Consumer Class Actions and Mass Torts : Class Action Lawyer & Attorney : J. Russell Jackson : Skadden Law Firm : Complex Class Actions : Consumer Class Actions & Mass Torts Law Blog

Often litigants want to have their cake and eat it, too.  For example, in an individual tort case, a plaintiff may want the right to try to ring the bell with punitive damages, and yet she also wants to stay in state court to take advantage of perceived procedural or other advantages offered by the state court system.  Thus, there is a tension between maximizing recoveries and limiting the amount at issue to something below the $75,000 jurisdictional minimum for federal court.

But when you are straddling the pleading fence, you sometimes can injure yourself.  In Green v. The Dial Corporation, 2011 WL 5335412 (E.D. Mo. Nov. 4, 2011), the plaintiff alleged that she suffered personal injuries to "her skin and all of the anatomical structures thereof" from using one of Dial's body washes.  The complaint prayed for "more than TWENTY FIVE THOUSAND DOLLARS ($25,000) but which sum when aggregated with sums prayed for in all other counts herein does not exceed SEVENTY FIVE THOUSAND DOLLARS ($75,000), for punitive damages, expenses and her costs, together with such other further relief as this Court shall deem appropriate under the circumstances."  Id. at *1.

Dial removed the case to federal court, arguing that the wording of the complaint makes it obvious that the plaintiff is seeking punitive damages in addition to less than $75,000 in compensatory damages, thus making the amount at issue over the jurisdictional minimum.  The plaintiff resisted, claiming that what she intended her complaint to mean was that she only sought less than $75,000.

The court -- applying precedent that the plaintiff is the master of her own complaint -- decided to allow the plaintiff to go back to state court, with a catch:  the court would tolerate no funny business whereby the plaintiff, once released back to state court, would seek punitive damages on top of $75,000. 

Thus, the court made its remand order conditional on plaintiff -- and her lawyer -- signing and submitting to the federal court a "binding affidavit" attesting to the fact that "Plaintiff does not and will not seek or accept damages in excess of $75,000, exclusive of interests and costs in this case."  In other words, plaintiff could return to state court, but only upon finally establishing once and for all that she would not ever obtain more than $75,000 in the lawsuit.

This Dial opinion can come in handy when plaintiffs have engaged in cagy pleading and seek remand to state court.  Which reminds me of the advertising campaign from the 1970s:  "Aren't you glad you use Dial?  Don't you wish everyone did?"

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Last Friday the Seventh Circuit, in an opinion authored by Chief Judge Frank Easterbrook, clarified the standard to be used by courts in evaluating a defendant's estimation of the amount in controversy.  See Back Doctors Ltd. v. Metropolitan Property & Cas. Ins. Co., 2011 WL 1206184 (7th Cir. Apr. 1, 2011). 

In Back Doctors, the plaintiffs alleged that the insurer used a computer program that caused it to pay medical providers less than it was required to pay them under the policies.  The plaintiffs alleged that use of this computer program was not only a breach of contract, but also violated Illinois's Consumer Fraud Act.  The case had been filed as a class action in state court.

The defendant removed, citing CAFA, arguing that the amount in controversy exceeded $5 million.  No one disputed that so-called "actual" damages exceed $2.9 million.  But plaintiffs argued that because they had not actually pled a punitive damages claim and had not included a prayer for punitive damages in their complaint, it was wrong of the defendant to include in its estimated amount in controversy more than $2.1 million in punitive damages.

The trial court found for the plaintiffs and remanded the case to state court; but the Seventh Circuit granted the appeal to clarify the applicable standards.

As Chief Judge Easterbrook explained, Seventh Circuit jurisprudence used to refer to a "reasonable probability" standard, which was intended to mean that although the proponent of federal jurisdiction was entitled to have his allegations about the amount-in-controversy accepted unless it was impossible for the plaintiff to recover the jurisdictional minimum, jurisdictional facts "must be alleged and proved by a preponderance of the evidence," and the phrase "reasonable probability" was used to illustrate that point.  2011 WL 1206184 at *1 (citations omitted).

But "many judges misunderstood the phrase as requiring the proponent of federal jurisdiction to establish that it was likely that the plaintiff would obtain a judgment exceeding the amount-in-controversy requirement."  Id.

Subsequently, the court issued decisions trying to clarify and then dump the "reasonable likelihood" requirement, and it issued Back Doctors to make it clear exactly what the standard is:

The legal standard was established by the Supreme Court in St. Paul Mercury:  unless recovery of an amount exceeding the jurisdictional minimum is legally impossible, the case belongs in federal court.  Only jurisdictional facts, such as which state issued a party's certificate of incorporation, or where a corporation's headquarters are located, need be established by a preponderance of the evidence.

There is no presumption against federal jurisdiction in general, or removal in particular.  The Class Action Fairness Act must be implemented according to its terms, rather than in a manner that disfavors the removal of large-stakes, multi-state class actions.  When removing a suit, the defendant as proponent of federal jurisdiction is entitled to present its own estimate of the stakes; it is not bound by the plaintiff's estimate.  Once this has been done, and supported by proof of any contested jurisdictional facts, the presumption is the one stated in St. Paul Mercury:  the estimate of the dispute's stakes advanced by the proponent of federal jurisdiction controls unless a recovery that large is legally impossible.  So the question here is not whether the class is more likely than not to recover punitive damages, but whether Illinois law disallows such a recovery.

Id. at *2 (citations omitted).

The court went on to analyze the availability of punitive damages under the plaintiffs' complaint.  It noted that the plaintiffs had not, in their complaint, disclaimed any amount above the jurisdictional minimum.  And it observed that Illinois law would allow plaintiffs to amend their complaint up until the time of trial to include punitive damages -- particularly where fraud already had been pled and was part of the case.  The court also refused to credit a post-motion declaration from plaintiffs, observing that removal is judged at the time of removal, and subsequent facts should not be considered.  And the court noted that the named plaintiffs here had a fiduciary duty to the class, and thus could not just throw away a claim that might bring a large recovery to the class members.

The court ultimately held that removal was proper, reiterating:  "When a plaintiff does not tie its own hands, the defendant is entitled to a good-faith estimate of the stakes.  If that estimate exceeds the jurisdictional minimum, it controls and allows removal unless recovery exceeding the jurisdictional minimum would be legally impossible."  Id. at *3.

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You've gotta respect someone who can say flatly, "I was wrong" -- particularly when he or she is a federal judge.  And so this blog gives a tip of the hat to the Honorable Gerald Bard Tjoflat, the Honorable Charles Wilson, and the Honorable David Ebel -- the panel who had issued a decision this summer inexplicably holding that in order to have federal jurisdiction under the Class Action Fairness Act, at least one of the putative class members must have damages that meet the amount in controversy threshold for diversity jurisdiction.  Both the plaintiff and the defendant sought rehearing en banc.  The jurisdiction question had not even been raised in the court below or on appeal.  The decision sparked a firestorm of criticism, and a forest of trees must have been slain to accommodate all of the amicus briefs arguing for reversal.

Rather than going to the trouble of having the entire Eleventh Circuit decide the question anew en banc, the original panel, in a per curiam opinion, reversed itself yesterday, saying simply:

On July 19, 2010, we issued an opinion in this case.  We based our decision on our interpretation of the jurisdictional requirements of the Class Action Fairness Act of 2005 . . . which elsewhere we have called a "statutory labyrinth."  Subsequent reflection has led us to conclude that our interpretation was incorrect.  Specifically, CAFA's text does not require at least one plaintiff in a class action to meet the amount in controversy requirement of 28 U.S.C. sec. 1332(a).  Accordingly, we construe both parties' petitions for rehearing en banc to include petitions for panel rehearing, vacate our opinion, and replace it with this one.

Cappuccitti v. DirecTV, Inc., No. 09-14107, Slip op. at 1 (11th Cir. Oct. 15, 2010) (citations omitted).

Elsewhere in the opinion, the panel made clear:

There is no requirement in a class action brought originally or on removal under CAFA that any individual plaintiff's claim exceed $75,000.  Eleventh Circuit precedent does not contradict this proposition.

Id. at 6 (citation omitted).

One item is of note, however.  There has been controversy in the Eleventh Circuit about removal of cases under the diversity statute where the complaint does not describe the amount in controversy or expressly disclaims damages in excess of the jurisdictional threshold.  Specifically, who bears the burden of proof, and what sort of evidence is enough to establish the jurisdictional minimum?

The panel's per curiam decision suggests that there may be some controversy to come on the similar issue of the $5,000,000 jurisdictional minimum for CAFA jurisdiction, particularly given that CAFA jurisdiction can be invoked by plaintiffs or defendants.  The panel observes in a footnote:

In his amended complaint, Cappuccitti states that "the matter in controversy exceeds the value of $5,000,000 exclusive of interests and costs," and DirecTV does not challenge this assertion.  "If the jurisdictional amount is either clearly stated on the face of the documents before the court, or readily deducible from them, then the court has jurisdiction."  Lowery, 483 F.3d at 1211.  We assume that the sum claimed here by Cappucccitti was made in good faith, and it therefore controls. . . .  We note, however, that discovery may uncover certain facts -- such as an insufficient number of Georgia subscribers, and therefore an insufficient number of class members,  to allow for a recovery of $5,000,000 -- that would destroy the district court's jurisdiction over the case and require the court to dismiss the case under Federal Rule of Civil Procedure 12(b)(1).  See id. at 289 (discussing the "legal certainty" test).

Slip op. at n.8 (citation omitted).

I owe acknowledgements to Andrew Trask at Classactioncountermeasures and my friends at the Washington Legal Foundation, who alerted me to this opinion.

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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.

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Reading some of the recent cases involving removal under the Class Action Fairness Act is an excellent reminder that venue really matters, and some lawyers really, really, really don't want to end up in federal court.  At all.  Ever.

Take, for example, Vanegas v. Dole Food Co., 2009 WL 213012 (C.D. Cal. Jan. 29, 2009).  In Vanegas, plaintiffs counsel had filed a series of lawsuits in Los Angeles state court on behalf of banana plantation workers from Costa Rica, Honduras, Panama, and Guatemala against a host of companies, alleging that the workers' exposure to pesticides had injured them.  They alleged a variety of products liability and fraud causes of action.  Each of the lawsuits had less than 100 plaintiffs, and none of them purported to be a class action.

The defendants removed the cases to federal court under the Class Action Fairness Act ("CAFA"), 28 U.S.C. secs. 1332(d) and 1453.  CAFA generally allows for the removal to federal court of class actions exceeding the sum of $5,000,000 and so-called "mass actions" of 100 or more individuals whose individual claims exceed $75,000.

Of course, breaking the lawsuits up into blocks of fewer than 100 plaintiffs was artful pleading designed to avoid removal to federal court.  The defendants argued that the court should look beyond such artifice and retain jurisdiction of the case. 

But the court declined to do so, positing:  "Nothing in CAFA suggests that plaintiffs, as masters of their complaint, may not 'file multiple actions, each with fewer than 100 plaintiffs, to work within the confines of CAFA to keep their state-law claims in state court.' . . . Furthermore, 'Congress expressly rejected the use of [defendants'] strategy by excluding actions in which claims have been "joined upon motion of the defendant" from the definition of "mass action."'"  Id. at *1 (citations omitted).

The court ultimately issued an order to show cause why the case should not be remanded to state court.

In reaching its result, however, the court distinguished a recent case in which the Sixth Circuit looked beyond the pleadings to prevent the plaintiffs from circumventing CAFA's removal provision.  In Freeman v. Blue Ridge Paper Products, Inc., 551 F.3d 405 (6th Cir. Dec. 29, 2008), some 300 riparian landowners brought public nuisance claims against a paper mill for allegedly polluting a river.  They fought valiantly to avoid CAFA removal to federal court.  Their complaint had expressly disavowed individual recovery of more than $75,000 and collective recovery of more than $5 million.  The defendant removed once, and was remanded to state court for failure to establish that the case met the amount in controversy requirement.

On remand, the plaintiffs sought to maximize their recovery while avoiding federal court by dividing the suit into 5 suits, each covering a successive 6-month time period and each being limited to $74,000 per individual and $4.9 million per suit. 

Concluding that "CAFA was clearly designed to prevent plaintiffs from artificially structuring their suits to avoid federal jurisdiction," the court refused to credit plaintiffs' artifices:

[E]ach of the five suits must be aggregated.  The complaints are identical in all respects except for the broken up time periods.  Plaintiffs put forth no colorable reason for breaking up the lawsuits in this fashion, other than to avoid federal jurisdiction.  In fact, plaintiffs' counsel admitted at oral argument that avoiding CAFA was the only reason for this structuring.  If such pure structuring permits class plaintiffs to avoid CAFA, then Congress's obvious purpose in passing the statute -- to allow defendants to defend large interstate class actions in federal court -- can be avoided almost at will, as long as state law permits suits to be broken up on some basis.

Id. at 407.

The court limited its holding to the situation where there is no colorable basis -- other than frustrating CAFA -- for dividing up the relief into separate time periods.  The court also recognized that plaintiffs generally can limit their damages to avoid federal jurisdiction, but held that "where recovery is expanded, rather than limited, by virtue of splintering lawsuits for no colorable reason, the total of such identical splintered lawsuits may be aggregated."  Id. at 409.

For an additional case interpreting CAFA liberally to avoid jurisdictional gamesmanship, see State of Louisiana v. Allstate Insurance Co., 536 F.3d 418 (5th Cir. 2008) (interpreting a so-called "parens patriae" action to fall within CAFA's definitions because the "real party in interest" was not the State, but the policyholders on whose behalf the State had sued).

It remains to be seen how closely courts will scrutinize pleadings in considering CAFA removal issues.  But one thing is clear from Vanegas and Freeman:  the creative writing ability of lawyers who want to avoid federal courts knows no bounds!

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