First Circuit Clarifies CAFA Removal Standards
Loyal reader Michael Cessna from Lathrop & Gage in Kansas City turned me on to the First Circuit's recent decision in Amoche v. Guarantee Trust Life Ins. Co., No. 08-2094 (1st Cir. Feb. 13, 2009), in which the court articulated the standards applicable to a defendant's removal of a consumer fraud class action.
In Amoche, it is plain that the plaintiffs were gaming the system to avoid removal to federal court by refusing to indicate how much they were seeking in their class action, while refusing to issue a binding disclaimer of the $5 million amount in controversy that is the floor for removal under the Class Action Fairness Act ("CAFA").
Plaintiffs were people who -- as part of obtaining an automobile loan -- had been forced to buy a single-premium life insurance policy so that if they died, the loan would be paid off. Plaintiffs sought to represent a class of such people who had paid off their loan early, but had not been refunded the unearned portion of the prepaid life insurance premium. Plaintiffs sought money damages under breach of contract and breach of the covenant of good faith and fair dealing theories, restitution of unearned premiums, and injunctive relief that would require the life insurer to promptly refund unearned premiums to those who pay off loans early.
Plaintiffs had filed a class action in New Hampshire state court, the court had certified it, and plaintiffs had won summary judgment on their breach of contract claim, thereby establishing liability. Plaintiffs then sought to amend their complaint to add consumers from other states. But their complaint merely said that the defendant had harmed "thousands of class members" in amounts likely to be "about $200." The state trial court granted plaintiffs the right to add to their class definition class members from 16 other states. Plaintiffs then moved the amend the order to allow them to add between 10 and 20 other states.
The defendant was understandably concerned, and based on plaintiffs' representations, it removed the case to federal court, arguing that if the class contained as many as 25,000 people, at $200 a head that would be $5 million. Plaintiffs filed a motion to remand, and defendants responded by showing that plaintiffs' claims in New Hampshire alone totaled $452,472.29. The District Court granted plaintiffs' motion to remand, and the First Circuit affirmed, articulating some basic CAFA removal principles:
Because CAFA is both a removal and a jurisdictional statute, we start with some basic principles from those areas. The party invoking federal jurisdiction has the burden of establishing that the court has subject matter jurisdiction over the case. . . .
We now hold that the burden of showing federal jurisdiction is on the defendant removing under CAFA. This is also the conclusion reached by the seven other circuits that have considered this issue.
Slip op at 11 (citations omitted).
The court explained that although the question of subject matter jurisdiction is a question of law that is always reviewed de novo by a federal court, there may be instances where the district court has had to make factual findings. Where that has occurred, the factual findings are reviewed for "clear error."
The court held that where the complaint is silent on the amount in controversy, defendants removing under CAFA must demonstrate a "reasonable probability" that the amount in controversy exceeds $5 million. The court explained that "the reasonable probability standard is, to our minds, for all practical purposes identical to the preponderance of the evidence standard adopted by several circuits," but the "'reasonable probability language better captures the preliminary nature of this inquiry, reserving the preponderance of the evidence terminology for other conclusions." Slip op at 14 (citations omitted).
The defendant had argued that it should be treated more like a plaintiff who chooses the federal forum, who only has to show that it is not a "legal certainty" that the amount in controversy is less than $5 million. But the court rejected that argument as conflicting with the general rule that defers to the plaintiff's choice of forum.
The First Circuit offered some "brief notes" on the standard that it articulated. It noted that "[c]onsideration of this preliminary issue should not devolve into a mini-trial regarding the amount in controversy." Moreover, the court should consider what evidence both parties have put on and which party has better access to relevant information. In addition, evaluating the defendant's showing regarding the amount in controversy must be focused on the time of removal -- what happens afterward cannot divest the court of jurisdiction. Finally, the likelihood of success on the merits is irrelevant to the amount in controversy.
Using these guidelines, the court concluded that the defendant had not shown a reasonable probability that the amount in controversy exceeded $5 million, and it affirmed remand of the case to state court, declaring that "[i]t is not unfair that [defendant] wait until the class allegations are more fully developed before attempting to remove, if there is a basis for removal, especially now that class actions under CAFA are exempt from the removal statute's one-year time limit." Slip op. at 20.
