Velasquez v. HMS Host USA, Inc., 2012 WL 6049608 (E.D. Cal. Dec. 5, 2012).
A District Court in California held that, if one could be found liable for civil penalties under the law asserted by the plaintiffs, then he is a proper defendant to the action and not joined fraudulently to defeat diversity jurisdiction.
The plaintiff, a cashier, brought a class action in state court alleging claims for unpaid overtime and minimum wages, failure to pay wages due upon termination timely, and unlawful wage deductions in violation of the California Labor Code and Private Attorneys General Act (“PAGA”). Suit was filed against HMS Host USA, Inc.; Host International, Inc.; and Donald Frazee, General Manager for Host at its Sacramento airport location during the course of the plaintiff’s employment.
The defendants removed the case to the District Court, pursuant to CAFA, and the plaintiff moved to remand the case.
The District Court granted the plaintiff’s motion finding that there was no basis for federal subject matter jurisdiction. Although HMS Host USA, Inc. and Host International, Inc. were citizens of Delaware (their state of incorporation) and Maryland (their principal place of business), both the plaintiff and defendant Donald Frazee were California citizens. The plaintiff, therefore, was not diverse from all the defendants, and diversity jurisdiction did not exist.
The defendants contended that Frazee was joined fraudulently because the complaint failed to adequately allege facts establishing a cause of action against him.
The Court found that the plaintiff had alleged that Frazee failed to properly staff the work locations, which deprived the plaintiff and class members of overtime and meal breaks. The plaintiff also named Frazee as a “person acting on behalf of an employer” who violated various labor laws. Although her claim against Frazee did not meet the pleading standards, the Court found that she could amend her complaint to include specific actions taken by Frazee, and a claim against him was not futile.
The defendants further argued that Frazee could not be held liable under Cal. Lab. Code § 558 because there was no authority for an individual manager to be held liable for civil penalties.
The Court noted that section 558 allows liability to lie with an “employer or person acting on behalf of an employer.” To the extent there was no authority regarding individual managerial liability for civil penalties under section 558, the Court held that such was an ambiguity in controlling state law, which must be resolved in the plaintiff’s favour. The Court, therefore, found that Frazee was not fraudulently joined, and diversity jurisdiction did not provide a basis for subject matter jurisdiction.
The Court found that CAFA likewise did not provide a basis for subject matter jurisdiction. (Editors’ Note: You were wondering when CAFA would be discussed, weren’t you?)
Because the plaintiff alleged that her case did not meet the diversity jurisdiction threshold for CAFA jurisdiction, the defendants were required to establish that the amount in controversy exceeded the statutory minimum of $5 million. “Using the modest assumption” that each of the 744 putative class members would claim an average of 1 hour of unpaid overtime per week, earned the average wage for their position ($9.56 per hour), and worked for an average of 1.52 years during the statute of limitations period, the defendants claimed the amount in controversy for the unpaid overtime to be $843,274. However, the plaintiff never alleged facts supporting the defendants’ assumption that every putative class member was entitled to 1 hour of overtime every week despite her allegations that each putative class member worked an unspecified amount of overtime and was entitled to compensation for that time. Because the defendants’ calculations required too much extrapolation and speculation, the Court held that the amount could not be used for calculating damages.
The defendants next calculated the amount in controversy for the claim of unpaid wages as $845,964 by assuming the maximum penalty of 8 hours per day for 30 days to 373 non-exempt employees employed at Sacramento Airport who were unemployed with the Host during the statutory period. The defendants, however, failed to provide support for their assumption that the 373 class members worked an average of 8 hours per day or that each of the unemployed putative class members during the statutory period was entitled to waiting time penalties. The Court held that this amount likewise could be not used in calculating whether the plaintiff’s damages reached the CAFA jurisdictional threshold.
The defendants finally contended that the total amount in controversy for the plaintiffs’ PAGA claims was no less than $2,612,700. PAGA penalties are $100 for each initial violation and $200 for each subsequent violation. The defendants employed approximately 325 employees during the period covered by PAGA, and these employees worked a total of 13,226 pay periods during the statutory period. The Court held that this amount similarly could not be used because the defendants, again, failed to provide evidence to support their assertion that each putative class member was entitled to maximum penalties under PAGA. Furthermore, because incidental costs were too uncertain and the defendants failed to provide an estimation of the amount of attorneys’ fees at issue, the Court concluded that they failed to establish that the amount in controversy exceeded $5 million.
Accordingly, the Court remanded the action to the state court.
By: Kimberly Higginbotham