Bowen v. Toys “R” Us-Delaware, Inc., No. CV 08-08121MMM (MANX), 2009 WL 2460763 (C.D. Cal. Aug 07, 2009).

Disagreeing with the defendant’s method of calculating damages and penalties, a District Court in California ordered it to show cause why the action should not be remanded to state court for lack of subject matter jurisdiction.

The plaintiff brought a putative class action in state court alleging that the defendant failed to pay its employees wages with an order, check, draft, note, memorandum, or other acknowledgment of indebtedness that was payable on demand without discount at an established place of business in California in violation of Cal. Lab. Code §212. The plaintiff also sought penalties for violation of §212 under Cal. Lab. Code §2699, and asserted unfair competition and business practices under Cal. Bus. & Prof. Code §17200.

The defendant removed the action to federal court invoking diversity jurisdiction under CAFA.  The District Court, however, expressed doubt about the existence of subject matter jurisdiction.

First, the Court noted that minimal diversity as required by CAFA was present because the defendant was a Delaware corporation with its principal place of business in New Jersey, whereas the plaintiff was a citizen of California.

Second, the Court remarked that the defendant did not show that the putative class consisted of more than 100 employees. The plaintiff alleged that the putative class size was not yet determined but that she believed that during the relevant time period, the defendant employed more than 1,000 employees. Whereas, the defendant asserted that it had issued paychecks to more than 100 employees.  The defendant, however, did not state how many employees were employed in California, and thus were subject to California’s Labor Code and would be members of the putative class.

Finally, the Court found that the defendant failed to show that the amount in controversy was more than $5 million. The Court remarked that because the complaint did not specify the amount in controversy, the defendant bore the burden of proving, by a preponderance of the evidence, that the jurisdictional amount was satisfied.

To the plaintiff’s claim for penalties for violation of Lab. Code §212, the defendant asserted that it issued in excess of 25,000 paychecks to 100 employees.  It multiplied the 25,000 paychecks by the $200 penalty prescribed by the Labor Code §2699 to conclude that damages of $5 million were at issue.

The Court noted that Cal. Lab. Code §2699 provides for a civil penalty of $100 for each aggrieved employee per pay period for an initial violation of Lab. Code §212, and $200 for each aggrieved employee per pay period for each subsequent violation.  The Court stated that the defendant’s calculation assumed that each of the 25,000 paychecks constituted a violation of the statute, and that all of the 25,000 paychecks constituted a second or subsequent violation, as opposed to an initial violation.  The Court remarked that this was unlikely because there must be a first violation for every employee, accruing a penalty of $100, before there could be subsequent violations accruing a penalty of $200.

In addition, the defendant estimated that compensatory and punitive damages and attorneys’ fees would equal 25% of the penalties totally amounting to $1,250,000.  But the Court noted two problems with this aspect of the damages quantification: first, the defendant provided inadequate support for its conclusion that penalties of $5 million were at issue, and second, the defendant provided no explanation for its assumption that attorneys’ fees, compensatory and punitive damages would equal 25% of the penalties assessed.

Thus, the Court concluded that estimation of the penalties, compensatory and punitive damages and attorneys’ fees at issue did not satisfy the “preponderance standard.”