Wednesday, October 21, 2015

Securities Law Section: Plausible Allegation of Amount in Controversy is Sufficient for Removal

By Daniel P. Dietrich

     In any state-court-filed matter, one of the first issues that defense counsel analyzes is whether the case can be removed to federal court. When removal is based on diversity jurisdiction, the amount in controversy becomes an issue and the defendant, as the party seeking removal, bears the burden of establishing jurisdiction. In the not-so-uncommon scenario where the plaintiff has not pled a specific amount of damages, what is the defendant to do? Does the defendant have to merely allege jurisdictional facts to support removal, or does the defendant have to submit evidence to support the amount in controversy?

     The United States Supreme Court addressed the issue in Dart Cherokee Basin Operating Co., LLC v. Owens, 135 S. Ct. 547 (2014). The underlying matter involved the Class Action Fairness Act of 2005 (CAFA), which outlines the federal courts’ diversity jurisdiction over class actions. To establish federal jurisdiction under the CAFA, three elements are required: (1) minimal diversity, meaning at least one plaintiff and one defendant must be citizens of different states, (2) the proposed class must have at least 100 members, and (3) the amount in controversy must exceed $5 million. 28 U.S.C. § 1332(d)(2), (6).

     In Dart Cherokee, the defendant removed the action to federal court and alleged in the notice that the amount in controversy was over $8 million, well above the $5 million jurisdictional amount. The plaintiff moved to remand, which the district court granted since the notice of removal failed to provide any evidentiary support for the $8 million figure. Specifically, the district court explained that while a plaintiff cannot avoid removal merely by declining to allege the jurisdictional amount, the defendant must support the amount in controversy with factual evidence rather than mere assumption or speculation. For example, the defendant can use discovery methods or affidavits to support the jurisdictional amount. In Dart Cherokee, the defendant did not submit any evidence to support its notice of removal, and the district court explained that the defendants were obligated to allege all necessary jurisdictional facts in the notice of removal, not in response to a motion to remand.      

     The issue made its way to the United States Supreme Court, where the court held that, under 28 U.S.C. § 1446(a), a defendant's notice of removal need include only a plausible allegation that the amount in controversy exceeds the jurisdictional threshold. The notice need not contain evidentiary submissions. The court further explained that a plaintiff's amount-in-controversy allegation invoking federal-court jurisdiction is accepted if made in good faith, and the amount-in-controversy allegation of a defendant seeking federal-court adjudication should be accepted when not contested by the plaintiff or questioned by the court. If the plaintiff does contest the allegation, the parties will be entitled to submit proof, and the court will decide. In the notice though, plausible allegations are sufficient.