Posts belonging to Category Caselaw Developments



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

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.

U.S. Supreme Court Denies CLS’ Cert. Petition in Iskanian

On Tuesday, January 20, 2015, the United States Supreme Court declined certiorari review of Iskanian v. CLS Transportation Los Angeles, LLC, No. 14-341. In June 2014, the California Supreme Court ruled that class action waivers in arbitration agreements are generally enforceable in light of Concepcion, but that waivers of representative claims brought under PAGA are not enforceable—holding that an employee’s right to bring a PAGA representative action is unwaivable and that the state law rule is not preempted by the FAA. Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (June 23, 2014). By denying cert., the Supreme Court leaves intact the California high court’s ruling requiring that representative actions brought under the PAGA proceed on a representative basis in some forum, whether it be court or in arbitration.

CA Supreme Court: Security Guards Must Be Paid for Sleep Time

On January 8, 2014, the California Supreme Court issued a highly anticipated decision, ruling that employers must pay workers for all time spent on a job site, even if they are on-call or sleeping rather than on-patrol, clarifying the meaning of the state wage order defining “hours worked.” Mendiola et al. v. CPS Security Solutions, Inc., et al., No. S212704 (Jan. 8, 2015) (slip op. available here). It affirmed the Court of Appeal’s ruling that on-call time constituted “hours worked” under Industrial Welfare Commission (IWC) Wage Order 4 and must be paid for, even if the employees can read, eat, shower, or engage in other personal activities. Id. at 4. However, the Supreme Court reversed the Court of Appeal’s decision to exclude pay for sleep time during the employees’ 24-hour shifts, finding that the lower court had incorrectly concluded that all wage orders implicitly incorporated a federal regulation permitting the exclusion of eight hours of sleep time from 24-hour shifts. Id. at 12.

In 2008, on-call construction site guards filed two class action lawsuits against their employer CPS Security Solutions Inc., alleging minimum wage and overtime violations under the California Labor Code and IWC Wage Order 4. The Los Angeles Superior Court consolidated the cases and certified the class of employees; the trial court also granted the plaintiffs’ motion for summary adjudication of declaratory relief claims, finding that CPS’s on-call compensation policy violated Wage Order 4. On appeal, the injunction requiring CPS to compensate the guards for all on-call time spent in their residential trailers was affirmed in part and reversed in part. The Court of Appeal agreed that CPS needed to pay guards while they were on patrol for eight hours and on call for eight hours (but not while off duty for eight hours); however, the Court of Appeal also held that CPS did not have to pay for eight hours of sleep time on weekends when the guards were on duty for all 24 hours (i.e. on patrol for 16 hours and on call for eight hours). During on-call hours overnight, the company typically only compensated guards for time they spent actively investigating disturbances.

The California Supreme Court affirmed in part and reversed in part, finding that CPS must pay its security guards for all the time they spend overseeing construction sites, partly because CPS benefited from the security guards’ “mere presence,” which served to deter theft and vandalism on-site, even when they were not actively responding to disturbances. Slip op. at 9. Furthermore, the court stated that “[t]he fact that guards could engage in limited personal activities does not lessen the extent of CPS’s control.” Id. at 10. The Mendiola court found that because the employees were not free to leave the worksite, they needed to be compensated for all their time while on-site, even while they are asleep. The company’s contracts with its construction clients stated that a guard would be at the worksite during all hours. CPS was ultimately unable to convince the court that it should interpret the state wage order in light of a federal law that treats on-call time as uncompensated free time. Instead, California law sets a higher standard: “Federal regulations provide a level of employee protection that a state may not derogate. Nevertheless, California is free to offer greater protection.” Id. at 11.

Bower v. Inter-Con: CA Ct. of App. Upholds Employer’s Waiver of Arb.

On December 31, 2014, a California Court of Appeal issued a ruling affirming the trial court’s decision to deny employer Inter-Con Security Systems Inc.’s motion to compel arbitration of a putative wage-and-hour class action. Bower v. Inter-Con Security Systems Inc., No. A135940 (First Dist. Div. 3 Dec. 31, 2014) (slip op. available here). The court held that the company had waived its right to arbitration because it knew of an existing right to compel arbitration, it acted inconsistently with that right by requesting discovery documents relating to the entire potential class, and its actions prejudiced the plaintiff. 

In August of 2011, the plaintiff Bower, a former security guard, filed a wage-and-hour class action lawsuit against Inter-Con. The lawsuit alleged that the defendant failed to provide armed guard employees the required meal and rest periods under California law. While Inter-Con did not immediately file a petition to compel arbitration, it stated as an affirmative defense and in its objections to the plaintiff’s discovery that Bower’s claims were subject to arbitration. However, although the defendant agreed to provide responses and documents limited to the plaintiff’s individual capacity, it provided “at least one substantive answer” regarding class issues and even propounded its own discovery on class-wide issues. Slip op. at 2. Inter-Con argued that it was not uncommon for wage-and-hour defendants to seek information on individuals with similar claims, so seeking class-wide discovery was not inconsistent with its right to arbitrate. The opinion, written by Justice William McGuiness and joined by Justices Stuart Pollak and Peter Siggins, states, “We will simply reiterate the trial court’s response to Inter-Con’s claim: ‘Come on. Of course it is.’ Discovery concerning individuals who may support a plaintiff’s factual claims is distinct from classwide discovery.” Id. at 8.

Inter-Con only sought to compel arbitration after the plaintiff indicated he would amend his complaint to include unarmed guards and after settlement negotiations fell through, around May of 2012. The defendant contended that its actions did not prejudice the plaintiff because Inter-Con did not gain an unfair advantage in the litigation, other than causing the plaintiff to incur court costs and legal expenses. However, the court found that Inter-Con’s actions caused the plaintiff unreasonable delay in taking advantage of the efficiencies of arbitration, and that was sufficient to waive the defendant’s right to compel arbitration. Among other tactics, the defendant pursued a class-wide settlement in its settlement negotiations even though the arbitration agreement’s terms limited its claims to arbitration on an individual basis only, which led the plaintiff believe the company intended to pursue a resolution in court. The court concluded, “The crux of the prejudice suffered by Bower is that he suffered delay and incurred costs in litigating and attempting to settle class claims that Inter-Con led him to believe would be encompassed within the litigation.” Slip op. at 11.