Is a defendant seeking removal from state to federal court under the Class Action Fairness Act required to present evidence supporting jurisdiction in the notice of removal?
In 2012, Brandon W. Owens filed a class action petition in Kansas state court, alleging that Dart Cherokee Basin Operating Company and Cherokee Basin Pipeline owed royalty payments derived from certain gas wells. Dart and Cherokee sought to remove the case to federal court, asserting jurisdiction under 28 U.S.C. § 1332(d), commonly known as the Class Action Fairness Act of 2005 (“CAFA”). In their notice of removal, Dart and Cherokee did not include supporting evidence of its allegation that the jurisdictional amount was met. Dart and Cherokee contend that mere allegations of the amount in controversy is sufficient to establish jurisdiction if there is no dispute over that amount. In opposition, Owens argues that the notice of removal has to contain factual evidence supporting federal jurisdiction. The Supreme Court will decide how much evidence of the jurisdictional requirements—if any—a CAFA defendant seeking removal is required to include in his or her notice of removal. The resolution of this case will have a significant impact on a defendant’s burden in seeking removal and, in turn, large effects on the availability of a federal forum for many state court defendants.
Questions as Framed for the Court by the Parties
A defendant seeking removal of a case to federal court must file a notice of removal containing "a short and plain statement of the grounds for removal" and attach only the state court filings served on such defendant. 28 U.S.C. § 1446(a). Consistent with that statutory pleading requirement, the First, Fourth, Fifth, Seventh, Eighth, Ninth, and Eleventh Circuits require only that a notice of removal contain allegations of the jurisdictional facts supporting removal; those courts do not require the defendant to attach evidence supporting federal jurisdiction to the notice of removal. District courts in those Circuits may consider evidence supporting removal even if it comes later in response to a motion to remand.
Here, in a clean break from Section 1446(a)'s language and its sister Circuits' decisions, the Tenth Circuit let stand an order remanding a class action to state court based upon the district court's refusal to consider evidence establishing federal jurisdiction under the Class Action Fairness Act (CAFA) because that evidence was not attached to the notice of removal. (That evidence, which was not disputed, came later in response to the motion to remand.)
The question presented is:
Whether a defendant seeking removal to federal court is required to include evidence supporting federal jurisdiction in the notice of removal, or is alleging the required "short and plain statement of the grounds for removal" enough?
In 2012, Respondent Brandon W. Owens filed a class action petition in Kansas state court against Petitioners Dart Cherokee Basin Operating Company, LLC and Cherokee Basin Pipeline, LLC (“Dart and Cherokee”). See Owens v. Dart Cherokee Basin Operating Co. LLC, No. 12-4157-JAR-JPO, at 1 (D. Kan. May 21, 2013). Owens’s petition alleged that Dart and Cherokee owed him, and the other class members, royalty payments for certain gas wells. Id. The petition however, did not state a specific amount of monetary damages. See id. at 2.
Dart and Cherokee attempted to remove the case from state court to the federal district court (namely the United States District Court for the District of Kansas), asserting that the federal court had jurisdiction under the Class Action Fairness Act of 2005 (“CAFA”). See Owens, at 2. CAFA jurisdiction requires, among other things, that the amount in controversy—exclusive of interests and costs—exceed $5 million. See id.; 28 U.S.C. § 1332(d)(2). Dart and Cherokee’s removal petition alleged that the amount in controversy was “in excess of $8.2 million.” Id. at 2. Within those papers, they explained that the damages were calculated by using the number of gas wells implicated in the dispute as well as the number of royalty owners that had an interest in those wells. See id. at 4. Dart and Cherokee did not, however, attach any documentation supporting those numbers. Id. at 5. It was not until Owens attempted to return the case to state court that they responded with supporting evidence—a formal statement from one of Dart’s corporate officers—explaining in detail how they calculated damages. See id. at 5–6.
Although Owens did not dispute the $8.2 million number, he argued that the General Counsel’s statements were an improper basis for federal jurisdiction because they were not included with the initial papers Dart and Cherokee filed to move to federal court (known as a “notice of removal”). See Owens, at 6. The federal district court agreed, holding that Dart and Cherokee’s removal attempt was ineffective because Dart and Cherokee were obligated to allege all the necessary jurisdictional facts in the notice of removal itself. Id. at 11–12. Accordingly, the federal district court, citing lack of subject matter jurisdiction, sent the case back to state court. See id.
Dart and Cherokee appealed to the United States Court of Appeals for the Tenth Circuit, but the Tenth Circuit denied the petition for review. See Brief for Petitioners, Dart Cherokee Basin Operating Co., LLC, and Cherokee Basin Pipeline, LLC, at 1. Dart and Cherokee’s subsequent Petition for Rehearing En Banc was also denied. See id. Dart then filed a petition for a writ of certiorari with the Supreme Court of the United States, which the Court granted on April 7, 2014. See id.
Congress enacted the CAFA in part, to provide a federal forum for interstate class action defendants litigating matters of national importance. See Class Action Fairness Act of 2005, Pub. L. No. 109-2, § 2, 118 Stat. 4, 5 (Purposes). To achieve this aim, CAFA gives federal district courts original jurisdiction to hear class action disputes where there is, among other things, an amount in controversy exceeding $5 million. See 28 U.S.C. §1332(d).
In this case, the Supreme Court will decide whether 28 U.S.C. § 1446—the federal statute governing the removal of state actions to federal court—only requires defendants in a CAFA class action to provide allegations that the amount in controversy exceeds $5 million, or if the defendant must also provide evidence of this amount. See Brief for Petitioners at 9–12; Brief for Respondent at 8–9, 47–48. While Dart and Cherokee contend that allegations are sufficient, Owens argues that evidence is needed. See Brief for Petitioners at 9–12; Brief for Respondent at 8–9, 47–48.
The parties also disagree over whether the Tenth Circuits approach comports with § 1446(a) and CAFA. See Brief for Petitioners at 20–22; Brief for Respondent at 8, 10, 33. Additionally, an amicus raises the question of whether the Supreme Court has proper jurisdiction to address these issues. See Brief of Amicus Curiae Public Citizen, Inc., in Support of Respondent at i.
DOES § 1446 OR CAFA REQUIRE SUPPORTING FACTUAL EVIDENCE FOR REMOVAL OF A CAFA CLASS ACTION?
Dart and Cherokee argue that § 1446(a) allows removal of a CAFA action and requires only a “short and plain statement of the grounds for removal,” not actual evidence that subject matter jurisdiction is established. See Brief for Petitioner at 9 (quoting 28 U.S.C. §1446(a)). Dart and Cherokee believe that § 1446(a) was written to run parallel to FRCP Rule 8 in order to streamline motions and make them simpler. See id. at 10–11. Dart and Cherokee then point to § 1446(c)(2)(A), which uses the word “assert” rather than “prove” with regard to presenting the amount in controversy in the removal notice to argue that evidence of the amount is not required. See id. at 13. If there is a question about the amount, Dart and Cherokee say, § 1446(c)(2)(B) opens the door for the plaintiff to challenge the removing defendant’s allegations, at which point evidence can be collected to prove subject matter jurisdiction by a preponderance of the evidence. See id. Additionally, Dart and Cherokee submit that Supreme Court cases support this reading of § 1446, including Hertz Corp. v. Friend, a CAFA case in which the Court explained that when a defendant’s allegations of jurisdiction in the notice of removal are challenged, the parties must then support their positions with proof. See id. at 15–17. Moreover, Dart and Cherokee note that their notice of removal was indeed short and plain, comporting with § 1446(a)’s standard. See id. at 17. Finally, Dart and Cherokee argue that, through a declaration from a corporate officer submitted in response to Owens’ motion to remand, it did eventually provide adequate evidence to establish the amount in controversy. See id. at 4, 17.
Owens responds to Dart and Cherokee’s assertions by noting that § 1446(a) addresses diversity of citizenship, and is therefore inapplicable to the issue of jurisdictional amount. See Brief for Respondent at 34. Instead, Owens contends, § 1446(c) is the relevant provision. See id. at 16–17. Owens asserts that § 1446(c) requires that the amount in controversy be alleged in the plaintiff’s initial complaint, or, if the complaint does not provide this information or is not controlling, the defendant must allege the amount and prove it by a preponderance of evidence. See id. at 16–17. According to Owens, had Congress meant for a Rule 8 standard to apply, requiring a “short and plain statement,” they would not have included the language in § 1446(c)(2)(B) requiring proof to a preponderance of evidence. See id. at 34–36. But even if the Rule 8 standard applies, Owens argues, Dart and Cherokee’s “naked” and “conclusory” statements of the amount in their notice of removal would fail. See id. at 35. Owens also disagrees with Dart and Cherokee’s interpretation requiring a removing defendant to present evidence only when the jurisdictional amount is challenged, noting that the language of “challenge” appears nowhere in the statute. See id. at 23. Finally, Owens argues that even if § 1446(c)(2)(B) does not apply to class actions, CAFA’s § 1332(d)(2) still requires that the amount in controversy meets the $5 million threshold; mere allegations of $5 million are not sufficient under CAFA itself, even before a party invokes §1446 to remove. See id. at 30–33. Owens suggests that the failure to meet these statutory requirements in the notice of removal cannot be cured by after the fact declarations. See id. at 9, 29–30.
DOES THE TENTH CIRCUIT’S RULE COMPORT WITH § 1446 AND CAFA?
Dart and Cherokee claim that the Tenth Circuit’s rule requiring a defendant removing a class action to federal court to provide factual evidence of the jurisdictional amount in the notice of removal undermines Congress’ intentions. See Brief for Petitioners at 20–22. Dart and Cherokee argue that if Congress intended to have the Tenth Circuit’s rule, it could have said so in § 1446. See id. at 10. Dart and Cherokee believe that CAFA’s overall intent is to make it easier for class actions to get into federal court, and that keeping class actions out of federal court on what Dart and Cherokee see as a technicality does not serve Congress’s intent in CAFA. See id. at 21–22. Dart and Cherokee conclude that the Tenth Circuit’s rule makes removal unduly difficult for a defendant to obtain the unbiased federal forum that Congress intended in both § 1446 and CAFA for actions touching on topics of national concern and involving parties from multiple jurisdictions. See id.
Owens argues that this case, involving a state law question addressing a class contained entirely within the same state, is not the type of interstate class action that Congress sought to protect with CAFA. See Brief for Respondent at 33. Rather, Owens asserts that the Tenth Circuit’s rule developed to be consistent with statutory removal procedure as found in §1446, ensuring that only cases truly requiring a federal forum are removed. See id. at 8, 10. Owens further argues that the Tenth Circuit’s rule accords with Congress' view that state discovery was the proper means of uncovering evidence. See id. at 20–21. Additionally, in response to Dart and Cherokee’s fears that the Tenth Circuit’s rule is overly burdensome, Owens notes the fact that parties in the Tenth Circuit have followed the rule for almost twenty years without incident. See id. at 9.
DOES THE SUPREME COURT HAVE JURISDICTION TO CONSIDER THESE ISSUES?
Amicus Public Citizen, in support of Owens, also raises a jurisdictional argument that the Court cannot consider the merits of the case. Brief of Public Citizen at 25–26. Public Citizen submits that generally, remand orders from a district court are not appealable under § 1447. See id. at 12. For class actions, § 1453(c)(1) provides an exception to this rule—a party can appeal a district court motion to grant or deny remand through an application to the Court of Appeal within ten days, which the Court of Appeals can then permit or deny at its discretion. See id. at 11–12. Public Citizen argues that, based on the Supreme Court’s power of certiorari described in §1254 and on the Court’s own decisions in the Hohn line of cases, the Court is limited to deciding only the issue that came before the Court of Appeals. See id. at 9–14. According to Public Citizen, in this case, the Court can only decide the issue of whether the Tenth Circuit should permit an appeal came before the Court of Appeals, and thus the merits of the dispute are outside of the Court’s jurisdiction. See id. at 12. Therefore, Public Citizen avers that the Court should either affirm the Tenth Circuit’s denial of permission to appeal or dismiss the writ of certiorari as improvidently granted; but should not decide the merits of the dispute. See id. at 25–26.
Dart and Cherokee respond to this jurisdictional question by positing that the Court’s writ of certiorari power under § 1254 applies to any case before a court of appeals. See Reply Brief for Petitioners at 16. Dart and Cherokee conclude that because the case on the merits came before the Tenth Circuit in the context of a petition for permission to appeal, the whole case is properly a case before the Court of Appeals and so falls under the Court’s certiorari power. See id. at 16. Additionally, Dart and Cherokee point to the Court’s reasoning in Forsyth v. City of Hammond to stand for the proposition that Congress intended for the Court’s certiorari power to be broadly applicable, requiring only that there be a case of some kind pending in the Circuit Court of Appeals. See id. at 17. Dart and Cherokee also argue that the Court in Nixon v. Fitzgerald considered the merits of the dispute even though the merits themselves never properly came before the D.C. Circuit because the question before the Court was one of pure law. See id. at 18–19. Dart and Cherokee contend that the question before the Court in this case is also one of pure law, appropriate for immediate resolution. See id. at 20.
This case presents the Supreme Court with an opportunity to clarify the procedural burdens on a party seeking removal from state to federal court. See Brief for Petitioners at i; Brief for Respondent, Brandon W. Owens, at i. Dart and Cherokee argue that the removal petition need only include allegations of the grounds for removal, not evidence of those grounds. See Brief for Petitioners at 10. Owens counters that the removal statute should be narrowly construed, and the Tenth Circuit’s rule—that facts supporting jurisdiction must be included in the notice of removal—best comports with that construction. See Brief for Respondent at 8, 10. The Supreme Court’s resolution of this case will likely have a substantial effect on the availability of removal jurisdiction for certain defendants. See Brief of Amici Curiae The Chamber of Commerce of the United States of America et al. (“Chamber of Commerce”), in support of Petitioners at 5.
EFFECTS ON DEFENDANTS’ BURDEN IN REMOVAL CASES
In support of Dart and Cherokee, the U.S. Chamber of Commerce (“Chamber of Commerce”) and the Voice of the Defense Bar (“DRI”) argue that if the Supreme Court affirms the rulings of the district court and the Tenth Circuit, it will impose an unwarranted burden on defendants seeking removal that will add excessive complexity to jurisdictional questions. Brief of Chamber of Commerce at 6; see also Brief of Amicus Curiae DRI—The Voice of the Defense Bar (“DRI”), in support of Petitioners at 15, 17. The Chamber of Commerce notes that the district court’s ruling would mean defendants have only thirty days to gather evidence supporting federal jurisdiction. Brief of Chamber of Commerce, at 11. Thus, the Chamber of Commerce worries that if a defendant is unable to gather this evidence in that time, he or she would be forced to choose between (1) trying to move to federal court without having a complete knowledge of the facts or (2) risk foreclosing the chance to move to federal court while the parties gather evidence. See id. Additionally, Dart and Cherokee are concerned that requiring a defendant to provide evidence of federal subject matter jurisdiction in the notice of removal will overly burden defendants, especially given the early stage of litigation that removal typically occurs in. See Brief for Petitioner at 18–19. Moreover, Dart and Cherokee worry that the Tenth Circuit’s rule will result in a waste of time and money as the defendant verifies jurisdictional allegations that the plaintiff may never challenge. See id. at 20.
By contrast, Owens asserts that the lower courts’ rule is the best avenue for conserving litigants’ resources. See Brief for Respondent, at 38–40. For instance, Owens claims that requiring facts to be presented in the notice of removal will avoid wasting judicial and litigant resources that should be spent on the merits by determining jurisdiction at the outset. See Brief for Respondent, at 38–39. Owens emphasizes that if a defendant could merely make a conclusory statement that jurisdictional requirements have been met, there will be an incentive for the plaintiffs to challenge jurisdiction—requiring defendants to present evidence and expend resources. See id. at 39. Owens notes this would give opportunistic plaintiffs a look into the defendants’ evidence and perspective of the case, permitting plaintiffs to see the way in which the defendants calculate damages, which may differ from their own. See id. On the other hand, Owens believes that these incentives will not exist if defendants are required to present evidence upfront in the notice of removal. See id. at 39–40. Owens also believes that such a rule requiring evidence upfront will be much simpler and less complicated for courts. See id. at 40. Additionally, Owens is concerned that a contrary rule, requiring only allegations, will foist upon the plaintiffs the burden of showing the jurisdictional amount, rather than the defendants who may actually have access to the evidence itself. See id. at 45–46.
IMPACT BEYOND CAFA CLAIMS
Finally, while this case involves a CAFA claim, some commentators note that the Supreme Court’s decision might have important impacts beyond the CAFA context. See Ella Aiken, Esq., & Malcolm Seymour, Esq., Supreme Court to Decide Important Issue in Class-Action Litigation, Westlaw Journals Commentary, June 10, 2014. These commentators state that, on the one hand, there may be good policy reasons for the Court to limit its holding to CAFA removals—such as class action defendants possessing sometimes exclusive knowledge of the expected damages for a case. See id. On the other hand, they argue there would be little basis in CAFA or the removal statutes to make such a distinction. See id. In sum, it is possible the Court’s decision will have a much broader impact on removal jurisdiction than just CAFA claims. See id.
In this case, the United States Supreme Court has an opportunity, if it has jurisdiction, to decide whether supporting evidence must be provided in a defendant’s notice of removal when seeking to remove a class action dispute from state to federal court. The Court’s decision may have a substantial impact on the availability of a federal forum for certain defendants, and it will affect how lower courts nationwide interpret CAFA and how class action defendants prepare for litigation. The Court’s decision will also help to settle an area of law contained by statute but defined by judges, and provide consistency for removal proceedings across the country.