DiPonzio v. Bank of America Corp., No. 11-CV-06192, 2011 WL 2693912 (W.D.N.Y. July 11, 2011).

A District Court in New York held that state law prohibiting certain class claims is not preempted by Fed. R. Civ. P. 23 when the action is removed from the state court. Thus, the amount in controversy may not include the claims which are not legally recoverable under the state law. The Court further held that the defendants cannot rely upon extraneous testimony of unrelated litigants in another, albeit similar, pending lawsuit to determine the amount in controversy.

The plaintiff, Marie DiPonzio, brought this class action in the New York state court, pursuant to Article 9 of the New York Civil Practice Law and Rules (“CPLR § 901”), alleging that the defendants, Bank of America Corporation and Bank of America, National Association violated New York Labor Law (“NYLL”) by failing to pay proper wages to loan originator employees in the Buffalo, Rochester, Syracuse, Albany, and Saratoga Springs metropolitan areas of New York State.

The defendants removed the complaint to the federal court pursuant to CAFA.

The plaintiff moved to remand the case to state court on the ground that the defendants failed to establish that the amount in controversy exceeded $5 million, as required by CAFA, 28 U.S.C. § 1332(d)(2).

The District Court granted the plaintiff’s motion.

The defendants contended that the amount in controversy was composed of three types of costs and damages: attorneys’ fees, liquidated damages, and actual damages from lost wages.

First, the Court found that NYLL expressly allows for an award of attorney’s fees, and attorneys’ fees of 33% of damages are consistent with the norms of class litigation in the Second Circuit.  Accordingly, for determining the amount in controversy, the Court estimated the attorneys’ fees to be 33% of the total damages otherwise contemplated.

Second, the Court observed that the plaintiff’s original complaint included a request for liquidated damages, which, under NYLL, can consist of damages of up to 100% of the unpaid wages. The Court, however, remarked that under CPLR § 901, class action suits may not present a claim for liquidated damages; therefore, the plaintiff must amend her pleadings to remove her request for liquidated damages. Because this class action law suit was filed in state court under New York law, the Court found that liquidated damages may not be included in the calculation of the amount in controversy.

The defendants argued that the plaintiff could not avoid federal diversity jurisdiction with a post-removal amendment of her pleadings.

The Court disagreed and remarked that the plaintiff was not amending her pleadings simply to avoid diversity jurisdiction; she was required to do so in order to establish a valid class action suit under the New York CPLR. Amending the complaint did not change the amount in controversy, because liquidated damages, whether requested or not, could not be included in a class action suit under CPLR § 901.

The defendants, however, claimed that under the Supreme Court’s recent ruling in Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 130 S. Ct. 1431, 1442-43 (2010), CPLR § 901 is preempted by Fed. R. Civ. P. 23.

In Shady Grove, the Supreme Court held that a class action suit filed in the federal court in New York, claiming statutory damages under New York law, was valid under Rule 23, notwithstanding the prohibition on such class actions by CPLR § 901. The Supreme Court ruled that Rule 23 did not grant a new substantive remedy, but instead merely allowed plaintiffs to seek relief through a different process while in federal court. The Supreme Court pointed that whereas CPLR § 901 allowed statutory damages to be claimed only in cases brought on behalf of individuals, Rule 23 allows multiple plaintiffs to claim statutory damages together in one class action suit.

The defendants accordingly asserted that Shady Grove applied not only to claims filed in federal court but also to those removed from state court.

The Court opined that this argument was unsupported. According to the District Court, Shady Grove clearly stated that Congress has the “undoubted power to prescribe rules for the federal courts it has created” which New York cannot supercede. The Supreme Court, nonetheless, took for granted that the state of New York had the power to make procedural rules for its own courts. It pointed that the consequence of excluding certain class actions from state court may be to cap the damage a defendant can face in a single suit, and because of the different procedural statutes, the same case may follow a different course if filed in federal instead of state court.

Accordingly, the Court concluded that because this case was filed in state court, it would take a different course than Shady Grove. Thus, the calculation of the amount in controversy at the time of removal depends, in turn, on state law. Because New York law prohibits recovery of liquidated damages in class action suits, the plaintiff legally could not claim liquidated damages in the state court. Thus, the Court concluded that liquidated damages could not be considered at the time of removal.

Finally, for purposes of determining the “lost wage” component of the amount in controversy, the defendants estimated the number of class members that would seek damages, and multiplied that number by the estimated average amount of overtime worked and the average rate of pay that would be owed for overtime hours.

The defendants introduced sworn declarations to establish that 118 potential class members existed, that they were employed within the statutory period for an average of 1.46 years each, and that the average overtime wages of the class members would have been $39.64 per hour. The plaintiff did not challenge these figures. The parties, however, sharply disputed the amount of overtime hours that class members would claim to have worked.

In attempting to establish the number of hours that class members would claim to have worked, the defendants relied on the sworn statements of two plaintiffs from a FLSA class action suit proceeding in the Northern District of Illinois, Kelly, et al. v. Bank of America, N.A. et al., No. 1:10-cv-05332, contending that the affidavits established that class members would claim to have worked enough overtime hours on average to meet the $5 million requirement for diversity jurisdiction. The plaintiffs in Kelly claimed to have worked an average of 25 and 30 hours overtime per week, respectively, throughout their period of employment. The defendants argued that these statements justified the inference that potential class members in this action would claim sufficient overtime hours to meet the amount in controversy requirement, and cited Blomberg v. Serv. Corp. Int’l, 639 F.3d 761 (7th Cir. 2011) for support. (Editors’ Note: See the CAFA Law Blog analysis of Blomberg published onMay 3, 2011.)

The plaintiff, citing to Bartnikowski v. NVR, Inc., 307 Fed Appx. 730 (4th Cir. 2009), and Ellis v. Pacific Bell Telephone Co., 2011 U.S. Dist. LEXIS 16045 (C.D. Cal. 2011), argued that two sworn statements from a different lawsuit were insufficient evidence on which to ground sweeping inferences about the class members of this suit as a whole.  (Editors’ Note: See the CAFA Law Blog analysis of Bartnikowski published on June 8, 2009, and the analysis of Ellis published on May 10, 2011.)

The defendants failed to introduce any evidence other than affidavits, and that the Kelly plaintiffs were representative of the class members in this class action suit.

The Court noted that Bartnikowski and Ellis conflict with Blomberg as to whether individual claims can be used as evidence of the potential damages to the members as a whole of a different, but similar, class action.

The Court found that the holdings of Bartnikowski and Ellis more persuasive than that of Blomberg. In Blomberg, the Seventh Circuit suggested that a “plausible, good faith estimate” satisfies a defendant’s burden. The Court, however, found that here the defendants could have produced actual evidence supporting that inference to a reasonable probability. The Court maintained that it was unwilling to grant deference to the hearsay evidence of two plaintiffs from another suit pending in a different state to satisfy the Court’s jurisdictional requirement. The defendants could not rely upon a calculation in determining the amount in controversy upon the extraneous testimony of unrelated litigants in another, albeit similar, pending lawsuit.

Accordingly, the Court concluded that the defendants failed to provide sufficient evidence to support their estimate of the number of overtime hours likely to be claimed by class members.  Without this figure, the defendants could not establish that actual damages and attorneys’ fees exceed the required amount in controversy. Thus, the Court found that the defendants failed to meet their burden to show to a reasonable probability that the amount in controversy exceed $5 million.