Smith v. Kawailoa Development, LLP, No. 11–00350 JMS, 2011 WL 4971165 (D. Haw. Oct. 19, 2011). of beautiful beaches, lush jungles, seething volcanoes, and gypped food servers. A Magistrate Judge in Hawaii held that it cannot look beyond the complaint in deciding whether “significant relief” was sought from a particular defendant and whether its conduct formed “significant basis” for the plaintiffs’ claims. (Editors’ Note: See the CAFA Law Blog analysis of the District Court opinion accepting the Magistrate Judge’s Report and Recommendation posted on February 9, 2012).

The plaintiffs, non-management employees of the Grand Hyatt Kauai Resort & Spa on Kauai, Hawaii, brought a class action asserting that the defendants imposed a service charge or gratuity charge in connection with the sales of food and/or beverage at the Hotel, but failed to distribute all the charges to non-managerial employees in violation of Hawaii state law, Haw.Rev.Stat. §§ 388–6, 481B–14, and ch. 480.

The plaintiffs and the proposed class members worked at banquets and other food service events at the Hotel. The plaintiffs averred that the defendant, Kawailoa Development, LLP, owns and operates the Hotel, and was the employer of each of the members of the proposed class. The plaintiffs also stated that the defendant, Hyatt Hotel Corporation, operates and manages the Hotel as well.  The plaintiffs alleged that the Hotel retained a portion of the service charge and failed to clearly disclose to customers that a portion of the service charge was not distributed to the employees and was in fact retained by the Hotel.

The defendants removed this action to the federal court under CAFA. 

The plaintiffs moved to remand, which the Magistrate Judge granted. 

The plaintiffs argued that the Court lacked jurisdiction under the “local controversy exception” to CAFA, 28 U.S.C. § 1332(d)(4)(A)(i). Specifically, the plaintiffs contended that (1) Kawailoa was a defendant from whom the plaintiffs sought “significant relief” and (2) Kawailoa’s conduct formed a “significant basis” for their claims, § 1332(d)(4)(A)(i)(II)(aa) and (bb).

The defendants argued that the two foregoing factors were not met in this case by pointing to extrinsic evidence, including the Management Agreement and a declaration by the Human Resources Director for the Hotel. The Court, however, noted that the Ninth Circuit recently addressed whether district courts may turn to extrinsic evidence in deciding these issues. Specifically, in Coleman v. Estes Express Lines, Inc., 631 F.3d 1010, 1017 (9th Cir. 2011), the Ninth Circuit held that “CAFA’s language unambiguously directs the district court to look only to the complaint in deciding whether the criteria set forth in § 1332(d)(4)(A)(i)(II)(aa) and (bb) are satisfied.” (Editors’ Note: see CAFA Law Blog analysis of Coleman posted on February 22, 2011). Thus, the Court limited its determinations to the allegations in the Complaint in deciding whether “significant relief” was sought from Kawailoa and whether its conduct formed a “significant basis” for the plaintiffs’ claims. 

Based on the Complaint, the Court found that the plaintiffs sufficiently alleged that Kawailoa was a defendant “from whom significant relief [w]as sought by members of the plaintiff class” and whose conduct “form[d] a significant basis for the claims asserted by the proposed plaintiff class.” Specifically, the Complaint alleged that Kawailoa, a Hawaii limited liability partnership, employed the putative class members during the relevant period, that Kawailoa violated Hawaii law, and that its actions constituted an unfair method of competition. Although the Complaint also alleged that Hyatt violated Hawaii law as well, the allegations against Hyatt in no way made the allegations against Kawailoa, the actual employer, insignificant.  

Accordingly, the Court found that the plaintiffs established the local controversy exception to the federal court’s subject matter jurisdiction under CAFA.

Next, the defendants argued that the plaintiffs’ state law claims were preempted by the Labor Management Relations Act (“LMRA”), which the Court disagreed. Specifically, an application of state law is pre-empted by § 301 of LMRA only if such application requires the interpretation of a collective-bargaining agreement. The Court found that here, the plaintiffs’ state law claims could be resolved without interpreting a CBA. 

Accordingly, the Magistrate Judge recommended the District Court to remand this case to state court.