Yesterday, the Tenth Circuit joined the majority of Circuit Courts of Appeals in holding that a plaintiff cannot conclusively avoid federal removal jurisdiction under the Class Action Fairness Act of 2005 (CAFA) by including in the complaint a statement of intention not to seek more than $4,999,999.99 in damages on behalf of the putative class. In Frederick v. Hartford Underwriters Insurance Company, No. 12-1161 (10th Cir. June 28, 2012) the Tenth Circuit followed decisions from the First, Second, Fourth, Sixth, Seventh, Eighth, and Eleventh Circuits in holding that a Defendant may support jurisdiction by showing by a preponderance of the evidence that the amount in controversy exceeds $5 million, even if the plaintiff expressly pleads a lesser amount. It rejected a more stringent “legal certainty” standard, which has been applied by the Ninth and Third Circuits.
The Frederick decision means that plaintiffs cannot foreclose federal jurisdiction in class actions through creative pleading in the Tenth Circuit. However, the burden is still on the defendant to prove as a matter of fact that the amount at stake in the case exceeds $5 million. Therefore, it also highlights the need for defense counsel to gather, plead, and be prepared to prove specific facts showing the amount at stake in the case.
It is always important to remember that proving the amount in controversy does not require the defendant to prove the damages that are likely to be awarded against it in the case (of course most defendants would say that this amount is zero). Instead, it requires the defendant to establish the highest amount that the plaintiff class could conceivably win based on the legal claims presented, the relief sought (both damages and other relief sought expressly and damages that could legally flow from the claims presented), and the maximum potential value that the plaintiff could reasonably put on that relief. The preponderance standard requires the defendant to prove facts that would cause more than $5 million to be awarded if the plaintiff proves the claims and potential theories of damages that flow from those claims.