Ninth Circuit Holds CAFA $5 Million Amount in Controversy Requirement Must Rely on “Reasonable” Chain of Reasoning and Underlying Assumptions

Last week, the U.S. Court of Appeals for the Ninth Circuit issued two opinions attempting to clarify what proof a defendant seeking removal must produce to establish the $5 million amount-in-controversy requirement for removing a class action lawsuit under the Class Action Fairness Act (CAFA). 

In Ibarra v. Manheim Investments, Inc., the plaintiffs alleged that the defendants had a “pattern and practice of failing to pay their non-exempt employees for working off-the-clock.”  The defendants removed the case to federal court based on an assumption that each class member missed one meal break in each of their 5-hour shifts, and one rest break in each of their 3.5 hour shifts, i.e., a 100% violation rate.

On appeal, the Ninth Circuit found that a “pattern and practice” of doing something does not necessarily mean a 100% violation rate.  Because the complaint did not allege that the defendants always denied the plaintiffs their meal and rest breaks for every shift, the defendants had the burden of showing that the amount in controversy calculation relied on “reasonable assumptions.”  The Ninth Circuit held that when a defendant relies on assumptions to satisfy its burden to prove by a preponderance of the evidence that the amount in controversy exceeds $5 million, then “those assumptions cannot be pulled from thin air but need some reasonable ground underlying them.”  Since neither side had submitted proof regarding the violation rate, the Ninth Circuit vacated the district court’s order and remanded the case to the district court to allow both parties the opportunity to submit evidence and arguments regarding whether the $5 million amount in controversy requirement under CAFA had been satisfied.

In LaCross v. Knight Transportation, Inc., a wage-and-hour class action defended by Littler, the Ninth Circuit applied the Manheim analysis but reached a different conclusion.  The plaintiffs in Knight filed a class action against the defendants alleging Knight misclassified them as independent contractor truck drivers, instead of properly classifying them as employees.  One of the plaintiffs’ claims was for reimbursement, which, if the putative class members were misclassified, could include reimbursement of fuel costs.  The defendants removed, arguing the CAFA minimum jurisdiction could be established by taking the actual fuel costs that the truck drivers invoiced in one quarter, reducing this number by the lowest number of drivers working for the defendants during the 16-quarter class period, and then multiplying this reduced-quarterly-fuel-cost amount by the 16-quarter class period, which came out to $21 million.  In reversing the district court’s remand order, the Ninth Circuit concluded that the defendants’ “chain of reasoning and its underlying assumption” to extrapolate fuel costs for the entire class period using the actual invoiced fuel costs for one quarter was reasonable. 

Based on the Manheim and Knight decisions, a removing defendant may assume a 100% violation rate only if the allegations reasonably support such a violation, e.g., the plaintiffs allege all putative class members were misclassified, or the defendant submits evidence supporting such a violation rate.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.