The Ninth Circuit Court of Appeals has joined several sister circuits in holding that courts should consider the amount of “possible” and not “probable” punitive damages in determining the $5 million amount-in-controversy for federal jurisdiction in class action cases.

The case of Greene v. Harley-Davidson, Inc. presented a technical, but unresolved issue for the court – determining the proper burden when the defendant removes a case from state court based on Class Action Fairness Act (“CAFA”) jurisdiction and relies on punitive damages to establish the $5 million CAFA amount-in-controversy requirement.

The plaintiff filed a putative class action suit in state court, asserting a number of causes of action related to Harley-Davidson’s pricing and advertising for motorcycles.

Harley-Davidson removed the case to federal district court under CAFA, arguing that the required $5 million amount-in-controversy was met with an estimated $2.16 million in compensatory damages and the same amount in punitive damages (using a 1:1 punitive/compensatory damages ratio), and $1.08 million in attorney’s fees. In support of its removal, Harley-Davidson cited prior cases involving the same causes of action in which the juries awarded punitive damages based on the same or higher punitive/compensatory damages ratios.

The plaintiff moved to remand the case back to state court, challenging Harley-Davidson’s punitive damages estimate. The district court granted the motion to remand.  Though it acknowledged that Harley-Davidson had cited several cases in which the jury had awarded punitive damages on a least a 1:1 ratio, it determined that Harley-Davidson did not explain how those cases were analogous. The district court held that it was not merely enough to cite cases involving the same cause of action; rather, the court held that a defendant has the burden of comparing and analogizing the underlying factual allegations to show that the punitive damages ratio is permissible.

The Ninth Circuit, however, disagreed.  In its July 14 opinion, the Ninth Circuit held that to satisfy the amount-in-controversy requirement under CAFA, the defendant need only show a reasonable possibility that the defendant may be liable for the proffered punitive damages amount.  The Ninth Circuit ruled that, by requiring Harley-Davidson to show factual similarities to the other cases, the district court improperly asked Harley-Davidson to establish the likelihood that the plaintiff would actually prevail on the claim. Instead, the Ninth Circuit explained that it is sufficient for a defendant to cite a case or cases based on the same or similar cause of action in which the court awarded punitive damages based on a similar damages ratio.

In so holding, the Ninth Circuit joined the Third, Fifth, Eighth, Seventh, and Tenth circuits, which have adopted similar standards for determining whether the amount-in-controversy is met with punitive damages under CAFA.

The court separately held that the district court should not have considered Harley-Davidson’s statute of limitations defense to reduce the potential damages. The court explained that, a plaintiff “cannot smuggle in merits-based arguments into the jurisdictional inquiry.”