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CAFA Law Blog Information, cases and insights regarding the Class Action Fairness Act of 2005

Amount In Controversy Signifies Entire Potential Recovery

Posted in Case Summaries

Jones v. ADT Security Servs., Inc., 2012 WL 12744 (C.D. Cal. Jan. 3, 2012).

While granting the motion to remand, a District Court in California held that “amount in controversy,” denotes ‘entire potential recovery’ of the class; thus, limiting the amount in controversy to less than $5 million establishes that the class does not seek an amount larger than that. 

The plaintiffs brought a wage and hour class action on behalf of a class of non-exempt or hourly paid individuals who worked as service technicians for the defendant, ADT Security Services, Inc., in California from August 6, 2007 to the present alleging violation of California labor laws.

Specifically, the plaintiffs alleged causes of actions for: (1) failure to pay overtime wages; (2) failure to pay minimum wages; (3) failure to compensate for split-shifts; (4) failure to provide accurate wage statements; (5) violation of Private Attorney General Act (“PAGA”); and (6) unfair competition within the meaning of California Business and Professions Code § 17200.

The defendant removed the case to federal court, invoking diversity jurisdiction. 

The plaintiffs, however, moved to remand the action to state court, which the District Court granted.

In the District Court, the parties had two principle disputes regarding the amount in controversy requirements. First, the parties differed on the standard of proof the defendant must meet to establish diversity jurisdiction exists. Second, the parties contested whether the defendant had met the applicable burden of proof in establishing the amount in controversy.  

The defendant argued the appropriate burden of proof was the “preponderance of the evidence,” while the plaintiffs argued that “legal certainty” was the correct burden. The Court agreed with the plaintiffs.  

The Court noted that in the Ninth Circuit removing defendants are held to varying standards of proof depending on the allegations in a complaint. The Ninth Circuit explained in Lowdermilk v. U.S. Bank National Association, 479 F.3d 994, 997 (9th Cir. 2007) that when a complaint fails to plead a specific amount of damages, including when a complaint is unclear or ambiguous, then a defendant is held to a “preponderance of the evidence standard” for jurisdiction. On the other hand, if the complaint alleges an amount in controversy less than the jurisdictional amount, then defendant must prove jurisdiction exists to a “legal certainty”. (Editors’ Note: See CAFA Law Blog analysis of Lowdermilk posted on July 30, 2007.)  

Under the above standards, the first step in the Court’s analysis was to examine the amount in controversy allegations in the Complaint. The Complaint stated that the “amount in controversy” for each class representative was less than $75,000, and “the aggregate amount in controversy” for the proposed class “including monetary damages, restitution, and attorneys fees” was less than $5 million. The plaintiffs, however, reserved the right to seek a larger amount based upon new and different information resulting from investigation and discovery.  

Although on its face, the Complaint alleged the amounts in controversy less than the statutory minimums for diversity jurisdiction, the defendants argued that the plaintiffs’ reservation of rights created an ambiguity. 

The Court disagreed with the defendants, and stated that the “reservation of rights” language used by the plaintiffs stated nothing more than what the plaintiffs would already have the right to do, and if the plaintiffs found that their potential recovery was larger, then they could seek to amend their Complaint. Specifically, the “reservation of rights” did not add anything material to the Complaint, and, thus, could not create an ambiguity as to the amount of damages the plaintiffs were seeking at that time, the Court remarked. Furthermore, the Court pointed that if the plaintiffs were to later exercise those rights “reserved” and amend the Complaint to allege greater damages, then the defendant would have another thirty-day period in which to remove this case to federal court under 28 U.S.C. § 1446(b).  

Next, the Court explained that the plain language of the jurisdictional statement made in the Complaint encompassed all of the relief that the plaintiffs could seek such as the statutory penalties and disgorgement remedies, but not limited to monetary damages, restitution, and attorneys fees. Specifically, the Court noted that by using the exact words “amount in controversy,” in the Complaint, the plaintiffs had specifically stated that their entire potential recovery would fall below the jurisdictional thresholds, and the words “including monetary damages, restitution, and attorneys fees” would not render the amount in controversy ambiguous.  The Court maintained that as a matter of plain English, the word “including” indicates that the list is representative, not comprehensive.  

Because the plaintiffs had alleged that their case did not meet the diversity jurisdiction thresholds required for federal court, the Court concluded that the defendant must establish with “legal certainty” that the amounts in controversy exceeded the statutory minimums. 

The Court noted that thelegal certainty” standard sets a high bar for the party seeking removal, but it is not insurmountable.” In order to meet its burden, the defendant proffered the declaration of Douglas Cuellar, ADT’s HRIS Manager, who manages ADT’s payroll, time, and attendance systems. Cuellar created a list of all service technicians that worked for ADT in California during the Class Period described by the plaintiffs. Cuellar found there were 759 technicians that worked as hourly, non-exempt employees, and then calculated the total number of pay periods that these technicians cumulatively worked during the Class Period. He also calculated the average hourly wage of these employees during that period.  

Based on Cuellar’s findings as to the relevant employees, the defendant made calculations of the amount in controversy for each of the plaintiffs’ claims for relief. In total, the defendant asserted the amount in controversy was $133,080 for each named plaintiff and $70,138,178 for the Class. 

For ‘overtime pay’ claims, the defendant estimated the amount in controversy by determining the average overtime pay rate of the 759 putative class members, and multiplying that amount by two hours of overtime for each weekly pay period. For ‘minimum wage claim, the defendant “conservatively” estimated that each named plaintiff was not paid the minimum wage once every weekly pay period and that each class member was not paid the minimum wage once every other pay period. For meal and rest break claims, the defendant estimated that class members would claim to have missed one meal period and one out of two rest periods per day. In absence of evidence or opinion from any of the defendant’s employees justifying its calculation, the Court rejected the defendant’s calculation as speculative guess.  

Under ‘Non–Compliant Wage Statement Claims’, the defendant asserted that it was entitled to assume a maximum violation rate of $4,000 per class member for this cause of action, because the plaintiffs made no specific allegations as to the exact amount of damages for this claim. Under the Labor Code § 226(e), an employee is entitled to recover the greater of all actual damages or $50 for an initial violation and $100 for each subsequent violation, up to a maximum penalty of $4,000. The Court found that the defendant’s assumption of a maximum violation rate was unfounded speculation, particularly when there were no allegations in the Complaint to support this assumption and any other evidence to support this assumption. Likewise, assumption of a maximum violation rate of $200 for each violation for every class member under PAGA claims was also speculative. 

Because the Court had concluded that the defendant’s estimation of damages was unduly speculative and could not meet the legal certainty standard of proof, the Court concluded that multiplying these speculative numbers by 25% could not create a reliable estimate of attorney fees. 

Accordingly, the Court remanded the action to the Los Angeles Superior Court.