Third Circuit Discusses Removal and the Burden of Establishing to Amount in Controversy Requirement under CAFA

PerMorgan v. Gay, 471 F.3d 469 (3rd Cir. Dec. 15, 2006):

This appeal requires us for the first time to interpret certain provisions of the newly-enacted Class Action Fairness Act of 2005 (CAFA), Pub.L. No. 109-2, 119 Stat. 4 (2005) (codified in scattered sections of 28 U.S.C.). Specifically, after the defendants removed the case from state court to the District Court, the plaintiff moved to remand to state court. That motion was granted. Because we agree that the District Court properly placed the burden of proof on the defendants to establish federal subject matter jurisdiction under CAFA, and appropriately determined that the defendants failed to prove that the plaintiff's claims exceeded CAFA's amount in controversy requirement of $5 million, we will affirm. . . . On August 7, 2006, the District Court granted the plaintiff's motion to remand to state court, concluding that the requisite amount in controversy of $5 million had not been demonstrated. . . .

The first issue we address is whether the District Court properly placed the burden of proof on the defendants to establish federal subject matter jurisdiction under CAFA. . . . While several district courts have shifted the burden from the party seeking removal, no appellate court to date has done so. . . . Accordingly, we join our sister courts of appeals. Under CAFA, the party seeking to remove the case to federal court bears the burden to establish that the amount in controversy requirement is satisfied.

The second issue we address is whether the District Court appropriately determined that the defendants failed to prove that the plaintiff's claims exceeded CAFA's amount in controversy requirement of $5 million. . . . There is, however, a broad good faith requirement in a plaintiff's complaint with respect to the amount in controversy. See Red Cab, 303 U.S. at 288, 58 S.Ct. 586; Golden v. Golden, 382 F.3d 348, 354-55 (3d Cir.2004). Good faith in this context is entwined with the "legal certainty" test, so that a defendant will be able to remove the case to federal court by "show[ing] to a legal certainty that the amount in controversy exceeds the statutory minimum[.]" Samuel-Bassett v. KIA Motors Am., Inc., 357 F.3d 392, 398 (3d Cir.2004). . . . Brill and Samuel-Bassett provide three main instructions to this Court in the present case: 1) The party wishing to establish subject matter jurisdiction has the burden to prove to a legal certainty that the amount in controversy exceeds the statutory threshold; 2) A plaintiff, if permitted by state laws, may limit her monetary claims to avoid the amount in controversy threshold; and 3) Even if a plaintiff states that her claims fall below the threshold, this Court must look to see if the plaintiff's actual monetary demands in the aggregate exceed the threshold, irrespective of whether the plaintiff states that the demands do not. Key to the present matter is that the plaintiff's pleadings are not dispositive under the legal certainty test. This Court's task is to examine not just the dollar figure offered by the plaintiff but also her actual legal claims.

In sum, the defendants did not carry their burden to show, to a legal certainty, that the amount in controversy exceeds the statutory minimum. . . . To resolve this tension . . . we admonish that a verdict in excess of the demand could well be deemed prejudicial to the party that sought removal to federal court when the party seeking remand uses a damages-limitation provision to avoid federal court.