The Class Action Fairness Act of 2005 (“CAFA”) grants federal courts jurisdiction to preside over certain class action cases where, based on the claims alleged, the amount in controversy is more than $5 million, among other factors. While CAFA provides a useful tool for defendants to remove class actions to federal court, CAFA creates an inherent dilemma for defendants mulling removal, as doing so is tantamount to an admission that, based on the allegations in the complaint, a case might actually be worth over $5 million. Also concerning is that some district courts have continued to rely on early interpretations of CAFA by requiring defendants to offer evidentiary support for their calculations to satisfy the amount in controversy requirement, arguably requiring defendants to prove the merits of a plaintiff’s case.

These concerns were, or at least should have been, put to rest in 2014 when the Supreme Court ruled in In Dart Cherokee Basin Operating Co., LLC v. Owens, 574 U.S. 81 (2014), that removals under CAFA were to be reviewed under ordinary pleading standards and did not require supporting evidence. We blogged that case here. The Owens case overruled prior Ninth Circuit contrary authority, but, as shown below, some district courts remain hostile to CAFA removals.

Now, the Ninth Circuit moved away from its early interpretations of CAFA as disfavoring federal jurisdiction, recognizing that “some remnants of our former antiremoval presumption seem to persist.” In Arias v. Residence Inn by Marriott, No. 19-55803, 2019 WL 4148784 (9th Cir. Sept. 3, 2019), the Ninth Circuit vacated a district court’s order sua sponte remanding a wage and hour putative class action and reaffirmed that defendants may rely on reasonable assumptions in estimating the amount in controversy for removal purposes.

The Background

Blanca Arias filed a putative class action against the employer in California superior court, alleging garden-variety California state wage and hour claims for claimed wages and missed meal breaks and alleged noncompliant itemized wage statements.

In removing the case under CAFA, the employer argued that the district court had original jurisdiction over the matter because the class action satisfied CAFA’s requirements of minimum diversity (any member of the class is a citizen of a state different from any defendant), class size (at least 100) and amount in controversy (exceeding $5,000,000). See 28 U.S.C. § 1332(d)(2), (d)(5)(B). To satisfy the amount-in-controversy requirement, it cited workforce data, including the number of hourly workers it employed that fit the class definition and their pay rate, as well as its estimates for how often the alleged violations may have occurred. The employer estimated that the amount in controversy exceeded $5 million, exclusive of potential attorney’s fees.

But the district court, on its own initiative, scoured the removal and found the defendant’s calculations of the amount in controversy to be “unpersuasive,” concluding they rested on “speculation and conjecture” and not “evidentiary support.” The district court also concluded that prospect attorneys’ fees are “too speculative” to be included in the amount of controversy. After ignoring the Supreme Court’s decision in Owens, it sua sponte remanded the case to state court.

The Ninth Circuit’s Analysis

Judge Consuelo M. Callahan, writing for the Ninth Circuit, vacated the district court’s sua sponte remand to state court, and affirmed three principles that apply in CAFA removal cases.

First, a defendant seeking to remove a case under CAFA need only include in the notice of removal a “plausible allegation that the amount in controversy exceeds the jurisdictional threshold.” When, however, a defendant’s assertion of the amount of controversy is challenged (by the plaintiff or the court), both sides must submit proof and the court decides, by a preponderance of the evidence, whether the threshold has been satisfied. By remanding the case to state court sua sponte, the district court deprived the employer of “a fair opportunity to submit proof.”

Second, when a defendant’s allegations of removal jurisdiction are challenged by an opposing party or the court, the defendant’s showing on the amount in controversy may rely on “reasonable assumptions” to show that the amount at issue clears the $5 million threshold to confer federal jurisdiction. The notice of removal estimated the amount in controversy by making assumptions about the frequency with which the alleged pay violations occurred and tied its assumed violation rates to the complaint. “The district court seems to have imposed a requirement that the defendant prove it actually violated the law at the assumed rate. But assumptions made [as] part of the defendant’s chain of reasoning need not be proven; they instead must only have ‘some reasonable ground underlying them.'”

Third, the Ninth Circuit held that when a statute or contract provides for the recovery of attorneys’ fees, prospective attorneys’ fees must be included in the assessment of the amount in controversy.

Accordingly, the panel remanded for further proceedings to allow the parties to present evidence and arguments on the amount in controversy.

Bottom Line

In a CAFA removal case, a removing defendant’s notice of removal need only include “plausible allegations” of the jurisdictional elements, and not evidence. And if a plaintiff or the court challenges that removal, the defendant may rely on “reasonable assumptions” to show that the CAFA amount-in-controversy threshold is met, which must also include any potential attorney fees.