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The Ninth Circuit Holds that Lead Plaintiffs in a Putative Class Action Don’t Get to Plead Their Way Out of Federal Court

Posted in Wage & Hour

By: Lizbeth V. West, Esq.

Plaintiff Robert Rodriguez brought a putative class action against AT&T Mobility Services, LLC, on behalf of himself and all other similarly situated retail sales managers of AT&T wireless stores in Los Angeles and Ventura counties. Rodriguez asserted various claims under California law related to alleged unpaid wages, overtime compensation, and damages for statutory violations. Rodriguez filed his original complaint in Los Angeles County Superior Court and AT&T removed the case to federal court under 28 U.S.C. § 1332(d)(2) (the federal Class Action Fairness Act).

Rodriguez moved to remand the case back to California state court, arguing that AT&T could not establish subject-matter jurisdiction in federal court. Specifically, Rodriguez argued that the total amount in controversy in this putative class action did not exceed $5 million, the minimum amount for federal jurisdiction as required by § 1332(d). Rodriguez pointed to his First Amended Complaint, which stated that “the aggregate amount in controversy is less than five million dollars” and that he, as lead plaintiff “waive[d] seeking more than five million dollars ($5,000,000) regarding the aggregate amount in controversy for the class claims alleged.”

AT&T attempted to establish that the amount in controversy did in fact exceed $5 million by submitting several sworn declarations from AT&T representatives regarding the potential number of class members and size of their claims. AT&T argued that Rodriguez’s allegations, coupled with the sworn declarations, established that the amount in controversy could not be less than roughly $5.5 million and was likely double that amount. The district court rejected AT&T’s argument and remand the case back to state court. The court noted that the amount in controversy was the only jurisdictional requirement at issue in this case and that a defendant seeking removal of an action to federal court bears the burden of establishing the grounds for federal jurisdiction. Citing Lowdermilk v. U.S. Bank Nat’l Ass’n, (9th Cir. 2007) 479 F.3d 994, 999 (which imposed on defendants the burden to prove the amount-in-controversy to a “legal certainty”), the district court held that AT&T “must demonstrate to a legal certainty that more than $5,000,000 is at issue in this case.” The court held that AT&T could not do so because Rodriguez’s “‘disclaimer’ of any recovery exceeding $5,000,000 effectively foreclosed the jurisdictional issue.” Because the waiver was controlling, the court reasoned that it “need not address the issues surrounding the parties’ respective calculations of the amount in controversy as if there were no waiver or disclaimer of any amount exceeding $5,000,000.”

AT&T filed a petition to appeal under 28 U.S.C. § 1453(c)(1), which the Ninth Circuit granted on July 1, 2013. The Court vacated the district court’s order remanding to state court a putative class action. The Court held that the lead plaintiff’s waiver of any claim in excess of the $5 million amount-in-controversy requirement of 28 U.S.C. § 1332(d)(2) was ineffective, and the waiver no longer had legal effect. The Ninth Circuit held that its previous decision in Lowdermilk was effectively overruled by the U.S. Supreme Court’s holding in Standard Fire Ins. Co. v. Knowles, 133 S. Ct. 1345 (2013), and that the proper burden of proof imposed upon a defendant to establish the amount-in-controversy is the preponderance of the evidence standard. Because the district court’s remand order relied solely on the waiver in Rodriguez’s First Amended Complaint, the Ninth Circuit remanded to the district court for consideration and application of the preponderance standard to the amount-in-controversy evidence.

Take Away: Class-action lead plaintiffs will no longer be able to plead their way out of federal court by merely waiving the right to seek an amount in excess of the minimum amount for federal jurisdiction under the federal Class Action Fairness Act. As the Supreme Court noted in Standard Fire, courts must look beyond the complaint to determine whether the putative class action meets the jurisdictional requirements under the Act. Thus, proper consideration must be given to a defendant’s evidence regarding the amount in controversy under the preponderance standard.