Wednesday, September 19, 2018

FYI: 9th Cir Holds CAFA Amount In Controversy Includes Future Attorney's Fees Incurred After Removal

The U.S. Court of Appeals for the Ninth Circuit recently reversed a trial court's order remanding a putative class action lawsuit to state court on the ground that the defendant removing party failed to prove that the amount in controversy exceed the $5 million, as required for jurisdiction under the Class Action Fairness Act ("CAFA").

 

In so ruling, the Ninth Circuit held that the amount in controversy for jurisdiction under CAFA includes all attorneys' fees that the plaintiff would be entitled to under a contract or statute, including future fees incurred after the date of removal.

 

A link to the opinion is available at:  Link to Opinion

 

A driver ("Employee") filed a wage-and-hour class action against his employer ("Employer"), a trucking and transportation company.  The Employee alleged that the Employer denied him and other employees proper overtime pay, meal periods, and appropriate wage statements. 

 

The complaint sought wages and premiums owed, prejudgment interest, statutory penalties, attorneys' fees under California Labor Code § 218.5 and 1194, and costs of suit.  The Employee also asked for equitable relief under California's unfair competition law and statutory damages under California's Private Attorneys General Act (PAGA).

 

During the litigation, the Employee delivered a mediation brief that listed total damages in the amount of $5,924,104, which included $948,192 in unpaid rest period premiums, $150,000 in attorneys' fees and costs incurred as of the date of the brief, and $531,404 in interest on unpaid overtime wages.  The Employee also estimated that the Employer faced PAGA penalties of $5,874,079.

 

In October 2017, the Employer filed a notice of removal asserting jurisdiction under CAFA.  As you may recall, CAFA gives trial court's jurisdiction over civil actions in which "the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs," the proposed class consists of more than 100 members, and "any member of [the] class of plaintiffs is a citizen of a State different from any defendant."  28 U.S.C. § 1332(d)(2).

 

Using the damages listed in the mediation brief -- minus estimated interest payments and PAGA penalties, which are not included in the amount in controversy -- the Employer alleged that the amount in controversy was $5,392,700.  The Employer also argued that in addition to the $150,000 in attorneys' fees and costs incurred to date, the trial court could recognize future attorneys' fees that would accrue over the course of the case.

 

The trial court determined that because the complaint did not include a claim for failure to provide rest periods, the $948,192 for unpaid rest period premiums could not be included as part of the jurisdictional amount.  The trial court also ruled that attorneys' fees may only include fees incurred as of the date of removal, which was $150,000.  Because the Employer established that only $4,778,575 was at stake, the trial court held that this amount did not meet the minimum required under CAFA, and remanded the case to state court.

 

This appeal followed.

 

The Ninth Circuit began its analysis by observing that where "it is unclear or ambiguous from the face of a state-court complaint whether the requisite amount in controversy is pled,  the removing defendant bears the burden of establishing, by a preponderance of the evidence, that the amount in controversy exceeds the jurisdictional threshold."  Urbino v. Orkin Servs. of Cal., 726 F.3d 1118, 1121-22 (9th Cir. 2013).

 

While the appeal was pending, the Ninth Circuit issued its ruling in Chavez v. JPMorgan Chase & Co., 888 F.3d 413 (9th Cir. 2018), which held that "the amount in controversy is not limited to damages incurred prior to removal -- for example, it is not limited to wages a plaintiff-employee would have earned before removal (as opposed to after removal)," but rather "is determined by the complaint operative at the time of removal and encompasses all relief a court may grant on that complaint if the plaintiff is victorious." 

 

The Ninth Circuit acknowledged that before Chavez, it had not clarified what it meant to say by the amount in controversy is determined "at the time of removal," and trial courts had not consistently applied this language.  However, the Ninth Circuit clarified this issue in Chavez.  Therefore, the only issue on appeal was whether the trial court erred in concluding that the Employer had failed to prove, by a preponderance of the evidence, that CAFA's amount in controversy requirement was met. 

 

The Employee argued that Chavez should be limited to its facts, and that it applied only to the claims for future wage loss.

 

However, while Chavez itself concerned a claim for future wage loss, the Ninth Circuit stated that its holding applied to any class of damages included in the amount in controversy.  Specifically, the amount in controversy included "all relief claimed at the time of removal to which the plaintiff would be entitled if she prevails."  Chavez, 888 F.3d at 418.  Thus, the Ninth Circuit concluded that its reasoning in Chavez applied equally to attorneys' fees available under fee shifting statutes.

 

Next, the Employee argued that future attorneys' fees should not be included in the amount in controversy because they are inherently speculative and can be avoided by the defendant's decision to settle an action quickly.  The Employee relied on Gardynski-Leschuck v. Ford Motor Co., 142 F.3d 955 (7th Cir. 1998), where the Seventh Circuit held that under the Magnuson-Moss Warranty Act, 15 U.S.C. § 2310(d), the amount in controversy cannot include attorneys' fees that have not yet been incurred.

 

The Ninth Circuit explained that its precedent in Chavez was controlling. 

 

Moreover, unlike the Seventh Circuit where the defendant need only show "a  reasonable probability" that the amount in controversy exceeds the minimum, the Ninth Circuit requires a removing defendant to prove that the amount in controversy (including attorneys' fees) exceeds the jurisdictional threshold by a preponderance of evidence.  The defendant is also required to make this showing with summary judgment type evidence.

 

Given defendants' obligation to prove future attorneys' fees by a preponderance of the evidence, and noting the trial's expertise in evaluating litigation expenses, the Ninth Circuit concluded that it did not share the Seventh Circuit's concerns about calculating future attorneys' fees.

 

In the Ninth Circuit's view, the amount in controversy must include future attorneys' fees because the complaint demanded attorneys' fees permitted by California law.  The trial court's conclusion that, as a matter of law, the amount in controversy included only the $150,000 in attorneys' fees incurred up to the time of removal was incorrect.

 

Accordingly, the Ninth Circuit reversed the trial court's order remanding the case to state court.

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Sunday, September 16, 2018

FYI: 8th Cir Rules Terminating Bank Employees for Criminal Convictions Involving Dishonesty Not Unlawful Discrimination

The U.S. Court of Appeals for the Eighth Circuit recently affirmed summary judgment in favor of a bank that was sued by a putative class alleging discriminatory employment practices that supposedly violated Title VII of the Civil Rights Act of 1964 and the Iowa Civil Rights Act.

 

In so ruling, the Court held that the plaintiffs failed to establish a prima facie case of disparate impact because even if the bank's policy of summarily terminating applicants or employees with a criminal conviction involving dishonesty or breach of trust had a disparate impact, the banks' decision to comply with the applicable federal law was a business necessity under Title VII.

 

A copy of the opinion is available at:  Link to Opinion

 

As you may recall, a federal law, 12 U.S.C. § 1829 (a)(1)(a), prohibits "any person who has been convicted of any criminal offense involving dishonesty or a breach of trust" from employment at any financial institution insured by the Federal Deposit Insurance Corporation ("FDIC"). The law provides that disqualified persons may apply for a waiver, but no disqualified person can begin or continue employment with an insured institution until the waiver is obtained.

 

The plaintiffs, ten African Americans and Latinos, filed suit against the bank in the United States District Court for the Southern District of Iowa on behalf of a putative class alleging that the bank's "policy of summarily terminating or withdrawing offers of employment to any [disqualified] individual" was discriminatory and violated Title VII of the Civil Rights Act of 1964 and the Iowa Civil Rights Act.

 

The bank moved for summary judgment. The plaintiff's moved for additional time to conduct discovery under Federal Rule of Civil Procedure 56(d), which the magistrate judge granted in part and denied in part.

 

The district court granted the bank's motion for summary judgment, holding that the plaintiffs "failed to establish a prima facie case under any theory of employment discrimination pursuant to either federal or state law."

 

The plaintiffs appealed, "arguing that the district court misapplied disparate-impact law." They also challenged "the magistrate judge's ruling on their Rule 56(d) motion."

 

The Eighth Circuit framed the ultimate issue in the case as being "whether the appellants had established a prima facie case of Title VII disparate impact, and if they had, whether [the bank] failed to show a business necessity defense."

 

The plaintiffs-appellants argued that the bank "refused to adopt the alternative practices of giving advance notice of the need for a waiver, granting leave to seek a waiver, and providing direct sponsorship of a waiver." The plaintifff-appellants argued that, if the bank had uniformly enforced such policies, that would have minimized the disparate impact caused by the law's automatic disqualification.

 

The Eighth Circuit disagreed, first citing Title VII, 42 U.S.C. § 2000e-2(K)(1)(A)(i), which provides that "an unlawful disparate impact is established … 'only if … a complaining party demonstrates that a respondent uses a particular employment practice that cause a disparate impact on the basis of race … and the respondent fails to demonstrate that the challenged practice is job related for the position in question and consistent with business necessity.'"

 

In order to establish a prima facie disparate impact claim, plaintiffs must show: "(1) an identifiable, facially-neutral personnel policy or practice; (2) a disparate effect on members of a protected class; and (3) a causal connection between the two."

 

The Court rejected the plaintiff-appellants' argument that "the presented sufficient statistical evidence to show that disparity between white and non-white … employees and potential employees and that [the bank] failed to show a business necessity."

 

The Eighth Circuit reasoned that even if the bank's policy of uniformly terminating disqualified African-American and Latino employees at twice the rate of white employees caused a disparate impact, "the district court correctly recognized that the bank's 'sound business decision was to terminate regardless of race or age or ethnicity.'"

 

This was because failure to comply with 12 U.S.C. § 1829 "placed [the bank] at risk of daily fines of $1 million. Further, 'any bank or other financial institution wisely would prefer for its customers to be served by employees who were not … persons convicted of crimes of dishonesty.'"

 

The Eighth Circuit concluded that the bank's "policy of summary employment exclusion following … disqualification [under § 1829] is a business necessity." It also concluded that the appellants failed to present sufficient "evidence or statistics showing that … alternative practices would have reduced the disparate impact on people of color. … The statistics do not support the inference that any of the alternative practices put forward by the applicants would result in proportionally more non-white employees receiving waivers and thereby reduce the disparate impact. Without meaningful evidentiary support for their contention, the appellants' argument fails."

 

The Court also rejected the plaintiffs-appellants' challenge to the magistrate judge's denial of their motion seeking additional discovery because the appellants failed to file an objection to the magistrate judge's order. "Because the appellants failed to test the magistrate judge's pre-trial motion ruling before the district court, they cannot now leapfrog the district court and appeal the order directly to us."

 

Accordingly, the district court's summary judgment ruling in favor of the defendant bank was affirmed.

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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