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Supreme Court Clarifies the Standard Governing Removal of Class Action Cases to Federal Court

The US Supreme Court ruled on Monday that class action defendants need not provide evidentiary submissions in support of their attempts to remove a case from state to federal court.  Rather, they need only include in their notice of removal a “plausible allegation” that the amount in controversy exceeds the jurisdictional threshold.

In Owens v. Dart Cherokee Basin Operating Co., the plaintiff filed a putative class action in Kansas state court, alleging that the energy-company defendants underpaid royalties due on oil and gas leases.  The defendants removed the action to the U.S. District Court for the District of Kansas pursuant to the Class Action Fairness Act (“CAFA”), which gives federal jurisdiction over class actions only if the amount in controversy exceeds $5 million.  The defendants made the short and plain statement in their notice of removal that the alleged underpayments to putative class members totaled more than $8.2 million.  In response, the plaintiff moved to remand the case to state court on the ground that the removal notice included no evidence demonstrating that the amount in controversy exceeded $5 million.  The district court agreed with the plaintiff, finding that Tenth Circuit precedent required proof of the amount in controversy in the notice of removal under CAFA.  The Tenth Circuit refused to review the district court’s ruling.

The Supreme Court granted certiorari to resolve a division among the Circuits.  For example, the Fourth, Seventh, Eighth, Ninth, and Eleventh Circuits have held that alleging a short and plain statement of the grounds for removal under CAFA is sufficient.  See e.g., Ellenburg v. Spartan Motors Chassis, Inc., 519 F.3d 192, 199-200 (4th Cir. 2008); Spivey v. Vertrue, Inc., 528 F.3d 982, 986 (7th Cir. 2008); Hartis v. Chicago Title Ins. Co., 694 F.3d 935, 944-45 (8th Cir. 2012); Janis v. Health Net, Inc., 472 F.Appx. 533, 534-35 (9th Cir. 2012); Lowery v. Al. Power Co., 483 F.3d 1184, 1217 n.73 (11th Cir. 2007).

In a 5-4 decision, the majority of the Supreme Court held that a defendant’s notice of removal under CAFA need only include a plausible allegation that the amount in controversy exceeds the jurisdictional threshold.  In reaching its conclusion, the majority relied on the wording of the removal statute itself, which merely requires a “short and plain statement” setting forth a good-faith basis supporting removal to federal court.

The Supreme Court’s decision is supported by CAFA’s legislative history as well.  Specifically, the Senate report expressly stated that CAFA’s provisions should be interpreted broadly, with a strong preference that federal courts should hear interstate class actions if properly removed by any defendant.

Justice Scalia, writing for the dissent, argued that the Court should have never granted certiorari.  Justice Scalia argued that it was improper for the court to decide the substantive issue concerning the sufficiency of the removal notice under CAFA, because the only question before the court was whether the Tenth Circuit abused its discretion in denying defendants’ permission to appeal the District Court’s remand order.

The Court’s decision provides clarity for corporate class action defendants seeking to remove an action from state to federal court.  In determining whether to remove the action to federal court, defendants can find comfort in the plain language of the removal statute requiring a “short and plain statement,” as long as defendants can assert, in good faith, that the amount in controversy exceeds $5 million.

© 2020 Proskauer Rose LLP. National Law Review, Volume IV, Number 352

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About this Author

Tanya J Dmitronow, Proskauer Rose Law Firm, Litigation Attorney
Partner

Tanya Dmitronow is a Partner in the Litigation Department and a member of the Firm’s White Collar Defense & Investigations and Securities Litigation Groups. Tanya focuses her practice on criminal and civil enforcement proceedings and securities and corporate governance litigation. She has a depth of experience in complex litigation matters, including securities class actions and related individual, ERISA and shareholder derivative suits.

212-969-3449
Lawrence S. Elbaum, Litigation Attorney, Proskauer Law Firm
Associate

Lawrence S. Elbaum is an Associate in the Litigation Department, resident in the New York office. He handles general litigation matters in both federal and state courts with a focus on bankruptcy and insolvency litigation, securities litigation and trade secret and non-compete matters. Lawrence has represented companies in the financial sector, including banks, investment funds and broker/dealers, as well as in the manufacturing and real estate industries.

In addition to seeking litigation counseling, clients often call upon Lawrence to prepare employee non-competition and confidentiality agreements, defend against investigations commenced by state and federal regulators and for day-to-day legal advice.

212-969-3161
Tracey L Silver, Litigation Attorney, Proskauer Law Firm
Associate

Tracey L. Silver is an associate in the Labor & Employment Department and a member of the firm’s Employment Litigation & Arbitration Group.

Prior to joining Proskauer, Tracey was a judicial extern for the Honorable Frances Rothschild, Presiding Justice of Division One of the Court of Appeal, Second Appellate District.

310-284-4535