Ninth Circuit Reinforces Strict Pleading Standards for Diversity Jurisdiction

Federal courts are courts of limited jurisdiction, meaning they can only hear certain types of cases. One of the bases for federal subject-matter jurisdiction is diversity jurisdiction, which allows parties from different states to litigate in federal court if the amount in controversy exceeds a specified threshold. Under 28 U.S.C. Section 1332(a), the statute describing diversity jurisdiction requirements, the parties must be “completely diverse” such that no plaintiff can be from the same state as any defendant, and the amount in controversy must exceed $75,000. Because these requirements are difficult to meet in the class action context, the Class Action Fairness Act (CAFA) provides an alternative path to federal court, requiring only “minimal diversity” and an aggregate amount in controversy exceeding $5 million.

The Ninth Circuit recently reinforced these diversity requirements in Rosenwald v. Kimberly-Clark Corp. This proposed consumer class action case involved claims that Kimberly-Clark’s “Kleenex Germ Removal Wet Wipes” misled consumers into believing the product contained germicides rather than soaps. The plaintiffs filed suit in the U.S. District Court for the Northern District of California, asserting diversity jurisdiction under Section 1332(a) and CAFA. The district court twice dismissed the plaintiffs’ complaint for failing to state a claim for relief and lack of personal jurisdiction (as to non-California proposed class members)—but it did not address whether it had subject matter jurisdiction based on diversity or CAFA.

After the case was briefed, the Ninth Circuit sua sponte ordered supplemental briefing regarding subject-matter jurisdiction. The court ruled that the plaintiffs’ operative complaint failed to adequately allege subject-matter jurisdiction and invited the plaintiffs to amend their complaint to cure these defects. The plaintiffs tried for a third time, submitting a proposed third amended complaint.

In a published decision, the Ninth Circuit concluded that the plaintiffs failed to plausibly allege subject-matter jurisdiction. Regarding citizenship, both parties agreed that the district court properly took judicial notice of Kimberly-Clark’s citizenship based on a letter identifying two of its offices. But the Ninth Circuit disagreed, finding that the letter did not establish the company’s citizenship, which is based on its place of incorporation and principal place of business, because jurisdictional facts must be affirmatively pled. The court also rejected the notion that citizenship could be established “purely by judicial notice,” siding with the Tenth Circuit and rejecting the Fifth Circuit’s more permissive approach. In doing so, the court  reiterated its prior holding that “[t]he party seeking to invoke the district court’s diversity jurisdiction always bears the burden of both pleading and proving diversity jurisdiction.” NewGen, LLC v. Safe Cig, LLC, 840 F.3d 606, 613–14 (9th Cir. 2016) (emphases added). The plaintiffs cured this defect in the third amended complaint.

But plaintiffs still failed to satisfactorily allege the amount in controversy. They conceded the class was not seeking over $5 million to satisfy CAFA. And even generously considering the plaintiffs’ new actual damages allegations, punitive damages arguments and potential attorneys’ fees recovery (which must be apportioned pro rata to each class member in the class action context), the Ninth Circuit found the plaintiffs could not meet the required $75,000 threshold in fees per named plaintiff. Given the numerous opportunities to correct the jurisdictional defects to no avail, the court declined to constructively amend the pleadings or grant further leave to amend.

The Rosenwald decision reinforces the diversity jurisdiction pleading requirements that plaintiffs filing in federal court or defendants seeking to remove an action from state court bear the burden of establishing with specificity and good faith.

This decision is noteworthy for a host of reasons, including the following: First, it is relevant for plaintiffs filing in federal court or defendants seeking to remove an action from state court based on diversity under Section 1332(a) or CAFA, as it reinforces the burden of sufficiently pleading diversity jurisdiction on the party seeking to take advantage of the federal court’s limited jurisdiction. Second, it solidifies that a federal court taking judicial notice of a party’s citizenship is not a substitute for the plaintiff’s (or, in the removal context, the defendant’s) obligation to sufficiently plead facts supporting citizenship. Thus, even well-known facts about a company’s state of incorporation or principal place of business must be affirmatively and plausibly alleged in the complaint. Third, it is a meaningful reminder that parties who do not dispute the federal court’s jurisdiction cannot escape jurisdictional requirements as federal courts are obligated to sua sponte consider their jurisdiction. And fourth, it confirms that attorneys’ fees in the class action context must be apportioned among class members and supported by plausible factual allegations, which may complicate plaintiffs’ ability to meet the jurisdictional minimum monetary requirement.

If you have questions about federal jurisdiction, CAFA or how this decision may affect your litigation posture, please contact the authors of this Client Alert or any Brownstein attorney.

This document is intended to provide you with general information regarding a Ninth Circuit decision that reinforces requirements for asserting diversity jurisdiction in class actions. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.