Justices Ease Class Actions Removal to Federal Court

Out-of-state defendants in class actions and other lawsuits do not have to provide evidence supporting their efforts to remove their cases from state court to federal court, the U.S. Supreme Court ruled on Monday in a key victory for the business community.

A divided high court in Dart Cherokee Basin Operating v. Owens examined what a defendant must include in a notice filed in federal court stating grounds for removal.

When removal is based on diversity of citizenship, an amount-in-controversy requirement must be met: more than $75,000 in most cases and more than $5 million in class actions. May the notice include simply a plausible statement of the amount, or must it include evidence supporting the amount in controversy?

“The answer, we hold, is supplied by the removal statute itself,” Justice Ruth Bader Ginsburg wrote for a 5-4 majority. “A statement ‘short and plain’ need not contain evidentiary submissions.”

The decision is “welcome news” for business defendants in class actions, said Archis Parasharami, co-chairman of Mayer Brown’s consumer litigation and class actions practice. It “brings courts within the Tenth Circuit—which had followed an opposite, outlier rule—into line with the vast majority of other courts around the country. Because removals to federal court usually have to take place within 30 days after a lawsuit is served, the Supreme Court’s decision avoids imposing a major burden on businesses who wish to remove cases to federal court by forcing them to gather evidence of removal on an abbreviated time frame.”

Brandon Owens filed a putative class action in Kansas state court against Dart Cherokee in which he alleged the company underpaid royalties to class members under certain oil and gas leases. The class action did not state a specific amount in controversy but sought a “fair and reasonable amount” as damages.

Dart Cherokee invoked the Class Action Fairness Act in its notice of removal and alleged that it had met all requirements for removal, including that the amount in controversy was estimated at $8.2 million. Owens moved to remand the action to state court because, he argued, the notice of removal was deficient—it failed to provide evidence that the amount in controversy exceeded $5 million.

The district court granted Owens’ remand motion based on its own reading of precedents by the U.S. Court of Appeals for the Tenth Circuit. The federal appellate court then denied review of Dart Cherokee’s appeal.

Ginsburg said the plain statement language in the removal statute tracks the general pleading requirement in Rule 8(a) of the Federal Rules of Civil Procedure.

“When a plaintiff invokes federal-court jurisdiction, the plaintiff’s amount-in-controversy allegation is accepted if made in good faith,” she wrote. “Similarly, when a defendant seeks federal-court adjudication, the defendant’s amount-in-controversy allegation should be accepted when not contested by the plaintiff or questioned by the court. Indeed, the Tenth Circuit, although not disturbing prior decisions demanding proof together with the removal notice, recognized that it was anomalous to treat commencing plaintiffs and removing defendants differently with regard to the amount in controversy.”

If a plaintiff contests the defendant's allegation of the amount in controversy, she added, both sides will submit proof and the court will decide, by a preponderance of the evidence, whether the requirement has been satisfied.

Ginsburg also noted that the district court in Dart Cherokee relied, in part, on a “presumption” against removal. Without deciding whether that presumption is proper in “mine-run” diversity cases, she said, there is no antiremoval presumption in cases invoking the Class Action Fairness Act, which was enacted to facilitate federal court consideration of certain class actions.

“Despite Congress’ clear intent in enacting [the law], some federal courts have continued to apply what they believe is a presumption against removal to class action cases as well,” said class action litigator Jessica Miller of Skadden, Arps, Slate, Meagher & Flom. “With this ruling, coming on the heels of Standard Fire Insurance v. Knowles [class action plaintiff may not stipulate to damages less than $5 million to defeat federal jurisdiction], the Supreme Court has demonstrated that it heard Congress loud and clear and that class action removals are not business as usual.”

Justice Antonin Scalia, joined by justices Anthony Kennedy, Elena Kagan and Clarence Thomas (in all but the final sentence of the Scalia dissent), dissented, saying the case should have been dismissed because the merits were not properly before the high court. The only question before the justices, he wrote, was whether the Tenth Circuit had abused its discretion in denying Dart Cherokee permission to appeal the district court's remand order.

Thomas also wrote a separate dissent, saying the court lacked jurisdiction to even consider the abuse-of-discretion question.


Reprinted with permission from the 15 December 2014 edition of The New York Law Journal © 2014 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.”