In a boon to defendants seeking to remove cases to federal court under the Class Action Fairness Act (“CAFA”), the Ninth Circuit has overturned a rule requiring defendants to show to a “legal certainty” that the jurisdictional amount in controversy is satisfied when a complaint alleges a lesser amount of damages.
CAFA authorizes federal jurisdiction over civil class actions when the class has more than 100 members, there is minimal diversity, and the amount in controversy exceeds $5 million. The claims of individual class members are aggregated to determine whether the jurisdictional threshold is met. But until last week, Lowdermilk v. U.S. Bank Nat’l Ass’n, 479 F.3d 994 (9th Cir. 2007), required defendants to establish to a “legal certainty” that the amount in controversy exceeded $5 million in order to remove a case when a putative class action complaint alleged damages below that amount. This rule allowed plaintiffs to avoid federal jurisdiction by artful pleading.
However, in Rodriguez v. AT&T Mobility Services LLC, No. 13-56149, (9th Cir. Aug. 27, 2013), a three-judge panel of the Ninth Circuit concluded that Lowdermilk had been effectively overruled by the United States Supreme Court’s recent decision in Standard Fire Insurance Company v. Knowles, 133 S. Ct. 1345 (2013). In Standard Fire, the Supreme Court held that a putative class action plaintiff could not defeat removal under CAFA by stipulating not to seek damages over $5 million because the plaintiff could not bind proposed class members prior to class certification. Under Standard Fire, district courts must ignore stipulations that purport to limit the amount of recovery sought by a putative class.
In Rodriguez, the plaintiff brought a putative wage-and-hour class action in Los Angeles County Superior Court on behalf of retail sales managers at AT&T wireless stores. After AT&T removed the case to federal court, the plaintiff moved to remand, arguing that CAFA’s jurisdictional requirement was not met because the operative complaint expressly alleged that the aggregate amount in controversy was less than $5 million. The Rodriguez plaintiff also purported to waive any claim for more than $5 million for the alleged class claims. The district court held that the plaintiff’s waiver was controlling and ordered the case remanded to state court. But the Ninth Circuit reversed, holding that the plaintiff’s waiver was invalid under Standard Fire. In addition, the Ninth Circuit also determined that the Lowdermilk rule was no longer viable. Lowdermilk’s legal certainty standard was predicated upon the plaintiff’s ability, as master of the complaint, to forego damages above the jurisdictional threshold. But in cases involving putative class members, the Ninth Circuit concluded, “[t]hat choice has been taken away by Standard Fire.” Accordingly, the Ninth Circuit held that a preponderance-of-the-evidence standard now applies to the showing needed to establish the amount in controversy, regardless of any purported limitations on the amount of recovery sought. This lower burden of proof should make it easier for defendants to remove putative class actions to federal court.