Ninth Circuit CAFA Decision Places Greater Jurisdictional Burden on Employers
Orange County, Calif. (February 8, 2021) - A recent decision issued by the U.S. Court of Appeals for the Ninth Circuit makes it harder for employer defendants to remove class actions to federal court under the Class Action Fairness Act of 2005 (CAFA). 28 U.S.C. § 1332(d)(2). In remanding a putative class action back to California state court, the Ninth Circuit held that the removing defendant failed to submit competent evidence showing that the amount in controversy exceeded the $5 million jurisdictional threshold required to invoke federal jurisdiction.
In Harris v. KM Industrial, Inc., the plaintiff filed a putative class action in California state court against his former employer, KM Industrial, Inc. (KMI), claiming garden variety wage and hour violations including failure to provide meal and rest breaks and pay overtime wages. KMI invoked CAFA to remove the case and, in the notice of removal, asserted that the amount in controversy exceeded $7.1 million. To meet its burden and establish the jurisdictional threshold, KMI submitted a declaration that set forth the putative class size (442), the approximate number of workweeks worked by the putative class (39.834), the average rate of pay for the putative class, and KMI’s assumption that the class members missed at least one meal break and two rest breaks throughout the class period. The plaintiff moved to remand, arguing that KMI’s allegation rested on unreasonable assumptions, thereby exaggerating the amount in controversy.
The Ninth Circuit’s Decision
In analyzing whether KMI had met its burden of showing an amount in controversy greater than $5 million, as set forth in the declaration, the Ninth Circuit first addressed whether the plaintiff had challenged the factual accuracy of KMI’s allegations or the facial sufficiency of the allegations. The court held that the plaintiff had ultimately challenged the factual accuracy, as the plaintiff’s motion to remand challenged the truth of the assumptions underlying KMI’s methodology for calculating an amount in controversy. The Ninth Circuit determined that because the plaintiff had satisfied its burden by disproving that the jurisdictional threshold was met, the onus was placed on KMI to demonstrate the amount in controversy threshold by a preponderance of the evidence. To meet its burden this time around, KMI needed to submit “competent evidence” proving the jurisdictional element.
How Employers Are Affected
In light of the Harris decision, it is likely that plaintiffs will now seek to assert “factual challenges” to removal notices in the Ninth Circuit. The Harris decision establishes that even though a defendant-employer’s assumption may appear reasonable and may plausibly support a $5 million amount in controversy, it is still prudent for the defendant-employer to explain its calculation in greater detail and offer evidence substantiating its allegations for federal jurisdiction. In short, the decision emphasizes that the burden of proving federal jurisdiction falls on the proponent of removal and that the underlying assumptions will no longer be taken at face value.
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Lily T. Khosrowpour, Associate
Thalia S. Rofos, Partner