Ellis v. Pacific Bell Telephone Co., No. SACV 10-01141-CJC-FF, 2011 WL 499390 (C.D. Cal. Feb. 10, 2011).
In this case, a District Court in California remanded the action to state court holding that although there is an understandable temptation for removing parties to rely on an estimate that conveniently satisfies the amount in controversy requirement, the parties must, at a minimum, explain why that estimate is also reasonable.
The plaintiffs filed a complaint in California state court alleging class claims including failure to pay overtime wages or provide meal periods in violation of California Labor Code. (Man, it sure seems that every other CAFA case is a California Labor case!)
The defendants removed the action to federal court pursuant to CAFA, 28 U.S.C. §§1332(d). After the plaintiffs filed a motion to remand, the District Court issued an Order finding that the defendants had met their burden of demonstrating that there was minimal diversity between the parties and that the proposed class contained at least 100 members. The Court, however, ordered additional briefing as to whether the amount in controversy exceeded $5 million as required by CAFA. After the parties filed their additional briefing, the Court found that the defendants failed to establish that the amount in controversy exceeded $5 million, and remanded the action.
While holding so, the Court stated that as the complaint did not plead a specific amount of damages, the removing defendant must prove by a preponderance of the evidence that the amount in controversy requirement had been met. (Editors’ Note: any regular reader knows we disagree with this burden of proof statement; however, we will not bore you with the litany of articles we have written on this subject).
In that context, the Court explained that a removing defendant is not obligated to “research, state, and prove the plaintiff’s claims for damages,” but a court “cannot base its jurisdiction on a defendant’s speculation and conjecture.” A court may consider “summary-judgment-type evidence relevant to the amount in controversy at the time of removal” as well as supplemental evidence proffered by the parties when determining whether the amount in controversy exceeds the statutory minimum. Specifically, the Court stated that the defendants may rely on calculations to satisfy their burden so long as their calculations are good faith, reliable estimates based on the pleadings and other evidence in the record.
The Court found that the defendants failed to convince the court that it was more likely than not that the amount in controversy exceeded $5 million. More than 90% of the defendants’ calculation that the amount in controversy exceeded $5 million derived from the defendants’ estimate of the value of the plaintiffs’ claim that the defendants unlawfully failed to pay overtime compensation to putative class members.
The defendants explained that the plaintiffs and other putative class members were highly paid employees that, during the relevant time period, were compensated at an average hourly rate of approximately $41.29 per hour before bonuses. This hourly rate corresponds to a normal overtime rate of $61.93. The defendants estimated that there were 124 potential class members for the relevant class period and these individuals worked 19,701.6 work weeks. According to the defendants, assuming the $61.93 overtime hourly rate, overtime damages plus waiting time penalty damages “equal or exceed $5 million if on average each of the putative class members worked at least 3.74 hours of overtime every week” during the relevant time period.
The Court remarked that the defendants did not, however, point to any allegation contained in the plaintiffs’ complaint or any other record evidence specific to this case to support their estimate of 3.74 hours of overtime per week per putative class member. The Court, however, noted that in some overtime cases, the plaintiff’s complaint or other record evidence supported estimates like the defendants’ 3.74 hours estimate.
In Behrazfar v. Unisys Corp., 687 F.Supp.2d 999, 1004 (C.D. Cal. 2009), the court estimated 2.5 hours of overtime per week because the plaintiff’s complaint alleged that she worked between 40 and 60 hours per week and she testified in her deposition that she typically worked 10 hours of overtime per week. The Court thus observed that unlike the complaint in Behrazfar, here the plaintiffs’ complaint merely alleged that class members “were suffered, permitted, and/or required to work by the defendants in excess of 40 hours per week and/or 8 hours in one work day but were not paid for such overtime work as required by California law.” (Editors’ Note: See the CAFA Law Blog analysis of Behrazfar posted on June 3, 2010).
Although Jimenez v. Allstate Ins. Co., No. CV 10-8486 AHM (FFMx), 2011 WL 65764, at *3 (C.D. Cal. Jan. 7, 2011) accepted estimates with less evidentiary basis than the estimate in Behrazfar, the Court maintained that it must be persuaded that the estimates are made in good faith and are reasonable. (Jimenez found the defendant’s estimate of 1 hour of overtime per week “reasonable and conservative” where the plaintiff’s complaint alleged that class members regularly worked in excess of 8 hours in a day and/or in excess of 40 hours in a week.) (Editors’ Note: See the CAFA Law Blog analysis of Jimenez posted on May 11, 2011.)
The defendants based the reasonableness of their 3.74 hours estimate on a related, now-settled suit by Mahoney plaintiffs (a related case). In support of this argument, the defendants’ attorney (who was also an attorney for the defendants in Mahoney) provided a self-serving, hearsay declaration stating that she “took the deposition of the named plaintiffs in Mahoney and she is familiar with the terms of class settlement” and that the Mahoney “plaintiffs claimed that they worked more overtime than 3.89 hours a week.”
The Court remarked that reliance on this evidence was problematic because the defendants (1) did not provide the evidentiary support for the assertion that the Mahoney plaintiffs claimed over 3.89 hours a week in overtime, (2) did not explain why the claims in the Mahoney case were so similar that the Court in this case should rely on the estimates of the Mahoney plaintiffs, and (3) asserted that the Mahoney plaintiffs’ estimate was reasonable-despite the fact they “hotly disputed” the estimate in that litigation.
Given the unreliability and weakness of the evidence to support the 3.74 hours per week estimate, the Court declined to find that the defendants’ estimate was an informed and reasonable one, and accordingly remanded the action to state court.