Scott v. Credico (USA) LLC, et al., 2017 WL 4210994 (N.D. Cal. Sept. 22, 2017).

In this case, while remanding a case to the state court, a district court in California found that gross wages, paid and unpaid, should not be used in the amount in controversy calculation when the plaintiff seeks recovery of only unpaid wages.

The plaintiff brought a putative class action against the defendants in Alameda County Superior Court alleging several violations under the California Labor Code and California Business and Professions Code.

The defendants removed the action to the federal court pursuant to CAFA. The District Court, sua sponte, expressed its concern regarding lack subject matter jurisdiction under CAFA.  The defendants contended that the CAFA requirements were likely met, but might be lacking depending on how the District Court calculated the amount in controversy and estimated attorneys’ fees.  The plaintiff agreed that the CAFA requirements were met.  However, the District Court opined that subject matter jurisdiction could not be a product of consent of the parties.  Thus, they reviewed the matter independently, and ultimately remanded the case to the state court.

The defendants submitted uncontested evidence that the size of the class was approximately 246 individuals, and estimated that the total amount in controversy was $7,427,741.87. The defendants presented a calculation of “gross wages” based on the total number of hours worked per week by putative class members, the number of work-weeks, and the applicable wage rate.  The defendants, however, acknowledged that they had already paid class members approximately $950,000 as compensation for their work.  The District Court noted that the amount in dispute and the wages sought in the instant suit were unpaid overtime wages.  The District Court thus opined that the amount of unpaid overtime wages in dispute was $657,953.70; total wages of $1,607,953.70 minus $950,000 wages paid.

The defendants and the plaintiff cited Lewis v. Verizon Communications, Inc., 627 F.3d 395 (9th Cir. 2010) for the proposition that the amount in controversy was simply an estimate of the total amount in dispute, not a prospective assessment of defendant’s liability.  (Editors’ Note: See the CAFA Law Blog analysis of Lewis posted November 11, 2011).  The District Court, however, found that Lewis did not support the notion that gross wages, paid and unpaid, should be used even when the plaintiff sought recovery of only unpaid wages.  The District Court noted that in Lewis, the plaintiffs had challenged the defendant’s collection of “unauthorized billings” for services never ordered.  The Ninth Circuit, in Lewis found that the district court erred in assuming, without pleading or proof, that some significant portion of the total billings were ‘authorized’ and separate from the damages the plaintiff sought, and thus, there was no basis for discounting the amount in controversy.

The District Court found that in this case, the plaintiff did not claim that class members were not paid for any of their work, rather, they claimed that they were not paid for overtime or for meal and rest breaks, and sought recovery of only unpaid wages. The District Court further found that unlike Lewis, it was not simply assuming without basis that some amount less than the gross wages were in dispute; as the defendants’ uncontested evidence established that wages were paid and that the plaintiff was only seeking to recover unpaid wages, not total gross wages.

Next, the defendants counted $240,600 in penalties pursuant to Labor Code § 558, which subjects employers to civil penalties if they violate, or cause to be violated, any order of the Industrial Welfare Commission. However, the District Court concluded that § 558 does not create a private right of action, and is limited to authorizing the Labor Commissioner to impose penalties for violations of the labor code.  The District Court further found that although there was an argument that a claim brought under California’s Private Attorney General Act (“PAGA”) would allow a private plaintiff to seek § 558 penalties, the plaintiff in this case had not asserted a PAGA claim.  Thus, the Court ruled that § 558 penalties might not be included in the amount in controversy.  The District Court therefore found that the revised calculation for damages, excluding § 558 penalties and accounting only for unpaid wages was $3,801,594.90.

Finally, the defendants sought to add attorneys’ fees of 25 percent of recovery to boost the amount in controversy. The District Court noted that because contingency fees based on a common fund recovery are not damages, they should not be counted as part of the amount in controversy unless, an underlying statute authorizes an award of attorneys’ fees, either with mandatory or discretionary language.  The Court further noted that the plaintiff did seek an award of attorneys’ fees for which there was a statutory basis for fee shifting.  However, the District Court found that the defendants had failed to present any evidence to support an estimate of attorneys’ fees that the plaintiff might recover based on a projected lodestar, nor had they presented a basis to conclude that a 25 percent benchmark provided a reasonable proxy for the lodestar estimate.  Moreover, the District Court found that even if 25 percent were deemed a reasonable proxy for statutory fees, the total recovery including fees would be $4,751,993.70 – which was still just short of the $5 million threshold.

Accordingly, the Court concluded that the defendants had not demonstrated, by a preponderance of the evidence, that the amount in controversy exceeded $5 million, and remanded the case to the state court.

– Melissa Broussard Carroll