A recent rash of California federal district court opinions now create a sharp split on whether or not potential attorneys’ fees awards may be considered when determining whether the monetary threshold has been met to secure removal jurisdiction under the Class Action Fairness Act of 2005, also known as “CAFA.” Litigants are now left wondering which rule will apply (often times depending on the particular judge) and courts left guessing which approach the Ninth Circuit may declare the law of the land.
CAFA requires, among other things, that at least $5 million be in controversy to remove a complaint from state to federal court. The general rule is that attorneys’ fees may be considered in calculating the amount in controversy if an underlying statute authorizes an award of attorneys’ fees.
There are several different burdens of proof on removal, depending on how the facts are pled in the complaint, but generally the defendant seeking removal must establish by a preponderance of the evidence that the jurisdictional requirements are met. Simply identifying that an attorney fee award is available under the law is insufficient.
The unsettled question now is whether attorneys’ fees incurred after the date of removal can be included in the amount in controversy.
One line of cases holds that only attorneys’ fees that have already been incurred as of the date of the removal can be considered in the jurisdictional calculation. See Hughes v. McDonald’s Corp.; Icard v. Ecolab; Conrad Assoc. v. Hartford Acc. & Indem. Co.
Under this line of cases, a defendant would only be able to include those fees actually incurred at the time of removal. For example, if a complaint is being removed at the beginning of the lawsuit, these fees are likely to be insignificant, including only the preliminary lawyer investigation into the merits of the claims and time spent drafting a complaint. Adopting this approach is particularly troublesome for large class actions where the attorneys’ fees can be a substantial portion of the recovery of a prevailing plaintiff.
The other line of cases estimates the potential recovery of attorneys’ fees by calculating a particular percentage of the overall recovery. In the context of common fund settlements for class actions, the Ninth Circuit presumes that 25 percent of the common fund is the benchmark for attorneys’ fees awards.
Several courts have held that using the 25 percent benchmark for an attorney fee award is appropriate for determining amount in controversy. See Rodriguez v. Cleansource, Inc.; Marshall v. G2 Secure Staff, LLC; Jasso v. Money Mart Exp., Inc.
This line of cases accounts for the possibility that in a class action, the attorneys’ fee recovery, if authorized by one of the causes of action, could be a substantial sum of money and should be included in determining the total amount in controversy in the litigation.
It is unclear whether the Ninth Circuit will address this issue, and if so, when. For now, litigants must continue to be aware of the district court split and monitor how the case law develops. The unfortunate part is that a party preparing a notice of removal will not have the benefit of knowing which judge will be assigned to the matter to research how that particular judge views the issue. Litigants will have to follow the trends within each court and be prepared for the opposing counsel to present authority contrary to the position chosen.