Ninth Circuit limits plaintiffs' strategy to avoid Class Action Fairness Act removal after Standard Fire Insurance Co. v. Knowles

In Rodriguez v. AT&T Mobility Services LLC, --- F.3d ----, 2013 WL 4516757 (9th Cir. Aug. 27, 2013), the U.S. Court of Appeals for the Ninth  Circuit overruled prior precedent and lowered the standard for satisfying the aggregate amount in controversy requirement under the Class Action Fairness Act of 2005 (CAFA). The Ninth Circuit took this action in light of the Supreme Court’s intervening decision in  Standard Fire Insurance Company v. Knowles, --- U.S. ---, 133 S. Ct. 1345 (2013), which unanimously rejected a state class action plaintiff’s attempt to avoid federal court by using a precertification stipulation to limit damages below the amount in controversy requirement of the statute.

In Rodriguez, the plaintiff filed a putative class action in state court, alleging that the amount in controversy did not exceed US$5 million and purporting to waive any claim by the class in excess of that amount. 2013 WL 4516757, at *1. After the defendant removed, the district court granted the plaintiff’s motion to remand based on his purported waiver. Id. On appeal, both parties agreed that the district court’s order should be vacated in light of Standard Fire. But the parties disputed the proper legal standard for the district court to assess amount in controversy on remand. A prior Ninth Circuit case, Lowdermilk v. US Bank National Association, 479 F.3d 994 (9th Cir. 2007), had required defendants to prove “to a legal certainty” that the amount in controversy exceeded the statute’s US$5 million threshold. The Rodriguez court determined, however, that the reasoning in Standard Fire was “clearly irreconcilable” with  Lowdermilk.  Rodriguez, 2013 WL 4516757, at *6. While Lowdermilk was based on the principle that a plaintiff is the master of her complaint and can plead to avoid federal jurisdiction, Standard Fire held that courts may determine their jurisdiction by aggregating all potential class members’ individual claims without regard to what is pleaded. Recognizing Lowdermilk as overruled by Standard Fire, the Ninth Circuit held that a defendant seeking removal of a putative class action must demonstrate by a preponderance of evidence  — not a legal certainty  — that the aggregate amount in controversy exceeds the jurisdictional minimum. Id.

The Rodriguez case illustrates that courts must look past pleading formalities to the substance of the plaintiffs’ claims in assessing CAFA jurisdiction — a key principle that should govern a wide variety of clever pleading tactics that plaintiffs employ to try to avoid federal jurisdiction.