Securities Litigation

The Class Action Fairness Act of 2005 ("CAFA") outlines the federal courts' diversity jurisdiction over class actions. Among other things, it increased the amount in controversy to $5 million (28 U.S.C. § 1332(d)(2), (6)), and rather than complete diversity, only requires one plaintiff be diverse from one defendant (28 U.S.C. § 1332(d)(2)). In a recent case, the issue arose as to whether the defendant merely had to allege jurisdictional facts to support removal of the matter to federal court, or whether it had to submit evidence to support, for instance, the amount in controversy. In Owens v. Dart Cherokee Basin Operating Company, LLC, 2013 WL 2237740 (D. Kan. 2013), the defendant removed the action to federal court and alleged in the notice of removal that the amount in controversy was over $8 million, well above the jurisdictional amount of $5 million. The plaintiff moved to remand the case to state court, which the district court granted since the notice of removal failed to provide any evidentiary support for the $8 million figure. Specifically, the district court explained that while a plaintiff cannot avoid removal merely by declining to allege the jurisdictional amount, the defendant must support the amount in controversy with factual evidence rather than mere assumption or speculation. For example, the defendant can use discovery methods or affidavits to support the jurisdictional amount. In Owens, the defendant did not submit any evidence to support its Notice of Removal. Rather, in response to the motion to remand, the defendant submitted a declaration supporting the jurisdictional amount. The district court explained that the defendants were obligated to allege all necessary jurisdictional facts in the notice of removal, not in response to a motion to remand. The case made its way to the United States Supreme Court, and oral argument was recently held. The defendant argued that only allegations of jurisdictional facts is required, not evidence which, it explained, is consistent with asserting "a short and plain statement of the grounds for removal." The defendant also referred to numerous other circuits that also only require allegations, not evidence. Before addressing the merits, the Supreme Court questioned whether it has jurisdiction to review the Tenth Circuit's decision, which denied the defendant's petition to appeal the district court ruling. In other words, can the Supreme Court review a denial of a petition seeking permission to appeal? That question must first be answered before the Court reaches the merits of the argument. If the Court rules on the merits, the decision could have widespread implications with the potential of heightening the pleading requirements for removal. We will update this blog when the Supreme Court renders its decision.