The Class Action Fairness Act of 2005 (CAFA) was intended to make it easier for defendants to remove class action lawsuits from state court to federal court. For example, CAFA introduced the concept of minimal as opposed to complete diversity, and waived the absolute one year deadline normally applicable to removal petitions as well as the requirement that all defendants join the petition. It remains the removing defendant’s burden, however, to establish the essential facts supporting federal jurisdiction under CAFA. In the First Circuit, that burden is described as a “reasonable probability,” which “is, for all intents and purposes, the same standard as a preponderance of the evidence.” Amoche v. Guar. Trust Life Ins. Co., 556 F.3d 41, 50 (1st Cir. 2009).
In Pazol v. Tough Mudder, Inc., No. 15-1640 (1st Cir., April 26, 2016), the United States Court of Appeals for the First Circuit again examined the contours of the removing defendant’s burden in the context of CAFA’s requirement that the aggregate amount in controversy in a class case exceed $5 million. Eighteen months earlier, the First Circuit reversed an order remanding a class action to state court in Romulus v. CVS Pharmacy, Inc., 770 F.3d 67 (1st Cir. 2014), based on the principles set forth in Amoche. Of particular note was the Court’s previous statement that “whether a defendant has shown a reasonable probability that the amount in controversy [is met] may well require analysis of what both parties have shown. Merely labeling the defendant’s showing as ‘speculative’ without discrediting the facts upon which it rests is insufficient.” Amoche, 556 F.3d at 51 (emphasis added); see Romulus, 770 F.3d at 81-82.
Plaintiffs in Pazol filed their action in Massachusetts Superior Court, asserting on behalf of the putative class various claims under Massachusetts law including for violations of the Massachusetts Consumer Protection Act, Chapter 93A, which permits recovery of treble damages and attorneys’ fees. Defendants removed to federal court, invoking CAFA. Plaintiffs moved to remand to state court.
The only contested issue on the motion to remand was the sufficiency of Defendants’ proof that the amount in controversy exceeded $5 million. Without making detailed findings, the District Court simply found that Defendants had established “a reasonable probability that the amount in controversy in this case exceeds $5 million.” Accordingly, the District Court denied Plaintiffs’ motion to remand. The District Court also granted Defendants’ motion to dismiss the case based on an arbitration provision in an agreement entered into by Plaintiffs. Plaintiffs appealed the District Court’s orders on both the motion to remand and the motion to dismiss.
Pursuant to 28 U.S.C. § 1453(c)(1), under which the court of appeals “may accept an appeal from an order of a district court granting or denying a motion to remand” notwithstanding 28 U.S.C. § 1447(d), the First Circuit reversed the District Court’s order denying the motion to remand, and remanded the case to the District Court “with instructions to remand the case to state court for lack of jurisdiction, without prejudice to removal at a later date.” As a result, the First Circuit did not review the order on the motion to dismiss, but rather confined its discussion to whether Defendants sustained their burden of proof regarding the amount in controversy.
The following five points are worth noting from the Court’s decision in Pazol finding that Defendants in that case failed to carry their burden to prove an essential jurisdictional fact.
The standard of review. Because the District Court failed to make any detailed findings of fact, and instead “simply resolved the ultimate question of the sum or value in controversy in this matter,” the First Circuit’s review of that determination was de novo. This allowed the Court of Appeals to parse the Defendants’ proof beyond the usual ambit of appellate review. “[T]he district court’s resolution of specific factual disputes in the course of reaching that conclusion,” on the other hand, “is reviewed for clear error.” If you don’t want the appellate cooks in the fact finding kitchen, request detailed findings or better yet a live evidentiary hearing before the district court judge. Just remember, this axe swings both ways. In Romulus, it was the removing defendant who benefitted from de novo review.
The impact of controlling the relevant information. As the Pazol Court noted, Amoche’s admonition to class action plaintiffs about labeling a defendant’s proof as speculative without offering competing proof is tempered by consideration of “which party has better access to the relevant information.” Amoche, 556 F.3d at 51. In Pazol, the Court concluded, “that party [was] the defendants.” Defendants attempted to parry this point based on language from Romulus that “[t]he defendant has no duty to investigate or to supply facts outside of those provided by the plaintiff.” 770 F.3d at 75. But that, the Court noted, was intended to address only when the 30-day removal period commenced. (“And so the language from Romulus on which the defendants rely was meant to clarify only that the defendant need not look outside such papers [supplied by plaintiff] to determine whether the 30-day clock has been triggered.”) As stated by the Pazol Court: “Given that the defendants had potentially illuminating information and yet chose not to use it, . . . we conclude that we cannot accept the assumptions on which their estimate . . . depends.”
Attorneys’ fees and damages multipliers. Although the Court skewered Defendants’ estimates of certain damages alleged on behalf of the putative class, most notably food and lodging expenses, it did not blink at the suggestion that attorneys’ fees and the trebling of damages recoverable in this case under Chapter 93A are properly included as part of the amount in controversy.
The amount in controversy. As noted in Amoche, “the pertinent question is what is in controversy in the case, not how much the plaintiffs are ultimately likely to recover.” 556 F.3d at 51 (emphasis in original). The resolution of that question can be complicated by deliberately vague and open ended allegations in the complaint, as well as self-serving efforts after the fact to limit those statements for present purposes in the context of a motion to remand. See id. at 52 (referring to “impermissible effort[s] to defeat federal jurisdiction by narrowing the pleadings post-removal,” but sanctioning by contrast the “fleshing out” of “vague language” in a complaint). Clearly, Defendants faced some of that in Pazol. But the lengths to which they went to climb the $5 million mountain, although persuasive in the District Court, led to their downfall in the Court of Appeals, where they were particularly vulnerable under a de novo standard of review.
The opportunity for serial removal petitions. The Court of Appeal’s remand order in Pazol explicitly stated that it was “without prejudice to removal at a later date.” Combined with the decision in Romulus, which involved multiple removal petitions, there is a clear intent expressed, consistent with CAFA’s abolition of the usual one year limit on removal petitions, to let a defendant try again in the event new and more persuasive evidence of the essential jurisdictional facts surfaces. Keep in mind, under Romulus, the removal clock starts only based upon information “provided by the plaintiff.” 770 F.3d at 75. Although it is not advisable to tempt fate by sitting on available information, Romulus does say that that “[t]he defendant has no duty to investigate or to supply facts outside of those provided by the plaintiff” to determine when a case becomes removable. Id.
The Pazol decision does not change the rules of the game for determining CAFA jurisdiction in the First Circuit. The guidelines set forth in Amoche continue to govern. Plaintiffs will argue that Pazol imposes stricter scrutiny of a removing defendant’s evidence of essential jurisdictional facts, just as defendants have argued for more of a focus on the plaintiff’s competing proof since Romulus. Ultimately, the impact of these post-Amoche decisions will be in the eye of the beholder in the form of the district court judge deciding the remand motion. Appellate review of those decisions, although permitted in the discretion of the court of appeals under Section 1453(c)(1), is granted sparingly.
Pazol does provide helpful guidance to practitioners on the five points noted above. In that regard, this decision represents an essential and useful part of the existing First Circuit jurisprudence on CAFA jurisdiction.