Court Opinion

ID: 803294
Source: CourtListenerOpinion
Date Created: 2012-06-28 16:27:45+00
Date Added: 2024-06-11T18:00:07.752162
License: Public Domain

FILED
                                                                 United States Court of Appeals
                                                                         Tenth Circuit
                                     PUBLISH
                                                                        June 28, 2012
                     UNITED STATES COURT OF APPEALS
                                               EALS
                                                                     Elisabeth A. Shumaker
                                                                         Clerk of Court
                                 TENTH CIRCUIT

 LARRY D. FREDERICK,

       Plaintiff–Appellee,

 v.
                                                          No. 12-1161
 HARTFORD UNDERWRITERS
 INSURANCE COMPANY,

       Defendant–Appellant.

                    Appeal from the United States District Court
                            for the District of Colorado
                      (D.C. No. 1:11-CV-02306-WJM-KLM)

Submitted on the briefs:*

Paul Howard Schwartz (Cynthia A. Mitchell and Alice Warren-Gregory with him on the
briefs), Shoemaker Ghiselli & Schwartz, LLC, Boulder, Colorado, for the Defendant-
Appellant.

Matthew Gabriel McFarland, Evans & McFarland, LLC (Robert F. Hill, Hill & Robbins,
PC with him on the briefs), Golden, Colorado, for the Plaintiff-Appellee.

Before BRISCOE, Chief Judge, MCKAY, and LUCERO, Circuit Judges.

   *The case is unanimously ordered submitted without oral argument pursuant to Fed.
R. App. P. 34(a)(2) and 10th Cir. R. 34.1(G).
LUCERO, Circuit Judge.

       Larry D. Frederick brought a putative class action suit against Hartford

Underwriters Insurance Company (“Hartford”) in Colorado state court; Hartford removed

the case to federal court. Looking to the face of the plaintiff’s complaint, the district

court concluded that the amount in controversy did not exceed $5,000,000—which is

required for federal jurisdiction under the Class Action Fairness Act (“CAFA”), 28

U.S.C. § 1332(d). Accordingly, the district court remanded the case to state court. In

reaching its decision, the district court acknowledged that this circuit has not defined the

burden a defendant must carry to prevent a remand in a CAFA suit. Faced squarely with

this question, we hold that a defendant in these circumstances is entitled to present his

own estimate of the amount at stake and must show by a preponderance of the evidence

that the amount in controversy exceeds the amount in § 1332(d)(2)—currently

$5,000,000. We further emphasize that this preponderance standard applies to punitive

damages as well, and that such damages cannot be assumed when calculating the amount

in controversy. Exercising jurisdiction under 28 U.S.C. § 1453, we reverse and remand

for further proceedings.

                                              I

       Frederick’s class action complaint was filed in March 2011 in Colorado state

court. The complaint asserted that a putative class of consumers had purchased insurance

from Hartford, and alleged that the company failed to disclose important information

                                             -2-
regarding the class’s policies. Maintaining that the amount in controversy exceeded

$5,000,000, Hartford invoked CAFA and removed the case to federal court. 1 Frederick

initially sought a remand, but voluntarily dismissed the case before the court ruled on his

motion.

       Shortly thereafter, Frederick filed a nearly identical complaint in state court, this

time seeking “a total award for compensatory and punitive damages [that] does not

exceed $4,999,999.99.” Hartford again removed, arguing that Frederick was seeking at

least $2,960,988 in compensatory damages based on the size of the class and the temporal

period at issue. Because Frederick was also seeking punitive damages—which, under

Colorado law, could equal up to the amount of compensatory damages awarded—

Hartford asserted that the total amount in controversy was at least $5,921,996. See Colo.

Rev. Stat. § 13-21-102(1)(a). In support of its amount-in-controversy calculation,

Hartford attached an affidavit of the Hartford employee who calculated the sum.

Frederick moved to remand, asserting that the court lacked jurisdiction because, as

“master of his complaint,” he “decided to limit total damages to an amount no more than

$4,999,999.99.”

       The district court granted Frederick’s motion and remanded the case. In the order,

the court acknowledged that there is a split among the circuits as to a defendant’s burden

to show potential damages over the jurisdictional amount when seeking removal under

       1
        A federal court must assume jurisdiction under CAFA if: (1) the putative class
meets certain diversity requirements; (2) the putative class is comprised of over 100
members; and (3) the amount in controversy exceeds $5,000,000. 28 U.S.C. § 1332(d).

                                             -3-
CAFA. However, the district court concluded that remand was warranted regardless of

the appropriate standard. Specifically, the court agreed with the plaintiff that a complaint

requesting damages of less than $5,000,000 should be taken at face value irrespective of

the evidence advanced by the defendant. Interpreting Frederick’s complaint as a binding

limitation on damages, the court found that the amount in controversy did not exceed

$5,000,000, and remanded the case for lack of jurisdiction.

                                              II

       We review the district court’s ruling on the propriety of removal de novo. Lovell

v. State Farm Mut. Auto. Ins. Co., 466 F.3d 893, 897 (10th Cir. 2006). In order to

determine if the district court erred, we must first consider the standard that Hartford is

required to satisfy.

       To establish jurisdiction under CAFA, a party must show, among other things, that

“the matter in controversy exceed[] the sum or value of $5,000,000, exclusive of interest

and costs.” 28 U.S.C. § 1332(d)(2). The amount in controversy, in turn, is not “the

amount the plaintiff will recover,” but rather “an estimate of the amount that will be put

at issue in the course of the litigation.” McPhail v. Deere & Co., 529 F.3d 947, 956 (10th

Cir. 2008); see also Gibson v. Jeffers, 478 F.2d 216, 220 (10th Cir. 1973) (“The test to

determine amount in controversy is not the sum ultimately found to be due, but the sum

demanded in good faith.”).

       In analyzing the propriety of removal, we have held that “[t]he burden is on the

party requesting removal to set forth, in the notice of removal itself, the underlying facts

                                             -4-
supporting [the] assertion that the amount in controversy exceeds [the jurisdictional

minimum].” Laughlin v. Kmart Corp., 50 F.3d 871, 873 (10th Cir. 1995) (quotation

omitted). “As a practical matter . . . the burden is ‘rather light’ if the sum claimed by the

plaintiff exceeds the jurisdictional amount.” Huffman v. Saul Holdings Ltd. P’ship, 194

F.3d 1072, 1079 (10th Cir. 1999) (citation omitted). Defendants seeking to remove under

the general diversity jurisdiction statute—28 U.S.C. § 1332(a)—face a more strenuous

burden if the plaintiff requests undefined damages or damages below the jurisdictional

minimum. In such cases, the defendant must “prove . . . jurisdictional facts by a

preponderance of the evidence” to remain in federal court. 2 McPhail, 529 F.3d at 955

(quotation and citation omitted). We have not, however, had opportunity to address the

contours of the burden faced by a defendant seeking to remove a case under CAFA when

the plaintiff has alleged an amount less than $5,000,000.

       As the parties acknowledge, our sibling circuits have split over the proper standard

in this context. In the Ninth Circuit, when a complaint alleges less than the jurisdictional

amount, “the party seeking removal must prove with ‘legal certainty’ that the amount in

controversy is satisfied, notwithstanding the prayer for relief in the complaint.”

Lowdermilk v. U.S. Bank Nat’l Ass’n, 479 F.3d 994, 996 (9th Cir. 2007). This stringent

       2
         We recognize that the Federal Courts Jurisdiction and Venue Clarification Act of
2011 (“JVCA”) may modify this procedure. See Pub. L. No. 112-63, 125 Stat. 758
(2011). The revised removal statute requires federal courts to consider state pleading
practice before examining a defendant’s notice of removal for assertions of the amount in
controversy. See 28 U.S.C. § 1446(c)(2). Because this case was filed before the statute’s
effective date, we do not reach this issue. Also, any analogies between diversity and
CAFA removals rely on our pre-JVCA precedent, particularly McPhail.

                                             -5-
standard was adopted to “guard the presumption against federal jurisdiction and preserve

the plaintiff’s prerogative, subject to the good faith requirement, to forgo a potentially

larger recovery to remain in state court.” Id. at 999; see also Morgan v. Gay, 471 F.3d

469, 474 (3d Cir. 2006) (adopting the “legal certainty” standard). In contrast, the Eighth

Circuit has held that “a party seeking to remove under CAFA must establish the amount

in controversy by a preponderance of the evidence regardless of whether the complaint

alleges an amount below the jurisdictional minimum.” Bell v. Hershey Co., 557 F.3d

953, 958 (8th Cir. 2009); see also Back Doctors Ltd. v. Metro. Prop. & Cas. Ins. Co., 637

F.3d 827, 829 (7th Cir. 2011) (clarifying that the preponderance standard applies to

removing defendants); Pretka v. Kolter City Plaza II, Inc., 608 F.3d 744, 752 (11th Cir.

2010) (“[T]he removing defendant must prove by a preponderance of the evidence that

the amount in controversy exceeds the jurisdictional requirement.”); Amoche v. Guar.

Trust Life Ins. Co., 556 F.3d 48, 50 (1st Cir. 2009) (adopting a “reasonable probability”

standard that is “for all practical purposes identical to the preponderance standard”);

Bartnikowski v. NVR, Inc., 307 F. App’x 730, 734 (4th Cir. 2009) (unpublished) (“[T]he

defendant’s burden in these circumstances is to establish the jurisdictional amount by a

preponderance of the evidence.”); Smith v. Nationwide Prop. & Cas. Ins. Co., 505 F.3d

401, 404 (6th Cir. 2007) (“CAFA does not alter the fact that the removing defendant has

the burden of demonstrating, by a preponderance of the evidence, that the amount in

controversy requirement has been met” (quotation omitted)); Blockbuster, Inc. v. Galeno,

472 F.3d 53, 59 (2d Cir. 2006) (“To satisfy its burden, defendant must prove to a

                                             -6-
reasonable probability that . . . the amount in controversy exceeds $5 million.”). In

adopting this standard, the Bell court explained that requiring a defendant “to establish

jurisdictional facts by a legal certainty would force us to depart from our non CAFA

precedent where we have only required a removing party to establish jurisdictional facts

by a preponderance of the evidence.” 557 F.3d at 957.

       We join the latter set of courts, and hold that a defendant seeking to remove under

CAFA must show that the amount in controversy exceeds $5,000,000 by a preponderance

of the evidence. In doing so, we extend our precedent in McPhail to the CAFA context

and align ourselves with the majority of other circuits which have adopted the

preponderance standard. See generally McPhail, 529 F.3d at 954-55 (explaining the

rationale behind the preponderance standard). Specifically, we agree that there is “no

logical reason why we should demand more from a CAFA defendant” than other parties

invoking federal jurisdiction. Bell, 557 F.3d at 957. This is especially so in light of the

recently passed JVCA, which largely codified the holding of McPhail. See Pub. L. No.

112-63, 125 Stat. 758 (2011). By adopting the preponderance standard, we ensure that

defendants seeking removal face the same burden regardless of whether they are invoking

simple diversity jurisdiction or CAFA jurisdiction. To hold otherwise would confuse

courts and litigants alike, and contradict the clear weight of authority.

       Under the preponderance standard, defendants seeking to remove must prove

jurisdictional facts by a preponderance of the evidence. See McPhail, 259 F.3d at 954

(“The ‘preponderance of the evidence’ standard applies to jurisdictional facts, not

                                             -7-
jurisdiction itself.”); Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 540-41 (7th Cir.

2006) (“What the proponent of jurisdiction must ‘prove’ is contested factual assertions . .

. . Jurisdiction itself is a legal conclusion, a consequence of facts rather than a provable

‘fact’.”). There are several ways this can be done:

       by 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 the defendant’s employees or experts, about how much it
       would cost to satisfy the plaintiff’s demands.

McPhail, 529 F.3d at 954 (10th Cir. 2008) (quoting Meridian, 441 F.3d at 541-42). The

defendant is thus “entitled to present its own estimate of the stakes; it is not bound by the

plaintiff’s estimate” in the complaint. Back Doctors, 637 F.3d at 830. State pleading

standards do not affect a defendant’s entitlement to present this evidence, and a plaintiff’s

attempt to limit damages in the complaint is not dispositive when determining the amount

in controversy. 3 Regardless of the plaintiff’s pleadings, federal jurisdiction is proper if a

defendant proves jurisdictional facts by a “preponderance of the evidence” such that the

amount in controversy may exceed $5,000,000. Once a defendant meets this burden,

remand is appropriate only if the plaintiff can establish that it is legally impossible to

       3
        While this is the rule from McPhail, the JVCA likely requires a different
approach, at least in diversity removals. See Pub. L. No. 112-63, 125 Stat. 758 (2011)
(“the sum demanded in good faith in the initial pleading shall be deemed to be the
amount in controversy, except that . . . the notice of removal may assert the amount in
controversy if the initial pleading seeks . . . (i) nonmonetary relief; or (ii) a money
judgment, but the State practice either does not permit demand for a specific sum or
permits recovery of damages in excess of the amount demanded.”). But again, the JVCA
was not yet in effect when this case was filed, so we decline to apply it, even by analogy.

                                              -8-
recover more than $5,000,000. See St. Paul Mercury Indem. Co. v. Red Cab Co., 303

U.S. 283, 288-89 (1938); Back Doctors, 637 F.3d at 830; Bell, 557 F.3d at 959.

       The preponderance of the evidence standard must be applied to all damages

counted toward the total amount in controversy, including punitive damages. As a

general matter, “[p]unitive damages may be considered in determining the requisite

jurisdictional amount.” Woodmen of World Life Ins. Soc’y v. Manganaro, 342 F.3d

1213, 1218 (10th Cir. 2003). But this does not mean that a defendant’s mere use of the

words punitive damages automatically justifies the removal of a case on the theory that

punitive damages in some unspecified amount may be possible. A defendant seeking to

remove because of a claim for punitive damages “must affirmatively establish

jurisdiction by proving jurisdictional facts that ma[ke] it possible” that punitive damages

are in play. McPhail, 529 F.3d at 955. The defendant does not have to prove that the

plaintiff is more likely than not to ultimately recover punitive damages, but merely that:

(1) state law permits a punitive damages award for the claims in question; and (2) the

total award, including compensatory and punitive damages, could exceed $5,000,000.

See Back Doctors, 637 F.3d at 830 (explaining that “the question . . . is not whether the

class is more likely than not to recover punitive damages, but whether [state] law

disallows such a recovery”). The defendant may point to facts alleged in the complaint,

the nature of the claims, or evidence in the record to demonstrate that an award of

punitive damages is possible. Absent such facts, punitive damages cannot be considered

                                            -9-
when calculating the amount in controversy for the purposes of CAFA jurisdiction. 4

                                            III

       Without having the benefit of our decision on this matter, the district court did not

properly apply the preponderance standard announced herein. The court found that,

regardless of the standard of proof, Hartford failed to demonstrate that the amount in

controversy exceeded $5,000,000. In reaching this decision, it relied on the fact that

Frederick requested less than the jurisdictional minimum in his complaint. This was

erroneous for two reasons. First, it did not consider the defendant’s notice of removal or

the evidence submitted supporting jurisdiction. As explained above, courts must evaluate

this information and explain whether such evidence is sufficient to establish the operative

jurisdictional facts by a preponderance of evidence. Second, it treated the plaintiff’s

pleadings as dispositive. A court may not forgo an analysis of a defendant’s claims

       4
         This is not to say that a removing defendant must show the plaintiff is entitled to
punitive damages by a preponderance of the evidence. Such a requirement would require
a court to improperly look beyond jurisdictional matters and consider the merits of the
claims. See Smithers v. Smith, 204 U.S. 632, 645, (1907) (indicating that the amount in
controversy inquiry is distinct from the merits); Schunk v. Moline, Milburn & Stoddard
Co., 147 U.S. 500, 505 (1893) (same); Miedema v. Maytag Corp., 450 F.3d 1322, 1332
(11th Cir. 2006) (“When determining the amount in controversy for jurisdictional
purposes, however, courts cannot look past the complaint to the merits.”); Meridian, 441
F.3d at 543(“[U]ncertainty about whether the plaintiff can prove its substantive claim,
and whether damages (if the plaintiff prevails on the merits) will exceed the threshold,
does not justify dismissal.”); Zumerling v. Devine, 769 F.2d 745, 748 (Fed. Cir. 1985)
(“The amount in controversy for jurisdictional purposes must be ascertained by the
requests in the pleadings without consideration of success on the merits.”). We caution
counsel and courts not to misunderstand the phrase preponderance of the evidence “as
requiring the proponent of federal jurisdiction to establish that it was likely that the
plaintiff would obtain a judgment exceeding the amount-in-controversy requirement.”
Back Doctors, 637 F.3d at 829.

                                            -10-
regarding the amount in controversy merely because a plaintiff pleads that he is seeking

less than the jurisdictional minimum.

                                             IV

       We REVERSE the district court’s remand order and REMAND with instructions

to apply the preponderance of the evidence standard to the jurisdictional facts. If

Hartford proves by a preponderance of the evidence that CAFA’s amount-in-controversy

requirement is satisfied, remand is appropriate only if Frederick can establish that it is

legally impossible for the class to recover total damages in excess of $5,000,000.

                                            -11-