The surprising evidentiary rule applicable to removal/remand motions

In many putative class actions, one of the first procedural moves plaintiffs often face is a defendant's attempt to remove the matter to federal court. When this occurs, plaintiffs must evaluate the evidence defendant submits to establish the necessary amount in controversy and, when appropriate, submit contrary evidence to demonstrate the inflated or incorrect nature of defendant's presentation. Interestingly, however, one type of evidence that plaintiffs may not present is evidence related to defendant's affirmative defenses. The desire to present this evidence often arises in the context of prior settlements of putative class actions that alleged claims identical to those present in the case at issue. The release in the prior settlements often bars putative class members from seeking recovery for the claims in subsequent cases. Such releases can significantly limit the class period and concomitant damages, a fact of which defendant is aware. While it seems reasonable to believe that, to rebut defendant's damage estimates, a plaintiff may submit evidence regarding the prior settlement, the release, and its impact on the potential damages at issue, the federal courts will not consider this evidence. See Arias v. Residence Inn by Marriott, 936 F.3d 920, 928 (9th Cir. 2019). Such a rule seems at odds with the evidentiary standards placed on those seeking and opposing removal.

A defendant seeking to remove a case to a federal court must file a notice of removal "containing a short and plain statement of the grounds for removal," which include "a plausible allegation that the amount in controversy exceeds the jurisdictional threshold." Dart Cherokee Basin Operating Co. v. Owens, 574 U.S. 81, 87, 89 (2014); 28 U.S.C. section 1446(a). Under the Class Action Fairness Act (CAFA), district courts have original jurisdiction over civil actions in which the amount in controversy exceeds $5 million, there is minimal diversity between the parties (any single member of the class of plaintiffs is a citizen of a state different from any defendant), and the class consists of at least 100 members. 28 U.S.C. section 1332(d). Under CAFA, "the burden of establishing removal jurisdiction remains, as before, on the proponent of federal jurisdiction." Abrego v. The Dow Chemical Co., 443 F.3d 676, 685 (9th Cir. 2006).

Attacks on the sufficiency of jurisdictional allegations may be either "facial" or "factual." Harris v. KM Indus., Inc., 980 F.3d 694, 699 (9th Cir. 2020). "A factual attack ... need only challenge the truth of the defendant's jurisdictional allegations by making a reasoned argument as to why any assumptions on which they are based are not supported by evidence." Id. The responding defendant must support its jurisdictional allegations against a factual attack with competent proof under the same evidentiary standard that governs in the summary judgment context. Id. at 704-05.

Hence, a defendant must provide "summary-judgment-type" evidence establishing that it is more likely than not that the amount in controversy exceeds the requisite amount. Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 404 (9th Cir. 1996); see also Harris, 980 F.3d at 700, 704-05; Salter v. Quality Carriers, Inc., 974 F.3d 959, 964 (2020); Ibarra, 775 F.3d at 1197. Under this system, "a defendant cannot establish removal jurisdiction [under CAFA] by mere speculation and conjecture, with unreasonable assumptions" Id. While "no antiremoval presumption attends cases invoking CAFA," Dart, 574 U.S. at 89, CAFA's requirements "are to be tested by consideration of real evidence and the reality of what is at stake in the litigation ..." Harris, 980 F.3d at 701 (quoting Ibarra, 775 F.3d at 1198).

Given the courts' demand for "real evidence," the rejection of "unreasonable assumptions," and a dictate to consider the "reality of what is at stake in the litigation," one would think that district courts would welcome the presentation of evidence establishing that the amount in controversy is well below the required threshold. It seems that district courts would be interested to know that a prior putative class action alleging identical claims to the case being removed recently settled and the release in the settlement bars subsequent claims by the same putative class, thereby limiting any potential damages to, for example, a one-year period, as opposed to a four-year period. This reality would necessarily reduce the amount in controversy. However, this is not the case. The district courts will not countenance a factual attack that pertains to a defendant's affirmative defenses.

In Pugh v. Metro. Life Ins. Co., 2019 WL 484279, at *5 (N.D. Cal. Feb. 7, 2019), the court iterated that "even if the resulting releases actually bar some portion of plaintiffs' claims enumerated in the [complaint] such that plaintiffs cannot hope to recover $5 million or more, the existence of those releases 'does not preclude federal jurisdiction.'" The court in Sanchez v. DSV Sols., LLC, 2023 WL 5277889, *3 (C.D. Cal. Aug. 15, 2023), recently reached the same conclusion. In Sanchez, the plaintiff asserted that the defendant's settlement of a different wage and hour class action limited the plaintiff's class period such that the defendant's amount in controversy calculations, tied to the class period alleged in plaintiff's complaint, must be reduced. Citing Arias, 936 F.3d at 928, the Sanchez court rejected this argument, held that the defendant could rely on the class period alleged in the plaintiff's complaint, and would not consider any evidence regarding the impact of the prior settlement. See also Campos v. Sodexo, Inc., 2011 WL 13217929, at * 12 (C.D. Cal. Apr. 18, 2011) ("courts do not look to valid defenses when calculating the amount in controversy").

While application of this bright line rule may have some facial appeal, the result is that defendants are removing cases to federal court that both parties know do not present an amount in controversy sufficient to invoke federal jurisdiction. Not only does the application of this rule further tax the already overburdened district courts, it allows defendants to establish jurisdiction under CAFA based on unreasonable assumptions, and completely ignores the "reality of what is at stake in the litigation."