Class Actions - Thomas M. Byrne

• Publication year: 2008

Class Actionsby Thomas M. Byrne^*

For class action practitioners, 2007 was an eventful year in the Eleventh Circuit, marked by important doctrinal shifts in areas thought to be settled and a reprise of an old favorite. The year also included three decisions in collective action employment cases, reflecting the surge in employment class actions in recent years.

I. Lowery v. Alabama Power Co.

In probably its most controversial class action decision of 2007, Lowery v. Alabama Power Co.,¹ the Eleventh Circuit affirmed a district court's remand of a toxic tort mass action originally filed in Alabama state court, concluding that the district court lacked jurisdiction to hear the case under the Class Action Fairness Act of 2005 ("CAFA").² In Lowery the court announced new ground rules for determining the amount in controversy in all diversity cases, rules tending to make removal more difficult whenever the plaintiff opposes it.³ As the court summarized its holding:

We think it highly questionable whether a defendant could ever file a notice of removal on diversity grounds in a case such as the one before us—where the defendant, the party with the burden of proof, has only bare pleadings containing unspecified damages on which to base its

notice—without seriously testing the limits of compliance with Rule 11.⁴

Lowery was originally brought in Alabama state court, before CAFA's effective date, by 9 plaintiffs against 12 corporations and 120 fictitious entities. The plaintiffs claimed the defendants had discharged particula-tes and gases into the atmosphere and ground water, and the plaintiffs sought damages for personal injuries and loss of the use and enjoyment of their property, as well as punitive damages. The original complaint also included a per-plaintiff demand for compensatory and punitive damages of $1,250,000 each.⁵

The plaintiffs amended their complaint three times in state court, each time asserting the same substantive claims and ultimately demanding unspecified compensatory and punitive damages in excess of the state court's jurisdictional limit. They also added roughly 400 plaintiffs as well as additional defendants, including Alabama Power Company. Alabama Power, added as a defendant after CAFA's effective date, removed the case to the United States District Court for the Northern District of Alabama as a "mass action" under 28 U.S.C. Sec. l332(d)(ll).⁶

The plaintiffs filed a motion to remand, asserting (among other things) that Alabama Power had not met its burden of proof to establish federal jurisdiction under CAFA. In response, Alabama Power filed a supplement to its notice of removal, pointing out that there were more than 400 plaintiffs whose claims would need to yield only $12,500 each to reach $5,000,000 and that plaintiffs in recent Alabama mass toxic tort cases had received either jury verdicts or settlements in excess of $5,000,000. Alabama Power also filed a motion to serve limited jurisdictional discovery in the event there was a question about the presence of the requisite amount in controversy. The district court, however, granted the plaintiffs' motion to remand.⁷

Alabama Power appealed the remand order pursuant to 28 U.S.C. Sec. 1453(c)(1).⁸ Before turning to the question of whether the case was properly remanded for lack of the requisite amount in controversy, the Eleventh Circuit addressed two preliminary questions.⁹ First, the court held that Alabama Power's notice of removal effected the removal of the claims against other defendants, including defendants who had been made parties to the action before CAFA's effective date: "[R]emoval under the statute encompasses all the claims in the 'action' as a whole, not simply the claims against a removing defendant."¹⁰ Second, the court clarified that CAFA's definition of "mass action" requires, with respect to the amount in controversy, only that $5,000,000 be at stake in the action; it does not impose an additional requirement that each plaintiff in the mass action have a $75,000 claim, as the district court had found.¹¹

The court began its evaluation of the amount in controversy by reiterating the rule that the removing defendant has the burden of proof in establishing the amount in controversy and that "in the removal context where damages are unspecified, the removing party bears the burden of establishing the jurisdictional amount by a preponderance of the evidence."¹² While acknowledging "the peculiar implications of applying the preponderance of the evidence standard . . . [to] naked pleadings," the court held that it was bound to adhere to its prior decisions adopting the standard.¹³ Quickly following that nod to precedent, however, was the court's admonition that "any attempt to engage in a preponderance of the evidence assessment at this juncture would necessarily amount to unabashed guesswork, and such speculation is frowned upon."¹⁴

Against that backdrop, the court held that the "scope of evidence" to be considered by a court assessing the propriety of removal is limited to the "removing documents," which necessarily include at least one document from each party: the defendant's notice of removal and whatever document the defendant received from the plaintiff that led the defendant to conclude that the case was removable.¹⁵ In a footnote, the court noted an exception to this limitation for situations in which damages arise "from a source such as a contract provision," in which case the defendant might also attach the contract to its notice of removal "whether or not the defendant received the contract from the plain-tiff."¹⁶ A defendant's hope of establishing the jurisdictional amount in a breach of contract action by reference to the contract, however, may be limited to cases in which the relevant potential damages figure is liquidated or otherwise discernible, without dispute, from the contract itself.¹⁷

Next, the court held that despite its prior reference to the preponderance of the evidence standard, the removing documents themselves must "unambiguously establish" the existence of federal jurisdiction.¹⁸ The court also foreclosed any post-removal jurisdictional discovery:

Post-removal discovery disrupts the careful assignment of burdens and the delicate balance struck by the underlying rules. A district court should not insert itself into the fray by granting leave for the defendant to conduct discovery or by engaging in its own discovery. Doing so impermissibly lightens the defendant's burden of establishing jurisdiction. A court should not participate in a one-sided subversion of the rules. The proper course is remand.¹⁹

Applying this framework, the Eleventh Circuit affirmed the remand order.²⁰ The original complaint—with its $1,250,000 per-plaintiff demand—did not unambiguously establish jurisdiction because it had been superseded by the later amended complaints.²¹ And the operative complaint, which substituted a nonspecific demand for the $1,250,000 figure, did not establish jurisdiction, according to the court, because the revision to the demand necessarily indicated a revision of the plaintiffs' good-faith estimation of the amount at issue.²² Evidence of results in other cases also did not support removal because the evidence was "not received from the plaintiffs" and told the court "nothing about the value of the claims in this lawsuit."²³ Moreover, Alabama Power's common sense argument that each of the 400 plaintiffs would need only $12,500 at stake for the mass action to meet the $5,000,000 threshold would require "impermissible speculation—evaluating without the benefit of any evidence the value of individual claims."²⁴

The court in Lowery held that for a diversity case to be successfully removed to federal court, the removing documents, including some document (likely the complaint) "received from the plaintiff," must unambiguously establish jurisdiction.²⁵ Can this standard be met, at least in tort cases, absent a concession from the plaintiff that the requisite amount is at stake? The court's remand in Lowery illustrates that in the case of dueling allegations concerning the amount in controversy, the defendant—as the party with the burden of proof—faces long odds.

Three of the holdings in Lowery warrant closer examination. First, the court reasoned that the standard for ascertaining that a case has become removable—the triggering event for second-chance, thirty-day removal window under the second paragraph of 28 U.S.C. Sec. 1446(b)²⁶ — is the only permissible standard for assessing removability.²⁷ The court cited two cases discussing the second paragraph of Sec. 1446(b),²⁸ the paragraph that applies "[i]f the case stated by the initial pleading is not removable."²⁹ Both cases, Bosky v. Kroger Texas, LP,³⁰ and Huffman v. Saul Holdings, LP,³¹ concerned challenges to the timeliness of removal after the receipt of a post-complaint "other document."³² Both held that under the second paragraph of Sec. 1446(b), some "unequivocal" indication of removability must be present before removability becomes ascertainable,³³ and it is at that time that the defendant's thirty-day clock begins to run.³⁴ But the court in Lowery adopted the standard enunciated in Bosky and Huffman to circumscribe the universe of evidence to be considered in assessing federal jurisdiction.³⁵ Thus, under Lowery, the requirement in Sec. 1446(b) for the timeliness of removal, as construed in cases like Bosky and Huffman, supplies the unambiguous establishment requirement for the propriety of removal.³⁶ The distinction is real; the United States Court of Appeals for the Fifth Circuit in Bosky stated explicitly that its requirement of an unequivocal demonstration of removability was unique to the second paragraph of Sec. 1446(b).³⁷ The Fifth Circuit also clarified that its holding with respect to the thirty-day time limit for removability did not change the substantive standard for removability:

Nor do we believe the standard we adopt...