly applied.

Aaron T. Morris is an associate with Skadden, Arps, Slate, Meagher & Flom in Boston, Massachusetts.


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Aaron T. Morris – January 25, 2015