Supreme Court Clarifies Defendants’ Evidentiary Burden at Removal Stage as to the Amount in Controversy and Halts Tenth Circuit from Applying More Onerous Requirements on Defendants

Practice area:

The United States Supreme Court held this week in Dart Cherokee Basin Operating Co., LLCv Owens that defendants removing cases from state to federal court, including class action defendants removing pursuant to the Class Action Fairness Act (CAFA), need not provide evidence that the amount in controversy exceeds the jurisdictional threshold, but only a plausible allegation that such requirement is met.

After being sued in a class action brought by Owens in state court for the alleged underpayment of oil and gas royalties, defendant Dart removed the case to federal district court pursuant to CAFA, which gives federal courts jurisdiction over class actions if the amount in controversy exceeds $5 million.  28 U.S.C. § 1332(d)(2).  Dart claimed in its notice of removal that the alleged underpayments totaled over $8.2 million.  Owens moved to remand the suit to state court, claiming that the removal notice was deficient as it lacked any evidence proving the amount in controversy exceeded $5 million.  In opposition, Dart submitted a declaration by one of its executives supporting alleged damages of over $11 million.  The District Court remanded the case to the state court, interpreting Tenth Circuit law to require evidence of the amount in controversy in the actual notice of removal itself.  Dart petitioned the Tenth Circuit for permission to appeal, which the court denied.  The court subsequently denied Dart’s petition for en banc review. 

The issue presented to the Supreme Court was: to adequately assert the amount in controversy in a notice of removal, does it suffice to plausibly allege the amount, or must the defendant provide evidence supporting the amount?  Noting that when a plaintiff invokes federal jurisdiction the amount in controversy allegation is accepted if made in good faith, the Court reasoned that the same should hold true for defendants at the removal stage – the allegation should be accepted unless contested by plaintiff or the court.  If contested, 28 U.S.C. § 1446(c)(2)(B) directs that both parties submit proof as to the amount in controversy and the court shall decide by a preponderance of the evidence whether the amount exceeds the jurisdictional threshold.  “Of course, a dispute about a defendant’s jurisdictional allegations cannot arise until after the defendant files a notice of removal containing those allegations.”  Dart at p. 7.  Thus, all that is required of the defendant in the notice of removal is a plausible allegation; supporting evidence will subsequently be required only if plaintiff or the court contests defendant’s allegation. 

The 5-4 split in this case reflects not so much a disagreement on the merits, but a differing view as to whether the Court had jurisdiction to review the Tenth Circuit’s denial for further review.  Justice Scalia, writing for the dissenters, stated that because the Court did not know why the Tenth Circuit refused further review (there was no explanation in the decision below), there was no evidence from which the Court could find that the Tenth Circuit abused its discretion in denying further review.  The majority disagreed, holding that jurisdiction was proper because the Tenth Circuit’s rejection of Dart’s petitions for interlocutory appeal and en banc review “strongly suggests that the panel thought the District Court got it right in requiring proof of the amount in controversy in the removal notice.”  Id. at p. 10.  Finding that the incorrect procedural requirement would have been “frozen in place for all venues within the Tenth Circuit,” the majority found the Tenth Circuit’s denial of Dart’s request for review was “infected by legal error” and appropriate for appeal. 

As a practical matter, this decision should not alter removal practice in class actions under CAFA.  Rather, it clarifies that the removal practices already followed by many class action defense counsel, who typically do not submit much, if any, in the way of evidence in support of their allegations regarding the amount in controversy, are correct.  More importantly, this decision nips in the bud any potential conflict among the Circuits regarding their removal requirements by rejecting the Tenth’s Circuit’s more burdensome requirements on defendants, which likely would have led to forum shopping and other problems requiring future intervention.