Garcia v. Boyar & Miller, P.C. et al., No. 3:06-CV-1936-D (N.D. Tex. May 30, 2007)

“Hey man I thought he was dead!” For all you Dead Heads out there, sorry it’s not Jerry, its Claudia. The United States District Court for the Northern Division of Texas, handed down an opinion examining CAFA as a basis for removal jurisdiction and holds that the plaintiffs bear the burden as to CAFA’s exceptions. 

Another case on burden of proof as to CAFA’s exceptions. In this case the plaintiffs sought to remand a consolidated case to state court and for leave to amend, abandoning their request for class certification. District Judge Sidney A. Fitzwater granted the plaintiffs’ motion for leave to amend, but concluded the consolidated action was removable under CAFA. If you want to open another browser window, check out while your read this one.

This consolidated action was initiated by plaintiffs, including present and former employees of defendant Café Express LLC (“CEL”). CEL is a restaurant established by defendant Augusta Foods, LLC (“Augusta”), with majority stock holder being defendant Wendy’s International (“Wendy’s”). Plaintiffs alleged, that in exchange for weekly payroll deductions, defendants CEL, August and Wendy’s agreed to arrange to file and prosecute the employees’ Applications for Alien Employment certification (“Applications”) under The Life Act Amendments of 2000, 8 U.S.C. § 1255 (i) (1) (B) and (C) (the “Life Act”). The Life Act enabled certain aliens to apply for an adjustment to permanent resident status, provided the Application was submitted by April 30, 2001. 

The restaurant defendants arranged with various law firms to prosecute the Applications, but the plaintiffs contended the defendant attorneys failed to file the Applications by the deadline. Additionally, despite this filing error, the restaurant defendants failed to notify the plaintiffs until July of 2006 and continued to deduct weekly fees.   The plaintiffs alleged the defendants were liable under the following legal theories: legal malpractice, breach of contract, negligence, negligent misrepresentation, unjust enrichment, restitution, conversion, breach of fiduciary duty, fraud or intentional misrepresentation.

It is good to remember that the next time you order food at a restaurant, the employees of the restaurant who prepare your food may not be very happy with their employer.

Wendy’s removed the state court case to federal court on four grounds including, CAFA. The court limited its discussion to the issue of CAFA as a basis for removal jurisdiction. After all, it is the only argument worth mentioning in this blog.  Central to the resolution of this case was: 1) whether post-removal events can divest the Court of subject matter jurisdiction that existed at the time of removal and 2) who bears the burden of establishing that the court has subject matter jurisdiction under CAFA.

The court first examined the effect of post-removal events on jurisdiction. The Court concluded there was no bright-line test regarding this jurisdictional issue. Rather, “[t]he specific [subsequent development] must be analyzed under general jurisdictional principles to determine whether it divests a court of its power to hear the case.” IMFC Prof. Servs. of Fla. v. Latin Am. Home Health, Inc., 676 F.2d 152, at 158 (5th Cir. 1982). 

The plaintiffs maintained that the court lacked jurisdiction because CAFA applies only to class actions, and no class had been or could be certified. The plaintiffs focused on public statements made by the defendants stating the number of individuals affected was fewer than the 100 member requirement under CAFA. The defendants argued that removal was proper under CAFA based on the pleadings and initial disclosures.  The defendants wanted to have their triple stack burger and eat it too.

The court’s rationale focused on CAFA’s “small class” provision, concluding that the amount in controversy and minimal diversity requirements under CAFA were unequivocally met. Jurisdiction in this case turned on whether the “small class” provision of § 1332 (d)(5)(B) is a requirement of or exception to CAFA jurisdiction. If it is a jurisdictional requirement, then the defendant bears the burden of proof as the removing party. If, however, it is classified as a statutory exception to CAFA jurisdiction, the plaintiffs, as opponents to federal jurisdiction, will bear the burden of proof.

The court concurred with the Fifth Circuit’s rationale in Frazier v. Pioneer Ams. LLC, (Editors’ Note: See the CAFA Law Blog analysis of Frazier posted on August 17, 2006) stating § 1332 (d)(5)(A) is an exception to CAFA jurisdiction, therefore the plaintiff bears the burden. The court noted that the Fifth Circuit’s decision in Frazier adopted the Eleventh Circuit’s approach in Evans v. Walter Industries. (Editors’ Note: See the CAFA Law Blog analysis of Evans posted on May 25, 2006 and the critique of Evans posted on May 26, 2006).

The Fifth Circuit has further suggested that the burden is the same regarding § 1332 (d)(5)(B), and the plaintiff will bear the burden regarding the applicability of this exception. As a result, the plaintiffs in this action bore the burden of demonstrating the “small class” exception was applicable.

The court held the public statements made by the defendants regarding individuals affected was not enough for the plaintiffs to meet their burden that the “small class” exception applied. The court rationalized that individuals “affected” and those who are potential plaintiffs is drastically different. There was evidence in the record supporting the court’s finding that over 100 individuals were potential plaintiffs. As a result, the plaintiffs’ motion to remand based on applicability of § 1332 (d) (5) (B), “small class” exception, was denied.

Additionally, the court rejected the plaintiffs’ theory that the withdrawal of their request for class certification divested the court of jurisdiction under CAFA. The court stated that “class certification is neither a requirement for removal, nor a prerequisite for federal jurisdiction under CAFA.”

The court next considered whether the plaintiffs’ inability to meet the prerequisites for class certification under Rule 23 defeated CAFA removal. The plaintiffs maintained they could no longer meet the impractical joinder and typicality requirements of Rule 23 (a). 

The court concluded that CAFA does not require that a putative class meet the requirements of Rule 23 (a) or that the class be certified. The only necessary requirement is that the case be pled as a class action. The instant case was filed as a class action, and failure to meet Rule 23 (a) prerequisites did not divest the court of jurisdiction.

Finally, the court examined the plaintiffs’ motion for leave to amend in order to abandon their request for class certification. The court rationalized that under Rule 15(a) leave to amend pleadings “shall be freely given when justice so requires.” Therefore, the court granted plaintiffs leave to amend, however, holding the filing of amended complaints would not result in remanding these cases. 

In conclusion, the district court held post-removal events failed to divest the court of removal jurisdiction under CAFA. The plaintiffs’ motions were denied as to remand and granted regarding leave to amend.