Class Action Fairness Act Blog

Thorogood Tried 1 Bourbon, 1 Scotch, 1 Beer, and Got Slammed

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Fri, 11 May 2012 05:30:00 -0600

Thorogood v. Sears, Roebuck and Co., No. 10-2407, 2010 WL 4286367 (7th Cir. (Ill.) Nov. 02, 2010).

Wanna tell you a story,
About the house-man blues

This story of house-main blues is about a dryer instead of being able to pay the rent.

The plaintiff, Steven Thorogood (Editors’ Note: we have no idea if he is related to George, but wouldn’t that be cool?), a buyer, brought a class action against the defendant, a seller of dryers and all sorts of other stuff, alleging that the defendant deceptively advertised that its dryer had stainless steel drums whereas part of the drum was made of ceramic-coated mild steel in violation of the consumer laws of 28 states.

The plaintiff originally filed this suit in a state court but the defendant removed it to the federal district court under CAFA.

After the District Court certified the class, the Seventh Circuit decertified the class styling the case as “a notably weak candidate for class treatment.” Editors’ Note: See the CAFA Law Blog analysis of the Seventh Circuit’s opinion posted on April 1, 2010 when Judge Posner said to Thorogood:

You talk too much, you talk too much.
I can’t believe the things that you say everyday.
If you keep on talking, baby,
You know you’re bound to drive me away.

Thus, the case left only the plaintiff’s individual claim under Tennessee’s consumer protection statute.

The defendant then made an offer of judgment inclusive of attorney’s fees. Accordingly, the district court dismissed the suit as moot because the defendant’s offer exceeded the amount in controversy (the “Thorogood’s suit”).

The plaintiff’s counsel subsequently filed a virtually identical class action suit on behalf of Martin Murray (whose name is not as cool as Thorogood’s name) against the defendant in the district court in California (the “Murray’s suit”).

The defendant then filed a motion under the All Writs Act, seeking to enjoin the Murray’s suit. Because Thorogood’s class was decertified, the defendant argued that, the plaintiff’s counsel, by filing a nearly identical suit, had defied that judgment.

The district court denied the defendant’s motion and ruled that the defendant could obtain adequate relief against being harassed by repetitive litigation by pleading collateral estoppel in Murray’s suit.

Thus, the defendant pleaded collateral estoppel in Murray’s suit because the Murray claims were identical to Thorogood’s suit as they challenged the same advertising for the same models of clothes dryer.

Move it on over
Rock it on over
Move over nice dog
A big fat dog is movin’ in

The Murray Court accordingly ruled that Murray was collaterally estopped to bring the suit as a class action.

Murray, however, amended the complaint to allege additional facts in an effort to show that he had a different case. Specifically, the amendment alleged that the defendant advertised that “Durable Drum eliminates rusting and chipping for long lasting performance” and “Keeps your clothes looking great: an exclusive, all stainless steel drum provides lasting durability”. On the basis of the amendment, the Murray Court reversed its earlier ruling, rejected the defendant’s defense of collateral estoppel and allowed discovery to proceed.

Who do you love?
Who do you love?

Thus, the defendant appealed from the district court’s ruling in Thorogood which denied its motion pursuant to All Writs Act to enjoin a virtually identical class action suit, and the Seventh Circuit reversed the District Court’s order.

She threw me out just as pretty as she pleased
Pretty soon I’ve been scratchin’ fleas

The Seventh Circuit found that there was nothing new in Murray’s complaint that could allow an escape from the bar of collateral estoppel. The Seventh Circuit noted that because the case involved class action litigation, the specific tactics employed by the plaintiff’s counsel included something close to settlement extortion. The Seventh Circuit observed that the defendant, wanting to minimize the sum of the damages it would pay the class and the fees it would pay the class counsel, was willing to trade small damages for high attorneys’ fees and thus was under great pressure to settle even if the merits of the case were slight.

The Seventh Circuit noted that Murray’s suit was a duplicate of Thorogood’s suit, with just enough differences to confuse the Murray Court about the defendant’s defense of collateral estoppel and if the refusal to enjoin Murray’s suit was permitted, there was nothing standing in the way of the plaintiff’s counsel filing carbon-copy class actions against the defendant in other states as well.

The Seventh Circuit found that the harm caused to the defendant by rejecting the injunction was irreparable and its remedy at law against settlement extortion nonexistent because the order rejecting the defense of collateral estoppel and letting discovery proceed was an unappealable interlocutory order.

The Seventh Circuit further opined that the defendant’s action under the All Writs Act was its only means of avoiding being drowned in the discovery bog. The Seventh Circuit thus held that the defendant was entitled to an injunction, wherein the defendant sought to enjoin all members of the class that was decertified pursuant to Thorogood’s suit plus their lawyers.

The Seventh Circuit, however, found that the defendant’s proposed injunction suffered from defects both of under- and of overinclusion. The Seventh Circuit noted that an injunction against class action suits based on the same allegations as Thorogood’s suit would not bar Murray’s suit because Murray’s suit had additional allegations.

The Seventh Circuit also noted that, (i) Thorogood’s class consisted of hundreds of thousands of persons scattered across the country, and there was no feasible means of notifying them of the injunction, (ii) no one could be enjoined from filing an individual suit as distinct from a class action suit on the basis of a finding relating only to class certification, and (iii) there was an additional defendant in Murray’s suit—the manufacturer of the defendant’s dryer who was not a party to the proceeding under the All Writs Act or to the instant appeal and was therefore entitled to no relief.

Therefore, the Seventh Circuit held that the injunction should reflect these findings and it should be clear in the ruling of injunction that the earlier class decertification ruling based on the absence of issues common to all the class members did not preclude the class members from filing individual suits. The Seventh Circuit also pointed that the injunction should state that no unnamed class member could be punished for contempt until and unless a copy of the injunction was served on the members and the injunction should be made applicable to further copycat suits in state as well as in federal courts.

This Subprime Bubble Will Burst in State Court

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Thu, 10 May 2012 05:30:00 -0600

Mireles v. Wells Fargo Bank, N.A., et al, 2012 WL 84723 (C.D. Cal. Jan. 11, 2012).

In an action brought by borrowers alleging fraudulent and negligent misrepresentation against national banks, a district court remanded the case to state court, finding that the defendants primarily failed to meet their burden to establish that this was a mass action under CAFA.

The borrowers brought an action in the Los Angeles Superior Court alleging fraudulent concealment, misrepresentation, and violation of California’s Unfair Competition Law (“UCL”) relating to the way the defendants serviced their respective mortgages. The complaint contained various allegations regarding the citizenship of the parties and the amount-in-controversy. The complaint listed 108 plaintiffs, all of whom were alleged to reside and own property in California. The complaint named nine defendants, all of whom were national banking institutions except Cal-Western Reconveyance Corporation (“Cal-Western”), which was a California corporation.

The plaintiffs contended that as part of a massive scheme of investor fraud, the defendants inflated property appraisals, disregarded underwriting standards, sold predatory loan products, and promised refinancing packages, all while asserting that they were prudently lending to qualified homeowners. The defendants allegedly sold mortgage products to borrowers who could not otherwise meet traditional underwriting standards for such loans, thereby contributing to a massive housing price bubble. According to the plaintiffs, the defendants allegedly created risky “mortgage pools,” promising investors lucrative benefits and managed risk through leverage and derivatives trading. The plaintiffs alleged that the defendants purportedly knew that the mortgage pools contained loans that were at high risk of default. The plaintiffs contended that, after the housing bubble burst, their net worth and credit ratings were devastated.

The defendants removed the action to the United States District Court for the Southern District of California, invoking the Court’s jurisdiction under CAFA’s “mass-action” provision, 28 U.S.C. § 1332(d)(11)(B)(i). The defendants asserted that the minimal diversity requirement was satisfied, because at least one plaintiff was a California citizen and another defendant was a South Dakota citizen. The defendants also invoked the court’s diversity jurisdiction under 28 U.S.C. § 1332(a).

The plaintiffs filed a motion to remand.

As to CAFA’s mass action requirements, the parties did not dispute (1) that the number of plaintiffs in this action exceeded 100; (2) that the plaintiffs’ claims involved common questions of law or fact; or (3) that the citizenship of the parties was minimally diverse, as all the plaintiffs were citizens of California and one of the defendants was a South Dakota citizen.

The parties did dispute, however, whether the amount-in-controversy requirement was met, and whether various exceptions to CAFA applied. Here, the plaintiffs did not allege the required $5 million aggregate amount-in-controversy, nor did they allege a specific amount-in-controversy for each individual plaintiff on their claims. Instead, the complaint stated that some number of plaintiffs – fewer than 100 – alleged an amount in controversy that, ‘as to them,’ did not exceed $75,000. The Court found that, because of this ambiguity in the pleadings, the defendants had the burden to show by a preponderance of the evidence that the amount-in-controversy requirement was satisfied.

In support of their argument, the defendants submitted the declaration of an operations analyst of the South Dakota citizen who asserted that the total unpaid principal on the outstanding mortgage loans at issue was well in excess of $5 million. The Court noted that the defendants’ contention was largely based on their assertion that, irrespective of the allegations in the complaint, the plaintiffs actually sought to enjoin foreclosure of their properties or to unwind foreclosures that had already taken place.

The Court remarked that the defendants had misread the complaint, as a close reading would reveal that the plaintiffs alleged claims of fraudulent concealment and intentional and negligent misrepresentation. The Court remarked that the plaintiffs did not seek injunctive relief on those claims, but rather damages caused by the plaintiffs’ reliance on the defendants’ misconduct. The Court observed that only a small subset of the individual plaintiffs (in the fifth and sixth causes of action) had implicated the foreclosure of their homes and seemed to have placed the full value of their properties into the controversy. The Court found that none of the counts in the complaint supported the defendants’ contention that the amount-in-controversy exceeded $ 5 million. Accordingly, the Court concluded that the defendants had failed to establish that this case was a CAFA mass action.

As to the court’s diversity jurisdiction under § 1332(a), the Court reiterated that there must be complete diversity, i.e., all plaintiffs must have citizenship different from all defendants, and the amount in controversy must exceed $75,000. Here, the parties disagreed as to whether the South Dakota defendant should really be considered a California citizen, whether Cal-Western had been fraudulently joined, and whether the jurisdictional amount in controversy had been met.

The Court observed that, pursuant to 28 U.S.C. § 1348, the district courts have original jurisdiction of any civil action against any national banking association; and that all national banking associations shall be deemed to be citizen of the States in which they are respectively located. The Court also observed that neither the Supreme Court nor the Ninth Circuit had ruled on the citizenship of national banks, which had led to conflicting determinations by the district courts in the Ninth Circuit. The Court noted that those courts – including itself – that had previously concluded that Wells Fargo was a California citizen were “swayed by the fact that § 1348 was intended to place national banks ‘on the same footing as the banks of the state where they were located.’” Focusing on Congressional intent, those courts had concluded that the citizenship of national banks should be coextensive with the citizenship of state banks.

The Court noted, however, that Excelsior Funds, Inc. v. JP Morgan Chase Bank, N.A., 470 F.Supp.2d 312 (S.D. N.Y. 2006) offered a compelling counter-argument. Recognizing Congress’s intent to create parity, the Excelsior court noted that, at the time § 1348 was enacted, a state bank was only a citizen of a single state: the state in which it was incorporated. The Court here found this analysis persuasive and concluded that Wells Fargo was a citizen of South Dakota only (the place in which it was chartered) and not California. Because Wells Fargo was not a California citizen, the Court concluded that its citizenship was diverse from the plaintiffs.

However, the defendants could not convince the Court that Cal-Western was fraudulently joined, as the Court remarked that it would not decide the sufficiency of plaintiffs’ conspiracy allegations at that time. It did note, however, that under a conspiracy theory, all defendants could be held responsible for the acts of their co-conspirators, so long as those acts were undertaken in furtherance of the conspiracy. Therefore, the Court rejected the defendants’ argument that the complaint lacked allegations that could result in Cal–Western being held liable for the wrongful conduct charged.

The Court also concluded that the diversity jurisdiction was lacking as, yet again, the defendants had failed to demonstrate that the amount-in-controversy on each plaintiff’s claims exceeded $75,000. The Court explained that when a complaint is silent regarding the amount-in-controversy, the defendants had the burden of proving by a preponderance of the evidence that the jurisdictional threshold was met. As explained in its analysis in its “mass action” discussion, the Court found that the defendants had failed to meet their burden.

Accordingly, the district court concluded that it did not have jurisdiction to try this case and remanded the case to the state court.

Amend a Complaint to Add a Few Billion Dollars and a Few Thousand Plaintiffs and, Voila!, a Defendant's Right to Remove is Revived (Say that last part five times fast).

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Wed, 09 May 2012 05:30:00 -0600

MG Building Materials, Ltd. v. Paychex, Inc., 2012 WL 201725 (W.D.N.Y. Jan. 23, 2012).

A district court in New York retained jurisdiction over an action, finding that when an amended complaint alters the very nature of a suit and virtually makes it a “new action,” the defendant’s right to remove is “revived.”

The plaintiffs in this action, MG Building Materials, Ltd. and Excellence Mortgage, Ltd., originally filed suit against the defendant, Paychex Inc., in a Texas state court, asserting breach of contract and other claims arising out of a payroll administration contract between the parties. It was undisputed that diversity jurisdiction existed at the time the plaintiffs filed the petition, as both of the plaintiffs were citizens of Texas, the defendant was a citizen of New York, and the petition indicated that the plaintiffs’ damages were in excess of $150,000.

Instead of filing a notice of removal, however, Paychex filed a motion to abate and to compel arbitration. The state court denied the motion and directed that the plaintiffs be allowed to conduct discovery as to whether the arbitration provision was unconscionable.

After some discovery, the plaintiffs filed an amended petition, asserting additional claims of fraud and breach of fiduciary duty. Again, Paychex did not remove the action. The plaintiffs then filed a third amended petition, asserting class claims on behalf of “all major market services clients” for Paychex’s “Taxpay Services” at any time since 2004.

Enough was enough. Paychex timely filed a motion to remove after the third amended petition, and the plaintiffs filed a motion to remand.

After a thorough review, the court held that, although Paychex had lost its right to remove when it did not file a notice of removal within thirty days of receipt of the original petition, that right was “revived” once the plaintiffs filed their third amended petition which alleged an “essentially new lawsuit.” The court noted that the third amended petition “transformed [the case] from a two-plaintiff case involving less than $170,000 in damages, to a class action involving many thousands of putative class members, and billions of dollars in damages.” This significant change afforded Paychex a new opportunity to remove, which it had timely done.

The court was not persuaded by the plaintiffs’ argument that, since this case was originally removable and the third amended petition had not set forth a new basis for removal, Paychex had permanently lost its right to remove. The court noted that a considerable, long standing body of case law holds that an amendment that substantially changes the character of a lawsuit can give rise to a new right to remove, irrespective of whether the legal basis for removal was the same as that alleged in the original petition. The court further noted that the relevant inquiry was not whether the most recent petition had substantially changed the petition immediately preceding it, but whether the litigation had substantially changed as a whole.

Here, the action began as a lawsuit by two plaintiffs who alleged that Paychex’s failure to make timely and adequate tax payments on their behalf had caused them to incur some $162,000 in penalties. But by the third amended petition, it had morphed into a class action involving potentially thousands of class members across the country, and the damage claims had grown to a whopping $15 billion, an increase of over nine million percent.

Finally, the court dismissed the plaintiffs’ argument that Paychex had waived its right to remove by seeking to compel arbitration in state court, noting that Paychex had moved to compel arbitration before the plaintiffs had filed their third amended petition. The court noted that “even if the motion to compel arbitration could be interpreted as a sign of Paychex’s ‘willingness ... to remain in’ state court, then, that should not bar Paychex from later seeking removal based upon an amended pleading that so substantially changed the character of this action as to render [it] an effectively new lawsuit.”

Accordingly, the Court denied the plaintiffs’ motion to remand and retained jurisdiction under CAFA.

State of South Carolina has a Real Interest in Making Sure its Citizens TV Viewing is Not Hampered by Price Fixing

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Tue, 08 May 2012 05:30:00 -0600

South Carolina v. LG Display Co., Ltd., No. 3:11–cv–00729–JFA, 2011 WL 4344074 (D.S.C. Sept. 14, 2011) and South Carolina v. AU Optronics Corp., No. 3:11-cv-00731-JFA, 2011 WL 4344079 (D.S.C. Sept. 14, 2011).

A District Court in South Carolina held that under a parens patriae action (that is a fancy law school word for a lawsuit brought by the state on behalf of its citizens), the State has a quasi-sovereign interest in bringing an action to enforce its laws and disgorge the proceeds of ill-gotten gains on behalf of its citizens who fell victim to TV picture price fixing.

The Attorney General of South Carolina brought two parens patriae suits in the state court, alleging that LG and AU Optronics engaged in a conspiracy from 1996–2006 to fix prices for thin film transistor liquid crystal display (“TFT–LCD”) panels. The AG sought civil forfeitures, statutory penalties, and restitution under state law only (no federal claims) on behalf of the citizens of the State of South Carolina for the ascertainable loss occasioned by the heinous violations of the defendants.

The defendants removed the current action to the federal court, asserting that the action was a “class action”, and alternatively, a “mass action” both removable under CAFA.

The State sought to remand claiming that neither traditional or minimal CAFA diversity existed.

Starting with the traditional diversity analysis, the Court noted “that a State is not a ‘citizen’ for purposes of diversity jurisdiction.” The defendants asked the Court to find that the citizens of South Carolina, not the State of South Carolina, were the real parties in interest for the State’s restitution claim which would create the required minimal diversity.

In making its analysis, the Court noted that if on the basis of the complaint the named plaintiff is merely a nominal party, then a court should look past the complaint to determine if any unnamed plaintiffs are the real parties in interest. In order to be a real party in interest, “the State must articulate an interest apart from the interests of particular private parties, and the State must express a quasi-sovereign interest.” The term quasi-sovereign interest include a State’s “interest in the health and well-being—both physical and economic—of its residents in general.” Again, I want to point out we are talking about TV screens. Which apparently the State of South Carolina has a significant interest in.

In this case, the State sought civil forfeitures and statutory penalties, both of which may clearly be pursued under its parens patriae power, in addition to restitution on behalf of a particular subset of South Carolina citizens. The defendants urged the Court to first look at the State’s case on a claim-by-claim basis rather than at the case as a whole and, second, to look beyond the single named plaintiff of the case to find that the real parties in interest are the consumers of South Carolina.

The State, on the other hand, urged the Court to examine the State’s interest in this suit as a whole in determining the real party in interest for the restitution claim. The Court agreed with the State and examined the case as a whole rather than on a claim-by-claim basis. Under a wholesale approach, the Court found the case to be a parens patriae action, where the State had a clear quasi-sovereign interest in enforcing its own antitrust and consumer protection laws.

Based on this recognized quasi-sovereign interest, the Court found that the State was a real party in interest to the action, and there was no need to pierce the pleadings. As such, the Court concluded that the minimal diversity did not exist.

The Court remarked that even it did adopt the case-by-case approach, the State would still be a real party in interest to the restitution claim, and minimal diversity would still be lacking in the instant case. The Court noted that in Pennsylvania v. Mid–Atlantic Toyota Distributors, Inc., 704 F.2d 125, 129 n. 8 (1983), the Fourth Circuit has recognized a quasi-sovereign interest of a State in bringing an action to enforce its laws, disgorge the proceeds of ill-gotten gains, and refund them to its citizens. The language in Mid–Atlantic admits that “a state can have a legitimate public interest in ensuring the economic well-being of its citizens—and in indirectly promoting a smoothly functioning economy freed of antitrust violations—even though the most obvious beneficiaries may be individual consumers who ultimately recoup money damages.” The Court observed that this language of Mid–Atlantic intimates that it is possible for a State to have multiple interests in a case, including some that are quasi-sovereign and some that are not. While individual consumers may benefit from the restitution sought by the State in this case, the remedies sought in this case also generally inure to all residents of South Carolina by making it less likely LG would engage in future price-fixing and by recovering taxpayer money paid to LG as overcharges, the Court maintained.

So, the Court determined that minimal diversity did not exist because the State of Carolina had a real interest in making sure its consumers were not gorged when it bought TVs. What a relief to know the State is there for us in our time of need.

If you are looking for help in removing Attorney General actions to federal court, we suggest you read the following scholarly article: “Removal of Attorney General Actions Under the Class Action Fairness Act of 2005,” BNA, Inc. Class Action Litigation Report, Vol. 12, No. 9, May 13, 2011.

Plaintiff Apparently Fails to Learn how to Discern Advertising Bullsh*!

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Mon, 07 May 2012 05:30:00 -0600

Bank v. Hydra Group, LLC, No. 10–4085–cv., 2011 WL 4494380 (2d Cir. Sept. 29, 2011).

A California plaintiff brought a putative class action against Hydra Group LLC claiming that it sent him and others unsolicited commercial e-mail advertisements in violation of § 17529.5(a)(3) of the California Business & Professional Code. (Each night as I say my prayers I pray for peace in the Middle East and that all unsolicited emails and faxes will cease.)

Section 17529.5(a)(3) makes it unlawful for any person or entity to send a commercial e-mail advertisement from California or to a California e-mail address if the advertisement “has a subject line that a person knows would be likely to mislead a recipient, acting reasonably under the circumstances, about a material fact regarding the contents or subject matter of the message.” The plaintiff did not allege any injury to himself or any putative class member arising from the transmissions and sought as relief only liquidated damages as provided for in the statute.

Specifically, the plaintif alleged that Hydra Group sent him three unsolicited advertisements by e-mail, with the subject lines all contained the phrase “ATTN: Your Auto Insurance Renewal Reminder,” but the bodies contained only advertisements for an auto insurance broker. The plaintiff alleged that his e-mail address was one of at least one million to which Hydra Group simultaneously sent each message.

(Author Commentary which has nothing to do with the decision: So, to make this claim, the plaintiff had to allege that he and the rest of the plaintiff class were reasonably mislead by junk email that 99% of the population would delete in a second. Now, I am not saying it is OK for companies to send out misleading email, but come on.)

Any who, the district court sua sponte dismissed the action for lack of subject-matter jurisdiction holding that even accepting the factual allegations in the complaint as true, the amount in controversy did not exceed $5 million as required by CAFA.

The plaintiff contended that class members would be entitled to liquidated damages of $3 billion-$1000 for each of the 3 million messages Hydra Group allegedly sent.

The district court, however, stated that § 7529.5(b)(1)(B)(ii) limits liquidated damages to $1 million per “incident”; thus, even if Hydra Group executed the three alleged transmissions in violation of the statute, the recipients of the messages sent in those transmissions-whether one person or a million-were entitled to no more than $3 million in liquidated damages. While holding so, the district court disagreed with the plaintiff’s/attorney’s argument that the plain language of the statute limits to $1 million a particular plaintiff’s per-incident recovery, not a defendant’s per-incident liability, and concluded that such a strict reading was not a reasonable construction of the liability-limiting provision.

But wait, maybe I should not give the plaintiff such a hard time, he appealed, and the Second Circuit vacated the district court’s judgment and remanded the case for further proceeding.

The Second Circuit noted that the district court had found that the plaintiff’s putative class action did not satisfy the amount in controversy requirement of CAFA. CAFA, 28 U.S.C. § 1332(d)(2) requires a party seeking entrance to federal court to demonstrate that the aggregate amount in controversy exceeds $5 million, exclusive of interest and costs. Assuming that the general standards governing the amount of controversy requirement under 28 U.S.C. § 1332(a)(1) apply coextensively with those standards governing CAFA, the Second Circuit observed that dismissal is warranted on that basis only if it appears to a legal certainty that the claim is really for less than the jurisdictional amount.

Based on review of the plaintiff’s complaint, the Second Circuit held that it could not say with a “legal certainty” that the amount in controversy in his class action was less than $5 million. The Second Circuit maintained that where the damages sought are uncertain, the doubt should be resolved in favor of the plaintiff’s pleadings.

So the plaintiff stayed alive. For the time being.

Benefit Of Ambiguity In Complaint Goes To Defendant

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Fri, 04 May 2012 05:30:00 -0600

Stevenson v. Dollar Tree Stores, Inc., No. CIV S–11–1433 KJM DAD, 2011 WL 4928753 (E.D. Cal. Oct. 17, 2011).

It makes sense that if you work at the dollar store, you are only going to get paid a dollar an hour. Am I right? In this action, a District Court in California held that where there is little evidentiary basis provided in a complaint, courts must be persuaded that the defendant’s estimates are made in good faith and are reasonable to rely on.

The plaintiff brought a wage and hour action on behalf of all non-exempt assistant managers employed at Dollar Tree retail stores in California, alleging that the defendant failed to provide meal periods, to compensate for hours worked, and to pay overtime compensation. (And the wage and hour claims in California march on and on).

The defendant removed the action to the federal court pursuant to CAFA, and the plaintiff filed a motion to remand contending that the defendant failed to establish that the amount in controversy had been met.

The District Court denied the plaintiff’s motion.

The Court observed that although the plaintiff contended in his motion to remand that the complaint “expressly limits the universe of potential meal periods at issue to instances where the assistant-manager worked as the sole managerial employee in the store,” the defendant was correct in its assessment that the complaint was ambiguous. Moreover, while the complaint at one point vaguely stated there were certain tasks that could only be performed by assistant managers when working as the sole managerial employees and that, as a result, assistant managers worked through their unpaid meal periods, this allegation was not repeated with more clarity elsewhere in the complaint. Rather, the first cause of action alleged that assistant managers routinely worked in excess of five hours and were not provided with off-duty meal periods or compensated for missed meal periods, but did not state that this only happened when an assistant manager was the sole managerial employee.

The Court remarked that although the courts resolve all ambiguity in favor of remand to state court, the ambiguous nature of plaintiff’s complaint does not prevent the court from determining the amount in controversy issue in defendant’s favor when the defendant has met its burden. The Court found that the defendant here had met its burden by providing sufficient evidence that “it is more likely than not” that the amount in controversy requirement was satisfied.

Specifically, the defendant presented the calculations of a purported expert, who reviewed data from the defendant’s COMPASS timekeeping system, finding that between April 2007 and May 2011 approximately 60% of the shifts worked by assistant managers at defendant’s 337 California stores had a period of five or more hours where another assistant manager was not present during the same five or more hour period. By multiplying the number of total shifts worked by lone assistant managers by the average hourly rates earned by assistant managers, plaintiff’s total claim for meal period premium wages would be $5,780,135.

In the notice of removal, the defendant, however, had used a different analysis: it divided in half the number of earned meal periods by all assistant managers, not just when the lone managerial employee was present, assuming that 50% of meal periods were missed per week, and then multiplied this number by the average hourly rate, to determine that the amount in controversy for plaintiff’s first cause of action was $4,629,234.

The Court recognized that neither of defendant’s calculations was perfect or final, but also recognized that plaintiff’s complaint did not lend itself to precise calculations. Given the plaintiff’s allegations that members of the class were “routinely” denied meal periods or not compensated for missed meal periods, combined with his allegations regarding defendant’s “policy and practice,” it followed that plaintiff was alleging each class member more often than not was the sole managerial employee on duty and regularly uncompensated for missed meal periods. Thus, the Court concluded that the defendant’s estimates were reasonable.

Next, in determining waiting time penalties, the defendant multiplied the number of assistant managers terminated between April 22, 2007 and April 2011—approximately 1,421—by the managers’ average hourly rate, and then multiplied again by the average hours worked per day multiplied by 30, which is the maximum number of days for which waiting time penalties are allowable in accordance with Cal. Labor Code § 203(a). Thus, the defendant determined that the amount in controversy for the waiting time penalty claim was $3,210,799. Although the complaint, with respect to this cause of action, was indeed specific to meal break violations, the Court found that this did not defeat the defendant’s calculation.

The Court pointed that the defendant was reasonable in estimating, based on plaintiff’s allegations, that all members of the proposed class—all assistant managers—would have missed a meal period as described in the complaint at least once and were thus entitled to the waiting time penalty. The Court maintained that where there is little evidentiary basis provided in a complaint, “courts must be persuaded that the estimates are made in good faith and are reasonable” to rely on.

Finally, the defendant estimated that attorneys’ fees would come out to 25% of plaintiff’s missed meal period and waiting time penalty claims, which would be approximately $1,960,008. The Court found that this calculation was reasonable because the courts in California have awarded 25% to 30% of the settlement amount in attorneys’ fee where wage and hour class actions have settled prior to trial for millions of dollars.

Therefore, without determining a definitive amount in controversy as related to the meal period claim, the Court concluded that it was more likely than not the amount in controversy in plaintiff’s action, in the aggregate, was greater than $5 million.

Accordingly, the Court denied the plaintiff’s motion to remand.

Student Insurance Sold to College Students does not Provide Coverage for Students Being Stupid.

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Thu, 03 May 2012 05:30:00 -0600

Kazlauskas v. United Healthcare Ins. Co., No. 11–2144, 2011 WL 4499001 (C.D. Ill. Aug. 16, 2011).

Every now and then a CAFA related case comes across my desk that makes me think to myself (and sometimes out loud, what the hell?). This is one of those cases that made me take a minute out of my day of lawyering to get on PACER and find out the back story.

Sadly, we did not get the juicy details I was hoping for. Nevertheless, the opinion does provide some background. The plaintiff was an undergraduate student at the University of Illinois at Urbana–Champaign when he purchased the Student Injury and Sickness Insurance Plan offered at the University by United Healthcare. The plaintiff was injured when he fell off a third floor balcony of an apartment while intoxicated.

United Healthcare refused to pay the plaintiff’s expenses incurred for medical treatment and our college friend brought a class action suit against the defendant in state court for breach of contract. The plaintiff also included a statutory claim for vexatious refusal to provide coverage under Illinois Insurance Code, 215 ILCS 5/155.

The defendant filed a Notice of Removal, removing this action from the Circuit Court of the Sixth Judicial Circuit, Champaign County, Illinois.

The plaintiff subsequently filed a motion for remand, which the Magistrate Judge denied.

The plaintiff contended that the defendant had failed to demonstrate the grounds for removal that are requisite under CAFA, 28 U.S.C. § 1332(d), pertaining to diversity of citizenship and amount in controversy in class actions.

The defendant responded that it removed this action on the basis of traditional diversity jurisdiction, governed by 28 U.S.C. § 1332(a). The defendant alleged that it was a citizen of the State of Connecticut and the plaintiff was a citizen of the State of Illinois, and the amount in controversy exceeded $75,000. The defendant also argued that, even though the plaintiff sought to represent a putative class, only the citizenship of the named plaintiff is considered for the purposes of establishing diversity.

The Magistrate Judge observed that in class actions, only the citizenship of the named plaintiffs matters for diversity purposes. In CAFA, Congress expanded statutory diversity jurisdiction through § 1332(d), but in doing so Congress did not affect those cases in which parties could already establish complete diversity under § 1332(a). Accordingly, the Magistrate Judge concluded that as long as the defendant can properly allege diversity jurisdiction under 28 U.S.C. § 1332(a), pertaining to traditional diversity jurisdiction, it does not also have to meet the requirements of CAFA, 28 U.S.C. § 1332(d).

So I looked on PACER to see what happened to our college friend. Again, not much in the way of juicy details. But eventually the case was dismissed pursuant to a 12(b)(6) motion. If you are interested in the intricacies of Illinois Insurance Law, you might read the decision. In Illinois there is a statute that says group health policies cannot decline coverage for injuries that are the result of drinking too much. But United Healthcare claims this was not a group health policy (blah, blah, insurance regulation stuff I skipped through). The court agreed and the case was dismissed.

The Court did state that our college friend could have avoided a 12(b)(6) motion by making a statement that he was not drunk at the time of his unfortunate fall off the balcony which would have created a fact issue. Here again, we can all imagine those pesky details that prevented this dude from being able to swear in a court of law that he was not drunk when he fell off a balcony. Mr. Kazlauskas has appealed the order dismissing his case so perhaps we will find out some day. Until then, let’s all join together and sing, “Texas Bite, Texas Bite, Texas jump up and bite my ass.” (sung to the tune of the Texas Fight Song).

The plaintiff alleged that, by the terms of the Plan, the defendant routinely and wrongfully denied coverage to students who have sustained injuries caused by or resulting from intoxication, illegal drugs, or any drugs or medicines not taken in the prescribed dosage. The plaintiff alleged that this coverage exclusion was prohibited under Illinois law, and therefore was void as against public policy.

As Life Is Not Eternal, Injunction Also Cannot Run Ad Infinitum

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Wed, 02 May 2012 05:30:00 -0600

Andrews v. Nationwide Mut. Ins. Co., No. 1:11 CV 1379, 2011 WL 5118309 (N.D. Ohio Oct. 26, 2011).

Nationwide is NOT on your side, say the plaintiffs in this case. In this action, a District Court in Ohio held that if the court’s ruling requires a business establishment to change its business practice, then such “business practice” costs may be included in determining the amount in controversy.

At the fag-end of their life, the plaintiffs, Stanley Andrews, aged 77 years and Donald C. Clark, aged 81 years, brought class action alleging that the defendants, Nationwide Mutual Insurance Company and Nationwide Life Insurance Company, failed to make a determination as to whether their insureds are still alive; as a result, the defendants improperly retained death benefits. According to the plaintiffs, the defendants should inquire on at least an annual basis as to whether they owe death benefits to any insured where the probability of death of the insured is at least 70%. The plaintiffs alleged that, based on the actuarial tables, there is 76% and 87% probability that they should not be alive, and while the plaintiffs are alive, nevertheless, many of their class members are deceased, and as to such deceased members policy proceeds are owing. Accordingly, the plaintiffs sought mandatory injunction and declaratory relief.

The defendants removed this matter to the federal court under CAFA.

The plaintiffs moved to remand this matter to state court, which the District Court granted.

In attempting to prove that the amount in controversy had been met, the defendants identified three components of damages: (1) $826,000, which constitutes the face value of active life insurance policies for which the insured has been determined to be deceased, (2) $1,228,000, which constitutes the value of lapsed insurance policies during the past 15 years for which the insured has been determined to be deceased; and (3) the $10,200 annual cost to conduct yearly searches of the Death Master File (“DMF”) for active life insurance policyholders and monthly searches for all lapsed policies.

The defendants argued that because the injunction the plaintiffs sought was indefinite and perpetual, the amount in controversy was satisfied by category three alone. The plaintiffs, however, argued that the Court should limit the annual cost associated with the injunctive relief request to a 30–year period, i.e., the time period insurers generally use for “pricing exercises.”

The defendants replied that the complaint was not limited to a 30–year injunction. Further, on average, 100 insureds die each year without making a claim, and the average death benefit for these claims would be $6,961. The defendants thus argued that even applying the 30–year term, the value of the relief sought would total $20,883,000, which is far in excess of the $5 million amount in controversy.

The Court noted that the amount in controversy requirement is established by demonstrating the costs of complying with an injunction. The defendants, however, failed to establish a $5 million amount in controversy by a preponderance of the evidence. The defendants averred that they ran searches of their active and lapsed policies against the DMF, which indicated that there were approximately 230 active policies worth $826,000 for which defendants received an “exact or near exact match” and for which defendants could not locate the policy beneficiary. In addition, there were approximately 17 lapsed policies worth $1,228,000 that fit the same criteria.

The Court stated that these dollar figures, however, were derived from searches of defendants’ entire book of business. Thus these figures did not accurately represent the interests at stake in this case, as the number of policies at issue was far less than defendants’ entire book of business. Specifically, there was no indication as to how many of the 230 active policies and 17 lapsed polices were held by class members. Nor was there any indication as to the value of the class members’ policies.

In addition, the Court rejected the defendants’ argument that the cost of running searches ad infinitum would itself exceed the jurisdictional amount because the injunction could not, by definition, run ad infinitum. The Court noted that Count one, which sought mandatory injunctive relief, asked the Court to order defendants to make reasonable inquiries as to the “lifestatus of the Class Members.” Similarly, count two asked to declare that defendants must pay death benefits to “ Class Members ... without first requiring further notice of death.” Because the injunctive and declaratory relief was requested only on behalf of “Class Members,” and the class was defined generally as individuals who have policies that are “currently in force” or have been “wrongfully canceled” and who held such policies “within the period of time that commenced 15 years prior to the filing” of this lawsuit, the Court, construing the class definition as broadly as possible, remarked that the injunction could only last as long as the youngest person in the class was alive. Accordingly, the Court concluded that the defendants did not establish, by a preponderance of the evidence, that the cost to run DMF searches would satisfy the amount in controversy requirement.

The Court further found that the defendants failed to establish that the cost of paying out claims for insureds who did not provide notice of death exceeded the jurisdictional amount. The defendants failed to provide evidence as to the amount of alleged damages which would result from this litigation; rather, the defendants argued that they would be forced to change their business practices for all of their insureds located anywhere on a going forward basis. The Court rejected this argument although “business practice” costs may be included in determining the amount in controversy. The Court remarked that the defendants did not establish that a ruling in this case would require them to change their business practices nationwide.

Further, the defendants provided information related to their entire business practice and did not provide any information specific to this case. Specifically, the defendants provided a general statement that 100 insureds die each year and fail to make a claim, but did not supply the Court with evidence of how many of these insureds fell within the class definition. Because the defendants made no effort to exclude from their calculation the amount of death benefits payable to insureds who are not class members, the Court concluded that the defendants failed to establish that the amount in controversy was satisfied.

Accordingly, the Court remanded the action to state court.

Courts (At Least This One) Always Respect Pleadings Made In Good Faith

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Tue, 01 May 2012 05:30:00 -0600

Brey Corp. v. LQ Management LLC, No. AW-11-cv-00718-AW, 2011 WL 5244647 (D. Md. Nov. 1, 2011).

In this action, a District Court in Maryland held that the amount-in-controversy is decided from the complaint itself, unless it is shown that the amount stated in the complaint is not claimed in “good faith,” or that the plaintiff cannot recover the amount claimed “to a legal certainty.”

The plaintiff, Brey Corp, a Maryland corporation, filed a putative class action in the District Court against LQ Management, a Texas corporation, alleging that LQ violated the Telephone Consumer Protection Act (“TCPA”) by sending Brey two unsolicited advertisements by fax. (Again, we ask. Who still uses a fax machine?)

Brey claimed that the advertisements it received, which were also sent to “thousands of other consumers,” was part of LQ’s “uniform policy and procedure” of sending “unsolicited fax

advertisements to tens of thousands of consumers” over the past four years. (Please excuse me as I pause to allow the horror the plaintiff must have endured for receiving 2 unsolicited faxes wash over me and cause me to shudder.) For each unsolicited fax they received, Brey and the other class members would be entitled to statutory damages of $500 or the amount of their actual loss, whichever is greater. As a result, the complaint alleged that “the matter in controversy exceeds the sum or value of $5 million in the aggregate for the class, exclusive of interests and costs.”

LQ filed a motion to dismiss the complaint, contending that Brey had not established subject matter jurisdiction and had failed to state a claim under the TCPA.

The District Court agreed that TCPA does not provide for federal question jurisdiction but found that Brey had alleged sufficient facts to meet the pleading standards set forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), to establish diversity jurisdiction. Additionally, the Court noted that diversity jurisdiction is a proper means for bringing private actions under the TCPA in federal court.

Brey contended that it had alleged facts sufficient to meet $5 million amount in-controversy requirement because it alleged in its complaint that LQ engaged in thousands of TCPA violations via the sending of unsolicited advertisements to “tens of thousands of consumers,” where each violation entitles a plaintiff to recover at least $500.

The Court noted that when the complaint provides an amount-in-controversy, defendants attempting to dismiss “shoulder a heavy burden.” The amount-in-controversy is decided from the complaint itself, unless it appears or is in some way shown that the amount stated in the complaint is not claimed in “good faith.” If the plaintiff claims a sum sufficient to satisfy the statutory requirement, a federal court may dismiss only if it is apparent, to a legal certainty, that the plaintiff cannot recover the amount claimed. Here, because Brey claimed a sum sufficient to satisfy the statutory requirement, LQ had a high burden to show either that the amount was not claimed in “good faith” or that Brey cannot recover the amount claimed “to a legal certainty.”

LQ contended that this case did not meet CAFA’s $5 million amount-in-controversy requirement under the pleading standard established in Twombly and Iqbal because Brey alleged no predicate facts to support its assertions that LQ transmitted unsolicited faxes to “thousands of other consumers in Maryland and elsewhere throughout the United States.” The Court, however, remarked that, in order to dismiss Brey’s claim at the motion to dismiss stage, LQ must come forward with proof that Brey’s allegation as to the volume of faxing was actually incorrect. But LQ presented no facts to counter the factually supported assumption drawn by Brey that the toll-free fax removal number listed on the unsolicited faxes it received strongly suggested the involvement of a contracted fax broadcaster, which in turn normally means that the fax campaigns at issue ran well in excess of 10,000 transmissions. The Court thus observed that Brey’s factually supported assumption regarding the number of unsolicited faxes sent by LQ rendered its $5 million amount-in-controversy allegation plausible.

Specifically, Brey averred that LQ sent “unsolicited facsimile advertisements to tens of thousands of consumers” over “the past four years” and had put forth enough facts to show that such allegations are plausible. This was all that the Iqbal and Twombly pleading standard requires; Brey needn’t state any and all facts proving its entitlement to relief, the Court maintained. The Court thus concluded that because the TCPA contains no damages cap, and given that each violation results in damages of $500 or more and LQ had allegedly engaged in “tens of thousands” of such violations, a $5 million damage award was plausible.

Accordingly, the Court denied LQ’s motion to dismiss complaint for lack of subject matter jurisdiction.

Mere Allegation Of 'Joint Liability' Does Not Satisfy 'Significant Basis' Test For Local Defendant

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Mon, 30 Apr 2012 05:30:00 -0600

Opelousas General Hosp. Authority v. Fairpay Solutions, Inc., No. 11–30610,2011 WL 3902996 (5th Cir. La. Sept. 6, 2011).

While reversing a district court’s remand order under the local controversy exception, the Fifth Circuit held that the mere fact that relief might be sought against the local defendant for the conduct of others (via joint liability) does not convert the conduct of others into the conduct of the local defendant so as to satisfy the ‘significant basis’ requirement.

The plaintiff, Opelousas General Hospital, sued three defendants -- FairPay Solutions, Inc., LEMIC Insurance Company and Zurich American Insurance Company -- in Louisiana state court for violations of the Louisiana Racketeering Act.

The plaintiff alleged that FairPay, a Texas bill review company, reviews the bills from Louisiana hospitals (the plaintiff class) and calculates a recommended payment below the rate required by the Louisiana Workers’ Compensation Act. Zurich and LEMIC, insurance companies based in Illinois and Louisiana respectively, apply FairPay’s recommended payment when reimbursing the plaintiff hospitals. The plaintiff alleged an enterprise between all three defendants to misappropriate funds using FairPay’s under-calculation, arguing that the Louisiana’s Racketeering Act made each member of the enterprise liable in solido for the acts of the other.

The defendants removed the case to federal court, and after discovery, the plaintiff moved to remand under CAFA’s local controversy exception.

The district court concluded that the local controversy exception applied and remanded the action to state court.

The defendants requested permission to appeal, which the Fifth Circuit granted.

The Fifth Circuit noted that only two aspects of the local controversy exception were at issue in the appeal – whether at least one local defendant is a defendant from whom significant relief is sought by members of the class and whose alleged conduct forms a significant basis for the claims asserted, 28 U.S.C. § 1332(d)(4)(A)(i)(II)(aa) and (bb). Because failure of either element would require reversal, the Fifth Circuit elected to focus on the second element—whether the alleged conduct of the Louisiana defendant, LEMIC, formed a significant basis for the claims asserted by the proposed plaintiff class.

The Fifth Circuit observed that the plain text of § 1332(d)(A)(i)(II)(bb) relates the alleged conduct of the local defendant, on one hand, to all the claims asserted in the action, on the other. The provision does not require that the local defendant’s alleged conduct form a basis of each claim asserted; it requires the alleged conduct to form a significant basis of all the claims asserted.

The Fifth Circuit, however, remarked that the complaint contained no information about the conduct of LEMIC relative to the conduct of the other defendants, FairPay and Zurich, as it related to the claims of the putative class of Louisiana hospitals or even lead plaintiff, Opelousas General. The plaintiffs alleged that FairPay recommended reduced reimbursements, which did not meet the statutory requirements of the LWCA, and that FairPay and the defendant insurers, LEMIC and Zurich, achieved the lower reimbursement rate by using a different calculation than the one specified by the LWCA. The plaintiffs further alleged that this scheme was a racketeering activity requiring the joint efforts of all of the defendants, rendering them liable in solido.

The Fifth Circuit pointed that nothing in the complaint clearly distinguished the conduct of LEMIC from the conduct of the other defendants. Further, the complaint made no effort to quantify or even estimate the alleged illegal underpayments made by LEMIC versus those made by Zurich. The complaint therefore did not allege facts describing LEMIC’s conduct so as to establish that LEMIC’s conduct formed a significant basis of the plaintiff’s claims, the Fifth Circuit concluded.

Next, the Fifth Circuit remarked that the evidence submitted by the parties added little to the above analysis. It noted that other than conclusory arguments, the plaintiff presented nothing to support any direct contact or communication between the defendants as a group to support its claim of an illegal racketeering enterprise to accomplish these underpayments, and the evidence submitted by the defendants showed that no enterprise existed. The plaintiff submitted a single explanation of reimbursement on which plaintiff alleged that LEMIC misrepresented the method of calculation of the reimbursement. Although the plaintiff argued that LEMIC and Zurich occupied identical roles in the enterprise, none of this evidence connected LEMIC to Zurich or provided any basis to compare LEMIC’s conduct to that of the other defendants to determine whether LEMIC’s conduct was significant to the plaintiff’s claims, the Fifth Circuit observed.

The Fifth Circuit also found that the evidence did not establish that LEMIC’s conduct affected all or a significant portion of the putative class. As described by the plaintiff, FairPay was the hub of the alleged enterprise and LEMIC and Zurich were the spokes. FairPay submitted an affidavit stating that LEMIC was one of more than 100 insurers across the country for whom FairPay reviewed charges by Louisiana hospitals for Louisiana workers’ compensation outpatient services. The plaintiff class asserted claims for all of those charges based on FairPay’s conduct. However, only two insurers, LEMIC and Zurich, were named as defendants. Accordingly, the Fifth Circuit concluded that these facts failed to establish that LEMIC’s conduct formed a significant basis of the plaintiff’s claims.

Finally, the plaintiff argued that because the Louisiana Racketeering Act imposes solidary liability on all the defendants who are part of an enterprise violating the act, LEMIC’s conduct was necessarily significant because it was equally liable with the other defendants for the entirety of the alleged harm. The Fifth Circuit observed that this argument conflated the requirement that the local defendant’s conduct form a significant basis of the claims with the requirement that the local defendant be one from whom significant relief is sought.

The Fifth Circuit relied on Evans v. Walter Indus. Inc., 449 F.3d 1159, 1167 (11th Cir. 2006), where the Eleventh Circuit noted in a similar case in which the plaintiffs were alleging joint and several liability against the defendants that “the mere fact that relief might be sought against the local defendant for the conduct of others (via joint liability) does not convert the conduct of others into the conduct of the local defendant so as to also satisfy the ‘significant basis’ requirement.” (Editors’ Note: See CAFA Law Blog analysis of Evans posted on May 25, 2006.) Accordingly, the Fifth Circuit found that the plaintiff could not rely on its claims of a racketeering enterprise to fill the gaps in proof it was required to provide to establish that LEMIC’s conduct formed a significant basis for the claims asserted by the proposed class.

The Fifth Circuit concluded that the plaintiff, Opelousas General, failed to meet its burden to establish that the conduct of LEMIC, the local defendant, formed a significant basis for the claims asserted by the plaintiff class and thus that the local controversy exception to CAFA jurisdiction applied in this case. Accordingly, the Fifth Circuit vacated the judgment of the district court remanding this case to state court.

The District Judge Continues To Play Bingo

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Fri, 27 Apr 2012 05:30:00 -0600

Adams v. Macon County Greyhound Park, Inc., No. 3:11-CV-125-WKW [WO], 2011 WL 5294732 (M.D. Ala. Nov. 3, 2011).

What a sexy claim!! Cry baby gamblers of bingo in ‘Bama. After being bright enough to lose their money playing electronic bingo (WTF? Electronic Bingo?? You can almost hear the mechanical voice holler B19, B19) they sue to get their lost money back asserting it is illegal to gamble.

Ultimately, the federal court refused to remand the case to the state court finding that the CAFA exceptions were inapplicable to the plaintiffs’ claims.

The plaintiffs in this case, 816 people who spent millions of dollars playing electronic bingo machines, brought a single claim under § 8-1-150 of the Alabama Code seeking to recover money that they lost playing electronic bingo machines at Victoryland and Quincy’s 777.

The defendant, Macon County Greyhound Park, Inc. (“MCGP”), offered pay-to-play electronic bingo machines to the public at its facility under the names of Victoryland and Quincy’s 777. MCGP was incorporated in Alabama.

The plaintiffs also asserted claims against various owners and operators of the bingo machines, all of whom were not from Alabama.

The plaintiffs alleged that they entered into wagers with the defendants, that those wages were founded upon illegal gambling contracts, and that the contracts were void pursuant to Ala. Code. § 8-1-150. The plaintiffs sought recovery of monies paid to the defendants for wagers on improper and illegal bingo games conducted by them at Victoryland.

The plaintiffs initially filed this lawsuit in the Circuit Court of Macon County, Alabama, but the defendants removed it to the federal court under the mass action, jurisdictional provision of CAFA.

The plaintiffs sought to remand presenting four grounds in support of their motion. First, they argued that the amount in controversy requirement for removal of a mass action under CAFA was not satisfied. Second, the plaintiffs contended that the lawsuit did not fit within the definition of a mass action found in 28 U.S.C. § 1332(d)(11)(B)(ii)(I), but rather fell within the statutory exception. Third, they asserted that even if this was a mass action, the local controversy exception 28 U.S.C. § 1332(d)(4)(A) & (B), mandated remand. Finally, the plaintiffs contended that, alternatively, the Court should, in its discretion, decline jurisdiction under 28 U.S.C. § 1332(d)(3).

As to the amount in controversy, the Court noted that in their notice of removal, the defendants asserted that the aggregate $5 million was satisfied from the face of the complaint. For its calculation, the defendants pointed to the fact that there were 816 named plaintiffs, and each of their claims individually exceeded $10,000 exclusive of interest and costs, which would amount to claims in excess of $8,160,000. The Court agreed, and ruled that the amount in controversy exceeded $5 million.

Next, the Court noted that CAFA defines a mass action as any civil action, in which monetary relief claims of 100 or more persons were proposed to be tried jointly on the ground that the plaintiffs’ claims involved common questions of law or fact. There are several exceptions to the mass action definition, and plaintiffs argued that this case fell within the exception set forth in § 1332(d)(11)(B)(ii)(I), which provides that a mass action does not include a civil action in which all of the claims arose from ‘an event or occurrence’ in the State in which the action was filed, and that allegedly resulted in injuries in that State or in States contiguous to that State.

As CAFA does not define the phrase ‘an event or occurrence’, the Court looked at the legislative history for its interpretation. The Court noted that the purpose of this exception was to allow cases involving environmental torts such as a chemical spill to remain in state court if both the event and injuries were truly local, even though there are some out of state defendants. The Court also noted that this exception would not apply to a product liability or insurance case.

The plaintiffs relied upon Carr v. Arvin Industries, No. 05-J-1283-J (N.D. Ala. July 20, 2005), where the district court remanded the case to the state court. In Carr, the employees of a manufacturing plant, who alleged that they were injured by a toxic chemical used at the plant in the manufacturing process of automotive mufflers, and that the failure of the employer to provide them protective clothing denied them a safe workplace. The Court noted that in remanding the case, the Carr court found that because the plaintiffs’ injuries occurred at one specific location in Alabama, the facts were more similar to an environmental tort such as chemical spill, as opposed to a product liability case, where the alleged injuries would be spread out over more than one state.

The Court observed that even if it was to conclude that the statutory language required amplification from the legislative history, the conclusion would be the same. There was no tension between the statutory phrase – ‘an event or occurrence’ – and the legislative history. Because this action did not involve injuries flowing from the adverse effects of a chemical spill or a discrete, catastrophic, environmental event, as contemplated in the Senate Report for inclusion in § 1332(d)(11)(B)(ii)(I). Accordingly, the Court ruled that the action was not excluded from the definition of a mass action.

Next, the Court concluded that the complaint made no distinction between MCGP and the electronic machine supplier defendants for the purposes of assessing liability or damages. Because no defendant was alleged to be exposed to any greater liability than another was, no defendant was alleged to have caused any greater injury than another; and no defendant was alleged to be any more culpable than another was. Accordingly, the Court ruled that the § 1132(d)(4)(B) exception was not applicable to this case.

Finally, the plaintiffs argued that this action should be remanded under a discretionary exception to CAFA jurisdiction. The Court noted that § 1332(d)(3) provides that a district court may in the interests of justice and looking at the totality of circumstances, decline to exercise jurisdiction over a class action in which greater than one-third but less than two-thirds of the members of all proposed plaintiff classes in the aggregate and the primary defendants were citizens of the State in which the action was originally filed. The Court observed that the statutory exception contained an express numerical limitation, i.e., it was limited to a mass action in which greater than one-third but less than two-thirds of the plaintiffs were citizens of the forum state. The Court noted that the statute contains no ‘if’, ‘or’, or ‘unless’ to this size restriction. Based on the statutory language, the Court concluded that this exception too did not support a remand.

Accordingly, the Court declined to remand this action to state court.

This Mellon's Mine, Says A District Judge

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Thu, 26 Apr 2012 05:30:00 -0600

Bank of N.Y. Mellon v. Walnut Place LLC, No. 11 Civ. 5988 (WHP), 2011 WL 4953907 (S.D.N.Y. Oct. 19, 2011).

In this action, a federal court retained jurisdiction on a verified petition finding that the petitioner was not entitled to the securities exception under CAFA when its claim does not entirely depend on a mutual securities agreement, but rather requires other sources of law for its evaluation.

The Bank of New York Mellon (“BNYM”), as a trustee for hundreds of trusts, filed this petition under Article 77 of the New York Civil Practice Law and Rules in the New York Supreme Court, seeking to dispose billions of dollars in toxic mortgage claims. This billion-dollar disbursement action was a result of Countrywide Home Loans, Inc. and its various affiliates’ (collectively, “Countrywide”) securitization transactions entered into between 2004 and 2008. In these transactions, Countrywide conveyed portfolios of securitized residential mortgages through a third party to BNYM, as trustee, to hold in trust. In turn, investors purchased certificates or notes evidencing various categories of ownership interests in the trusts. BNYM acted as trustee for hundreds of those mortgage securitization trusts created by Pooling and Servicing Agreements (“PSAs”) or Sale and Servicing Agreements.

The circumstances leading to this litigation began in June 2010, when at least one institutional investor holding mortgage-backed certificates issued by the trusts sent a letter to BNYM asserting that Countrywide had sold a large number of those mortgages into the trusts and failed to comply with certain representations and warranties. As a remedy, the investors contended that Countrywide and its present owner were obligated to repurchase the defaulting mortgage loans. BNYM concealed the identity of the pioneering investors, and attributed this action to a large group of investors under the banner “the Institutional Investors”.

BNYM entered into an agreement with Countrywide to settle all potential claims belonging to 530 of the trusts for which BNYM served as trustee. Although the trusts’ claims may exceed $150 billion, the Settlement Agreement required a payment of $8.5 billion to trust beneficiaries. The Settlement Agreement did not encompass 63 other trusts for which BNYM was trustee with a combined unpaid balance of approximately $15.3 billion as of September 26, 2011.

The Walnut Place entities (collectively, “Walnut Place”), the intervenor-respondents removed the Article 77 Proceeding to the federal court under the “mass action” provisions of CAFA, and BNYM sought remand.

CAFA defines mass action as a civil action in which (1) monetary relief claims (2) of 100 or more persons (3) are proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law or fact. As BNYM sought a court order directing Countrywide to pay $8.5 billion to trustees and the trusts, Walnut Place argued that BNYM plainly sought monetary relief. In its defense, BNYM argued that it sought only a judicial declaration that it acted reasonably and in good faith as trustee as well as a court order enjoining BNYM and Bank of America to consummate the settlement agreement. The Court observed that if BNYM prevailed in this proceeding, the defendants would transfer $8.5 billion to the trusts, and remarked that if the $8.5 billion did not constitute, it would be difficult to imagine what would. Therefore, the Court concluded that the Article 77 Proceeding involved a monetary relief.

Second, the Court found that BNYM acted as trustee for 530 separate trusts, and sought approval for its decision to settle the claims of each individual trust. As the trustees are considered as separate legal entities with respect to each trust they administered under New York law, the Court concluded that the Article 77 Proceeding claimed of more than 100 persons. Finally, the Court concluded that as the purpose of the Article 77 Proceeding was to determine the acceptability of a global settlement impacting 530 separate entities, the Article 77 Proceeding concerned common questions of law or fact.

Relying on the Second Circuit’s finding in Greenwich Fin. Servs. Distressed Mortg. Fund 3 LLC v. Countrywide Fin. Corp., 603 F.3d 23 (2d Cir. 2010), BNYM argued that the Article 77 Proceeding could not be removed because it fell under CAFA’s securities exception. Under the securities exception, CAFA’s removal provisions does apply to any class action that solely involves a claim that relates to the rights or duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security. In Greenwich Financial, the Second Circuit held that the securities exception to CAFA barred federal jurisdiction over declaratory judgment claims brought by holders of certificates issued by trusts under various PSAs.

The analysis in Greenwich Financial expanded on the Second Circuit’s earlier opinion in Estate of Pew v. Cardarelli, 527 F.3d 25 (2d Cir. 2008). (Editors’ Note: See the CAFA Law Blog analysis of Cardarelli posted on August 20, 2008). In Cardarelli, the court held that the securities exception to CAFA did not bar removal of securities holders’ state law fraud claims. The Court noted that under Cardarelli and Greenwich Financial, the pivotal question in determining whether the securities exception bars removal was whether a plaintiff’s claims arose under the terms of an instrument that created or defined securities or plaintiff’s claims arose under an independent source of state or federal law.

The Court observed that securities exception would apply only when the relevant legal standards for evaluating its conduct as trustees were found in the PSAs executed by the trustees. In other words, the securities exception would apply if the determination of the claim would entirely depend on the PSAs. However, the exception would not apply if the trustees conduct in approving the settlement would be evaluated under some other source of law, such as New York’s common law. Here, although, BNYM conceded that the trustees owed common law duties to trust beneficiaries, it still argued that the terms of the PSAs were subsumed and any New York duty to avoid conflicts of interests. In other words, BNYM contended that because the PSAs imposed a duty to act in good faith on the trustee, it did not owe any duties to the trust beneficiaries that were not contractually defined.

The Court noted that in Cardarelli, the parties agreed that the certificates were securities, therefore, the Second Circuit concluded that plaintiffs’ state law fraud claims did not enforce the rights of Certificate holders as holders, and therefore, were not subject to the securities exception. The court in Greenwich Financial applied this principle in holding that application of the securities exception depended on the source of the right that the suit seeks to enforce. Based on this interpretation, the Court noted that the PSAs in this case were not talismans endowed with the power to ward off federal jurisdiction. Because the Article 77 Proceeding necessarily involved New York common law, the securities exception did not bar removal.

Accordingly, the Court declined to remand this action to state court.

Plaintiff is the Master and Commander of Her Compaint and Can Limit the Amount in Controversy

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Wed, 25 Apr 2012 05:30:00 -0600

McClendon v. Challenge Financial Investors Corp., No. 1:11 CV 1597, 2011 WL 5361069 (N.D. Ohio Nov. 3, 2011).

While remanding the action to state court based on the plaintiff’s disclaimer of an award greater than $5 million, a District Court in Ohio held that the plaintiff being master of her complaint can plead in good faith to avoid federal jurisdiction.

Two years after the plaintiff, Jacqueline D. McClendon, filed her complaint against Challenge Financial Investors Corp.—a defunct mortgage broker, she filed a second amended class-action complaint and added as defendants, Hartford Fire Insurance Co., Travelers Casualty and Surety Company of America, and the Ohio Superintendent of Financial Institutions. Hartford and Travelers are the bonding companies from which Challenge obtained its mortgage-broker surety bonds; and the Ohio Superintendent is a titular obligee on Challenge’s bonds.

McClendon alleged that in June 2007 Challenge served as her mortgage broker in connection with a $40,000 loan transaction secured by her property located at 14206 South Marks Road, Columbia Station, Ohio. McClendon used this address to maintain and operate a drug house in which she packaged heroin purchased in bulk from a Cleveland supplier, and from which she sold the heroin to a large number of customers. Nice lady. The Government imposed, and McClendon agreed to pay, $40,000 in criminal forfeiture representing the proceeds of her criminal drug enterprise. Shortly after signing the plea agreement, McClendon sought and obtained a mortgage loan from Challenge. She used the mortgage proceeds to satisfy the $40,000 criminal forfeiture.

On behalf of herself and the class of persons who purchased services from Challenge relating to a mortgage loan on Ohio realty, McClendon asserted a claim for monetary damages against Challenge for its failure to provide mortgage loan origination disclosure statements in compliance with the Ohio Mortgage Brokers Act, O.R.C. Chapter 1322 et seq. (“OMBA”); a claim for monetary damages against Hartford and Travelers, if liability is proven in the first instance against Challenge, based on the surety bonds they posted supporting Challenge’s activities in Ohio; and a claim for an order requiring the Ohio Superintendent to declare that Hartford and Travelers are liable on the surety bonds.

Hartford removed the case to federal court pursuant to CAFA.

McClendon filed a motion to remand the action to state court, which the District Court granted.

At the very outset, the Court, relying upon precedents, explained that “the first and fundamental question presented by every case brought to the federal courts is whether it has jurisdiction to hear the case. This is because the district courts are courts of limited jurisdiction. They possess only that power authorized by the Constitution and by statute. In considering whether remand is appropriate, the statutes conferring removal jurisdiction are to be construed strictly because removal jurisdiction “encroaches on a state court’s jurisdiction.” Thus, in the interest of comity and federalism, federal jurisdiction should be exercised only when it is clearly established, and any ambiguity regarding the scope of the removal statute should be resolved in favor of remand to the state courts.”

In order to establish the amount in controversy, Hartford produced a declaration, which stated that the total revenue challenge generated from the mortgage loans associated with realty in the State of Ohio for the purported class period was $9,021,538.

McClendon did not challenge the amount stated in the declaration; rather, she contended that removal was improper because, prior to removal, she expressly disclaimed any award or combination of awards greater than $5 million.

Thus, the question before the Court was whether McClendon could properly avoid removal by limiting potential damages to an amount less than the CAFA threshold. The Court relied on two decisions of Sixth Circuit — Smith v. Nationwide Prop. & Cas. Ins. Co., 505 F.3d 401, 407 (6th Cir. 2007) and Freeman v. Blue Ridge Paper Prods., Inc., 551 F.3d 405, 409 (6th Cir. 2008), which discussed the effect of pre-removal damage disclaimers on class action cases over which the federal courts would otherwise have CAFA jurisdiction.

In Smith, the plaintiffs limited the individual as well as class claims to less than $4,999,999. The Sixth Circuit observed that the plaintiff is master of his complaint and can plead to avoid federal jurisdiction. Accordingly, subject to a “good faith” requirement in pleading, a plaintiff may sue for less than the amount he may be entitled to if he wishes to avoid federal jurisdiction and remain in state court. Further, the amount in controversy should be determined from the perspective of the plaintiff, with a focus on the economic value of the rights he seeks to protect. (Editors’ Note: See the CAFA Law Blog analysis of Smith posted on July 11, 2008).

In Freeman,the plaintiffs divided the class action into five separate cases covering distinct six-month time periods, limiting the total damages for each case to no more than $4,999,999. The insurer removed all five cases under CAFA; the district court, however, remanded the action to state court. The Sixth Circuit reversed recognizing that the plaintiffs can avoid removal under CAFA by limiting the damages they seek to amounts less than the CAFA thresholds. Expressly confining its ruling to the specific facts of the case, the Sixth Circuit stated that its holding was limited to the situation where there was no colorable basis for dividing up the sought-for retrospective relief into separate time periods, other than to frustrate CAFA, but where recovery is expanded, rather than limited, by virtue of splintering of lawsuits for no colorable reason, the total of such identical splintered lawsuits may be aggregated. (Editors’ Note: See the CAFA Law Blog analysis of Freeman posted on February 17, 2009).

The Court thus observed that although neither Smith nor Freeman was directly on point with the instant case, the Sixth Circuit was clear in both cases that a class representative can avoid CAFA jurisdiction by expressly limiting the class members’ damages. Here, unlike the disclaimers in Freeman, McClendon had not divided the retrospective relief of the putative class into separate cases for the sole purpose of avoiding federal CAFA jurisdiction. Rather, she had done what the Sixth Circuit said she had the right to do: limit the total potential damage award to less than $5 million to litigate her case in state court. Because she disclaimed any combination of awards over $5 million prior to removal, the Court concluded that Hartford lacked jurisdiction to remove the case.

Hartford, however, argued that the Court should ignore McClendon’s disclaimer because it contradicted her effort to adequately represent the class. Specifically, Hartford raised a colorable question whether McClendon had standing to bring her own OMBA claim, and whether she could adequately represent the putative class.The Court concluded that these were all questions the state court was perfectly capable of deciding, and it was generally more desirable for an Ohio court to interpret Ohio statutes.

Because this is not a case of national importance, and it involved only Ohio insurance questions, the Court remanded the case to the state court.

King Comeoniwannalayya Hooks Up With Resort Staff and Sends Their Case Back to Hawaiian State Court.

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Tue, 24 Apr 2012 05:30:00 -0600

Smith v. Kawailoa Development, LLP, No. 11–00350 JMS, 2011 WL 4971165 (D. Haw. Oct. 19, 2011).

Hawaii..land of beautiful beaches, lush jungles, seething volcanoes, and gypped food servers. A Magistrate Judge in Hawaii held that it cannot look beyond the complaint in deciding whether “significant relief” was sought from a particular defendant and whether its conduct formed “significant basis” for the plaintiffs’ claims. (Editors’ Note: See the CAFA Law Blog analysis of the District Court opinion accepting the Magistrate Judge’s Report and Recommendation posted on February 9, 2012).

The plaintiffs, non-management employees of the Grand Hyatt Kauai Resort & Spa on Kauai, Hawaii, brought a class action asserting that the defendants imposed a service charge or gratuity charge in connection with the sales of food and/or beverage at the Hotel, but failed to distribute all the charges to non-managerial employees in violation of Hawaii state law, Haw.Rev.Stat. §§ 388–6, 481B–14, and ch. 480.

The plaintiffs and the proposed class members worked at banquets and other food service events at the Hotel. The plaintiffs averred that the defendant, Kawailoa Development, LLP, owns and operates the Hotel, and was the employer of each of the members of the proposed class. The plaintiffs also stated that the defendant, Hyatt Hotel Corporation, operates and manages the Hotel as well. The plaintiffs alleged that the Hotel retained a portion of the service charge and failed to clearly disclose to customers that a portion of the service charge was not distributed to the employees and was in fact retained by the Hotel.

The defendants removed this action to the federal court under CAFA.

The plaintiffs moved to remand, which the Magistrate Judge granted.

The plaintiffs argued that the Court lacked jurisdiction under the “local controversy exception” to CAFA, 28 U.S.C. § 1332(d)(4)(A)(i). Specifically, the plaintiffs contended that (1) Kawailoa was a defendant from whom the plaintiffs sought “significant relief” and (2) Kawailoa’s conduct formed a “significant basis” for their claims, § 1332(d)(4)(A)(i)(II)(aa) and (bb).

The defendants argued that the two foregoing factors were not met in this case by pointing to extrinsic evidence, including the Management Agreement and a declaration by the Human Resources Director for the Hotel. The Court, however, noted that the Ninth Circuit recently addressed whether district courts may turn to extrinsic evidence in deciding these issues. Specifically, in Coleman v. Estes Express Lines, Inc., 631 F.3d 1010, 1017 (9th Cir. 2011), the Ninth Circuit held that “CAFA’s language unambiguously directs the district court to look only to the complaint in deciding whether the criteria set forth in § 1332(d)(4)(A)(i)(II)(aa) and (bb) are satisfied.” (Editors’ Note: see CAFA Law Blog analysis of Coleman posted on February 22, 2011). Thus, the Court limited its determinations to the allegations in the Complaint in deciding whether “significant relief” was sought from Kawailoa and whether its conduct formed a “significant basis” for the plaintiffs’ claims.

Based on the Complaint, the Court found that the plaintiffs sufficiently alleged that Kawailoa was a defendant “from whom significant relief [w]as sought by members of the plaintiff class” and whose conduct “form[d] a significant basis for the claims asserted by the proposed plaintiff class.” Specifically, the Complaint alleged that Kawailoa, a Hawaii limited liability partnership, employed the putative class members during the relevant period, that Kawailoa violated Hawaii law, and that its actions constituted an unfair method of competition. Although the Complaint also alleged that Hyatt violated Hawaii law as well, the allegations against Hyatt in no way made the allegations against Kawailoa, the actual employer, insignificant.

Accordingly, the Court found that the plaintiffs established the local controversy exception to the federal court’s subject matter jurisdiction under CAFA.

Next, the defendants argued that the plaintiffs’ state law claims were preempted by the Labor Management Relations Act (“LMRA”), which the Court disagreed. Specifically, an application of state law is pre-empted by § 301 of LMRA only if such application requires the interpretation of a collective-bargaining agreement. The Court found that here, the plaintiffs’ state law claims could be resolved without interpreting a CBA.

Accordingly, the Magistrate Judge recommended the District Court to remand this case to state court.

Lazy Defendants Lost The Second Chance

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Mon, 23 Apr 2012 05:30:00 -0600

Moncada v. Petroleum Geo-Servs., No. 1:11–cv–1352 AWI JLT, 2011 WL 5101907 (E.D. Cal. Oct. 25, 2011).

A District Court in California held that while calculating the value of the injunctive relief, the calculation should be limited to those employed at the time of filing the suit because the former employee class members do not possess standing to pursue injunctive relief as they would not benefit from the injunction.

The plaintiffs, who worked on jobs involving seismic inspection in Kern County and elsewhere, brought this wage and hour class action against the defendants, Petroleum Geo–Services (“PGS”) and Geokinetics, Inc.

Geokinetics acquired PGS in April 2010, and the plaintiffs’ employment was continued by Geokinetics. The plaintiffs sough to represent two subclasses of employees: those who worked for PGS from June of 2009 to April 2010 and those who worked for Geokinetics as of April 2010.

The plaintiffs alleged that from June 2009 until April 2010, PGS violated California Labor Code by: (1) failing to provide meal and rest breaks during shifts of more than ten hours; (2) failing to pay employees for missed meal and rest breaks as well as for earned double time pay (i.e. more than 12 hours per day or more than eight hours on the seventh consecutive day of work); (3) failing to provide employees with “accurate” itemized statements. Likewise, the plaintiffs contended that Geokinetics failed (1) to provide meal and rest breaks and then failed to pay for these missed breaks; and (2) to pay its employees for all wages due at termination.

The defendants removed the action to the federal court under CAFA.

The plaintiffs moved to remand arguing that the defendants failed to establish that the amount in controversy was over $5 million, which the District Court granted.

As the plaintiffs’ complaint did not allege a specific amount in controversy, the defendants provided the declaration of Geokinetics’ HR Director to assist in damage calculations. The declarant stated that between June 2009 and the present, approximately 150 individuals had worked or were working in California as non-exempt employees for PGS and/or Geokinetics; however, she did not set forth the number of employees currently employed by Geokinetics who were putative class members. She failed to provide the number of putative class member-employees hired by Geokinetics after it acquired PGS, or when they were hired. Likewise, she did not provide any information as to the hourly rate earned by the current employees nor did she offer any information about whether the average hourly rate of $9.80 earned by the four named plaintiffs was a reasonable estimation for the average hourly pay earned by the class.

Specifically, to calculate an estimate of the damages for the “Double Time” violations, the defendants assumed that each named plaintiff worked 38 out of the possible 48, 7–day work weeks during the period from June 2009 through April 2010, and assumed that PGS failed to pay each plaintiff one hour of double time pay for each day worked. The defendants then multiplied these hours with the plaintiffs’ hourly rates and arrived at $10,374 as the damage amount for each putative class member for the “double time” violation, by averaging the total amount calculated for the four plaintiffs. With the similar assumptions and calculations, the defendants arrived at $4,358.50 for the meal period violation, $4,358.50 for the rest period violation, and $3,600 for waiting time violation, which totaled to $26,691 including the double time violation.

The defendants contended that because the complaint alleged that the named plaintiffs’ claims were “typical” of those in the class, the damages claim of the 150 class members would be $4,003,650. By adding 25% for attorneys’ fees, the defendants stated that the total amount in controversy was $5,204,745.

The Court found that the defendants’ lone declaration wasdeficient. Specifically, the Court remarked that although the declaration provided the hourly wage rates for each of the named plaintiffs, the defendants had not provided any evidence to support their allegations that the average hourly wages of the four named plaintiffs were representative of the average hourly wage of the class members. In contrast, the uncontroverted evidence preferred by plaintiffs showed that six former employees’ hourly pay rates ranged from between $7.50 to $8.75 per hour.

Second, the Court observed that the defendants also failed to provide evidence that all of the 150 class members worked for both PGS and Geokinetics. In contrast, the plaintiffs’ evidence showed that 44 of the class members had worked for Geokinetics alone.

The defendant Geokinetics next argued at the hearing that they were entitled to rely upon the factual allegations in the complaint, although they admitted that they were relying upon inferences that may be drawn based upon their interpretation of the complaint. They argued that they did not intend or understand that the plaintiffs or the Court would rely upon their figures and that they did not appreciate they were obligated to present accurate figures.

Thus, the Court remarked that while estimating the amount in controversy, the defendants proceeded with assumptions that they knew to be unsound. For example, when calculating the value of the injunctive relief, the defendants multiplied their damage figure $8,717 by 150 employees rather than limiting this calculation to the number of those employed at the time the plaintiffs filed suit. The Court pointed that former employee class members do not possess standing to pursue injunctive relief as they would not benefit from the injunction. Although Geokinetics’ counsel admitted at hearing that an accurate figure was readily available, he had not given any explanation for the failure to use it.

The Court stated that the plaintiffs’ moving papers encouraged the defendants repeatedly to bring forward real numbers in opposition to the motion; however, the defendants did not. Accordingly, the Court declined to allow the defendants to reopen the motion to present additional evidence, and remanded the action to the state court.