Morris Polich & Purdy LLP Prevails in Ninth Circuit on Class Action Dispute

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1 Contact: Andrew R. Chivinski Senior Associate Morris Polich & Purdy LLP Prevails in Ninth Circuit on Class Action Dispute Siding with Morris Polich & Purdy LLP s arguments on appeal, the United States Court of Appeals for the Ninth Circuit recently found that a declaration from a corporate defendant constitutes sufficient amount in controversy evidence to support removal of a class action from state court to federal court under the Class Action Fairness Act of 2005 ( CAFA ), 28 U.S.C. 1332(d)(2). The Ninth Circuit s decision held that a corporate declaration submitted by MPP in the district court established the amount in controversy was at least $5 million thereby triggering the provisions of CAFA and justifying the district court s exercise of jurisdiction. In addition, the Ninth Circuit made new law by holding that a district court s sua sponte (on its own motion) order remanding a class-action under CAFA was, in fact, reviewable on appeal. In Watkins v. Vital Pharmaceuticals, 2013 WL , the Ninth Circuit considered a district court s sua sponte order to remand a class action back to state court after it was removed to federal court by MPP pursuant to the provisions of CAFA. The class action was initially filed in the California Superior Court, County of Los Angeles, on September 25, 2012, by plaintiff Gabe Watkins as representative of a nationwide class. 1 Watkins alleged the defendant, a distributor of protein bars, engaged in mislabeling and improper marketing of said protein bars. Watkins defined the nationwide class as [a]ll individuals in the United States who purchased the Subject Bars. Watkins further defined the Subject Bars to include multiple different flavors of bars, and failed to specifically exclude any of the defendant s protein bars from this definition. Notably, while Watkins complaint did not allege any specific dollar amount as being in controversy, the complaint did allege that the aggregate damages sustained by the Class are likely in the millions of dollars 1 Indeed, Watkins first filed his class action in federal court; however, the federal action was voluntarily dismissed after Watkins learned of the judicial assignment (Honorable Otis D. Wright, II.) and re filed in state court approximately four days later.

2 MPP, on behalf of defendant, timely removed Watkins state court action to federal court pursuant to CAFA. CAFA provides a basis for federal jurisdiction over class actions where, among other things, the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interests and costs. (28 U.S.C. 1332(d)(2)) In support of removal, MPP submitted two declarations establishing the amount in controversy requirement of CAFA was met. First, MPP submitted a declaration by lead trial counsel, David J. Vendler, which pointed out Watkins own allegations that damages were likely in the millions of dollars, and further that the complaint sought restitution and disgorgement of profits based on sales to thousands of consumers nationwide. Second, MPP submitted a declaration from defendant s Controller stating that nationwide sales of the protein bars for the last four years exceeded $5,000,000. Watkins never challenged defendant s removal of the case, and no evidence was ever presented in opposition to the two declarations submitted by MPP. However, on November 26, 2012, the district court issued an order, sua sponte, remanding the case back to state court. In so doing, the district court found defendant did not offer sufficient evidence that more than $5 million was in controversy. Notably, however, the district court s order only referenced the declaration of MPP attorney David J. Vendler. The district court did not mention or reference defendant s Controller s declaration, which provided factual support in favor of CAFA s $5 million requirement. MPP, on behalf of defendant, petitioned the Ninth Circuit Court of Appeal for permission to appeal the district court s remand order. The Ninth Circuit granted the petition on May 3, MPP s appeal addressed two specific issues. The first was whether a district court s sua sponte remand order under CAFA was, in fact, appealable in the first place. (See, Watkins v. Vital Pharmaceuticals, Inc WL , at p. 5) The second issue was whether defendant submitted sufficient evidence to establish that CAFA s $5 million amount in controversy requirement was met. (Watkins, supra, at p. 6) Applying the provisions of CAFA, the Ninth Circuit held it did have appellate jurisdiction to consider the district court s sua sponte remand order. The Ninth Circuit then reversed the remand order and instructed the district court to exercise jurisdiction over the case. (Watkins, supra, at p. 3)

3 CAFA, a brainchild of the Senate Judiciary Committee, was passed by the 109 th Congress in As the Legislative History and Senate Report make clear, the express purpose of CAFA was to increase the ability of federal courts to exercise jurisdiction over class actions. The Judiciary Committee s report described the proposed Act as a modest, balanced step that would address some of the most egregious problems in class action practice. (See, Senate Report (2005), p. 4, III) Additionally, the report noted [o]ne key reason for these problems is that most class actions are currently adjudicated in state courts, where the governing rules are applied inconsistently (frequently in a manner that contravenes basic fairness and due process considerations) and where there is often inadequate supervision over litigation procedures and proposed settlements. (Id.) Accordingly, CAFA amended the diversity jurisdiction statute (28 U.S.C. 1332) to allow federal courts to hear more interstate class actions on a diversity jurisdiction basis Among the various amendments made, and specifically with respect to the issues in Watkins, CAFA amended section 1332(d)(2) to provide the district courts with original jurisdiction over class actions in which the matter in controversy exceeds $5 million and also where any member of a class of plaintiffs is a citizen of a State different from any defendant; (28 U.S.C. 1332(d)(2)) Also, CAFA created an exception to the general rule that district court remand orders are not reviewable on appeal (as found in 28 U.S.C. 1447(d)). CAFA instead established that a court of appeals may accept an appeal from an order of a district court granting or denying a motion to remand a class action to the State court from which it was removed (28 U.S.C. 1453(c)(1)) In Watkins, the Ninth Circuit preliminarily wrestled with its authority to even consider defendant s appeal. As set forth above, CAFA expressly provides that orders granting or denying a motion to remand are appealable. The district court in Watkins issued its remand order sua sponte, and the Ninth Circuit had never expressly addressed the jurisdictional question of whether CAFA applies to remand orders issued sua sponte. In its briefing, MPP argued the exercise of appellate jurisdiction over the district court s order was necessary to avoid creating a loophole by which district courts could side-step CAFA by issuing remand orders sua sponte. The Ninth Circuit agreed and opted to exercise appellate jurisdiction over the case. The Ninth Circuit stated to find otherwise would be inconsistent with CAFA s clearly expressed

4 intention that class actions are exempt from the general jurisdictional rule that district court remand orders are not reviewable on appeal. (Watkins, supra, at p. 6) Turning to the merits, the Ninth Circuit considered whether defendant met its burden of proving that the amount in controversy exceeds $5 million. Of particular interest to the appellate court was the fact the district court s remand order did not discuss the declaration submitted by defendant s Controller, which specifically stated that defendant s protein bar sales over the last 4 years exceeded $5,000,000. (Watkins, supra, at p. 5) Instead, the district court only addressed MPP s attorney declaration, which pointed out the various portions of Watkins own complaint which also supported a finding that the amount in controversy exceeded $5 million. The district court s order stated the MPP attorney declaration was insufficient to establish it is more likely than not that more than $5 million is in controversy. Notably, in finding defendant s evidence to be insufficient, the district court stated [d]efendant does not submit any documentation to support its claim that its sales exceeded $5 million. However, as pointed out by MPP s appellate briefs (and also by the Ninth Circuit s ultimate opinion) it was unclear whether the district court had, in fact, considered defendant s Controller s declaration establishing $5 million in sales. Regardless of whether the district court considered the Controller declaration or not, the Ninth Circuit found that the un-opposed Controller declaration was sufficient to establish that CAFA s $5 million amount in controversy requirement is met in this case. (Watkins, supra, at p. 7) Accordingly, the district court s remand order was reversed and the matter was sent back with instructions that the district court exercise jurisdiction. The holding in Watkins is significant in so far as it closes any potential loophole which might have allowed district court s to avoid appellate review of class action remand orders by issuing said orders sua sponte. Thanks to the Ninth Circuit s ruling, any litigant appealing a sua sponte remand order in a class action may now rely upon this on point case law when defending against arguments that the express terms of CAFA do not apply to such orders. More importantly, however, the Watkins ruling is instructive to litigants seeking to invoke the exercise of federal jurisdiction over a class action pursuant to 28 U.S.C. 1332(d)(2). The Ninth Circuit s decision in

5 Watkins establishes clear precedent that a declaration from the defendant is sufficient to establish the $5 million amount in controversy requirement. What this really means to litigants and, most importantly, to their clients is that delicate information such as receipts, invoices and sales records need not necessarily be produced as evidence to secure removal of the action to federal court. Rather, a simple declaration establishing sales which exceed $5 million, like the one submitted by the defendant in Watkins, is sufficient. However, it should be noted that Watkins dealt with an un-opposed declaration. In cases where a party s removal notice is challenged on the factual grounds that the amount in controversy does not exceed $5 million, and particularly where the removing party s declaration(s) in support of removal are under attack, additional documentation may be needed to meet the removing party s burden of proof. MPP s victory in the Ninth Circuit benefitted not only its client, but also the legal community in general. The Watkins decision establishes new, clear law on the appealable nature of sua sponte remand orders. Lastly, this decision creates favorable precedent for the type of evidence needed to invoke federal jurisdiction under CAFA. This article is designed to provide information in regard to the subject matter and may not reflect the most current legal developments, verdicts or settlements. This information is made available with the understanding that the article does not constitute the rendering of legal advice or other professional services. If legal advice is required, such services should be sought Morris Polich & Purdy LLP. All rights reserved.