Eleventh Circuit Expands Type of Evidence Used to Establish Amount In Controversy for Removal

The Eleventh Circuit, in Pretka v. Kolter City Plaza II, Inc. recently reexamined and rejected as dicta broad statements in Lowery v. Alabama Power Co., 483 F.3d 1184 (11th Cir. 2007), that limit the type of evidence used to establish the amount in controversy for removal.

The plaintiffs in Pretka, buyers of units in a new high-rise condominium in Florida, filed a class-action suit against the developer, Kolter City Plaza II, Inc., for rescission of their contracts and return of their deposits because of construction delays. The complaint did not specify the amount in controversy, stating only that the case was an action for monetary damages in excess of $15,000 (the jurisdictional requirement in Florida state courts). Kolter removed the case to the Southern District of Florida under the Class Action Fairness Act (CAFA), stating in the notice of removal that the $5 million amount-in-controversy requirement was met because the company had collected purchase deposits for units at the condominium totaling in excess of $5 million. Kolter attached to its notice a sworn declaration to this effect by the chief financial officer of Kolter’s parent company.

The plaintiffs filed a motion to remand, arguing that the Eleventh Circuit’s decision in Lowery required the district court to ignore the declaration because it was not a document received from the plaintiff.  Kolter filed an opposition to remand, submitting additional evidence, including the first three pages of every unnamed plaintiff’s contract whose deposit Kolter had not returned, and a sworn declaration from the contract and closing manager for Kolter’s parent company attesting that she had personally reviewed all of the contracts and financial records for purchase deposits and they totaled $41,183,226.08. At a hearing, the plaintiffs, relying on Lowery, argued that the district court was limited to the “four corners” of the documents the plaintiffs had provided to the defendants, and insisted that the two declarations and the contracts were “extraneous.”

The district court, relying on Lowery, remanded the case, ruling that Kolter had failed to prove by a preponderance of evidence that the amount in controversy exceeded $5 million. The court read Lowery as (1) barring consideration of the declarations and the unnamed plaintiffs’ contracts because none of them was “a document received by Defendant from Plaintiffs”; (2) requiring it to reject Kolter’s “impermissible speculation” on the “potential damage claim of putative class members, as opposed to named plaintiffs”; and (3) barring consideration of the second declaration and the unnamed plaintiffs’ contracts because Kolter did not submit them with its notice of removal.

The Eleventh Circuit reversed in a 72-page decision thoroughly examining the statements in Lowery that led to this result, and clarifying the law on evidence used to establish the amount in controversy. First the court distinguished Lowery because the record in Lowery “contained only ‘naked pleadings’—no specific factual details, no discovery, no affidavits or declarations, no testimony, no interrogatories and no exhibits other than the complaints.” Slip op. at 17. The court sought to clear up any misunderstanding of Lowery:

We stated in Lowery that “[t]he absence of factual allegations . . . is dispositive and, in such absence, the existence of jurisdiction should not be divined by looking to the stars.” But Lowery did not say . . . that the use of deduction, inference, or other extrapolation of the amount in controversy is impermissible, as some district courts have thought. . . . [W]hen a removing defendant makes specific factual allegations establishing jurisdiction and can support them . . . with evidence combined with reasonable deductions, reasonable inferences, or other reasonable extrapolations[,]   [t]hat kind of reasoning is not akin to conjecture, speculation, or star gazing.

The court also pointed out that in Lowery the defendant removed under the second paragraph of 28 U.S.C. § 1446(b), which provides that “[i]f the case stated by the initial pleading is not removable, a notice of removal may be filed within thirty days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable . . . ,” whereas Kolter was relying on the first paragraph of § 1446(b), because Kolter filed its notice of removal within thirty days of being served with the summons and initial complaint. The court explained that while, in a “second paragraph” case the traditional rule is that only a voluntary act by the plaintiff may convert a non-removable case into a removable one, and an initially non-removable case cannot be converted into a removable one by evidence from the defendant, that rule (the “receipt from the plaintiff” rule) has no application to cases removed under the first paragraph of § 1446(b). 

The court rejected as unpersuasive dicta two statements in Lowery: that the “receipt from the plaintiff” rule is not limited to removals made under the second paragraph of § 1446(b) but also applies to first paragraph removals, and that the “receipt from the plaintiff” rule would apply to any case in which the complaint sought unliquidated damages. The court concluded that in Pretka, which arose under the first paragraph of § 1446(b), the evidence Kolter could use to establish the jurisdictional facts was not limited to what it received from the plaintiff, and that the district court erred in rejecting the declaration submitted with the notice of removal and the post-removal evidence—the contracts and the second declaration. With this evidence the defendants were able to establish the amount in controversy by a preponderance of the evidence, and the court instructed the district court to rescind the order remanding the case.

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