The Ninth Circuit Eases the way into Federal Court for Class Action Defendants
On August 27, 2013, the Ninth Circuit lowered the burden of proof for class action defendants to remove their cases to federal court. Rodriguez v. AT&T Mobility Services LLC, No. 13-56149, 2013 WL 4516757. The Class Action Fairness Act gives federal courts the power to hear class action cases if the amount in controversy exceeds $5 million and certain other requirements are met. Class action defendants used to have to prove the $5 million amount in controversy to a "legal certainty" when lead plaintiffs alleged lower amounts. Relying on a recent Supreme Court decision, the Ninth Circuit in Rodriguez held that class action defendants may now meet their burden of proof by showing a simple preponderance of the evidence.
The "legal certainty" standard originally arose out of the Ninth Circuit's decision in Lowdermilk v. U.S. Bank National Association. 479 F.3d 994, 999 (9th Cir. 2007). In Lowdermilk, the court ruled that when a class action complaint alleges damages below the $5 million minimum, the removing defendant must show to a legal certainty that the damages in fact exceed that amount. At the time, the court held that the plaintiff could choose to stay in state court by foregoing any damages over $5 million, and that the court need not look beyond the four corners of the complaint. However, the Supreme Court's recent decision in Standard Fire Ins. Co. v. Knowles undermined that decision, holding that "a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified." Standard Fire Ins. Co. v. Knowles. 133 S.Ct. 1345,1349 (2013). Id. at 1349. Courts, therefore, must "ignore" any "non-binding stipulation" waiving damages in excess of $5 million, and instead do "what the statute requires, namely aggregat[e] the claims of the individual class members." Id. at 1350.
In Rodriguez, the plaintiff, Robert Rodriguez, brought a purported class action against AT&T Mobility Services, LLC, on behalf of himself and similarly situated retail sales managers of AT&T wireless stores in Los Angeles and Ventura counties. Rodriguez originally filed his complaint in Los Angeles County Superior Court, but AT&T removed it to federal court. Rodriguez moved to remand the case back to state court, pointing to his complaint allegations that "the aggregate amount in controversy is less than five million dollars," and that he "waive[d] seeking more than five million dollars ($5,000,000) regarding the aggregate amount in controversy for the class claims alleged." Rodriguez, at *1. In its opposition to Rodriguez's motion, AT&T submitted declarations from AT&T representatives regarding the potential number of class members and the size of their claims and argued that those declarations, coupled with the allegations in Rodriguez's complaint, established that the amount in controversy could not possibly be less than the roughly $5.5 million and was likely $11 million.
The District Court, which issued its ruling prior to the Standard Fire decision, held that AT&T could not demonstrate the $5 million amount in controversy to a legal certainty because Rodriguez's waiver of any excess amount controlled and foreclosed the issue. The parties agreed that the District Court's decision needed to be vacated because the waiver no longer applied in light of Standard Fire. However, they disagreed on the burden of proof AT&T would need to meet in order to stay in federal court. Rodriguez claimed that Lowdermilk controlled and AT&T should be required to prove the amount in controversy to a legal certainty. AT&T, on the other hand, argued that Standard Fire fatally undermined Lowdermilk's legal certainty standard, and that the preponderance of the evidence standard, which already applied where a plaintiff fails to plead a specific amount of damages, should now apply to all cases regardless of the plaintiff's allegations in the complaint.
The Ninth Circuit sided with AT&T for two reasons. First, Lowdermilk adopted the legal certainty test in part to preserve the plaintiff's ability to waive a larger recovery and remain in state court. Since Standard Fire forecloses that possibility, the purpose of the heightened standard no longer applies. Second, Lowdermilk held that courts "need not look beyond the four corners of the complaint" when a plaintiff limits damages to $5 million. Lowdermilk at 998. Standard Fire, however, requires courts to add up all potential class members' individual claims, which necessarily requires going beyond the four corners of the complaint. Because Standard Fire negated Lowdermilk's purpose and is inherently inconsistent with Lowdermilk's holding, the Ninth Circuit held that Standard Fire effectively overruled Lowdermilk.
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