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Gary Lawton, Individually and On Behalf of All Others Similarly Situated v. Basic Research

March 31, 2011

GARY LAWTON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
BASIC RESEARCH, L.L.C., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Hillman, District Judge

OPINION

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 ...


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