FILED
United States Court of Appeals
Tenth Circuit
September 17, 2013
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
DART CHEROKEE BASIN
OPERATING COMPANY, LLC;
CHEROKEE BASIN PIPELINE, LLC,
Petitioners,
v. No. 13-603
(D. Ct. No. 5:12-CV-04157-JAR-JPO)
BRANDON W. OWENS, individually
and on behalf of all others similarly
situated,
Respondent.
ORDER
Before KELLY, LUCERO, HARTZ, TYMKOVICH, HOLMES, MATHESON,
BACHARACH and PHILLIPS, Circuit Judges.*
This matter is before the court on the petitioners’ Petition for Rehearing En Banc.
We also have a response. Both pleadings were circulated to all the judges of the court
who are in regular active service and who are not recused in this proceeding.
Upon consideration, a poll was requested and the votes were evenly divided.
*
The Honorable Mary Beck Briscoe and the Honorable Neil M. Gorsuch are
recused in this matter and did not participate in the court’s en banc review.
Consequently, the poll did not carry and the en banc petition is denied. See Fed. R. App.
P. 35(a)(noting a majority may direct en banc review).
Judges Kelly, Hartz, Tymkovich and Phillips would grant the petition, with Judge
Hartz writing the attached formal dissent, in which Judges Kelly, Tymkovich and Phillips
join.
Entered for the Court
ELISABETH A. SHUMAKER
Clerk of Court
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13-603 - Dart Cherokee Basin Operating v. Owens
HARTZ, Circuit Judge, joined by KELLY, TYMKOVICH, PHILLIPS, Circuit Judges,
dissenting:
This court owes a duty to the bench and bar to provide guidance regarding the
procedural requirements of the Class Action Fairness Act of 2005 (CAFA). Yet it has let
stand a district-court decision that will in effect impose in this circuit requirements for
notices of removal that are even more onerous than the code pleading requirements that I
had thought the federal courts abandoned long ago.
Petitioners removed this case to federal court under CAFA. The notice of removal
alleged the amount in controversy to be over $8 million, comfortably above the
jurisdictional requirement of $5 million, and explained how Petitioners arrived at that
figure. After Owens moved to remand the case to state court, Petitioners submitted
undisputed proof that the amount in controversy exceeded $14 million. Nevertheless, the
district court granted Owens’s motion. It did so only because the notice of removal itself
had failed to provide evidentiary support, “such as an economic analysis . . . or settlement
estimates” for the $8 million figure. Mem. & Order at 10, Owens v. Dart Cherokee Basin
Operating Co., LLC, No. 12-4157-JAR (D. Kan. May 21, 2013).
Petitioners requested permission to appeal to this court under 28 U.S.C. § 1453(c),
but a divided panel denied permission. Petitioners then sought en banc review of the
panel’s decision. I respectfully dissent from this court’s denial of that request by an
equally divided vote.
The district court’s decision, although not an unreasonable interpretation of
language in some of this court’s opinions, is contrary to fundamental principles regarding
the purpose and function of pleadings in federal court and to Congress’s apparent
understanding when it recently codified the procedure by which a removing party can
establish the amount in controversy. It imposes an evidentiary burden on the notice of
removal that is foreign to federal-court practice and, to my knowledge, has never been
imposed by a federal appellate court (Owens does not cite to any such case).
Unfortunately, this may be the only opportunity for this court to correct the law in our
circuit. After today’s decision any diligent attorney (and one can assume that an attorney
representing a defendant in a case involving at least $5 million—the threshold for
removal under CAFA—would have substantial incentive to be diligent) would submit to
the evidentiary burden rather than take a chance on remand to state court; if so, the issue
will not arise again.
Under the procedural system that has been in effect for almost 80 years, all a party
must do in initiating a case in federal court is to submit a pleading that “contain[s] . . . a
short and plain statement of the grounds for the court’s jurisdiction,” Fed. R. Civ. P.
8(a)(1), and “a short and plain statement of the claim showing that the pleader is entitled
to relief,” id. at 8(a)(2). The party need not produce proof of an allegation in the pleading
until the allegation is challenged by the opposing party or, perhaps, the court. Then the
party must establish the alleged fact under the applicable burden of persuasion, ordinarily
the preponderance of the evidence.
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Until now, there has been no reason to believe that a different rule governs the
jurisdictional allegations in a notice of removal. The applicable statute parrots Rule 8,
requiring only that the notice “contain[] a short and plain statement of the grounds for
removal.” 28 U.S.C. § 1446(a). Although the removing party must establish
controverted jurisdictional allegations by a preponderance of the evidence, nothing in the
removal statutes or Supreme Court decisions, or any holdings of this court, require
submission of such evidence before the jurisdictional allegations are challenged.
Under this standard there should be no dispute that Petitioner’s notice of removal
was adequate, even if we apply Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), in this
context to require that the notice raise a plausible claim that the amount in dispute is at
least $5 million. The pertinent paragraphs state:
9. [Owens’s] Petition does not state a specific amount as damages. It
does, however, pray for payment of royalties and interest claimed to be due
to royalty owners who were paid royalties with regard to gas produced from
wells located in Kansas in which DCBO [one of the Petitioners] has owned
any working interest, for the period from January 1, 2002 to the present.
10. This matter involves approximately 700 wells that [DCBO] currently
operates in Kansas. The purported class consists of royalty owners that
own an interest in the wells in which [DCBO] has a working interest in
Kansas. There are approximately 400 royalty owners with interests in the
700 wells at issue.
12. [Owens] claims that [DCBO] owes additional royalties because,
among other things, [DCBO] (a) pays royalties based upon a below market
price; (b) improperly deducts charges from the sales price for costs
associated with gathering, compression, dehydration, and/or treatment for
computing royalties; and (c) improperly shifts a portion of the conservation
fee to royalty owners.
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13. [Owens] seeks to recover on behalf of a class of any royalty owner in
any well located in Kansas in which [DCBO] has owned any working
interest from January 1, 2002 to the present.
14. [DCBO] has undertaken to quantify the amount of additional
royalties that would be owed if all or substantially all of the adjustments to
royalties advanced by [Owens] were found to be required to be made.
15. Based upon this calculation of [Owens’s] putative class claims, the
amount of additional royalties sought is in excess of $8.2 million.
Notice of Removal at 3–4, Owens, No. 12-4157-JAR-JPO (D. Kan. Dec. 5, 2012).
Allegations of the amount in controversy are ordinarily much more abbreviated.
The Supreme Court has not imposed special burdens at the pleading stage with
respect to jurisdictional issues. The sequence of pleading and proving jurisdiction is
described in the discussion of standing in Lujan v. Defenders of Wildlife, 504 U.S. 555,
561 (1992):
The party invoking federal jurisdiction bears the burden of
establishing [the] elements [of standing]. Since they are not mere pleading
requirements but rather an indispensable part of the plaintiff’s case, each
element must be supported in the same way as any other matter on which
the plaintiff bears the burden of proof, i.e., with the manner and degree of
evidence required at the successive stages of the litigation. At the pleading
stage, general factual allegations of injury resulting from the defendant’s
conduct may suffice, for on a motion to dismiss we presume the general
allegations embrace those specific facts that are necessary to support the
claim. In response to a summary judgment motion, however, the plaintiff
can no longer rest on such mere allegations but must set forth by affidavit or
other evidence specific facts . . . .
(emphasis added) (citations, brackets, and internal quotation marks omitted).
Nor has the Court imposed special rules regarding the pleading of jurisdiction in
the removal context. In a recent decision regarding CAFA jurisdiction, the Supreme
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Court unanimously stated: “The burden of persuasion for establishing diversity
jurisdiction, of course, remains on the party asserting it. When challenged on allegations
of jurisdictional facts, the parties must support their allegations by competent proof.”
Hertz Corp. v. Friend, 559 U.S. 77, 96–97 (2010) (emphasis added) (citations omitted).
Here, Owens challenged the notice of removal and Petitioners responded with a
declaration by an officer setting forth a calculation showing a potential liability far
exceeding $5 million. See Owens v. Dart Cherokee Basin Operating Co., 2013 WL
2237740, at *2 (D. Kan. May 21, 2013). The district court did not find the declaration
lacking. It simply held that it came too late. First, it ruled that the notice of removal was
inadequate. It explained:
Although [Petitioners] state[d] in the Notice of Removal that they have
“undertaken to quantify the amount of additional royalties that would be
owed,” [Petitioners] fail[ed] to incorporate any evidence supporting this
calculation in the Notice of Removal, such as an economic analysis of the
amount in controversy or settlement estimates. Accordingly, in the absence
of such evidence, the general and conclusory allegations of the Petition and
Notice of Removal do not establish by a preponderance of the evidence that
the amount in controversy exceeds $5 million.
Id. at *4. It then stated, “Even assuming that [Petitioners] can now establish the amount
in controversy exceeds $5 million, they were obligated to allege all necessary
jurisdictional facts in the notice of removal.” Id. at *5.
The burden imposed by the district court on Petitioners was excessive and
unprecedented. The notice of removal adequately alleged jurisdiction, Petitioners’
evidence of jurisdiction was more than adequate, and there was no basis for requiring
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Petitioners to submit that evidence before the adequacy of the notice was challenged. In
its response to Petitioners’ petition for permission to appeal, Owens characterizes the
issue before this court as follows:
[Have Petitioners] met the criteria for interlocutory review of the district
court’s order granting remand where [Petitioners’] notice of removal
offered no evidence to support its allegation that the amount in controversy
was satisfied, even though [Petitioners] had evidence of the amount in
controversy at the time of removal but did not offer that evidence until
almost six months later?
Resp. to Pet. for Reh’g En Banc at 3–4, Dart Cherokee Basin Operating Co., LLC v.
Owens, No. 13-603 (10th Cir. July 22, 2013). (I should note that the reason for
Petitioners’ delay in offering evidence is that all proceedings were stayed pending
mediation. See Owens, 2013 WL 2237740, at *1.) I think the clear answer to the
question is yes. Owens obviously reads the district court’s decision as requiring the
submission of evidence with a notice of removal. We have a duty to inform the bench
and bar that the law imposes no such requirement.
The district court relied on our holding in McPhail v. Deere & Co., 529 F.3d 947
(10th Cir. 2008), that a defendant who removes a case to federal court under diversity
jurisdiction must establish the amount in controversy (if the plaintiff did not allege a
sufficiently high amount) by a “preponderance of the evidence,” id. at 954 (internal
quotation marks omitted). But the preponderance-of-the-evidence standard is the typical
standard by which an allegation in a pleading must be proved for the pleading party to
prevail. Applying that standard of proof does not change the typical requirements for
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pleading, and McPhail did not change them. This court’s opinion did not address the
questions presented here—(1) how much needs to be alleged in the notice of removal; and
(2) after the notice is challenged, in what circumstances, if any, can the removing party
rely on supporting evidence not submitted with the notice of removal? The proposition
that evidence is not required at the pleading stage is clear from the opinion of the Seventh
Circuit in Meridian Security Insurance Co. v. Sadowski, 441 F.3d 536 (7th Cir. 2006), on
which McPhail heavily relied. Noting that the preponderance-of-the-evidence standard
ultimately derives from the Supreme Court’s opinion in McNutt v. General Motors
Acceptance Corp., 298 U.S. 178 (1936), the circuit court quoted the following sentence
from that opinion, “If [the] allegations [by the party asserting jurisdiction] of
jurisdictional facts are challenged by his adversary in any appropriate manner, he must
support them by competent proof,” id. at 189 (emphasis added). See Sadowski, 441 F.3d
at 539–40.
Moreover, my view of the procedural requirements for establishing the amount in
controversy for purposes of removal is apparently shared by the drafters of the Federal
Courts Jurisdiction and Venue Clarification Act of 2011 (the JVCA), which amended
28 U.S.C. §1446(c)(2). That paragraph now reads:
If removal of a civil action is sought on the basis of the jurisdiction
conferred by section 1332(a), the sum demanded in good faith in the initial
pleading shall be deemed to be the amount in controversy, except that—
(A) the notice of removal may assert the amount in controversy if the
initial pleading seeks—
(i) nonmonetary relief; or
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(ii) a money judgment, but the State practice
either does not permit demand for a specific
sum or permits recovery of damages in excess
of the amount demanded; and
(B) removal of the action is proper on the basis of an amount in
controversy asserted under subparagraph (A) if the district court finds, by
the preponderance of the evidence, that the amount in controversy exceeds
the amount specified in section 1332(a).
28 U.S.C. § 1446(c)(2) (emphasis added).
As is apparent from the statutory language, Congress adopted the same
preponderance-of-the-evidence standard endorsed in our McPhail opinion and the
Seventh Circuit’s Sadowski opinion. Indeed, the report of the House Judiciary
Committee, where the JVCA originated, stated that the proposed statutory language
“adopting the preponderance standard . . . would follow the lead of recent cases,” and
cited two opinions: McPhail and Sadowski. H.R. Rep. No. 112–10, at *16 (2011),
reprinted in 2011 U.S.C.C.A.N. 576, 580. Yet the procedure described by the report is
not the procedure adopted by the district court in this case. Immediately after citing the
two opinions, the report states as follows:
As those cases recognize, defendants do not need to prove to a legal
certainty that the amount in controversy requirement has been met. Rather,
defendants may simply allege or assert that the jurisdictional threshold has
been met. Discovery may be taken with regard to that question. In case of
a dispute, the district court must make findings of jurisdictional fact to
which the preponderance standard applies.
Id. (emphasis added).
Interestingly, the JVCA, perhaps through inadvertence, explicitly applies to
standard diversity removals but apparently does not apply to removals under CAFA.
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Section 1446(c)(2) states that it applies when “removal of a civil action is sought on the
basis of the jurisdiction conferred by section 1332(a).” Removal under CAFA, however,
is governed by § 1332(d). Nevertheless, as we stated in Frederick v. Hartford
Underwriters Insurance Co., 683 F.3d 1242, 1247 (10th Cir. 2012), “[T]here is no logical
reason why we should demand more from a CAFA defendant than other parties invoking
federal jurisdiction.” (internal quotation marks omitted).
In short, I think it is important that this court inform the district courts and the bar
of this circuit that a defendant seeking removal under CAFA need only allege the
jurisdictional amount in its notice of removal and must prove that amount only if the
plaintiff challenges the allegation.
Finally, I would add a few words about our discretionary jurisdiction to review
removals under CAFA. CAFA is a newcomer to the scene and its intricacies are
unfamiliar to many of us. It will always be tempting for very busy judges to deny review
of a knotty matter that requires a decision in short order. But we have an obligation to
provide clarity in this important area of the law. A year before deciding to grant an
appeal on the issue resolved in Frederick (whether CAFA removal can be avoided by a
plaintiff seeking class certification if the plaintiff stipulates that the class would not seek
damages at or above $5 million), we had refused to grant an appeal to review a district
court’s decision that was contrary to what we later decided in Frederick. Yet the same
issue was deemed sufficiently worthy of attention by the Supreme Court that it granted
certiorari on the issue and reviewed a circuit decision not to grant permission to appeal.
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See Standard Fire Insurance Co. v. Knowles, 133 S. Ct. 1345 (2013). And that issue,
unlike the one here, was one that would continue to arise because defendants seeking to
remove under CAFA could do nothing to avoid the problem. I hope we will be more
willing in the future to grant requests for appeal.
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