Deaver v. BBVA Compass Consulting & Benefits, Inc., 2013 WL 2156280 (N.D. Cal. May 17, 2013).

The U.S. District Court for the Northern District of Florida determined whether the Supreme Court’s recent decision in Standard Fire Insurance Company v. Knowles, 133 S. Ct. 1345 (2013) rendered the District Court’s earlier decision in Lowdermilk v. U.S. Bank National Association, 479 F.3d at 999 (9th Cir. 2007) invalid. The District Court observed that Standard Fire concerned a situation where the amount in controversy would exceed $5 million but for the stipulation of the putative class representative. On the other hand, Lowdermilk did not involve a stipulation; rather, Lowdermilk decided the burden of proof to be applied to a trial court’s determination, in the first instance, of whether the claims pled exceed the $5 million threshold. Thus, the District Court opined that Standard Fire does not forbid a plaintiff from intentionally limiting the claims brought in order to avoid federal jurisdiction.

The plaintiff had initially filed an action in Riverside County Superior Court (the “prior action”) against BBVA Compass Insurance Agency, Inc. (“BBVA Compass”) and Compass Bank (collectively “defendants”). The defendants removed the case to the Central District of California. The plaintiff did not move for remand. Subsequently, the parties stipulated to dismissal without prejudice, which did not contain any conditions or limitations on the plaintiff’s ability to file the same, or a similar, action in the future.

Thereafter, the plaintiff filed her present complaint (“the complaint”) in Alameda Superior Court, alleging failure to pay wages for time worked, failure to provide meal periods or compensation in lieu thereof, failure to timely pay wages due at termination, failure to comply with itemized employee wage statement provisions, and violation of the Unfair Competition Law (“UCL”). The prior action had alleged two additional causes of action, provided more factual detail than the present Complaint, and did not make any allegations as to the amount in controversy.

The defendants removed the action to the District Court under CAFA. Although the defendants originally determined that the total amount in controversy exceeded $5 million, they later conceded that these original calculations contained errors. The defendants subsequently corrected those errors. While they previously had based their calculations on the allegations of the complaint, the defendants now based their calculations on the prior action. The plaintiffs moved for remand, arguing that the amount in controversy threshold was not satisfied. The District Court granted the motion.

First, the District Court opined that it could not rely on the allegations in the prior action, because the stipulation to dismissal of that action implied that any future lawsuit based on the same claim was an entirely new lawsuit unrelated to the earlier dismissed action. Also, the District Court remarked that, because the plaintiff neither incorporated the allegations from the prior action into her present complaint nor otherwise bound herself to them, it would be erroneous to ground a finding of jurisdiction of this action on a different complaint.

Next, the defendants argued that the preponderance of the evidence standard applied, because the plaintiff did not adequately pled that the amount in controversy was below $5 million and/or the allegations regarding the amount in controversy in the complaint were made in bad faith. The defendants contended that the plaintiff’s bad faith was “evident from her impermissible forum shopping,” from her knowledge of and allegations in the prior action, and from her “false statements in the motion for remand.”

In response, the District Court noted that the plaintiff specifically alleged that the aggregate amount in controversy for all class members was below the $5,000,000 threshold for federal jurisdiction under CAFA. The Court remarked that this allegation could not be clearer.

The District Court further observed that, in Lowdermilk, the Ninth Circuit held that “subject to a ‘good faith’ requirement in pleading, a plaintiff may sue for less than the amount she may be entitled to if she wishes to avoid federal jurisdiction and remain in state court.” Accordingly, the District Court found that Lowerdermilk defeated the defendants’ argument that forum shopping qualified as bad faith.

The District Court noted that, in the CAFA context, bad faith jurisdictional allegations are those that plead damages below the jurisdictional amount despite the plaintiff’s knowledge that the claims as pled are actually worth more. The District Court stated that to prove bad faith, the defendant must prove that the plaintiff was actually seeking more than $5 million, which essentially collapses the bad faith and amount in controversy inquiries.

In Lowdermilk, the Ninth Circuit had noted that good faith in the CAFA context is entwined with the legal certainty test, so that a defendant can remove the case by showing to a legal certainty that the amount in controversy exceeds the statutory minimum.

Although the defendants insisted that the plaintiff’s more specific allegations in the prior action and the defendants’ removal notice in the prior action demonstrated that the plaintiff knew that the value of her class claims exceeded $5 million, the District Court again remarked that prior action was dismissed voluntarily without prejudice and, thus, should be treated as if it never had been filed.

Further, the District Court stated that even if the prior action was considered for the purpose of the bad faith analysis, no bad faith had been demonstrated in the present case. In the prior action, the plaintiff did not assert that the amount in controversy was satisfied—instead, the defendants removed the lawsuit on that ground. The District Court found that the plaintiff’s decision not to move to remand was not an affirmative representation that the $5 million threshold was satisfied. The Court further determined that the complaint’s allegations were less specific than the prior action and did not evidence bad faith.

The District Court concluded that the plaintiff’s decision to plead with less specificity in her present complaint was consistent with Lowdermilk’s holding that a class action plaintiff may sue for less than the amount she may be entitled to if she wishes to avoid federal jurisdiction and remain in state court. Accordingly, the District Court noted that the defendants did not demonstrate any bad faith warranting abandonment of the legal certainty test.

Next, the defendants argued that the Standard Fire Insurance Company v. Knowles rendered Lowdermilk invalid. Standard Fire asked whether a class-action plaintiff may stipulate “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” in order to “remove the case from CAFA’s scope.” The Supreme Court held that because such a stipulation does not bind the as-yet absent class members, it does not operate to avoid federal jurisdiction under CAFA. (Editors’ Note: see CAFA law blog analysis on Knowles posted on April 12, 2013.)

The defendants contended that this reasoning contradicted Lowdermilk’s confirmation that a putative class representative is “master of her complaint” and, hence, may sue for less than the amount she may be entitled to if she wishes to avoid federal jurisdiction and remain in state court.

The District Court observed that Standard Fire concerned the situation where the amount in controversy would exceed $5 million but for the stipulation of the putative class representative, whereas Lowdermilk did not involve a stipulation. Instead, Lowdermilk decided the burden of proof to be applied to a trial court’s determination in the first instance of whether the claims pled exceed the $5 million threshold. Thus, the District Court found that Standard Fire does not forbid a plaintiff from intentionally limiting the claims brought in order to avoid federal jurisdiction.

Because Standard Fire was not irreconcilable with Lowdermilk, the District Court concluded that the parties were bound by Lowdermilk, and the legal certainty burden of proof applied in the instant case. The District Court stated that speculation does meet the legal certainty standard, and a court cannot base its jurisdiction on speculation and conjecture.

Next, to determine the class size, the defendants included 13 job titles, even though the plaintiff named only 3 job titles. The District Court remarked that, because it could not determine to a legal certainty whether these additional positions were equivalent to those named by the plaintiff, the defendants’ calculation of class size could not be accepted. Because this class size was used to determine the number of aggregate work weeks and average hourly rate of pay, the District Court noted that it could not make any amount in controversy calculations to a legal certainty.

The defendants relied on testimony of its Human Resources Partner, who stated that full-time employees were expected to work 40 hours a week on average. The District Court observed that while these statements supported an assumption that some of the unpaid work could be clocked at an over-time rate, they did not support the defendants’ assertion that all unpaid wages for fulltime employees must be so valued.

Further, the District Court noted that the defendants’ determination of the total number of workweeks, and thus the total number of pay periods, improperly assumed that every single putative class member worked every single work day within the relevant time period without taking any vacation or sick or family leave. Although the defendants urged the District Court to apply a frequency rate of two missed meal periods per week, the District Court observed that nothing in the complaint permitted a finding that the plaintiff was alleging two missed meal periods per week.

Because the plaintiffs’ complaint placed $4,712,595.36 in controversy, the District Court remanded the action to state court.