Ninth Circuit Falls In Line With Supreme Court Ruling on Class Action Removals

by Sheppard Mullin Richter & Hampton LLP

In Rodriguez v. AT&T Mobility, LLC, the Ninth Circuit continues a string of recent decisions cracking down on district courts’ tendency to remand class actions on the purported basis that the defendant failed to meet the burden of proof that subject matter jurisdiction exists. District courts have incentives to do this because remand orders are normally not reviewable on appeal (except in limited circumstances for class action removals) and doing so has the effect of lightening their case load.  As explained below, the Ninth Circuit’s decision will make it harder for intellectually honest district courts to remand typical class action cases.

Basic Facts

The defendant, AT&T, removed a class action and attempted to show $5 million amount in controversy through declarations calculating potential damages based on the broad allegations of the complaint.  The district court remanded the case on the ground that AT&T had to establish amount in controversy with "legal certainty" in light of the plaintiff's pleading that the amount in controversy was under $5 million.  This ruling was based on the then-binding precedent from the Ninth Circuit, Lowdermilk v. U. S. Bank Nat'l Ass'n (Lowdermilk).  It does not appear that the district court analyzed in detail why AT&T's showing did not meet the higher standard.

The Ninth Circuit Decision

Here, the Ninth Circuit held that, contrary to the holding of Lowdermilk, a plaintiff cannot alter the burden of proof the defendant must satisfy to establish that $5 million is in controversy necessary to create federal jurisdiction by pleading the conclusion that the amount in controversy is less than $5 million.  In so holding, the Ninth Circuit was simply recognizing that the United States Supreme Court’s decision earlier this year in Standard Fire Insurance v. Knowles had effectively overruled Lowdermilk.

Lowdermilk had reached its conclusion from the premise that a plaintiff is the master of the complaint and, as such, has the power to seek to avoid federal jurisdiction by seeking less than $5 million. Lowdermilk had also suggested that the analysis should be limited to the “four corners of the complaint.” While these statements are generally uncontroversial as to a removal of an individual case, the existence of claims of absent class members who the plaintiff does not even represent prior to certification complicates the analysis. The Lowdermilk standard effectively allowed the plaintiff to plead the complaint vaguely so as to make it uncertain the extent of the violations (and resulting damages), and thereby avoid removal so long as the plaintiff never made a specific demand for more than $5 million. Presumably, the plaintiff could avoid making an express demand for more than $5 million until after class certification was already decided.

Standard Fire addresses a similar but not identical issue of whether a class plaintiff could definitively avoid federal jurisdiction by formally “stipulating” that the class would not seek $5 million.  Standard Fire reversed a district court decision that such a stipulation effectively ended the inquiry and mandated remand. In reversing the lower court, the Supreme Court held that such stipulations were ineffective notwithstanding the general notion that a plaintiff may seek a smaller amount of money for himself or herself to avoid federal jurisdiction.  The Court recognized that the plaintiff has no power to bind members of an uncertified class so the representation that the class was seeking less than $5 million was meaningless.  Instead, the district court must examine the record and determine for itself whether the amount in controversy is $5 million.  The Supreme Court in Standard Fire also cited with approval a Tenth Circuit decision where the appellate court held that a statement in a complaint that the amount in controversy is less than $5 million is entitled to no weight at all.

In the wake of Standard Fire, defendants (like AT&T Mobility) began to argue to the Ninth Circuit that Lowdermilk was implicitly overruled by Standard Fire because Lowdermilk rested on the notion that a plaintiff may manipulate jurisdiction by making representations about what the “class” was entitled to recover.  Some district courts refused to accept that Standard Fire overruled Lowdermilk and distinguished the decision on the ground that Standard Fire dealt with a stipulation to definitively avoid federal jurisdiction while Lowdermilk dealt with the burden of proof when a party pleads the amount in controversy is under $5 million.  Rodriguez recognizes that this is a distinction without a difference. 

The Rodriguez panel also explained how the inconsistency between Standard Fire and Lowdermilk is clear enough to warrant one Ninth Circuit panel overruling another Ninth Circuit panel without en banc review. Accordingly, the rule in the Ninth Circuit now is that when a district court is considering remand, it must examine the totality of the evidence on amount in controversy and determine whether it is more likely than not that the amount in controversy is actually over $5 million. Such as "preponderance of the evidence" standard is much easier to meet than “legal certainty.”

The key paragraph of the decision reads as follows:

Lowdermilk adopted the legal certainty standard to reinforce plaintiff’s prerogative, as master of the complaint, to avoid federal jurisdiction by forgoing a portion of the recovery on behalf of the putative class. That choice has been taken away by Standard Fire. Further, Standard Fire instructs courts to look beyond the complaint to determine whether the putative class action meets the jurisdictional requirements.

This Ninth Circuit decision follows earlier decisions this year from the Ninth Circuit holding that held that the clock for the defendant to remove did not start running where the complaint is too vague to allow a determination from the face to determine amount in controversy (Kuxhausen v. BMW Financial Services LLC), and that the defendant does not have 30 days from the outset of the case to conduct an investigation into its own data to determine if the amount in controversy is met (Roth v. CHA Hollywood Medical Center).

As such, Rodriguez continues a trend to read the standards for CAFA removal more leniently, which is consistent with what Congress had attempted to accomplish by creating special federal jurisdiction for class actions involving more than 100 potential class members and a potential recovery of $5 million.  It also should put some pressure on plaintiffs who really want to avoid federal court to expressly limit their theories (rather than just plead vague conclusions) if they believe that their real case is too small to warrant federal jurisdiction.

Written by:

Sheppard Mullin Richter & Hampton LLP

Sheppard Mullin Richter & Hampton LLP on:

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