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By Kimberly Robinson
Dec. 15 — It just got easier for class action defendants to have their cases heard in federal court, attorneys told Bloomberg BNA after a U.S. Supreme Court decision Dec. 15 that raised issues under the Class Action Fairness Act.
A defendant need include only a “plausible allegation” of the jurisdictional requirements in a notice of removal to federal court—not evidentiary proof, Justice Ruth Bader Ginsburg wrote for the court.
The case involved a relatively straight-forward question of what must be included in a notice of removal under 28 U.S.C. §1446(b), but hit what Justice Antonin Scalia's dissenting opinion called “a little snag: This case does not present that question.”
A procedural obstacle first brought to the fore after briefing by a “friend of the court” divided the justices, in the court's first 5-4 decision of the 2014 term.
“The Supreme Court's decision today is welcome news for businesses that face class actions in state court and seek to transfer them to federal court under the federal Class Action Fairness Act,” Archis A. Parasharami of Mayer Brown LLP, Washington, said in a statement e-mailed to Bloomberg BNA.
Parasharami, who is a co-chair of the firm's Consumer Litigation & Class Actions practice, explained that the court “held that, when a defendant files a notice that a case is being removed to federal court from state court, it is enough to allege in the notice that the case involves over $5 million in controversy, which is one of the key requirements for removal under CAFA.”
“The defendant does not have to submit evidence in support of the removal unless the plaintiff later seeks to return the case to state court,” Parasharami said.
He added that because “removals to federal court usually have to take place within 30 days after a lawsuit is served, the Supreme Court's decision avoids imposing a major burden on businesses who wish to remove cases to federal court by forcing them to gather evidence of removal on an abbreviated time frame.”
But while Rex A. Sharp, of Gunderson Sharp LLP, Prairie Village, Kan.—who argued for the plaintiffs—agreed that class actions “will be easier to remove,” he told Bloomberg BNA Dec. 15 that the withholding of evidence on the amount in controversy will result in a “federal jurisdictional discovery battle” that will actually “waste the time of litigants and the district court.”
Moreover, Scott Nelson, with Public Citizen Litigation Group, Washington, told Bloomberg BNA Dec. 15 that the court's decision wasn't likely to have a huge impact because there don't appear to be many removals that “have been denied on the basis of the rule that evidence must be attached to a removal petition.”
Nevertheless, class action counsel Geoffrey M. Wyatt of Skadden, Arps, Slate, Meagher & Flom LLP, Washington, pointed out that the “decision should also lower the bar to removal of class actions across the board.”
He told Bloomberg BNA Dec. 15 that the “court expressly acknowledged for the first time that there’s no presumption against federal jurisdiction over class actions.”
Mayer Brown's Parasharami told Bloomberg BNA Dec. 15 that in “seeking to avoid federal jurisdiction, plaintiffs have often pointed to what they describe as a traditional ‘presumption against removal.' And at least some federal courts—especially courts in California, including the Ninth Circuit—have bought that argument, applying such a presumption in the CAFA context.”
Ginsburg “resoundingly rejected that view, explaining that ‘no antiremoval presumption attends cases invoking CAFA,' ” Parasharami said. That “clear statement should put an end to the notion that there is a thumb on the scale against CAFA removals.”
But again, Public Citizen's Nelson questioned the reach of the court's holding. Although “there may be cases where the presumption would be determinative, I doubt if it really controls the outcome in that many cases,” he said.
And plaintiff's counsel Sharp noted that further “litigation will be required to see if the opinion extends to non-class cases.”
The 5-4 result may not signify that there is a great deal of disagreement over the merits of the dispute—namely, what is required in a notice of removal.
“I would assume that at least some and maybe all of the dissenters agree with the proposition that a notice of removal requires a short and plain statement satisfying general pleading standards,” Nelson said.
Both he and Mayer Brown's Parasharami pointed out that during oral arguments in October, Justice Elena Kagan let the cat out of the bag that most of the justices actually agreed with the defendant that evidentiary submissions weren't required in the notice.
The “only justice whose response was that ‘[t]hat might be a little premature'—[Samuel A. Alito Jr.]—joined the majority,” Nelson noted.
Chief Justice John G. Roberts Jr., and Justices Stephen G. Breyer and Sonia Sotomayor also joined Ginsburg's opinion.
Indeed, Ginsburg dedicated just three pages of her 14-page opinion to explaining the court's outcome on that issue.
“By design, §1446(a) tracks the general pleading requirement stated in Rule 8(a) of the Federal Rules of Civil Procedure,” Ginsburg said.
Therefore, evidence that the case exceeds the Class Action Fairness Act's $5 million jurisdictional requirement is required only after the amount in controversy is disputed by the plaintiff or the court, she said.
Several attorneys noted that even the dissenting justices seemed to agree with the merits of the majority's opinion.
“Justice Scalia’s opinion refers to the court’s eagerness ‘to correct what we suspected was the [lower courts'] erroneous interpretation of 1446(a),' which doesn’t sound like he considers it a very doubtful question,” Nelson said.
Parasharami agreed. The “dissenting judges' silence on the merits is telling: If the dissenters had reached the merits, I don’t think there’s a single one who would have agreed with the Tenth Circuit,” he said.
And while Sharp said that “we simply don't know” the dissenting judges' position on the merits, Skadden's Wyatt said that “not only is there no contrary discussion, but the principal dissent all but acknowledges agreement on the merits.”
The “dissenting opinion doesn’t cast any doubt on the court’s initial view of the merits,” he said.
Instead of disagreeing over the merits, the “majority and dissent squared off over whether the court should have ruled on the issue in the first place,” Parasharami said.
“The principal dissent by Justice Scalia argued that because the Tenth Circuit had not accepted the case for appeal—CAFA allows only discretionary appeals from orders granting or denying remands to state court—the Supreme Court’s review should be limited to whether the Tenth Circuit properly exercised its discretion in denying review.”
“Justice Scalia would have concluded that there was no reason to overturn that denial,” Parasharami said.
But Ginsburg said that courts “necessarily” abuse their discretion when they base their decisions on an erroneous interpretation of the law.
She added that there “are many signals that the Tenth Circuit relied on the legally erroneous premise that the District Court’s decision was correct.”
Ginsburg said that there was a “slim” chance that the issue would make its way to the circuit court again as “any diligent attorney” would include evidence in the notice of removal rather than risk remand.
It would be “bizarre” for a court to allow that to happen unless it agreed with the underlying decision, Ginsburg said. The U.S. Court of Appeals for the Tenth Circuit's decision was, therefore, “fatally infected by legal error.”
Nelson, whose brief initially brought this issue to the justices' attention, disagreed with the majority's reasoning, but said that it “got it partly right.”
“It acknowledged that whatever jurisdiction it had extended in the first instance only to whether the court of appeals abused its discretion in denying leave to appeal,” Nelson said. “The problematic issue with the majority’s opinion, as Justice Scalia discusses, is whether it went off the tracks in ascribing reasoning to the court of appeals in order to find that its decision necessarily rested on” an erroneous legal proposition.
“The majority is right to say that a decision that rests on an erroneous legal ruling is an abuse of discretion, but inferring that a denial of leave to appeal rests on an erroneous legal ruling when the court does not actually express such a ruling is a reach, to say the least, and one that probably won’t be possible even under the majority’s analysis in most cases,” he said.
But Skadden's Wyatt disagreed. “Although the Tenth Circuit did not opine on the merits, it clearly reviewed the parties’ briefs,” he said. “And by denying review, it left in place prior Tenth Circuit precedent that was the basis for the district court’s erroneous decision.”
As “a practical matter, it doesn’t make sense to give the courts of appeals the power to essentially shut off the possibility of Supreme Court review by denying discretionary review of outlier district-court decisions,” Wyatt said. “Congress went out of its way to provide for appellate review in CAFA cases, and the Supreme Court’s decision helps effectuate that intent.”
Parasharami agreed, saying that the “court’s decision to reach the issue presented is important because it means that the courts of appeal cannot insulate controversial and important questions under CAFA from Supreme Court review by the simple expedient of refusing to grant permission to appeal.”
However, Nelson said that ultimately the “effect of the court’s ruling about its own jurisdiction and scope of review is also hard to say. The court makes clear that it can review denials of leave to appeal,” but also limits its review to the issue of abuse of discretion.
“In any case going up to the Supreme Court in this posture, I think it behooves the respondent to argue that the sole issue is abuse of discretion and to distinguish the circumstances that led the Supreme Court in this case to conclude that the court of appeals’ exercise of discretion necessarily involved a decision on the merits of the underlying legal questions,” Nelson said.
As for Scalia, he said that attributing “the District Court’s reasoning to the Tenth Circuit allows the [Supreme] Court to pretend to review the appellate court’s exercise of discretion while actually reviewing the trial court’s legal analysis.”
He acknowledged that he “joined the majority opinion in Standard Fire Ins. Co. v. Knowles [ 133 S. Ct. 1345 (2013)— a case that arose in the same posture as this one, but that was resolved without reference to the question whether the appellate court abused its discretion.”
“As for my own culpability in overlooking the issue, I must accept that and will take it with me to the grave,” Scalia said.
“But its irrelevance to my vote in the present case has been well expressed by Justice Jackson, in a passage quoted by the author of today's opinion: ‘I see no reason why I should be consciously wrong today because I was unconsciously wrong yesterday.' ”
Justices Anthony M. Kennedy and Elena Kagan joined Scalia's opinion, as did Justice Clarence Thomas, who joined all but the last sentence of Scalia's dissent.
Thomas, who agreed with Scalia that the case should have been dismissed as improvidently granted, wrote separately to note “another, more fundamental, defect” in the case.
“The application here is nothing more than a request for discretionary permission to seek review,” Thomas said.
As such, it isn't a “case” over which the court has jurisdiction, he concluded.
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Full text at http://pub.bna.com/lw/13719US.pdf.
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