In a toxic tort class action involving a chemical spill that may have affected thousands of individuals in an immediate geographic area, the Eighth Circuit held that class action plaintiffs’ expert report definitively alleging damages greater than $5 million triggered defendant’s 30-day removal period under the Class Action Fairness Act (“CAFA”), but held that an earlier letter from plaintiffs’ counsel “recommending” a settlement over $5 million did not.  Gibson v. Clean Harbors Environmental Services, Inc., No. 16-8012, 2016 U.S. App. LEXIS 19073 (8^th Cir. Oct. 24, 2016).  CAFA was enacted in 2005 and expanded federal diversity jurisdiction to include a greater number of class actions and other multi-plaintiff actions.  Among other things, CAFA provides that where a putative class includes greater than 100 members seeking greater than $5 million, the defendant may remove the action, regardless of traditional diversity requirements.

Gibson was originally filed in Arkansas state court where the class action plaintiffs pleaded a class larger than 100 members but stipulated that their total damages did not exceed $5 million, as was permitted prior to the United States Supreme Court’s ruling in Standard Fire Insurance v. Knowles, 133 S. Ct. 1345, 1347 (2013) which outlawed that practice going forward. 

By letter dated March 11, 2016, more than three years into the case, however, plaintiffs’ attorney “‘recommended a total payment of $6,500,000 to resolve’ the case,” Gibson, at *3, and noted that the letter “constitutes plaintiffs’ settlement demand.”  Id. at *18 (Murphy, J. dissenting).  Following the letter, on April 21, 2016, plaintiffs served defendant with an expert report supporting the $6.5 million demand with objective evidence and a more fully developed theory on the calculation of damages.  Defendant filed its notice of removal in the Western District of Arkansas on May 9, 2016, within 30 days of the expert report but more than 30 days after the date of the letter. 

Accordingly, plaintiffs argued that the letter provided the necessary “‘pleading, motion, order, or other paper’ from which the defendant [could] unambiguously ascertain” that the CAFA requirements were satisfied, while the defendant argued that only the expert report made this conclusion “unambiguous.”  Id. at *8 (quoting CAFA at 28 U.S.C. 1446(b)(3)).

After the W.D. Arkansas agreed with the plaintiffs, the Eighth Circuit agreed with the defendant, overturning the district court and holding that the expert report and not the letter provided the first “unambiguous” indication that plaintiffs were seeking greater than $5 million in damages.  While the Eighth Circuit noted that a letter could provide such an unambiguous indication, this particular letter did not because the plaintiffs’ attorney only “recommended” a settlement greater than $5 million and because the data that the letter provided could easily be interpreted to warrant a settlement much lower than $5 million.

The Eight Circuit stated that its decision was intended to reduce the number of preemptive removals filed by class action defendants by requiring that the standard definitively be met.  To the contrary, the overall impact of this case is likely to have the opposite effect.  It shows that when the $5 million CAFA threshold is met may actually turn on a subjective determination that is different for each federal judge.  In fact, in this case, of the four federal judges who considered the issue—one from the W.D. Arkansas and three from the Eighth Circuit’s panel—two found plaintiffs’ letter “unambiguous” and two found the opposite.  Given these odds, defense attorneys would be wise to err on the side of caution remove at the first indication that the CAFA requirements have been established.

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