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CAFA Law Blog

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

Ambiguity Goes In Favour Of The Non-Removing Party

Posted in Case Summaries, Jurisdictional Amount

Salazar v. Avis Budget Group, Inc., 2013 WL 1728275 (S.D. Cal. April 23, 2013).

Plaintiffs, a group of mechanics, filed a putative wage-and-hour class action in the Superior Court of California, San Diego County.  Defendants quickly removed the action to the District Court under CAFA, and plaintiffs then filed their First Amended Complaint (“FAC”).  The FAC alleged that defendants failed to comply with various California wage-and-hour laws. 

Subsequently, the District Court remanded the action, and the state court issued a stay pending the California Supreme Court’s decision in Brinker v. Superior Court, 53 Cal. 4th 1004 (Cal. 2012), a case addressing whether meal period violations were amenable to class treatment.  After, the California Supreme Court published its opinion in Brinker, the state court lifted the stay.  Defendants refused to stipulate to the filing of a Second Amended Complaint (“SAC”), so plaintiffs sought leave to amend their complaint.

The proposed SAC indicated plaintiffs would: (1) pursue class-wide claims for meal periods only (and not business reimbursement claims), (2) forego their punitive damages claim, and (3) forego claims for attorneys’ fees.  Because of the aforementioned stipulations, plaintiffs asserted that the proposed SAC significantly reduced their recovery to less than $5 million.

In light of Brinker, plaintiffs filed a renewed motion for class certification, and defendants, again, removed the case to the District Court pursuant to CAFA.  Plaintiffs then moved for remand.  Plaintiffs argued that because their proposed SAC asserted that damages did not exceed $5,000,000, the defendants must prove to a legal certainty that the amount in controversy requirement had been met.  Plaintiffs further argued that defendants must use the SAC to determine the amount in controversy.

However, defendants argued that a preponderance of the evidence standard applied because the renewed motion was ambiguous regarding the amount in controversy and because the operative FAC was silent on the issue.  Further, defendants contended that plaintiffs mistakenly asserted that defendants failed to consider the inherent limits of the proposed SAC.

The District Court reasoned that the operative state-court complaint was the FAC because plaintiffs’ motion for leave to file their proposed SAC was not decided by the state court.  The court also found plaintiffs’ argument that defendants should not be allowed to remove the action based on the renewed motion while ignoring the proposed SAC unpersuasive.  The renewed motion stated that the meal period class allegations asserted in the FAC were the same as those in the proposed SAC.  Thus, the District Court found that plaintiffs could have filed their renewed motion even if they did not also seek leave to file a SAC, and the Renewed Motion and the proposed SAC were not inextricably linked.

Because both the renewed motion and the FAC were unclear as to the amount in controversy, the District Court opined that defendants had to show by a preponderance of the evidence that the amount in controversy exceeded the statutory amount.

The District Court observed that if the amount in controversy is not facially apparent from the Complaint, the court can consider facts in the removal petition and summary judgment type evidence.  Plaintiffs’ FAC alleged that, four years prior to filing their Complaint, they worked more than five hours per day but were not provided full 30 minute meal periods “during each and every such work day.”  The parties disagreed on the interpretation of the phrase, “during each and every such work day.” 

Keeping in mind that federal jurisdiction must be rejected if there is any doubt as to the right of removal, the District Court interpreted the phrase in favour of plaintiffs, meaning that auto mechanics were not always provided with meal periods on the days they worked.  The District Court refrained from assuming a 100% violation rate in determining whether defendants satisfied the amount in controversy requirement.

Defendants submitted a declaration containing the amount in controversy.  In that declaration, the defendants multiplied the number of days between January 15, 2005, and June 15, 2012, that each employee worked six or more hours, by the employee’s lowest hourly wage while employed during that period.  Defendants then aggregated the amounts calculated for each employee to arrive at the amount of $5,711,140.91.  Defendants then calculated the plaintiffs’ claims for waiting time and wage statement penalties using similar methods arriving at $2,105,434.48, for a total amount in controversy of $7,816,575.39.  Defendants also asserted that, based on similar cases, the court should value the plaintiffs’ remaining claims for attorney fees at $500,000.

Plaintiffs provided their own Time Details, which showed meal periods were sometimes provided, indicating something less than a 100% violation rate.  Although, it appeared from the Time Details that the plaintiffs did take several meal periods, it was not clear how many breaks they took.

Because the Time Details indicated when meal periods were taken, the defendants had the ability to approximate the actual number of missed meal periods to arrive at a more accurate violation rate.  The defendants, however, relied on their interpretation of plaintiff’s FAC using a 100% violation rate.  Without the ability to estimate the value of plaintiffs’ meal period claims, the District Court observed that defendants’ penalty and attorney fees calculations were insufficient, and defendants did not value plaintiffs’ individual business expenses reimbursement claims. 

Thus, because defendants’ failed to meet their burden of proving the amount in controversy exceeded the jurisdictional threshold, the District Court remanded the action for lack of jurisdiction.

Only Concrete Evidence Can Keep a Defendant’s Case Afloat Under CAFA’S Legal Certainty Standard

Posted in Case Summaries, Jurisdictional Amount

Bell v. Home Depot U.S.A., Inc., 2013 WL 1791920 (E.D.Cal. April 26, 2013).

As amended by CAFA, 28 U.S.C. § 1332(d) vests district courts with original jurisdiction of any civil action in which the amount in controversy exceeds $5,000,000, the aggregate number of proposed plaintiffs is 100 or greater, and any member of the plaintiff class is a citizen of a state different from any defendant.  But, if a class-action plaintiff stipulates, prior to certification of the class, that he, and the class he seeks to represent, will not seek damages that exceed $5,000,000 in total, does that stipulation remove the case from CAFA’s scope?  The District Court for the Eastern District of California certainly seems to suggest so.

In this case, the parties disputed which legal standard governed the amount in controversy determination.  Under CAFA, “where the plaintiff has pled an amount in controversy less than $5,000,000, the party seeking removal must prove with legal certainty that CAFA’s jurisdictional amount is met.”  Lowdermilk v. U.S. Bank Nat’l Ass’n., 479 F.3d 994, 1000 (9th Cir 2007).  However, if a plaintiff’s “complaint is unclear [regarding] ‘a total amount in controversy,’ the proper burden of proof . . . is proof by a preponderance of the evidence.”  Guglielmino v. McKee Foods Corp., 506 F.3d 696, 701 (9th Cir. 2007).

The plaintiffs, employees of Home Depot, brought an action in the Superior Court of the State of California alleging violations of California’s wage and hour law.  Plaintiffs sought to recover unpaid wages, unpaid overtime wages, statutory penalties, waiting time penalties, unreimbursed expenses, liquidated damages, restitution, injunctive relief, interest, attorneys’ fees, and costs.  Additionally, the plaintiffs’ Complaint alleged that the monetary damages and restitution sought exceeded the minimal jurisdiction limits of the Superior Court and would be established according to proof at trial.  The plaintiffs alleged that the amount in controversy for each class representative, including claims for monetary damages, restitution, penalties, injunctive relief, and a pro rata share of attorneys’ fees, was less than $75,000 and that the aggregate amount in controversy for the proposed class action, including monetary damages, restitution, penalties, injunctive relief, and attorneys’ fees, was less than $5,000,000, exclusive of interest and costs.  Unsurprisingly, the plaintiffs reserved the right to seek a larger amount based upon new and different information resulting from investigation and discovery.

The defendants removed the action to the District Court for the Eastern District of California.  The defendants asserted that because the plaintiffs expressly reserved the right to seek more than $5,000,000 in damages and refused to stipulate that they would not seek greater damages, the complaint was ambiguous, and thus the preponderance of the evidence standard applied.  The defendants asserted that given the various state law wage and hour claims in the Complaint, the plaintiffs’ allegations that such violations were systemic, and the data provided by the defendants here and in its removal papers, it was clear that plaintiffs’ claims placed more than $5,000,000 in controversy.  The plaintiffs moved to remand the case back to the Superior Court.  

 The District Court remarked that the plaintiffs’ reservation of rights did not create an uncertainty about the amount in controversy; it only stated a right that the plaintiffs already possessed.  Because the plaintiffs specifically alleged that their case did not meet the diversity jurisdiction threshold required for CAFA jurisdiction, the District Court stated that the defendant must establish with legal certainty that the amount in controversy exceeded the statutory minimum of $5,000,000.

Further, the defendants contended that even under the legal certainty standard, federal jurisdiction was still proper.  The plaintiffs claimed unrecorded work time.  The defendants did not have records reflecting the frequency or amount of claimed unrecorded work time, but they made reasonable and conservative estimates regarding the number of penalties per class member based on the data that was available.  The defendants also based their estimates on the plaintiffs’ allegations that the claimed violations occurred regularly, and pursuant to corporate policy and or practice supported higher estimates of damages and penalties than the plaintiffs had estimated.  The defendants thus contended that the District Court could clearly estimate with certainty that the amount in controversy exceeded CAFA’s jurisdictional minimum.

All of defendants’ amount-in-controversy calculations were based upon the declaration of economist G. Edward Anderson, Ph.D.  The plaintiffs challenged Dr. Anderson’s calculations arguing that the defendants failed to produce any concrete evidence that would satisfy their burden under the legal certainty standard.  The District Court also noted that Dr. Anderson relied on assumptions and estimations in his calculations.  The defendants, however, argued that these estimates were appropriate because they could rely on reasonable estimates and assumptions to establish the jurisdictional amount.

 The District Court observed that numerous district courts had rejected the use of similar estimates under the legal certainty standard when the estimates and assumptions were not supported by concrete evidence.  Here, the defendants presented no concrete evidence to support their estimations and assumptions, and thus they failed to meet their burden to establish jurisdiction under CAFA. 

 Accordingly, the District Court remanded the case.

 

Forum Shopping May Not Qualify as Bad Faith

Posted in Case Summaries

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.

District Court Can Stay Its Remand Order Pending Appeal

Posted in Case Summaries

Dalton v. Walgreen Co., 2013 WL 2367837 (E.D. Mo. May 29, 2013).

Staying its remand order to facilitate the defendant to prefer an appeal, the U.S. District Court for the Eastern District of Missouri held that it had jurisdiction to reopen the case for the limited purpose of staying the remand order, because to hold that a district court lacks the limited jurisdiction to stay its remand order in a CAFA case would render hollow the statutory right to appeal a CAFA remand order.

The plaintiffs brought an action in Circuit Court of Phelps County, Missouri, alleging that the defendant tracked and used the plaintiffs’ internet history in violation of the Missouri statute regarding computer tampering, the Missouri Merchandising Practices Act, and common law.  The defendant removed this case to the District Court, pursuant to CAFA. The plaintiffs moved to remand the action to state court, and the District Court granted the plaintiff’s motion holding that the defendant failed to establish that the amount in controversy exceeded $5 million. Thereafter, the Eighth Circuit granted the defendant’s petition for permission to appeal the remand order. The defendant moved for a stay of the remand order, arguing that equity favored issuance of a stay. The District Court granted the motion.

Because 28 U.S.C. § 1447(d) states that an order remanding a case to state court is generally not reviewable on appeal, the District Court found that, when a district court issues a remand order, the court is ordinarily divested of jurisdiction, allowing the state court to proceed with the case. The District Court, however, also noted an exception to the general rule that remand orders are not appealable, because federal courts of appeals pursuant to 28 U.S.C. § 1453(c) are expressly authorized to exercise their discretion to accept an appeal from a remand order under CAFA notwithstanding §1447(d).

The District Court, therefore, found that it had jurisdiction to reopen this case for the limited purpose of staying the remand order. To hold that a district court lacks the limited jurisdiction to stay its remand order in a CAFA case would render the statutory right to appeal a CAFA remand order hollow.

When deciding a motion to stay pending appellate review and determining whether a stay is warranted, the following factors should be considered: (1) the likelihood that a party seeking the stay will prevail on the merits of the appeal; (2) the likelihood that the moving party will be irreparably harmed absent a stay; (3) the prospect that others will be harmed if the court grants the stay; and (4) the public interest in granting the stay.

The District Court found that the defendant demonstrated an adequate likelihood of success on the merits of the appeal and that it could be irreparably harmed by the burden of having to simultaneously litigate the action in state court and on appeal to the Eighth Circuit. The defendant further showed the potential of inconsistent outcomes if the state court ruled on any motions while the appeal was pending.

Further, the District Court stated that, if a stay was granted, then neither party would be required to incur additional expenses from simultaneous litigation before a definitive ruling on appeal was issued, and the plaintiff would not be harmed by a lengthy delay because of the expedited appellate review process set forth in § 1453(c). Also, the District Court noted that the public interest favored granting a stay, because it would avoid potentially duplicative litigation and would judicial resources. Accordingly, the District Court granted the defendant’s motion to stay the remand order.

Appellate Court Opinion in a Wholly Separate Case Does Not Reset the 30-Day Removal Window

Posted in Case Summaries

Brown v. MHN Government Services, Inc., 2013 WL 2321509 (W.D. Wash. May 28, 2013).

The U.S. District Court for the Western District of Washington held that a recent Supreme Court opinion in a wholly separate case does not reset the 30-day removal window under 28 U.S.C. § 1446(b)(3).

Initially, the plaintiffs filed an action in the Pierce County Superior Court for the State of Washington (“Brown I”), alleging state wage law claims on behalf of themselves and a proposed class. The defendants removed the action to the District Court under CAFA, and the plaintiffs then voluntarily dismissed that complaint.

Thereafter, the plaintiffs filed a new complaint in Pierce County Superior Court for the State of Washington (“Brown II”), alleging state wage law claims on behalf of themselves and a proposed class. The plaintiffs and 12 other named plaintiffs then filed a complaint in the District Court, alleging violations of the Fair Labor Standards Act and the California Labor Code. The defendants removed Brown II to the District Court, and the plaintiffs moved for remand. The District Court granted the plaintiffs’ motion.

Subsequent to the Supreme Court’s decision in Standard Fire Ins. Co. v. Knowles, 133 S. Ct. 1345 (2013), the defendants again removed Brown II to the District Court, and the plaintiffs moved to remand.  (Editors’ Note: see CAFA law blog analysis on Knowles posted on April 12, 2013.)

The District Court observed that the defendants removed the matter without any authority for the proposition that a recent Supreme Court opinion in a wholly separate case resets the 30-day removal window under 28 U.S.C. § 1446(b)(3). The defendants provided an unpersuasive argument for the proposition that the District Court should extend the limited exception of out-of-circuit cases and hold that a Supreme Court decision, which did not involve the party seeking removal but was sufficiently related to the proceedings, could qualify as an order or “other paper.” The District Court declined to adopt the defendants’ proposed new rule of law and, accordingly, granted the plaintiffs’ motion for remand.

The plaintiffs requested an award of expenses. The District Court noted that an order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal. Whether fees and costs are awarded depended on the reasonableness of the removal. Further, the District Court noted that fees may be awarded under unusual circumstances or where there is no objectively reasonable basis for removal. Here, because it did not find that the defendants’ argument had no objectively reasonable basis for removal, the District Court declined granting an award of fees and costs.

Limited Liability Companies Are like Corporations for Purposes of Determining Citizenship under CAFA

Posted in Case Summaries

Heckemeyer v. NRT Missouri, LLC, 2013 WL 2250429 (E.D. Mo. May 22, 2013).

The U.S. District Court for the Eastern District of Missouri held that Congress chose to treat limited a limited liability company (“LLC”) like a corporation for purposes of determining citizenship under CAFA; thus, an LLC is deemed to be a citizen of the states where its principal place of business is located and the state under whose laws it is organized.

The Missouri resident plaintiffs brought an action under the Missouri Merchandising Practices Act, in Circuit Court of St. Louis County, Missouri, alleging that the defendants knowingly misrepresented the square footage of the homes that the plaintiffs and the putative class members purchased, by including footage of the empty space on the second floor above a two-story entry foyer or two-story great room. The plaintiffs alleged that James Dohr, as NRT Missouri LLC’s (“NRT”) designated broker, was responsible for supervising NRT’s brokers and salespeople and adopting a written policy covering various matters, including the subject matter of the lawsuit.

The defendants removed the action to the District Court, asserting traditional diversity jurisdiction under 28 U.S.C. § 1332(a) and CAFA jurisdiction under § 1332(d). The defendants asserted that complete diversity of citizenship existed for purposes of § 1332(a), because NRT Missouri was a citizen of Delaware and New Jersey and James Dohr was fraudulently joined so his citizenship should not be taken into account. Further, the defendants asserted that the general rule that an LLC’s citizenship is based on the citizenship of its members applies under CAFA, such that diversity of citizenship under § 1332(d), also existed.

The plaintiffs moved for remand, arguing that traditional diversity jurisdiction did not exist because Dohr was not fraudulently joined and the defendants did not show that the requisite amount in controversy of $75,000 was met with respect to any one plaintiff. The plaintiffs also argued that jurisdiction under CAFA did not exist because, under CAFA ,an LLC’s citizenship is based upon the state in which the LLC is organized and where its principal place of business is located. The plaintiffs asserted that NRT’s principal place of business was in Missouri and argued that the defendants did not establish CAFA’s requisite $5 million amount in controversy.

First, the District Court noted that the claim of any one plaintiff was less than $75,000, and the defendants made no effort to show otherwise. Thus, the District Court found that the defendants did not meet their burden to establish that traditional diversity jurisdiction existed.

Additionally, the District Court stated that diversity jurisdiction under §1332(a)(1) requires complete diversity, such that no defendant holds citizenship in the same state where any plaintiff holds citizenship. Because an LLC’s citizenship for purposes of traditional diversity jurisdiction is the citizenship of each of its members, there was diversity between the plaintiffs and NRT for purposes of traditional diversity jurisdiction. The District Court, however, remarked that, because Dohr was a citizen of Missouri, his presence as a defendant defeated traditional diversity jurisdiction.

Next, the District Court observed that, to prove that a plaintiff fraudulently joined a diversity-destroying defendant, the Eighth Circuit requires a defendant seeking removal to prove that the plaintiff’s claim against the diversity-destroying defendant has no reasonable basis in fact and law. Further, the District Court stated that joinder is not fraudulent where there is arguably a reasonable basis for predicting that the state law might impose liability based upon the facts involved.

The District Court also noted the Eighth Circuit’s instruction that, where the sufficiency of the complaint against the non-diverse defendant is questionable, the better practice is for the federal court not to decide the doubtful question in connection with the motion to remand but simply to remand the case and leave the question for the state courts to decide. Thus, because the sufficiency of the complaint against Dohr was questionable, the District Court opined that it would be best for a Missouri state court to decide Dohr’s potential liability in the present action.

Second, the District Court remarked that, although the defendants had established by a preponderance of the evidence the CAFA jurisdictional requirements of numerosity and amount in controversy, they failed to establish CAFA diversity of citizenship.

Under § 1332(d)(10), CAFA provides that an unincorporated association shall be deemed to be a citizen of the State where it has its principal place of business and the State under whose laws it is organized. Although the Eighth Circuit had not yet addressed the question, the Fourth Circuit held that an LLC is properly considered “an unincorporated association” within the meaning of § 1332(d)(10) and, thus, is deemed to be a citizen of the state both where it has its principal place of business and the state under whose laws it is organized.  Further, the District Court observed that CAFA’s legislative history, specifically Senate Report No. 109-14, shows that Congress chose to treat LLCs like corporations for purposes of determining citizenship under CAFA.

The Fourth Circuit also rejected the argument that Congress intended “unincorporated association” to refer only to those non-corporate entities that, unlike an LLC in Missouri, lacked a distinct legal identity under the law of the state where they are organized. The defendants argued that the term “unincorporated association” in § 1332(d)(10) referred to only a narrower subset of non-corporate business forms, a class that excluded entities having a distinct legal identity under the law of the state in which they are organized.

The Fourth Circuit reasoned that the term “business enterprise” includes both corporations and non-corporate entities, and the District Court noted that use of the terms “business enterprise,” “corporation,” and “unincorporated association” reflects Congress’s intent to subdivide the entities covered by the term “business enterprise” into two categories: corporations and non-corporate entities. The District Court stated that CAFA refers to non-corporate entities as “unincorporated associations.” To extend CAFA’s application, Congress narrowly defined the citizenship of non-corporate entities to include only one or two states, thereby extending federal court jurisdiction over class actions.  Accordingly, the District Court stated that Congress chose to treat LLCs like corporations for purposes of determining citizenship under CAFA.

Next, the District Court analyzed the location of NRT’s principal place of business. In Hertz Corp. v. Friend, 130 S. Ct. 1181 (2010), the Supreme Court adopted the “nerve center” test for determining a corporation’s principal place of business, defining “principal place of business” as the place where a corporation’s officers direct, control, and coordinate the corporation’s activities. Further, the District Court opined that the “nerve center” normally was the place where the corporation maintained its headquarters, provided that the headquarters was the actual center of direction, control, and coordination, and not simply an office where the corporation held its board meetings.

The plaintiffs asserted that NRT’s principal place of business was Missouri, as evidenced by NRT’s judicial admissions in several cases that its principal place of business and corporate headquarters were in Missouri. The plaintiffs also maintained that NRT’s principal place of business was Missouri, because NRT Missouri maintained its corporate office in St. Louis County, Missouri operating and doing business under the fictitious name of Caldwell Banker Gundaker.

In support of its contention that its principal place of business was New Jersey, NRT submitted the sworn declaration of its General Counsel who attested that, although business was carried out in Missouri, all NRT’s business was subject to the control of its officers in the NRT corporate headquarters in New Jersey.  However, because the District Court found that defendants did not met their burden of establishing that NRT’s principle place of business was not Missouri, it held that all plaintiffs and both defendants were citizens of Missouri for purposes of CAFA, and jurisdiction under CAFA did not exist.

Accordingly, the District Court granted the plaintiffs’ motion for remand.

Facts Outside of the Complaint and Notice of Removal Are Irrelevant for Deciding CAFA Jurisdiction

Posted in Case Summaries

Owens v. Dart Cherokee Basin Operating Co., LLC, 2013 WL 2237740 (D. Kan. May 21, 2013).

The U.S. District Court of Kansas has held that reference to factual allegations or evidence outside of the complaint and notice of removal is not permitted to determine the amount in controversy.

The plaintiff brought an action in state court, representing a class of royalty owners who were underpaid royalties from the defendants working interest Kansas wells. The plaintiff alleged breach of contract and unjust enrichment claims and sought compensatory damages, costs, and further relief as the court deemed just and proper. The petition did not state a specific amount of damages.

The defendant removed the action to the District Court, asserting CAFA jurisdiction and contending that the amount in controversy was in excess of $8.2 million. Thereafter, the plaintiff moved to remand, and the District Court granted the motion.

The District Court stated that, in determining the amount in controversy for an action removed pursuant to CAFA, the question is not how much the plaintiff will recover but rather is an estimate of the amount that will be put at issue in the course of the litigation. The District Court further noted that the amount in controversy is ordinarily determined by either the allegations of the complaint or by the allegations in the notice of removal where the allegations of the complaint are not dispositive. If the jurisdictional amount is not shown by the allegations of the complaint, then the burden is on the removing party to set forth in the notice of removal the underlying facts supporting the assertion that the amount in controversy exceeds the threshold limit.

The District Court observed that, in McPhail v. Deere & Co., 529 F.3d 947, 956 (10th Cir. 2008), the Tenth Circuit held that a plaintiff cannot avoid removal merely by declining to allege the jurisdictional amount; however, in the absence of an explicit demand for more than the jurisdictional amount, the defendant must show how much is in controversy through other means such as interrogatories obtained in state court prior to the removal, affidavits, or other evidence submitted to the federal court.

In support of their calculation that the amount in controversy exceeded $8.2 million, the Owens defendants presented the declaration of Charles E. Henderson, Vice President of Legal Affairs and General Counsel. Henderson stated that these calculations showed that the plaintiff’s claims for the entire class period exceeded the jurisdictional threshold. Upon service of the Petition, Henderson quantified the damages at issue based on the allegations in the petition, the claims, the class period, and the number of leases.

Assuming that the royalty paid to the plaintiff class should have been calculated on 100% of the proceeds and not 75%, using a “back of the envelope” calculation, Henderson concluded the class was underpaid by approximately $11 million. Using the same back of the envelope analysis, he further asserted that the claim for shrinkage was approximately $3.52 million. Assuming the allegations in the petition were correct, the defendants located and analyzed the actual production and sales data for the period in question and ran a formal economic analysis of the potential damages. Based on those assumptions, it was determined that the amount in controversy for the five year period prior to the filing of the petition was $8,224,798.62 and $11.86 million for the entire ten year period claimed by the plaintiff class.

Owens, however, asserted that the defendants could not meet their burden to show that it was more likely than not that the amount in controversy exceeded $5 million, because the defendants submitted no evidence with their unsworn notice of removal that the amount in controversy exceeded the statutory requirement.

The District Court observed that the defendants did not submit any supporting documentation, affidavit or declaration as evidence of the amount of compensatory damages, although the defendants conceded that they had the actual production and sales data at the time of the notice of removal.

The defendants argued that the amount in controversy could be demonstrated by the allegations in the petition alone and made their calculations from those allegations, along with additional facts. The defendants relied on McPhail, contending that the court held the allegations of the complaint alone was sufficient to find the amount in controversy exceeded the jurisdictional threshold for diversity jurisdiction.

The District Court, however, observed that in McPhail, the plaintiff brought a wrongful death action. The McPhail complaint cited to the Oklahoma wrongful death statute and requested all relief enumerated therein, which provided recovery for several categories of compensatory damages alleged in the complaint, as well as punitive damages up to $100,000. The Tenth Circuit held that, given the allegations and the nature of the damages sought, the complaint on its face may be sufficient by itself to support removal. The Tenth Circuit, however, declined to decide the question based on the complaint alone because the plaintiff had incorporated correspondence between counsel in the notice of removal that demonstrated her counsel believed the amount in controversy could be in excess of $75,000.

Owen’s petition, however, did not include a claim based on statutory liability or a claim for punitive damages, and the jurisdictional amount was not readily apparent from the face of the petition. Further, Owens did not attempt to limit the amount in controversy to less than the jurisdictional amount. Although the defendants stated in the notice of removal that they had undertaken to quantify the amount of additional royalties that would be owed, they failed to incorporate any evidence supporting this calculation in the notice of removal, such as an economic analysis of the amount in controversy or settlement estimates.

Accordingly, the District Court remarked that in the absence of such evidence, the general and conclusory allegations of the petition and notice of removal did not establish by a preponderance of the evidence that the amount in controversy exceeded $5 million.

Next, the District Court evaluated whether the defendants could rely on factual allegations to meet their jurisdictional burden which were not contained in the notice of removal but instead were subsequently submitted with their response as additional support. The District Court observed that the Tenth Circuit consistently held that reference to factual allegations or evidence outside of the petition and notice of removal was not permitted to determine the amount in controversy. The District Court noted that, although the Tenth Circuit appeared to have carved out a limited exception to this rule by holding that a party may seek limited discovery to determine the amount in controversy, it did not give any guidance on when it was appropriate to grant or deny a request. Nevertheless, in McPhail, the Tenth Circuit contemplated a situation in which the defendant had no information from which to establish the amount of damages.

 In Owens, the District Court found that discovery was not justified, because the defendants conceded in their response and Henderson’s Declaration that they were aware of additional facts and data at the time of removal, but they did not allege all of these facts in their notice of removal. Further, although the McPhail court indicated that evidence of settlement proposals and estimates were permitted as a basis for establishing the amount in controversy, such was possible only when those facts were incorporated into the notice of removal.

The District Court found that, although the petition was silent on the jurisdictional amount, it had enough detail regarding the basis of the claims of the underpayment of royalties to enable defendants to use their data to calculate an amount in controversy, albeit data and/or evidence they did not include in their notice of removal. Even assuming that the defendants could establish the amount in controversy exceeded $5 million, the District Court concluded that the defendants were obligated to allege all necessary jurisdictional facts in the notice of removal.

Thus, because the jurisdictional facts alleged in the petition and notice of removal did not show by a preponderance of the evidence that the amount in controversy exceeded $5 million, the District Court remanded the action to state court.

Smith v. Honeywell International, Inc., 2013 WL 2181277 (D.N.J. May 20, 2013)

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Smith v. Honeywell International, Inc., 2013 WL 2181277 (D.N.J. May 20, 2013).

The plaintiffs sued defendants, PPG Industries, Inc. (“PPG”) and Honeywell International Inc. (“Honeywell”), alleging that the chromium ore processing residue (“COPR”) used by the defendants to fill in residential and commercial areas in Jersey City exposed the class members to hazardous materials which contaminated them and the surrounding properties. The plaintiffs’ proposed class consisted of a medical monitoring class and a property value diminution class. The plaintiffs claimed that more than two-thirds of the members of the proposed classes were New Jersey citizens. PPG is a Pennsylvania corporation with its principal place of business in Pennsylvania, and Honeywell is a Delaware corporation with its principal place of business located in New Jersey.

Pursuant to CAFA, PPG removed the action from the Superior Court of New Jersey, Hudson County to the District Court. Although the plaintiffs did not move for remand, the Magistrate Judge expressed concern that the Court may not have jurisdiction under 28 U.S.C. § 1332(d)(4)(A)(i)(II). The Magistrate Judge noted that the threshold requirements of CAFA jurisdiction under 28 U.S.C. § 1332(d)(2)(A) were met in this case. The Magistrate Judge, however, observed that CAFA underlines two mandatory exceptions, specifically the local controversy exception and the home state exception, which restrict a district court’s ability to exercise jurisdiction.

First, under the local controversy exception of 28 U.S.C. § 1332(d)(4)(A), a district court should decline to exercise its jurisdiction over a class action in which: (I) greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed; (II) at least one defendant is a defendant– (aa) from whom significant relief is sought by members of the plaintiff class; (bb) whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and (cc) who is a citizen of the State in which the action was originally filed; and (III) principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed; and (ii) during the three-year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same persons.

The plaintiffs alleged that more than two-thirds of the members of the proposed classes were citizens of the State of New Jersey. Moreover, Honeywell, a defendant from whom significant relief was sought, likewise is a citizen of New Jersey. Additionally, the principle injuries were incurred in the state in which the action was originally filed, and the pleadings did not contain any reference to another class action asserting the same or similar allegations involving these parties.

Because the requirements of 28 U.S.C. § 1332(d)(4)(A) are conjunctive, the defendants focused on the § 1332(A)(i)(I) requirement that over a two-thirds aggregate of both of the proposed medical monitoring and property damage classes be New Jersey citizens. The plaintiffs did not defend their allegation that more than two-thirds of the members of the proposed classes were citizens of the State of New Jersey. The defendants argued that the plaintiffs could not argue credibly that two-thirds of the tens of thousands of persons who had ever lived, worked, or gone to school for six months within the range of the many New Jersey COPR sites over a 115-year period or who currently own any property in the class, were New Jersey citizens.

Because of the absence of facts to support the two-thirds allegations in the pleadings, the Magistrate Judge concluded that the first element of the local controversy exception was inapplicable. Thus, it was unnecessary to address the remaining elements of the local controversy exception.

As for the home state exception, under 28 U.S.C. § 1332(d)(4)(B), a district court must decline to exercise jurisdiction two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.

The Magistrate Judge stated that the two-thirds requirement for the home state exception is similar to that under the local controversy exception. Because the plaintiffs did not currently have facts to support the two-thirds requirement, the Magistrate Judge opined that it was not necessary to address the other elements of the home state exception.

The Magistrate Judge, therefore, recommended that CAFA jurisdiction existed, and the District Court adopted the Magistrate Judge’s report and recommendation.

Spillman v. RPM Pizza, LLC, 2013 WL 2286076 (M.D. La. May 23, 2013)

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Spillman v. RPM Pizza, LLC, 2013 WL 2286076 (M.D. La. May 23, 2013).

The plaintiff brought an action under the Telephone Consumer Protection Act (TCPA) on behalf of a class of persons who received automated telephone calls to their cellular phone numbers made by or on behalf of the defendant, RPM Pizza, LLC or one of its Domino’s franchise stores. The parties settled the action, and the settlement agreement created a common fund totalling $9,750,000.

Pursuant to the settlement, 314,231 members of the Monetary sub-class would receive up to a $15 cash payment funded by a $4,000,000 deposit by Argonaut Insurance Company and RPM, creating a total common fund amount of $9,750,000. Additionally, the Merchandise Voucher sub-class, the largest sub-class composed of 1,152,617 members, would receive a fully-transferrable voucher worth from $6.71 to $11.99. Without the settlement, the Merchandise Voucher sub-class would have received no benefit, because their claims were dismissed in February 2011.

The settlement agreement also contained a provision for injunctive relief with RPM agreeing to comply with the TCPA statutory and regulatory requirements applicable to pre-recorded phone messages. The value of this injunctive relief was estimated at $16.2 million dollars. Excluding the estimated value of the injunctive relief, the total potential value of the cash and voucher components of the settlement was more than $20,000,000.

Because the settlement involved creation of a common fund, the settlement was subject to CAFA, and a CAFA settlement must comply with 28 U.S.C. § 1714 and § 1715. Having preliminarily approved the settlement, the Magistrate Judge issued the class notices and directed the parties to comply CAFA notice requirements. After a fairness hearing, the Magistrate Judge approved the settlement, concluding that it was fair, reasonable, adequate and in the best interests of the class.

The Magistrate Judge found that under § 1714, the proposed settlement did not provide for the payment of greater sums to some class members than to others, solely on the basis that the class members to whom the greater sums are to be paid are located in closer geographic proximity to the Court. The proposed settlement provided that the members of the largest sub-class, the Merchandise Voucher sub-Class, would receive a fully transferrable, single-use voucher for a large one-topping pizza redeemable for in-store pick-up at an RPM-owned Domino’s store in the states of Louisiana, Alabama and Mississippi. However, the basis for geographic limitation had nothing to do with geographic proximity to the Court, and the provision was a result of the fact that RPM operated in these three states, and the vast majority of the class members had phone numbers with area codes originating from Louisiana, Alabama and Mississippi.

Further, notice of the proposed settlement and appropriate settlement documents had been given to the attorneys general in all 50 states and the District of Columbia. The 90-day period required by § 1715(d) had expired before the date of fairness hearing, and no officials had filed objections to the settlement. Accordingly, the Magistrate Judge found that the proposed settlement complied with the CAFA requirements of 28 U.S.C. §§ 1714 and 1715.

The Magistrate Judge also concluded that the notice of proposed settlement was given sufficiently to the class, which consisted of more than 1,400,000 class members. No objection to the settlement had been filed. The essential components of the notice plan developed and implemented were print publication, internet, the settlement website and press releases. The geographic composition of the class and the relative costs were considered in determining the national print and internet outlets to provide the best notice practicable to the class as a whole. 770 claims had been filed on the settlement website, and there were approximately 80 requests from individuals for claim forms. This rate of filing was consistent with other TCPA class action settlements awarding similar relief.

The notice directed to all class members who would be bound by the settlement complied with the Court’s orders and Rule 23(e), and the content and form of the notices provided were reasonable and sufficiently apprised all interested parties and class members of their right to object or opt out.

Finally, the settlement was within the range of possible recoveries and court approvals when compared to other TCPA cases which had settlements approved by the courts in this and other districts.

Accordingly, the Magistrate Judge found that the proposed TCPA class action settlement was fair, reasonable and adequate, and in the best interest of the class.

The Supreme Court’s Knowles Ruling Is Not “Other Paper” Within the Meaning of 28 U.S.C. 1446(b)(3)

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Henry v. Michaels Stores, Inc., 2013 WL 2208070 (N.D. Ohio May 20, 2013).

The District Court held that the Supreme Court’s recent opinion in Standard Fire Insurance Co. v. Knowles, 133 S. Ct. 1345 (2013), is not an “other paper,” which could make a previously un-removable case removable under 28 U.S.C §1446(b)(3).

The plaintiff alleged that, although the defendant advertised that its products were discounted, the defendant never actually gave the discount. The plaintiff claimed this was a violation of the Ohio Consumer Sales Practices Act, Ohio Revised Code, breach of contract, unjust enrichment, and fraud. The plaintiff disclaimed damages over $5,000,000 to preclude federal jurisdiction under the CAFA.

The defendant filed its notice of removal in the District Court, relying on the Knowles decision where the Supreme Court held that a putative class action complaint’s damages disclaimer does not preclude federal jurisdiction. (Editors’ Note: see CAFA law blog analysis of Knowles posted on April 12, 2013). The plaintiff moved to remand, arguing that the defendant failed to file its notice of removal in a timely manner. The District Court granted the plaintiff’s motion.

Under 28 U.S.C § 1446(b)(1), a defendant must file its notice of removal within 30 days of receiving a copy of the initial pleading, and if the initial pleading is not removable, a defendant under 28 U.S.C. § 1446(b)(3) may file a notice a notice of removal within 30 days after receipt of a copy of an amended pleading, motion, order or “other paper” from which it may first be ascertained that the case is one which is or has become removable.

First, the plaintiff claimed that the case was removable at the time he filed his complaint, and the relevant Sixth Circuit precedent allowed a defendant to remove a case upon a demonstration that damages were more likely than not to meet 28 U.S.C. § 1332(d)(2)’s amount in controversy requirement. Therefore, the defendant’s earlier failure to remove barred subsequent removal. The defendant, however, argued that the Sixth Circuit precedent, at the time of filing, recognized the validity of damages disclaimers to avoid federal jurisdiction.

In Smith v. Nationwide Property and Casualty Insurance Co., 505 F.3d 401 (6th Cir. 2007), the Sixth Circuit held that a disclaimer in a complaint, regarding the amount of recoverable damages, does not preclude a defendant from removing the matter to federal court upon a demonstration that damages are more likely than not to meet the amount in controversy requirement. Remand was warranted in Smith because the defendant could not show that total damages exceeded $5,000,000. (Editors’ Note: see CAFA law blog analysis of Smith posted on July 11, 2008).

Relying on In re: Travelers Casualty and Surety Company of America, No. 11-0311 (6th Cir. Jan. 27, 2013), the defendant argued that it could not have removed the plaintiff’s complaint upon filing. In Travelers Casualty, however, the Sixth Circuit stated that under the appropriate circumstances, a plaintiff may limit the damages sought in a class action, and removal would be appropriate if the plaintiff were to file an amended complaint or other pleading demonstrating a substantial likelihood or reasonable probability that he or she intends to seek damages in excess of the CAFA amount-in-controversy requirement.

The District Court remarked that this language, which does not require the absence of a damages disclaimer, supported the plaintiff’s and not the defendant’s position. Thus, the District Court opined that a plaintiff could avoid federal jurisdiction through a damages disclaimer, unless the defendant showed that the actual amount in controversy exceeded the jurisdictional threshold.

Second, the plaintiff asserted that, even if the case was not immediately removable, an intervening Supreme Court opinion could not make a previously un-removable case removable. The defendant, however, contended that a recent Supreme Court decision was an “other paper” that made the instant case removable under 28 U.S.C. §1446(b)(3).

The District Court found that the phrase “other paper” was informed by the words preceding it in 28 U.S.C. § 1446(b)(3), and ejusdem Generis, a principle of statutory construction, provides that where general words follow specific words in a statutory enumeration, the general words are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words.

The District Court also noted that the rule applied to lists of specific items separated by commas and followed by a general or collective term, but not to disjunctive phrases comprising both specific and general categories. The District Court stated that the words “pleading, motion and order” plainly referred to documents within the instant case, and to say otherwise would allow removal based on anything at all, running afoul of the rule that statutes conferring removal jurisdiction are to be construed strictly in favor of state court jurisdiction. Thus, the phrase “other paper” must share the prior terms’ limiting characteristic, and another court’s order–even the Supreme Court’s–was outside these bounds.

28 U.S.C. § 1446(b)(3) states that the tolled removal period accrues after receipt by the defendant, through service or otherwise, of the document providing the grounds for removal. The District Court remarked that holding that an intervening Supreme Court case was an “other paper” would render this phrase meaningless.

The District Court further observed that the language in 28 U.S.C. §1446 (b)(3) suggested, by use of the word “disclosure,” that removability under 28 U.S.C. § 1446(b)(3) would be triggered by the revealing of some fact –like the dropping of a nondiverse party or a settlement demand in excess of the jurisdictional threshold. Per the District Court, a Supreme Court opinion is not “disclosed” or “revealed.”

Finally, the District Court noted that 28 U.S.C. §1446(b) was not intended to provide a defendant with an escape route to federal court on the eve of a judgment in state court. Moreover, removal is disfavored in the late stages of litigation.

Accordingly, the District Court granted the plaintiff’s motion and remanded the action to the state court.