The U.S. Supreme Court granted one new case on April 7, and it’s one that in-house counsel should pay attention to for its implications on class action lawsuits.
In Dart Cherokee Basin Operating Company, LLC v. Owens, a group of royalty owners sued Dart Cherokee over unpaid royalties on the company’s oil and gas wells. The plaintiffs originally filed suit in Kansas state court, where the wells were located, but the Michigan-based Dart Cherokee sought to have the case moved to federal court.
Here’s where the Supreme Court ruling comes in: The Class Action Fairness Act (CAFA) of 2005 allows transfers of cases involving more than $5 million in damages from state to federal court. The plaintiffs did not seek a specific damage amount in their initial filing, but the defendant claimed that damages would be well over $5 million in its filing to change forum.
The district court ruled against Dart Cherokee’s motion to move the case to federal court, and the 10th Circuit upheld that decision, saying in a split en banc decision that the company did not offer enough evidence to back up its $5 million claim.
However, Judge Harris L. Hartz of the 10th Circuit said in a dissent, joined by three other judges, that the burden of proof the courts were imposing sets “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.” He went on to argue 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.”
Now, the Supreme Court will get its shot at the case. If the Court rules in Dart Cherokee’s favor, then defendants of class action lawsuits may only need to prove damages north of $5 million if the plaintiff challenges their bid to move to federal court. If a case is being tried in an unfavorable forum, this ruling could be a godsend to in-house counsel looking for a leg up.
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