As Matter of First Impression, if Class Action Complaint Alleges Less than $5 Million in Damages then Defense Bears Burden of Proving “Legal Certainty” that Jurisdictional Amount Required by CAFA (Class Action Fairness Act of 2005) is Satisfied Ninth Circuit Holds
Plaintiff filed a class action against her former employer in Oregon state court alleging violations of state labor laws and stating that the damages sought would not exceed $5 million. Lowdermilk v. U. S. Bank Nat’l Ass’n, 479 F.3d 994, 995 (9th Cir. 2007). Defense attorneys removed the class action to federal court under the Class Action Fairness Act of 2005 (CAFA); plaintiff filed a motion to remand the class action to state court, arguing that the amount in controversy did not exceed $5 million based on the allegations in the class action complaint. The district court held that unless plaintiff’s $5 million limitation on the amount in controversy was made in bad faith, then it was bound by the limitation stated therein; accordingly, it remanded the class action on the ground that the defense had not demonstrated that the damages limitation had been made in bad faith so the amount in controversy did not meet the $5 million threshold required by CAFA, id., at 996. The Ninth Circuit granted the employer’s request for leave to appeal. Id. As a matter of first impression, the Ninth Circuit held that when a class action complaint specifically alleges less than $5 million in damages, then CAFA requires that “the party seeking removal must prove with ‘legal certainty’ that the amount in controversy is satisfied, notwithstanding the prayer for relief in the complaint.” Id.
The Ninth Circuit concisely summarized the issue as follows: “In this case we are called upon to resolve a question of first impression: Under the Class Action Fairness Act of 2005 . . ., when the plaintiff has pled damages less than the jurisdictional amount, what must the defendant prove in order to remove the case to federal court?” Lowdermilk, at 995-96. The Circuit Court began its analysis by noting that the defense bears the burden of establishing removal jurisdiction, id., at 997 (citing Abrego Abrego v. Dow Chemical Co., 443 F.3d 676, 685 (9th Cir. 2006) (per curiam)), and that it was not disputed that CAFA’s minimal diversity and numerosity requirements had been met, id.
The class action complaint sought damages “in total, less than five million dollars” plus attorney fees. Lowdermilk, at 997-98. The defense submitted evidence that the damages will exceed $5 million, and argued additionally that attorney fees should be included in determining the amount in controversy. Id., at 998. The Ninth Circuit began its analysis by rejecting defense claims that plaintiff failed to specify an amount in controversy; rather, it held that this case presented the precise situation reserved in Abrego Abrego – “What proof must the defendant adduce to contradict the plaintiff’s claim that her damages are less than the jurisdictional amount?” Id. It answered this question of first impression by requiring “that where the plaintiff has pled an amount in controversy less than $5,000,000, the party seeking removal must prove with legal certainty that CAFA’s jurisdictional amount is met.” Id., at 1000.
Fundamental to the Ninth Circuit’s holding was the fact that the plaintiff is the “‘master of her complaint’ and can plead to avoid federal jurisdiction,” Lowdermilk, at 998-99 (citations omitted), and that “subject to a ‘good faith’ requirement in pleading, a plaintiff may sue for less than the amount she may be entitled to if she wishes to avoid federal jurisdiction and remain in state court,” id., at 999 (citation and footnote omitted). The Circuit Court explained at page 999:
Where the plaintiff has alleged her facts and pled her damages, and there is no evidence of bad faith, the defendant must not only contradict the plaintiff’s own assessment of damages, but must overcome the presumption against federal jurisdiction. . . . We think that the familiar “legal certainty” standard best captures the proof the defendant must produce.
The evidence introduced by the defense failed to meet this burden; the size of the class was indeterminate, and the damages available to each member of the class was uncertain, Lowdermilk, at 1000-02; thus, the Ninth Circuit concluded at page 1001 that “absent more concrete evidence, it is nearly impossible to estimate with any certainty the actual amount in controversy.”
Finally, based on its review of Oregon state law, the Ninth Circuit held that attorney fees and costs were properly included in determining the total damages sought for purposes of establishing the $5 million threshold for CAFA removal jurisdiction. Lowdermilk, at 1000. However, this fact alone was insufficient under the facts of this case to carry the “legal certainty” burden for the defense because there remained “no basis for estimating the claims of the individual class members.” Id., at 1002. Accordingly, it affirmed the remand order, id., at 1003.
NOTE: The Ninth Circuit opinion was not unanimous. Judge Kleinfeld’s dissent notes that the class action complaint “did not plead a specific amount in controversy.” Lowdermilk, at 1003. The dissent criticized the class action complaint as “poorly drafted” and contradictory, id., at 1003. Specifically, while the complaint admittedly contained language that suggested the damages sought would not exceed $5,000,000, the prayer for relief suggested that this limitation was exclusive of attorney fees, id., at 1003-04. Moreover, at oral argument plaintiff’s lawyer would not commit to such a limitation, id., at 1004 n.12. Judge Kleinfeld reasoned at page 1004, “Since our precedents hold that the amount in controversy includes not only the amount of the claim, but, also and additionally, the attorneys’ fees, the Oregon attorneys’ fees get added to the ‘amount less than $5 million’ claimed by the plaintiff to determine the amount in controversy.” In the dissent’s view,
Because attorneys’ fees get added to the damages, and all the complaint says is that the damages will not exceed $5 million, the complaint does not say whether the amount in controversy exceeds $5 million. It could be $10,000 plus attorneys’ fees (below the jurisdictional requirement), or $4,999,999.99 plus attorneys’ fees (conferring federal jurisdiction). Sometimes a formal judicial admission can establish that a claim uncertain in amount will not meet the federal jurisdictional requirement. No such admission has been made in this case. Thus, the majority errs in saying that the plaintiff has pleaded an amount in controversy less than $5 million.
The dissent expressed the opinion that the district court erred, then, in accepting the allegations of the complaint as limiting the amount in controversy to $5 million; rather, the court should have evaluated whether by a preponderance of the evidence the amount in controversy, including attorney fees, that amount. Lowdermilk, at 1004-05. For this reason, Judge Kleinfeld would have reversed the district court and remanded the matter for that evidentiary determination. Id., at 1005.