United States: Supreme Court Clarifies Class Action Fairness Act’s Removal Requirement: 'Liberal Rules' Do Not Require Evidence Of Amount In Controversy In Notice Of Removal

Last Updated: December 17 2014
Article by Justin J. Kontul and Brian Willett

Class action defendants need not include evidence regarding the amount in controversy when removing a case to federal court under the Class Action Fairness Act ("CAFA"), thanks to the United States Supreme Court's decision in Dart Cherokee Basin Operating Co., LLC v. Owens ("Dart"). The Court vacated the judgment of the United States Court of Appeals for the Tenth Circuit and held that the standard for removal to federal court under CAFA is subject to the same liberal standards applicable to other pleading matters; thus, a defendant must only include a "plausible allegation" in its notice of removal in order to satisfy CAFA's $5 million amount-in-controversy requirement.

The decision is a favorable one for class action defendants, particularly in the Tenth Circuit, who could have faced an evidentiary requirement when filing a notice of removal under CAFA.

Dart's Attempt to Satisfy the Class Action Fairness Act's Amount-in-Controversy Requirement In Dart, the plaintiff, Owens, filed a putative class action complaint against Dart, alleging underpayment of royalties from oil and gas leases. Dart sought to remove the case to federal court under CAFA, which confers federal court jurisdiction, subject to certain exclusions, when – inter alia – a class action's amount in controversy exceeds $5 million. In its notice of removal, Dart asserted that the purported underpayments had a value of $8.2 million. Owens moved to remand the case, claiming that Dart's notice of removal was defective because it contained "no evidence" proving the amount in controversy exceeded $5 million.

Despite Dart's subsequent submission of a detailed declaration supporting more than $11 million as the amount in controversy, the United States District Court for the District of Kansas remanded the case to state court. The district court interpreted precedent from the Tenth Circuit to require that a notice of removal itself contain evidence of the amount in controversy. Following the district court's decision, Dart petitioned the Tenth Circuit for permission to appeal the remand order, but the petition was denied.

The Supreme Court's Focus on the "Short and Plain Statement" Standard The Supreme Court criticized the Dart district court's reliance on a "purported" anti-removal presumption, noting that no such presumption exists in CAFA. The Court stated that the evidentiary requirement for a notice of removal is clearly stated in the applicable statute: a party must offer "a short and plain statement of the grounds for removal." 28 U.S.C. § 1446(a). The Court pointed to legislative history illustrating Congress' intent to maintain simplicity and apply the same "liberal rules" to removal that are applied to other pleadings under Federal Rule of Civil Procedure 8(a)1.

In reaching its decision, the Court noted that a plaintiff's allegations in a complaint relating to the amount in controversy are accepted "if made in good faith." The Court determined that a defendant's allegation should similarly be "accepted when not contested by the plaintiff or questioned by the court." Thus, "a defendant's notice of removal need include only a plausible allegation that the amount in controversy exceeds the jurisdictional threshold." While § 1446(c)(2)(B)2 refers to a district court's determination of an amount in controversy based on a "preponderance of the evidence," the Court stated that evidence is only required when the plaintiff contests or the court questions the defendant's alleged amount on controversy. And because questioning can occur only after a notice of removal is filed, the Court stated that the notice itself does not need to provide such evidence.

In light of the Supreme Court's Dart decision, a class action defendant will not be required to present evidence as to the amount in controversy in its notice of removal when removing a case under CAFA. However, defendants will still need to be prepared to make an evidentiary showing to establish CAFA jurisdiction in the event that the plaintiff challenges or the court questions the defendant's basis for jurisdiction.

Footnotes

1. Fed. R. Civ. P. 8(a) requires "a short and plain statement of the grounds for the court's jurisdiction," a "short and plain statement of the claim" showing entitlement to relief, and a demand for the relief sought.

2. 28 U.S.C. § 1446(c)(2)(B) states "removal of the action is proper on the basis of an amount in controversy asserted under subparagraph (A) if the district court finds, by the preponderance of the evidence, that the amount in controversy exceeds the amount specified in section 1332(a)." The Supreme Court assumed, without deciding and without any dispute from the parties, that § 1446(c)(2) and § 1446(c)(2)(B) apply to cases removed under § 1332(d)(2), in addition to cases removed under § 1332(a).

This article is presented for informational purposes only and is not intended to constitute legal advice.

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