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

District Court Remands to State Court When Defendant Fails to Show by a Preponderance of the Evidence that the Amount in Controversy Exceeded $5 million

Posted in Case Summaries

Carranza v Nordstrom Inc., 2014 WL 10537816 (C. D. Cal. Dec. 12, 2014).

A federal district court in California refused to exercise jurisdiction in a wage and hour action brought for violations of the California Labor Code and other state laws and seeking PAGA penalties, finding that the evidence proffered by the defendant fell short of the preponderance of the evidence standard espoused in the United States Supreme Court’s Standard Fire decision to establish the amount in controversy in CAFA cases.

The plaintiff, Jaime Carranza, filed an action against Nordstrom, Inc. (“Nordstrom”) and various unnamed defendants in San Bernardino Superior Court asserting various violations of the California Labor Code, California’s Unfair Competition Law and PAGA. The plaintiff brought this action seeking to represent a class of all current and former non-exempt hourly employees employed by Nordstrom at Nordstrom Fulfillment Centers in the State of California at any time beginning four years prior to the filing of the action and up to the start of trial in this action.  The plaintiff also sought to represent 8 subclasses: (i) Unpaid Straight-Time Subclass; (ii) Unpaid Overtime Subclass; (iii) First Meal Period Subclass; (iv) Second Meal Period Subclass; (v) Rest Period Subclass; (vi) Waiting Time Subclass; (vii) Wage Statement Subclass; and (viii) UCL Subclass.

The plaintiff alleged that Nordstrom subjected the class to an on-premises security screening each day after they clocked out for meal periods, rest periods, and at the end of a shift. The plaintiff alleged that Nordstrom required, as a condition of employment, that its employees submit themselves to daily security searches in order to protect property and prevent loss of merchandise through employee theft.

The plaintiff contended that Nordstrom’s policy regarding the searches was systematic and continuous, and had a common impact on all Nordstrom employees subject to it, in that they were routinely denied uninterrupted, compliant meal periods and rest periods, and were not compensated for the time they were under Nordstrom’s control being screened or waiting to be screened. The plaintiff asserted that because of the search policy, employees spent 5 to 15 minutes of their meal period each day in screening, with the result that the employee had only a 15 to 20-minute meal period.  The plaintiff asserted similar rest break violations by Nordstrom.

Nordstrom removed the action to federal court invoking diversity jurisdiction under CAFA, and the plaintiff moved to remand.

At the outset, the District Court noted that Nordstrom satisfied CAFA’s numerosity requirement finding there to be at least 232 putative class members. The District Court also found that the minimal diversity requirement was satisfied because the plaintiff is a citizen of California and Nordstrom is a citizen of Washington.  The only issue that remained in determining CAFA jurisdiction was for Nordstrom to prove that the amount in controversy exceeded CAFA’s $5 million amount in controversy threshold.

Here, the plaintiff’s state court complaint affirmatively plead an amount in controversy less than $5 million. He specifically stated that the California Superior Court had jurisdiction because the claims of the individual class members were under $75,000, and the aggregate claims were under the $5 million CAFA jurisdictional threshold.  The District Court remarked that in cases such as this, courts in Ninth Circuit previously determined the amount in controversy using the “legal certainty” standard espoused by the Ninth Circuit in Lowdermilk v. U.S. Corp., 506 F.3d 994 (9th Cir. 2007).  (Editor’s Note:  See the CAFA Law Blog analysis of Lowdermilk posted on July 30, 2007).

The District Court observed that the Lowdermilk “legal certainty” standard changed after the U.S. Supreme Court’s decision in Standard Fire Insurance Company v. Knowles, 133 S.Ct. 1345 (2013) found that a plaintiff cannot legally bind the members of the proposed class on his/her stipulation as to the amount in controversy before the class is certified.  (Editor’s Note: see CAFA law blog analysis of Standard Fire posted on April 12, 2013).  The Ninth Circuit has recognized that Standard Fire overruled Lowdermilk’s “legal certainty” standard in CAFA cases where a class action plaintiff alleges that the amount in controversy is less than the jurisdictional minimum.  Therefore, the District Court ruled that Nordstrom must, to invoke federal jurisdiction under CAFA, prove by a preponderance of the evidence that the complaint placed more than $5 million in controversy.

Nordstrom placed the amount in controversy as follows:

  1. Off the clock work – Between $1,175,448-$3,526,344
  2. Meal and Rest Period Premiums – Between $1,880,718-$9,403,591
  3. Waiting Time Penalties – Between $607,198-$971,743
  4. Inaccurate Wage Statements – $1,081,000
  5. Penalties Under PAGA – $1,049,000
  6. Attorney’s fees – Between $350,000-$1,448,441

Nordstrom estimated the total amount in controversy to be between $6,143,364-$17,480,119. In estimating the value of the class claims, Nordstrom calculated the potential recovery for off the clock work and meal and rest period claims for the four-year class period alleged in the complaint and assumed, by contrast, that a one-year statute of limitations applies to claims under Labor Code § 226 and PAGA.  In estimating waiting time penalties under Labor Code § 203, Nordstrom calculated possible penalties for the 283 putative class members who left its employ since July 15, 2011.

Although, the plaintiff did not dispute Nordstrom’s use of a four year limitations period in calculating the amount in controversy on his unpaid wages, overtime, and period and rest break claims, the District Court remarked that it was incorrect as a matter of law, and had inflated Nordstrom’s estimate of damages on the two claims by at least 25%. Beyond this problem in calculation, the plaintiff contended that Nordstrom overstated the potential damages and relied on inadmissible evidence in an effort to reach the CAFA requirement of $5 million.

As to off the clock work, in estimating the amount in controversy, Nordstrom assumed that the putative class members spent one hour per week undergoing security screenings after they clocked out for meal periods or rest breaks and at the end of their shift. Nordstrom based its one hour per day estimate on the allegations in the complaint, where the plaintiff alleged that the putative class members were not paid for as much as 15-30 minutes on a typical day.  The District Court observed that Nordstrom’s calculation was based on an assumption that 98 other distribution employees from its other centers worked an average of 4.5 days per week.

The District Court observed that here, Nordstrom was in the best position to adduce evidence regarding the average number of days that employees at its distribution centers worked, and Nordstrom could have sampled class members’ payroll records, or otherwise analyzed those records to provide some evidentiary support for its assertion that the average number of days worked by employees at Nordstrom distribution centers was the same as the average number of days worked by employees at the Hautelook  Fulfillment center . The District Court opined that it could not rely on Nordstrom’s assumption because assuming 98 distribution center employees worked 52 weeks per year or four years, they would have worked 20,384 workweeks, and Nordstrom would have had to employ an average of 300 employees for four years to reach the number of workweeks that it estimated were worked by the 98 distribution center employees during the class period.  The District Court found that this assumption lacked record support.

The District Court next noted that in estimating the meal and rest break premiums, Nordstrom assumed that each class member worked an average of four days per week, and missed both a meal period and a rest period each day. In other words, Nordstrom’s damages estimate assumed a 100% violation rate.  The District Court, however, noted that Nordstrom relied on the same unsupported assumption as to its calculation of potential damages on the unpaid off-the-clock claims, i.e., the class members employed at Nordstrom distribution centers worked the same 4.5 days per week as employees at the Hautelook Fulfillment Center.  Accordingly, the District Court concluded that Nordstrom’s calculation remained unsupported.

Nordstrom calculated its inaccurate wage statement claims based on the assumption that each of the 232 putative class members received inaccurate wage statements for each of the 10,494 pay periods during the year preceding filing of the complaint. Nordstrom asserted that it used a penalty of $50 for the first violation and $100 for each violation thereafter, and did not explain its calculation further.  As an initial matter, the District Court noted that Nordstrom’s estimate of 10,494 pay periods during the limitations period was inaccurate as the records showed that there were only 6,166 pay periods, taking the amount in controversy to $605,000.

Given its determinations with respect to Nordstrom’s showing concerning damages on the plaintiff’s claim, the amount in controversy would fall short of the jurisdictional threshold even if the PAGA’s and attorney’s fees were added to the amount in controversy. Accordingly, the District Court found that Nordstrom failed to show by a preponderance of the evidence that the amount in controversy exceeded $5 million in controversy, and remanded the action to the state court.

Kerry A. Cummings