In so ruling, the Ninth Circuit held:
1. When a notice
of removal plausibly alleges a basis for federal court jurisdiction, a federal
trial court may not remand the case back to state court without giving the
defendants an opportunity to demonstrate that the jurisdictional requirements
were satisfied;
2. The amount in
controversy may be based on reasonable assumptions tied to the allegations in
the complaint;
3. When a
statute or contract provides for the recovery for attorneys' fees, prospective
attorneys' fees must be included in the assessment of the amount in
controversy; and
4. The
defendants' summary judgment motion in state court, asserting that the plaintiffs'
claims were barred by a release from a prior class action settlement, did not
defeat federal court jurisdiction.
A copy of the opinion is available at: Link
to Opinion
An employee filed a putative class action against her employer
in state court, alleging that the employer failed to compensate its employees
for wages and missed meal breaks and failed to issue accurate itemized wage
statements, all in violation of state wage and hour laws.
The employer removed the case to federal court alleging minimum
diversity jurisdiction under the federal Class Action Fairness Act
(CAFA).
As you may recall, a federal trial court has original
jurisdiction under CAFA if: (1) any member of the class is a citizen of a
state different from any defendant, (2) the class contains at least 100
members, and (3) the amount in controversy exceeds $5,000,000. 28 U.S.C.
§ 1332(d)(2), (d)(5)(B).
To show minimum diversity, the employer alleged that it was a
citizen of Maryland and Delaware and the employee was a citizen of
California. To satisfy the class size requirement, the employer provided
a declaration stating that it employed at least 2193 nonexempt employees during
the period defined in the complaint.
To satisfy the amount in controversy requirement, the employer
relied on its employee data (e.g., number of nonexempt employees, hourly rate
of pay, and number of workweeks worked by putative class members), and then
made assumptions about the frequency of the violations alleged in the
complaint.
Using assumed violation rates, the employer alleged a potential
amount in controversy exceeding $15 million, with its most "conservative
estimate" totaling over $5.5 million, including attorneys' fees (which the
employer asserted should be included to in the calculation).
After the employer filed the notice of removal, the trial court
issued an order sua sponte remanding the case to state court. The trial
court stated that the employer's calculations of the amount in controversy was
" unpersuasive" and rested on "speculation and
conjecture."
The trial court faulted the employer for not offering
evidentiary support for its assumptions, and concluded that "prospective
attorneys' fees are too speculative" to be included in the amount in
controversy.
The litigation proceeded in state court. The employer
filed a motion for summary judgment, arguing that a release from a related
class action settlement barred all of the employee's claims.
The employer filed a timely petition for permission to appeal
under 28 U.S.C. § 1453(c)(1), which the Ninth Circuit granted.
The employer argued that the trial court imposed an erroneous
burden of proof by sua sponte remanding the case to state court without
allowing it an opportunity to support its allegations with evidence.
The Ninth Circuit observed that "when a defendant seeks
federal-court adjudication, the defendant's amount-in-controversy allegation
should be accepted when not contested by the plaintiff or questioned by the
court." Dart Cherokee Basin Operating Co., LLC v. Owens, 574 U.S.
81, 87 (2014).
The appellate court noted that the trial court did not conclude
that the employer's allegations were implausible. Instead, the trial
court stated that the employer failed to meet its burden of proving the amount
in controversy with evidence.
The Ninth Circuit also noted that a notice of removal "need
not contain evidentiary submissions." Dark Cherokee, 574 U.S. at
84. "[W]hen a defendant's assertion of the amount in controversy is
challenged and both sides submit proof, the court decides by a preponderance of
the evidence whether the amount-in-controversy requirement has been
satisfied." Id., at 88.
Thus, the appellate court held that the trial court's sua sponte
order deprived the employer of "a fair opportunity to submit proof."
Next, the employer argued that the trial court erred in
disallowing its assumptions in its estimate of the amount in controversy.
The Ninth Circuit explained that a removing defendant is
permitted to rely on "a chain of reasoning that includes
assumptions." Ibarra v. Manheim Invs., Inc., 775 F.3d 1193, 1199
(9th Cir. 2015). However, "assumptions cannot be pulled from thin
air but need some reasonable ground underlying them." Id.
The employee alleged that the employer " routinely"
failed to provide overtime wages and compensation for rest and meal
breaks. The employer assumed six minutes of unpaid overtime per day and
one missed rest break per week.
The employer assumed that 100% of wage statements were
inaccurate because the employee alleged that "[n]ot one of the paystubs
that Plaintiffs received complied with Labor Code § 226b."
Based on the allegations in the complaint, and noting that the
amount in controversy was merely an estimate of the total amount in dispute,
the Ninth Circuit determined that the trial court mischaracterized the
employer's assumptions as being "speculation and conjecture."
The employer also argued that the trial court erred by "refusing
to consider prospective attorneys' fees in the amount in controversy."
The Ninth Circuit agreed, stating that "[w]e have long held
(and reiterated [in early 2018]) that attorneys' fees awarded under
fee-shifting statutes or contracts are included in the amount in
controversy." Fritsch v. Swift Transp. Co. of Ariz., LLC, 899 F.3d
785, 794 (9th Cir. 2018).
Because the complaint sought recovery of attorneys' fees, and
because there was no dispute that at least some of the California wage and hour
laws in the complaint entitle a prevailing plaintiff to an award of attorneys'
fees, the Ninth Circuit held that the trial court should not have excluded
prospective attorneys' fees from the amount in controversy.
The employee argued that the employer's summary judgment motion
in state court defeated federal court jurisdiction, because it argued that her
claims were barred by a release from a prior class action settlement.
The Ninth Circuit disagreed, explaining that post-filing
developments do not defeat jurisdiction if jurisdiction was properly invoked as
of the time of filing of the complaint. Further, the strength of any
defense indicated the likelihood of the plaintiff prevailing, but is irrelevant
to determining the amount at stake in the litigation.
The employee also suggested that jurisdiction was defeated
because she stipulated that the amount in controversy did not exceed
$5,000,000.
However, the U.S. Supreme Court has held that when "a
class-action plaintiff stipulates, prior to certification of the class, that
he, and the class he seeks to represent, will not seek damages that exceed $5
million in total," the trial court should ignore the stipulation when
assessing the amount in controversy. Std. Fire Ins. Co. v. Knowles, 568
U.S. 588, 590, 596 (2013).
Accordingly, the Ninth Circuit vacated the trial court's order
refusing federal court jurisdiction, and remanded for further proceedings.
Eric Tsai
Maurice Wutscher LLP
71 Stevenson Street, Suite 400
San Francisco, CA 94105
Direct: (415) 529-7654
71 Stevenson Street, Suite 400
San Francisco, CA 94105
Direct: (415) 529-7654
Fax: (866) 581-9302
Mobile: (714) 600-6000
Email: etsai@MauriceWutscher.com
Admitted to practice law in California, Nevada and Oregon
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