Coleman v. Estes Express Lines, Inc., No. CV 10-2242 ABC (AJWX), 2010 WL 3156850 (C.D. Cal. Jul 19, 2010).
A District Court in California remanded this case to the state court under CAFA’s local controversy exception holding that the local defendant’s inability to satisfy any potential judgment is not a criterion to determine if significant relief is sought against it.
The plaintiff, Bradford Coleman, who worked as a Pickup & Delivery Driver (“P&D Driver”) for the defendant, Estes Express Lines, Inc. (Estes Express)–a Virginia Corporation, brought an action claiming unpaid wages under a myriad California wage and hour statutes. The plaintiff proposed two classes: (a) the “unpaid wage” subclass, and (b) a “non-compliant wage statement” subclass. Estes Express stated that in 2005, Estes Express acquired G.I. Trucking–a California Corporation, which later became Estes West. Both G.I. Trucking and Estes West are also defendants in this action. The defendants contended that Estes Express laid off all but one former G.I. Trucking employee. The defendants also contended that Estes West had no source of income and, in fact, Estes Express made weekly deposits to fund Estes West.
The defendants filed a notice of removal claiming that the case met the requirements for diversity jurisdiction under CAFA.
The plaintiff moved to remand the case arguing that the defendants failed to establish the required minimum amount in controversy, and even if they did, the local controversy exception to CAFA removal jurisdiction applied.
The defendants first offered evidence that the plaintiff’s aggregate alleged damages exceeded $5 million. The defendants did this by calculating the possible penalties of all the six causes of action and reached an amount totaling $14,949,357.37 in controversy ($2,276,000 for non-compliant wage statements + $705,739.37 for waiting time violations + $11,967,618 for missed meal and rest periods).
The plaintiff claimed that the calculations rested on two flawed assumptions. First, the plaintiff contended the defendants could not meet their burden of proof by assuming a 100% violation rate. The Court, however, noted that in Alvarez v. Ltd. Express, LLC. No. 07CV1051 IEG (NLS), 2007 U.S. Dist. LEXIS 58148 (S.D. Cal. Aug. 8, 2007); and in Muniz v. Pilot Travel Centers LLC, No. S-07-0325 FCD EFB, 2007 U.S. Dist. LEXIS 31515 (E.D. Cal. April 30, 2007), the courts permitted the defendants in those cases to assume a 100% violation rate to determine maximum penalties.
In this case, as in Alvarez and Muniz, the plaintiff broadly alleged his wage and hour violations. As the plaintiff did not include any limitation on the number of violations, the Court concluded that the defendants could properly calculate the amount in controversy based on a 100% violation rate.
Second, the plaintiff contended that because defendants limited the average hourly rate to the high-paid P&D Drivers, the average was improperly inflated. The plaintiff contended that had the defendants included lower-paid hourly dockworkers and clerical staff, some of whom apparently earned minimum wage, the average would have been lower.
Although, the Court agreed with the plaintiff’s argument, it still found that the average was appropriate. The Court explained that even assuming that the hourly rate of California’s minimum wage of $8.00/hour was used to calculate the average, it amounted to about $1,183,520 for 569 drivers, and then this number would be doubled to account for both a meal and rest period violation every day. As a result, the Court concluded that the defendants had demonstrated that the amount in controversy was greater than $5 million.
The plaintiff next argued that this case must be remanded based on CAFA’s local controversy exception. To prove the citizenship requirement, the Court noted that the plaintiff must prove that Estes West as a California citizen. Because the defendants identified Estes West as a wholly owned subsidiary of Estes Express that operated in California, the Court remarked that it did not doubt that Estes West was a citizen of California for CAFA purposes. Furthermore, the Court noted that the defendants throughout maintained that Estes West was a separate legal entity in California after acquiring G.I. Trucking, and continued conducting business in California under that formal structure. Therefore, the Court concluded that although, Estes Express had the complete control over Estes West, it cannot cast aside their chosen corporate structure in order to gain a significant jurisdictional benefit.
Next, citing Robinson v. Cheetah Transp., No. 06-0005, 2006 U.S. Dist. LEXIS 10129 (W.D. La. Feb. 27, 2006), the defendants argued that the local defendant had no assets to satisfy any potential judgment, so its inability to pay a judgment demonstrated that significant relief was not sought against it. (Editors’ Note: See the CAFA Law Blog analysis of Robinson posted on March 28, 2006).
The Court noted that in Robinson, the entirely in-state class sued an in-state individual truck driver, his out-of-state corporate employer, and other out-of-state corporate defendants for injuries sustained from an accident. The Robinson courtconcluded that the in-state driver was not a defendant from whom “significant relief” was sought because any relief sought against him was “just small change” compared to the out-of-state corporate defendants.
The Court rejected this argument based on the statutory language. The Court ruled that the statutory language was unambiguous, and a defendant from whom significant relief is sought did not mean a defendant from whom significant relief may be obtained. The Court remarked that even assuming that the statutory language were ambiguous and resort to CAFA’s legislative history was necessary, it was not persuaded that Congress intended a different result. The Senate Judiciary Committee Report on which Robinson and later cases relied provided several applications of the local controversy exception, but never directly discussed the ability of a local defendant to pay a judgment.
The Court, citing, Kaufman v. Allstate New Jersey Ins. Co., 561 F.3d 144, 156 (3d Cir. 2009), noted that the significant basis requirement is fulfilled if the local defendant’s alleged conduct is a significant part of the alleged conduct of all the defendants. Applying this principle, the Court concluded that conduct alleged against Estes West formed a significant basis of the class claim. (Editors’ Note: See the CAFA Law Blog analysis of Kaufman posted on October 14, 2009).
Accordingly, the Court remanded the case to the state court under the local controversy exception.