Tag Archives: Class Action Fairness Act (CAFA)

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.

Email this to someoneShare on FacebookTweet about this on TwitterShare on LinkedInPrint this page

Judge Gorsuch’s Class Action Opinions After Shook

View Susan Huber's Complete Bio at robinsonbradshaw.com View Kevin Crandall’s’s Complete Bio at robinsonbradshaw.comToday we continue our analysis of Judge Gorsuch’s class action opinions from the Tenth Circuit in an effort to better understand how he may rule if confirmed for the Supreme Court. Last week, we examined Judge Gorsuch’s decision in Shook v. Board of County Commissioners, and we will take up his remaining class action opinions below.

McClendon v. City of Albuquerque, 630 F.3d 1288 (10th Cir. 2011)

In McClendon v. City of Albuquerque, decided three years after Shook, Judge Gorsuch again demonstrates judicial restraint. In McClendon, prisoners brought a class action against the City of Albuquerque, Bernalillo County, and various individuals involved in operating the Bernalillo County Detention Center. The parties entered into a pair of settlement agreements in 2005, but four years later the district court issued an order withdrawing its approval of the settlement and giving the plaintiffs permission to rescind those agreements after it found that the County misrepresented certain facts during settlement negotiations. The Tenth Circuit held that the order was not a “final decision,” subject to appeal under 28 U.S.C. § 1291. A final decision, Judge Gorsuch reasoned, dissociates the court from the case and ends the litigation on the merits, while the order withdrawing a settlement approval does “[j]ust the opposite: the order ensures litigation on the merits will continue in the district court.”

Judge Gorsuch empathized with the defendants’ desire for an appeal that might avoid further litigation in a previously settled case that was already fifteen years old: “the delays and costs associated with civil litigation in modern America are substantial and worrisome, and even the most hard-boiled litigator may raise an eyebrow at a case lasting as long as this one.” But neither the utility of the appeal nor the advanced age of the case swayed Judge Gorsuch to take an appeal beyond the bounds of the express authority in § 1291: “Congress’s direction demands our respect, not our rewriting.” Judge Gorsuch concluded his opinion by emphasizing the importance of judicial restraint:

[O]ne thing we may never do is disregard the bounds of our legal authority and assert § 1291 jurisdiction over an appeal where it doesn’t exist. To do so in this case would compound any error the defendants imagine with an impropriety of our own, making matters worse not better. It is, after all, a “central principle of a free society that courts,” no less than the other branches of government, “have finite bounds of authority.” . . . We must respect that principle and those bounds no less when it is hard to do so than when it is easy.

Hammond v. Stamps.com, Inc., 844 F.3d 909 (10th Cir. 2016)

The Tenth Circuit’s holding in Hammond v. Stamps.com, Inc.—that the minimum amount in controversy under the Class Action Fairness Act need only be legally possible and not factually probable—is hardly noteworthy, as it falls squarely in line with the law from other Courts of Appeals. But in Judge Gorsuch’s opinion, his most recent in the class action arena, we see the hallmarks of conservative jurisprudence: interpreting statutory text (here, “in controversy”) with its “traditional meaning”; citation to the Federal Judiciary Act of 1789; and a nod toward the late Justice Antonin Scalia’s textualist approach with a citation to his book, Reading Law. Indeed, it is only after a three-page textual and historical deep dive that Judge Gorsuch cites in the final paragraph of the opinion the “several courts [that] have held as we do today.”

For those of you who yearn to know the facts of the case, Elizabeth Hammond brought a putative class action in New Mexico state court, alleging that Stamps.com engaged in misleading and unlawful trade practices by insufficiently disclosing its subscription fees to customers. She alleged that “hundreds or thousands of persons” called to cancel their Stamps.com subscriptions as a result of Stamps.com alleged wrongdoing, and each class member would “likely” receive $31.98 in damages (the cost of subscribing for two months) or $300 in statutory damages. Stamps.com presented uncontested evidence that 312,680 customers had cancelled their subscriptions during the likely class period, and the company removed the case to federal court because the amount in controversy well exceeded the $5 million threshold for the Class Action Fairness Act. The trial court granted Ms. Hammond’s motion to remand, ruling that the company had not met its burden of establishing the minimum amount in controversy because it failed to exclude from its calculations those customers who cancelled their subscriptions for reasons unrelated to the allegations in the complaint, or as Judge Gorsuch put it, “without proof from Stamps.com establishing how many of its customers were actually deceived, the district court thought the company couldn’t satisfy the $5 million ‘in controversy’ requirement.” The Tenth Circuit vacated and remanded the district court’s remand order, ruling that federal jurisdiction was proper under CAFA: the proponent of jurisdiction should not have to “argue against himself, task[ed] with the job of proving his own likely liability in a sufficient number of individual cases simply to get a foot in the door of the federal courthouse.”

BP America, Inc. v. Oklahoma ex rel. Edmondson, 613 F.3d 1029 (10th Cir. 2010)

In an earlier CAFA jurisdictional decision, the Tenth Circuit in BP America granted discretionary leave for the propane gas distributor to appeal an order remanding the case to Oklahoma state court. The merits of the jurisdictional question—whether the Attorney General’s lawsuit, brought on behalf of the state and not any individual consumers, constitutes a “mass action” involving monetary relief to 100 or more people under CAFA—were not at issue at this preliminary stage of the appeal.

Judge Gorsuch’s opinion adopts multiple factors to consider in deciding whether to grant discretionary leave to appeal under CAFA § 1453, including whether the appeal presents an important, unsettled, or at least “fairly debatable” CAFA-related question and a weighing of the relative harms to the parties should an appeal be refused or entertained.

Heller v. Quovadx, Inc., 245 F. App’x 839 (10th Cir. 2007)

Although it actually predates Shook, the unpublished decision of Heller v. Quovadx, Inc., is worth noting, if only to highlight the wry humor employed by Judge Gorsuch in dismissing a non-class member’s argument that denying him standing to object to a settlement would violate his Fifth Amendment rights. In addition to the fact that the non-class member presented “no evidence or relevant legal argument to support his contentions,” he also “spen[t] the bulk of his brief noting the inefficiencies and burdens of paper-based litigation.” Perhaps a sentiment with which class action lawyers and judges can relate all too well.

Substantively, the Tenth Circuit affirmed the district court’s determination that the non-class member lacked standing to object to the proposed settlement. Non-class members opposed to a proposed settlement cannot object directly and instead must seek to intervene under Rule 24.

Email this to someoneShare on FacebookTweet about this on TwitterShare on LinkedInPrint this page

Congress Considering Major Class Action Reform Legislation

View Adam Doerr's Complete Bio at robinsonbradshaw.comRep. Bob Goodlatte (R-Va.), the Chairman of the House Judiciary Committee, recently introduced a bill that would make significant changes to federal class action litigation. The Fairness in Class Action Litigation Act of 2017 (H.R. 985) states that it is intended to allow prompt recoveries to plaintiffs with legitimate claims and “diminish abuses in class action and mass tort litigation that are undermining the integrity of the U.S. legal system.”

In its current form, the draft bill would likely eclipse the 2005 passage of the Class Action Fairness Act as the most significant legislation on class actions in decades. Rep. Goodlatte has introduced similar legislation in previous years, but passage is considerably enhanced with unified Republican control of the House, Senate, and Presidency. Among other changes, the bill would enact the following:

  • Prevent certification of a class seeking monetary relief unless the plaintiff “affirmatively demonstrates that each proposed class member suffered the same type and scope of injury as the named class representative or representatives.” (§ 1716) In other words, classes could not include individuals who have not suffered damage, or where damage is not yet clear.
  • Require class counsel to describe how the named plaintiff agreed to be included in the complaint, identify any other class action where the named plaintiff had a similar role, and disclose any family or employment relationship between class counsel and the named plaintiff (in which case certification must be denied). (§ 1717)
  • Require the party seeking certification to show a “reliable and administratively feasible mechanism” for (a) determining whether class members fall within the class definition and (b) distributing monetary relief to “a substantial majority of class members.” (§ 1718(a)). This provision appears to be an effort to impose a formal ascertainability requirement on class certification, as the Fourth Circuit has done in some cases.
  • Make significant changes to attorneys’ fees, including (1) preventing any payment or even determination of fees to class counsel until the distribution of monetary recovery to class members is complete, (2) limiting fee awards to “a reasonable percentage of any payments directly distributed to and received by class members,” and (3) limiting the payment of attorney’s fees based on equitable relief to “a reasonable percentage of the value of the equitable relief.” (§ 1718(b)).
  • Require courts to report, and the Federal Judicial Center to track, disbursements to class members. The Federal Judicial Center would prepare an annual report summarizing how funds paid by defendants in class actions have been distributed, including the largest and smallest amounts paid to any class member and payments to class counsel. (§ 1719) Alison Frankel of Reuters, who writes often and well on class actions, referred to this as “most intriguing idea in House Republicans’ bill to gut class actions.”
  • Bar certification of issue classes (§ 1720), an issue we have previously covered in both a district court case regarding the relationship between predominance and issue certification and when the Supreme Court declined to resolve a circuit split over issue certification.
  • Stay discovery while preliminary motions are pending. (§ 1721) (Interestingly, this provision formally recognizes a “motion to strike class allegations,” a motion that is not currently listed by name under Rule 23, although such motions may be permitted under Rule 23(d)(1)(D), which allows the Court to enter an order to “require that the pleadings be amended to eliminate allegations about representation of absent persons.”)
  • Provide for appellate review of orders granting or denying class certification as a matter of right. (§ 1722) This would be a significant departure from current practice under Rule 23(f), which gives Courts of Appeal substantial discretion in deciding whether to permit such interlocutory appeals.

The bill would also allow more personal injury cases to stay in federal court by changing the diversity jurisdiction analysis in multiple plaintiff cases, and it would make significant changes to multidistrict litigation practice, including barring the transferee judge from conducting a trial unless all parties consent.

The draft legislation is already generating controversy, and this will significantly increase as it advances. In particular, basing attorney’s fee awards on a percentage of the “value of the equitable relief” will be hotly debated. Equitable relief is, by nature, difficult or impossible to value in financial terms. The Washington Lawyers’ Committee for Civil Rights has already registered its opposition, noting the difficulty of putting a value on a class relief protecting disabled individuals from abusive conditions or providing them access to treatment, transportation, and community services.

The bill was introduced on February 9. On February 15, following a series of failed attempts by Democrats to introduce amendments, the Judiciary Committee voted on party lines (19-12) to forward to the bill to the full House. We’ll continue to track this legislation and bring you significant updates.

Email this to someoneShare on FacebookTweet about this on TwitterShare on LinkedInPrint this page

Fourth Circuit Holds that Court, Not Arbitrators, Decides Whether Arbitration Agreement Provides for Class Arbitration

View David Wright's Complete Bio at robinsonbradshaw.comCharacterizing an unpublished 2007 decision to the contrary as a “thin reed” displaced by later Supreme Court guidance, the Fourth Circuit held that the question of whether an arbitration agreement permits class proceedings is a “gateway” issue for the court, and not a procedural question left to the arbitrator to decide. Del Webb Communities, Inc. v. Carlson, No. 15-1385 (4th Cir. March 28, 2016). The case was filed after a builder – facing numerous construction defect claims and an arbitrator’s decision whether to certify those claims as a class proceeding – filed a petition to compel “bilateral arbitration” under the Federal Arbitration Act. The district court found that the decision whether to conduct class arbitration was a threshold question for the arbitrator. A unanimous Fourth Circuit panel disagreed.

After dealing with some jurisdictional issues – including CAFA jurisdiction and the Rooker-Feldman doctrine – the Court found that, although the Supreme Court had not decided the question, the high court’s adumbrations provided strong guidance on the subject. Writing for the panel, Judge Diaz concluded that a decision concerning “class arbitration” was tantamount to a question concerning arbitrability, which placed the issue squarely within the province of the judiciary under prevailing authority. In Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010), the Supreme Court had held that a party cannot be forced to arbitrate on a class-wide basis absent “a contractual basis for concluding that the party agreed to do so.” But the Court didn’t decide in that case who (the Court or the arbitrator) determined whether this “contractual basis” existed. The Fourth Circuit, agreeing with other Circuits on the question, observed that there was a world of difference between assuming the risk of an error in a bilateral arbitration agreement and accepting such a risk in a class arbitration proceeding. The Court viewed this question as tantamount to a decision on the scope of arbitration, which is a question reserved for the court unless the parties have clearly and unmistakably provided to the contrary.

Never mentioned by the Court in its decision is a line of cases holding that when the parties adopt the AAA rules in their contract, they have “clearly and unmistakably” committed the issue of arbitrability to the arbitrator. In Del Webb, the parties had selected the AAA Construction Arbitration Rules, and Rule R-9 of those rules expressly provides that “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.” In a recent North Carolina Business Court decision, Judge Bledsoe – citing numerous federal district and circuit court opinions on the subject – held that the adoption of the AAA rules in the parties’ contract “clearly and unmistakably” committed the issue of the arbitrability of a claim to the arbitrator. But Judge Bledsoe’s case did not involve class arbitration, and it is clear that the Fourth Circuit was not about to give final say to an arbitrator concerning certification of a putative class unless every party to the contract had clearly signed off on that proposition.

Email this to someoneShare on FacebookTweet about this on TwitterShare on LinkedInPrint this page

Notice of Removal: Short and Plain Statement, Not Proof of Jurisdictional Facts, Required

View Sinéad O’Doherty’s Complete Bio at RBH.comLast May, we introduced you to the Dart Cherokee Basin Operating Co., LLC v. Owens case and the interesting possibilities it presented for Supreme Court review. On Monday, a divided Supreme Court issued its decision in this matter, and it did not disappoint. To briefly recap, this case arose from the attempted removal of a putative class action to federal court under the Class Action Fairness Act (the “CAFA”). In their notice of removal, the defendants (collectively, “Dart Cherokee”) asserted that the amount in controversy was $8.2 million, satisfying CAFA’s $5 million threshold. The plaintiff, Brandon Owens, sought to remand the case on the grounds that the removal notice was legally defective because it did not contain admissible evidence proving that the amount in controversy had been met. In response to Owens’ remand motion, Dart Cherokee provided an affidavit supporting its damages calculation. Relying on Tenth Circuit precedent and the “presumption” against removal, the district court remanded the case to state court. Dart Cherokee sought leave to appeal the remand order to the Tenth Circuit. See 28 U.S.C. § 1453(c)(1) (providing that “a court of appeals may accept an appeal from an order of a district court granting or denying a motion to remand a class action”). After a divided Tenth Circuit denied Dart Cherokee’s request for appellate review, the Supreme Court granted certiorari to determine if a notice of removal must include jurisdictional evidence.

The Supreme Court quickly disposed of this question: “The answer, we hold, is supplied by the removal statute itself. A statement ‘short and plain’ need not contain evidentiary submissions.” Dart Cherokee Basin Operating Co. v. Owens, No. 13-719, slip op. at 2, 574 U.S. ___ (2014). In reaching this conclusion, the Supreme Court noted that the removal statute tracks the pleading requirements of Federal Rule of Civil Procedure 8(a) and emphasized that the “notice of removal need include only a plausible allegation that the amount in controversy exceeds the jurisdictional threshold,” Dart Cherokee, slip op. at 7. As for the district court’s reliance on the “purported ‘presumption’ against removal,” the Supreme Court concluded, “[i]t suffices to point out that no antiremoval presumption attends cases invoking CAFA.” Id. In so ruling, the Supreme Court has brought some clarity to the removal process under CAFA.

________________________________

If you are one of our readers who enjoys more esoteric issues, you’ll want to keep reading. The Dart Cherokee case provoked two dissenting opinions, but the dissenting justices appear to agree with the majority’s answer to the question of whether jurisdictional evidence is required with a notice of removal. See Dart Cherokee, slip op. at 1-2 (Scalia, J., dissenting) (“Eager to correct what we suspected was the District Court’s (and the Tenth Circuit’s) erroneous interpretation of § 1446(a), we granted certiorari to decide whether notices of removal must contain evidence supporting federal jurisdiction.”). Where the justices split, however, was on the propriety of reviewing the merits of an order remanding a class action to state court when the court of appeals denies leave to appeal under Section 1453(c)(1). In last year’s Standard Fire Insurance Co. v. Knowles decision, a unanimous Supreme Court considered the merits of a case in precisely that procedural posture: the Eighth Circuit had denied a defendant’s request for leave to appeal a remand order under Section 1453(c)(1). Unlike in Knowles, an amicus brief in this case argued that because Section 1453(c)(1) provides for discretionary appellate review, the only issue before the Supreme Court was whether the Tenth Circuit abused its discretion in denying Dart Cherokee’s leave-to-appeal application. The dissenting justices agreed with this argument and concluded that, because they could not determine the reasons why the Tenth Circuit denied Dart Cherokee’s request, the case should have been dismissed as improvidently granted. Failing that, most of the dissenting justices would have affirmed the Tenth Circuit’s ruling. Justice Thomas, however, would have dismissed the case for lack of jurisdiction under 28 U.S.C. § 1254. According to Justice Thomas, because the Tenth Circuit denied Dart Cherokee’s application for leave to appeal, “no ‘case’ ever arrived ‘in the court of appeals’” for the Supreme Court to review. Dart Cherokee, slip op. at 2 (Thomas, J., dissenting). By contrast, the majority concluded that jurisdiction was proper under Section 1254, explaining, “The case was ‘in’ the Court of Appeals because of Dart’s leave-to-appeal application, and we have jurisdiction to review what the Court of Appeals did with that application.” Id. at 8 (majority opinion). The majority further concluded that, “[f]rom all signals one can discern…, the Tenth Circuit’s denial of Dart ’s request for review of the remand order was infected by legal error.” Id. at 11. In the majority’s opinion, whether the Tenth Circuit erred in denying review and whether the district court erred in remanding the case “depends on the answer to the very same question: What must the removal notice contain?” Id. at 13.

Given this division among the justices, it will be interesting to see how the Supreme Court resolves the next case where a defendant seeks review of a remand order after the Court of Appeals denies leave to appeal under Section 1453(c)(1).

Email this to someoneShare on FacebookTweet about this on TwitterShare on LinkedInPrint this page