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Jan 6, 2015

The Supreme Court's Jurisdictional Stretch in Resolving the Evidence Needed to Support a CAFA Removal

ABSTRACT: A defendant removing a case to federal court under the Class Action Fairness Act need not provide evidence proving the jurisdictional amount in controversy in the notice of removal. A "short and plain statement of the grounds for removal" is sufficient.

In Dart Cherokee Basin Operating Co. v. Owens, the United States Supreme Court clarified exactly how much evidentiary proof defendants must submit in support of an adequate amount in controversy when removing cases to federal court under the Class Action Fairness Act (“CAFA”). Writing for a 5-4 majority of the Court, Justice Ginsburg concluded that the removal statute, 28 U.S.C. § 1446(a), requires only a “short and plain statement of the grounds for removal” and, as such, a defendant need not include evidence of the amount in controversy in a notice of removal.  “[A]s specified in §1446(a), a defendant’s notice of removal need include only a plausible allegation that the amount in controversy exceeds the jurisdictional threshold. Evidence establishing the amount is required by §1446(c)(2)(B) only when the plaintiff contests, or the court questions, the defendant’s allegation.”

In so holding, the majority reversed the United States District Court for the District of Kansas’s remand decision, choosing to reach the merits of the dispute despite the fact that the United States Court of Appeals for the Tenth Circuit had denied both review and rehearing of the lower court’s decision. The Supreme Court rejected the Tenth Circuit’s view that there was a “presumption” against the removability of a case to federal court. The four dissenting Justices (Scalia, joined by Kennedy, Kagan, and Thomas) had no quarrel with either the majority’s view of the quantum of evidence needed to support the amount in controversy in the Notice of Removal, or the purported existence of a “presumption” against removal. But they strongly disagreed with the majority over whether the case was properly before the Supreme Court for review.

In Dart Cherokee, defendants removed a putative class action alleging underpayment of royalties on oil and gas leases to federal court under CAFA.  Plaintiff moved to remand the matter back to Kansas state court, arguing that defendants had not supported the jurisdictional amount in controversy with adequate evidentiary proof. In response, defendants submitted the declaration of an executive of the company in which they set forth a detailed calculation of the purported damages, which, by the executive’s calculation, amounted to more than $11 million.  Despite this declaration, the district court remanded the case to state court, finding that defendants had failed to meet their burden of establishing an appropriate amount in controversy in the notice of removal itself.  Invoking CAFA’s discretionary right to appeal remand orders, 28 U.S.C. § 1453(c)(1), defendants petitioned the Tenth Circuit for permission to appeal. The Tenth Circuit denied review and later went on to deny defendants’ petition for full en banc review.

Following the Tenth Circuit’s rejection of their petitions, defendants petitioned for certiorari in the United States Supreme Court, citing a federal circuit split as to whether a defendant must provide evidentiary support for all jurisdictional allegations set forth in a notice of removal, including the amount in controversy. Neither the certiorari briefing nor any of the parties’ merits briefs in Dart Cherokee raised the issue of whether the Court actually had jurisdiction to resolve this dispute in light of the fact that the Tenth Circuit had not considered any issue on appeal. Rather, this jurisdictional issue was raised only in the amicus brief of Public Citizen, which advocated for the Supreme Court’s dismissal of the case on the grounds that the district court’s remand order had never technically been “in” the court of appeals, thus divesting the Supreme Court of jurisdiction over the matter. 

In a scathing dissent, Justice Scalia wrote that the Court never should have reached the merits of whether a defendant must submit evidence to support the jurisdictional amount in controversy when a class action is removed, because the sole question properly before the Court was whether the Tenth Circuit abused its discretion in denying defendants’ requests to appeal the district court’s remand order. Thus, “the responsible course would have been to confess error and to dismiss the case as improvidently granted.” Absent any legal findings from the Tenth Circuit, the dissent found no basis to conclude that the appellate court had abused its discretion in denying review of the remand order. In particular, the dissent took issue with the majority’s characterization of the Tenth Circuit’s reasons for this denial, rebuking the majority for making assumptions not supported by the record. (Justice Thomas would have gone one  step further, arguing separately that lacking a “case or controversy” that was resolved by Tenth Circuit, the Supreme Court had no jurisdiction to entertain even this narrowly-defined issue.)

Conclusion: The Court’s ruling in Dart Cherokee contains both good and bad news. The majority’s holding that defendants need not include evidentiary support for the alleged amount in controversy in a notice of removal under CAFA certainly is a boon for litigants defending mass and class actions in the state courts, and appears to be a logical and proper interpretation of the law of removal of actions under CAFA. On the other hand, the decision may have caused collateral damage to the law of judicial review in the process. At the very least, one would expect the Court to confront potential jurisdictional obstacles in the first instance, rather than letting its views on the merits guide an after-the-fact jurisdictional analysis. Here, the majority seemingly put the proverbial cart before the horse in justifying jurisdiction based on its feelings about the merits of the case, and, in so doing, created needless uncertainty for litigants in future cases where, as here, an intermediate court denies review of an otherwise discretionary appeal. Only time will tell whether this jurisdictional analysis – or lack thereof – becomes the standard by which future petitions for certiorari are evaluated or whether the Court takes the dissent’s reasoned advice and dismisses such petitions when latent errors are discovered.