Unreported / Non-Citable
Background
Sandra Kozak filed a putative class action in Alameda County Superior Court against State Farm General Insurance Company seeking declaratory and injunctive relief requiring the insurer to provide notice of a new policy term to approximately one million policyholders, as well as attorneys' fees under California Code of Civil Procedure § 1021.5. The complaint did not specify a monetary damages amount. State Farm removed the action to the United States District Court for the Northern District of California, invoking diversity jurisdiction under 28 U.S.C. § 1332(a). The court ordered State Farm to address whether the amount in controversy requirement was satisfied. Kozak moved to remand, arguing the jurisdictional threshold was not met.
The parties disputed the cost of providing the requested notice. Kozak estimated the cost at $66,000 assuming a three-page notice, while State Farm submitted a declaration from a business analyst estimating a cost of at least $970,000 based on $0.88 per policy for one million policyholders. State Farm also argued that prospective attorneys' fees under § 1021.5 should be included in the amount in controversy, relying on Fritsch v. Swift Transportation Co. of Arizona, LLC, 899 F.3d 785 (9th Cir. 2018), where the Ninth Circuit held that mandatory attorneys' fees under California Labor Code § 218.5 must be counted toward the jurisdictional amount.
The Court’s Holding
The court granted the motion to remand, finding State Farm failed to meet its burden of establishing the amount in controversy by a preponderance of the evidence. Applying Sanchez v. Monumental Life Insurance Co., 102 F.3d 398 (9th Cir. 1996), the court held that State Farm's cost estimate was equivocal and conclusory, lacking sufficient record evidence to support the $970,000 figure. The court cited Doe v. Aetna, Inc., 2018 WL 1614392 (N.D. Cal. Apr. 4, 2018), for the proposition that compliance cost declarations without adequate foundation are insufficient to carry the removing defendant's burden.
Regarding attorneys' fees, the court distinguished Fritsch on statutory grounds. California Labor Code § 218.5 mandates fee awards to prevailing parties ("the court shall award"), whereas California Code of Civil Procedure § 1021.5 provides only that a court "may award" fees if three discretionary conditions are met: significant public benefit, necessity and financial burden of enforcement, and that fees not be paid from the recovery. Because § 1021.5 does not entitle a successful party to fees as a matter of right, prospective fees under this statute are not automatically at stake in the litigation and need not be included in the amount in controversy. With neither the compliance cost nor the attorneys' fees establishing jurisdiction, the court remanded the action to Alameda County Superior Court and vacated the initial case management conference.
Key Takeaways
- A removing defendant bears the burden of proving the amount in controversy by a preponderance of the evidence when the complaint does not specify damages.
- Conclusory expert declarations estimating compliance costs without adequate methodological support are insufficient to establish federal jurisdiction.
- Prospective attorneys' fees under discretionary fee-shifting statutes ("may award") are not automatically included in the amount in controversy, unlike fees under mandatory statutes ("shall award").
- California Code of Civil Procedure § 1021.5's three-factor test renders fee awards discretionary, distinguishing it from mandatory fee provisions like California Labor Code § 218.5.
- The court vacated the scheduled initial case management conference upon remand.
Why It Matters
This decision clarifies the Ninth Circuit's Fritsch precedent by drawing a bright line between mandatory and discretionary attorneys' fee statutes for amount-in-controversy purposes. Defendants removing class actions predicated on § 1021.5 fee requests cannot automatically aggregate prospective fees to meet the jurisdictional threshold. The ruling also reinforces the requirement that compliance-cost evidence must be specific and non-conclusory, providing a practical check on removal jurisdiction in consumer and insurance class actions seeking injunctive relief. Practitioners should note that the discretionary nature of § 1021.5—requiring courts to find significant public benefit, enforcement necessity, and absence of alternative funding—prevents the automatic inclusion of fees that Fritsch mandated for Labor Code § 218.5.