Romo v. Teva Pharmaceuticals USA, Inc. was described as the end of the world by business interests when the Ninth Circuit held that attorneys could avoid CAFA removal by filing separate cases with fewer than 100 plaintiffs in each case to avoid the mass action provision in CAFA. The Ninth Circuit is going to give those poor business interests a second bite at the apple; today the Ninth Circuit issued an order that the matter be reheard en banc.
In Urbino v. Orkin Servs. of California, Inc. (9th Cir. Aug. 13, 2013), the Ninth Circuit took up the question of whether PAGA claims aggregate for purposes of CAFA's damage prerequisite. Plaintiff, a California citizen, worked in a nonexempt, hourly paid position for defendants, each of whom is a corporate citizen of another state, in California. Alleging that defendants illegally deprived him and other nonexempt employees of meal periods, overtime and vacation wages, and accurate itemized wage statements, plaintiff filed a representative PAGA action. Defendants removed. Plaintiff moved to remand. The district court was obligated to decide whether the potential penalties could be combined or aggregated to satisfy the amount in controversy requirement. If they could, federal diversity jurisdiction would lie because statutory penalties for initial violations of California’s Labor Code would total $405,500 and penalties for subsequent violations would aggregate to $9,004,050. If not, the $75,000 threshold would not be met because penalties arising from plaintiff’s claims would be limited to $11,602.40. Acknowledging a split of opinion, the district court found PAGA claims to be common and undivided and therefore capable of aggregation.
The Court examined the "common and undivided interest" exception to the rule that multiple plaintiffs cannot aggregate claims. Observing that common questions do not create that common and undivided interest, the Court said:
But simply because claims may have “questions of fact and law common to the group” does not mean they have a common and undivided interest. Potrero Hill Cmty. Action Comm. v. Hous. Auth., 410 F.2d 974, 977 (9th Cir. 1969). Only where the claims can strictly “be asserted by pluralistic entities as such,” id., or, stated differently, the defendant “owes an obligation to the group of plaintiffs as a group and not to the individuals severally,” will a common and undivided interest exist, Gibson v. Chrysler Corp., 261 F.3d 927, 944 (9th Cir. 2001) (quoting Morrison v. Allstate Indem. Co., 228 F.3d 1255, 1262 (11th Cir. 2000)).
Slip op., at 8.
The defendants then argued that the interest asserted by plaintiff was not his, but was actually the state's interest. The Court's majority did not find that argument compelling:
To the extent Plaintiff can—and does—assert anything but his individual interest, however, we are unpersuaded that such a suit, the primary benefit of which will inure to the state, satisfies the requirements of federal diversity jurisdiction. The state, as the real party in interest, is not a “citizen” for diversity purposes. See Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 461 (1980) (courts “must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy.”); Mo., Kan. & Tex. Ry. Co. v. Hickman, 183 U.S. 53, 59 (1901); see also Moor v. Cnty. of Alameda, 411 U.S. 693, 717 (1973) (explaining that “a State is not a ‘citizen’ for purposes of the diversity jurisdiction”).
Slip op., at 9. By the way, this cleverly avoids deciding an unnecessary issue that is of some consequence in the world of arbitration. It does, however, suggest a point upon which the California Supreme Court will likely have to express an opinion when it decides whether PAGA claims are excused from arbitration clause enforcement or, alternatively, from arbitration clauses that preclude “class” claims.
The dissent, like the majority opinion, is also relatively short, but it is also well argued.
Thanks to the tipster for directing me to the decision (since I don't know whether you want to be identified, you remain anonymous).
NOTE: This is an updated version of an earlier post on this case. The older post has been removed.
In Rodriguez v. AT&T Mobility Services LLC (9th Cir. Aug. 27, 2013), the plaintiff brought a putative class action against AT&T Mobility Services, LLC, on behalf of himself and all other similarly situated retail sales managers of AT&T wireless stores in Los Angeles and Ventura counties. The plaintiff asserted various claims related to alleged unpaid wages, overtime compensation, and damages for statutory violations, filing in Los Angeles County Superior Court in a doomed effort to escape federal court. AT&T removed the case to federal court under 28 U.S.C. § 1332(d)(2). Plaintiff moved to remand the case to state court, arguing that defendant could not establish subject-matter jurisdiction because the total amount in controversy did not exceed $5 million. Plaintiff cited his First Amended Complaint, in which he alleged as much, that “the aggregate amount in controversy is less than five million dollars.” To bolster his position, in that pleading, he also “waive[d] seeking more than five million dollars ($5,000,000) regarding the aggregate amount in controversy for the class claims alleged.” The district court rejected AT&T’s argument and ordered remand to state court. The trial court did not address the parties’ calculations of amount in controversy.
The Ninth Circuit recognized the applicability of the U.S. Supreme Court's first CAFA decision, Standard Fire Ins. Co. v. Knowles, ___ U.S. ___, 133 S.Ct. 1345 (2013). As to Standard Fire, the parties agreed that Standard Fire mandated reversal of the district court's remand order, which was issued before Standard Fire was decided. The Ninth Circuit directed the district court to reconsider the remand motion. Slip op., at 7.
On the second issue involved in the appeal, the burden of proof, the Court held that Standard Fire overruled Lowdermilk v. U.S. Bank National Association, 479 F.3d 994 (9th Cir. 2007), which had imposed a "legal certainty" standard, instead of a “preponderance of the evidence” standard, for defeating a pleading’s allegations of amount-in-controversy:
The reasoning behind Lowdermilk's imposition of the legal certainty standard is clearly irreconcilable with Standard Fire. We hold that Standard Fire has so undermined the reasoning of our decision in Lowdermilk that the latter has been effectively overruled. A defendant seeking removal of a putative class action must demonstrate, by a preponderance of evidence, that the aggregate amount in controversy exceeds the jurisdictional minimum. This standard conforms with a defendant's burden of proof when the plaintiff does not plead a specific amount in controversy.
Slip op., at 14. The Court went on to observe that a “lead plaintiff of a putative class cannot reduce the amount in controversy on behalf of absent class members, so there is no justification for assigning to the allegation weight so significant that it affects a defendant's right to a federal forum under § 1332(d)(2).” Slip op., at 15.
With this decision in mind, a lead plaintiff is taking a serious chance with their adequacy if there is an attempted waiver of any recovery exceeding $5 million that cannot be supported down the road as having been based on a good faith calculation of recoverable damages.
In Kuxhausen v. BMW Financial Services (9th Cir. Feb. 25, 2013), the Ninth Circuit circuit granted leave to appeal a District Court's Order granting a motion to remand on the ground that removal was untimely under CAFA. The case was originally filed on August 30, 2011, alleging various claims arising from Retail Installment Sales Contracts issued through one BMW dealership. On February 9, 2012, the plaintiff amended to include a proposed class of all California-BMW purchasers affected by the same alleged RISC non-disclosures. BMW removed on March 9, 2012. The District Court granted a motion to remand on the ground that the motion to remand under CAFA was untimely.
The Court examined each element that must be established for CAFA jursidiction, focusing on the amount in controversy and the timing of the pleading that disclosd the amount:
In Harris, a non-CAFA case, the plaintiffs made a similar demand. They argued that the defendant “should have looked in its files within the first thirty days” to discover that a named defendant whose presence in the suit frustrated complete diversity of citizenship had died, and therefore should have recognized that the case was immediately removable under 28 U.S.C. § 1332(a). Harris, 425 F.3d at 696. Preferring a clear rule, and unwilling to embroil the courts in inquires “into the subjective knowledge of [a] defendant,” we declined to hold that materials outside the complaint start the thirty-day clock. Id. at 695 (quoting Lovern v. Gen. Motors Corp., 121 F.3d 160, 162 (4th Cir. 1997)). Applying that principle here, we conclude that BMW was not obligated to supply information which Kuxhausen had omitted.
However, that does not fully resolve whether the amount in controversy was “stated by the initial pleading.” 28 U.S.C. § 1446(b). The district court also was influenced by the fact that for a 200 member class, the average contract price per vehicle needed only to exceed $25,000 in order to put greater than five million dollars in controversy. Presumably, it thought that sum was a plausible-enough guess for a case involving German luxury automobiles, perhaps doubly so since Kuxhausen’s individual vehicle contract was more than twice that amount. The fact remains, however, that we “don’t charge defendants with notice of removability until they’ve received a paper that gives them enough information to remove.” Durham, 445 F.3d at 1251. This principle helps avoid a “Catch–22” for defendants desirous of a federal forum. By leaving the window for removal open, it forces plaintiffs to assume the costs associated with their own indeterminate pleadings. That is only fair after all, because—even under CAFA—“the burden is on the party removing the case from state court to show the exercise of federal jurisdiction is appropriate.” Lewis v. Verizon Commc’ns, Inc., 627 F.3d 395, 399 (9th Cir. 2010). Thus, because nothing in Kuxhausen’s complaint “indicate[d] that the amount demanded by each putative class member exceed[ed] $25,000,” it fell short of triggering the removal clock under Section 1446(b). Carvalho, 629 F.3d at 886.
Slip op., at 10-11. In this same discussion, the Court also held that the timing trigger of the 30-day removal period and a defendant's ability to go beyond the pleadings to show CAFA jurisdiction are not linked. A defendant is not obligated to establish what is not included in the pleadings.
United States District Court Judge William Alsup (Northern District of California) granted a motion by plaintiff Pineda to remand a class action back to the California Superior Court from whence it came. Pineda v. Bank of America, N.A., 2011 WL 1134467 (N.D. Cal. Mar. 28, 2011). "Wait, isn't that case name very similar to a recent decision from the California Supreme Court regarding statutes of limitation in Labor Code section 203 cases?" So right you are. That's why this isn't a garden-variety remand order. In this case, the defendant argued that it analyzed the complaint back in 2007 and concluded that the amount in controversy should have been calculated on the basis of a one-year statute of limitation. But when the California Supreme Court held otherwise, Bank of America claimed that it learned for the first time that the case was removable. Judge Alsup rejected that argument, observing that the parties agreed that the complaint alleged a four-year statute of limitation, and under that four-year statute, the amount in controversy exceeded $5 million. The time to remove expired back in 2007, when the defendant was in possession of a complaint that, within its four corners, alleged an amount in controvery high enough to invoke CAFA jursidiction.
And, as I noted when reporting on Pineda previously, this matter is handled by Gregory Karasik at Spiro Moss.
On November 30, 2010, the Ninth Circuit agreed to hear a discretionary appeal in Coleman v. Estes Express Lines, Inc. See prior post. The Ninth Circuit accepted the appeal and provided some guidance in the Ninth Circuit as to whether such appeals should be taken. Today, the Ninth Circuit issued its Opinion on the underlying issue. Coleman v. Estes Express Lines, Inc. (9th Cir. Jan. 25, 2011). Asked to decide whether a federal district court is limited to the complaint in deciding whether two of the criteria for the local controversy exception are satisfied, the Court held that the district court is so limited.
Coleman moved for remand under the local controversy exception. Estes opposed, arguing that two of the criteria for the local controversy exception were not satisfied. "First, Estes argued that Estes West had insufficient funds to satisfy a judgment, and that 'significant relief' therefore had not been 'sought' from it. See 28 U.S.C. § 1332(d)(4)(A)(i)(II)(aa). Second, Estes argued that Estes Express had almost complete control over the operations of Estes West, and that Estes West’s 'alleged conduct' therefore did not 'form a significant basis for the claims asserted by the proposed plaintiff class.' Id. § 1332(d)(4)(A)(i)(II)(bb)." Slip op., at 5. Estes then supplied a declaration to support its contentions. The District Court refused to consider the declaration, finding that the complaint satisfied the criteria for remand.
Looking at the plain language of the statute, the Court found support for the concept that the pleadings govern the analysis:
The first criterion is whether “significant relief is sought” from a defendant who is a citizen of the state in which the suit is filed. 28 U.S.C. § 1332(d)(4)(A)(i)(II)(aa) (emphasis added). The word “sought” focuses attention on the plaintiff’s claim for relief — that is, on what is “sought” in the complaint — rather than on what may or may not be proved by evidence. The second criterion is whether the defendant’s “alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class.” Id. § 1332(d)(4)(A)(i)(II)(bb) (emphasis added). Like the word “sought,” the word “alleged” makes clear that the second criterion is based on what is alleged in the complaint rather than on what may or may not be proved by evidence.
Slip op., at 8.
The Court then reviewed the legislative history and concluded that it supported the construction applied by the Court. The Court commentd in passing that the declaration supplied by Estes was probably insufficient even if the District Court could have considered it.
The Court ended with a note about variations in pleading standards between state and federal courts:
We are aware of the difficulties that can be created by different pleading requirements in state and federal courts. A plaintiff filing a putative class action in state court need satisfy only the pleading standards of that court. It is therefore possible that if a putative class action is removed from state to federal court under CAFA the complaint, as originally drafted, will not answer the questions that need to be answered before the federal court can determine whether the suit comes within the local controversy exception to CAFA jurisdiction. In that circumstance, the district court may, in its discretion, require or permit the plaintiff to file an amended complaint that addresses any relevant CAFA criteria.
Slip op., at 21-22. The Court then affirmed the remand.
In Abrego Abrego v. Dow Chemical Co., 443 F.3d 676, 685 (9th Cir. 2006), the Ninth Circuit held that, under the Class Action Fairness Act (“CAFA”), Pub. L. No. 109-2, 119 Stat. 4 (2005) (codified in scattered sections of 28 U.S.C.), the burden of establishing removal jurisdiction is, as it was before CAFA, on the party asserting jurisdiction in federal court. CAFA authorizes removal to federal court of class actions where the amount in controversy exceeds $5 million (excluding interest and costs). In the Ninth Circuit, when the complaint does not allege a specific amount of damages, the party attempting removal under diversity bears the burden of showing, by a preponderance of the evidence, that the amount in controversy exceeds the statutory amount. Guglielmino v. McKee Foods Corp., 506 F.3d 696, 699 (9th Cir. 2007); see also Lowdermilk v. U.S. Bank Nat’l Ass’n., 479 F.3d 994 (9th Cir. 2007). In Lewis v. Verizon Communications, Inc. (November 18, 2010), the Ninth Circuit considered whether the defendant's unrebutted affidavit showing a potential amount in controversy was sufficient to meet the burden of showing the amount in controversy.
The Ninth Circuit held that, on the uncontested showing by Verizon, the amount in controversy was sufficiently demonstrated:
The amount in controversy is simply an estimate of the total amount in dispute, not a prospective assessment of defendant’s liability. See McPhail v. Deere & Co., 529 F.3d 947, 956 (10th Cir. 2008) (“The amount in controversy is not proof of the amount the plaintiff will recover. Rather, it is an estimate of the amount that will be put at issue in the course of the litigation.”). To establish the jurisdictional amount, Verizon need not concede liability for the entire amount, which is what the district court was in essence demanding by effectively asking Verizon to admit that at least $5 million of the billings were “unauthorized” within the meaning of the complaint.
Slip op., at 11. The Ninth Circuit noted that its standard of proof is higher than some Circuits:
The law in our circuit is articulated a little differently from that of others, in that we expressly contemplate the district court’s consideration of some evidentiary record. See generally Diane B. Bratvold & Daniel J. Supalla, Standard of Proof to Establish Amount in Controversy When Defending Removal Under the Class Action Fairness Act, 36 WM. MITCHELL L. REV. 1397 (2010). We employ a preponderance of the evidence standard when the complaint does not allege a specific amount in controversy. Guglielmino, 506 F.3d at 699. The Seventh Circuit, along with the First and Second Circuits, apply what may be a lower standard of proof: a “reasonable probability” standard. See, e.g., Brill v. Countrywide Home Loans, Inc., 427 F.3d 446, 449 (7th Cir. 2005) (when the complaint is “silent or ambiguous on one or more of the ingredients needed to calculate the amount in controversy . . . the removing litigant must show a reasonable probability that the stakes exceed the minimum.”); see also Amoche v. Guarantee Trust Life Ins. Co., 556 F.3d 41, 48 (1st Cir. 2009); DiTolla v. Doral Dental IPA of New York, 469 F.3d 271, 277 (2nd Cir. 2006). The Fourth Circuit has not adopted a specific standard of proof, although “several district courts within the Fourth Circuit have concluded that the appropriate standard of proof is preponderance of the evidence.” Laws v. Priority Trustee Services of N.C., L.L.C., 2008 WL 3539512 at * 2 (W.D.N.C. Aug. 11, 2008). Both the Seventh Circuit in Spivey and the Fourth Circuit in Strawn have looked to evidence outside the complaint when the complaint is silent as to the amount. Regardless of the label applied to the standard of proof, the result in this case should be the same as that in the Seventh and Fourth Circuits’ decisions in Spivey and Strawn.
Slip op., at 12. The Ninth Circuit then observed that Spivey was closest to the case before it and approvingly followed the same analysis.
Under the Class Action Fairness Act of 2005 (“CAFA”), a party may seek leave to appeal a remand order to the court of appeals, which has discretion whether to accept the appeal. 28 U.S.C. § 1453(c)(1). While other Circuits have discussed the criteria that an appellate court should consider when deciding whether it is appropriate to hear such a discretionary appeal, the Ninth Circuit, until today, had not set forth its own set of such criteria. In Coleman v. Estes Express Lines (9th Cir. Nov. 30, 2010), the Ninth Circuit set forth criteria to guide a reviewing court.
Coleman sued both Estes West and Estes Express Lines for wage and hour violations. After its acquisition, Estes West was an internal regional division of Estes Express Lines. After removal, Coleman moved to remand under the local controversy exception to CAFA jurisdiction. Estes Express Lines argued that, as a Virginia-based company from which any relief would be obtained, the local controversy exception did not apply. The district court granted the motion to remand, noting that courts are divided as to whether to look beyond the complaint to determine whether the local controversy exception applies.
The Ninth Circuit used this petition as an opportunity to adopt the First Circuit's list of criteria to use in evaluating applications for leave to appeal under section 1453(c)(1):
In Dental Surgeons, the First Circuit held that a key factor in determining whether to accept an appeal is “the presence of an important CAFA-related question” in the case. Coll. of Dental Surgeons, 585 F.3d at 38. Because discretion to hear appeals exists in part to develop a body of appellate law interpreting CAFA, “[t]he presence of a non-CAFA issue (even an important one) is generally not thought to be entitled to the same weight.” Id. If the CAFA-related question is unsettled, immediate appeal is more likely to be appropriate, particularly when the question “appears to be either incorrectly decided [by the court below] or at least fairly debatable.” Id.
The First Circuit also enumerated several case-specific factors, including the importance of the CAFA-related question to the case at hand and the likelihood that the question will “evade effective review if left for consideration only after final judgment.” Id. The appellate court should also consider whether the record is sufficiently developed and the order sufficiently final to permit “intelligent review.” Id. Finally, the First Circuit observed that the court should conduct the familiar inquiry into the balance of the harms. Id. at 39.
Slip op., at 19025-26. Applied to the case before it, the Court concluded that leave to appeal was appropriate because it would advance CAFA jursiprudence:
Applying these criteria, we grant Estes Express’ application for leave to appeal. Although the local controversy exception to CAFA jurisdiction is “narrow,” it is nonetheless an enumerated exception to a federal court’s CAFA removal jurisdiction. It is intended to “identify . . . a controversy that uniquely affects a particular locality” and to ensure that it is decided by a state rather than a federal court. See Evans v. Walter Indus., Inc., 449 F.3d 1159, 1163-64 (11th Cir. 2006) (internal quotation marks and citation omitted). The question whether the district court must rely only on the pleadings or should look to extrinsic evidence will often determine whether a case will be remanded under the local controversy exception. This case thus raises an important issue of CAFA law. As the district court recognized, this is an unsettled question in this Circuit. We do not say that district court’s decision “appears to be incorrectly decided,” but the array of courts on both sides of the question indicates that it is at least “fairly debatable” and that appellate review would be useful.
Slip op., at 19026. The Court concluded that the issue would escape appellate review if not taken now and that no harm other than delay would be suffered by the plaintiff. It follows that we can expect guidance from the Ninth Circuit in the next year or so on this issue.
Cappuccitti v. DirecTV, Inc., No. 09-14107, slip op. (11th Cir. July 19, 2010), held that at least one plaintiff in a class action must meet the amount in controversy requirement of 28 U.S.C. § 1332(a). Today, the panel said, "Subsequent reflection has led us to conclude that our interpretation was incorrect. Specifically, CAFA’s text does not require at least one plaintiff in a class action to meet the amount in controversy requirement of 28 U.S.C. § 1332(a)." Slip op., at 2. Perhaps the initial opinion was trial balloon. It did not float.
United States District Court Judge Christina A. Snyder granted a motion to remand an action removed pursuant to the Class Action Fairness Act ("CAFA"). Hollinghurst v. Lacoste USA (C.D.Cal. June 28, 2010). That part isn't so interesting. The interesting part is that the Court found that the face of the initial complaint had enough information from which the defendant could have extrapolated an amount in controversy over $5 million. The defendant argued that it was not until discovery responses were received that the calculation was possible. The Court disagreed:
The only new information from plaintiff’s supplemental responses that defendant cites to in its notice was the frequency by which plaintiff was denied her meal breaks and rest periods (two to fifteen meal and/or rest breaks per week) and the amount of time plaintiff was made to work off-the-clock (twenty minutes to one hour per week). The frequency by which plaintiff was denied her meal breaks and rest periods was not a critical discovery because plaintiff has always sought unpaid wages and penalties based on the claim that all class members “were also prevented from taking all daily meal periods . . . and also prevented from taking any and all rest breaks.” See Compl. ¶ 5. Therefore, from the outset defendant could have calculated the amount in controversy under the assumption that all rest breaks and meal periods had been denied to class members.
Slip op., at 8, fn. 5. The Court briefly noted a second ground supporting remand:
Additionally, the Court finds that defendant waived its right to remove when it demurred to dismiss the class allegations, a substantial affirmative action in which defendant submitted issues for determination in state court. By doing so, defendant indicated its willingness to litigate in state court before it filed its notice of removal to federal court.
Slip op., at 9. It's a one-two punch: a strict standard applied to the timing of first awareness of the right to remove under CAFA and a definitive finding that a demurrer to class action allegations is a submission to the jurisdiction of the superior court.
You can view the embedded opinion in the acrobat.com flash viewer below:
If the viewer isn't working for you (say, if you are viewing this on an iPad or iPhone), you can download the opinion here. Thanks to the reader that alerted me to this decision.