FYI: 8th Cir Holds Total Revenues from Disputed Practice Can Satisfy CAFA's $5MM Requirement

The U.S. Court of Appeals for the Eighth Circuit recently held that the total amount of money received from a challenged practice can be used to satisfy the federal Class Action Fairness Act's jurisdictional requirement of $5 million in controversy.

 

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

 

A consumer filed a class action lawsuit against a retail company in Missouri state court. The consumer alleged that the company engaged in misleading and deceptive marketing practices by selling cough suppressants with dextromethorphan hydrobromide and a "non-drowsy" label.

 

The company removed the case to federal court under the federal Class Action Fairness Act (CAFA), and the consumer moved to have the case remanded back to state court, arguing that the company did not meet CAFA's jurisdictional requirement of $5 million in controversy.

 

The company filed a brief in opposition to the remand motion and attached a declaration from one of its senior managers. The senior manager asserted in his affidavit that there was more than $5 million in controversy based on three possible remedies identified in the complaint: (1) the total amount of product sales during the relevant time period; (2) the sales lost if the court enjoined the company from selling the products; and/or (3) the attorneys' fees awarded to the consumer's counsel if the consumer were to prevail.

 

The federal trial court remanded, finding that the company did not show that the amount in controversy was greater than $5 million because the company did not provide enough detail to show that the amount in controversy exceeded $5 million. The court also concluded that injunctive costs were not part of the amount in controversy and the company did not specify the amount of the attorneys' fees with enough detail to be considered. The company timely appealed to the Eighth Circuit under 28 U.S.C. § 1453(c).

 

A party can remove a class action to federal court under CAFA if three conditions are met: 1) minimum diversity exists, 2) the proposed class has at least 100 members, and 3) there is more than $5 million in controversy. Leflar v. Target Corp., 57 F.4th 600, 603 (8th Cir. 2023) (citing 28 U.S.C. § 1332). Here, the parties agreed that the first two conditions were met, but disagreed on whether there was more than $5 million in controversy.

 

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. Lizama v. Victoria's Secret Stores, LLC, 36 F.4th 762, 765 (8th Cir. 2022). However, the amount in controversy is not established by a preponderance of the evidence if a court must resort 'to conjecture, speculation, or star gazing.'" Waters v. Ferrara Candy Co., 873 F.3d 633, 636 (8th Cir. 2017).

 

The Eighth Circuit concluded that the senior manager's declaration was sufficient to support a finding that the amount in controversy exceeded $5 million. The Court reasoned that a removing party's burden of describing how the controversy exceeds $5 million is a pleading requirement, not an evidentiary requirement. Hartis v. Chicago Title Ins. Co., 694 F.3d 935, 944 (8th Cir. 2012). "[D]istrict courts must 'accept' the allegations in the notice if they are 'made in good faith.'" Leflar, 57 F.4th at 604.

 

Additionally, the Eighth Circuit held that the total amount of revenue generated from a challenged activity can be a measure of the amount in controversy. Raskas v. Johnson & Johnson, 719 F.3 884, 888 (8th Cir. 2013). Specifically, the Court determined that, when a lawsuit questions part of a transaction, an affidavit describing the total sales of the product at issue during the relevant time period meets the amount in controversy requirement. Id. at 87.

 

Because the Eighth Circuit found that total revenue received satisfies the amount in controversy requirement, it declined to discuss the inclusion of — or sufficiency of the evidence for — compliance costs or attorneys' fees.

 

Accordingly, the Eighth Circuit reversed the federal trial court's order remanding the case 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: TX Sup Ct Rules Mortgagee Could Not Avoid Foreclosure SOL With Equitable Subrogation Claim

The Supreme Court of Texas recently held that a mortgagee's foreclosure action was time-barred and that the doctrine of equitable subrogation did not provide the lender with an alternative timely claim.

 

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

 

A mortgagee whose predecessor refinanced the borrowers' original mortgage loans accelerated the borrowers' notes after they stopped making mortgage payments. However, the mortgagee did not initiate foreclosure proceedings until after its claim to enforce its lien was time-barred under the relevant Texas four-year statute of limitations.

 

The issue in the first round of appeals was whether the common-law doctrine of equitable subrogation provided the mortgagee with an alternative means of foreclosure. By balancing the equities, including the mortgagee's purported negligence in allowing the statute of limitations to expire, the intermediate Court of Appeals held that the trial court did not err by denying the mortgagee's claim for equitable relief and rendering judgment for the borrowers.

 

While the lender's first petition for review was pending with the Texas Supreme Court, the Texas Supreme Court ruled in a separate case, Federal Home Loan Mortgage Corp. v. Zepeda, that, in the mortgage-lending context specifically, a refinance lender's negligence in preserving its own lien plays no part in its entitlement to enforce an earlier lien through equitable subrogation. 601 S.W.3d 766-67 (Tex. 2020). Thus, because the Intermediate Court of Appeals' equity-balancing analysis conflicted with the Texas Supreme Court's holding in Zepeda, the Texas Supreme Court reversed the Court of Appeals' judgment and remanded with an instruction to address the borrowers' claim that the mortgagee's equitable-subrogation claim was time-barred.

 

On remand, the Court of Appeals concluded that any equitable subrogation claim that the mortgagee could have asserted would have accrued when the mortgagee accelerated the borrowers' notes and, therefore, this claim was time-barred too. The mortgagee again appealed to the Texas Supreme Court.

 

In its second appeal, the mortgagee argued that the statute of limitations on a refinance lender's subrogation claim should not begin to run until the maturity date of the notes on the original debts that were later refinanced.

 

However, the Texas Supreme Court concluded that the accrual rule urged by the mortgagee was incompatible with "the dual nature of a note and deed of trust" under Texas law. Martins v. BAC Home Loans Servicing, L.P., 722 F.3d 249, 255 (5th Cir. 2013). The Court reasoned that, in a refinance transaction, the original note is paid and then ceases to exist; it no longer has a maturity date and a new note between the borrower and the refinance lender is executed.

 

The Texas Supreme Court held that equitable subrogation actually transfers to a refinance lender the original creditor's security interest so that the refinance lender has an alternative lien to foreclose on if its own lien is later determined to be invalid. See Federal Home Loan Mortgage Corp. v. Zepeda, 601 S.W.3d 766 & n.13 (Tex. 2020).

 

Nevertheless, the Court stressed that a refinance lender only has one foreclosure claim, which accrues when the note made in the refinancing transaction is accelerated. Subrogation provides the refinance lender with the alternative remedy of foreclosing on the original creditor's lien in case its own is deemed invalid, not an additional claim and not a separate statute of limitations period. LaSalle Bank National Association v. White, 246 S.W.3d 616, 619 (Tex. 2007).

 

Accordingly, the Texas Supreme Court held that any claim the mortgagee would have had through subrogation to foreclose on the original creditor's lien would have accrued at the same time the mortgagee's own claim accrued, when the mortgagee accelerated the borrowers' refinanced loans. Because the mortgagee did not initiate foreclosure within four years of that date, the Court concluded that its claim was time-barred.

 

 

 

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