Supreme Court: Alleging Jurisdiction -- What Works for a Complaint Works for Class Action Removal

The United States Supreme Court recently settled a controversy over alleging the jurisdictional amount to remove a state-court class action to federal court. In Dart Cherokee Basin Operating Co. v. Owens, 135 S. Ct. 547 (2014), the court held that class-action defendants need not offer evidence of the amount in controversy, but rather, need only provide a “plausible allegation” of that amount. The ruling eases the burden on defendants seeking to remove a class action.

Outside of a class action, a case may be removed to federal court only if there is diversity of citizenship among all parties and the amount in controversy is over $75,000. Yet in 2005, Congress enacted the Class Action Fairness Act, which permits removal if (1) the class has 100 or more members and at least one is diverse to a defendant, and (2) the amount in controversy is more than $5 million. When the plaintiff’s complaint does not state the amount in controversy, the defendant’s notice of removal must do so.

In Dart Cherokee, the defendant alleged that the amount in controversy was $8.2 million, but the plaintiff argued that under Tenth Circuit law, the defendant had to provide actual evidence of the amount. The district court agreed and remanded the case to the state court and the Tenth Circuit declined review. The Supreme Court overturned the lower courts, holding that a notice of removal need not present evidence, but only a “plausible allegation” of the jurisdictional amount. The court reached this conclusion because the language of the removal statute tracks the same language used in the Federal Rules of Civil Procedure for general pleadings—the familiar “short and plain statement” standard: “Congress, by borrowing the ‘short and plain statement’ standard from Rule 8(a), intended to simplify the pleading requirements for removal and to clarify that courts should apply the same liberal rules to removal allegations that are applied to other matters of pleading.” And as such, there was no presumption against removal.

The court also pointed out that only when a plaintiff contests the defendant’s threshold allegation, actual evidence must be presented. For example, the Ninth Circuit recently cited Dart Cherokee and ruled that a defendant had established the jurisdictional amount by submitting evidence based on reasonable assumption as to what was in controversy. LaCross v. Knight Transp., Inc., __F.3d__ 2015 WL 106179 (9th Cir. 2015). As the court has now made plain in Dart Cherokee, however, the threshold inquiry is only whether the removal petition has made a plausible allegation in a “short and plain statement.”

As an interesting post-script, though Dart Cherokee is a 5-to-4 decision, the court was actually unanimous in its underlying ruling that a removal petition need only meet the general pleading standard for a complaint. The division in the opinion arose from the question of whether the court had jurisdiction to review the Tenth Circuit’s declining to review the district court remand in the first place. The majority held that by denying review, the Tenth Circuit effectively ruled on the merits of the question before the Supreme Court. The dissent, authored by Justice Scalia, maintained that there was no way to discern if the Tenth Circuit had in fact ruled on the question before the court by simply denying review. As for why the court granted review to begin with, Justice Scalia quoted Justice Jackson in 1948: “I see no reason why I should be consciously wrong today because I was unconsciously wrong yesterday.”

You may view the U.S. Supreme Court's ruling here.

If you have any questions regarding jurisdiction allegations, please contact E. King Poor at (312) 715-5143 / king.poor@quarles.com, Thomas McDonell at (312) 715-2713 / thomas.mcdonell@quarles.com, or your local Quarles & Brady attorney.