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

Local Controversy Exception, Not Home State Exception Wins the Day

Posted in Case Summaries

Vodenichar v Halcon Energy Properties Inc., 733 F.3d 497 (3d Cir. Aug. 16, 2013).

In this action, the Third Circuit affirmed the remand of the case based on a local controversy exception rather than the applying the home state exception as the basis for the district court’s remand.

The plaintiffs, individuals along with the Grove City Country Club, filed a suit on behalf of themselves and other similarly situated landowners who sought to lease the oil and gas rights in their land in Mercer County, Pennsylvania.  Defendants Morascyzk & Polochak (“M & P”) and Co-eXprise, d/b/a/ “CX-Energy” agreed to act as the plaintiffs’ agents to negotiate leases of their oil and gas interests to energy companies under the Landowner Marketplace Agreements for a transaction fee.  M & P and CX-Energy entered into a Letter of Intent with Halcon, who agreed to lease up to 60,000 acres of the oil and gas rights from landowners.  Each landowner was guaranteed a $3,850 per acre plus 18% royalty on the net amount that Halcon realized from the oil and gas recovered from the property.

Plaintiffs claimed that Halcon rejected several leases for reasons other than mentioned under the Halcon agreement.  Accordingly, plaintiffs filed a putative class action against Halcon upon diversity jurisdiction in the District Court for the Western District of Pennsylvania alleging breach of agreement and duty of fair dealing.  The plaintiffs later added M & P and CX-Energy to the action, as this move would destroy diversity jurisdiction, the plaintiffs dismissed their own complaint.  On the same day, the plaintiffs filed their state action in the Mercer County, which was removed to federal court, and was assigned to the same district judge who had granted the plaintiffs’ motion to dismiss.

The plaintiffs filed a motion to remand based on CAFA’s local controversy exception.  The District Court however, found that the local controversy exception did not apply, but held that CAFA’s home state exception required remanding the case to the Court of Common Pleas.  Halcon then appealed.  The Third Circuit, reversed the District Court’s remand based on the home state exception, but still remanded the case.  Here’s the Third Circuit take on the CAFA’s exceptions.

The Third Circuit noted that the home state exception requires a federal court to decline subject matter jurisdiction where 2/3rd or more of the members of the proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.  Here, all the criterion were met, i.e., it was undisputed that over 2/3rd of the putative class members and the defendants M & P and CX-Energy were Pennsylvania citizens, and that Halcon was headquatered in Texas, hence, not a Pennsylvania citizen.  Having established this, the Third Circuit was faced with an issue as to which of the Defendants was the principal defendant.  As CAFA itself does not define the “primary defendant” the Third Circuit looked at precedents, and concluded as follows: A PRIMARY DEFENDANT MUST BE THE REAL TARGET OF THE PLAINTIFFS’ ACCUSATION.  The Third Circuit remarked that the courts should determine if the plaintiffs sought to hold the defendant responsible for its own actions, as opposed to seeking to have it pay for the actions of the others. 

Here, the Third Circuit found that the plaintiffs alleged that each defendant was directly liable, and appeared to apportion liability equally among the defendants, and sought similar from all defendants.  The Third Circuit noted that while more claims were asserted against M & P and CX-Energy than against Halcon, the claims against Halcon were as, if not more, significant in that the plaintiffs alleged Halcon breached its lease agreement with more than 1,000 landowners and owed damages exceeding $50,000 to each class member.  Accordingly, the Third Circuit concluded Halcon was the primary defendant, hence the home state exception was not applicable, and that the remand under this exception was improper.

Next, the Third Circuit turned to the other exception to CAFA’s subject matter jurisdiction: the local controversy exception.  The District Court had ruled that this exception did not apply because the class action had been filed arising from the same facts and asserting similar claims as the one filed before the District Court which the plaintiffs had got voluntarily dismissed.  The Third Circuit noted that the ingredients of a local controversy exception are (1) > 2/3rd putative class members from the state; (2) at least 1 defendant citizen of the state where action was filed; (3) local defendant’s conduct forms a significant basis for the claims; (4) significant relief from the local defendant; (5) principal injuries occurred in the state where the action was filed; and (6) no other class action was filed in the preceding three years.

Here, the Third Circuit found that all the elements are met.  First, over 2/3rd putative class members were from Pennsylvania.  Second, at least one defendant was local.  Third, each defendant’s alleged conduct did form a significant basis for the claim, because as agents for the putative class members, the local defendants entered into an agreement with Halcon.  Fourth, Plaintiffs were seeking significant relief from both local defendants.  And fifth, there was no dispute that the principal injuries were incurred in the Pennsylvania.

Accordingly, the only element in dispute was had the plaintiffs filed a similar class action in the last three years.  Here, the Third Circuit noted that CAFA does not define what constitutes an “other class action” other than to limit it to filed cases asserting similar factual allegations against a defendant.  By imposing this condition, the Third Circuit observes that the congress wanted to ensure that the defendants did not face copycat, or near copycat, suits in multiple forums.  Therefore, the question here was, did the previous action, which the plaintiffs had got voluntarily dismissed, qualify as an “other class action.” 

Here, when the plaintiffs filed a motion to get the first action dismissed, in order to include new parties, the District Court granted the motion without prejudice, but ordered the parties to participate in ADR (“Alternative Dispute Resolution”) and to retain the discovery that they had exchanged for use in both the ADR and the case that joined the two local defendants.  Thus, according to the Third Circuit, the District Court’s action showed that it considered the second filed action a continuation of the first action, and took practical steps to ensure that the act of filing the second complaint did not delay the parties’ ability to proceed.  In addition, the Third Circuit noted that this was not a copycat situation, rather the named plaintiffs’ action to file a separate action was no different from a situation where a party amended a pleading to join parties to an existing case.  In short, the Third Circuit concluded Halcon defending the new action did nothing radical in its approach vis-à-vis defending the first action.

Accordingly, the Third Circuit concluded that the second action was not a copycat action, and that the case qualified for a remand under CAFA’s local controversy exception.  – JR

Approved Settlement of Federal and State Wage Claims Did Not Implicate CAFA

Posted in Uncategorized

Juvera v. Salcido, 2013 WL 6628039 (D. Ariz. Dec. 17, 2013)

A District Court in Arizona granted approval to a $157,000 settlement holding that the Settlement Agreement reflected a fair and reasonable resolution of wage issues in the action.

Current and former cashiers who were employed with the defendants brought this action alleging violations of the Fair Labor Standards Act and Arizona’s minimum wage laws.  Their grouse stemmed from the cashiers having to reimburse the defendants when the cash drawer or till did not add up correctly; and from the employees having to repay the defendants for the cost of replacement uniforms, as well as employee name and security tags.  According to the plaintiffs, these policies reduced their wages below the minimum wage required by the FLSA and Arizona law.  The Parties ultimately settled their disputes, and in this order, the District Court granted the parties’ joint motion for final approval of the Settlement Agreement.

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Ninth Circuit’s Lowdermilk’s Legal Certainty Standard is Irreconcilable with Standard Fire

Posted in Case Summaries

Rodriguez v. AT&T Mobility Services, LLC, 2013 WL 4516757 (9th Cir. Aug. 27, 2013).

The Ninth Circuit’s decision that Lowdermilk’s imposition of the legal certainty standard was clearly irreconcilable with Standard Fire is a boon to defendants seeking to remove cases to federal court under CAFA.  (Editor’s Note: See the CAFA Law Blog analysis of Lowdermilk posted on July 30, 2007).    

Here, the Ninth Circuit noted that while Lowdermilk reasoned that the initial jurisdictional determination derives from the complaint, Standard Fire mandates that courts determine their jurisdiction by aggregating all potential class members’ individual claims, and in doing so to look beyond the complaint when the complaint alleges damages below the jurisdictional minimum, contrary to Lowdermilk’s instruction.  Thus, the Ninth Circuit held that a plaintiff in a class action no longer has the prerogative to forgo a potentially larger recovery to remain in state court, and that the plaintiff could not sue for less than the amount she may be entitled to if she wishes to avoid federal jurisdiction.  Accordingly, the Ninth Circuit overturned a rule requiring the defendants to show to a “legal certainty” that the jurisdictional amount in controversy is satisfied when a complaint alleges a lesser amount of damages. 

The plaintiff, a retail sales manager, brought an action under California law asserting unpaid wages, overtime compensation, and damages for statutory violations. 

The defendant removed the case from Los Angeles County Superior Court to the District Court under CAFA, 28 U.S.C. § 1332(d)(2).  The plaintiff moved to remand arguing that the total amount in controversy did not exceed $5 million, the minimum amount for federal jurisdiction as required by § 1332(d).   

The plaintiff in his First Amended Complaint alleged that the aggregate amount in controversy was less than $5 million, and also waived seeking more than $5 million regarding the aggregate amount in controversy for the class claims alleged.  To establish that the amount in controversy exceeded $5 million, the defendant submitted several sworn declarations from its representatives regarding the potential number of class members and size of their claims, and argued that the plaintiff’s allegations and the sworn declarations established that the amount in controversy could not be less than roughly $5.5 million. 

The District Court remanded the action holding that the plaintiff’s disclaimer of any recovery exceeding $5 million effectively foreclosed the jurisdictional issue.  On appeal, the Ninth Circuit reversed and vacated the order of the District Court. 

After the District Court entered its order, the Supreme Court in Standard Fire Insurance Company v. Knowles, 133 S. Ct. 1345 (2013), held that a lead plaintiff could not foreclose a defendant’s ability to establish the $5 million amount in controversy by stipulating prior to class certification that the amount in controversy is less than $5 million.  The Supreme Court stated that a plaintiff’s precertification stipulation does not bind anyone but himself, and that requiring courts to ignore a nonbinding stipulation requires the federal judge to aggregate the claims of the individual class members.  (Editor’s Note: see CAFA law blog analysis of Standard Fire posted on April 12, 2013).

Because the District Court’s order to remand the case to state court relied solely on the plaintiff’s waiver, the Ninth Circuit opined that it must be vacated, and accordingly remanded the action to District Court for further consideration.

Next, the Ninth Circuit determined the standard of proof to be applied on remand.

Under Lowdermilk v. U.S. Bank National Association, 479 F.3d 999 (9th Cir. 2007), when a class action complaint alleges damages below the jurisdictional minimum, the removing defendant must establish to a “legal certainty” that the amount in controversy exceeds the jurisdictional requirement.  Based on this, the Ninth Circuit opined that the District Court had been correct at that time.  The defendant, however, contended that the recent decision in Standard Fire undermines Lowdermilk’s legal certainty standard, and that it needed only establish that the amount in controversy exceeded $5 million by a preponderance of the evidence, the standard that ordinarily applies where a plaintiff fails to plead a specific amount of damages.

In Lowdermilk, because the plaintiff had alleged that the amount in controversy was less than $5 million, the Ninth Circuit had held that it need not look beyond the complaint to determine whether the CAFA jurisdictional amount was met.  Further, the Ninth Circuit had stated that the plaintiff, being the master of her complaint could sue for less than the amount she may be entitled to or forgo any damages above the jurisdictional minimum if she wishes to avoid federal jurisdiction.  Thus, the Ninth Circuit in Lowdermilk held that the legal certainty standard of proof applied. 

The Ninth Circuit stated that Lowdermilk was based on two principles, namely that federal courts are courts of limited jurisdiction, which is to be strictly construed, and that the plaintiff is the master of her complaint and can plead to avoid federal jurisdiction.

The Ninth Circuit, however, observed that Standard Fire contradicted the second principle holding that a plaintiff seeking to represent a putative class could not evade federal jurisdiction by stipulating that the amount in controversy fell below the jurisdictional minimum.  Thus, the Ninth Circuit opined that a plaintiff in a class action no longer had the prerogative to forgo a potentially larger recovery to remain in state court, and that the plaintiff could not sue for less than the amount she may be entitled to if she wishes to avoid federal jurisdiction. 

Further, Standard Fire instructed district courts to look to the potential claims of the absent class members, rather than plaintiff’s complaint, holding that §1332(d) requires the District Court to determine whether it has jurisdiction by adding up the value of the claim of each person who falls within the definition of the proposed class.

The Ninth Circuit noted that while Lowdermilk reasoned that the initial jurisdictional determination derives from the complaint, Standard Fire mandates that courts determine their jurisdiction by aggregating all potential class members’ individual claims, and in doing so to look beyond the complaint when the complaint alleges damages below the jurisdictional minimum, contrary to Lowdermilk’s instruction. 

Thus, the Ninth Circuit observed that Lowdermilk’s legal certainty standard which was a consequence of a plaintiff’s ability to plead to avoid federal jurisdiction was not viable in actions involving absent class members, and that the reasoning behind Lowdermilk’s imposition of the legal certainty standard was clearly irreconcilable with Standard Fire. 

The Ninth Circuit stated that Standard Fire had undermined the reasoning in Lowdermilk such that the latter had been effectively overruled, and thus a defendant seeking removal must demonstrate, by a preponderance of evidence, that the aggregate amount in controversy exceeded the jurisdictional minimum when the plaintiff does not plead a specific amount in controversy.

Accordingly, the Ninth Circuit now holds that on remand, the defendant must prove that the amount in controversy exceeded $5 million by a preponderance of evidence. –JR

Setting the Edges: Defending Against Plaintiff End Runs Around CAFA

Posted in Jurisdictional Amount, Legal Publications and Articles

Edward S. Sledge, IV & Christopher S. Randolph, Jr., Setting the Edges: Defending Against Plaintiff End Runs Around CAFA, 80 Def. Couns. J. 178 (April 2013).

In this article, Edward S. Sledge, IV, a shareholder at Maynard, Cooper & Gale, P.C. in Birmingham, Alabama, discusses the abusive practice that has allowed plaintiffs’ attorneys to evade CAFA jurisdiction.

The author begins the article by describing the state of class action litigation before CAFA came into force.  During that time, class action filings were concentrated in a few plaintiff-friendly venues, and plaintiffs’ attorneys typically sought “drive-by” certifications, whereby ex parte certification orders were issued on the same day or shortly after the filing of the class action complaint.  The defendants often spent millions of dollars complying with massive discovery requests, likely to cause bankruptcy.  Because of the possibility of bankruptcy, the defendants faced an unpleasant choice after certification, either settle meritless claims for large sums or risk trial.  Yet, when all was said and done, class members did not necessarily benefit from large class action settlements, and were often left with a release of their claims in exchange for a small share of a settlement that may have had little value after accounting for attorney fees and costs.

The author then highlights the objectives of CAFA.  CAFA aims to ensure that large class actions are litigated in a federal forum where procedural rules require greater consideration of the interests of defendants and unnamed plaintiffs.  Before CAFA was enacted, class action lawyers misused the jurisdictional threshold to keep their cases out of federal court and often included stipulations in complaints limiting the amount in controversy to less than the jurisdictional minimum.  Thus, by enacting CAFA, Congress sought to curtail this practice by requiring aggregation of the claims of putative class members in determining the amount in controversy.  CAFA extended federal jurisdiction to class actions where this aggregate value exceeds $5 million and minimal diversity exists.

The author noted that plaintiffs’ attorneys continued to dodge federal jurisdiction through other strategies, such as statements in or attached to complaints that purportedly stipulate that the named plaintiff will not seek more than $5 million for the class.  Federal courts have held that damage stipulations were effective to escape federal jurisdiction, reasoning that a plaintiff can disclaim the right to recover certain damages and that judicial estoppel or state procedural rules would bar a plaintiff from amending the stipulation once back in state court.  Federal courts have also reasoned that the amount in controversy in a class action may be limited to the amount stated in an ad damnum clause, regardless of whether a sworn stipulation was also filed.

State legislatures also facilitated skirting CAFA such that in 2011, Arkansas enacted a statute that provides that a statement of damages in a complaint is binding on the plaintiff with respect to the amount in controversy until the statement of damages is amended.  Also, some states have lax certification standards that allow certification of classes that could never be certified in federal court.  Further, the defendants in some state courts must also continue to spend millions of dollars to comply with discovery requests broader than those normally allowed in federal court, and most state courts maintain broad discretion to impose draconian sanctions for noncompliance with those discovery requests.  Despite statements purporting to limit the amount in controversy to $5 million, the plaintiffs are free to demand settlements several times that amount knowing that the costs of complying with discovery may run into the tens of millions of dollars.

The author also states that reliance on state rules of judicial estoppel and state rules regarding the effect of ad damnum clauses affects allowing state procedural rules to dictate whether federal jurisdiction exists.  State procedural rules are inapplicable in federal court, and State rules that limit recovery to the amount stated in an ad damnum clause are inconsistent with Rule 54(c).  Also, since rules on judicial estoppel, stipulations, and the effect of ad damnum clauses vary from state to state, reliance on state rules would necessarily lead to the inconsistent application of the federal removal statute–an outcome federal courts have sought to avoid.

The author opines that even assuming arguendo that a stipulation or ad damnum clause may limit the amount in controversy outside the class action context, such purported limitations would be irrelevant in the jurisdictional analysis in a class action removed under CAFA for several reasons.  First, a stipulation does not effect the valuation of the claims of the unnamed members of a putative class because it cannot bind persons who are not yet parties to a case.  A stipulation could only limit the amount in controversy if it could bind the unnamed members of the class at the time of removal, which would be prior to certification.  Since the Supreme Court has explained that an uncertified class action cannot bind proposed class members, the named plaintiff in a class action cannot waive the rights of the unnamed members of a putative class to certain relief.

Second, CAFA bars consideration of any purported waiver of relief by a named plaintiff.  Federal courts are directed to look at the aggregate value of the individual claims, not the amount that could be awarded to a certified class.  Thus, it is irrelevant whether a class action ultimately certified in state court would include only those plaintiffs who agreed to a damages stipulation.  A federal court must look at the aggregate value of the claims of both the plaintiffs who may ultimately choose to opt out and the plaintiffs who choose to be bound by a damages stipulation.

Third, a named plaintiff’s obligations to the unnamed class members bar his waiver of the damages available to class members.  He has a fiduciary duty to his fellow class members and cannot throw away what could be a major component of the class’s recovery.

The plaintiffs’ efforts to evade federal jurisdiction through damage stipulations undermine the purpose of CAFA and the jurisdictional gamesmanship that Congress sought to end.  As such, the author opines that the Supreme Court is positioned to end plaintiffs’ end runs around CAFA.

The Supreme Court granted certiorari in Standard Fire Insurance Co. v. Knowles to determine whether a named plaintiff may defeat a defendant’s right of removal under CAFA by stipulating that he will seek no more than $5 million for the putative class when the amount in controversy, absent the stipulation, would exceed $5 million.  The author states that Knowles has the potential to end an abusive evasion of CAFA which would also be the Supreme Court’s first discussion of the calculation of the amount in controversy under CAFA and its first meaningful discussion of the effect of damage stipulations since dicta penned in February 1938, prior to the effective date of the Federal Rules of Civil Procedure.  In Knowles, the Supreme Court held that the stipulation in a case that the class would seek less than $5 million in damages, which was intended to establish the amount in controversy, does not defeat federal jurisdiction under the CAFA.

Probation Company is not a Government Entity for the Purpose of CAFA

Posted in Case Summaries

McGee v. Sentinel Offender Servs., LLC, 2013 WL 2436658 (11th Cir. June 6, 2013).  

A question arose before the Eleventh Circuit if a probation company is a government entity so that it could not assert federal jurisdiction under CAFA.  The Eleventh Circuit held that the probation company who is contracted by the state for services was an officer of court like private attorneys, and not a government entity for the purpose of CAFA.

The plaintiff, a convict, brought an action in Superior Court of Richmond County, asking the Court to hold the defendant in criminal contempt of court for resisting the Superior Court’s order granting the plaintiff a writ of habeas corpus and using its position as a probation company to attempt to collect a debt that was not owed or due by threatening to have the plaintiff jailed without bond.  The plaintiff also alleged that the defendant engaged in a pattern of racketeering activity as defined by the Georgia Racketeer Influenced and Corrupt Organization Act (RICO), O.C.G.A. § 16-14-1 et seq.

Earlier, in a misdemeanor action, the plaintiff had been sentenced to prison.  His sentence was later suspended and he was placed on probation.  When the plaintiff stopped reporting and failed to pay supervision fees to the defendant, a private probation services, his probation was revoked.  The plaintiff was instructed to pay the due, but when he failed to do so, he was sent to jail.

Thereafter, the Superior Court of Richmond County granted the plaintiff’s petition for habaeus corpus, holding that the plaintiff lacked the mental competence to waive his right to counsel at his probation revocation hearing, and that the plaintiff’s continued confinement would be unlawful.  After the plaintiff’s release, the defendant sent him two letters stating that he had failed to report to his probation officer and that he must pay his dues failing which the defendant would petition the court to revoke his probation.

The defendant removed this action to the District Court pursuant to the diversity jurisdiction, and the District Court denied the plaintiff’s motion to remand.

Subsequently, the District Court issued a permanent injunction forbidding the defendant from taking any action to collect any fee or to have any arrest warrant issued that would interfere with the habeas relief granted.  The District Court also acknowledged that the plaintiff had withdrawn his petition for contempt.

The defendant asserted a counterclaim seeking a declaration affirming the constitutionality of

O.C.G.A § 42-8-100(g), and moved for summary judgment, asserting that the RICO claim and constitutional challenge to O.C.G.A. § 42-8-100(g) failed as a matter of law.  The plaintiff also moved for partial summary judgment on his constitutional challenge to O.C.G.A. § 42-8-100(g).  The District Court granted the defendant’s motion and denied the plaintiff’s motion.

On appeal, the Eleventh Circuit affirmed the order of the District Court.

First, the plaintiff argued that the action was improperly removed from state court because the defendant did not satisfy its burden of establishing the $5 million amount-in-controversy requirement under CAFA.  Because the plaintiff’s complaint did not plead a specific amount of damages, the Eleventh Circuit observed that the defendant must prove by a preponderance of the evidence that the amount in controversy exceeded the jurisdictional requirement.

The defendant submitted a declaration from its Chief Operating Officer indicating that it had collected $5,675,639.20 in supervision fees from individuals who had been convicted of misdemeanor or ordinance violations and were presently under probation supervised by the defendant as well as $2,086,811.08 in electronic-monitoring fees and $183,049.00 in drug-screening fees from the same population for a total of $7,945,499.28.

The plaintiff equated the defendant’s declaration with the insufficient affidavit in Miedema v. Maytag Corp., 450 F.3d 1322 (11th Cir. 2006), wherein the court held that the affidavit submitted by Maytag was insufficient to establish CAFA jurisdiction because the amount in controversy was based on an estimate rather than actual sales data.  The Eleventh Circuit, however, noted that the defendant’s declaration unequivocally provided the amount of fees collected from the relevant probationers, and that the plaintiff failed to show or even suggest that these amounts were uncertain, erroneous, or otherwise based on guesswork.  

Further, although the plaintiff asserted that the declaration was insufficient because it did not show exactly when the fees were collected and during what applicable statute of limitations, the Eleventh Circuit stated that when determining the amount in controversy, a court does not consider whether some damages claimed by the plaintiff might be precluded by a statute of limitations.

Finally, the plaintiff contended that because the defendant was a governmental entity, it could not assert federal jurisdiction under CAFA.  The plaintiff claimed that the defendant was a governmental entity because the Georgia Court of Appeals in Huzzie v. State, 253 Ga. App. 225, 226, (Ga. Ct. App. 2002) had determined that private probation companies were officers of the court.

The Eleventh Circuit, however, remarked that the plaintiff had overlooked that the same court also recognized that the probation company in that case was a private entity with whom the State of Georgia contracted for services.  The Eleventh Circuit opined that just as private attorneys are officers of the court yet could not remotely be considered governmental entities, so did the defendant carry out its responsibility to the court without adopting the trappings of the state.

Next, the Eleventh Circuit noted that without any evidence suggesting that an employee of the defendant had the requisite intent to commit theft by deception, the Eleventh Circuit opined that the plaintiff could not present a genuine issue of material fact regarding the defendant’s intent, and that summary judgment therefore was appropriate.

Accordingly, the Eleventh Circuit affirmed the order of the District Court denying remand and granting summary judgment in favor of the defendant.  – JR

Amount in Controversy Need Not Be Proved to Absolute Certainty

Posted in Case Summaries, Jurisdictional Amount

Stephenson v. Consolidated Rail Corp., 2013 WL 1750005 (D.N.J. April 23, 2013).

The plaintiffs brought this class action in the Superior Court of New Jersey, Gloucester County, alleging that huge quantities of toxic, dangerous, and ultra-hazardous substances were released when defendants bridge collapsed and train derailed.  As a result, 700 individuals were forced to temporarily evacuate; a shelter in place order was mandated for the entire population of Paulsboro, NJ for three days, and some residents of West Deptford, NJ were also ordered to shelter in place.

The plaintiffs asserted claims based on the defendants’ negligence, nuisance, trespass, and strict liability; plaintiffs also sought punitive damages.  The defendants removed the action to the District Court under CAFA.  The plaintiffs argued that the defendants failed to establish that the amount in controversy exceeded the jurisdictional threshold of $5,000,000, and they moved to remand.

The defendants aggregated the individual claims for which the plaintiffs sought compensation and determined the amount in controversy by considering alleged business income loss, losses to residents, punitive damages, and attorney fees.  The District Court assessed each category of damages.

The plaintiffs’ potential class included all businesses inGloucesterCountythat experienced income loss of less than $75,000.  Using sales records and business listing data, the defendants estimated that the business income loss claims from businesses in Paulsboro would be $1,480,768.  The defendants based their analysis on the number of days of the evacuation orders and the number of businesses in Paulsboro.  The defendants attempted to eliminate duplicative entries and business that might have claims above $75,000.

The plaintiffs argued that the defendants’ business income loss numbers were inappropriate because they accounted for lost “sales” and not lost “net income.”  Although the District Court agreed that sales refer to the gross receipts of a business, while net income involves deducting operating expenses and taxes from gross receipts, it noted that the plaintiffs’ Complaint specifically stated members of the second sub-class lost income, not net income, thus undermining their argument.  The District Court remarked that the plaintiffs could not now constructively amend their Complaint to avoid federal subject matter jurisdiction, and the defendants could rely on sales figures to reach the jurisdictional threshold.

The plaintiffs then argued that the defendants’ numbers were based on a 100% loss of sales and that the defendants should have identified a more realistic percentage for lost sales.  The District Court agreed and declined to aggregate the claims based on a 100% loss of sales and adopted 25% as the appropriate figure, which brought business loss claim to $370,192, a conservative figure supported to a legal certainty.

The plaintiffs also sought compensation for the income thatGloucesterCountyresidents lost because of the train derailment.  The defendants used census data from Paulsboro on the number of residents, number of households, and the median household income to develop a figure for potential loss of resident income of $492,159.  The defendants accounted for the fact that residents received evacuation orders and shelter in place orders of varying lengths, and the defendants excluded the potential claims of anyone that lived outside of Paulsboro. The District Court reasoned that the potential claim for $492,159 in lost income for Paulsboro residents was supported to a legal certainty.

Plaintiffs did not seek damages for loss of use and discomfort and argued that defendants calculation was inappropriate.  The plaintiffs had sought compensation for the defendants’ alleged nuisance and trespass, and specifically requested any and all damages available by statute or common law.  Under New Jersey law, a claimant asserting a cause of action for nuisance or trespass can seek three different categories of compensation: diminution of property value, loss of use and discomfort, and annoyance.  The District Court observed that there was no reason to exclude these numbers when determining the amount in controversy, and the defendants had correctly included those figures when calculating the total resident income loss.

Further, the defendants calculated a potential award of $37,149 for loss of use, which was based on the median monthly gross rent for Paulsboro, and proven to a legal certainty.  Also, to quantify discomfort and annoyance, the defendants proposed a figure of $56 per day in damages per person which the District Court opined was an appropriate estimate of the potential recovery.  Thus, the District Court stated that the defendants’ figure of $1,026,984 was supported to a legal certainty.

Next, the District Court noted that punitive damages should be considered when calculating the amount in controversy.  New Jersey law allows for punitive damages per claim of up to five times the amount of compensatory damages.  Here, the defendants proved the underlying compensatory damages to a legal certainty and sought to employ a figure of double the amount of compensatory damages to represent the potential punitive damages.  The District Court accepted the request, and using the figures that were proven to a legal certainty, stated that the punitive damages would be $3,852,968.7.

Finally, the District Court observed that attorney fees could be as much as 30 percent of the judgment, which would be an additional $1,733,856.8.

While the defendants calculations were somewhat speculative, the District Court observed that the defendants need not demonstrate to an absolute certainty that the plaintiffs would recover more than $5 million; they must establish to a legal certainty that the plaintiffs can recover more than $5 million.  Because the defendants showed that the amount in controversy exceeded $5 million by a legal certainty, the District Court denied the plaintiff’s motion for remand.

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.