The United States Supreme Court reviewed multiple class action cases in its most recent term, providing guidance for lower courts on a number of important substantive and jurisdictional issues. Here we address two examples of federal court splits, both of which relate to removal provisions of the Class Action Fairness Act of 2005 (CAFA): (1) when parens patriae actions are removable as a “mass action,” an issue the Supreme Court recently agreed to review next term, and (2) the proper standard for evaluating the amount in controversy in class actions.

Removability of Parens Patriae Suits

When Congress enacted CAFA in 2005, it expanded jurisdiction over what are known as “mass actions” for suits that: (1) have minimal diversity among the parties; (2) involve claims of at least 100 people; (3) present common questions of law or fact; and (4) involve an amount in controversy of $75,000 individually or $5 million in the aggregate. On May 28, 2013, the Supreme

Court agreed to resolve a circuit split that arose over whether suits commonly known as parens patriae actions qualify as “mass actions” under CAFA.

Parens patriae suits are brought by state attorneys general on behalf of consumers and typically allege violations of statutory consumer protection laws. These suits typically seek injunctions against the defendant companies, damages on behalf of the state and often damages on behalf of consumers themselves.

CAFA explicitly excludes certain types of mass actions from federal jurisdiction. One of the four primary exceptions is triggered when an attorney general files a parens patriae action against a company pursuant to a state statute, such as a consumer protection law, and seeks damages on behalf of the general public rather than specific individual consumers. In other words, if the general public is the real party in interest, the state courts will maintain jurisdiction. On the other hand, if at least 99 other individual consumers are real parties in interest, the suit is removable as a mass action.

In Louisiana ex. rel. Caldwell v. Allstate Ins. Co., the Fifth Circuit found that the Louisiana Attorney General’s parens patriae antitrust suit met CAFA’s “mass action” requirements and was therefore removable to federal court. The court reasoned that because the Attorney General sought, in part, damages recoverable by individual policyholders — based on claims they could have asserted themselves — it represented their individual interests and not the interest of the general public.

The Fourth, Seventh and Ninth Circuits have all issued decisions at odds with Louisiana v. Allstate.

Those courts have held that even when an attorney general seeks damages recoverable by individual consumers, a parens patriae suit is not necessarily a “mass action.” The Fourth Circuit in AU Optronics Corp. v. South Carolina, for example, reasoned that individual claims were merely “incidental” to the general public’s interest in the outcome of the litigation.

Given this split, the Supreme Court agreed this week to review the Fifth Circuit’s opinion in the upcoming 2013-14 term.

Amount in Controversy Under CAFA

In order to remove a class action to federal court pursuant to CAFA, a defendant must establish: (1) minimum diversity among the parties; (2) a class size of at least 100 people; and (3) an amount in controversy of at least $5 million. As most defendants prefer federal court to state court, they are often in the position of arguing that a lawsuit is worth more than plaintiffs allege or concede. A large body of case law has been developed by district and circuit courts, which employ a variety of standards to determine whether a removing party has met its burden of showing that an amount in controversy meets the jurisdictional threshold.

Under all of these standards, the burden of proof rests with the removing party.

At one end of the spectrum is the “legal impossibility” standard applied by the Seventh Circuit. Under this removalfriendly test, courts evaluate if it is legally impossible for the amount in controversy to reach $5 million. A court will deny a plaintiff’s motion to remand if it can find any mathematical and legal basis to support removing the defendant’s assertions as to the value of the case.

At the other end of the spectrum is the “legal certainty” test used by the Third and Ninth Circuits when a complaint alleges a certain amount of damages less than $5 million. Under this test, a removing defendant must demonstrate it is legally certain that at least $5 million is at stake in the case. When a complaint does not allege a specific amount of damages, those circuits employ a “preponderance of the evidence” standard, meaning that it is more likely than not the amount in controversy meets the CAFA threshold.

Most of the other circuit courts apply the preponderance of the evidence test, or the closely related “reasonable probability” test, in evaluating the amount in controversy, regardless of the amount of damages pled in a complaint.

Class action defendants considering removal should remain aware of the evolving standards applied by federal courts around the country, as the Supreme Court has yet to weigh in on this important jurisdictional question.