Is the Case Clearly Not Removable?
The first step in removing a case is to determine whether the case is in fact removable. A case is removable if there is minimal diversity of citizenship, i.e., the putative class is strictly limited to citizens of a state where the defendant is also a citizen. 28 U.S.C. § 1332(d)(2)(A). There is one twist here unique to CAFA—an unincorporated association is a citizen only of the state where it has its principal place of business and under whose laws it is organized. 28 U.S.C. § 1332(d)(10). It’s important to read the class definition very carefully. Keep in mind that people who purchased a product or service or own property in one state may be citizens of another state. If you have fewer than 100 class members, there is also no jurisdiction under CAFA. 28 U.S.C. § 1332(5)(B). But unless the case involves a very expensive product or service, a class of fewer than 100 is likely to present a small exposure.
If one of the defendants is sued in its home state (where it is incorporated or has its principal place of business), that might preclude CAFA jurisdiction. A federal court is required to decline jurisdiction where more than two-thirds of the members of the class are citizens of the state where suit was filed, the “primary defendants” are citizens of that state, and the principal injuries alleged occurred in that state. The court is also required to decline jurisdiction in the same circumstances if there is a “significant” defendant who is a citizen of the state where suit is brought, and during the preceding three years there has not been another class action filed asserting the same or similar allegations against any of the defendants. See 28 U.S.C. § 1332(d)(4). The court also has discretion to decline jurisdiction where more than one-third but less than two-thirds of the class members and the “primary defendants” are citizens of the forum state. (There is a set of criteria to be considered.) 28 U.S.C. § 1332(d)(3). There is also no jurisdiction under CAFA if the “primary defendants” are states or state officials. 28 U.S.C. § 1332(d)(5)(A). Determining the “primary defendant” or “significant defendants” is fact-intensive. But don’t give up on these grounds too easily where plaintiffs are trying to game the system to avoid federal court.
CAFA also does not apply if the case solely involves certain types of securities-law claims, or if it solely relates to the internal affairs or governance of a corporation or other business enterprise, and arises under the laws of the entity’s state of incorporation or organization. 28 U.S.C. § 1332(d)(9).
Is the $5 Million Amount in Controversy Satisfied?
Many disputes over CAFA jurisdiction center on whether the $5 million amount-in-controversy threshold is met. This is measured by the maximum amount that the putative class could potentially recover, in the aggregate, based on the allegations. The allegations should be assumed to be true, and defenses do not matter. A plaintiff’s allegation or stipulation that the amount sought is below $5 million is irrelevant, as the Supreme Court held in its first CAFA case (in which I represented the defendant), Standard Fire Insurance Co. v. Knowles, 133 S. Ct. 1345 (2013).
Keep in mind that the plaintiff cannot alter the allegations after removal to attempt to reduce the amount in controversy and thereby avoid federal jurisdiction. See St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 292 (1938). To avoid the possibility that the plaintiff will voluntarily dismiss the case and refile it in state court with allegations designed to reduce the amount in controversy and avoid federal jurisdiction, you may want to file an answer simultaneously with your notice of removal. See Thatcher v. Hanover Ins. Group, Inc., 659 F.3d 1212 (8th Cir. 2011).
Most circuits have held that the defendant bears the burden of proof, by a preponderance of the evidence, that the amount in controversy is satisfied. Some formulations of this test are quite favorable to defendants, such as the statement by the Seventh and Eighth Circuits that “[o]nce the proponent of federal jurisdiction has explained plausibly how the stakes exceed $5 million . . . then the case belongs in federal court unless it is legally impossible for the plaintiff to recover that much.” Raskas v. Johnson & Johnson, 719 F.3d 884, 888 (8th Cir. 2013) (quoting Spivey v. Vertrue, Inc., 528 F.3d 982, 986 (7th Cir. 2008)). Although the Third and Ninth Circuits had previously required the defendant to establish the amount in controversy to a legal certainty, last year the Ninth Circuit held that Knowles effectively overruled its prior precedent. The Ninth Circuit then adopted a preponderance standard. Rodriguez v. AT&T Mobility Servs. LLC, 728 F.3d 975 (9th Cir. 2013).
Precision in the calculation of the amount in controversy is not required, and a good-faith estimate should be sufficient. When the calculation potentially will be a close call, it is important to examine every cause of action and all categories of damages potentially available thereunder. Even if punitive damages are not requested in the complaint, courts have held that they can be considered in determining the amount in controversy if they are potentially available based on the allegations made. There may not need to be a fraud claim, for example, if there are allegations sounding in fraud. See, e.g., Back Doctors Ltd. v. Metro. Prop. & Cas. Ins. Co., 637 F.3d 827, 831 (7th Cir. 2011); Knowles v. Standard Fire Ins. Co., 2013 U.S. Dist. LEXIS 108822, at *27–31 (W.D. Ark. Aug. 2, 2013). Attorney fees typically can be included in the amount in controversy, although in some circuits the attorney fees must be potentially available by statute or contract. Monetary value also usually can be given to claims for declaratory or injunctive relief, as confirmed by a recent Eleventh Circuit decision. South Fla. Wellness, Inc. v. Allstate Ins. Co., No. 14-10001, 2014 U.S. App. LEXIS 2787 (11th Cir. Feb. 14, 2014).
Also consider whether the plaintiffs have filed multiple class actions for separate time periods or used an unnatural class definition (shorter than the statute of limitations) for purposes of trying to reduce the amount in controversy below $5 million. The Sixth Circuit has held that divvying up class actions to avoid CAFA is improper. Freeman v. Blue Ridge Paper Prods., Inc., 551 F.3d 405 (6th Cir. 2008). At oral argument in Knowles, Chief Justice Roberts, Justice Breyer, and Justice Ginsburg appeared to suggest that dividing up class members by last names or using a shortened class period would be improper. In his opinion for the Court, Justice Breyer wrote that subdividing a $100 million class action into 21 just-below-$5 million cases “would squarely conflict with the statute’s objective.” Knowles, 133 S. Ct. at 1350. Keep that in mind if you are faced with a complaint that is carefully and artificially framed to try to keep the amount in controversy below $5 million.
Is the Case a “Mass Action”?
In addition to providing jurisdiction over class actions, CAFA also extends jurisdiction over a “mass action,” defined as “any civil action . . . in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law or fact. . . .” 28 U.S.C. § 1332(d)(11)(B)(i). But jurisdiction does not exist where (1) the claims are joined on a defendant’s motion, (2) all of the claims arise from an event in the state where the action was filed, (3) the claims are asserted on behalf of the general public pursuant to a state statute authorizing such an action, or (4) the claims are consolidated or coordinated solely for pretrial proceedings. Id. § 1332(d)(11)(B)(ii).
Importantly, “mass action” jurisdiction exists only over those plaintiffs who have claims with an amount in controversy exceeding $75,000. Id. § 1332(d)(11)(B)(i); see also Hood ex rel. Miss. v. JP Morgan Chase & Co., 737 F.3d 78, 86 (5th Cir. 2013) (requiring for removal a showing that at least one plaintiff have a claim over $75,000). So for cases involving small claims, this provision of CAFA won’t be of help.
One issue that was hotly contested and recently resolved was whether a state attorney general’s parens patriae suit could be removed as a “mass action.” In Mississippi ex. rel Hood v. AU Optronics Corp., 134 S. Ct. 736 (2014), the Supreme Court held that a suit filed by the Mississippi attorney general, in the name of the state, was not a “mass action” under CAFA, even though it included a claim for restitution based on injuries suffered by numerous Mississippi citizens who were not parties to the case. The court held essentially that the “mass action” provision applies only to suits involving 100 or more named plaintiffs (as opposed to unnamed parties with an interest). The Court rejected the Fifth Circuit’s view that “mass action” jurisdiction should depend on who the real parties in interest are. This decision is likely to largely shift the jurisdictional playing field in state-attorney-general litigation to disputes over whether the suit qualifies as a “class action” because it is brought under a state statute (or rule) that is sufficiently similar to Federal Rule 23 to qualify as a “class action” under CAFA. See Brown v. Mortg. Elec. Registration Sys., Inc., 738 F.3d 926, 931 (8th Cir. 2013) (construing action as a “class action” under CAFA because state-court procedure was similar to a class action).
Another question that has been hotly litigated is under what circumstance cases are “proposed to be tried jointly” within the meaning of CAFA’s “mass action” provision. A recent Tenth Circuit decision held that plaintiffs can avoid “mass action” jurisdiction by filing separate suits in the same state court, each of which had fewer than 100 plaintiffs, and expressly stating that they were not requesting a joint trial. Parson v. Johnson & Johnson, 2014 U.S. App. LEXIS 6762, *9–15 (10th Cir. Apr. 11, 2014); see also Scimone v. Carnival Corp., 720 F.3d 876, 881–84 (11th Cir. 2013). However, where plaintiffs’ counsel has implicitly requested a joint trial by requesting assignment to a single judge and suggesting a bellwether or joint trial, courts have found removal appropriate. Atwell v. Boston Sci. Corp., 740 F.3d 1160, 1165–66 (8th Cir. 2013); In re Abbott Labs., Inc., 698 F.3d 568, 573 (7th Cir. 2012). If the state court itself orders a joint trial or bellwether trial, you may be able to remove the case at that point. CAFA does not have a one-year limitation on removal. See 28 U.S.C. § 1453(b).
What Evidentiary Support Is Necessary for Removal?
The Supreme Court recently granted certiorari to decide whether a defendant must include evidence supporting federal jurisdiction in its notice of removal. See Dart Cherokee Basin Operating Co., LLC v. Owens, No. 13-719 (cert. granted Apr. 7, 2014). In that case, the district court refused to consider evidence presented by the defendant concerning the amount in controversy, when the evidence was presented in an opposition to a motion to remand, because the evidence had not been attached to the defendant’s notice of removal. A panel of the Tenth Circuit denied permission to appeal under CAFA (see 28 U.S.C. § 1453(c), which allows discretionary appeals of remand orders). An equally divided panel of the Tenth Circuit denied rehearing en banc. Judge Hartz wrote a persuasive dissent from the denial of rehearing en banc, explaining that, under 28 U.S.C. § 1446(a), a notice of removal must contain “a short and plain statement of the grounds for removal, together with a copy of all process, pleadings, and orders served upon such defendant or defendants in such action.” The removal statute does not require that evidence be attached to or accompany a notice of removal. Judge Hartz also cited Federal Rule of Civil Procedure 8(a)(1), which provides that a pleading contain “a short and plain statement of the grounds for the court’s jurisdiction. . . .” See Dart Cherokee Basin Operating Co., LLC v. Owens, 730 F.3d 1234, 1234–39 (10th Cir. 2013) (Hartz, J., dissenting). I could be wrong, but I expect that the Supreme Court will agree with Judge Hartz. This will lighten the burden on defendants in preparing their notices of removal under CAFA. Substantial work will still need to be done, however, to develop the factual basis for the allegations that need to be made in the notice of removal.
How Much Time Is There to File a Notice of Removal?
The removal statute requires that a notice of removal be filed “within 30 days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based. . . .” 28 U.S.C. § 1446(b)(1). The Supreme Court has held that this deadline is not triggered by receipt of a “courtesy copy” of a complaint, but only by formal service of process. Murphy Brothers, Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344, 347–48 (1999). The removal statute further provides that “if the case stated by the initial pleading is not removable, a notice of removal may be filed within 30 days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable.” 28 U.S.C. § 1446(b)(3).
Cautious defendants have removed cases under CAFA within 30 days of service of process, assuming that they were obligated to do whatever internal work was necessary to ascertain the amount in controversy within the 30-day period. But the Ninth Circuit recently held that a defendant can remove a case outside the 30-day period, based on its own investigation of the amount in controversy, where the complaint and other documents received from the plaintiffs do not demonstrate on their face that the case is removable. In the Ninth Circuit’s view, the defendant’s investigation is not required to be performed (at least preliminarily) within the first 30 days after service of the complaint. Roth v. CHA Hollywood Med. Ctr., L.P., 720 F.3d 1121 (9th Cir. 2013); see also Rea v. Michaels Stores Inc., 742 F.3d 1234 (9th Cir. 2014). Notwithstanding the Ninth Circuit’s decision, I expect that defendants are likely to continue to remove cases within the initial 30-day period to achieve a federal forum quickly, and because other circuits (or the Supreme Court) might disagree with the Ninth Circuit’s view.
Keywords: litigation, corporate counsel, CAFA, Class Action Fairness Act, removal, Knowles
Wystan Ackerman is a partner with Robinson & Cole LLP in Hartford, Connecticut.