                                                                            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




                                            -2-
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.

                                              -2-
       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.


                                             -3-
       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

                                             -4-
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


                                              -5-
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


                                             -6-
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


                                             -7-
                     (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.

                                              -8-
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.

                                              -9-
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.




                                             -10-
