The problems and abuses inherent in class action litigation led Congress to pass the Class Action Fairness Act ("CAFA") in 2005. Class actions aggregate relatively small claims of numerous plaintiffs into one large lawsuit under the theory that they enable the resolution of many small claims that were by themselves too small to adjudicate. In reality, class lawyers often receive substantial fees for bringing suit, while in some cases class members might only get a few dollars worth of coupons in a settlement.
Due to the large number of plaintiffs in a class action, complete diversity of the parties rarely exists, enabling plaintiffs to file suit in whichever state's trial court they wanted. This led to forum shopping, as certain courts became well-known for being friendly to class actions and large attorney fee awards. As a result, these courts repeatedly deciding cases that were of national importance due to their scope, issues and precedential value.
In 2005, Congress sought to increase uniformity in class action suits by passing CAFA. As the Eighth Circuit Court of Appeals noted, CAFA was meant "to prevent the national economy from ruin" brought on by a proliferation of abusive class actions.
CAFA promotes uniformity in class actions by making it easier for defendants to remove the suit to federal court. CAFA confers subject matter jurisdiction upon federal courts to hear cases in which the amount in controversy exceeds $5,000,000 and there is minimal diversity between the parties. Minimal diversity exists when any one plaintiff is from a different state than a defendant. The "amount in controversy," on the other hand, is more difficult to define.
Jurisdictions disagree on how concrete the damages must be for inclusion in this amount. This article will outline the amount in controversy debate, detail the different approaches of the federal appellate courts, and conclude with some practical tips for future cases.
At the outset, jurisdictions do agree on who has the burden of persuasion under CAFA. CAFA's drafters wanted to make it easier for defendants to get into federal court. However, CAFA's text is silent on the issue. Because of this silence, all the federal courts of appeal, citing years of precedent and practice, agree that the party seeking federal jurisdiction has the burden of persuasion. 
In contrast, the proper burden of proof for the amount in controversy is unsettled. There are at least three different standards that circuits use, and these standards have a dramatic impact on the outcome of cases. In the Third and Ninth Circuits, defendants seeking removal need to show to a "legal certainty" that the amount in controversy exceeds $5,000,000. A "preponderance" standard is used in the Fourth, Fifth, Sixth, Seventh, Eight, Tenth, and Eleventh Circuits.  Finally, both the First and Second Circuits use a "reasonable probability" standard, but only the First Circuit says that this is functionally equivalent to a preponderance standard. In This Issue:
As a matter of principle, the circuits agree about what can be included in the amount in controversy, but in practice the application of these principles varies widely. All courts consider economic, consequential, and punitive damages, along with the cost of injunctions and attorney's fees. With the exception of injunctions, all of these derive from the amount of economic damages sought. Thus, if a plaintiff does not allege a specific amount of economic damages and a defendant cannot adequately establish them, courts will not allow a defendant to add an additional level of uncertainty to the calculation by projecting these other costs. One of the major areas of disagreement is how much "common sense", or judicial notice, courts will use. For example, assume that a suit alleges $4,000,000 in economic damages and also seeks an unspecified amount of attorney's fees. Some courts will factor in an estimated attorney's fee based on previous cases, and therefore rule that CAFA's amount in controversy requirement is met; others will find that evidence of past fees is irrelevant and cannot be included.
The Third and Ninth Circuits are the most plaintiff-friendly jurisdictions, having adopted a "legal certainty" standard. In a suit seeking treble compensatory damages, punitive damages, and attorney's fees, allegedly totaling less than $5,000,000 combined, the Third Circuit ruled that the suit belonged in state court despite noting that the actual amount in controversy "probably" exceeded $5,000,000. The court reached this conclusion even though it recognized that plaintiffs' pleadings are not dispositive, and therefore scrutinized the underlying facts and legal claims of the plaintiffs' case.
In another decision, where the plaintiffs wanted to be in federal court, the Third Circuit used a "reverse" legal certainty approach. The defendants needed to show that the amount in controversy could not possibly exceed $5,000,000 to keep the suit out of federal court. The Third Circuit had no problem including an estimate of attorneys fees, an estimate of punitive damages, and an estimate of the class size when it helped the plaintiff. The Ninth Circuit takes a similar approach, but it is slightly more nuanced. When plaintiffs do not allege a specific amount in controversy, the Ninth Circuit uses a preponderance of the evidence approach. The legal certainty standard is only used when plaintiffs claim an amount less than $5,000,000. Using a legal certainty standard, in Lowdermilk v. U.S. Bank Nat'l Assoc., the Ninth Circuit scrutinized the validity of the defendant's calculation of the amount in controversy, holding that the defendants did not prove that it was met.
The Fourth, Fifth, Sixth, Seventh, Eight, Tenth, and Eleventh Circuits use a preponderance of the evidence standard, and therefore scrutinize less rigorously the defendant's calculation of the amount in controversy. For example, in a case in which 500 plaintiffs sought an unspecified amount of pollution damages and attorney's fees, the Fifth Circuit held that it was facially apparent due to the nature of the plaintiffs' injuries that the amount in controversy would be met. Several of these Circuits also have held that once a defendant makes a prima facie case that the amount in controversy is met, it is up to the plaintiff to produce additional evidence to rebut the claim. Therefore plaintiffs cannot simply characterize the defendant's evidence as self-serving or speculative.
Finally, courts in the First and Second Circuits use a "reasonable probability" standard for determining whether the amount in controversy requirement is met. As Chief Judge Sandra Lynch of the First Circuit explained, "this test uses different nomenclature from, but we believe is substantively the same as, the [preponderance] standards adopted by the several circuits." The court also noted that whether plaintiffs were likely to succeed on the merits of their claims is "largely irrelevant" for the purposes of determining the amount in controversy. The First Circuit also factors in which party has better access to the information that can be used to establish the amount in controversy. Therefore, because a defendant insurance company had superior information about policies and premiums, and only put forth statistically flawed data, the court held that it did not meet its burden of proving that the amount in controversy was met. The Second Circuit was similarly unwilling to expand federal jurisdiction when it held that an action seeking an accounting of $40,000,000 did not satisfy the amount in controversy.
Regardless of jurisdiction, there are several helpful things to keep in mind when dealing with CAFA. First, CAFA eliminates the one-year statute of limitations for removal, thereby authorizing federal jurisdiction at any time during litigation when it becomes apparent that the amount in controversy exceeds $5,000,000. However, defendants still need to petition for removal within thirty days of learning that the amount in controversy exceeds $5,000,000.  Second, using proper statistics and good data is important. As the Amoche v. Guarantee Trust Life Ins. Co. and Lowdermilk cases demonstrate, courts scrutinize a defendant's calculated amount in controversy to ensure that it is based on good data that is not speculative or over-inclusive. Third, although courts agree that attorney's fees are properly included in the amount in controversy, the complexity of the litigation can affect the amount a court will include. Simply multiplying the damages sought by a standard fee rate generally will not convince a court.  Fourth, plaintiffs are the masters of their complaints, and can try disclaiming any damages over $5,000,000 to avoid federal court, although this tactic is not dispositive. The amount must be pled in good faith, and the plaintiffs cannot arbitrarily divide up a large suit into several smaller ones for the sole purpose of avoiding the jurisdictional threshold. Finally, do not assume that a court will rely on common-sense or judicial notice to fill in missing facts or data.
CAFA was passed in 2005 to bring uniformity to class actions. To the extent that the courts of appeal disagree about the burden of proof for removal, CAFA has failed to provide this uniformity. Ultimately the Supreme Court may need to resolve the issue. Until then, recognizing trends within the circuits is the best way to predict the outcome of future removal efforts.