The Class Action Fairness Act (“CAFA”) gives federal district courts original jurisdiction in most class actions in which “the matter in controversy exceeds the sum or value of $5,000,000” in the aggregate and there is at least minimal diversity of citizenship. A recent case makes clear that defendants need to be careful what they say to demonstrate the existence of federal jurisdiction.
CAFA creates an inherent tension. While defendants facing a class action are often better off in federal court for a variety of reasons, they are nonetheless loath to make anything even approaching an admission that a case might be worth $5 million. As with jurisdiction under the general diversity statute, jurisdiction under CAFA depends on the allegations in the complaint; defendants need not admit those allegations in order to seek removal. But removing defendants nonetheless bear the burden of establishing the amount in controversy, which may require evidence, especially when the complaint does not specify damages or alleges damages less than the jurisdictional threshold.
A recent Ninth Circuit case illustrates how jurisdictional evidence submitted in a CAFA removal petition may come back to bite defendants in unforeseen ways. In Leyva v. Medline Industries, Inc., the defendant was successful in removing the case to federal court, and then successfully opposed the certification of a putative class of 538 employees alleging, among other things, that they performed unpaid work before their scheduled start times. The district court denied certification in part because the amount of unpaid time each employee worked varied, making the damages inquiry highly individualized; as a result, the district court concluded that common questions did not predominate under Rule 23(b)(3) and that manageability concerns made alternate methods for resolving the dispute superior.
But the Ninth Circuit reversed—and relied on the defendants’ own statements in so doing. The court noted that Medline had used its electronic database to separately calculate its exposure for each putative class member’s claim in its petition to remove the case to federal court. Specifically, Medline had multiplied each employee’s hourly rate by the number of work weeks he or she was employed during the applicable period to calculate an amount in controversy in excess of $5 million.  Thus, the mere fact that Medline had purported in its removal petition to be able to calculate each class member’s claim—regardless of the validity of the claims—effectively undermined its ability to defeat class certification later.
In light of Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) and Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), arguments against class certification based on individualized “damage” inquiries in wage-and-hour class actions have a renewed vitality, notwithstanding the Ninth Circuit’s attempt to downplay these developments in Leyva. (We will touch on this here in the near term.) In such cases (and indeed, in all cases), Leyva illustrates that defendants seeking to remove a putative class action under CAFA need to think carefully about the arguments they will be making against certification once the case is removed, and how their removal petition may affect those arguments.