Tuesday, April 5, 2011

But They Just Can't Kill The Beast: Seventh Circuit Makes Latest Attempt To Slay "Reasonable Probability" Test For Amount in Controversy Requirement

In the wake of Shaw v. Dow Brands, Inc., 994 F.2d 364, 366 (7th Cir. 1993), several courts in the Seventh Circuit held that defendants seeking to remove diversity actions from state to federal courts bore the burden or proving by a preponderance of the evidence that there was a "reasonable probability" that the amount in controversy requirement had been satisfied. In fact, by the time that the Seventh Circuit decided Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536 (7th Cir. 2006), "[t]he 'reasonable probability' language...ha[d] been repeated in six other decisions of th[e Seventh] circuit plus more than 80 decisions of district judges within [the Seventh CIrcuit]-and, as far as we can ascertain, by no judge outside this circuit." The fact that courts in the Seventh Circuit were still using the "reasonable probability" test in connection with the amount in controversy requirement in 2006 was surprising to the court, which thought it had put it to rest in its 2005 opinion in Brill v. Countrywide Home Loans, Inc., 427 F.3d 446 (7th Cir. 2005). But like a movie monster, the test just wouldn't die. The Seventh Circuit thus sought to make its intentions clear in Sadowski by concluding

To recap: a proponent of federal jurisdiction must, if material factual allegations are contested, prove those jurisdictional facts by a preponderance of the evidence. Once the facts have been established, uncertainty about whether the plaintiff can prove its substantive claim, and whether damages (if the plaintiff prevails on the merits) will exceed the threshold, does not justify dismissal....Only if it is "legally certain" that the recovery (from plaintiff's perspective) or cost of complying with the judgment (from defendant's) will be less than the jurisdictional floor may the case be dismissed. 

But, despite this language, the "reasonable probability" test. just. wouldn't. die. The Seventh Circuit's latest attempt to drive a stake into the heart of the test was its opinion last Friday in Back Doctors Ltd. v. Metropolitan Property and Cas. Ins. Co., 2011 WL 1206184 (7th Cir. 2011). WIll this attempt be successful?

In Back Doctors, Back Doctors filed a class action suit in Illinois state court, contending that the defendant, an insurer, uses software that pays medical providers less than the policies require the insurer to pay. The action sought $2.9 million in damages, and the defendant removed the action to federal court under the Class Action Fairness Act of 2005. According to the defendant, the amount in controversy exceeded $5 million (as required by CAFA) because the plaintiffs could recover more than $2.1 million in punitive damages. The district court then remanded the action to state court because "Back Doctors did not expressly ask for a punitive award and did not include in the complaint allegations of wanton or egregious conduct." Indeed, Back Doctors declared in the district court that it did not “now” want punitive damages. Accordingly, the district court found that the defendant had not established a "reasonable probability" that the amount in controversy exceeded $5 million.

The defendant thereafter appealed, and the Seventh Circuit resolved its appeal summarily. Judge Easterbrook wrote the opinion and expressed consternation at the fact that the "reasonable probability" test apparently has more lives than Jason Voorhees. He then made the court's latest attempt to slay thee beast, concluding that

There is no presumption against federal jurisdiction in general, or removal in particular. The Class Action Fairness Act must be implemented according to its terms, rather than in a manner that disfavors removal of large-stakes, multi-state class actions. When removing a suit, the defendant as proponent of federal jurisdiction is entitled to present its own estimate of the stakes; it is not bound by the plaintiff's estimate....Once this has been done, and supported by proof of any contested jurisdictional facts, the presumption is the one stated in St. Paul Mercury: the estimate of the dispute's stakes advanced by the proponent of federal jurisdiction controls unless a recovery that large islegally impossible. So the question here is not whether the class is more likely than not to recover punitive damages, but whether Illinois law disallows such a recovery. (If the class should be awarded punitive damages, even a one-to-one ratio of punitive to actual damages would result in a total award exceeding $5million, if the class's position about actual damages is right.) (emphasis added).

Judge Easterbrook thereafter found that recovery of more than $5 million by the plaintiffs was not an impossibility because the plaintiffs did not 

forswear[] any effort to collect more than the jurisdictional threshold....Back Doctors did not file in state court a complaint that disclaimed punitive damages or otherwise make a disavowal that is conclusive as a matter of state law.

Judge Easterbrook did note that Back Doctors claimed before the district court that it did not "now" want punitive damages, but he found this fact to be irrelevant because, inter alia, "events after the date of removal do not affect federal jurisdiction, and this means in particular that a declaration by the plaintiff following removal does not permit remand." The Seventh Circuit thus vacated the order returning the suit to state court is vacated and remanded the case to the district court for a decision on the merits. So, is the "reasonable probability" test finally dead, or should the Seventh Circuit start sharpening its knives for another sequel? Only time will tell.

(Hat tip to my student and research assistant Christopher Floss)

-Colin Miller


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