Two recent decisions from the Ninth Circuit demonstrate how knowledgeable pleading by plaintiffs regarding the amount-in-controversy requirement of CAFA can determine whether a class action will be litigated in federal or state court.
For the district court to retain original jurisdiction over a civil action under CAFA, the amount in controversy must exceed $5 million, the aggregate number of proposed plaintiffs must total 100 or more, and any member of the plaintiff class must be diverse from any defendant. The latter two requirements are usually met without any dispute. Thus, more often than not, once a plaintiff files an action in state court, the burden shifts to the removing defendant to prove that the amount in controversy exceeds $5 million.
The precise extent of that burden, however, may depend on how well the plaintiffs have pleaded the amount in controversy. The removing defendant need only satisfy a "preponderance of the evidence" standard to show that the amount in controversy has been met "where it is unclear or ambiguous from the face of a state-court complaint whether the requisite amount in controversy is pled." But "when a state-court complaint affirmatively alleges that the amount in controversy is less than the jurisdictional threshold," a removing defendant must prove to a "legal certainty" that CAFA's jurisdictional amount is satisfied.
Two recent Ninth Circuit decisions illustrate the duality of this legal framework. In Morey v. Louis Vuitton N. Am., Inc., the court determined that the defendants met their burden to show by a preponderance of the evidence that the amount in controversy exceeded $5 million. In that case, a plaintiff brought a class action against the high-end clothing company, alleging that the company violated California's credit card act. The credit card act imposed penalties of up to $250 for the first violation and up to $1,000 for each subsequent violation, regardless of whether the subsequent violation aggrieved the same victim. The complaint sought the maximum penalties of "up to . . . $1,000 per violation." Because the complaint was "unclear or ambiguous" regarding the amount in controversy, the Ninth Circuit determined that Louis Vuitton only had to show by a preponderance of the evidence that the $5 million amount had been met. The clothing company easily met its burden. The amount in controversy could be $1,000 for each violation (after the first), and there were more than 5,000 credit card transactions. With this information, Louis Vuitton successfully removed the class action to federal court under CAFA.
The defendants in Montalvo v. Swift Transp. Corp. did not fare as well. In that case, the Southern District of California remanded the suit, finding that the defendant failed to establish CAFA's amount-in-controversy requirement. In this wages-and-hours class action, the plaintiffs affirmatively alleged that "the aggregate claims, including attorneys' fees and all other requested relief, are under the five million dollar ($5,000,000.00) threshold of the Class Action Fairness Act of 2005." Faced with the plaintiffs' unambiguous declaration of the amount in controversy, the district court found that the "legal certainty" standard applied. Legal certainty refers to "something less than absolute certainty and more stringent than a preponderance of the evidence." The court determined that the defendants estimated a class size that was too expansive and unsupported by facts and that defendants failed to show that every member of the class was entitled to penalties; indeed, the court seemed to agree with the plaintiffs' argument that "[d]efendant's calculations are based on conjecture, speculation, and assumptions," falling far short of the legal certainty requirements. The district court, quoting the Ninth Circuit, explained the legal certainty rule: "CAFA's removal provision and the 'legal certainty' rule strike a balance, leaving plaintiff as master of her case, but giving defendant an option of a federal forum at the point when they can prove its jurisdiction."
One can argue, of course, that the reason for the differing results in Morey and Montalvo had less to do with pleading standards than with the facts of the cases themselves. In Morey, it was readily demonstrable that the number of transactions was sufficient, given the $1,000 penalty, to trigger federal jurisdiction; quite likely, Louis Vuitton would have been able to satisfy even a "legal certainty" standard. Presumably this is why the plaintiffs could not make an affirmative, unambiguous allegation, compliant with Rule 11, that their claims did not exceed $5 million. Conversely, in Montalvo, the defendants' speculative calculations may well have failed even the lighter "preponderance of the evidence" burden.
Nevertheless, the contrasting approaches taken in Morey and Montalvo provide clear lessons to counsel on both sides of a state court class action complaint. Plaintiffs' counsel who wish to remain in state court will do well to make a "below the threshold" allegation in as clear and definitive a manner as the facts will allow. Defendants' counsel, meanwhile, can maximize their chances of successful removal by exploiting even the smallest equivocation in jurisdictional allegations.
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