In Lewis v. Verizon Communications, Inc., Ninth Circuit offers guidance on burden of proof showing required in CAFA-based removals

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.

California Supreme Court activity for the week of November 29, 2010

The California Supreme Court held its (usually) weekly conference on December 1, 2010.   Notable results include:

  • On a Petition for Review, review was denied in Fisher v. DCH Temecula Imports (August 13, 201), mentioned briefly on this blog here.  [Class action ban in arbitration provision unconscionable.]   Interestingly, the California Supreme Court recently denied review in Walnut Producers v. Diamond Foods (August 16, 2010), which upheld an order striking class allegations pursuant to a class action ban in an arbitration provision.
  • On a Petition for Review, review was denied in Fireside Bank Cases (pub. August 25, 2010).  [Res judicata issues in UCL action regarding alleged Rees-Levering violations.]

Ninth Circuit issues its first opinion on criteria that appellate courts should consider when deciding whether to accept an appeal of a remand order under CAFA

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.

Supreme Court holds that a single statue of limitation governs Labor Code section 203 claims

California Labor Code § 203 provides that, if an employer willfully fails to timely pay final wages, “the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefor is commenced; but the wages shall not continue for more than 30 days.”  Lab. Code § 203(a).  Usually, a one-year statute of limitation governs actions to recover penalties (Code Civ. Proc. § 340(a)), but section 203 states that an employee may sue for “these penalties at any time before the expiration of the statute of limitations on an action for the wages from which the penalties arise.” Lab. Code § 203(b).  In Pineda v. Bank of America, N.A. (November 18, 2010), the California Supreme Court answered two questions related to section 203 claims:  first, whether a different statute of limitation applies when an employee seeks to recover only section 203 penalties (in this case, final wages were paid late but before the filing of the action), as opposed to when an employee seeks both final wages and penalties; and, second, whether section 203 penalties recoverable as restitution under California's Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et seq.).  A unanimous Supreme Court answered both questions in the negative, holding that (1) the underlying wage claim statute of limitation is tied to the 203 cause of action, and (2) since employees have no ownership interest in section 203 penalties they cannot use the UCL to recover those penalties as a form of restitution.

The Court had little difficulty concluding that a single, longer statute of limitation applies to section 203 claims:

Plaintiff urges us to conclude the Legislature intended for a single statute of limitations — the one set forth in section 203(b) — to govern the filing of any and all suits for section 203 penalties, regardless of whether a claim for unpaid final wages accompanies the claim for penalties. He contends this is the only plausible construction of section 203, and his contention has merit.  Absent explicit statutory language to the contrary, common sense would suggest that, where the Legislature has set forth a statute of limitations in one part of a statute, the prescribed limitations period governs the filing of actions provided for in another part of the same statute. In providing when “[s]uit may be filed for [section 203] penalties” (§ 203(b)), the Legislature could have employed language unambiguously limiting the application of section 203(b)‟s limitations period to those suits that seek both unpaid wages and penalties. For example, it could have provided that “[s]uit for unpaid final wages and these penalties may be filed at any time before . . . .” It did not.

Slip op., at 5-6.  The Court then spent several pages dismissing the defendant's strained construction of the Legislature's grammatical choices, concluding by remarking on the important public policy served by the prompt payment of final wages.

As for the UCL, the Court was equally quick to reach its conclusion that 203 penalties cannot be recovered by means of restitution under the UCL:

By contrast, permitting recovery of section 203 penalties via the UCL would not “restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1149.) Section 203 is not designed to compensate employees for work performed. Instead, it is intended to encourage employers to pay final wages on time, and to punish employers who fail to do so.  In other words, it is the employers' action (or inaction) that gives rise to section 203 penalties. The vested interest in unpaid wages, on the other hand, arises out of the employees' action, i.e., their labor. Until awarded by a relevant body, employees have no comparable vested interest in section 203 penalties. We thus hold section 203 penalties cannot be recovered as restitution under the UCL.

Slip op.,  at 14-15.

Compared to many others from the Supreme Court, this was a short opinion.  The direct language suggests that the Court found little over which to disagree as the opinion was prepared.  Congratulations to my colleague, Mr. Greg Karasik, on obtaining this partial reversal.

Supreme Court activity for the week of November 15, 2010

The California Supreme Court held its (usually) weekly conference on November 17, 2010.  Notable results include:

  • On a Petition for Review, review was granted in  in Kirby v. Immoos Fire Protection, Inc. (July 27, 2010), covered previously here.  The issue under review is limited as follows:  "Does Labor Code section 218.5 govern attorney's fees awarded on a cause of action alleging violation of the statutorily mandated wage payment for missed meal and rest periods (Lab. Code, [sec.] 226.7), or is an attorney's fee award governed by Labor Code section 1194?"
  • On a Request for Depublication, depublication was denied in Nelson v. Pearson Ford Co. (July 15, 2010).  Prior comments from this blog are here.

BREAKING NEWS: Pineda v. Bank of America, N.A. decision to be released November 18, 2010

Earlier today, the California Supreme Court posted a notice of forthcoming filings, indicating that  Pineda v. Bank of America, N.A. will be filed on November 18, 2010, at approximately 10:00 a.m.

In Pineda v. Bank of America, N.A., plaintiff Pineda advanced the theory that restitution of "penalties" recoverable under Labor Code section 203 (waiting time penalties) was available under the UCL because the penalty was a vested property interest due upon failure to timely pay wages.  Pineda also argued that the correct statute of limitation was that for suits to recover wages (3 years), not the statute for recovery of penalties (generally 1 year).  The Court of Appeal rejected both theories.  My earlier post about Pineda is here.

Bright v. 99¢ Only Stores holds that PAGA penalties are available for certain wage order violations

Employer:  Give it to me straight, Doc, is it serious?

Defense Counsel:  You'll need to sit down for this one.

Employer:  Okay.  Wait, there aren't any chairs here.

Defense Counsel:  I know!  Get it?  No chairs?  Now don't be like that....

I'm delaying the reporting just to build the suspense.  You have been wondering whether violations of Wage Order No. 7, subdivision 14 are violations of Labor Code § 1198, and here I am writing my first play.  But your wait is over.  In Bright v. 99¢ ONLY STORES, the Court of Appeal (Second Appellate District, Division Five) held that (1) violations of Wage Order No. 7, subdivision 14 are violations of section 1198; and (2) civil penalties under section 2699, subdivision (f) are available despite the fact that Commission wage order No. 7-2001 has its own penalty provision.

This action arises from a claim for civil penalties under the Private Attorneys General Act of 2004 ("PAGA") for violation of the suitable seating order of the Commission.  Commission Wage Order No. 7, subdivision 14, provides, in part: Wage Order No. 7, subdivision 14 provides: “(A) All working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats. [¶] (B) When employees are not engaged in the active duties of their employment and the nature of the work requires standing, an adequate number of suitable seats shall be placed in reasonable proximity to the work area and employees shall be permitted to use such seats when it does not interfere with the performance of their duties.”  Slip op., at 2, n. 2.  This requirement is sometimes known as the suitable seating requirement.  The trial court sustained the defendant's demurrer on the grounds that (1) failure to provide sufficient seating is not a condition “prohibited” by Wage Order No. 7, subdivision 14, and (2) even if it were, civil penalties are not recoverable under section 2699, subdivision (f), because Commission Wage Order No. 7-2001 contains its own civil penalty provision.

The Court of Appeal concluded that the issues raised in the appeal were matters of first impression.  On an issue of first impression, the Court began with the statute at issue:

We begin by examining the statutory and administrative scheme, starting with section 1198, which provides: “The maximum hours of work and the standard conditions of labor fixed by the commission shall be the maximum hours of work and the standard conditions of labor for employees. The employment of any employee for longer hours than those fixed by the order or under conditions of labor prohibited by the order is unlawful.”

Slip op., at 5.  The Court then held that, under the plain meaning of section 1198, suitable seating is a "standard condition of labor fixed by the commission."  Slip op., at 6.  The Court rejected defendant's argument that because the seating language was not expressed in prohibitory language, it was merely a suggestion.

Employer:  What about chairs that give off electric shocks at random intervals so nobody wants to sit in them?

Defense Counsel:  No.  Wait.  Yes, if that's what you want to do, but only after you augment your retainer.  Significantly.

Turning to the second question, the Court of Appeal quickly concluded that, because the suitable seating requirement did not have its own penalty provision, it is governed by section 2699, subdivision (f) of PAGA.  The Court noted that the penalty set forth in subdivision 20 is expressly described as a cumulative remedy, rendering it nonexclusive.

Employer:  I had a nightmare.  It was horrible.

Defense Counsel:  Tell  me about it.

Employer:  It was dark.  There was a sound.  It was like nothing I have ever heard before.  I think it was the sound of drool from a million plaintiff's attorneys splattering on the floor.

Defense Counsel:  It was no dream!

Employer:  Aaaaahhh!!!!..........

In Sevidal v. Target Corporation, an unascertainable class dooms plaintiff

The purpose of the ascertainability requirement in class actions is to ensure that it is possible to give adequate notice to class members and to determine after the litigation has concluded who is barred from relitigating the resolved issues.  The ascertainability requirement can be satisfied either by defining a class in objective terms such that a review of the defendant's records or if the class definition would "allow a member of that group to identify himself or herself as having a right to recover based on the description." Bartold v. Glendale Federal Bank, 81 Cal. App. 4th 816, 828 (2000); and see Ghazaryan v. Diva Limousine, Ltd., 169 Cal. App. 4th 1524, 1533 (2008).  In Sevidal v. Target Corporation (October 29, 2010), the Court of Appeal (Fourth Appellate District, Division One) affirmed a trial court order denying certification on the ground that the class was hopelessly unascertainable.

Sevidal sued Target after he purchased through Target's website some clothing items misidentified as made in the United States.   Sevidal specifically argued that, under the California Supreme Court's recent opinion, In re Tobacco II Cases, 46 Cal. 4th 298 (2009) (Tobacco II), "the class could be certified on his unfair competition claim even if most of the proposed class members never relied on the 'Made in USA' designation in deciding to make their online purchases."  Slip op., at 2.  The trial court did not take issue with this contention.  Instead, the trial court found the class definition to be significantly overbroad and the class itself to be unascertainable.

Sevidal's difficulties in defining the class arose because a website coding error caused the Target website to misidentify the county of origin on some clothes on some occasions, but not on others.  This computer bug made it impossible to ascertain class membership:

In the proceedings below, Sevidal made clear that only those who purchased an item when the country of origin was misidentified are part of the proposed class. But he also defined the proposed class to include consumers who purchased an item from Target.com without selecting the " 'Additional Info' " icon, and thus who were never exposed to the country-of-origin information. These consumers would, by definition, have no way of knowing whether he or she purchased an item when it was misidentified, and thus would have no way of knowing whether he or she is a member of the class. And these individuals (those who would have no way of knowing he or she was a class member) represent a significant portion of the overall proposed class. Target's statistical evidence shows that approximately 80 percent of the proposed class falls within this category — individuals who purchased an item without viewing the country-of-origin information.

Slip op., at 19-20.  The Court found this degree of overbreadth sufficient to support the trial court's ruling:

Although class certification should not be denied on overbreadth grounds when the class definition is only slightly overinclusive (ibid.; see Aguiar, supra, 144 Cal.App.4th at p. 136), in this case the overbreadth is significant. The unrefuted evidence showed that approximately 80 percent of the online purchasers did not select the " 'Additional Info' " icon and were never exposed to the alleged misrepresentation.

Slip op., at 20.  A useful observation for both plaintiffs and defendants; slight overbreadth will not defeat certification, but overbreadth of this magnitude will support a denial of certification.

The Court went on to reject Sevidal's attempt to extend by analogy the evidentiary presumptions that can be imposed for failure to follow Labor Code record-keeping requirements.   The Court observed that Target had no statutory or contractual obligations to maintain records about who selected which links on its site.

Finally, the Court discussed the overbreadth issue under the UCL, separate from the ascertainability problem created by the class definition and the lack of records to identify class membership.  Treading gingerly into the minefield of Tobacco II, the Court said:

But the Tobacco II court did not state or suggest there are no substantive limits on absent class members seeking restitution when a defendant has engaged in an alleged unlawful or unfair business practice. Instead, the court recognized that under the UCL's statutory language, a person is entitled to restitution for money or property "which may have been acquired" by means of the unfair or unlawful practice. (§ 17203, italics added; see Tobacco II, supra, 46 Cal.4th at p. 320.) Although this standard focuses on the defendant's conduct and is substantially less stringent than a reliance or "but for" causation test, it is not meaningless. To conclude otherwise would violate the statutory interpretation principle that every word in a statute must be given operative effect. Even after the Tobacco II decision, the UCL and FAL still require some connection between the defendant's alleged improper conduct and the unnamed class members who seek restitutionary relief.

Slip op., 25.  Analyzing the post-Tobacco II cases, the Court concluded that undisputed evidence showed that most of the defined class never viewed the country-of-origin information.   Unlike Weinstat v. Dentsply Internat., Inc., 180 Cal. App. 4th 1213 (2010), there were no direct communications to every class member.  Unlike In re Steroid Hormone Product Cases, 181 Cal. App. 4th 145 (2010), there was no illegal conduct (inclusion of undisclosed controlled substances) to supply the means for unlawful acquisition of money from the class.  In essence, the Court concluded that, as to the majority of the defined class, Target didn't do anything wrong (again, the key issue being that, at many times, the Target website may was displaying the correct information - but most people didn't look at it in either case).

While the Court appears to favor the "conservative" line of post-Tobacco II cases (or, as some might say, the reactionary revolt line), the Court doesn't embroil itself too deeply into the post-Tobacco II cases, attempting as much as possible to harmonize the two lines of cases with each other and the record before it.  In this case, the Court's task is much easier as a result of the unique factual record.

Despite pending Brinker case, Hernandez v. Chipotle Mexican Grill, Inc. declares that standard for rest break applies to meal periods

In case you hadn't heard, Brinker Restaurant v. Superior Court (Hohnbaum) is pending before the California Supreme Court.  Jaimez v. DAIOHS USA, Inc., 181 Cal. App. 4th 1286 (2010), rev. denied (2010) held that certification of meal period claims was appropriate because, among other reasons, that unsettled meal period standard was also a classwide issue.  But in an unexpected twist, the Court of Appeal (Second Appellate District, Division Eight), in Hernandez v. Chipotle Mexican Grill, Inc., decided that, rather than recommending to the trial court that it certify the meal period claim and await Brinker, it would just tell us what that standard is right now.  And, according to the Hernandez Court, the meal period standard is the same standard that applies to rest breaks:

Hernandez admits employers must provide, i.e., authorize and permit, employees to take rest breaks, but contends a different standard applies to meal breaks and thus, the trial court‟s legal analysis was faulty. This contention is not persuasive. “The California Supreme Court has described the interest protected by meal break provisions, stating that „[a]n employee forced to forgo his or her meal period . . . has been deprived of the right to be free of the employer‟s control during the meal period.‟ Murphy v. Kenneth Cole Prods., Inc., 40 Cal.4th 1094, 1104 (2007). It is an employer's obligation to ensure that its employees are free from its control for thirty minutes, not to ensure that the employees do any particular thing during that time. Indeed, in characterizing violations of California meal period obligations in Murphy, the California Supreme Court repeatedly described it as an obligation not to force employees to work through breaks. [Citation.]” (Brown v. Federal Express Corp. (C.D.Cal. 2008) 249 F.R.D. 580, 585, fn. omitted.)

Slip op., at 11, emphasis in original.  The Court affirmatively adopts some of the specious arguments from district courts, including the notion that it would be too hard for employees to actually make employees take breaks:

Hernandez's position also is not practical. “Requiring enforcement of meal breaks would place an undue burden on employers whose employees are numerous or who . . . do not appear to remain in contact with the employer during the day. See White v. Starbucks Corp., 497 F.Supp.2d 1080, 1088-89 (N.D.Cal.2007).

Slip op., at 13.  That argument is insulting.  Evidently an employer can control when employees come and go.  That's not too hard.  But they can't decide whether people work during other parts of the day.  Whatever standard is ultimately declared by the California Supreme Court, arguments like this cheapen the discussion.

Elsewhere in the opinion, the Court opines that it is perfectly fine to assess merits during certification.  It's a brave new world here in California.

Amended Order and Class Notice in Adoma v. University of Phoenix

While I don't regularly post Orders from federal cases I mention, I do so here by special request.  In University of Phoenix, Inc., the District Court (Eastern District of California, Judge Karlton presiding) issued an Order on October 15, 2010, approving in part and modifying in part a proposed Class Notice.  On October 20, 2010, the Court issued an amended Order.  The Amended Order and attached Notice are available through the Acrobat.com links below: