Supreme Court to Address Standard of Removal Under the Class Action Fairness Act

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Last year in Standard Fire v. Knowles, 133 S. Ct. 1345 (2013), the U.S. Supreme Court held that class action plaintiffs could not avoid removal to federal court under the Class Action Fairness Act of 2005 (CAFA) by stipulating in their complaint to damages below CAFA’s $5 million dollar threshold. The Court’s holding in Standard Fire signals a trend towards a liberal interpretation of CAFA’s amount in controversy requirement. The opinion also draws more attention to the circuit court split on the question of what defendants must do to satisfy CAFA’s removal requirements. Recently, the Court granted certiorari in a Tenth Circuit case (Dart Cherokee Basin Operating Co., LLC v. Owens, 730 F.3d 1234 (10th Cir. 2013)) that will provide an opportunity to resolve that split.

CAFA’s Removal Requirements

CAFA, enacted in part to discourage forum shopping on the part of plaintiffs, grants federal district courts jurisdiction over class action suits if: (1) minimum diversity of citizenship exists among the parties; (2) a class size of at least 100 people exists; and (3) the amount in controversy is at least $5 million. If a case satisfies these criteria, a defendant may remove from state court to federal court by filing a notice of removal with the appropriate district court. The notice must state that the jurisdictional requirements of CAFA are met, and summary judgment-type evidence may be submitted in support. As discussed in past issues of Class Action Quarterly, the amount in controversy requirement of CAFA has been, and continues to be, an issue of focus in many district and circuit court opinions.

The Supreme Court’s recent decision to grant certiorari in Dart Cherokee signals its willingness to again weigh in on CAFA’s standards and – hopefully – sheds light on defendants’ pleading burdens going forward.

Dart Cherokee Basin Operating Company, LLC v. Owens

In Dart Cherokee, the Tenth Circuit denied the defendants’ motion for appellate review of the lower court’s order to remand the case to state court. The district court order and subsequent denial of review shows that a minority of courts still take a stringent approach in evaluating whether defendants have satisfied their burden of proof at removal.

The plaintiff in Dart Cherokee filed a putative class action in Kansas state court, seeking royalties from oil and gas wells operated by the defendants. The defendants removed to federal court, estimating the amount in controversy at more than $11 million. The District Court for the District of Kansas granted the plaintiff’s subsequent motion to remand, finding that the defendants failed to present sufficient evidence at removal to establish federal jurisdiction.

Significantly, the court found that presenting evidence in a brief opposing remand was not enough; the defendant should have presented that evidence at the time of removal. In a split decision, the full panel of the Tenth Circuit denied the defendants’ motion for rehearing. The denial of appellate review implies that the Tenth Circuit will take a stringent approach to evaluating whether class action defendants have presented enough evidence at the time of removal to meet CAFA’s $5 million requirement. In light of the court’s ruling, removing defendants may be placed in the unfortunate position of having to provide all evidence in support of their amount in controversy calculation with their notices of removal, or risk the court refusing to consider that evidence when plaintiffs move to remand to state court. The Tenth Circuit’s position, and its divergence from the majority of circuit courts that have considered the issue, may also create the potential for forum shopping by plaintiffs seeking to hold defendants to a higher removal burden.

Supreme Court Grants Certiorari

The Supreme Court’s granting of certiorari in a case the Tenth Circuit refused to hear indicates the Court’s readiness to again delve into the amount in controversy requirement of CAFA. The Court’s willingness to address the issue again shortly after Standard Fire signals the pressing need for clarity with respect to removal under CAFA, particularly in light of the sheer volume of varied district and circuit court opinions interpreting the amount in controversy requirement. The case is expected to be heard by the Supreme Court in its next term.

The question of what defendants must do to satisfy the amount in controversy requirement for removal under CAFA is an evolving issue. The Supreme Court needs to provide guidance on these issues. A ruling in Dart Cherokee will hopefully provide a uniform standard that removing defendants must meet in establishing the $5 million amount in controversy. Regardless of which way the Court rules, parties will benefit from transparency and predictability on the issue.

 

Topics:  CAFA, Class Action, Class Certification, Dart Cherokee Basin Operating Co. v. Owens, Removal, SCOTUS, Standard Fire Ins. Co. v. Knowles

Published In: Civil Procedure Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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