Nolan v. Kayo Oil Co., No. C 11-00707 MEJ, 2011 WL 2650973 (N.D. Cal. July 6, 2011).
While remanding the action to state court, a District Court in California held that a mere estimation of the amount of damages employees claimed is insufficient to arrive at a definite amount in controversy because an employer, having access to employment and payroll records, should provide more accurate figures as to how many employees fit into the class definition, and how many employees are entitled to what kind of damages.
The plaintiff, Ryan Nolan (presumably not the great baseball pitcher and owner of the Texas Rangers), filed a wage and hour class action against his employer, Kayo Oil Company, under California Labor Code §§ 226.7 and 512 and applicable IWC Wage Orders. The plaintiff, a store clerk, alleged that the defendant routinely required him and other similarly situated hourly employees to work overtime, but failed to include all compensation when calculating the regular rate of pay for overtime wages. Further, the plaintiff alleged that the defendant failed to provide them with meal and rest periods, and with accurate wage statements.
The plaintiff sought to represent a class of hourly employees who worked between March 3, 2006, and the present, which comprised three subclasses: (1) Persons for whom the defendant’s records depict a meal period not taken who did not receive a compensation payment by the defendant for the lack of the meal period; (2) Persons who worked alone during a work shift who did not receive a compensation payment by the defendant for the lack of a meal period; and (3) Persons who worked overtime hours and were paid an hourly wage and additional compensation in the same workweek.
The defendant removed the action to the federal court pursuant to CAFA. The plaintiff moved to remand the action to state court, which the District Court granted.
First, the Court noted that the plaintiff expressly alleged in his complaint that the class was estimated to include approximately 1,000 or more California employees, and the defendant provided evidence that it employed an average of 963 hourly employees during the relevant class period. Taken together, the Court found that the plaintiff’s allegation and the defendant’s proffered evidence sufficiently demonstrated that CAFA’s numerosity requirement was met.
Next, in absence of averments concerning the amount of monetary recovery the plaintiff and the class sought, the defendant proffered various estimates of the amount of penalties and damages the putative class may be entitled to if they prevail on each of their claims, and argued that more than $5 million was in dispute in this action.
With respect to claim for failure to provide timely and accurate wage statements, the defendant estimated that if it was held liable for at least 20,000 violations (assuming there were 1,000 class members and 20,000 violations), that would reach the $5 million jurisdictional amount without even considering the plaintiff’s other claims.
As to the meal and rest break claims, the defendant submitted that if the class members missed nearly every meal break, as the plaintiff alleged for himself, the amount in controversy would exceed $5 million dollars on this claim alone even using the shorter two year, nine month time period. The defendant also contended that it could be liable for an equal amount in rest period violations.
The defendant also contended that the potential penalties of $100 per initial violation under California’s Private Attorneys General Act, would amount to $96,300 for a single pay period. Subsequent violations at the rate of $200 per violation would add up to $5 million if 25 more violations per each class member took place.
The defendant further proffered that assuming 963 putative class members were due only 1 hour of unpaid overtime per week, the damages for this claim would total more than half a million dollars for the 140 weeks between March 2006 and January 2009.
The Court first observed that the defendant assumed that all of the potential class members (whether 963 or 1,000) were full-time employees who worked every or nearly every workweek in the year. However, the employees may fall into any of three subclasses depending on the number of hours they worked, whether they had a meal or rest break, and the compensation they received. Because the claims were subclass-specific, the Court stated that some evidence of how many former employees might qualify for membership in each subclass was necessary for determining the potential penalties at stake. Therefore, the defendant’s use of its entire hourly workforce in its calculations ignored the subclass breakdown which narrowed the number of potential plaintiffs who may be awarded penalties and thus inflated the defendant’s estimates of the amount in controversy for each of the claims asserted.
In addition, the Court observed that the defendant failed to justify the frequency/number of penalties that it utilized in its estimates. Aside from citing the plaintiff’s allegations that he worked overtime on a “routine” and “regular” basis, and that the defendant had a “systematic practice” of failing to pay overtime and provide meal and rest breaks and accurate wage statements, the defendant had not proffered any evidence indicating that every employee worked every pay period — or even the majority of pay periods — during the class period. Simply assuming that every employee missed 5 meal breaks a week for the entire class period or that every employee worked at least one hour of overtime a week, without some facts or evidence to support these assumptions, was insufficient to meet the defendant’s evidentiary burden.
Finally, the Court remarked that although the defendant had proffered estimates indicating that the potential penalties in this case might exceed the $5 million, the defendant had failed to come forward with sufficient evidence to substantiate its calculations. As the employer, the defendant has access to employment and payroll records that would allow it to provide more accurate figures as to how many employees worked overtime, the number of meal periods taken or not taken, the number of employees who worked a shift alone, and the number weeks each employee worked. Having failed to provide evidence beyond the average number of employees during the class period and the number of pay statements issued, the Court found the defendant’s calculations were speculative in nature.
As a result, the Court found that the defendant had not met its burden of establishing by a preponderance of the evidence that the amount in controversy exceeded $5 million.