With the Class Action Fairness Act (“CAFA”) now almost a decade old, some basic questions are finally being resolved. Last year, the Supreme Court decided Standard Fire (see my Jan. 7 and March 20, 2013 posts), which declared that named plaintiffs in an uncertified class cannot stipulate to a certain amount of damages below the CAFA threshold to avoid federal jurisdiction. While the opinion was based on concepts of representation (named plaintiffs in an uncertified class do not represent absent class members), the holding is important because it limited a plaintiff tactic designed to avoid federal jurisdiction. With the Supreme Court’s recent decision in Dart Cherokee Basin Operating Co., LLC v. Owens, No. 13-719 (Dec. 15, 2014), the Court has again limited plaintiffs’ tactics by holding that a defendant need not plead “evidence” that the amount in controversy requirement is satisfied for CAFA removal. Instead, a defendant need only plead in good faith that the amount has been satisfied.
The facts of Dart Cherokee are straightforward: Owens filed a putative class action against Dart Cherokee and other Defendants (collectively, “Dart”), alleging that Dart underpaid certain gas and oil lease royalties. The suit itself was silent on the amount in controversy. Dart’s notice of removal under CAFA alleged the amount in controversy to be $8.2 million, thus satisfying the $5 million CAFA threshold. Owens moved to remand to state court, contending that Dart’s pleading was insufficient as a matter of law to satisfy CAFA because Dart failed to provide “evidence” of the amount in controversy. In response, Dart submitted an affidavit detailing the amount in controversy. The district court granted Owens’ remand motion, reading Tenth Circuit precedent to require proof of the amount in controversy in the removal notice itself. Dart, then, petitioned the Tenth Circuit for permission to appeal, but the court denied review and rehearing en banc.
Justice Ginsburg wrote the decision, joined by Justices Roberts, Breyer, Alito and Sotomayor. The Supreme Court vacated the judgment of the Tenth Circuit and remanded the case. The Court held that the removal statute itself requires only a “short and plain statement” of the grounds for removal. 28 U.S.C. section 1446(a). Just as a plaintiff can invoke federal jurisdiction in a complaint alleging an amount in controversy in good faith, so, too, can a defendant invoke federal jurisdiction in a notice of removal in the same way. The Court held that the Tenth Circuit’s differing standard for plaintiffs and defendants who seek federal jurisdiction is anomalous and incorrect. Indeed, the Court went on to discuss how section 1446(c)(2)(B), added in 2011 under the Federal Courts Jurisdiction and Venue Clarification Act, clarifies the procedure to be used when the amount in controversy is challenged. In that case, both sides are to submit proof and the court is to decide the issue based on the preponderance of the evidence.
While no one on the Supreme Court appeared to question the fact that the Tenth Circuit just got it wrong, the Court split because of a jurisdictional concern arising from the fact that the Tenth Circuit never reached the merits of the issue, but simply denied review in its discretion. This led Justices Scalia, Kennedy, Kagan and Thomas to dissent. As Justice Scalia reasoned: “Eager to correct what we suspected was the District Court’s (and the Tenth Circuit’s) erroneous interpretation of Section 1446(a), we granted certiorari to decide whether notices of removal must contain evidence supporting federal jurisdiction. After briefing we discovered a little snag: This case does not present that question. Because we are reviewing the Tenth Circuit’s judgment, the only question before us is whether the Tenth Circuit abused its discretion in denying Dart permission to appeal the District Court’s remand.” Justice Scalia and others would have dismissed the case as improvidently granted.
Justice Ginsburg rationalized deciding the merits by reasoning that the Tenth Circuit denied review likely because of its incorrect view of the law, and the problem was that its erroneous view would likely go uncorrected but for this case. She also pointed out that Standard Fire was reviewed under identical circumstances. To this, Justice Scalia responded that it is impossible to divine the reasons for the Tenth Circuit’s denial of permission to appeal or to know that the erroneous view held by the Tenth Circuit on section 1446(a) would otherwise go uncorrected. And with respect to Standard Fire, Justice Scalia appeared to admit that that case presented the same jurisdictional issue, but did not see that as a reason to make the same mistake now with respect to Cherokee Dart.
Despite all the procedural issues, at the end of the day, defendants have a decision providing clarity on CAFA removal. The decision also takes another tactic away from plaintiffs’ counsel as they seek to circumvent CAFA. The jurisdictional issue, however, is also a reminder to defendants of how difficult it might be to get Supreme Court review of CAFA issues where interlocutory review is simply denied.