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9th Cir. Vacates Summary Judgment in Favor of Defendant for CAFA ‘Amount in Controversy’ Deficiencies

ninth circuitThe U.S. Court of Appeals for the Ninth Circuit recently held that it could sua sponte question a defendant’s assertions of jurisdiction under the federal Class Action Fairness Act, and that the record did not sufficiently demonstrate that CAFA’s amount-in-controversy requirement was met here because the requisite $5 million amount was not evident from the face of the complaint nor the defendant’s notice of removal and supporting declaration.

In so ruling, the Ninth Circuit vacated the trial court’s summary judgment ruling in favor of the defendant and remanded for proceedings to determine CAFA jurisdiction.

A copy of the opinion in Moe v. Geico Indemnity Co. is available at:  Link to Opinion.

A consumer filed individual and putative class claims in Montana state court against an insurance company after the company failed to advance pay the consumer’s medical bills and lost wages following a car accident caused by a separate driver insured by the company. The consumer alleged, among other things, common law bad faith and violations of Montana’s Unfair Trade Practices Act (UTPA).

The insurer removed the lawsuit to federal court, asserting jurisdiction under the Class Action Fairness Act, 28 U.S.C. § 1332. Neither the consumer nor the federal trial court questioned whether CAFA jurisdiction was proper.

Following removal, the insurer moved to dismiss the action, which the trial court granted in part and denied in part. The insurer also moved for summary judgment. The trial court stayed briefing on class certification and class-related discovery pending resolution of the summary judgment motion. Following a magistrate judge’s recommendation, the trial court granted summary judgment for the insurer and denied the borrower’s motion for class certification. The borrower timely appealed.

Under CAFA, federal jurisdiction exists over class actions involving at least 100 members who are minimally diverse from the defendants and when the amount-in-controversy exceeds $5 million. 28 U.S.C. § 1332(d). A defendant’s notice of removal to federal court must “contain[] a short and plain statement of the grounds for removal.” 28 U.S.C. § 1446(a). Furthermore, “the defendant’s amount-in-controversy allegation should be accepted when not contested by the plaintiff or questioned by the court.” Dart Cherokee Basin Operating Co. v. Owens, 574 U.S. 81, 89 (2014).

The Ninth Circuit began its analysis by holding that, although neither the consumer nor the trial court questioned whether subject-matter jurisdiction existed under CAFA, a court of appeals may raise this issue sua sponte on appeal if it questions jurisdiction. The Court noted that it has an independent obligation to ensure that both the trial court and the court of appeals have subject-matter jurisdiction. See, e.g., Mitchell v. Maurer, 293 U.S. 237, 244 (1934).

Therefore, having determined that it may sua sponte question a defendant’s allegation of CAFA jurisdiction, the Ninth Circuit concluded that the record did not establish that CAFA’s amount-in-controversy requirement was met here.

In removing a case to federal court, a defendant need only make a “plausible allegation that the amount-in-controversy exceeds the jurisdictional threshold.” Dart Cherokee, 574 U.S. at 87. But when the asserted amount in controversy is challenged or questioned, more is required, pursuant to 28 U.S.C. § 1446(c)(2)(B). Id. at 87, 89. Both sides must have an opportunity to “submit proof,” and the defendant has the burden to show that the amount-in-controversy requirement is met by a preponderance of the evidence. See id. at 88–89; see also § 1446(c)(2)(B). In meeting its burden, the defendant may rely on reasonable assumptions in calculating the amount in dispute. Jauregui v. Roadrunner Transp. Servs., Inc., 28 F.4th 989, 993 (9th Cir. 2022).

Here, the Ninth Circuit decided that CAFA’s amount-in-controversy requirement was not met because the $5 million amount was not evident from the face of the complaint nor the insurer’s notice of removal and supporting declaration. The Court observed that the consumer’s claimed damages in his individual claim were under $1,000 and there was little indication as to the average amount of damages the purported class members may have suffered.

Furthermore, it was unclear how large the purported class was because Montana’s statute of limitations for a common law bad-faith claim is three years, see Brewington v. Emps. Fire Ins. Co., 297 Mont. 243, 249 (1999), and the statute of limitations for a UTPA claim is only two years from the date of violation for an insured and one year within the date of settlement or entry of judgment on the underlying claim for a third-party claimant. Mont. Code Ann. § 33-18-242(7).

Accordingly, the Ninth Circuit vacated the trial court’s decision and remanded for the trial court to conduct the necessary proceedings to determine whether the insurer could show by a preponderance of the evidence that the $5 million amount-in-controversy requirement was satisfied.

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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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