In Arias v. Residence Inn by Marriott, the Ninth Circuit clarified and reiterated standards related to the removal of an action to federal court under the Class Action Fairness Act (“CAFA”) — namely, what a defendant must show to meet the CAFA amount in controversy requirement and how a district court may respond to a notice of removal.

When removing based on CAFA jurisdiction, a defendant must show minimum diversity (any member of the class is a citizen of a state different from any defendant), a class size of at least 100, and an amount in controversy exceeding $5 million. See 28 U.S.C. § 1332(d)(2), (d)(5)(B).

Here, Arias filed a putative class action in state court against her employer, Residence Inn by Marriott, LLC, claiming that Marriott violated state wage and hour laws. Arias also sought attorneys’ fees.

Marriott removed to federal district court, invoking CAFA jurisdiction. In its notice of removal, Marriott calculated the amount in controversy based on the complaint’s definition of the class, Marriott’s employee data, and assumptions about the frequency of the violations alleged in the complaint. Marriott’s most conservative estimate placed the amount in controversy at over $5.5 million, excluding attorneys’ fees.

On its own motion, the district court remanded the case to state court, holding that Marriott failed to satisfy its burden of showing that the amount in controversy exceeds $5 million because Marriott’s calculations were unpersuasive, as they rested on speculation and conjecture. The district court faulted Marriott for not offering evidentiary support for its assumptions about the frequency of violations. Also, the district court concluded that “prospective attorney’s fees are too speculative” to be included in the amount in controversy.

On appeal, the Ninth Circuit determined that the district court was wrong about each of these conclusions.

Setting the tone, the Ninth Circuit reminded us that the United States Supreme Court has held that there is no antiremoval presumption in cases invoking CAFA. In that vein, the Ninth Circuit reaffirmed three principals in CAFA removal cases:

(1)   a notice of removal must include only plausible allegations of the jurisdictional elements — evidentiary submissions are not required;

(2)   a defendant’s showing on the amount in controversy may rely on reasonable assumptions; and

(3)   if attorneys’ fees are at play (by statute or contract), then future attorneys’ fees must be included in the assessment of the amount in controversy.

In light of these principals, the Ninth Circuit explained how the district court erred.

First, evidence showing the amount of controversy is only required when the plaintiff contests, or the court questions, the defendant’s allegations. The district court did not find Marriott’s allegations to be implausible. Rather, the district court rejected the allegations because Marriott failed to provide evidence supporting its assumptions. Under such circumstances, a district court may not remand a case back to state court without first giving the defendant an opportunity to show by a preponderance of the evidence that the jurisdictional requirements are met, which the district court failed to do here.

Second, a removing defendant is permitted to rely on a chain of reasoning that includes assumptions, when assessing the amount in controversy. Such an assumption may be reasonable if it is based upon the allegations of the complaint. When reviewing such reasoning and assumptions, the amount in controversy will reflect the maximum recovery the plaintiff could reasonably recover. The district court improperly rejected Marriott’s assumptions based on a conclusion that the damages at issue might be less than $5 million. It is not fair to assess the jurisdictional requirements based on the lowest amount the damages might be.

Third, the Ninth Circuit admonished the district court for misreading a split of authority on the issue of whether to count attorneys’ fees in the amount in controversy calculation. A court must include future attorneys’ fees that are recoverable by statute or contract when assessing whether the amount in controversy requirement is met.

In sum, when removing an action based on CAFA, defendant’s bear the burden of plausibly alleging that the amount in controversy has been met. Only if the plaintiff or court challenge the plausibility of those allegations must the defendant show, by a preponderance of the evidence, that the amount in controversy requirement has been met. District courts must treat such allegations fairly, and may not remand plausible allegations without affording the defendant an opportunity to submit evidence. Accordingly, the Ninth Circuit vacated and remanded Arias on an open record.

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