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Ninth Circuit:
Judge Required Too Much of Defendant in Removing Case
Opinion Says It Was Error to Demand Proof That Amount in Controversy Exceeded $5 Million Threshold
By Kimber Cooley, associate editor
The Ninth U.S. Circuit Court of Appeals held Friday that a defendant removing a class action filed in state court, under a statute permitting the transfer if the amount in controversy exceeds $5 million, may rely on reasonable assumptions as to damages based on the plaintiff’s complaint, if the pleading does not set forth a specified sum, reversing a remand order by District Court Judge Josephine L. Staton of the Central District of California.
Staton ordered that the wage-and-hour class action be sent back to Superior Court because the removing party had failed to provide evidence to support its calculations, which it based on the number of qualifying employees and an assumption of the number of times the company violated the law, a ruling the court said improperly required the defendant to present proof as to its own potential liability.
At issue is the Class Action Fairness Act of 2005 (“CAFA”), which expanded federal subject matter jurisdiction over certain class action lawsuits. Under the statute, district courts may preside over such cases if there is diversity of citizenship between the parties, the amount in controversy exceeds the threshold amount, and the class has at least 100 members.
Appealing Staton’s order was Rose Hills Company, a Whittier funeral home and mortuary that successfully petitioned the Ninth Circuit for permission to appeal the remand order. A former employee, Elizabeth Perez, filed a class action complaint against the company in Los Angeles Superior Court on April 30, 2024.
In her complaint, Perez alleges that Rose Hills, a Delaware corporation, violated various California wage-and-hour laws including failing to pay for all hours worked and certain overtime wages. The pleading does not identify the amount in controversy or the frequency with which the defendant committed the alleged violations, saying only that the misconduct occurred “at times” and “throughout the statutory period.”
The class is defined as “[a]ll persons who worked for [Rose Hills] in California as an hourly-paid or non-exempt employee at any time during the period beginning four years before the filing of the initial complaint in this action and ending when notice to the Class is sent.”
In June, Rose Hills removed the case to federal court under CAFA.
As to the amount in controversy, the defendant identified the class size as consisting of 759 nonexempt employees and estimated a “violation rate,” saying it would assume that it had failed to pay each class member for one hour of regular work, one hour of overtime, and two hours of breaks for each week in the relevant period.
Using that calculation, and adding estimates for other counts and an assumption that Perez’s attorneys would be seeking a 33% fee award, the funeral home alleged an amount in controversy of $15,207,344.
Staton’s View
Acting sua sponte, Staton issued an order directing Rose Hills to show cause why the case should not be remanded to state court because the defendant “[did] not provide a basis for its violation-rate assumptions.” In an effort to demonstrate the reasonableness of its calculations, the defendant reran the numbers, using a 50% reduction in the estimate of how often it underpaid employees, and still arrived at an amount in controversy of over $6 million.
Staton concluded that the District Court lacked jurisdiction and remanded, saying Rose Hills was “required to produce evidence supporting its…estimate” and had done “little more than plucking a violation rate out of the air and calling it ‘reasonable.’ ”
In an opinion, authored by Circuit Judge Eric D. Miller and joined in by Circuit Judge Roopali H. Desai and Senior Circuit Judge Mary M. Schroeder, the court vacated the order and remanded for further proceedings.
Plausible Allegations
Miller noted that the notice of removal need only include “plausible allegation[s]” that the jurisdictional threshold is met but, if challenged, that the party seeking removal bears the burden of demonstrating that the amount in controversy exceeds $5 million.
Because the amount in controversy is merely an estimate of the total amount in dispute, the jurist said that the defendant is entitled to rely on a “chain of reasoning” that includes reasonable assumptions to make its calculations.
Saying that the task of the court is “simply to determine” if the defendant’s reasoning and assumptions are reasonable, he opined:
“What makes an assumption reasonable may depend on which element…is at issue. For example, in a wage-and-hour case, the number of employees in the class may be most easily determined by examining the defendant’s employment records….By contrast, it makes little sense to require a CAFA defendant to introduce evidence of the violation rate—really, the alleged violation rate—because the defendant likely believes that the real rate is zero and thus that the evidence does not exist.”
Ibarra Case
The judge noted that Staton relied on the 2015 Ninth Circuit decision in Ibarra v. Manheim Investments Inc., in which the court declared that a defendant’s calculations “cannot be pulled from thin air,” taking issue with the employer’s assumption, for purposes of removal, that it failed to provide a break every time an employee was entitled to one.
Addressing Ibarra, Miller wrote:
“The key to our holding…was that the defendant had to submit evidence of the violation rate because its interpretation of the allegations in the complaint was unreasonable. Our decision suggests only that if a violation rate cannot be justified by the allegations in the [complaint], it must be justified by something else. We did not hold that violation rates drawn from reasonable interpretations of the complaint must independently be supported by competent evidence.”
He acknowledged that the phrase “at times” could support a lower violation rate but said “that does not automatically render” Rose Hills’ assumption unreasonable. Under those circumstances, he concluded:
“The district court’s analysis…was…flawed….[I]f Perez believed that some other assumption would have been more reasonable, she was free to propose that rate. (She was also free to use some more specific phrase than ‘at times’ when drafting the complaint….) The district court could then have weighed the evidence and arguments in deciding which assumption was more appropriate.”
Miller added that “[t]he legal errors in the remand order prevented the district court from adequately evaluating whether Rose Hills’s violation-rate assumption was a reasonable interpretation of the complaint” and declared that “[w]e therefore vacate the remand order and remand this case to the district court for further proceedings.”
The case is Perez v. Rose Hills Company, 25-68.
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