Fourth Circuit Provides Guidance Concerning Proof of the Amount in Controversy under CAFA

View David Wright's Complete Bio at robinsonbradshaw.comWe don’t often get appellate guidance after a federal trial judge remands a case to state court following removal because 28 U.S.C. Sect. 1447(d) generally makes such a ruling unreviewable. But the Class Action Fairness Act (“CAFA”), 28 U.S.C. Sect. 1332(d), permits a court of appeals to accept an appeal of a remand from a class action. The Fourth Circuit exercised this right in Scott v. Cricket Communications, LLC, No. 16-2300 (4th Cir. July 28, 2017), in order to provide some guidance about the quantum and quality of proof required to prove the amount in controversy under CAFA.

Let’s face it. When a plaintiff files a putative class action in state court, he does so because he believes that jurisdiction will be more favorable than a federal forum. In order to defeat removal under CAFA, therefore, the plaintiff must figure out a way to stay under the $5,000,000 CAFA controversy limit. Only an ill-advised plaintiff would file a class action in state court in which he alleges specifically that the class is entitled to receive over $5,000,000. Indeed, as Judge Duncan points out in Cricket Communications, a “removing defendant is somewhat constrained by the plaintiff,” because “[a]fter all, as ‘masters of their complaint’ plaintiffs are free to purposely omit information that would allow a defendant to allege the amount in controversy with pinpoint precision.”

Michael Scott, the sole named plaintiff in the Cricket Communications case, filed his suit in state court after purchasing two Samsung Galaxy phones from Cricket for “hundreds of dollars each.” He alleged he—and others like him—got a raw deal because Cricket had begun to shut down its Code Division Multiple Access (CDMA) technology, thereby rendering his phones “useless and worthless.” He defined the class to include Maryland citizens who—for a nine-month period—purchased a CDMA mobile telephone from Cricket that was locked for use only on Cricket’s (defunct) CDMA network.

When it removed the case, Cricket provided a declaration from an individual who attested that during the relevant period, Cricket customers in Maryland purchased at least 50,000 phones. A supplemental affidavit from Cricket, filed after the motion to remand, clarified that over 47,000 of these phones, associated with billing addresses in Maryland, were “locked into” Cricket’s CDMA network. Accepting the complaint’s reference to each phone being worth “hundreds of dollars” meant, according to Cricket, that the amount in controversy was north of $9,000,000.

The district court, however, remanded the case. The district court observed that the class consisted only of Maryland citizens. Cricket’s removal affidavit was overinclusive, it felt, because some portion of the 47,000 phones sold to customers in Maryland were likely sold to non-citizens. Accordingly, the court found the evidence by Cricket was not “sufficiently tailored to Scott’s narrowly defined class.”

On appeal, the Fourth Circuit agreed that Cricket bore the burden of demonstrating that removal jurisdiction was proper: “When a plaintiff’s complaint leaves the amount of damages unspecified, the defendant must provide evidence to show . . . what the stakes of litigation . . . are given the plaintiff’s actual demands.” And since the class was limited to Maryland citizens, it was Cricket’s job to provide proof that at least 100 Maryland citizens purchased more than $5,000,000 of locked phones from Cricket. The panel agreed that citizenship, as the district court had observed, was different from residence.

Also like the district court, the Fourth Circuit agreed that the initial statement by Cricket that it sold at least 50,000 CDMA mobile phones in Maryland “suffices to allege jurisdiction under CAFA.” But once Scott challenged these allegations through a motion to remand, Cricket was required to prove the jurisdictional amount by a preponderance of the evidence. The appellate court, however, disagreed with the way in which the district court assessed whether the removing defendant had satisfied its burden.

Of necessity, Judge Duncan observed, a defendant must to some extent rely on “reasonable estimates, inferences and deductions.” The “key inquiry,” according to the court, is “not what the plaintiff will recover” but “an estimate of the amount that will be put at issue in the course of the litigation.” The panel found that “[a] removing defendant can use overinclusive evidence to establish the amount in controversy so long as the evidence shows it is more likely than not that ‘a fact finder might legally conclude that’ damages will exceed the jurisdictional amount.”

Because the district court applied, in the Fourth Circuit’s judgment, the wrong legal standard in reviewing this evidence, the court of appeals remanded, emphasizing that Cricket must provide enough facts “to allow a court to determine—not speculate—that it is more likely than not” that the $5,000,000 amount in controversy has been satisfied. Although Cricket, the court said, need not make a “definitive determination of domicile,” it needed to provide more evidence to allow a determination about domicile of the class members.

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Recent Filings – July Digest

View Amanda Pickens’ Complete Bio at robinsonbradshaw.comNot every class action court filing in North and South Carolina becomes a full-length post on our blog. Here is a recap of July’s filings:

Prince, et al. v. Perfect Delivery, Inc., et al.; No. 8:17-cv-01950 (D.S.C. July 24, 2017) (purported collective and class action brought by delivery drivers against defendants, which operate Papa John’s franchises in North and South Carolina, alleging defendants used flawed methods to determine reimbursement rates for the drivers who used their own vehicles for delivery, thereby causing their wages to fall below federal minimum wage standards under FLSA.)

Prescott, et al. v. Morgreen Solar Solutions, LLC, et al.; No. 5:17-cv-00365 (E.D.N.C. July 21, 2017) (purported collective and class action brought by employees who allege they were misclassified by defendants as independent contractors and were thereby not properly compensated under federal and state wage and hour laws for time worked including failure to pay minimum wage and overtime compensation.)

Prescott, et al. v. Morgreen Solar Solutions, LLC, et al.; No. 5:17-cv-00365 (E.D.N.C. July 21, 2017) (purported collective and class action brought by employees who allege they were misclassified by defendants as independent contractors and defendants thereby failed to pay minimum wage and overtime compensation for time worked under federal and state wage and hour laws.)

Parshall, et al. v. ASB Bancorp, Inc., et al.; No. 1:17-cv-00194 (W.D.N.C. July 19, 2017) (purported class action brought by shareholders of ASB Bancorp, Inc. against it and its board of directors alleging a false and misleading registration statement was filed regarding a proposed merger with First Bancorp and seeking to enjoin defendants from closing the transaction, or, if consummated, rescinding it or setting it aside.)

Jones, et al. v. Chicago Bridge & Iron Company; No. 3:17-cv-00424 (W.D.N.C. July 18, 2017) (purported collective and class action brought under federal and state wage and hour laws by employees who were assigned to work under the “9/80” pay plan but were allegedly denied overtime compensation and other lawful pay due under that plan.)

Bushansky, et al. Capital Bank Financial Corp., et al.; No. 3:17-cv-00422 (W.D.N.C. July 17, 2017) (one of three putative class action lawsuits brought by shareholders of Capital Bank Financial Corp. under federal securities laws against the Bank and its board of directors alleging defendants failed to disclose material information related to its proposed merger with First Horizon National Corporation and seeking to enjoin the upcoming shareholder vote. The other two cases are: Parshall v. Capital Bank Financial Corp., et al.; No. 3:17-cv-00428 (W.D.N.C. July 19, 2017) and McNamara v. Capital Bank Financial Corp., et al.; No. 3:17-cv-00439 (W.D.N.C. July 25, 2017).)

Rubin, et al. v. ABS Bancorp, Inc.; No. 1:17-cv-00185 (W.D.N.C. July 14, 2017) (putative class action brought by shareholders of ASB Bancorp, Inc. under federal securities laws alleging defendants failed to provide a full disclosure of material information relating to a proposed merger with First Bancorp. and are attempting to enjoin an upcoming shareholder vote.)

Matthews, et al. v. Hyatt Corporation; No. 3:17-cv-00413 (W.D.N.C. July 14, 2017) (purported collective and class action brought by hourly at-home call center employees under federal and state wage and hour laws alleging defendant failed to pay pre-shift, mid-shift and post-shift time the employees spent conducting required tasks for their jobs.)


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Fourth Circuit Uses Spokeo to Spike $11.7 Million Class Action Judgment

View John Wester's Complete Bio at robinsonbradshaw.comStanding to sue, a venerable piece of American jurisprudence for sure, continues to draw attention in recent class action cases, including in the Fourth Circuit. In its second decision this year evaluating last term’s Supreme Court decision, Spokeo v. Robins, 136 S. Ct. 1540 (2016), a unanimous panel of the Fourth Circuit found insufficient “an informational injury” the lead plaintiff advanced under the Fair Credit Reporting Act—the same statute under review in Spokeo.  Dreher v. Experian Information Solutions, Inc., 856 F. 3d 337 (4th Cir. May 11, 2017). See also Beck v. McDonald, 848 F. 3d. 262 (4th Cir. 2017) (affirming the dismissal of a class action lawsuit for lack of subject-matter jurisdiction based on the plaintiffs’ failure to establish a non-speculative, imminent injury-in-fact under the federal Privacy Act for purposes of Article III standing).

Dreher presented a high-stakes controversy—the trial court had certified a class of 69,000 members and had awarded $11,700,000 in damages. The lead plaintiff, pursuing a security clearance for government employment, had tried to expunge an inaccurate credit card debt in a credit report an Experian affiliate maintained on him.  The affiliate listing his bad debt in error went into receivership but continued to list Dreher’s debt.  Some 15 months elapsed between Dreher’s starting efforts and the deletion of the inaccurate credit information from his report, but this delay did not affect Dreher’s security clearance.  The government granted his clearance in eight days.

Dreher persuaded the trial court that Experian and its affiliate had willfully violated the FCRA by failing to provide “the sources” of Dreher’s credit report. “When a consumer reporting agency fails to disclose those sources, it violates [the statutory] right, thus creating a sufficient injury-in-fact for constitutional standing.” Dreher, 71 F. Supp. 3d 572, 574 (E. D. Va. 2014). Notably for the Fourth Circuit, the trial court—declining to analyze whether Dreher’s injury was specific and concrete—ruled that “any violation of the statute sufficed to create an Article III injury-in-fact.” 856 F. 3d at 342 (emphasis in original).

Reminding that the burden to establish all of the Spokeo elements of standing falls on the plaintiff, the Fourth Circuit concluded that Dreher “stumbles on the first of the[ ] requirements: injury in fact.” Id. at 343. The court then provided details that will be instructive for future analyses of class action standing:

To establish injury in fact, “a plaintiff must show that he or she suffered ‘an invasion of a legally protected interest’ that is ‘concrete and particularized.’” Spokeo, 136 S. Ct. at 1548 … The Supreme Court vacated the Ninth Circuit’s decision because that court “failed to fully appreciate the distinction between concreteness and particularization.” Spokeo, 136 S. Ct. at 1550.  The Court found that in analyzing the “particular and concrete” aspect of the standing requirement, the Ninth Circuit “elided” the “independent requirement” of concreteness.  Id. at 1548. … A concrete injury is “de facto,” meaning that “it must actually exist” and is “real, and not abstract.” Id. at 343, 344.

Acknowledging that an intangible injury can be concrete, the Fourth Circuit specified that one cannot “allege a bare procedural violation, divorced from any concrete harm, and satisfy the injury-in-fact requirement.” 856 F. 3d at 344 (quoting Spokeo, 136 S.Ct. at 1548).

Applying these principles, the Fourth Circuit unpacked Dreher’s claim that he suffered a “cognizable informational injury” because Experian, a consumer reporting agency, denied him clear and accurate disclosure of the source of the entity reporting his credit. Dreher failed to show how his having the right information – accurate identification of the entity with whom he was corresponding—“would have made any difference at all in the ‘fairness or accuracy’ of his credit report, or that it would have made the credit resolution process more efficient.” Id. at 346.  Granted there is “value in knowing who it is you’re dealing with,” id., but a consumer’s speaking to an employee without knowing the employee works for a different affiliate of Experian did not create a “real world harm” Congress was seeking to prevent through the FCRA. Dreher did not show a concrete and adverse effect from the violation of the statute, a clear requirement for standing under Spokeo.

Looking at the national scene, we see a real increase in the spokes on the Spokeo wheel. Dreher joins the Seventh and Eight Circuits which have ruled, three times since Spokeo, that procedural, technical violations of statutory rights will not sustain Article III standing. In contrast, rulings by three other circuits, the Third, Ninth, and Eleventh, all this year, evaluating violations of the FCRA, Telephone Consumer Protection Act, Fair Debt Collection Practices Act, and Video Privacy Protection Act, have upheld Article III standing based on technical violations of the statutes.

With six circuits now reporting, when the Supreme Court will return to this field looms as a more urgent question.

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Recent Filings – June Digest

View Amanda Pickens’ Complete Bio at robinsonbradshaw.comNot every class action court filing in North and South Carolina becomes a full-length post on our blog. Here is a recap of June’s filings:

Lopez, et al. v. Ham Farm, LLC et al., No. 2:14-cv-00030 (E.D.N.C. June 30, 2017) (purported collective and class action brought under FLSA and state wage and hour laws by migrant agricultural workers against sweet potato farm to recover allegedly unpaid minimum wages and overtime compensation).

Sneed, et al. v. Reynolds American Inc., et al., No. 1:17-cv-00584 (M.D.N.C. June 26, 2017) (putative class action asserting securities violations against defendant Reynolds American Inc. for filing an alleged false proxy statement with the SEC regarding a proposed merger with British American Tobacco p.l.c.)

Sommerville, et al. v. Bojangles’ Restaurants, Inc., et al., No. 1:17-cv-00565 (M.D.N.C. June 21, 2017) (purported class action and collective action brought by former and current employees to recover allegedly unpaid minimum wages and overtime compensation under the FLSA.)

Farrow Road Dental Group, P.A., et al. v. AT&T, Corp, et al., No. 3:17-cv-01615 (D.S.C. June 20, 2017) (putative class action removed from South Carolina state court to federal court alleging defendants violated the Telephone Communications Act of 1996 by failing to properly “port” the telephone numbers of the plaintiff which is a dental office, thereby causing existing and potential patients to receive an automated message that the numbers were disconnected and causing financial harm to plaintiff.)

Drew, et al. v. Reynolds American Inc., et al., No. 1:17-cv-00547 (M.D.N.C. June 16, 2017) (putative class action brought on behalf of shareholders of defendant Reynolds American Inc., and its officers and directors, asserting securities violations for filing an alleged materially incomplete and misleading proxy statement with the SEC in advance of a July 2017 special meeting regarding a proposed merger with British American Tobacco p.l.c.)

Parshall, et al. v. HCSB Financial Corporation, et al., No. 4:17-cv-1589 (D.S.C. June 16, 2017) (putative class action brought by shareholders of Defendant HCSB Financial Corporation, which is a bank holding company, for alleged violation of the Securities and Exchange Act through filing of a false and misleading registration statement in May of 2017 regarding merger with United Community Banks, Inc.)

Koerner, et al. v. Ocean Club Vacations, LLC, No. 4:17-cv-01566 (D.S.C. June 15, 2017) (putative class action alleging defendant Ocean Club Vacations, LLC violated the South Carolina Vacation Time Sharing Plans Act by selling timeshare interests in an estate located on Horry County, South Carolina that do not conform to the Act thereby harming plaintiffs financially.)

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Named Plaintiffs Can’t Voluntarily Dismiss Individual Claims in Order to Appeal Class Certification Denial

View David Wright's Complete Bio at robinsonbradshaw.comEarlier this year, we hazarded a guess that the Supreme Court was split 4-4 regarding a Ninth Circuit decision holding that a named plaintiff could achieve appellate review of a decision denying class certification by voluntarily dismissing his individual claims. It turns out, based upon the Supreme Court’s decision in Microsoft Corp. v. Baker [], that the internal debate was not so much over whether the Ninth Circuit erred in allowing the appeal, but whether that error had both statutory and constitutional implications. The Supreme Court had accepted certiorari to review “[w]hether a federal court of appeals has jurisdiction under both Article III and 28 U.S.C. Section 1291 to review an order denying class certification after the named plaintiffs voluntarily dismiss their individual claims with prejudice.” With Justice Gorsuch on the sidelines, the Court unanimously held that the named plaintiffs’ gamesmanship did not allow appellate review, but the justices differed in their reasons for that outcome.

Five members of the Court, led by Justice Ginsburg, concluded that such an appeal was inconsistent with F.R. App. P. 23(f). The majority reasoned that “[r]espondents’ voluntary-dismissal tactic . . . invites protracted litigation and piecemeal appeals,” and would – essentially – turn Rule 23(f)’s “discretionary regime” into a license for plaintiffs to force an interlocutory appeal of a ruling denying class certification. This, the Court noted, would upset “Rule 23(f)’s careful calibration” and “Congress[’] final decision rule would end up a pretty puny one.”

In our previous post, we sounded an alarm about the “one way street” that was a feature of the Ninth Circuit’s decision, noting that “This option—if allowed by the Supreme Court—works only for plaintiffs in class action cases, not defendants. If defendants suffer an adverse class certification ruling, and the appellate court does not exercise its discretion to accept the interlocutory appeal, defendants must litigate the case to judgment before obtaining review of the class determination.” Justice Ginsburg agreed with us on this point, observing in her opinion for the majority that “[t]he one-sidedness of respondents’ voluntary-dismissal device ‘reinforce[s] our conclusion [of no jurisdiction],” and that “the ‘class issue’ may be just as important to defendants.”

Although the majority founded its decision on 28 U.S.C. Section 1291, thereby avoiding the Article III issue, Justice Thomas, joined by Justice Alito and the Chief Justice, wrote a concurring opinion that took the constitutional issue head on. The concurrence argued that there was no Article III “case or controversy” following the named plaintiffs’ dismissal of their claims. Justice Thomas noted that “it has long been the rule that a party may not appeal from the voluntary dismissal of a claim,” and that the parties were “no longer adverse to each other on any claims” after that dismissal. A favorable ruling on class certification could not, the concurring opinion explained, “revive [the named plaintiffs’] individual claims.”

With deference to the Ninth Circuit jurists who proceeded to adjudicate the appeal in Baker, this was not a particularly hard case. In Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978), the Supreme Court unanimously rejected the so-called “death-knell” doctrine, which had permitted plaintiffs to appeal as of right a district court order denying a motion for class certification. Given that decision, and the fact that Rule 23(f) appellate jurisdiction is discretionary, not mandatory, it is difficult to see how a voluntary dismissal gambit could ultimately succeed. Unfortunately now for Xbox gamers, they will have to litigate their ‘disc gouging’ claims one by one . . . .

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