CAFA’s Amount in Controversy Requirement Causes Plaintiff to Fall on Her Own Sword


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The Class Action Fairness Act (CAFA) makes it much easier for a defendant to remove a case from state to federal court. But there is one catch: the amount in controversy has to be more than $5 million. So, for defendants contemplating removal, questions abound: Is it wise to argue that the amount in controversy is greater than $5 million? Isn't it better to remain in state court and cap your damages? And what if you successfully argue that the plaintiff seeks damages in excess of $5 million? Can you turn around and argue that the damages are less after removal? If you do, will you be remanded? And, what is the upside to the removal process, anyway?

Norris v. People's Credit Co., Inc., 2013 U.S. Dist. LEXIS 139327 (N.D. Ohio September 27, 2013) (Boyko, J.), illustrates why you may want to remove a class action to federal court even though you will have to establish that, from the plaintiff's perspective, the claim is worth more than $5 million. And, it illustrates some of the hidden benefits that may await the courageous class action defendant.

Veronica Norris brought claims against LCA Auto Wholesalers and its financier, People's Credit Co., which purchased retail installment sales agreements from LCA, among others in Ohio. According to the plaintiff, both defendants violated the Consumer Sales Practices Act (CSPA) and the Retail Installment Sales Act (RISA), as well as violating the Ohio usury statute and engaging in a civil conspiracy.

The plaintiff's claim was inventive. She argued that because LCA sold her a used car for more than the vehicle valuation prepared by the National Automobile Dealers Association (NADA), the difference in price amounted to a charge that was "incident to the extension of credit," and should have been included in and disclosed as part of the finance charge for the vehicle. Plus, when taking into account the $1,710.69 difference in price and the additional sales tax of $136.86, the actual APR exceeded the statutory 25 percent limit. The plaintiff demanded rescission of all sales in Ohio, actual damages, punitive damages and attorneys' fees.

The defendants removed the case to federal court pursuant to 28 U.S.C. 1332(d), the jurisdictional provision of CAFA. Under CAFA, the removing party bears the burden of demonstrating, by a preponderance of the evidence, that the jurisdictional requirements have been met. All they had to show was minimal diversity, at least 100 class members and more than $5 million in controversy. The first two were easy. The plaintiff was from Ohio and one defendant was from Oregon, and the complaint alleged that each vehicle purchased in Ohio and financed through People's violated RISA and constituted usury. The defendants established through an affidavit that there were 2,329 contracts during the alleged class period and, hence, more than 100 class members.

But what about the amount in controversy? "In considering a motion for remand, '[t]he question is not what damages the plaintiff will recover, but what amount is 'in controversy' between the parties." Norris, 2013 U.S. Dist. LEXIS at *5. "Defendant need not admit liability in order to remove. Rather, Defendant is entitled to rely on the allegations in the Complaint . . . " Id. In addition, defendants have many other ways to show the jurisdictional amount in controversy:

[B]y contentions, interrogatories or admissions in state court; by calculation from the complaint's allegations[;] by reference to the plaintiff's informal estimates or settlement demands[;] or by introducing evidence, in the form of affidavits from defendant's employees or experts, about how much it would cost to satisfy the plaintiff's demands.

Id. at **6-7 (quoting Frederick v. Hartford Underwriters Ins. Co., 683 F.3d 1242, 1247 (10th Cir. 2012) (emphasis court’s)).

So, People's relied on the allegations in the complaint, supplemented by an employee affidavit, to meet its burden:

  • 2,329 retail agreements from Ohio during the alleged class period, total value of $13,185,925;
  • 281 contracts purchased from LCA, total value of $1,711,332;
  • Plaintiff sought rescission of all transactions;
  • Plaintiff's allegations supported a finding of $4.3 million in actual damages (excess charges over the NADA value x 2,329 = $4.3 million)
  • Plus attorneys’ fees and punitive damages > $5 million.

The defendants’ arguments were compelling, and the court denied the motion to remand.

But the real bonus is what happened when the plaintiff tried to oppose the removal. Anxious to return to state court, the plaintiff renounced substantial portions of her own complaint. She argued:

  • She overstated the class period by six months (but none of the 2,329 transactions occurred during that six month period);
  • The 2,329 transactions failed to account for defaults, judgments or bankruptcies (which cast serious doubt on the administrative feasibility of her own class);
  • People’s inflated the damages by overstating the average value of each transaction by 22 percent (which still exceeded $5 million);
  • The NADA report cited in the complaint was the “wrong report” and her damages were an “’aberration’ and do not reflect the damages suffered by the rest of the class” (raising questions regarding common class injuries);
  • Neither rescission nor attorneys’ fees were available because the statutory claims that would support them were asserted individually and not on behalf of the class (raising questions about Ms. Norris’ adequacy as a class representative); and
  • The plaintiffs’ chances of “obtaining punitive damages in this class action under Ohio law [were] nil . . .”

Id. at **11-13, 16, n.2.

The court was quick to observe that while the “Plaintiff disputes that all the transactions would ultimately be applicable to her class claims, the Court’s focus must be on the claims contained in the Complaint at the time of removal.” Id. at *16. In other words, a class plaintiff can’t un-ring the CAFA bell by disavowing her own complaint, which leads to the court’s next point:

This presents a potential Rule 11 violation by representing in a Complaint entitlement to relief in aid of class certification only to later disclaim entitlement to the same relief in order to defeat federal jurisdiction.

Noting that her arguments amounted to “‘gamesmanship, at the least, and abuse of process at worst,’” the court made one final observation relevant to the plaintiff’s tactics:

In gauging the amount in controversy, courts view the claims from the vantage point of the time of removal. Claims present when a suit is removed but subsequently dismissed from the case thus enter into the amount-controversy calculation. Id. at *16 (quoting Everett v. Verizon Wireless, Inc., 460 F.3d 818, 822 (6th Cir. 2006))

In other words, disavowing her claims ran afoul of Rule 11, and was immaterial to the court’s amount in controversy analysis. Not a good day for the plaintiff.

Here are the takeaways:

  • The amount in controversy is established at the time of removal, notwithstanding a plaintiff’s subsequent efforts to defeat jurisdiction.
  • Defendants do not admit liability merely by removing.
  • Removal may smoke out weaknesses in a plaintiff’s case, especially in those cases where a plaintiff will say anything to defeat removal.

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