Removal Under The Class Action Fairness Act: Proving Jurisdictional Amount-In-Controversy In Light Of Standard Fire Insurance V. Knowles

Removal Under The Class Action Fairness Act: Proving Jurisdictional Amount-In-Controversy In Light Of Standard Fire Insurance V. Knowles

Congress enacted the Class Action Fairness Act (CAFA) in 2005, dramatically expanding the scope of federal diversity jurisdiction over class actions and providing a mechanism for defendants to remove such actions to federal court where the amount in controversy exceeds $5 million, and certain other conditions are met. In the eight years since CAFA was enacted, the lower federal courts have had to address numerous efforts by plaintiffs to defeat removal by pleading under the $5 million amount-in-controversy threshold. In evaluating these efforts, courts have been pulled by competing considerations. One the one hand, the plaintiff is the ''master'' of his or her complaint and can ''plead to avoid federal jurisdiction.''1 On the other hand, a defendant is supposed to have a ''statutory right of removal'' that should not be unduly ''subject to the plaintiff's caprice.''2

Balancing these considerations, some courts have imposed a fairly heavy burden on a defendant seeking to remove a class action to federal court under CAFA where the plaintiff's complaint pleads an amount in controversy less than the $5 million threshold. These courts require the defendant to ''prove with legal certainty that CAFA's jurisdictional amount is met'' notwithstanding the plaintiff's assertion to the contrary in the complaint.3 Other courts have imposed a lower burden, requiring only that the defendant establish the amount in controversy by a preponderance of the evidence. 4

In March of this year, the United States Supreme Court issued its decision in Standard Fire Insurance Co. v. Knowles,5 a ruling that, while not directly addressing the circuit split on the defendant's burden to establish the amount in controversy in CAFA removal cases, strongly supports the lower preponderance-of-the evidence approach.

Defendant's Burden to Establish Amount In Controversy on Removal: A Brief History

Nearly 80 years ago, the Supreme Court issued two seminal decisions—McNutt v. General Motors Acceptance Corporation in 1936,6 and St. Paul Mercury Indemnity Co. v. Red Cab Company in 19387—which addressed the burden of establishing that the requirements of federal diversity jurisdiction (the amount in controversy and the citizenship of the parties) have been met. These decisions establish that, as a general rule, the party seeking to invoke jurisdiction has the burden of proof, and must ''justify his allegations by a preponderance of the evidence.''8

An exception to this general rule applies to a plaintiff's allegation that damages exceed the amount-incontroversy threshold.9 Here, for cases brought in federal court, ''the sum claimed by the plaintiff controls if the claim is apparently made in good faith.''10 Thus, a plaintiff bringing suit in federal court need not prove by a preponderance of the evidence that the amount-incontroversy threshold is satisfied to avoid dismissal.

Rather, if the defendant challenges jurisdiction, then it has the burden to establish ''to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal.''11

The Supreme Court did not directly address in these cases the applicable burden regarding the amount in controversy where it is the defendant, rather than the plaintiff, who seeks to invoke federal diversity jurisdiction by removing a state-court action to federal court. Lower courts tried to eke some guidance on this issue out of St. Paul. There the Court considered whether a plaintiff, having pleaded damages in excess of the jurisdictional threshold in state court, could force a remand following removal by amending the claim to bring the amount in controversy below the threshold. The Court said that post-removal amendments could not prevent removal, else ''the defendant's supposed statutory right of removal would be subject to the plaintiff's caprice.''12 But the Court stated that if the plaintiff sued ''for less than the jurisdictional amount'' at the outset, even ''though he would be justly entitled to more,'' the defendant could not remove.13

Lower courts went in conflicting directions in attempting to determine a removing defendant's burden to establish the amount in controversy. Some courts, such as the United States Court of Appeals for the Eighth Circuit, concluded that the amount in controversy is no different than any other jurisdictional element. As the party invoking jurisdiction, the defendant had the burden to ''prove by a preponderance of the evidence that the amount in controversy exceeds'' the jurisdictional threshold,14 just as it had to prove by a preponderance of the evidence its allegations regarding the citizenship of the parties.15

Courts taking this preponderance-of-the-evidence approach distanced themselves from St. Paul's suggestion that a plaintiff could conclusively prevent removal by pleading in...