FYI: 7th Cir Affirms Denial of Remand in CAFA Putative Class Action, Holds "Local Controversy" Exception Inapplicable

The U.S. Court of Appeals for the Seventh Circuit recently affirmed the denial of a motion to remand to state court of a putative class action removed to federal court under the federal Class Action Fairness Act (CAFA).

 

In so ruling, the Seventh Circuit held that:

 

-  The defendant provided a "plausible good faith estimate" that the amount in controversy exceeded CAFA's $5 million threshold; and

 

-  The local controversy exception did not apply because the factual allegations in a recent Montana class action suit against the agent were "identical" to the plaintiff's here.

 

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

 

The plaintiff retained a law firm to seek compensation for personal injuries. The law firm requested electronic copies of the plaintiff's medical records from one of the defendants, a Wisconsin health care provider.

 

The healthcare provider responded to the request through its agent, the other defendant. The agent produced the electronic copies, but it charged the plaintiff and her lawyers "Per Page Copy (Paper)" charges totaling $59.23 and an "Electronic Data Archive Fee" of $2.00.

 

Alleging that she should not have been charged fees for electronic copies, the plaintiff filed a putative class action, claiming that the class includes several thousand persons and entities.  In addition to compensatory damages, the plaintiff sought exemplary damages up to $25,000 per claimant, as authorized by Wisconsin law for knowing and willful violations of Wis. Stat. § 146.83(3f)(b).

 

The agent removed the action to federal court under the federal Class Action Fairness Act (CAFA), asserting that the plaintiff's proposed class had at least 100 members, there was at least minimal diversity of citizenship between the plaintiff and the defendants, and based on the complaint's allegations the amount in controversy exceeded $5 million. 28 U.S.C. 1332(d).

 

The agent's notice of removal also asserted that the CAFA local controversy exception, which would have required the trial court to decline jurisdiction, did not apply because several class actions involving similar factual allegations have been filed against both defendants in the preceding three years.

 

The plaintiff moved to remand to state court on two grounds. First, she argued that the agent failed to establish that the amount in controversy exceeded $5 million. Second, she asserted that the local controversy exception applied.

 

The trial court denied the motion to remand, holding that the plaintiff had put forth a "plausible good faith estimate" that the amount in controversy exceeded $5 million and that the local controversy exception did not apply because the factual allegations in a recent Montana class action suit against the agent were "identical" to the plaintiff's claims. The plaintiff timely appealed.

 

The parties agreed that the class exceeded 100 members and that there was minimal diversity. See 28 U.S.C. 1332(d). The first disputed question instead was whether the amount in controversy exceeded $5 million, as required under CAFA.

 

Where the amount in controversy is contested, removal is proper if the trial court finds, by the preponderance of the evidence, that the amount in controversy exceeds the jurisdictional threshold. Roppo v. Travelers Commercial Insurance Co., 869 F.3d 568, 579 (7th Cir. 2017), quoting Dart Cherokee Basin Operating Co. v. Owens, 574 U.S. 81, 88 (2014). The removing party needs to provide only a "good-faith estimate" that is "plausible and adequately supported by the evidence."  Blomberg v. Service Corp. International, 639 F.3d 761, 763 (7th Cir. 2011).

 

To satisfy the amount in controversy requirement, a removing defendant may rely on the complaint's allegations, the plaintiff's informal estimates, affidavits from employees or experts, or other sources. Roppo, 869 F.3d at 579-80. Once the removing party meets its burden, "the case belongs in federal court unless it is legally impossible for the plaintiff to recover that much."  Spivey v. Vertrue, Inc., 528 F.3d 982, 986 (7th Cir. 2008).

 

The Seventh Circuit first held that the allegations in this complaint alone were enough to show plausibly that more than $5 million was in controversy. The Court concluded that the agent was entitled to take at face value the complaint's allegation of "several thousand" class members, each with "multiple separate claims."  See Roppo, 869 F.3d at 581. 2,000 class members, for instance, would have needed to recover an average of only around $2,501 in exemplary damages, to say nothing of compensatory damages, to surpass the $5 million threshold.

 

The Seventh Circuit also reasoned that the trial court's task in deciding a remand motion is not to predict the plaintiff's prospects on the merits.  Instead, what matters is the amount "in controversy," not the amount that plaintiff is most likely to recover. See, e.g., Back Doctors Ltd. v. Metropolitan Property & Casualty Insurance Co., 637 F.3d 827, 830 (7th Cir. 2011). Furthermore, to satisfy CAFA's requirements, a removing party does not need to "establish" the class's damages.  Instead, it needs only to provide a "good faith estimate" that the potential recovery exceeds $5 million. Roppo, 869 F.3d at 579; see also Blomberg v. Service Corp. International, 639 F.3d 761, 763 (7th Cir. 2011).

 

Even if the allegations in the complaint were not enough, the Seventh Circuit also held that the declaration submitted by the agents senior vice president of operations satisfied CAFA's amount in controversy requirement. The declaration asserted that the agent had fulfilled about 727,500 relevant requests for medical records in Wisconsin from late January 2015 to late January 2021. To reach the $5 million threshold on compensatory damages alone, these requests would have needed to average only around $6.88 in overcharges. Given that the plaintiff's claimed compensatory damages were $61, the Court determined that this estimate was sufficient to meet the agent's burden.

 

The plaintiff also argued on appeal that remand was proper based on CAFA's local controversy exception.

 

Even where CAFA's jurisdictional requirements are met, the mandatory local controversy exception requires a federal trial court to decline jurisdiction under certain circumstances. 28 U.S.C. 1332(d)(4)(A).  The exception has several requirements, but only one was in dispute in this case: the exception applies only if "during the 3-year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons."  See 28 U.S.C. 1332(d)(4)(A)(ii).

 

The Seventh Circuit agreed with the trial court that this case and a case filed in the United States District Court for the District of Montana, Deming v. Ciox Health, LLC, 475 F. Supp. 3d 1160 (D. Mont. 2020), aff'd mem., No. 20-35744, 2022 WL 605691 (9th Cir. Mar. 1, 2022), involved "the same or similar factual allegations".  See 28 U.S.C. 1332(d)(4)(A)(ii).

 

The Deming plaintiffs alleged that they had to pay per-page charges, electronic data archive fees, and other fees for electronic copies of medical records. Likewise, the plaintiff here alleged that class members had to pay "paper copies" fees, electronic archive data fees, and other fees for electronic copies of medical records. The Seventh Circuit concluded that this overlap easily fell within any reasonable definition of "similar factual allegations."

 

The Seventh Circuit also agreed with the Tenth Circuit that differences in the legal theories asserted do not place two complaints with similar factual allegations outside the provision's sweep. See Dutcher v. Matheson, 840 F.3d 1183, 1191-92 (10th Cir. 2016). Therefore, the fact that the Deming complaint alleged violations of Montana law while the present complaint alleged violations of Wisconsin law was not relevant.

 

The plaintiff also asserted that the statutory language "on behalf of the same or other persons" in 28 U.S.C. 1332(d)(4)(A)(ii) indicated that a connection between the two classes in the prior and current action was required to avoid the local controversy exception.

 

However, the Seventh Circuit observed that the plaintiff offered no meaningful guidance about what sort of connection would suffice. Nor did she offer a basis in the statutory text or even the history of CAFA's enactment for answering that question. Ultimately, the Court held that the plaintiff's proposed "some connection" standard would have no basis in law and would be impossible to apply fairly. See Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 493-95 (1985).

 

Thus, the Seventh Circuit concluded that the Deming case precluded application of the local controversy exception.

 

Accordingly, the Seventh Circuit affirmed the trial court's order denying remand.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

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

The 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 ("CAFA").

 

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 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 that 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 president.

 

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.

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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