United States Court of Appeals
For the First Circuit
No. 15-1640
LISA C. PAZOL, MARIA C. NEWMAN, LISA RUSS, and AUDREY J.
BENNETT, on behalf of themselves and others similarly situated,
Plaintiffs, Appellants,
v.
TOUGH MUDDER INCORPORATED, TOUGH MUDDER, LLC, and BK BRIDGE
EVENTS, LLC,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Timothy S. Hillman, U.S. District Judge]
Before
Barron, Circuit Judge,
Souter, Associate Justice,*
and Lipez, Circuit Judge.
Barry M. Altman, with whom Altman & Altman, James L.
O'Connor, James M. Galliher, C. Deborah Phillips, and Nickless,
Phillips and O'Connor were on brief, for appellants.
Maria C. Newman, Lisa Russ, Audrey J. Bennett, and Michael
J. Tuteur, with whom Jaclyn V. Piltch and Foley & Lardner LLP
were on brief, for appellees.
April 26, 2016
* Retired Associate Justice of the Supreme Court of the United
States, sitting by designation.
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BARRON, Circuit Judge. This case turns on the standards
for showing that a class action has an amount in controversy of
more than $5 million, which is the threshold for enabling a case
to be removed to federal court under the Class Action Fairness Act
of 2005 ("CAFA"). Because we conclude that the defendants did not
meet their burden of showing that the amount in controversy in
this class action exceeds that threshold -- at least at this stage
in the litigation -- we agree with the plaintiffs that removal was
improper. We thus do not reach the other issues that the District
Court resolved in dismissing this suit, and we remand with
instructions to the District Court to remand the case to state
court for lack of jurisdiction.
I.
The defendants are business entities that organize
physically challenging obstacle course events in various locations
in the United States. The four named plaintiffs registered to
participate in one of those events -- the "Mudderella" event --
scheduled to take place on September 6, 2014, in Haverhill,
Massachusetts.
This suit began in Massachusetts Superior Court. The
plaintiffs' complaint alleged that, on August 22, 2014, the
defendants notified the plaintiffs that the event had been moved
approximately twelve miles from Haverhill, to Amesbury,
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Massachusetts.1 The complaint also alleged that, on August 29,
2014, just a week before the event, the defendants again notified
the plaintiffs that the event had been moved, this time to
Westbrook, Maine, which is 79 miles from Haverhill. The complaint
alleged that, as a result of that second -- and final -- change in
location, the four named plaintiffs were unable to participate in
the event, and that the defendants refused to refund the plaintiffs
their registration fees.
The complaint asserts various claims under Massachusetts
law. Those claims are breach of contract, breach of the covenant
of good faith and fair dealing, unjust enrichment, and violation
of the Massachusetts Consumer Protection Act, Mass. Gen. Laws ch.
93A.
Of particular significance to this appeal is what the
complaint pleads with respect to relief. The complaint states
that those seeking relief are, pursuant to Rule 23 of the
Massachusetts Rules of Civil Procedure, not just the four named
plaintiffs but also:
All persons who paid registration fees and/or
other sums to Defendants to participate in
Mudderella Boston at Kimball Farm in Haverhill
and did not participate at the changed
location;
1
We take judicial notice of this distance. See United States
v. Moon, 802 F.3d 135, 149 n.11 (1st Cir. 2015) (taking judicial
notice of the distance between Worcester, Massachusetts and
Boston, Massachusetts).
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All persons who participated in Mudderella
Boston in Westbrook, Maine and traveled
additional distance due to the change in
location and thereby incurred added expenses
including, but not limited to gas, food and/or
lodging; and/or
Such other class, classes, or sub-classes as
certified by the Court.
The complaint further states that the class seeks, in addition to
damages "in amounts to be determined at trial," an unspecified
amount in "reasonable" attorneys' fees and costs, restitution,
disgorgement, rescission, a permanent injunction prohibiting
defendants "from engaging in the conduct described herein," and
"such other relief as the Court deems just."
The plaintiffs served the complaint on the defendants
in November 2014. The defendants then timely removed the case to
federal court. See 28 U.S.C. § 1446(b). The defendants asserted
that removal was permitted under the Class Action Fairness Act of
2005 (CAFA), which provides for federal subject matter
jurisdiction over class actions alleging state-law claims where
certain conditions are met, including minimal diversity between
parties and that "the matter in controversy exceeds the sum or
value of $5,000,000." 28 U.S.C. § 1332(d)(2).
The plaintiffs moved to remand the case to state court.
The plaintiffs' sole argument for remand was that the District
Court lacked subject matter jurisdiction under CAFA because the
defendants had failed to show that over $5 million was in
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controversy. The defendants responded with estimates of the amount
in controversy that were based on the references in the plaintiffs'
complaint to "registration fees" and "added expenses, including,
but not limited to gas, food, and/or lodging."
The District Court denied the plaintiffs' motion to
remand the case to state court. The District Court's explanation,
in its entirety, was that the "[d]efendants hav[e] shown a
reasonable probability that the amount in controversy in this case
exceeds $5 million."
Alongside the dispute over jurisdiction, the defendants
filed a motion to dismiss the case and compel mediation and, if
mediation were to fail, arbitration of the plaintiffs' claims in
accordance with the terms of the agreement that the plaintiffs
entered into when they registered for the Mudderella event. The
District Court granted that motion.
The plaintiffs then appealed. They argue that the
District Court erred in concluding that the defendants met their
burden of showing that over $5 million is in controversy in this
matter and thus that federal subject matter jurisdiction exists
under CAFA. The plaintiffs also contend that if CAFA jurisdiction
exists, the District Court erred in dismissing the case and
compelling mediation and arbitration of the dispute. Because we
agree with the plaintiffs on the first point, we do not reach the
second.
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II.
We begin with the standard of review. We have
distinguished between a district court's conclusion regarding the
"ultimate question" whether it has subject matter jurisdiction
under CAFA and the district court's resolution of specific factual
disputes in the course of reaching that conclusion. See Amoche v.
Guar. Trust Life Ins. Co., 556 F.3d 41, 48 (1st Cir. 2009). The
former determination, we have explained, is evaluated de novo,
while the latter is reviewed for clear error. Id.
As we have noted, the District Court's order in this
case was short: it held that the "[d]efendants hav[e] shown a
reasonable probability that the amount in controversy in this case
exceeds $5 million." Because the District Court simply resolved
the ultimate question of the sum or value in controversy in this
matter, our review is "entirely de novo." Id. at 47-48; see also
Romulus v. CVS Pharmacy, Inc., 770 F.3d 67, 71, 81 (1st Cir. 2014).
III.
CAFA was enacted with the stated purpose of expanding
the number of class actions that could be heard in federal court.
Amoche, 556 F.3d at 47, 49 (stating that, "[i]n CAFA, Congress
expressly expanded federal jurisdiction largely for the benefit of
defendants against a background of what it considered to be abusive
class action practices in state courts," "which had 'harmed class
members with legitimate claims and defendants that had acted
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responsibly,' 'adversely affected interstate commerce,' and
'undermined public respect for our judicial system'" (alteration
omitted) (quoting CAFA, Pub. L. No. 109-2, § 2(a), 119 Stat. 4, 4
(2005))). Congress effectuated that purpose "by imposing only a
minimal diversity requirement, eliminating the statutory one-year
time limit for removal, and providing for interlocutory appeal of
a federal district court's remand order." Id. at 47-48 (citing 28
U.S.C. §§ 1332(d)(2), 1453(b), (c)).
But Congress did impose various limits on CAFA's reach.
And among them is the one that is relevant in this case: that the
amount in controversy exceed $5 million. See 28 U.S.C. §
1332(d)(2).
The defendants bear the burden of showing that this
amount-in-controversy requirement has been met, as they seek
removal under CAFA. See Amoche, 556 F.3d at 48-50 (justifying
this burden in part by the "general rule of deference to the
plaintiff's chosen forum"). To meet that burden, the defendants
must show a "reasonable probability" that more than $5 million is
in dispute in this case. Id. at 50. That standard is "for all
practical purposes identical to" the preponderance of the evidence
standard. Id. "Yet because questions of removal are typically
decided at the pleadings stage where little or no evidence has yet
been produced, the removing defendant's burden is better framed in
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terms of a 'reasonable probability,' not a preponderance of the
evidence." Id.
The decision as to whether the defendants have met their
burden "may well require analysis of what both parties have shown."
Id. at 51. Thus, it is not enough for the plaintiffs to "[m]erely
label[] the defendant's showing as 'speculative' without
discrediting the facts upon which it rests." Id. But in
evaluating what both parties have shown, we may consider "which
party has better access to the relevant information." Id.
Applying those standards to the facts of this case, we
conclude that a remand to state court is required. The defendants'
argument that over $5 million is in controversy in this matter is
based on what the defendants contend is a reasonable estimate of
the registration fees in controversy and a reasonable estimate of
the gas, food, and lodging expenses that the putative class
incurred as a result of the event's change in location. The
plaintiffs respond that the defendants' estimates are not
reasonable, and that the amount in controversy is in fact lower
than the defendants contend.
The parties' positions, at first blush, may seem out of
character, in that the plaintiffs seek to downplay the amount of
damages that they seek while the defendants attempt to show how
large the potential damages really are. But this reversal in the
usual role of plaintiffs and defendants in litigation is not at
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all unusual in a case in which defendants seek removal under CAFA.
And here we conclude that the plaintiffs have the better of the
argument as to whether removal is allowed.2
A.
We begin with the registration fees. The defendants
contend that all the registration fees for the event are in
controversy -- the fees of those who did not attend the event as
well as the fees of those who did attend. The defendants base
their argument on the complaint's "prayer for relief," which states
that the plaintiffs seek "damages in amounts to be determined at
trial." The plaintiffs respond that they are not seeking
registration fees on behalf of the attendees.
The complaint supports the plaintiffs' contention. The
complaint mentions registration fees only in conjunction with "all
persons who . . . did not participate." We thus conclude that the
plaintiffs' contention that they do not seek a refund of
registration fees for the attendees is "not an impermissible effort
to defeat federal jurisdiction by narrowing the pleadings post-
2 Because we reach this conclusion, we need not address the
plaintiffs' argument that the defendants' calculations are based
on the unwarranted assumption that the class includes everyone who
registered for the event, and not just those registrants who reside
in Massachusetts. Even assuming -- favorably to the defendants -
- that the plaintiffs' class action should be understood to include
everyone who registered for the event, the defendants have not met
their burden to show a reasonable probability that over $5 million
is in dispute in this case.
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removal, but rather a fleshing out of the vague language of the
[complaint]." Id. at 52 (citation omitted).
Accordingly, the only registration fees in controversy
are the fees paid by the people who did not attend the event. The
defendants tell us that the registration fees for the people who
did not attend the event total $617,574.86. The defendants argue
that it is reasonable to treble this amount because the plaintiffs
would be entitled to treble damages were they to succeed on their
chapter 93A claim. And the defendants contend that it is also
reasonable to add to this calculation a 33% attorney's fee award.
Accepting those premises, the amount in controversy with respect
to the registration fees would come to $2,464,123.69, which would
get the defendants almost halfway to the amount CAFA requires.
B.
To show that roughly another $2.5 million is in
controversy, the defendants point first to their estimate as to
gas and food expenses. The defendants argue that it is reasonably
probable that each of the 4,347 people who attended the event spent
an additional $35 on gas and an additional $56 on food as a result
of the event's change in location.
The defendants estimate the gas expense using the gas
price in Massachusetts in September 2014 and the round-trip
distance between the Haverhill and Westbrook event locations. The
defendants estimate the food expense by using the federal
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government's per diem reimbursement rate for federal employee
travel in the Westbrook, Maine area.
There is good reason to doubt whether, at least with
respect to the food expense, it is reasonable to assume each
attendee incurred that expense, as will become clear when we
discuss the problem with the defendants' contention about lodging
expenses. But taking the figures at face value for the moment,
and after accounting for treble damages and attorney's fees, the
additional amount in controversy attributable to gas and food
expenses would be $1,578,352.23. If we then add that figure to
the figure for registration fees, which totaled just shy of $2.5
million, the overall amount in controversy would be $4,042,475.92.
But even accepting the defendant's calculations to this
point, the defendants would still need to show that it is
reasonably probable that approximately $1 million more is in
controversy in this matter. Thus, the defendants need the lodging
expenses to be at least that high. But defendants come up short
in making that case, as we next explain.3
3 The defendants contend in their brief that there are other
"unidentified damages requested in the [complaint]," as well as
"disgorgement of so called 'ill-gotten gains,' -- and, further,
the value of rescission and permanent injunctive relief." But
counsel for the defendants conceded at oral argument that the
defendants were relying solely on registration fees, travel
expenses, and attorney's fees to reach the $5 million threshold.
In any event, the defendants make no effort to estimate the
additional monetary value of those additional forms of relief. We
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C.
The defendants make two arguments regarding lodging
expenses. Neither works.
First, the defendants contend that it is reasonable to
assume that every person who signed up for the event incurred an
additional lodging-related expense as a result of the change in
location. The people who did not attend the event, the defendants
argue, may have forfeited the cost of a hotel room in Haverhill or
Amesbury, Massachusetts, when the event was moved. As for the
people who did attend the event in Maine, the defendants contend
that those people may have incurred the additional expense of a
hotel room in Westbrook. The defendants explain that the
additional expense would arise either because the attendees would
not have required lodging in Massachusetts or because the attendees
had already paid for a hotel room in Massachusetts, the entire
price of which the attendees may have forfeited as a result of the
change in the event's location.
The defendants further contend that because the federal
per diem lodging reimbursement rate in Westbrook is $128 per night
and $98 per night for Haverhill and Amesbury, the average of those
two numbers -- $113 -- represents a reasonable estimate of the
lodging expense attributable to the event's changed location for
thus consider only the categories of expenses that the defendants
have attempted to estimate.
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each person who registered. On that basis, the defendants contend
that the lodging expenses that are in dispute amount to more than
$1 million. They get that figure by multiplying $113 by the 11,307
people who registered for the event and by adding treble damages
and attorney's fees. Using that estimate, and given the other
expenses that the defendants contend are in dispute, the defendants
would then have met their burden of showing that it is reasonably
probable that more than $5 million is in controversy in this case.
Alternatively, the defendants argue that even if the
only lodging expenses in controversy are the lodging expenses of
those people who attended the event -- as the complaint suggests
is the case -- those expenses, estimated at the Westbrook per diem
of $128 per attendee, still exceed $1 million. The expenses are
of that magnitude, the defendants explain, if one multiplies $128
by the 4,347 people who attended the event and then adds treble
damages and attorney's fees.
These two arguments, however, suffer from the same flaw.
The defendants' arguments rest on the assumption that each person
who registered for the event lived far enough away from Haverhill,
Amesbury, or Westbrook to require lodging at those locations. But
the defendants have provided us with no information to support
that premise.
In fact, defense counsel's representation at oral
argument that the defendants "organiz[e] these highly challenging,
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physically rigorous obstacle course events all over the country"
suggests that people could sign up for events relatively close to
their homes. And, we note, the defendants conceded at oral
argument that Massachusetts residents would not have required
lodging for the event. That concession is at odds with the notion
that all registrants needed lodging, as it is reasonably probable
that the event attracted at least some registrants from
Massachusetts, as that is the state in which the event was
scheduled to take place.4
Nor do we find it reasonably probable that the
registrants who did require lodging would have incurred additional
lodging expenses (whether $113 or $128) in consequence of the
defendants' having moved the event to Maine. It is by no means
unusual for hotels to permit cancellation within a short time frame
for no fee, and the defendants offer us no basis for concluding
that such recourse would not have been available here. It is not
apparent, therefore, that the people who did not attend the event
in Maine and who had initially reserved a hotel room in
Massachusetts (however many, if any, such persons there were) would
4
The defendants' assumption that all attendees to the event
incurred $56 in additional food expenses when the race was moved
is thus speculative for a similar reason: we have no information
regarding how far from home people travelled for the event, and
thus whether it is reasonable to think that they in fact spent an
extra $56 on meals in Westbrook on the day of the race.
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have forfeited the entire cost of that room when they discovered,
a week before the event, that the event had been relocated.
Moreover, on this record, only speculation could support
a conclusion that all attendees (if any there were) who travelled
far enough from home to require lodging for the Westbrook event
would not also have required lodging for the race in Haverhill or
Amesbury. Those two communities are only 79 and 71 miles,
respectively, from Westbrook. Nor is it apparent that each of
those attendees who had initially reserved lodging in Haverhill or
Amesbury did then reserve lodging in Westbrook, given the proximity
of Haverhill and Amesbury to Westbrook. And even if we could
assume that each of the attendees who initially reserved lodging
in Haverhill or Amesbury would have reserved lodging in Westbrook,
we have no reason to assume that each would have forfeited the
entire cost of the hotel room in Haverhill or Amesbury or that
each would have incurred any other additional expense -- such as
a hotel cancellation fee -- as a result of the change in hotel.5
5 The defendants suggest that class members may have forfeited
the cost of a hotel room in Haverhill and in Amesbury as a result
of the event's change in location to Westbrook. But the defendants
choose not to rely on that argument, instead attributing to each
person the cost of just one hotel room. In any event, we do not
think it is reasonably probable that someone with a hotel
reservation in Haverhill would have forfeited the entire cost of
that room to book a room in Amesbury, given that Amesbury is just
twelve miles from Haverhill.
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In sum, the defendants' argument that all registrants
incurred an additional lodging expense of $113 or, alternatively,
that all attendees incurred an additional lodging expense of $128,
fails. And that is because the defendants provide no support for
the conclusion that the predicate assumptions underlying their
estimate of lodging expenses are reasonably probable ones.
As a fallback, the defendants at oral argument offered
a different way of justifying their calculation of lodging
expenses. They contended that their approach accounts for the
problematic assumptions that underlie their argument regarding
those expenses. Specifically, they argue that the federal per
diem lodging expense rates actually account for the fact that some
people spend much more than those federal per diems on lodging and
some people spend much less or, even, nothing at all because they
do not travel at all. And so, by using that rate, the defendants
say they are relying on an estimate that already accounts for the
problematic uncertainties that we have just recounted.
But the defendants provide no support for that most
unlikely description of what the federal per diem rate represents.
The federal government has little interest in determining how much
to reimburse an employee who incurs no expense. The federal per
diem reimbursement rates for Haverhill or Amesbury ($98), and
Westbrook ($128), thus would seem to reflect an estimate of the
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average expense of lodging in Haverhill, Amesbury, and Westbrook
for an employee who actually books a room overnight there.
Thus, in order for those federal per diem rates to be
reasonably probable estimates of the lodging expenses at issue in
this case, it would have to be reasonably probable that each person
who did not attend the event in Maine forfeited the cost of a hotel
room in Haverhill or Amesbury, Massachusetts. It would also have
to be reasonably probable that, in consequence of the change in
location of the event, each attendee either booked a room in
Westbrook and then forfeited the cost of a hotel room in
Massachusetts or booked a room in Westbrook that the person would
not have needed had the event been held in Massachusetts as
originally planned. But, as we explained, those assumptions are
not reasonably probable ones.
Nor will we venture to come up with our own estimate of
a reasonably probable lodging expense incurred per registrant.
The defendants have given us no guidance as to how to go about
making such an estimate beyond their unconvincing argument that
the federal per diem rate of $128 is such an estimate.
Similarly, we will not venture to guess that, even if we
reject the defendants' chosen means of estimating lodging
expenses, the total additional lodging expenses incurred by all
registrants as a result of the change in location must nevertheless
be something north of $1 million. To guess as much, we would need
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to find it reasonably probable that 1,875 people who attended the
event -- over 43% of all attendees -- incurred additional lodging
expenses at the $128 rate, or that 2,074 people who registered for
the event -- over 18% of all registrants -- incurred additional
lodging expenses at the $113 rate. Only then would the added value
of those expenses, including treble damages and attorney's fees,
increase the total amount in controversy to just over $5 million.
But those are not small numbers of persons. And there simply is
nothing before us that would support a conclusion that either of
those numbers, given how big they are, is a reasonably probable
estimate of the number of people who incurred additional lodging
expenses.
D.
Part of the reason that we will not engage in such
speculation, moreover, is that, as we noted at the outset, we may
take into account "which party has better access to the relevant
information." See Amoche, 556 F.3d at 51. And here that party is
the defendants.
The defendants conceded at oral argument that they have
access to the home addresses of everyone who registered for the
event. With that information, the defendants could have come up
with a reasonably accurate estimate of the number of people who
might have had to travel far enough from home for the event so as
to require lodging. But they did not do so. Nor have they
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attempted to support the assumptions that they ask us to accept
with any historical data that they might possess, such as how far
people generally travel to attend the defendants' events, or, for
that matter, any other relevant knowledge that they possess in
consequence of their having organized these events in the past.
Given that the defendants had potentially illuminating
information and yet chose not to use it, and given that they have
offered us no other information to support their assertion
regarding lodging expenses, we conclude that we cannot accept the
assumptions on which their estimate of lodging expenses depends.
We thus conclude that, as in Amoche, the defendants have not met
their burden to show that more than $5 million is in controversy
in this case. Here, as in Amoche, the defendants rely on
unsupported assumptions about the operation of their business and
"failed to present" information "reasonably within [their]
control" that might have provided "some insight" into the amount
in controversy. Id. at 52-53.
E.
In attempting to counter this conclusion, the defendants
refer us to our statement in Romulus that "[t]he defendant has no
duty to investigate or to supply facts outside of those provided
by the plaintiff." Romulus, 770 F.3d at 75. But that statement
was made in the context of our consideration of a different issue
from the one before us in this case.
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We held in Romulus that CAFA's 30-day clock for filing
a notice of removal is triggered when the plaintiff's complaint or
the plaintiff's subsequent "paper" provides the defendant with
sufficient information to easily determine that the matter is
removable. Id. And so the language from Romulus on which the
defendants rely was meant to clarify only that the defendant need
not look outside such papers to determine whether the 30-day clock
has been triggered. Id. Our conclusion on that score does not
mean that where, as here, defendants timely remove to federal court
on the ground that the plaintiffs' complaint shows that the amount
in controversy requirement has been met, we cannot consider who
has access to the information needed to determine whether the party
seeking removal has met its burden to show that amount has been
met. In fact, Amoche is clearly to the contrary on that point.
See Amoche, 556 F.3d at 51.
IV.
The decision of the District Court is reversed, and this
case is remanded to the District Court with instructions to remand
the case to state court for lack of jurisdiction, without prejudice
to removal at a later date.
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