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May 14, 2017

SCOTUS Resolves Circuit Split in CAFA Amount in Controversy Burden


SCOTUS Resolves Circuit Split in CAFA Amount in Controversy Burden

This installment of the Hoosier Litigation Blog looks at the Class Action Fairness Act’s amount in controversy requirement and this week’s Supreme Court decision in Dart Cherokee Basin Operating Company, LLC v. Owens in which the Court resolved a circuit split, but not without controversy. In an unfamiliar (5-4) split, Justice Ginsburg authored the majority opinion joined by Chief Justice Roberts, and Justices Alito, Sotomayor, and Breyer. The dissent, authored by Justice Scalia and joined by Justices Kennedy, Thomas, and Kagan sought to undue the mistakes of the past in Standard Fire Insurance Company v. Knowles.

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December 19 2014
by: Colin E. Flora
Associate Civil Litigation Attorney

SCOTUS RESOLVES
CIRCUIT SPLIT ON CAFA AMOUNT
IN CONTROVERSY BURDEN
For those of you who are regular readers of the Hoosier Litigation Blog, you
will recognize that it is a rarity that we discuss a case from the Supreme Court of
the United States. Nevertheless, a decision from this past week merits discussion.
In a case, considered by most to be more interesting in its procedural posture than
in its ultimate holding, the Supreme Court resolved a split amongst the appellate
circuit courts regarding the burden on a defendant seeking to remove a class action
case from state court to federal court under jurisdiction provided by the Class
Action Fairness Act (CAFA). In Dart Cherokee Basin Operating Co., LLC v. Owens,
the Court, in a (5-4) decision, held that a defendant is not required to support its
notice of removal with evidentiary support attached to the pleadings to satisfy
CAFA’s jurisdictional requirement.
For that summary to make sense, we must take a step back and examine
CAFA. We have twice discussed CAFA on this blog. In discussing a Seventh Circuit
decision authored by Judge Richard Posner, we summarized the relevant portion of
the CAFA:
CAFA, like many federal laws, did not smoothly slide into the U.S.
Code. It altered numerous existing sections. One of those sections is 28
U.S.C. § 1332, the section most well known for permitting diversity
December 19 Hoosier Litigation Blog by Pavlack Law, LLC 2014

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jurisdiction. Section 1332(d)(2) sets the amount in controversy to
exceed $5 million. This means simply that the stakes of the case for the
defendant is at least $5 million – well, technically a penny more than
$5 million, for at $5 million even, the amount in controversy does not
“exceed” $5M. Exactly how, when, and to what degree of certainty this
amount needs to be shown has been the topic of much debate and was
the catalyst for the Knowles decision last year.
The other occasion was in discussion of the Supreme Court’s decision in Standard
Fire Ins. Co. v. Knowles, which you will noticed is referenced above. In discussing
that case, we noted:
When a party seeks to bring a matter before a federal court, it is the
party seeking federal jurisdiction that must show that the amount in
controversy is sufficiently high so as to exceed the $5 million figure.
Traditionally, exercise of federal jurisdiction over class action cases has
been more desirous for defendants than for plaintiffs seeking to certify
a class. As such, the party who typically must bear the burden of
showing that there is actually $5 million at stake is the defendant.
The burden of establishing the amount in controversy when
removing a case from state to federal court is not as simple as blindly
asserting that it is met. As explained by the First Circuit Court of
Appeals in Amoche v. Guarantee Trust Life Ins. Co., there are two
possible standards utilized by the various federal circuits. At the time
of the Amoche decision – February 2009 – the First Circuit joined with
the Second and Seventh Circuits in applying the “reasonable
probability standard” requiring a removing defendant to “show that it
appears to a ‘reasonable probability’ that the aggregate claims of the
plaintiff class are in excess of $5 million.” The alternative standard,
utilized at the time by the Third and Ninth Circuits, is to require the
defendant to prove “to a legal certainty” the amount in controversy.
Regardless of which standard is applicable, it is a higher threshold
than the requirement to initially file a case in federal court – that the
amount alleged have been made in good faith.
As we shall discuss, the Tenth Circuit also followed the lead of the Third and Ninth
Circuits in applying the “legal certainty” standard. Notably, Knowles did not answer
the question of which standard was correct. Dart Cherokee, however, setout to do
just that.
On its way to answering the question of which of the two standards–“legal
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certainty” or “reasonable probability”–the case fell into a procedural pitfall that
condemned it to a split (5-4) decision on the issue of whether the Supreme Court
had jurisdiction to determine the case. In order to understand this portion of the
opinion–which is what consumes the majority of the case–we must look at the
procedural history of the case.
Dart Cherokee began as a case filed as a putative class action in a state court
in Kansas. The defendant sought to remove the case to federal court and filed its
notice of removal. In that notice, the defendant “stated that the purported
underpayments to putative class members totaled more than $8.2 million.” Thus, on
the face of the notice, the case met the amount in controversy of $5 million. But, the
notice provided no evidentiary support for the assertion. Consequently, the plaintiff
sought remand to the state court by arguing that the notice was legally deficient.
Although the defendant attempted to bolster its contention with evidence filed after
the notice of removal, the issue before the federal district court was simply whether
the notice of removal required an evidentiary showing of satisfaction of the amount
in controversy.
Reading Tenth Circuit precedent to require proof of the amount in
controversy in the notice of removal itself, the District Court granted
[plaintiff’s] remand motion. . . . The Tenth Circuit, as the District
Court read Circuit precedent, “has consistently held that reference to
factual allegations or evidence outside of the petition and notice of
removal is not permitted to determine the amount in controversy.”
The defendant, still wishing to remain in federal court, sought an appeal to
the Tenth Circuit.
Ordinarily, remand orders “[are] not reviewable on appeal or
otherwise.” There is an exception, however, for cases invoking CAFA.
In such cases, “a court of appeals may accept an appeal from an order
of a district court granting or denying a motion to remand.” Citing this
exception, [the defendant] petitioned the Tenth Circuit for permission
to appeal. “Upon careful consideration of the parties’ submissions, as
well as the applicable law,” the Tenth Circuit panel, dividing two-to-
one, denied review.
The defendant then filed a petition for certiorari to the Supreme Court, and the
Court exercised its discretionary authority to review the decision.
The problem in the procedural posture was not recognized by either party or
the Court until an amicus brief raised the issue. As Justice Antonin Scalia, author
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of the four-justice dissenting opinion, stated:
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. After briefing we discovered a little
snag: This case does not present that question. Because we are
reviewing the Tenth Circuit’s judgment, the only question before us is
whether the Tenth Circuit abused its discretion in denying Dart
permission to appeal the District Court’s remand order. Once we found
out that the issue presented differed from the issue we granted
certiorari to review, the responsible course would have been to confess
error and to dismiss the case as improvidently granted.
Ironically, the procedural posture of Dart Cherokee is identical to that of Knowles.
This overlap would provide substantial fodder for the resulting opinion.
The court split 5-4 in an unusual grouping. Traditionally, we see the court
split 5-4 along more ideological lines with Justice Kennedy casting the deciding
vote. Here, the majority opinion was authored by Justice Ginsburg and joined by
Chief Justice Roberts, and Justices Breyer, Alito, and Sotomayor. The first, of two,
dissenting opinions was authored by Justice Scalia and joined by Justices Kennedy,
Kagan, and Thomas, with Justice Thomas disagreeing with a portion of Justice
Scalia’s dissent and writing separately as to that portion.
The argument was simply whether the Court had the authority to review the
district court’s decision or was confined to simply determining whether the Tenth
Circuit abused its discretion in denying to exercise appellate review. The majority
found that the matter could be reviewed in full. An interesting sidebar, if certiorari
had been sought and granted prior to the Tenth Circuit’s decision, this procedural
problem would not have been presented. We will not delve too deeply into the
procedural debate, as there are others more well qualified to write on the topic than
your author. However, because we can certainly take a peak without depriving the
scholars their opportunity to more thoroughly discuss the case, we shall do just
that. Also, it is a classic example of justices bickering in an opinion that is salacious
enough to provide some amusement, if nothing else.
One of the primary driving factors in the majority deciding that the Court
had jurisdiction to review the full case was the argument that this issue would be
unlikely to present itself again in a subsequent appeal Justice Scalia undertook the
burden or rebutting that argument with several persuasive points. A footnote in the
majority decision chided dissenters for having joined the unanimous opinion in
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Knowles without raising the issue. Justice Scalia very aptly responded to that
charge, stating:
As for my own culpability in overlooking the issue, I must accept that
and will take it with me to the grave. But its irrelevance to my vote in
the present case has been well expressed by Justice Jackson, in a
passage quoted by the author of today’s opinion: “I see no reason why I
should be consciously wrong today because I was unconsciously wrong
yesterday.”
In support of the argument that the issue would not likely present itself
again for appellate review, the majority contended that “no responsible attorney”
would likely fall into the same trap of not providing evidentiary support and
therefore the issue would never arise again. Justice Scalia argued that the issue
could still arise in the context of sufficiency of the evidence provided, but more
strongly pointed out that the majority’s bald assertion of competent counsel not
making such an error overlooks the fact that the counsel in this case did just that in
light of Tenth Circuit precedent. He then added a cheeky statement that is worth a
chuckle:
Even discounting the existence of irresponsible attorneys, responsible
attorneys, and even responsible judges, sometimes make mistakes, see,
e.g., 572 U.S. ––––, 134 S. Ct. 1788, 188 L.Ed.2d 757 (2014) (order
granting certiorari in this case).
Bickering aside, the opinion is unanimous in one aspect: the applicable
burden in pleading the amount in controversy under CAFA in a notice of removal.
Though the dissenting opinions do not so clearly state agreement with the
majority’s conclusion on that point–unsurprising, given that the dissenters thought
the Court without authority to decide that issue–the dissent clearly adopts the same
position as the majority. The dissent’s argument that there were other possible
bases for the Tenth Circuit’s denial other than agreement with the district court’s
opinion stands on the supposition that the district court’s opinion was erroneous.
Regardless, the holding of the case, as clearly expressed by the majority, is that the
“a defendant’s notice of removal need include only a plausible allegation that the
amount in controversy exceeds the jurisdictional threshold. Evidence establishing
the amount is required . . . only when the plaintiff contests, or the court questions,
the defendant’s allegation.”
This burden is consummate with the First, Second, Fourth, and Seventh
Circuit “reasonable probability standard” and overrules the Third, Ninth, and
Tenth Circuit cases requiring something akin to “a legal certainty.” The result
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leaves the issue of establishing the amount in controversy to be tested on an
evidentiary motion and not one premised upon the face of an initial pleading.
Join us again next time for further discussion of developments in the law.

Sources
• Dart Cherokee Basin Operating Co., LLC v. Owens, No. 13-719, 2014 WL
7010692 (U.S. Dec. 15, 2014).
• Standard Fire Ins. Co. v. Knowles, 568 U. S. ____, 133 S. Ct. 1345, 185 L. Ed.
2d 439 (2013).
• Amoche v. Guarantee Trust Life Ins. Co., 556 F.3d 41, 48-49 (1st Cir. 2009).
• Brief of Amicus Curiae Public Citizen, Inc., In Support of Respondent, Dart
Cherokee Basin Operating Co., LLC v. Owens, 568 U.S. _____ (2014) (No. 13-
719).
• Class Action Fairness Act – codified in part at 28 U.S.C. 1332(d).
• Colin E. Flora, Class Action Fairness Act: Amount in Controversy after
Knowles, HOOSIER LITIG. BLOG (Mar. 22, 2013).
• Colin E. Flora, 7th Circuit (Posner) Examines CAFA Amount in Controversy
in Light of Knowles & Rooker-Feldman Doctrine, HOOSIER LITIG. BLOG (Apr.
11, 2014).
*Disclaimer: The author is licensed to practice in the state of Indiana. The information contained
above is provided for informational purposes only and should not be construed as legal advice on
any subject matter. Laws vary by state and region. Furthermore, the law is constantly changing.
Thus, the information above may no longer be accurate at this time. No reader of this
content, clients or otherwise, should act or refrain from acting on the basis of any
content included herein without seeking the appropriate legal or other professional
advice on the particular facts and circumstances at issue.

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