Court Holds as Matter of First Impression in Second Circuit that CAFA does not Modify Burden of Proof to Establish Removal Jurisdiction, and Affirms Remand of Class Action to State Court because Defense Failed to Establish Requisite Amount in Controversy
Plaintiff filed a putative class action against the third party administrator of a pool funded by Medicaid and Medicare, seeking ‘”an accounting of all amounts by which the Pool has been funded and reduced”; defense attorneys estimated this amount to be $40 million (though the complaint was silent as to the amount), and argued that plaintiff had placed that entire amount at issue. The defense removed the class action to federal court under the Class Action Fairness Act of 2005 (CAFA), but the district court remanded the action to state court. DiTolla v. Doral Dental IPA of New York, LLC, 469 F.3d 271, 272-73 (2d Cir. 2006). On appeal, defense attorneys argued that the $5 million “amount in controversy” test was satisfied. Id., at 273. The Second Circuit disagreed.
Preliminarily, the Second Circuit considered the statutory requirement that, absent an extension of time under 28 U.S.C. § 1453(c)(3), the appellate court issue an opinion within 60 days of the granting of an appeal from an order granting or denying remand. DiTolla, at 274. Under 28 U.S.C. § 1453(c)(4), the appeal is deemed denied if a final judgment is not issued within that 60-day window. In DiTolla, defense attorneys sought permission to appeal in May 2006, and permission was granted in July 2006. The defense team filed their brief on August 17, 2006, and a month later, on September 21, 2006, the parties stipulated to extend time for issuance of a opinion. Id. Plaintiff argued that the appeal was “filed” in May, and that the Circuit Court therefore lacked authority to grant permission to appeal because that order came 66 days after the “filing” of the appeal. Id. The Second Circuit disagreed, holding at page 274: “We reject this interpretation . . . and hold that the ‘filing’ of the appeal for CAFA purposes occurs on the date in which this Court issues an order granting permission to appeal.” The Court observed at page 275 that its interpretation is consistent with case law out of the Fifth, Seventh, Ninth and Eleventh Circuits.
The Circuit Court then turned to the question of burden of proof, observing that whether CAFA modified the traditional burden of proof for establishing removal jurisdiction was a matter of first impression in the Second Circuit. DiTolla, at 275. The defense maintained that “it would be ‘unsound’ to hold that Congress intended to adopt the traditional rule in the context of CAFA actions”; the Court paid short shrift to the argument, joining the Seventh, Ninth and Eleventh Circuits in holding that CAFA did not alter the burden of proof. Id. The Court explained at page 275:
[I]t would be thoroughly unsound for this Court to reject a longstanding rule absent an explicit directive from Congress. . . . We presume that Congress, when it enacted CAFA, knew where the burden of proof had traditionally been placed. By its silence, we conclude that Congress chose not to alter that rule. (Citations omitted.)
Finally, the Second Circuit held that the defense had not established an amount in controversy sufficient to invoke diversity jurisdiction under CAFA. DiTolla, at 275-77. The class action complaint did not specify any particular amount of damages, and in fact alleged that the purpose of the litigation was “to compel disclosure of whether a scheme whereby a fund of millions of dollars . . . was fraudulently bilked by Defendants,” id., at 276 (citation omitted). The Circuit Court found the defense evidence both ambiguous (in that it referred to “Pools” rather than the single “Pool” at issue in the complaint) and inadequate (in that it did not establish actual amount of funds that entered and left the Pool). Id. Based on its detailed review of the evidence submitted below, the Court of Appeals held that defendants had “failed to demonstrate that the claim here satisfies CAFA’s jurisdictional amount in controversy.” Id., at 277.