Ninth Circuit Clarifies Standards for Removal under Class Action Fairness Act

In two recent decisions, the Ninth Circuit Court of Appeals reversed district court remand orders and held that class actions were properly removed under the Class Action Fairness Act (CAFA).

In Roth v. CHA Hollywood Medical Center, which can be downloaded here, the plaintiffs filed a state law wage and hour class action in California state court in 2011.  They later filed an amended complaint in May of 2012, naming CHA Hollywood Medical Center as a defendant for the first time.  CHA and the other defendants removed the case to federal district court in September of 2012, based on a declaration from one class member establishing diverse citizenship (she lived in Nevada), along with CHA’s allegation that the amount in controversy exceeded $5 million.

The district court granted the plaintiffs’ motion to remand, rejecting the defendants’ argument that they could remove based on information they discovered from their own investigation.  The district court held that the defendants could only remove based on information received from the plaintiffs, citing the two 30-day periods specified in 28 U.S.C. section 1446(b)(1) and (b)(3).  Those provisions specify that a defendant must remove a case within 30 days of receiving from the plaintiff either an initial pleading, or some other document, showing that the case is removable.

The Ninth Circuit reversed, holding that the two 30-day removal periods cited by the district court are not the only bases for CAFA removal.  The Ninth Circuit noted that 28 U.S.C. section 1441(a) allows removal of any case that could have been originally filed in federal district court.  Reading sections 1441 and 1446 together, the court concluded that they “permit a defendant to remove outside the two thirty-day periods on the basis of its own information, provided that it has not run afoul of either of the two thirty-day deadlines.”  The court held that CHA had not violated either of the 30-day time limits, because the plaintiffs had not provided any information to CHA from which it could determine that the case was removable.  Further, CHA had “promptly” removed once it independently discovered grounds for removal (in this case a class member who satisfied CAFA diversity requirements).

In Watkins v. Vital Pharmaceuticals, which can be downloaded here, the plaintiffs filed a state law consumer class action in California state court, seeking damages “in the millions of dollars,” along with restitution, disgorgement and legal fees, based on allegations that Defendant Vital Pharmaceutical’s protein bars were erroneously marketed and labeled.  Vital removed the case on the basis of CAFA jurisdiction.  Vita’s removal papers included a declaration from outside counsel stating that in light of the allegations, there was “a legal certainty that the amount in controversy in this matter consists of an aggregate in excess of $5 million,” and another declaration from the company’s controller stating that sales of the protein bars at issue in the case “exceeded $5 million” during the relevant limitations period.  The district court remanded the case sua sponte (“on its own motion”), holding that the declarations were insufficient to establish, by a preponderance of the evidence, the $5 million amount in controversy necessary for CAFA jurisdiction.

The Ninth Circuit began its analysis by confirming that the right to appellate review of remand orders in CAFA cases applies to sua sponte remand orders, and not simply to orders issued in response to a party’s motion to remand.  Reaching the merits, the court agreed with Vital that the declaration from the controller stating that sales of the protein bar “exceeded $5 million” was “sufficient to establish that CAFA’s $5 million amount in controversy requirement” was met, noting that the declaration was “undisputed.”  This decision indicates that the amount in controversy can be established by a simple declaration containing competent evidence, at least where the evidence is undisputed by the non-removing party.

The removal standards clarified by these two cases are applicable beyond the specific facts of each case.  Roth was removed under CAFA, but the Ninth Circuit noted that its ruling addressing grounds for removal will apply to any diversity case.  And while Watkins was a consumer class action, its holding addressing the evidence needed to establish the $5 million minimum amount in controversy for removal under CAFA is applicable to employment class actions as well.

Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA

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