On December 15, 2014, the U.S. Supreme Court rejected the notion that class actions defendants should be forced to proffer affirmative evidence with their removal petition in order to remove their cases from state to federal court. In a 5-4 decision, the Court held in Dart Cherokee Basin Operating Co. LLC v. Owens that a removal notice need only plausibly allege, not present evidence of, the amount in controversy.
This seemingly technical procedural issue has its roots in an ongoing jurisdictional battle involving Congress, class action defendants, and the plaintiffs’ bar. In 2005, Congress passed the Class Action Fairness Act (“CAFA”) in an effort to broaden the jurisdiction of federal courts to hear complicated class-action matters, including to allow state class action defendants to remove their cases to federal court when, among other things, the amount in controversy was greater than $5 million. Since 2005, the plaintiffs’ bar has sought to chip away at CAFA’s effect, including by artful pleading to avoid the jurisdictional amount by attempting to shift the burden to defendants to affirmatively prove the worth of plaintiffs’ own case. Some defendants have struggled to present such complicated and specific financial information during the time-sensitive removal process. The Supreme Court’s ruling in Owens vindicates the broad federal jurisdiction that Congress sought to create with CAFA, and signals a rejection of the plaintiffs’ bar’s efforts to thwart that purpose, by relieving defendants of the burden of marshalling extensive evidence of the jurisdictional amount within the 30-day removal period.
The defendants removed their case to federal court under CAFA. The notice of removal alleged the amount in controversy to be over $8 million, comfortably above the jurisdictional requirement of $5 million, and explained how the defendants arrived at that figure. After the plaintiff moved to remand the case to state court, the defendants responded with a declaration by an officer setting forth a calculation showing a potential liability far exceeding $5 million. Nevertheless, the district court granted Owens’s motion. It did so only because the notice of removal itself had failed to provide evidentiary support, “such as an economic analysis . . . or settlement estimates” for the $8 million figure.
Petitioners thereafter requested permission to appeal to the Tenth Circuit under 28 U.S.C. § 1453(c), but a divided panel denied permission. Petitioners then sought en banc review of the panel’s decision, which was also denied.
U.S. Supreme Court’s Decision
In its highly anticipated decision, the Owens majority explained that, “[b]y design,” the language in the federal removal statute, 28 U.S.C. § 1446, “tracks the general pleading requirement stated in Rule 8(a) of the Federal Rules of Civil Procedure,” thereby highlighting the principle that a removal notice need consist only of a pleading, and not evidence. According to the Owens majority, the Tenth Circuit Court of Appeals abused its discretion in refusing to review the trial court’s erroneous conclusion that the defendant failed to attach sufficient evidence to support its removal petition and thereafter was prohibited from submitting evidence to that effect. The Tenth Circuit’s refusal to review the lower court’s removal decision was legal error:
Doing so froze the governing rule in the circuit for this case and future Class Action Fairness Act removal notices, with no opportunity for defendants in Dart’s position responsibly to resist making the evidentiary submission. . . . That situation would be bizarre for a decisionmaker who did not think that the amount in controversy in diversity cases is a matter a removal notice must demonstrate by evidence, not merely credibly allege. And if the circuit precedent on which the district court relied misstated the law, as we hold it did, then the district court’s order remanding this case to the state court is fatally infected by legal error.
Justice Scalia, writing for the dissenters, challenged the majority’s conclusions on procedural grounds. He argued that the Court should not have taken the case without evidence as to why the Tenth Circuit refused to review the lower court ruling. Without evidence, he explained, no basis existed to judge whether an abuse of discretion had occurred.
Owens, in effect, confirms the low bar set for defendants in removing class actions to federal court under CAFA and returns CAFA jurisdiction (at least at the time of removal) to a plausibility inquiry. Indeed, the Supreme Court’s reversal in Owens was the more likely outcome, as affirmation of the district court’s decision would have been a rejection of the clear majority of federal courts to address the issue. While, in practice, defendants may be called upon to prove contested jurisdictional facts with evidence in their opposition to a motion for remand, Owens makes clear that, prior to that point, federal courts should apply the same liberal pleading standard in Fed. R. Civ. P. 8. The Owens decision returns defendants to the same plausibility pleading structure that has long been standard operation in diversity cases. Certainly, the struggle over class action jurisdiction will continue, but Owens represents a substantial victory for class action defendants in solving the practical issues related to CAFA jurisdiction.