The Appellate Strategist

Insights on appellate issues, trial consultations, and evaluating appeals

Texas Supreme Court: Cattle Rustling Justifies Punitive Damages … But Amount is Constitutionally Excessive

By on Posted in Texas

Two Texas ranchers had a long-standing feud. During a drought, 13 of plaintiff’s cattle strayed from plaintiff’s ranch to defendant’s property along a dry river bed. Defendant rounded up the cattle and sold them, despite warnings from the ranch hands that the cattle were not his.

Plaintiff brought a conversion action and prevailed at trial. The jury awarded $5,327.11, the price of the cattle and $1.25 million in punitive damages. Because the jury also found that defendant had violated a felony statute, the statutory caps on punitive damages did not apply and the trial court awarded the entire amount of the verdict.

In Bennett v. Reynolds (.pdf), the Texas Supreme Court held that the facts warranted the imposition of punitive damages despite the absence of bodily injury or crushing pecuniary loss. The deliberate taking of another person’s cattle fit the statutory definition of “malice.”

The court also considered the extent to which a fact-finder could consider conduct separate from the underlying tort in determining liability for punitive damages. Defendant had allegedly attempted to bribe and threaten witnesses, tamper with the evidence, and bring meritless litigation against witnesses. The court held that the jury could consider these acts in determining the reprehensibility of the defendant’s conduct. “Obviously, a tortfeasor’s attempts to cover his tracks and escape responsibility can imply willfulness.”

Nevertheless, the court reversed the judgment. The award exceeded the permissible ratio of compensatory to actual damages established in State Farm Mut. Auto. Ins. Co. v. Campbell (.pdf). That case held that, except for particularly egregious cases, a 4:1 ratio neared the outer bounds of constitutionally permitted punishment. The case before the court was not sufficiently serious to warrant a deviation from this guideline. The court remanded the case for reassessment of punitive damages in light of the opinion.

AUTHOR’S NOTE: The great-grandfather of the author of this post was forced to leave Texas for a brief time after he and a neighbor captured a livestock thief on his ranch. They issued a “summary judgment” which led to the kind of punitive measures that cannot be corrected on appeal.

The California Supreme Court Further Restricts the Peculiar Risk Doctrine

By on Posted in California

In Tverberg v. Fillner Construction, Inc., the Supreme Court resolved a conflict in the lower courts by holding that the peculiar risk doctrine does not make a hiring party liable for workplace injuries of an independent contractor or subcontractor. In doing so, the Court departed from the rationale in Privette, holding instead that an independent contractor, unlike an employee, has the ability to determine the manner in which inherently dangerous construction work will be performed, and thus assumes legal responsibility for carrying out the contracted work, including the selection of workplace safety precautions. Having assumed responsibility for workplace safety, an independent contractor is barred from holding a hiring party vicariously liable for injuries resulting from the contractor’s own failure to effectively guard against the inherent risks of the contracted work. As such, the Court reversed, while upholding the result, if not the specific rationale, in Michael v. Denbeste Transp., Inc. (2006) 137 Cal.App.4th 1082. For more Tverberg case history, see theTorts & Products update page.

Supreme Court: Removal-for-Good-Cause Provision in Sarbanes-Oxley Act Unconstitutional Restraint on President’s Authority

By on Posted in Federal

The Sarbanes-Oxley Act of 2002 created the Public Company Accounting Oversight Board, an agency with broad authority to regulate accounting firms that perform audits of publicly-traded corporations. The Board is formally placed under the Security and Exchange Commission, but the Commission may only remove Board members pursuant to a stringent good cause requirement.

In Free Enterprise Fund v. Public Company Accounting Oversight Board (.pdf), the Supreme Court considered a challenge that the good cause removal provision violated separation of powers principles by creating a second level of employment protection for Board employees. (The majority opinion found that the SEC members themselves were removable only for good cause). The five-member majority, in an opinion authored by Chief Justice Roberts, held that the ability to remove inferior officers was an important part of the President’s power and obligation to ensure the faithful execution of the laws. The double layer of good cause protection for Board members effectively insulated them from presidential oversight, violating separation-of-powers principles.

Having won the battle, Petitioner then lost the war. The Court held that the invalid removal provisions were severable from the remaining provisions of Sarbanes-Oxley. Consequently, the Board action that Petitioner complained of was not invalid.

The dissenting opinion, authored by Justice Breyer, argued that the removal-for-good-cause provision was a valid exercise of legislative authority and that the majority’s ruling would call the authority of numerous other federal agencies into question.

So What Does “Advice and Consent” Mean Anyway?

By Kirk Jenkins on Posted in Constitutional Law, Federal, Supreme Court Vacancy

Supreme Court confirmation hearings have come in for a lot of criticism in recent years. They’ve been called a “Kabuki Dance” and a process which has “take[n] on an air of vacuity and farce.”

Amid all the discussion of whether or not nominees have become more evasive recently – a subject we’ll address later in the week – an important question has gotten somewhat less attention in our ongoing national conversation. What does the Senate’s duty to give “advice and consent” mean anyway? Is a Senator entitled to ask a nominee about a hot-button issue – abortion, guns, the death penalty – and expect an answer? Is it legitimate for a Senator to vote against a nominee because of a perception that she’s too liberal or too conservative?

The “advice and consent” language arose out of a lengthy debate in the Constitutional Convention, the result of a compromise to a long-ending battle between those who wanted the Congress – or the Senate alone – to appoint judges, and other delegates who would have assigned that power exclusively to the President. Reviewing the evidence, it seems difficult to believe that a majority of the Convention supported a pro forma Senate role in confirming Supreme Court nominees.

Anyone arguing that the Senate should play only a deferential role faces an additional barrier. There’s considerable evidence that most seventeenth and eighteenth century rejections – including at least one, John Rutledge, by a Senate which counted several Founders among its members – were for political reasons.

The story begins with Edmund Randolph’s “Virginia Plan,” which proposed a “National Judiciary . . . to be chosen by the National Legislature.” A few days later, one of America’s first great lawyers, James Wilson, criticized the proposal for Congressional appointment, arguing that judges should be appointed exclusively by the Executive Branch. Benjamin Franklin suggested that the Convention might consider other methods of selecting judges, noting that in Scotland, lawyers picked the judiciary:

[T]he Lawyers . . . always selected the ablest of the profession in order to get rid of him, and share his practice (among themselves).

James Madison didn’t like either Congressional or Presidential appointment, and successfully moved to put the question aside for a while.

The following week, the Convention returned to the question. Madison argued that if the appointment power was given to the entire Congress, members would tend to appoint one of their own. He proposed that the Senate make the selection, and the Convention agreed.

In the days that followed, William Paterson of New Jersey proposed the “New Jersey Plan,” which would have allocated the power to appoint judges exclusively to the President, and Alexander Hamilton proposed a compromise – Presidential appointment, “subject to the approbation or rejection of the Senate.” But for the time being, the Convention held fast to the idea of appointments by the Senate.

There the matter rested for a month. In mid-July, Nathaniel Gorham of Massachusetts proposed a model rooted in his own state’s constitutional practice – appointment by the President, with the advice and consent of the Senate. Gorham almost immediately picked up an important ally – James Wilson, a prime proponent of Presidential appointment. Roger Sherman of Connecticut, a supporter of Congressional appointment, indicated that he might be willing to settle for advice-and-consent as well, but other delegates weren’t convinced. Ultimately, the whole matter was handed over to the Committee on Detail, which reported a draft in early August restoring Senate appointment.

By early September, there seems to have been some sentiment in the Convention for cutting back slightly on the Senate’s power. The Committee on Compromise presented its report, once more calling for Gorham’s plan – Presidential appointment, with the advice and consent of the Senate. James Wilson, who had earlier supported Gorham, back-tracked, arguing for Presidential appointment subject to the non-binding advice of a “Privy Council,” but Wilson’s proposal received little support, and the Committee on Compromise’s “advice and consent” appointments clause was adopted.

So if the Senate wasn’t intended to defer to the President’s choice, what is a reasonable test for a Senator to apply in deciding whether or not to support confirmation? Join us below the jump for the views of three prominent players in Solicitor General Kagan’s confirmation.

Continue Reading

High Court Sides With Hastings in Religious Student Organization Debate

By Angelo Carosio on Posted in Constitutional Law, Federal

Yesterday, a divided U.S. Supreme Court affirmed the University of California, Hastings College of the Law’s right to condition official recognition of a Christian student group on the organization’s agreement to open eligibility for membership and leadership to all students – including homosexual students. In an opinion on behalf of a narrow 5-4 majority, Justice Ginsburg concluded the law school’s policy – that a registered student organization (“RSO”) allow any student to participate, become a member, or seek leadership positions in the organization, regardless of [her] status or beliefs – is a “reasonable, viewpoint-neutral condition on access to the student organization forum.” Justice Alito, who authored a vigorous dissent joined by the Chief Justice and Justices Scalia and Thomas, called the majority’s decision “a serious setback for freedom of expression in this country,” and characterized the ruling as a surrender to political correctness.

An initial and notable divide between the majority and the dissent is a disagreement over what law school policy was to be measured for constitutionality.  The law school maintains a published “non-discrimination policy” that prohibits student groups from “discriminate[ing] unlawfully on the basis of race, color, religion, national origin, ancestry, disability, age, sex or sexual orientation.” But at the district court level, both the law school and the Christian student group, the Christian Legal Society (“CLS”), had stipulated to the following characterization of the Hastings policy under which it was denied recognition: “Hastings requires that registered student organizations allow any student to participate, become a member, or seek leadership positions in the organization, regardless of [her] status.” Because of this stipulation, the constitutionality of this “all-comers policy,” as it was dubbed, was, according to the majority, the only question properly presented to the Court. The dissent rejected the assertion that the all-comers policy was merely an interpretation of the non-discrimination policy, and furthermore suggested that the law school’s all-comers policy was a pretext for discriminatory motives and litigation interests.

In its analysis, the majority first concluded that the limited-public-forum was the appropriate constitutional framework by which to measure the constitutionality of the all-comers policy.  The majority and Justice Stevens in a concurring opinion emphasized that the nature of the public forum at issue and the method by which Hastings influences it as warrants less than strict constitutional scrutiny. The majority stressed that “Hastings, through its RSO program, is dangling the carrot of subsidy, not wielding the stick of prohibition.” And Justice Stevens insists that it is appropriate for the law school to retain a measure of control over a “forum” it creates and funds: “[t]he RSO forum . . . is not an open commons that Hastings happens to maintain. It is a mechanism through which Hastings confers certain benefits and pursues certain aspects of its educational mission.”

Calling the all-comers policy “paradigmatically viewpoint neutral,” the majority distinguished the present case from precedents in Healy v. James 408 U.S. 169 (1972), Widmar v. Vincent, 454 U.S. 263(1981), and Rosenberger v. Rector and Visitors of Univ. of Va., 515 U.S. 819 (1995), by saying that in those prior cases, “we ruled that student groups had been unconstitutionally singled out because of their points of view.” In considering the reasonableness of Hastings’ policy, “taking into account the RSO forum’s function and ‘all the surrounding circumstances,’” the Court noted its considerable deference to the school administration’s judgment regarding its educational policy. The Court characterized the all-comers policy as ensuring that “leadership, educational, and social opportunities” remained available to all students, that it served as an aid to Hastings in helping to police its non-discrimination policy, that it “encourage[d] tolerance, cooperation, and learning among students” and finally that it was consistent with existing State anti-discrimination laws. The dissent was not so quick to conclude that the all-comers policy was viewpoint neutral, and was further alarmed by the deference afforded by the majority to the law school’s justifications in defense of its policy, characterizing this deference as an abdication of the Court’s “responsibility to exercise [its] own judgment.”

The reasonableness of the policy was bolstered in the eyes of the majority by the “substantial alternative channels that remain open for CLS-student communication to take place.” In light of whatever viewpoint-neutral access barrier the all-comers policy presented, alternative avenues in electronic media – social networking sites, internet message groups, and Google – lessened the burden on CLS’ First Amendment rights. The dissent flatly rejected this argument, saying “[t]his Court does not customarily brush aside a claim of unlawful discrimination with the observation that the effects of the discrimination were really not so bad.”

Finally, both the majority and Justice Kennedy in a concurring opinion rejected the proposition that an all comers policy that required student groups to accept members holding viewpoints or beliefs contrary to that of the student group could lead to “hostile takeovers” of groups such as CLS by “saboteurs” who could “infiltrate groups to subvert their mission and message.” The majority called this supposition “more hypothetical than real,” pointing to the absence of evidence of “RSO hijacking” at Hastings. To combat such intrusions, the Court emphasized that RSOs were free to condition eligibility for membership and leadership on other factors such as attendance, payment of dues, and other neutral requirements “designed to ensure that students join because of their commitment to a group’s vitality, not its demise.”

While the dissenters hoped that the Court’s decision “turn[s] out to be an aberration,” the Court’s ruling is poised to have a profound effect on a school’s right to define and control its roster of student organizations, and will certainly dictate the outcomes of identical litigation brought by CLS now pending before several lower courts across the country.

Two More Circuits Affirm Antitrust Dismissals Against Government Entities

By Kirk Jenkins on Posted in Antitrust, Federal

It’s been a busy summer at the Circuits for decisions applying the antitrust state action immunity. First up, as we reported three weeks ago, was the Ninth Circuit’s affirmance of the dismissal in Shames v. California Travel and Tourism Commission, [pdf] in which the plaintiffs alleged the California Travel and Tourism Commission had colluded with the rental car industry to pass certain fees to customers. Now, hard on the heels of Shames, we have two more decisions: Danner Construction Co., Inc. v. Hillsborough County Florida [pdf] from the Eleventh Circuit, and Rectrix Aerodrome Centers, Inc. v. Barnstable Municipal Airport Commission [pdf] from the First.

In Danner, the Florida legislature had enacted a statute authorizing Hillsborough County to take “exclusive control” over solid waste disposal within its jurisdiction, and barring anyone other than the county or its franchisees from collecting or disposing of solid waste within the county. Acting under the statute, the county had passed an ordinance providing for awards of franchises for both residential and commercial waste collection. The County Commissioners set collection rates for residential service, but not for commercial service.

A disposal service and a commercial customer sued, arguing that both by restricting the commercial market and by setting below-market rates for residential service, the county’s ordinance essentially authorized price fixing in commercial service.

According to the Eleventh Circuit panel, antitrust claims against state entities are analyzed in two steps. First, the Court asks whether the statute or ordinance is preempted by the antitrust laws. If the answer is yes, the Court then applies the two part test for state action immunity set forth in Midcal to determine whether the challenged conduct is immune from antitrust liability.

The panel majority held that it was unnecessary to decide whether the statute and ordinance were preempted, because even if they were, the county’s conduct was immune under Midcal, since the county’s actions were a foreseeable result of a clearly expressed state policy.

The majority commented in dicta that state statutes can only be preempted when they purport to authorize per se violations of the antitrust laws – appearing to suggest that states can freely authorize rule of reason antitrust violations. The majority’s comment sparked a concurring opinion from Judge Beverly Martin. Judge Martin argued that when a plaintiff brought an “as applied,” rather than a facial challenge to a state action, the statute could be preempted under either per se or rule of reason analysis.

Last week, the First Circuit weighed in, affirming dismissal of antitrust claims in Rectrix. Massachusetts law requires any city or town that establishes an airport to also create an airport commission, which is empowered to lease land, acquire property, set charges and rentals, spend money, and make rules and regulations. Rectrix sued the Barnstable Municipal Airport Commission (BMAC), alleging that the BMAC had prevented it from competing with BMAC in the sale of jet fuel.

It might seem that a statute requiring cities and towns to create airport commissions with administer their airports falls far short of clearly articulating an intention to displace competition, but in fact, a number of Circuits have found state action immunity for similar airport authorities. The First Circuit followed this line of authority, as well as its own earlier decision interpreting the statute creating the Massachusetts Port Authority, Interface Group v. Mass. Port Authority, holding that the statute sufficiently authorized an exclusive dealing arrangement for sales of jet fuel at the airport. Since the plaintiff sued a government entity, rather than a private actor, the Court had no need to apply the second Midcal factor, which asks whether anticompetitive activity is actively supervised by the government.

California Supreme Court Holds To Strict Interpretation Of Anti-Spam Statute

By on Posted in California

In Kleffman v. Vonage Holdings Corp., the Court addressed a legal question from the Ninth Circuit regarding the application of Business and Professions Code §17529.5(a)(2) to spam e-mails that were being sent from multiple domain names to avoid spam filters. While this statute bars spam which “contains or is accompanied by falsified, misrepresented, or forged header information” in an effort to curtail an explosion of spam traffic, the Court held that merely using multiple domain names did not violate this restriction, making the statute inapplicable unless the e-mail ran afoul of its restriction for some other reason. For more Kleffman case history, see the B & P 17200/Class Actions/Commercial update page.

Website Posters Beware – Florida Supreme Court Extends Long-Arm Statute to Nonresident Who Posts Allegedly Defamatory Comments About a Florida Resident on a Website Accessible and Accessed in Florida

By on Posted in Florida

The Supreme Court of Florida, answering a question certified by the Eleventh Circuit Court of Appeals, recently held that posting defamatory material on a website about a Florida resident does constitute the commission of a tortious act within Florida for purposes of the State’s long-arm statute, section 48.193(1)(b), Florida Statutes, if the material on the website is accessible in Florida and is accessed by a third party in Florida.

In Internet Solutions Corporation v. Tabatha Marshall (.pdf), the defendant, Tabatha Marshall, a resident of the State of Washington, owned and operated a website on which she posted about consumer-related issues.  Plaintiff, Internet Solutions Corporation (“ISC”), was an employment and recruiting firm whose principal place of business was in Florida.  ISC filed a defamation action in federal court alleging that Marshall posted statements on her website claiming that ISC was engaged in certain ongoing criminal activity.  Marshall moved to dismiss the complaint for lack of personal jurisdiction on the basis that she had not committed a tortious act in Florida for purpose of Florida’s long-arm statute and that even if ISC could satisfy the long-arm statute, subjecting her to personal jurisdiction would violate her due process rights.  The district court ruled that Marshall was subject to personal jurisdiction under Florida’s long-arm statute, but determined that the exercise of jurisdiction under the circumstances would violate due process.  The complaint was dismissed. 

Continue Reading

So You Want to Be a Friend of Your Local Appellate Court . . .

By Douglas Collodel on Posted in Civil and Appellate Procedure

Naturally, the rules for amicus briefing vary widely from state to state – sometimes even within a single state. Today, we summarize the rules for amicus participation in states having intermediate appellate courts.

Everyone is welcome

Three jurisdictions – Georgia, Pennsylvania and part of Missouri (the Eastern District of the Missouri Court of Appeals) – are very amicus-friendly, welcoming briefs without party or court approval.  In Georgia Courts of Appeals, “[a]micus curiae briefs may be filed without leave of Court, disclosing the identity and interest of the person or group on whose behalf the brief is filed and limited to issues properly raised by the parties.” GA App. Ct. R. 26. Similarly, the Pennsylvania Superior Court permits an amicus to file a brief “without applying for leave to do so.” PA R. App. P. 531. The Eastern District of the Missouri Court of Appeals, unlike the other Missouri districts, also accepts an amicus brief without any specific conditions. MO R. App. Ct. ED R. 375.

Get our permission

20 jurisdictions, with differing requirements and standards, accept amicus briefs only after the appellate courts permit the filing. For example, Florida’s rule states “[a]n amicus curiae may file a brief only by leave of court.” See e.g. Fla. R. App. P. R. 9.370. Also, time limitations may dictate whether a court is willing to hear from amici; the rules for the Nebraska Court of Appeals preclude granting leave to participate “within 20 days of oral argument.” NE R. App. § 2-109(4).

17 states in which the court’s sole discretion governs amicus participation are:

Arkansas (AR R. S. Ct. R. 4-6); California (CA Rules of Court, Rule 8.200); Connecticut (Ct. R. A. P. §67-7); Florida (FL R. App. P. R. 9.370); Hawaii (HI R. A. P. R. 28(g)); Indiana (IN R. App. P. R. 41); Kentucky (KY R. Civ. P. 76.12(7)); Louisiana (LA St. A. Ct. UNIF R. 2-12.11); Maryland (MD R. A. Ct. & Spec. A. R. 8-511); Michigan (MI R. A. R. 7.212); Mississippi (MS R. A. P. R. 29); Missouri Southern District (MO R. A. Ct. SD R. 15); Nebraska (NE R. App. § 2-109(4)); New Jersey (NJ R. Gen. App 1:13-9); New Mexico (NM R. A. P. R. 12-215); Oregon (OR R. A. P. R. 8.15); Wisconsin (WI St. 809.19(7)).

The other three have rules which explicitly require the amici to serve notice on the parties. (Kansas (Rule 6.06); Minnesota (MN St. Civ A. P. R. 129.01); New York (NY Ct. R. §670.11).)

Get our permission, unless we ask for your help

Nine jurisdictions require amici to seek leave of court to file a brief, but also have rules allowing the justices to request amicus assistance. (Alabama (AL R. A. P. R. 29); Colorado (CO St. A Ct. R. 29); Illinois (IL ST S. Ct. Rule 345); Massachusetts (MA St. R. A. P. R. 17); North Carolina (NC R. RAP. App. R. 28); North Dakota (ND R. A. P. R. 29); South Carolina (SC R. A. Ct. R. 213); Tennessee (TN R. A. P. R. 31); Utah (UT R. A. P. R. 50) (amended by 2009 UT Order 09-11).) Prospective amici need to review and comply with the specific requirements for participation. In North Carolina, for example, the motion for leave to file must set forth “the nature of the applicant’s interest, the reasons why an amicus curiae brief is believed desirable, the questions of law to be addressed in the amicus curiae brief and the applicant’s position on those questions.” (NC R. RAP. App. R. 28. North Dakota and South Carolina limit amicus briefing to the issues raised on appeal as presented by the parties. ND R. A. P. R. 29; SC R. A. Ct. R. 213.

Get someone’s permission

Five jurisdictions require amici to obtain the consent of all parties or the appellate court before filing their briefs. Again, amici may face limitations on their participation. (See Arizona (AZ St. Civ. A. P. R. 16); Oklahoma (OK St. S. Ct. R. 1.12); Washington (WA R. A. P. R. 10.6); Missouri (the Western District of the Missouri Court of Appeals) (MO R. A. Ct. WD R. 26); Virginia (VA R. S. Ct. R. 5A:23).)

If we don’t ask, get someone’s permission

Three jurisdictions have rules allowing amicus briefs when all parties consent, the court grants leave, or the court solicits amicus input. (Alaska (AK R. A. P. R. 212(c)(9)); Iowa (IA R. 6.906); Ohio (OH St. R. A. P. R. 17).) All three require the amici to identify their interest and articulate why their brief is desirable. A fourth, Idaho, explicitly requires service of a motion seeking leave to file an amicus brief. (ID R. A. R. 8.)

Finally, there’s Texas hold ‘em

We close with the Wild West and Texas, which seemingly flips the amicus rules. Rather than placing the onus on the amici to explain why their voice should be heard, Texas takes the approach that the court may, “for good cause,” refuse to consider an amicus brief and order its return. (TX R. App. R. 11.)

NOTE: The author thanks 2009 Sedgwick summer associate Michael J. Floryan for his diligent review and synopses of the rules noted above.

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

By on Posted in Federal

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.

LexBlog