A decision by the U.S. Court of Appeals for the Tenth Circuit has deepened a circuit split on the standard for removal of a case based on amount in controversy under the Class Action Fairness Act.
On June 28, a unanimous panel reversed an order remanding a case against Hartford Underwriters Insurance Co. back to Colorado state court. Judge William Martinez of the District of Colorado ordered the remand in March after concluding that the amount in controversy was less than the $5 million required for federal jurisdiction under CAFA.
Circuit Judge Carlos Lucero wrote the opinion in Frederick v. Hartford Underwriters Insurance Co., joined by Chief Judge Mary Beck Briscoe and Senior Judge Monroe McKay.
The Tenth Circuit ruled that the defendant must show by a preponderance of the evidence that the amount in controversy is more than the CAFA minimum to prevent remand to state court. The court joined the First, Second, Fourth, Sixth, Seventh Eighth and Eleventh circuits in adopting this standard.
The Third and Ninth circuits, in contrast, require the party seeking removal to prove with “legal certainty” that the minimum amount for a CAFA controversy is met.
Lucero wrote, “Faced squarely with this question, we hold that a defendant in these circumstances is entitled to present his own estimate of the amount at stake and must show by a preponderance of the evidence that the amount in controversy exceeds the amount in [the CAFA statute] — currently $5,000,000. We further emphasize that this preponderance standard applies to punitive damages as well, and that such damages cannot be assumed when calculating the amount in controversy.”
Larry Frederick filed his first class action complaint against Hartford in Colorado state court in March 2011 for its alleged failure to disclose key information about its insurance policies. Hartford claimed the amount in controversy was more than $5 million and removed the case to federal court the following month. Frederick sought a remand in May 2011, but then voluntarily dismissed the case that July, before the court ruled on his remand motion.
Frederick filed a second state court case in August 2011, which stated that the class was seeking a total award that doesn’t exceed $4,999,999.99. Hartford removed the case to federal court in September 2011 because compensatory damages would be at least $2,960,988 based on the size of the class, and punitive damages could be the same under Colorado law.
Martinez’s remand order said he took Frederick’s statement at “face value.” Martinez said he also considered the plaintiff’s statement that the class would voluntarily limit any award so that the total wouldn’t exceed $5 million, when combined with compensatory damages. “As such, Defendant’s contention that total damages might exceed the federal jurisdictional floor is entirely speculative,” Martinez wrote.
Lucero wrote that “a defendant seeking to remove under CAFA must show that the amount in controversy exceeds $5,000,000 by a preponderance of the evidence.…By adopting the preponderance standard, we ensure that defendants seeking removal face the same burden regardless of whether they are invoking simple diversity jurisdiction or CAFA jurisdiction. To hold otherwise would confuse courts and litigants alike, and contradict the clear weight of authority.”
Lucero went on to state that “[r]egardless of the plaintiff’s pleadings, federal jurisdiction is proper if a defendant proves jurisdictional facts by a ‘preponderance of the evidence’ such that the amount in controversy may exceed $5,000,000. Once a defendant meets this burden, remand is appropriate only if the plaintiff can establish that it is legally impossible to recover more than $5,000,000.”
Lucero added that the district court’s decision was erroneous because it relied on Frederick’s request of less than the minimum for CAFA cases and it treated Frederick’s pleadings as dispositive: “A court may not forgo an analysis of a defendant’s claims regarding the amount in controversy merely because a plaintiff pleads that he is seeking less than the jurisdictional minimum.”
Frederick’s lawyers at Evans & McFarland in Golden, Colo. and Denver-based Hill & Robbins did not respond to requests for comment.
Hartford’s lawyers at Shoemaker Ghiselli & Schwartz in Boulder, Colo. also did not respond.
Hartford “will not be commenting on the decision or the case at this point,” stated spokesman Thomas Hambrick in an e-mail.
Sheri Qualters can be contacted at email@example.com.