We were excited two years ago when we read the legislative history of the Class Action Fairness Act of 2005 (“CAFA”). The Senate Judiciary Committee clearly intended CAFA to reverse the traditional burden of proof on remand motions. Before CAFA, the party seeking to invoke federal jurisdiction — the defendant who removed the case — bore the burden of establishing federal jurisdiction. But CAFA would change that rule:

“It is the Committee’s intention with regard to each of these exceptions that the party opposing federal jurisdiction shall have the burden of demonstrating the applicability of an exemption. . . . [I]f a plaintiff seeks to have a purported class action remanded for lack of federal diversity jurisdiction . . . that plaintiff should have the burden of demonstrating that ‘all matters in controversy’ do not ‘in the aggregate exceed the sum or value of $5,000,000, exclusive of interest and costs’ or that ‘the number of all proposed plaintiff classes in the aggregate is less than 100.'”

Senate Report 109-14, 109th Cong. 1st Sess. at 44 (2005).

Young men are easily deceived, for they are quick to hope. Heck, even old guys like us are easily deceived when they’re quick to hope.

To date, the cases have broken against defendants on this issue. Most appellate courts have held that the legislative history of CAFA, purportedly divorced from any language that made its way into the statute, is not sufficient to reverse the burden of proof on remand motions. See, e.g., Serrano v. 180 Connect, Inc., __ F.3d __, 2007 WL 601984 (9th Cir. Feb. 22, 2007); Morgan v. Gay, 471 F.3d 469 (3d Cir. 2006); Miedema v. Maytag Corp., 450 F.3d 1322 (11th Cir. 2006); Brill v. Countrywide Home Loans, Inc., 427 F.3d 446 (7th Cir. 2005).

Even in courts that continue to place the burden of proof on defendants, however, there’s room to wiggle. If the plaintiff pleads that less than $5 million is in controversy, by what level of proof must the defendant dispute that allegation to carry its burden to establish federal jurisdiction? Must the defendant prove that the amount in controversy exceeds the jurisdictional minimum to a “legal certainty,” or must it establish the facts only by a “preponderance of the evidence” to prevail? Recently, the law broke against defendants on that narrower point, too — at least in the Ninth Circuit.

The case is Lowdermilk v. United States National Bank, __ F.3d __ (9th Cir. Mar. 2, 2007). Here’s a link to the majority; here’s a link to the dissent. There, the majority held that the plaintiff’s Complaint placed less than $5 million in controversy. (The dissent disagreed on even that basic issue.) The majority then held that the defendant must prove “to a legal certainty” that the jurisdictional amount was satisfied. Since the court found that the defendant had not carried that heavy burden, the Ninth Circuit affirmed the trial court’s remand order.

The Ninth Circuit rested its decision on two bases. First, federal courts have only limited jurisdiction, and imposing a “legal certainty” standard guards the presumption against federal jurisdiction. But what’s the harm from allowing a defendant to establish federal jurisdiction by a mere preponderance of the evidence? That’s the standard of proof for an awful lot of other issues in the law. And once jurisdiction is established, a federal court can hear a case without risk. Many plaintiffs, for example, plead that $75,000 is in controversy, have their cases heard in federal court, and ultimately recover less than $75,000. Federal courts don’t lack jurisdiction over those cases; they decide them, and they decide that the plaintiff loses (or recovers little). Surely there’s no looming inefficiency if defendants in class actions are permitted to establish federal jurisdiction by a preponderance of the evidence. The federal trial court won’t later lose jurisdiction over those cases.

The Ninth Circuit’s second rationale was that the “legal certainty” standard “maintains symmetry in our rules.” Slip op. at 11. “[W]e already require that a defendant seeking remand [sic — dismissal] for a case initially filed in federal court must show with ‘legal certainty’ that the claim is actually for less than the jurisdictional amount.” Id.

This logic really gets our dander up. If a plaintiff says that a lot of money is in dispute, a defendant naturally says that it ain’t so; very little is actually in issue. Thus, when a defendant is required to show that the amount in controversy is small, the defendant is arguing in its own best interest. Requiring the defendant to make that argument stridently — to insist that the plaintiff’s claim is valueless to a legal certainty — is not unfair.

But when the situation is reversed, the defendant is forced to argue against its own interest on the merits. When the plaintiff say that less than $5 million is in controversy, and the defendant must prove the opposite — that a great deal of money is actually in dispute — the defendant is placed in a delicate situation. The defendant must “prove” that lots of money is on the table, even though the defendant believes that it should win the case — that the plaintiff’s case is in fact worthless. It’s terribly problematic to require a defendant to “prove” to a “legal certainty” that the claims pleaded against it are valuable. We see the “symmetry” in the court’s rules requiring proof to a “legal certainty” in both situations, but we don’t see the logic. Why not err in favor of permitting parties to make arguments that help their own causes, rather than their opponents?

To date, there are only two judges in the Ninth Circuit who have held that, when a plaintiff’s Complaint pleads less than the jurisdictional minimum under CAFA, a defendant must prove the amount in controversy for removal jurisdiction to a legal certainty.

We’re hoping that this one stray decision does not become a trend – or that the Supreme Court will once again set the Ninth circuit straight. Courts should not gratuitously force parties to make jurisdictional arguments that threaten to undercut the parties’ position on the merits.