Congress enacted the Class Action Fairness Act to address perceived problems with the handling of class actions by courts. Among its provisions was one permitting removal of more class action claims to federal court. The Ninth Circuit in particular was unfriendly to these new provisions, but, we had thought, the Supreme Court put the matter to rest in 2014 (See our December 16, 2014 blog), and last year we noted that the Ninth Circuit seemed to have accepted and was applying the standards enunciated by the Supreme Court (See our September 30, 2019 blog).
We may have spoken too soon, at least with respect to some Ninth Circuit panels.
CAFA Removal Principles
The Class Action Fairness Act (CAFA) gives federal courts jurisdiction over specified class actions if the amount in controversy exceeds $5 million, the parties are minimally diverse, and the putative class consists of at least 100 individuals. Concerning the first requirement, the defendant must establish that the amount in controversy exceeds the jurisdictional threshold. To satisfy this burden, the Supreme Court and the Ninth Circuit have held that the defendant may “simply allege or assert that the jurisdictional threshold has been met” and that the notice of removal “need not contain evidentiary submissions but only plausible allegations of jurisdictional elements.” See Dart Cherokee Basin Operating Sys. Co., LLC v. Owens, 574 U.S. 81, 89 (2014); Arias v. Residence Inn by Marriott, 936 F.3d 920, 921 (9th Cir. 2019).
Removing Wage and Hour Class Actions Under CAFA – Facial and Factual Attacks
To meet this burden in practice, employers in wage and hour cases often submit an employee declaration that sets forth facts and allegations supporting their conclusion that more than $5 million is in controversy. The declarations often consist of reasonable assumptions about the amount in controversy, which are based on the putative class size, the putative class’s workweeks, and the violation rate of the claims at issue. As long as these assumptions are reasonable and unchallenged by the plaintiff, a class defendant’s plausible case that the amount in controversy exceeds $5 million will suffice – even in the absence of a proffer of evidence.
That said, in Salter v. Quality Carriers, the Ninth Circuit departed from the holdings in Owens and Arias and suggested the possibility that a defendant’s showing, even if plausible, might be insufficient to remove under CAFA in the absence of extrinsic evidence substantiating the jurisdictional allegations. 974 F.3d 959, 963-964 (9th Cir. Sep. 8, 2020). The panel explained that if a plaintiff–employee mounts a “factual,” as opposed to a “facial,” attack on the defendant’s jurisdictional allegations, this would shift the burden back to the employer to produce competent proof supporting its allegations. The court noted this proof would be examined under the same evidentiary standard that governs in the summary judgment context.
However, given the plaintiff’s purely “facial” attack in Salter (a misclassification wage and hour class action venued in California), the Court did not explain what a “factual” attack would look like in the wage and hour context. Instead, the panel merely repeated its view that a factual attack is one that challenges the rationality, or the factual basis, of an employer’s assertion. But in a recent case decided about two months after Salter, the Ninth Circuit identified and analyzed a factual attack in a wage and hour case under the Salter dicta. See Harris v. KMI Industrial, Inc. 980 F.3d 694 (9th Cir. Nov. 13, 2020).
In Harris, the plaintiff alleged in state court that the employer failed to provide meal and rest breaks as required under California law. The employer invoked CAFA to remove the case. And to meet its burden to show that the jurisdictional amount was met, it introduced a declaration from its human resources director. Relying on the putative class size (442), the approximate number of workweeks the putative class worked (39,834), the average rate of pay for the putative class, and an assumption that the class members missed one meal break and two rest breaks each workweek, the director concluded that more than $7.1 million was in controversy. The plaintiff brought a motion to remand, which was granted by the district court, and the employer appealed.
In analyzing the employer’s jurisdictional showing as set forth in the declaration, the Ninth Circuit found that while, on its face, the director’s conclusion appeared reasonable, the declaration left out a critical piece of information: it did not establish that the putative class members worked shifts long enough to entitle them to a meal or rest break. It simply assumed that all 442 putative class members worked full eight hours shifts and were thus entitled to meal and rest breaks for each shift worked. But because employees in California are only entitled to a meal break if they work more than 5 hours and to a rest break if they work more than 3.5 hours, the Court held that the plaintiff had successfully attacked the employer’s conclusion that more than $5 million was at stake.
The Court explained that this was a “factual,” rather than “facial,” attack on the employer’s amount-in-controversy calculations because it contested the truth of the underlying factual assumptions – i.e., that each class member worked shifts long enough to entitle them to a meal or rest break. Challenged in this way, the court stated, the employer was required to submit competent evidence that the class members did indeed work shifts long enough to entitle them to meal and rest breaks. But because they failed to do so – either in support of its removal notice or in its opposition to plaintiff’s motion to remand – the employer was unable to carry its burden of proving the statutory amount in controversy.
Accordingly, the Court, over a dissent, affirmed the lower court’s remand of the class action. Adding insult to injury here was the fact the employer, as its counsel explained at oral argument, did indeed have evidence that would substantiate its contentions. In other words, evidence that the workweeks the employer used for its calculations consisted of full-time shifts, which would have entitled the class members to one meal and two rest breaks per shift. But according to this panel at least, its failure to include any of this evidence in the record proved fatal to its removal efforts.
In light of this case, it is likely that plaintiffs will now seek to assert what they claim to be factual challenges to removal notices in the Ninth Circuit, an approach some district courts have already accepted.
The Harris decision establishes that even though an employer’s assumptions may appear reasonable and plausibly show more than $5 million is at stake, in the Ninth Circuit at least, it may still be prudent to explain that calculation in greater detail, and offer evidence substantiating the allegations, in a declaration accompanying the removal notice.