September 22, 2014

Supreme Court to Answer Question of Whether Evidence Is Required for Removal to Federal Court

Is "a short and plain statement" of the grounds for removal sufficient to remove a case to federal court? Or must a defendant supply admissible evidence in its notice of removal to prove amount in controversy? The Supreme Court will decide the issue this term, in Dart Cherokee Basin Operating Company LLC v. Owens.

The plaintiff Brandon Owens, as a representative of a putative class of persons allegedly entitled to royalty payments, sued Dart Cherokee in Kansas state court. Owens did not allege an amount of damages in his complaint.

Under the Class Action Fairness Act of 2005 (CAFA) a class action is removable to federal court if there are at least 100 putative class members and $5 million in controversy. Dart Cherokee filed a notice of removal, alleged that there were more than 400 royalty owners in the class who owned rights in more than 700 gas wells, and further argued that multiplying the class size by the period in dispute, the amount in controversy exceeded $8.2 million.

Owens moved to remand the case to state court, arguing that the notice of removal was "deficient as a matter of law" because it contained no admissible evidence supporting petitioners' jurisdictional allegations.

Dart Cherokee responded to the motion to remand with a declaration from a corporate officer that contained updated damages calculations and other evidence, including Owens' own statement in a mediation brief that the amount in controversy exceeded $20 million.

The district court ordered the case remanded to state court. The district judge held that Dart Cherokee must prove in its notice of removal that CAFA's jurisdictional requirements are satisfied, and refused to consider the evidence in the company's declaration because the declaration was not attached to the notice of removal. The district court believed that it was required to ignore the declaration because Tenth Circuit precedent holds that reference to factual allegations or evidence outside the notice of removal is not permitted to determine the amount in controversy.

The Tenth Circuit, in a 4-4 vote, denied Dart Cherokee's petition for review, and the United States Supreme Court granted the company's petition for certiorari.

The Tenth Circuit's position that evidence proving the amount in controversy must be contained in the notice of removal conflicts with the language of the removal statute, 28 U.S.C. 1446(a), and case law from seven other circuits. Other circuits hold that it is sufficient simply to allege the jurisdictional facts in the notice of removal, and then, when challenged, support jurisdictional allegations by competent proof. 

The Tenth Circuit's rule that allegations and evidence outside of the notice of removal are never permitted to determine the amount in controversy, is a trap for even the most experienced litigator. The rule encourages plaintiffs to engage in gamesmanship to avoid any allegation of the amount in controversy, thereby placing the onus on defendants to produce evidence of probable amount of plaintiffs' alleged damages. Making the task of defendants more daunting, this evidence must be admissible and submitted not later than 30 days after being served with a complaint, for allegations of conduct or transactions that defendants may be unfamiliar and unaware. The Tenth Circuit rule on removal rewrites section 1446(a) and is flatly at odds with the language and purpose of CAFA.  

The result in Dart Cherokee is so anomalous that it should, and probably will be, reversed by the Supreme Court. But regardless of the Court's holding, the opinion will provide guidance to litigation attorneys on whether admissible evidence is ever necessary to include in a notice of removal.  

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