United States: Ninth Circuit Affirms Three Key Principles In CAFA Removal Cases

Last Updated: March 13 2014
Article by Karin Cogbill and Kai-Ching Cha

In Rea v. Michaels Stores, a recent per curiam decision by the Ninth Circuit Court of Appeals, the court held that the employer had timely and properly removed a class action to the U.S. District Court for the Central District of California under the Class Action Fairness Act ("CAFA"). In doing so, the Ninth Circuit affirmed several key principles applicable to cases being removed to federal court under CAFA:

  • Certification of a class in state court does not defeat CAFA jurisdiction in federal court because "post-filing developments do not defeat jurisdiction if jurisdiction was properly invoked at the time of filing."
  • A defendant can remove a case to federal court at any point in time, so long as neither the complaint nor "an amended pleading, motion, order or other paper" previously revealed that the case was removable.
  • In determining the amount in controversy for purposes of CAFA removal, the appropriate standard is no longer "legal certainty" but instead is the "preponderance of the evidence" standard.

In Rea, the plaintiffs brought a class action on behalf of California store managers alleging they were improperly classified as exempt from overtime. The action was filed in September 2011 and, within 30 days of service, the company sought to remove the action to federal court under CAFA. In their complaint, the plaintiffs expressly disclaimed any recovery for the class in excess of $4,999,999.99. The district court remanded the case to state court, finding that in light of the express disclaimer, CAFA's $5,000,000 amount-in-controversy requirement was not met. On March 19, 2013, in Standard Fire Insurance Co. v. Knowles, the U.S. Supreme Court held that attempted damages waivers, such as the one made by the plaintiffs, were ineffective and would not defeat CAFA jurisdiction. The day after Standard Fire was issued, the company again sought to remove the case to federal court under CAFA and again the case was remanded. The company appealed the decision to the Ninth Circuit.

Post-Remand Developments in a Case Do Not Affect Removal Jurisdiction

After the Rea case was remanded for a second time, and while the appeal was pending, the state court certified the case as a class action. The class that was certified was smaller than the proposed class in the original complaint. On appeal the plaintiffs argued that the certified class was so much smaller that it could not possible recover more than $5,000,000. According to the plaintiffs, this mooted the company's attempted removal because the required amount in controversy under CAFA would not be satisfied. The Ninth Circuit disagreed and instead confirmed earlier precedent that the state court's certification of a class did not defeat CAFA jurisdiction because "post-filing developments do not defeat jurisdiction if jurisdiction was properly invoked at the time of filing."

The Removal Was Timely Based on a Relevant Change in Circumstances

As previously discussed on this blog, a defendant can remove a case to federal court at any point in time, so long as neither the complaint nor "an amended pleading, motion, order or other paper" has previously revealed the case was removable. In Rea, the Ninth Circuit first confirmed that at the time of the company's first attempt at removal the Ninth Circuit's decision in Lowdermilk v. U. S. Bank Nat'l Ass'n required application of the legal certainty standard to assess the amount in controversy when a plaintiff included an express damages waiver. Thus, the court concluded, the Rea plaintiffs' complaint had not "affirmatively reveal[ed] on its face the facts necessary for federal court jurisdiction." Accordingly, the court held, the initial 30-day removal period was never triggered and the company's second removal was timely.

Next, the court rejected the plaintiffs' argument that the second removal attempt was improper because it was based on the same grounds as the first and therefore did not warrant reconsideration. The Ninth Circuit held that the decision in Standard Fire was "a relevant change of circumstances . . . [justifying] a reconsideration of a successive, good faith petition for removal." Since the company acted promptly in seeking to remove the case for a second time after Standard Fire was issued, the Ninth Circuit held that the second removal was timely and procedurally proper.

Removal Under CAFA Is Appropriate when the Defendant Establishes "Substantial, Plausible Evidence" that Damages Exceed $5,000,000

Finally, the Ninth Circuit reversed the district court's finding that the company failed to demonstrate the amount in controversy exceeded the $5,000,000 threshold required for CAFA removal. In doing so, the Ninth Circuit confirmed that the appropriate standard to use when evaluating CAFA removal requirements was no longer "legal certainty" but instead was the "preponderance of the evidence" standard. To prove the amount in controversy, the company had submitted evidence that store managers worked more than 45 hours a week, and therefore, based on the class size, if the plaintiffs prevailed on their claim they would be entitled to over $5,000,000. In establishing this point, the company relied on the testimony of its Vice President of Field Human Resources who confirmed the expectation that store managers work at least 45 hours a week, as well as testimony from managers confirming they did in fact work more than 45 hours a week. Since there was no evidence that the expectation was not met, the Ninth Circuit concluded that the preponderance of the evidence standard was satisfied. The court concluded that the district court's decision to the contrary was clearly erroneous, and remand was appropriate.

Although the landscape of CAFA jurisdiction continues to evolve as more and more defendants seek to remove class actions to federal court under CAFA, the Ninth Circuit's decision in Rea in many respects makes it easier for employers to invoke federal jurisdiction.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Karin Cogbill
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