Friday, August 25, 2017

FYI: 4th Cir Holds Def Must Present Sufficient Evidence to "Determine - Not Speculate" as to CAFA's Requirements

The U.S. Court of Appeals for the Fourth Circuit recently held that a defendant invoking jurisdiction under the federal Class Action Fairness Act, 28 U.S.C. § 1332(d) ("CAFA"), must provide sufficient evidence to allow the court to determine – not speculate – that it was more likely than not that there were at least 100 class members and the aggregate amount in controversy exceeded $5,000,000.


A copy of the opinion is available at:  Link to Opinion


Between July 2013 and March 2014, a consumer purchased two Samsung Galaxy S4 cell phones from the defendant wireless service provider.  The phones were only operable on a Code Division Multiple Access ("CDMA") network. 


Unknown to the consumer, the wireless service provider had begun to shut down its CDMA network.  When the wireless service provider completed that process in 2015, the consumer alleged that his phones were locked out of the CDMA network and rendered "useless and worthless."


In September 2015, the consumer filed a putative class action in the Circuit Court for Baltimore City, Maryland.  The consumer alleged that the wireless service provider's actions violated Maryland's express warranties and implied warranties of merchantability and fitness for a particular purpose, which in turn was a violation of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301, et seq. ("MMWA").


As you may recall, under the MMWA, a consumer may bring a class action in state or federal court alleging a breach of warranty under state law if there are more than 100 named plaintiffs.  Id., § 2310(d).  The consumer defined the class as:  "All Maryland citizens who, between July 12, 2013 and March 13, 2014, purchased a CDMA mobile telephone from [the wireless service provider] which was locked for use only on [the wireless service provider's] CDMA network."


The wireless service provider removed the case to the United States District Court for the District of Maryland.  The wireless service provider invoked CAFA, which granted jurisdiction over putative class action with (1) more than 100 class members, (2) an aggregate amount in controversy exceeding $5,000,000, and (3) minimal diversity between the parties.  28 U.S.C. §§ 1332(d)(2), (5).


In support of its notice of removal, the wireless service provider provided a declaration stating that during the relevant period "[the wireless service provider's] customers purchased at least 50,000 CDMA handsets that were shipped to and activated in Maryland."  Because the consumer stated in his complaint that each phone costs "hundreds of dollars," the wireless service provider applied a conservative estimate of $200 per phone and asserted that there were at least 100 class members and "the total amount in controversy is, at minimum, $10,000,000."


The consumer then moved to remand the case to state court.  The consumer argued that the wireless service provider did not satisfy its burden to allege jurisdiction under CAFA because the class that the wireless service provider described in its notice of removal was broader than the consumer's defined class.  According to the consumer, the wireless service provider's assertion that it sold 50,000 cell phones that were shipped to and activated in Maryland fails to meet CAFA's requirements because the class only consists of Maryland citizens who purchased a CDMA phone.


In its opposition, the wireless service provider provided another declaration stating that "[the wireless service provider's] records indicate that between July 12, 2013 and March 13, 2014, [the wireless service provider's] customers who listed addresses located in Maryland … purchased at least 47,760 CDMA handsets that were 'locked' to [the wireless service provider's] CDMA network."  Again, using the conservative estimate of $200 per phone, the wireless service provider alleged that the revised amount in controversy was $9,552,000, still well above the CAFA threshold. 


Notably, the wireless service provider argued that it need not, and could not, provide the exact number of handsets Maryland citizens purchased.  Thus, the wireless service provider urged the district court to make the inference that the vast majority of its Maryland customers were Maryland citizens.


The trial court granted the motion to remand.  In so ruling, the trial court found that, although the wireless service provider sufficiently asserted federal jurisdiction under CAFA, it did not establish jurisdiction by a preponderance of the evidence.  The trial court rejected the wireless service provider's preferred evidence – the declaration attesting that the wireless service provider sold 47,760 locked phones during the relevant time period to customers who listed a Maryland address – because it was "over-inclusive" since "the Class includes only Maryland citizens, but [the wireless service provider's] evidence pertains to all customers who provided Maryland addresses."  This appeal followed.


On appeal, the wireless service provider argued that its evidence showed it was more likely than not that the putative class included more than 100 members and the amount in controversy exceeded $5,000,000.


As you may recall, the defendant bears the burden of alleging that CAFA jurisdiction exists.  Strawn v. AT&T Mobility LLC, 530 F.3d 293, 296 (4th Cir. 2008).  When a plaintiff's complaint leaves the amount of damages unspecified, the defendant must provide evidence to "show … what the stakes of litigation … are given the plaintiff's actual demands."  Brill v. Countrywide Home Loans, Inc., 427 F.3d 446, 449 (7th Cir. 2005) (emphasis omitted).  To resolve doubts regarding a defendant's asserted 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."  Dart Cherokee Basin Op. Co. v. Owens, 135 S. Ct. 547, 554 (2014).


Jurisdiction under CAFA existed if at least 100 Maryland citizens purchased more than $5,000,000 worth of locked phones from the wireless service provider.


First, the Fourth Circuit agreed with the trial court that the wireless service provider's initial statement that it sold "at least 50,000 CDMA mobile telephones that were shipped to and activated in Maryland" was sufficient to allege jurisdiction under CAFA.  When the consumer filed the motion to remand, the wireless service provider was then required to prove jurisdiction by a preponderance of the evidence. 


The key inquiry in determining whether the amount-in-controversy requirement was met, according to the Fourth Circuit, was not what the plaintiff will actually recover, but "an estimate of the amount that will be put at issue in the course of the litigation."  McPhail v. Deere & Co., 529 F.3d 947, 956 (10th Cir.2008). 


A removing defendant may rely on overinclusive evidence to establish the amount in controversy so long as the evidence showed that it was more likely than not that "a fact finder might legally conclude that" damages will exceed the jurisdictional amount.  Kopp v. Kopp, 280 F.3d 883 885 (8th Cir. 2002).


In this case, the consumer chose to limit the class to Maryland citizens but this, in the Fourth Circuit's view, did not require the wireless service provider to make a "definitive determination of domicile."  Moreover, the Court noted that many factors relevant to the domicile inquiry are publicly available, including business and professional licensures, property ownership, property taxes, and voter registration.


The Fourth Circuit held that, in order to meet its burden under CAFA, the wireless service provider must provide enough facts to allow a court to determine – not speculate – that it is more likely than not that the class action belongs in federal court. 


Thus, the Court held that, while the wireless service provider may rely on evidence that may be overinclusive, the party seeking to invoke CAFA jurisdiction must provide enough factual detail for the trial court to discharge its constitutional duty and assess whether jurisdiction exists.


But, because the trial court committed a legal error in disregarding the wireless service provider's evidence as overinclusive, the Fourth Circuit was unable determine whether the wireless service provider met its burden to prove jurisdiction. 


Accordingly, the Fourth Circuit vacated the trial court's judgment and remanded the case for reconsideration consistent with its opinion.





Ralph T. Wutscher
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