Ninth Circuit Makes It Easier for Employers to Remove State Court Class Actions to Federal Court

The Class Action Fairness Act (CAFA) was enacted in 2005 to make it easier for out-of-state defendants to remove interstate class actions to federal court. As the Senate Judiciary Committee's Report noted at the time, plaintiffs’ attorneys were filing nationwide class actions and “carefully crafting language to avoid federal courts,” in order to “easily ‘game the system’ and avoid removal of large interstate class actions to federal court.” But even after CAFA’s enactment, out-of-state employers in the Ninth Circuit struggled to remove class actions because under the standard set forth in Lowdermilk v. U.S. National Bank Association, defendants needed to establish to a “legal certainty” the $5 million amount in controversy required for CAFA removal.

The landscape of class action litigation in the Ninth Circuit recently changed, however, with Rodriguez v. AT&T Mobility Services, L.L.C. In Rodriguez, the Ninth Circuit effectively overruled Lowdermilk’s“legal certainty” standard and adopted the less strict “preponderance of the evidence” standard of proof for establishing federal jurisdiction under CAFA. Accordingly, going forward, out-of-state employers will have a far easier time removing class actions to federal court. 

The Ninth Circuit’s Prior Strict Removal Standards Under Lowdermilk

In Lowdermilk, the Ninth Circuit held courts “need not look beyond the four corners of the complaint” when assessing the amount in controversy requirement. Because the plaintiff is the “master of her complaint” and can plead around federal jurisdiction, the Lowdermilk court held that when the complaint specifically and unambiguously alleged that damages were less than CAFA’s $5 million jurisdictional threshold, defendants were required to prove to a “legal certainty” that the amount in controversy exceeded $5 million. Before long, the plaintiffs’ bar mastered various pleading techniques and carefully crafted their pleadings to avoid federal court.

Although the Ninth Circuit never defined what a defendant had to prove to meet the “legal certainty” standard, very few defendants were able to meet this standard on removal. As a result, in direct contravention of CAFA’s primary purpose of enabling the removal of interstate class actions, the majority of class actions in the Ninth Circuit were remanded to and remained in state court where they were subject to more liberal class certification standards.

The Supreme Court’s Standard Fire Decision Set the Stage for Lowdermilk’s Downfall

In March 2013, in Standard Fire Insurance Company v. Knowles, the U.S. Supreme Court held that a plaintiff could not avoid federal jurisdiction under CAFA by purporting to limit the amount in controversy to under $5 million. Specifically, the Court stated that statements in a complaint seeking to limit damages to avoid removal were to be ignored because “a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified.” Thus, the Court held, CAFA required courts to determine whether the amount in controversy requirement had been met by going beyond the allegations in the complaint and “adding up the value of the claim of each person who falls within the definition of [the] proposed class.”

The Ninth Circuit Decision in Rodriguez Overruled Lowdermilk’s “Legal Certainty” Standard

As in Standard Fire, the named plaintiff in Rodriguez alleged the amount in controversy did not exceed $5 million. When the company removed the case to federal court, the district court applied Lowdermilk’s “legal certainty” standard and remanded the case to state court.On review, the Ninth Circuit, relying on Standard Fire, found the plaintiff’s attempt to “waive” damages on behalf of the putative class he purported to represent was nonbinding. The Ninth Circuit went further, however, and effectively overruled Lowdermilk’s stringent “legal certainty” standard, finding it no longer legally sound given Standard Fire’s pronouncement that pre-certification stipulations limiting the amount in controversy were not binding and could not reduce the value of the putative class members’ claims. Further, because CAFA requires courts to add up the value of the claim of each person in the class, the court found CAFA was irreconcilable with Lowdermilk’s directive that district courts limit their analysis of the amount in controversy to the “four corners of the complaint.” The court therefore concluded: (i) class action plaintiffs no longer could “forgo a potentially larger recovery to remain in state court” by pleading to avoid federal jurisdiction; and (ii) the applicable burden of proof for removal going forward in the Ninth Circuit will be the “preponderance of the evidence” standard.

The Impact of the Ninth Circuit’s Decision in Rodriguez

Rodriguez is welcome news for out-of-state employers defending against class actions in the Ninth Circuit. Class action plaintiffs no longer can seek to avoid federal court by manipulating their pleadings and reducing the amount of damages they are seeking purely as a way to keep the case in state court. More importantly, employers desiring to remove a class action filed against them will have to meet the far less stringent “preponderance of the evidence” standard to establish federal jurisdiction under CAFA. Under this more lenient standard, defendants are required to establish the amount in controversy is “more likely than not” in excess of $5 million—a standard that no longer requires the removing defendant to “research, state, and prove the plaintiff’s claims for damages.”

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.