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

Defendant’s Assumptions To Calculate The Potential Liability Of The Purported Class Based On Sufficient Evidence Are Reasonable

Posted in Case Summaries

Belen_Torrez_v_Freedom_Mortgage_Corporation_et_al_, 2017 WL 2713400 (C.D. Cal. June 22, 2017).

In this action, while denying Plaintiff Belen Torrez’s (“Plaintiff”) Motion to Remand (the “Motion”), the United States District Court, Central District of California (“District Court”) found that although Plaintiff need not submit evidence to succeed on her Motion, the absence of such evidence in light of the generalized and indeterminate allegations in the complaint makes Defendant Freedom Mortgage Corporation’s (“Defendant”) assumptions based on those allegations reasonable.

Plaintiff brought a putative class action in the Superior Court for the County of San Bernardino alleging Defendant failed to compensate her and other similarly situated employees for all hours worked, missed meal periods, and/or rest breaks. Plaintiff claimed Defendant engaged in a pattern and practice of wage abuse against its hourly-paid or non-exempt employees in California.  Plaintiff further alleged she and other putative class members were not provided complete and accurate wage statements, and were not paid all wages owed upon discharge or resignation from Defendant.

Defendant removed the action to the District Court pursuant to the Class Action Fairness Act (“CAFA”). Plaintiff moved to remand, which the District Court denied.

Plaintiff argued Defendant failed to prove by a preponderance of the evidence that the amount in controversy exceeded the $5,000,000 jurisdictional minimum. Defendant argued the maximum potential value of three of the Plaintiff’s eight claims for unpaid overtime violations, meal period violations, and failure to provide accurate itemized wage statements, when aggregated, placed at least $8,300,000 in controversy.  Defendant further asserted the amount in controversy exceeded $11,000,000 when Plaintiff’s rest period violations and, waiting time penalties were also included in the aggregate.

In calculating the amount in controversy, Defendant relied on two declarations of its Vice President of Human Resource Operations, Charles Spector, who based on his review of Defendant’s payroll records and reports from the UltiPro electronic software, submitted that Defendant’s employed at least 600 non-exempt employees in California, approximately 98% of which worked full time. Spector represented said employees worked approximately 60,000 aggregate work weeks at an average hourly rate of $21.00.

Assuming each class member worked three hours of overtime and missed two meal periods and two rest breaks per week, Defendant estimated the amount of overtime penalties at issue to be more than $3,780,000, the attorney’s fees associated with Plaintiff’s overtime claim to be $756,000, the amount of meal period violations at issue to be $2,520,000, the amount of rest break violations at issue to be $2,520,000, the amount of non-compliant wage statement violations at issue to be $2,000,000, and the amount of waiting time penalties at issue to be $1,512,000.

Defendant maintained Plaintiff asserted nearly uniform wage and hour violations as evidenced by allegations that stated Defendant “engaged in a pattern and practice of wage abuse against their hourly-paid or non-exempt employees ….” The Complaint also alleged Defendant failed to pay Plaintiff and the other class members for all regular and/or overtime wages earned and missed meal periods, among other things, in violation of California law.

Plaintiff argued Defendant’s assumptions were speculative and served no purpose other than to artificially inflate the amount in controversy for jurisdictional purposes. Plaintiff asserted Defendant assumed every class member worked every day during their employment with Defendant and that there was a 100% violation rate of three hours of unpaid overtime and two meal period violations per week.

The District Court found that relying on data from its payroll records, Defendant offered evidence of the number of employees that constituted the putative class, their average hourly rate of pay, the number of weeks worked during the class period, and the number of wage statements issued. The District Court further found that based on that evidence, Defendant made reasonable assumptions to calculate the potential liability of the purported class.  The District Court also found the language of Plaintiff’s allegations could reasonably be interpreted as setting forth universal violations.  The District Court thus opined Plaintiff’s own allegations supported the reasonableness of Defendant’s assumptions in calculating its asserted amount in controversy.

Additionally, the District Court found Plaintiff failed to rebut Defendant’s evidence. Relying on Dart Cherokee Basin Operating Co., LLC v. Owens, 135 S. Ct. 547 (2014) (Editor’s Note: see the CAFA Law Blog analysis of the Dart Cherokee decision posted on April 9, 2015). Defendant contended Plaintiff must also submit evidence in support of its challenge to Defendant’s asserted amount in controversy calculation.  In Dart, the Supreme Court stated that when a defendant’s assertion of the amount in controversy is challenged, both sides submit proof and the court decides, by a preponderance of the evidence, whether the amount in controversy requirement has been satisfied.  Plaintiff argued Defendant was better positioned to determine the amount of controversy because it had access to and control over the records and information necessary to make such a calculation.  The District Court, however, found Plaintiff could indicate the frequency and extent of the violations she purported to have suffered.

The District Court opined that although Plaintiff need not submit evidence to succeed on its Motion, the absence of such evidence in light of the generalized and indeterminate allegations in the complaint, which could reasonably be interpreted to imply nearly 100% violation rates, it concluded Defendant’s assumptions of a limited but uniform violation rate based on those allegations were reasonable. The District Court also found Defendant presented sufficient evidence to establish the amount in controversy exceeded the jurisdictional minimum under CAFA by a preponderance of the evidence.

The District Court thus found that pursuant to Defendant’s calculation, the amount in controversy for Plaintiff’s overtime, meal period, rest break, noncompliant wage statements, and waiting time penalty claims exceeded $12,000,000, and accordingly, it denied Plaintiff’s Motion.

Yaron Shaham