FYI: 8th Cir Affirms Remand of Putative Class Action Under CAFA on Lack of Amount in Controversy

The U.S. Court of Appeals for the Eighth Circuit recently affirmed a trial court's order remanding a putative class action suit to state court. In so ruling, the Eighth Circuit held that when a plaintiff contests the amount in controversy after removal, the party seeking to remove under the federal Class Action Fairness Act, 28 U.S.C. § 1332(d)(2) (CAFA) must establish the amount in controversy by a preponderance of the evidence.

 

Here, the Eighth Circuit concluded that the defendant company presented no data or other evidence to support a reasonable inference that the value of the injunctive relief portion of the amount in controversy was over $5 million, and therefore that the trial court properly concluded that it lacked jurisdiction.

 

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

 

A consumer filed a putative class action in Missouri state court against a clothing company, alleging that the company violated the Missouri Merchandising Practices Act by assessing taxes on a category of purchases at a rate greater than required by the Missouri tax code. On behalf of the putative class, the consumer sought compensatory damages, attorney's fees, and a permanent injunction preventing the company from collecting excess taxes in the future.

 

The company removed the action to federal court under CAFA. The consumer in turn moved to remand the case back to state court, arguing that the company failed to show that the amount in controversy exceeded $5 million.

 

The parties agreed that the amount in controversy included $2.5 million in actual damages and about $800,000 in attorney's fees, bringing the amount to at least $3.3 million. However, the company argued that the amount in controversy exceeded $5 million because the value of injunctive relief was more than $1.7 million and that amount must be added to the $3.3 million that the parties agreed was in controversy.

 

The trial court agreed with the parties that compensatory damages and attorney's fees would  total about $3.3 million. However, the court concluded that the company's estimate of the value of injunctive relief was "speculative" and that, as a result, the company had failed to show that the amount in controversy exceeded $5 million.

 

The trial court thus remanded the case to state court. The company timely appealed.

 

When a plaintiff contests the amount in controversy after removal, the party seeking to remove under CAFA must establish the amount in controversy by a preponderance of the evidence. Hargis v. Access Capital Funding, LLC, 674 F.3d 783, 789 (8th Cir. 2012); see also Waters v. Ferrara Candy Co., 873 F.3d 633, 636 (8th Cir. 2017) (per curiam). 

 

The parties debated whether the amount in controversy should be measured only from the plaintiffs' perspective — i.e., the aggregate value of the claims to the class members — or whether a trial court may determine the amount from either party's point of view, and thus may consider the amount from the defendant's perspective — i.e., the total potential cost to the defendant if the plaintiffs prevail.

 

However, the Eighth Circuit chose not to decide this question because it determined that the company did not meet its burden to show an amount in controversy over $5 million from either perspective.

 

Measuring from the company's viewpoint, the Eighth Circuit reasoned that it is possible for injunctive relief to contribute to the amount in controversy where the injunction would cause the defendant to suffer a financial loss. See, e.g., Keeling v. Esurance Ins. Co., 660 F.3d 273,274 (7th Cir. 2011).

 

In this case, however, the Court concluded that the requested injunction would impose no cost on the company and instead would simply prevent the company from collecting allegedly unnecessary taxes that the company would then remit to the State of Missouri. Thus, the Court held that the amount in controversy from the company's perspective did not exceed $5 million.

 

The remaining question then was whether the company had established by a preponderance of the evidence that the injunction would have a value of at least $1.7 million to the members of the putative class.

 

The Eighth Circuit noted that the requested injunctive relief  would have value to future customers of the company, as it would allow customers to avoid paying allegedly excess taxes on future purchases. However, the Court also pointed out that the class here was not defined as all customers who would make qualifying purchases from the company in the future, but rather as a group of customers who made qualifying purchases from the company over the preceding five years.

 

Although the company projected that it would collect $2.5 million in allegedly excess taxes over the next five years, the Eighth Circuit held that the company presented no data or other evidence to support a reasonable inference that the putative class would include future purchasers who would pay at least $1.7 million in disputed taxes.

 

Without a non-speculative basis to infer that the requested injunction would bring the amount in  controversy between the parties over $5 million, the Eighth Circuit held that the trial court properly concluded that it lacked jurisdiction.

 

Accordingly, the Eighth Circuit affirmed the order of the federal trial court remanding the case back to state court.

 

 

 

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

 

 

 

Alabama   |   California   |   Florida   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

Webinars

  

 

 

 

FYI: 8th Cir Holds Future Advances Clause Applied to Separate Business Loans to Co-Mortgagor

The U.S. Court of Appeals for the Eighth Circuit recently held that the language of a future advances clause entitled the foreclosing mortgagee to the surplus proceeds of a condominium sale where there was an outstanding balance owed to same mortgagee on separate business loans extended to a different co-mortgagor.

 

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

 

The appeal arose out of a consumer loan extended by the plaintiff mortgagee ("Mortgagee") to the defendant's husband ("Husband"). The loan was secured by a mortgage executed by the defendant ("Wife") and Husband and secured by their condominium located in Iowa. The mortgage included a future advances clause which granted Mortgagee a security interest in the condominium covering future funds Husband might borrow.

 

Husband subsequently borrowed additional sums under three notes to keep his business running (the "Business Notes"). Wife was not a party to these notes.  Shortly thereafter, Husband filed for Chapter 7 Bankruptcy. Husband and Wife subsequently sold the condominium, divorced, and Wife moved to a different state.

 

After the note evidencing the loan to Wife was paid from the sale, approximately $249,117.65 remained of the sale proceeds which were deposited in escrow in Husband's bankruptcy. The bankruptcy court found that pursuant to the future advances clause, Husband's portion of the escrowed proceeds were required to pay down the Business Notes. The bankruptcy court further found that Husband could not claim a homestead exemption for the proceeds.

 

Mortgagee subsequently brought a separate action against Wife seeking a declaratory judgment that Wife's portion of the proceeds be subject to the mortgage's future advances clause and that Mortgagee could apply the proceeds to the Business Notes. The trial court granted summary judgment in favor of Mortgagee and Wife appealed.

 

Wife first argued that the trial court erred in finding that the mortgage's future advances clause secured the Business Notes.

 

In Iowa, when there is no clear supportive evidence of a contrary intention, a future advances clause will encompass a particular debt in two instances: (1) when they are of the same kind and quality or relate to the same transaction or series of transactions as the principal obligation secured; and (2) the document evidencing the subsequent advance refers to the mortgage as providing security therefor. Freese Leasing, Inc. v. Union Tr. & Sav. Bank, 253 N.W.2d 921, 927 (Iowa 1977).

 

Wife argued that the Business Notes were of a "completely different character" than the original note evidencing the loan made to her.

 

However, the Eighth Circuit pointed out that the nature of the debt is only material when there is no "clear, supportive evidence of a contrary intention" that the mortgage can secure other, unrelated debt. The mortgage at issue made it plain that it could secure "[a]ll present and future debts from [Husband] to [Bank]," without requiring the debt to be mentioned in the future debt instrument, whether the "future debt [wa]s unrelated to or of a different type than th[at] debt," or if Husband "incur[red] [debts] either individually or with others who may not sign this [Mortgage]."

 

The Eighth Circuit held that the indisputable evidence demonstrated the mortgage also secured the Business Notes, noting the unambiguous language of the future advances clause, its bold presence and Wife's signature at the end of the Mortgage as well as her initials on the page containing the future advances clause.

 

Wife alternatively argued that the mortgage was rendered unenforceable by various contractual formation problems.

 

Wife first argued that there was no meeting of the minds as she did discuss or understand the terms of the future advances provision. However, under Iowa law, it is not a defense to enforcement of a contract that a party did not read fully and consider the terms of the contract. Bryant v. Am. Express Fin. Advisors, Inc., 595 N.W.2d 482, 486 (Iowa 1999). Because there was no evidence of duress, incapacity, coercion or other formation problems, and Wife accepted the terms by signing the contract, the Eighth Circuit found Wife was bound by the contract. See Gosiger, Inc. v. Elliot Aviation, Inc., 823 F.3d 497, 502 (8th Cir. 2016).

 

Wife next argued that her initials and signature on the mortgage did not equate to her having agreed to be bound by its terms and implications. The Eighth Circuit again found no evidence that called into question her execution of the Mortgage. See Bryant, 595 N.W.2d at 487. The argument that the mortgage forced Wife to waive her homestead rights in contravention of public policy, was also rejected as the regulation relied on by Wife did not apply to banks such as Mortgagee.

 

Wife further claimed that the clause was unconscionable. The Eighth Circuit noted that Wife's argument was essentially that the contract was a bad bargain and thus, rejected the claim.  See C&J Vantage Leasing Co. v. Wolfe, 795 N.W.2d, 65, 80 (Iowa 2011) ("[T]he doctrine of unconscionability does not exist to rescue parties from bad bargains.")

 

Wife also argued that Mortgagee failed to make a prima facie showing of its entitlement to the proceeds because it failed to prove the proceeds comported with the Mortgage's maximum obligations limit clause.  The Eighth Circuit rejected this argument as well, as it was raised for the first time on appeal.

 

Similarly, the argument that the mortgage was not a credit agreement due to its lack of the disclosure that would be required by Iowa Code § 535.17(3) was rejected as it was also raised for the first time on appeal.

 

Wife further made numerous equitable arguments which were precluded because the mortgage was a "credit agreement" under Iowa Code § 535.17(5)(c).  Although Wife argued that the mortgage was not a "credit agreement" under this provision of the Iowa Code, the Eighth Circuit disagreed finding that a mortgage fits within Iowa's definition of "credit agreement." Finally, all Wife's remaining arguments were not addressed as the Court found them "wholly devoid of merit and/or frivolous.

 

Thus, the Eighth Circuit affirmed the judgment of the trial court, denied Wife's motion to certify questions of law to the Iowa Supreme Court and denied Mortgagee's motion to strike a portion of Wife's reply brief as moot.

 

 

 

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

 

 

 

Alabama   |   California   |   Florida   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

Webinars