Labastida v. McNeil Technologies, Inc., No. 10CV1690-MMA CAB, 2010 WL 4868064 (S.D. Cal. Nov 23, 2010).

A District Court in California declined to remand this action to state court holding that evidence offered in opposition to a motion to remand can be construed as an amendment to a notice of removal if such evidence clarifies the alleged basis for federal jurisdiction.

The plaintiffs filed a class action alleging that over the course of at least four years, the defendant, McNeil Technologies Inc., denied its employees overtime compensation and meal and rest periods in violation of California’s wage laws.

In October 2009, the plaintiffs mailed a settlement demand letter to McNeil estimating the potential exposure at trial to be $10.3 million inclusive of prejudgment interest and PAGA penalties at 100% recovery. In March 2010, in the settlement conference, McNeil’s counsel informed the plaintiffs’ counsel that McNeil believed its maximum exposure was $1.9 million. After the settlement conference, the plaintiffs requested McNeil’s un-redacted payroll records in order to determine a reasonable counter offer.

In May 2010, while reviewing the payroll records, the plaintiffs discovered that Invizion, Inc. had also paid the wages of class members. Like McNeil, Invizion is a contractor of professional services for the federal government.

Accordingly, on June 28, 2010, the plaintiffs substituted Invizion as a Doe defendant, and on July 6, 2010, the plaintiffs served Invizion’s agent for service of process in California with the Fourth Amended Complaint (“FAC”). The plaintiffs served Invizion at its corporate headquarters in Virginia on July 13, 2010. On August 11, 2010, Invizion filed its Notice of Removal alleging federal subject matter jurisdiction pursuant to CAFA, 28 U.S.C. §1332(d).

On September 10, 2010, the plaintiffs filed a motion to remand, arguing that Invizion’s allegations of timeliness in the removal petition were procedurally defective, and that Invizion had failed to establish the amount in controversy required under CAFA.

Invizion relied upon the plaintiffs’ Third Amended Complaint (“TAC”) and the October 2009 settlement demand letter, which far exceeded the $5 million amount in controversy requirement. The Court noted that a plaintiff’s reasonable settlement demand constitutes evidence sufficient to establish the amount in controversy especially when the plaintiff does not later disavow the demand as inflated or present contrary evidence.

The plaintiffs argued that the settlement demand was improperly inflated, and that it included prejudgment interest, which was excludable from the amount in controversy calculation, and PAGA claim at 100% when the plaintiffs were entitled to only 25% of any such recovery. Regarding PAGA recovery, the Court found that the amount in controversy is calculated based upon the amount put into controversy by the complaint, regardless of how the recovery is divided.

The Court noted that the plaintiffs demand letter estimated $4 million in potential PAGA penalties, $1 million in other penalties, and just under $5 million in wages owed.  The plaintiff, however, argued that the settlement demand was superseded by McNeil’s counter offer of approximately $2 million.  The Court observed that the ultimate inquiry was what amount is put ‘in controversy’ by the plaintiff’s complaint, not what a defendant would actually owe, much less what a defendant was willing to admit it might owe during the course of ongoing settlement discussions. As such, the Court concluded that the plaintiffs’ disavowal of the October 2009 settlement demand was unconvincing.

Next, the plaintiffs asserted that removal on August 11, 2010 was untimely because Invizion failed to remove this case within thirty days of service of the FAC on July 6, 2010. The Court noted that § 1446(b) requires the removing defendant to file a notice of removal within thirty days after being served with a complaint alleging a basis for removal. If the case stated by the initial pleading is not removable, a notice of removal may be filed within thirty days after receipt by the defendant of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is removable.

Invizion argued that because the FAC was silent as to the amount in controversy and that it did not become apparent that the matter was removable until August 2, 2010, when Invizion received copies of the TAC and October 2009 demand letter from McNeil, which demonstrated that the amount in controversy satisfied CAFA’s requirements. However, under the heading “Timeliness of Removal,” Invizion stated that the complaint was initially served on it on July 13, 2010, and removed the complaint within 30 days of service.

The Court remarked that although Invizion was properly served on July 6, 2010, it did not file a notice of removal within thirty days. The Court, however, observed that Invizion clearly relied on the TAC and the settlement demand letter to establish the Court’s jurisdiction under CAFA, but did not rely on those documents to establish the timeliness of removal. The Court maintained that even if the Notice of Removal inaccurately alleged the timeliness of removal, the case was not removable until August 2, 2010–the date upon which the case became removable through the service of “other paper,” i.e.–the settlement demand letter, establishing the Court’s jurisdiction under CAFA. The Court pointed that a demand letter sent during the course of the state court action can constitute “other paper” within the meaning of § 1446(b) if it reflects a reasonable estimate of the plaintiff’s claim.

Further, the Court stated that the evidence offered in opposition to a motion to remand can be construed as an amendment to a notice of removal. Invizion’s Notice of Removal included proper allegations concerning the Court’s jurisdiction over this matter and the basis for that jurisdiction, including the amount in controversy. In response to the plaintiffs’ challenge to those allegations, Invizion presented evidence that served the dual purpose of establishing jurisdiction under CAFA as well as the date upon which the action became removable. Because Invizion clarified both its alleged basis for federal jurisdiction as well as the timeliness of its Notice of Removal, and did not assert a new basis for jurisdiction, the Court construed the evidence as an amendment to the Notice of Removal.

As such, the Court concluded that Invizion had met its burden of demonstrating that removal was proper in this case both procedurally and substantively.