Defendants Seeking CAFA Removal Must Rely On Real Evidence, But May Also Rely on “Reasonable Assumptions,” to Prove Amount in Controversy

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On January 8, 2015, the United States Court of Appeals for the Ninth Circuit issued decisions in a pair of wage-and-hour cases, holding that when a complaint does not include or may have understated the true amount in controversy, a defendant seeking removal may rely on a reasonable chain of logic and assumptions to prove that the amount in controversy exceeds the $5 million threshold under the Class Action Fairness Act (CAFA). Ibarra v. Manheim Investments, Inc., No. 14-56779 (9th Cir. Jan. 8, 2015) (slip op. available here); LaCross v. Knight Transportation Inc., No. 14-56780 (9th Cir. Jan. 8, 2015) (slip op. available here). Writing for the panel, and joined by Judges Susan Graber and Consuelo Callahan, Judge Ronald Gould stated that a defendant “cannot establish removal jurisdiction by mere speculation and conjecture, with unreasonable assumptions.” Ibarra slip op. at 8.

The Ibarra court sought to strike a balance on motions to remand between the employer-defendant favored method of assuming a 100% violation rate, and the employee-plaintiff favored method of requiring a defendant to proffer affirmative evidence to substantiate whatever violation rate undergirded the defendant’s removal arguments. Ibarra looked to the U.S. Supreme Court’s very recent decision in Dart Cherokee Basin Operating Co. v. Owens, 135 S. Ct. 547 (2014), which held that a defendant need only include a “plausible allegation” that the amount in controversy meets the jurisdictional threshold in a notice of removal, not provide evidentiary proof.  Ibarra fleshed out the “plausible allegation” standard in Dart to require some “evidence” when a plaintiff challenges, in a motion to remand, a defendant’s assertion of the amount in controversy. The panel stated in Ibarra, “CAFA’s requirements are to be tested by consideration of real evidence and the reality of what is at stake in the litigation, using reasonable assumptions underlying the defendant’s theory of damages exposure.” Ibarra slip op. at 9. Ultimately the Ibarra court vacated the decision below in which Manheim, the employer defendant, had been allowed to calculate the amount in controversy by assuming that a labor law violation occurred in “each and every shift,” something not alleged in the complaint. Although the plaintiff alleged a “pattern and practice” of violations, he did not allege that the violations were “universal[ ],” and instead suggested that violations occasionally occurred, “but not on each and every shift.” Id. at 11. Ibarra noted that assumptions “cannot be pulled from thin air,” although evidence can be direct or circumstantial. Id. at 12. Manheim’s assumptions were “not grounded in real evidence” and in light of the Dart standard, the case was remanded on an open record for both parties to submit evidence. Id.

In LaCross, the Ninth Circuit applied the Ibarra test to reach an opposite conclusion, finding that the defendant company seeking removal had presented evidence sufficient to establish federal jurisdiction. In contrast to Ibarra, where the complaint alleged a “pattern and practice” but not “universal” violations, the LaCross complaint “clearly defined the class to include only the truck drivers, all of whom allegedly should have been classified as employees rather than as independent contractors.” LaCross slip op. at 6. If the plaintiffs were successful in their claim that they were misclassified as independent contractors, the company would need to reimburse the plaintiffs for lease-related and fuel cost expenses. Thus, the defendant extrapolated fuel costs based on actual fuel costs invoiced in the first quarter of 2014 and the number of drivers who actually signed the independent contractor agreements with the company during the alleged class period. The panel found that the defendant relied on a “reasonable” chain of logic and produced sufficient evidence to meet the preponderance of the evidence burden. Id. at 4. Additionally, the court rejected the plaintiffs’ argument that the amount of controversy was unlikely to exceed $5 million because the class might not be able to prove all the elements for reimbursement, stating “Plaintiffs are conflating the amount in controversy with the amount of damages ultimately recoverable.” Id. at 8.