IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY
March 31, 2011
GARY LAWTON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
BASIC RESEARCH, L.L.C., ET AL., DEFENDANTS.
The opinion of the court was delivered by: Hillman, District Judge
This putative class action case concerns plaintiff's allegations that defendants engaged in fraudulent, deceptive, and misleading labeling and advertising of Zantrex-3, a dietary supplement that plaintiff contends is ineffective and not proven to cause rapid weight loss despite defendants' claims. Plaintiff originally filed his case in New Jersey Superior Court, Atlantic County, and Defendants removed the matter to this Court pursuant to 28 U.S.C. § 1332(d)(2), the Class Action Fairness Act (CAFA). Pending before the Court is plaintiff's motion to remand.*fn1 For the reasons expressed below, plaintiff's motion will be denied.
BACKGROUND AND DISCUSSION
Plaintiff, Gary Lawton, claims that defendants, Basic Research, LLC, Zoller Laboratories, LLC, and Dennis W. Gay, CEO, President, and principal shareholder of Basic Research and Zoller,*fn2 violated the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1, et al., and breached express and implied warranties, as well as were unjustly enriched, through the marketing and sale of the dietary supplement, Zantrex-3, advertised to provide rapid weight loss. Plaintiff is seeking, on behalf of himself and others similarly situated, trebled compensatory damages, including the refund of the purchase price each member of the class paid for Zantrex-3, and punitive damages, among other relief.
Defendants removed plaintiff's case from New Jersey Superior Court, Atlantic County, to this Court, contending that this Court has jurisdiction over the matter pursuant to 28 U.S.C. § 1332(d)(2), the Class Action Fairness Act (CAFA). CAFA provides, in relevant part, that "district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which . . . (A) any member of a class of plaintiffs is a citizen of a State different from any defendant." 28 U.S.C. § 1332(d)(2). Another jurisdictional requirement under CAFA is that the proposed class contains at least 100 members. Id. § 1332(d)(6).
Plaintiff has moved to remand his case to state court where he originally filed it. In plaintiff's motion to remand, he does not dispute that defendants have met the citizenship and number-of-class-members requirements of CAFA. Plaintiff argues, however, that defendants have not demonstrated that his claims will exceed $5 million, and, therefore, his case should be remanded for lack of subject matter jurisdiction. In further support of remand, plaintiff points out that he expressly states in his complaint that his claims do not exceed $5 million: "[T]here is no [federal court] jurisdiction under the Class Action Fairness Act of 2005 because the matter in controversy in this civil action does not exceed $5,000,000, exclusive of costs and interest." (Compl. ¶ 5, Docket No. 1-2.)*fn3 Because defendants have not met their burden of proving to a legal certainty that plaintiff's claims meet the jurisdictional amount in controversy, and because plaintiff himself caps his recovery to below $5 million, plaintiff argues that this Court lacks jurisdiction over his case.
In opposition, defendants contend that despite plaintiff's valuation of his case, they provided sufficient evidence in their notice of removal, as well as supplemental declarations, that sales of Zantrex-3 in New Jersey during the time period covered by plaintiff's claims totaled over $6.5 million, and that with trebled damages, plaintiff's case could exceed $19.5 million. Defendants further argue that plaintiff's "opinion" that the amount in controversy in the case will not exceed $5 million is overcome by their evidence that the amount in controversy could well exceed that amount. Thus, defendants contend that they have debunked any finding that the case cannot exceed $5 million, and they have proven to a legal certainty that plaintiff's potential recovery can exceed $5 million.
The Third Circuit has squarely addressed this situation. In Frederico v. Home Depot, 507 F.3d 188 (3d Cir. 2007), the Third Circuit explained the two standards by which to analyze a motion to remand when the amount in controversy is in dispute. Where the plaintiff has not specifically averred in the complaint that the amount in controversy is less than the jurisdictional minimum, the test espoused by Samuel-Bassett v. KIA Motors America, Inc., 357 F.3d 392 (3d Cir. 2004) applies. Under Samuel-Bassett, the challenger to subject matter jurisdiction has to prove, to a legal certainty, that the amount in controversy cannot exceed the statutory threshold. See Frederico, 507 F.3d at 196. In contrast, where the complaint specifically avers that the amount sought is less than the jurisdictional minimum, the standard set forth by Morgan v. Gay, 471 F.3d 469, 473 (3d Cir. 2006) applies. Under Morgan, a defendant seeking removal must prove to a legal certainty that plaintiff can recover the jurisdictional amount. See Frederico, 507 F.3d at 196-97.
In this case, the Morgan test applies. Plaintiff has specifically limited the value of his case to below $5 million: "[T]here is no [federal court] jurisdiction under the Class Action Fairness Act of 2005 because the matter in controversy in this civil action does not exceed $5,000,000, exclusive of costs and interest." (Compl. ¶ 5, Docket No. 1-2.) Thus, it is defendants' obligation to prove to a legal certainty that plaintiff can recover more than $5 million.*fn4
In determining what defendants must show to prove to a legal certainty that plaintiff's claims can exceed $5 million, Morgan is instructive. There, the district court remanded the action--which concerned a different nutritional supplement--to state court because the defendants had not demonstrated to a legal certainty that the potential recovery in the plaintiff's putative class action exceeded $5 million in order to secure CAFA jurisdiction. Morgan v. Gay, 2006 WL 2265302, *5 (D.N.J. 2006). The district court explained that despite the defendants' assertion that the plaintiff's demands for disgorgement of all profits from the sale of the supplement, as well as punitive and compensatory damages and attorneys' fees and costs, exceeded the $5 million mark, the defendants did not offer any factual support for this assertion.
Morgan, 2006 WL 2265302 at *5. The district court pointed out that the defendants "do not provide, for example, statistical sales information regarding the amount of [the supplement] sold in New Jersey, the cost of [the supplement], what sort of punitive damages that could be found when no harmful side effects are being alleged, or how much profit was made in New Jersey sales of [the supplement] which would be eligible for disgorgement." Id. The court concluded, "Without this information, all that remains from Defendants' submissions are their unsubstantiated assertions." Id.
On appeal, the Third Circuit agreed with the district court.*fn5
First, the court noted that the "Supreme Court has long held that plaintiffs may limit their claims to avoid federal subject matter jurisdiction," and that "CAFA does not change the proposition that the plaintiff is the master of her own claim." Morgan v. Gay, 471 F.3d 469, 474 (3d Cir. 2006), cert. denied, 552 U.S. 940 (2007). The circuit court then observed, "If this court had all the information available to make such a determination, our conclusion here might be that the plaintiff's claim in all likelihood exceeds $5 million." Id. at 475. The court found, however, that "three inconclusive assumptions that the defendants rely upon to meet" their burden mandated remand: (1) the defendants did not state what sort of punitive damages could be found when no harmful side effects are being alleged; (2) the defendants did not provide information about how much profit from New Jersey sales of the supplement would be eligible for disgorgement, and the plaintiff has explicitly limited her claim to disgorgement as a restitutionary remedy, so that the type of disgorgement of profits sought by the plaintiff could not extend any further than profits derived directly from sales of the supplement to the New Jersey class members; and (3) with respect to compensatory damages, the defendants did not provide "statistical sales information regarding the amount of [the supplement] sold in New Jersey," and the defendants did not state the actual cost of the supplement. Id. at 475-76.
In this case, it is apparent that defendants have attempted to remedy the dearth of information to support CAFA jurisdiction that doomed the defendants in Morgan.*fn6 To address the value of plaintiff's putative class claims, which concern thousands of New Jersey citizens who have purchased Zantrex-3, defendants attached a declaration of Steven S. Dickert, CFO of Zoller and Basic Research, to their notice of removal. Dickert attests that the retail sales of Zantrex-3 in New Jersey during the time period covered by plaintiff's complaint totaled $6.5 million. (Ex. C, Docket No. 1-3.) This figure, which defendants argue already meets the jurisdictional minimum of CAFA, further exceeds the amount in controversy requirement when it is trebled pursuant to the NJCFA. Adding to that number the potential for punitive damages, which plaintiff demands, as well as attorneys' fees, which may be considered in determining the CAFA jurisdictional threshold, see Frederico v. Home Depot, 507 F.3d 188, 195 (3d Cir. 2007), defendants contend that the amount in controversy could exceed $42 million.
In his motion to remand, plaintiff challenges defendants' reliance upon Dickert's certification based on the same three reasons pointed out in Morgan. Plaintiff argues (1) the certification does not show how punitive damages can be assessed without claims by plaintiff regarding harmful side effects; (2) the sales figure of $6.5 million does not show what profit would be eligible for disgorgement; (3) defendants do not provide any statistical information to support Dickert's unsubstantiated, conclusory statement regarding the $6.5 million figure; and (4) defendants do not provide information regarding the actual cost of Zantrex-3 or the exact number of New Jersey purchasers. Plaintiff thus argues that these flaws are fatal to defendants' burden of showing to a legal certainty that his claim will exceed $5 million.
In response, defendants filed under seal more specific sales data. (See Docket No. 34.) Dickert supplemented his original certification with a detailed explanation of the sales data. In that certification, Dickert explained three categories of sales data: Category 1 - actual retail sales figures reported for sales in New Jersey during the relevant time period (October 20, 2004 through October 20, 2010); Category 2 - estimated retail sales figures for New Jersey based upon actual national reported retail sales figures; Category 3 - estimated retail sales figures for actual shipments to that retailer. The certification also explains how the different retailers report their sales data, and how this affects defendants' calculations. For example, several of the national chain retailers that have locations in New Jersey only provide national sales figures. Thus, defendants cannot obtain actual New Jersey-specific retail sales data for several major retailers, and instead must make allocation estimations.
In reply, plaintiff challenges this data, arguing that the actual sales data is the only data to be credited, and the remainder of the allocation estimations should be ignored. Plaintiff points out that the actual data figure does not meet $5 million, and that the figure does not account for non-New Jersey residents who purchased Zantrex-3 in a New Jersey store. Plaintiff therefore argues that despite defendants' efforts, they have failed to meet their burden of proving to a legal certainty that the amount in controversy of his case exceeds $5 million.
The Court recognizes that it is plaintiff's right to limit the value of his claim to prevent his case from being removed from his choice of forum. See Frederico v. Home Depot, 507 F.3d 188, 195 (3d Cir. 2007) (explaining that it is "well-established" that "the plaintiff is the master of her own claim and thus may limit his claims to avoid federal subject matter jurisdiction"). Federal court, however, is a forum available to defendants despite plaintiff's choice, as long as defendants have proven that plaintiff's case meets the jurisdictional requirements of CAFA to a legal certainty. Defendants have done so here.
Setting aside defendants' estimated sales data, and not factoring in the possibility of punitive damages,*fn7 defendants have still concretely proven that the amount in controversy in plaintiff's putative class action exceeds $5 million. As a part of his claim, plaintiff requests that he and his class members be refunded the purchase price of Zantrex-3. Defendants have provided actual data of sales of Zantrex-3 in New Jersey that, when trebled, is just shy of the $5 million mark.*fn8 See Lettenmaier v. Lube Connection, Inc., 741 A.2d 591, 593 (N.J. 1999) (citation omitted) (explaining that two purposes of the NJCFA are to compensate the victim for his or her actual loss and to punish the wrongdoer through the award of treble damages).
The figure then easily surpasses $5 million when attorneys' fees are added. In any action brought for violations of the NJCFA, "the court shall also award reasonable attorneys' fees, filing fees and reasonable costs of suit." N.J.S.A. 56:8-19. The counsel fee provision in the NJCFA serves "to attract competent counsel to counteract the community scourge of fraud by providing an incentive for an attorney to take a case involving a minor loss to the individual." Lettenmaier, 741 A.2d at 593 (citation omitted). Attorneys' fees must be considered in calculating the amount in controversy requirement under CAFA, Frederico, 507 F.3d 188 at 199 (citing Suber v. Chrysler Corp., 104 F.3d 578, 585 (3d Cir. 1997)), and "[f]ees could be as much as thirty percent of the judgment," id. (citing In re Rite Aid Corp. Securities Litigation, 396 F.3d 294, 303 (3d Cir. 2005) (noting study done by the Federal Judicial Center that found a median percentage recovery range of 27-30% for all class actions resolved or settled over a four-year period)); cf. In re Cendant Corp. Prides Litig., 243 F.3d 722, 730 (3d Cir. 2001) (citation omitted) ("[The] divergence in [class members' and class counsel's] financial incentives . . . creates the 'danger . . . that the lawyers might urge a class settlement at a low figure or on a less-than-optimal basis in exchange for red-carpet treatment for fees.'"). Thus, even if counsel fees totaled only three percent of the trebled damages, those fees plus the damages based on the actual retail sales data readily exceed the $5 million threshold.*fn9
Defendants have proven to a legal certainty that the amount in controversy of plaintiff's case exceeds $5 million. Therefore, this Court may properly exercise subject matter jurisdiction over plaintiff's case pursuant to CAFA. Accordingly, plaintiff's motion for remand must be denied.*fn10
An appropriate order will be entered.
NOEL L. HILLMAN, U.S.D.J.