In Pazol v. Tough Mudder Inc., No. 15-1640, — F.3d —-, 2016 WL 1638045 (1st Cir. Apr. 26, 2016), the First Circuit analyzed the “reasonable probability” standard that a defendant must satisfy to support CAFA’s $5 million amount-in-controversy removal requirement. See 28 U.S.C. § 1332(d)(2).

The putative class action began in Massachusetts state court and stemmed from a decision by the defendant, a promoter of a series of nationwide “obstacle course” races, to move the location of its Boston-area race twice without refunding registration fees to those who did not wish to participate post-relocation. The complaint also contained a putative sub-class of race registrants who continued participating but allegedly took on increased travel, food, and lodging expenses as a result of the race relocations.

The promoter removed the case to federal court under CAFA, contending that reasonable estimates of actual damages – combined with statutory treble damages and attorneys’ fees available under Massachusetts consumer-protection laws – pushed the amount-in-controversy past CAFA’s $5 million threshold.

The district court agreed with the defendant and refused to remand to state court. However, according to the First Circuit, the district court provided only a conclusion, not a fact-based analysis.

On de novo review, the First Circuit reversed. As an initial matter, it assumed, for the sake of argument, the accuracy of the defendant’s $2.5 million estimate of damages and attorneys’ fees regarding those who registered, declined to participate, and were not refunded their registration fees.

However, this only got the defendant halfway to the $5 million threshold. To make up the difference, the defendant also relied on estimates of increased gas, food, and lodging expenses for those who did participate in the relocated race or who were forced to cancel lodging and did not participate. The First Circuit accepted the gas and food estimates, but rejected the lodging estimates as unduly speculative.

First, the defendant unreasonably assumed that all registrants incurred additional lodging expenses. Registrants who lived nearby were unlikely to need lodging to attend the race regardless of the relocations.

Second, even for those registrants who cancelled their original accommodations and switched to closer hotels, the damages, if any, were likely minimal because many hotels would not have charged cancellation fees and the racers would have been able to book a new, closer hotel for relatively the same federal per diem rate the defendant was using to estimate applicable lodging expenses.

Finally, the defendant had access to all race participants’ home addresses and could have done a specified analysis of those likely to require lodging due to the race relocations, but failed to perform this analysis: “Given that the defendants had potentially illuminating information and yet chose not to use it, and given that they have offered us no other information to support their assertion regarding lodging expenses, we conclude that we cannot accept the assumptions on which their estimate of lodging expenses depends.”

Without these increased lodging expenses, the defendant could not satisfy CAFA’s $5 million amount-in-controversy requirement. Consequently, the First Circuit reversed with instructions for the district court to remand to state court.

Pazol v. Tough Mudder Inc., No. 15-1640, — F.3d —-, 2016 WL 1638045 (1st Cir. Apr. 26, 2016).