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9th Cir. Reverses Remand of CAFA Removal Due to Errors in Calculating Amount in Controversy

class action fairness actThe U.S. Court of Appeals for the Ninth Circuit recently held that a trial court erred in its amount in controversy analysis in determining jurisdiction under the federal Class Action Fairness Act.

In so ruling, the Ninth Circuit held that the trial court improperly invoked a presumption against CAFA’s jurisdiction and applied an inappropriate demand of certitude from the removing defendants over its assumptions used in calculating the amounts in controversy. 

A copy of the opinion in Jauregui v. Roadrunner Transp. Serv., Inc. is available at:  Link to Opinion.

The plaintiff employee (“Employee”) filed a putative class against the defendant employer (“Employer”) on behalf of all Employer and former California hourly workers. Employee alleged violations of California labor law, primarily wage and hour violations.

Employer invoked the jurisdiction of CAFA to remove the case to federal court. Employee filed a motion to remand for lack of jurisdiction arguing that the requisite $5 million minimum for the amount in controversy had not been met.

The trial court conducted an independent evaluation of Employer’s amount in controversy calculations for the seven alleged violations and found that Employer had only sufficiently demonstrated the claimed amount for two of the claims. For the remaining claims, the trial court found Employer had erred in its calculations. The trial court then assigned a $0 value for the amount in controversy for the remaining five claims.

Thus, the trial court determined the amount in controversy was actually $2.1 million, and because this was less than the $5 million CAFA threshold, the trial court granted Employee’s motion for remand. Employer appealed.

On appeal, the Ninth Circuit noted that “[a] defendant’s amount in controversy allegation is normally accepted when invoking CAFA jurisdiction, unless it is ‘contested by the plaintiff or questioned by the court.’” See Dart Cherokee Basin Operating Co. v. Owens, 574 U.S. 81, 87 (2014).

If the Plaintiff contests the amount in controversy, “both sides submit proof and the court decides, by a preponderance of the evidence, whether the amount-in-controversy requirement has been satisfied.” Id. at 88.

The Court found that the trial court’s evaluation — which consisted of granular evaluations of Employer’s evidence, assumptions and arguments — was proper.  However, the Ninth Circuit found that the trial court eventually lost sight of the ultimate question of whether Employer met its burden of showing the amount in controversy exceeded $5 million.

The Ninth Circuit found the trial court’s two primary errors were “putting a thumb on the scale against removal” and assigning a $0 amount to most of the claims simply on the basis that the court disagreed with one or more of the assumptions underlying Employer’s amount in controversy estimates.

The Appellate Court found that the trial court imposed a heavy burden on Employer to prove the case belonged in federal court, which was a threshold that contravened the text and understanding of CAFA and ignored precedent.

The Court noted that CAFA “significantly expanded federal jurisdiction in diversity class actions.” Lewis v. Verizon Commc’ns, Inc., 627 F.3d 395, 398 (9th Cir. 2010); see also Dart Cherokee, 574 U.S. at 89 (“Congress enacted [CAFA ] to facilitate adjudication of certain class actions in federal court.”)  The Ninth Circuit also noted that Congress stated in CAFA’s “Findings and Purposes” that CAFA was designed to “restore the intent of the framers of the United States Constitution by providing for Federal court consideration of interstate cases of national importance under diversity jurisdiction.” Class Action Fairness Act of 2005, 28 U.S.C. § 1711 (2005).

In addition, based on this statutory background, the Supreme Court has advised “that no antiremoval presumption attends cases invoking CAFA.” Dart Cherokee, 574 U.S. at 89.  Finally, the Ninth Circuit noted, “CAFA’s provisions should be read broadly, with a strong preference that interstate class actions should be heard in federal court if properly removed by any defendant.” Id.; Ibarra v. Manheim Invs., Inc., 775 F.3d 1193, 1197 (9th Cir. 2015) (“Congress intended CAFA to be interpreted expansively.”).

The Appellate Court found that the trial court improperly invoked a presumption against CAFA’s jurisdiction. The Court further found that the trial court had “some notion” that removal under CAFA “should be met with a level of skepticism and resistance.”

The Ninth Circuit found that this notion resulted in an inappropriate demand of certitude from Employer over its assumptions used in calculating the amounts in controversy.

The Court found this to be a problem as a CAFA defendant’s amount in controversy assumptions will always be assumptions.  The Ninth Circuit noted that it has been made clear that in calculating the amount in controversy, “the parties need not predict the trier of fact’s eventual award with one hundred percent accuracy.” Valdez v. Allstate Ins. Co., 372 F.3d 1115, 1117 (9th Cir. 2004).

Here, the Court held, Employer should have been able to rely “on a chain of reasoning that includes assumptions to satisfy its burden to prove by a preponderance of the evidence that the amount in controversy exceeds $5 million,” so long as the underlying assumptions and reasoning were reasonable. LaCross v. Knight Transp. Inc., 775 F.3d 1200, 1201 (9th Cir. 2015).

The Ninth Circuit found the trial court also erred in its approach to the amount in controversy analysis.

The Court noted that Employer offered substantial evidence to support its valuation of the claims. The Ninth Circuit held that merely “preferring an alternative assumption” was not an appropriate basis to assign that claim a $0 value.

Employee argued the trial court’s assignment of a $0 value to the claims was proper because the trial court “should weigh the reasonableness of the removing party’s assumptions, not supply further assumptions of its own.” Harris v. KM Indus., Inc., 980 F.3d 694, 701 (9th Cir. 2020).

However, the Ninth Circuit stated that there is a distinction between offering entirely new assumptions or evidence itself and modifying an assumption in the moving party’s analysis. The Court found that when an assumption is rejected because a better assumption has been identified, the claim should be considered under the better assumption, not zeroed-out.

Thus, the Ninth Circuit reversed the trial court’s order remanding the case to state court and remanded for further proceedings consistent with its opinion.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.

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