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Everett v. Verizon-Class Action Defense Cases: Defense Failed To Establish Amount In Controversy For Removal Of Class Action To Federal Court Because Neither Disgorgement Nor Punitive Damage Claims May Be Aggregated Sixth Circuit Holds

Court of Appeals Reverses District Court Denial of Motion to Remand Because Defense Failed to Satisfy $75,000 Amount-In-Controversy Requirement Under 28 U.S.C. § 1332, and Holds as Matter of First Impression in Sixth Circuit that Punitive Damages may not be Aggregated to Meet Threshold

After plaintiffs filed a putative class action in state court against several cellular telephone companies arising out of the allegedly false representation that customers “would not be charged for unanswered phone calls or those that generated a busy signal,” and praying for “an unspecified amount of compensatory damages, injunctive relief, restitution, [and] disgorgement,” defense attorneys removed the action to federal court on the basis of diversity jurisdiction. Everett v. Verizon Wireless, Inc., 460 F.3d 818 (6th Cir. 2006). Plaintiffs moved to remand the action to state court on the ground that the defense had not satisfied its burden of establishing that the $75,000 amount-in-controversy requirement, but the district court denied the motion holding that “the size of the disgorgement claim met this threshold.” Id., at 821. Eventually, the federal action involved but a single class representative and a single defendant, and the district court granted a defense motion for summary judgment as to the claims remaining against it. Plaintiff appealed only the district court’s remand order, not the ruling on the merits. Id. The Circuit Court agreed with plaintiff’s argument and reversed.

The Sixth Circuit set forth the well-established rule that “[w]hile a single plaintiff may aggregate the value of her claims against a defendant to meet the amount-in-controversy requirement, even when those claims share nothing in common besides the identity of the parties,” it is necessary that “at least one plaintiff’s claim must independently meet the amount-in-controversy specification.” Everett, at 822 (citation omitted). The Circuit Court noted that none of the individual claims exceeded $75,000, “which is not surprising given the improbability of individual phone users running up large bills for unanswered or busy-signal calls.” Id. The defense argued that it satisfied the requirement because of the unjust enrichment claim, seeking to impose a constructive trust on the “common fund” created by disgorgement of “ill-gotten gains.” Id., at 823-24. The Circuit Court disagreed, explaining at page 824:

even if plaintiffs were to share a common interest in the contents of such a constructive trust, that would not make their interest undivided – that would not establish in other that their disgorgement claims stems from a “single title or right.”

The defense argument fails because “‘the obligation to the plaintiffs must be a joint one.’” Everett, at 824 (citations omitted). The Circuit Court found that element to be missing. The common fund referred to by the defense would be merely “‘a vehicle for administering individual awards, not an indivisible res.’” Id., at 827 (citation omitted).

The Sixth Circuit also held, as a matter of first impression in the Circuit, that punitive damages may not be aggregated to meet the $75,000 requirement. Everett, at 827-28.2

NOTE: The Sixth Circuit noted that the defense had not sought removal under the Class Action Fairness Act (CAFA), Everett, at 822. As we have discussed in other articles, CAFA permits a district court to aggregate claims in determining whether the action is removable. Also, the defense argued that the $75,000 threshold could be satisfied by the cost of compliance with any judgment for injunctive relief, id., at 828-29; the Circuit Court acknowledged a split in circuit court authority on whether the amount in controversy may be determined from the perspective of “either party” or only from the “plaintiff’s viewpoint,” but held that it need not resolve the issue because the defense did not satisfy its burden of proof as to the cost of complying with such an injunction, id., at 829.

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