Madriz-Rivas v. Grace Holmes, Inc.

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 LUIS MADRIZ-RIVAS, Case No. 5:24-cv-07061-PCP

8 Plaintiff, ORDER REMANDING CASE TO 9 v. STATE COURT

10 GRACE HOLMES, INC., Defendant. 11

12 Plaintiff Luis Madriz-Rivas, a former employee of defendant Grace Holmes, Inc., filed this 13 putative state-law wage and hour class action in Santa Clara County Superior Court. Grace 14 Holmes subsequently removed the case to federal court, asserting that this Court has jurisdiction 15 under the Class Action Fairness Act (CAFA), 28 U.S.C. § 1332(d)(2). Magistrate Judge Cousins 16 ordered Grace Holmes to show cause establishing that CAFA’s jurisdictional requirements are 17 satisfied. For the following reasons, Grace Holmes has not met its burden of establishing this 18 Court’s subject matter jurisdiction. The Court therefore remands this action to Santa Clara County 19 Superior Court. 20 BACKGROUND 21 Madriz-Rivas, a former employee of Grace Holmes, filed this putative wage and hour class 22 action on behalf of more than 1,200 employees. He asserts nine causes of action: (1) failure to pay 23 minimum and straight-time wages in violation of California Labor Code § 1194 and applicable 24 Industrial Welfare Commission (IWC) Wage Orders; (2) failure to pay overtime wages in 25 violation of California Labor Code §§ 510, 1194, 1198; (3) failure to provide meal periods in 26 violation of California Labor Code §§ 512, 226.7, and section 11 of the applicable Wage Order; 27 (4) failure to provide rest periods in violation of California Labor Code §§ 226.7, 512 and the 1 Code §§ 201, 202, 203; (6) failure to issue accurate and itemized wage statements in violation of 2 226(a); (7) failure to pay and indemnify employees for expenditures in violation of California 3 Labor Code §2802; (8) failure to produce employment records in violation of California Labor 4 Code §§ 226, 1198.5; and (9) violation of California’s Unfair Competition Law (UCL), Cal. Bus. 5 & Profs. Code § 17200 et seq. 6 Madriz-Rivas filed his complaint in Santa Clara County Superior Court. Grace Holmes 7 then removed the case to federal court pursuant to CAFA, 28 U.S.C. §§ 1332(d), 1453. In its 8 notice of removal, Grace Holmes alleged that removal was proper under CAFA because the case 9 has more than 100 putative class members, the amount in controversy exceeds $5,000,000, and 10 Madriz-Rivas is a citizen of California while Grace Holmes is a citizen of Delaware and New 11 York. 12 On October 10, 2024, Magistrate Judge Cousins ordered Grace Holmes to show cause 13 establishing that this case meets CAFA’s jurisdictional requirements. Both parties filed responses. 14 LEGAL STANDARDS 15 A defendant may remove a case from state court to federal court only if the federal court 16 would have originally had subject matter jurisdiction over it. 28 U.S.C. § 1441(a); see Caterpillar 17 Inc. v. Williams, 482 U.S. 386, 392 (1987) (“Only state-court actions that originally could have 18 been filed in federal court may be removed to federal court by the defendant.”). “If at any time 19 before final judgment it appears that the district court lacks subject matter jurisdiction, the case 20 shall be remanded.” 28 U.S.C. § 1447(c). 21 CAFA gives federal courts jurisdiction over class actions where there are at least 100 class 22 members, at least one plaintiff is diverse in citizenship from any defendant, and the amount in 23 controversy exceeds $5,000,000. 28 U.S.C. § 1332(d)(2), (d)(5)(B); see Ibarra v. Manheim 24 Investments, Inc., 775 F.3d 1193, 1195 (9th Cir. 2015). 25 The removing party bears the burden of establishing that CAFA’s jurisdictional 26 requirements have been met. Abrego Abrego v. The Dow Chemical Co., 443 F.3d 676, 683–685 27 (9th Cir. 2006); Serrano v. 180 Connect, Inc., 478 F.3d 1018, 1021–22 (9th Cir. 2007). The 1 for removal, 28 U.S.C. § 1446(a), which must include a “plausible allegation that the amount in 2 controversy exceeds the jurisdictional threshold,” De Vega v. Baxter Healthcare Corp., 507 F. 3 Supp. 3d 1214, 1216 (N.D. Cal. 2019) (quoting Ibarra, 775 F.3d at 1197). 4 In determining the amount in controversy, courts first look to the allegations in the 5 complaint. Ibarra, 775 F.3d at 1197. If the complaint does not state the amount in controversy, the 6 defendant’s notice of removal may do so. Dart Cherokee Basin Operating Co., LLC v. Owens, 574 7 U.S. 81, 84 (2014). If the amount in controversy alleged by the defendant is contested by the 8 plaintiff or questioned by the court, the defendant must show by a preponderance of the evidence 9 that the amount in controversy exceeds the jurisdictional threshold. Id. at 82, 88. “The parties may 10 submit evidence outside the complaint, including affidavits or declarations, or other ‘summary- 11 judgment-type evidence relevant to the amount in controversy at the time of removal.’” Ibarra, 12 775 F.3d at 1197 (quoting Singer v. State Farm Mut. Auto. Ins. Co., 116 F.3d 373, 377 (9th Cir. 13 1997)). “Mere speculation and conjecture” are not sufficient to establish CAFA jurisdiction. 14 Ibarra, 775 F.3d at 1197. 15 ANALYSIS 16 To determine if removal was proper, the Court must assess whether this case meets 17 CAFA’s threshold requirements. Because Madriz-Rivas is a citizen of California and Grace 18 Holmes is a citizen of Delaware and New York, CAFA’s “minimal diversity” requirement is met. 19 The proposed class consists of Grace Holmes’s California-based hourly or non-exempt employees 20 during the four years before the filing of the complaint. Because that class includes more than 21 1,200 employees, according to Grace Holmes’s records, CAFA’s class size requirement is met. 22 The parties disagree, however, as to whether the final requirement for CAFA jurisdiction—that the 23 amount in controversy exceed $5,000,000—is satisfied. 24 Madriz-Rivas’s complaint does not specify an amount in controversy. Grace Holmes’s 25 notice of removal alleges only that the amount in controversy requirement is met. In response to 26 Magistrate Judge Cousins’s order to show cause establishing that CAFA’s jurisdictional 27 requirements are met, Grace Holmes submitted a declaration from Stephen Eng, a consultant who 1 Based on payroll records for 1,274 employees and timekeeping records for 1,336 employees over 2 the relevant period, Grace Holmes estimates the total amount in controversy as $8,755,650: 3 $647,116 for meal break penalties, $994,430 for rest break penalties, $248,608 for unpaid off-the- 4 clock work, $248,608 for liquidated damages for unpaid off-the-clock work, $643,680 for 5 unreimbursed expenses, $570,750 for wage statement penalties, $1,141,500 for late payment of 6 wages penalties, $2,509,829 for waiting time penalties, and $1,751,130 for attorneys’ fees. Grace 7 Holmes also proposes a second estimate of the amount in controversy based on more conservative 8 violation rate estimates. Under that approach, Grace Holmes estimates that the amount in 9 controversy is $6,916,988. 10 Defendants are allowed to make reasonable assumptions when calculating the amount in 11 controversy. Jauregui v. Roadrunner Transportation Servs., Inc., 28 F.4th 989, 993 (9th Cir. 12 2022) (cleaned up) (“[W]hen calculating the amount in controversy, the parties need not predict 13 the trier of fact’s eventual award with one hundred percent accuracy. As is inescapable at this 14 early stage of the litigation, the removing party must be able to rely on a chain of reasoning that 15 includes assumptions … as long as the reasoning and underlying assumptions are reasonable.”). 16 But those assumptions cannot be based upon speculation unsupported by evidence. Ibarra, 775 17 F.3d at 1199 (“[A]ssumptions cannot be pulled from thin air but need some reasonable ground 18 underlying them.”); id. at 1197 (“[A] defendant cannot establish removal jurisdiction by mere 19 speculation and conjecture, with unreasonable assumptions.”); Salazar v. Johnson & Johnson 20 Consumer Inc., 2018 WL 4560683, at *3 (C.D. Cal. Sept. 19, 2018) (“Courts have routinely 21 remanded cases where amount in controversy calculations rely on speculative assumptions 22 unsupported by evidence.”); Contreras v. J.R. Simplot Co., No. 2:17–CV–00585–KJM–EFB, 2017 23 WL 4457228, at *2 (E.D. Cal. Oct. 6, 2017) (“When the defendant relies on a chain of reasoning 24 that includes assumptions to satisfy its burden of proof, the chain of reasoning and its underlying 25 assumptions must be reasonable, and not constitute mere speculation and conjecture.”). 26 With respect to some of its estimates, Grace Holmes relies on assumed violation rates that 27 it fails to demonstrate are reasonable. With respect to others, Grace Holmes’s assumed violation 1 Grace Holmes’s calculations of the amount in controversy on the minimum wage, meal 2 period, rest period, and business expenses claims might be reasonable. But Grace Holmes does not 3 explain the chain of reasoning leading to those assumptions in a manner that would permit the 4 Court to determine their reasonableness. For example, Grace Holmes asserts that a 33% meal 5 period violation rate is reasonable based on Madriz-Rivas’s allegation that Grace Holmes “at 6 times[] failed to provide Plaintiff and some, but not necessarily all of the Class with both meal 7 periods as required by California law.” It is not clear how Grace Holmes determined that it could 8 reasonably assume a 33% violation rate from the terms “at times” and “some, but not all.” Without 9 further explanation, the Court cannot conclude that such an assumption is reasonable. As the court 10 explained in Peters v. TA Operating LLC, “the problem is not necessarily that Defendants picked a 11 violation rate that is too high. The problem is that the Court cannot discern why it picked that 12 number at all, because Defendants never adequately explain their chain of reasoning and certainly 13 provide no real evidence in support of it.” No. EDCV221831JGBSHKX, 2023 WL 1070350, at *9 14 (C.D. Cal. Jan. 26, 2023); cf. Cackin v. Ingersoll-Rand Indus. U.S., Inc., 2021 WL 2222217, at *3 15 (C.D. Cal. June 2, 2021) (“If one is going to assume a violation rate based on nothing more than 16 language in a complaint referencing a ‘pattern and practice,’ then there is no basis for suggesting 17 that a violation rate of 25% is any more or less reasonable than a violation rate of once per week or 18 once per month.”). While Grace Holmes cites other cases in which courts have found similar or 19 higher assumed violation rates reasonable, it does not adequately explain why the underlying facts 20 of those cases make its assumptions in this case reasonable. 21 Grace Holmes also offers an alternative set of calculations based on more conservative 22 estimates of the violation rates, according to which the amount in controversy is $6,916,998. 23 While such conservative estimates seem likely to be reasonable where the complaint alleges 24 general policies or common practices of violating wage and hour statutes, they remain insufficient 25 for purposes of establishing jurisdiction under CAFA to the extent that they are merely 26 “speculative” and “pluck[ed] … out of the air,” as they appear to be here. Grace Holmes’s 27 reasoning for the assumed more conservative violation rates is as opaque as that underlying its 1 conservative estimate of the] violation rate[s] because it might seem low enough to be facially 2 ‘reasonable’ and still high enough to keep them on track to hit their magic number of $5,000,000.” 3 2023 WL 1070350, at *9. This is not enough. Based on the negligible reasoning that Grace 4 Holmes offers to justify its assumptions, it would be no more arbitrary to choose the even more 5 conservative estimate of a 5% violation rate for meal and rest period violations, which would 6 make the amount in controversy for those claims $97,068 and $149,165, respectively. As 7 discussed below, when those estimates are used and other unreasonable assumptions are corrected, 8 the total amount in controversy falls below $5,000,000.1 9 In addition to relying on these possibly reasonable but entirely unsupported assumptions, 10 Grace Holmes relies on unreasonable assumptions to calculate waiting time penalties for untimely 11 payment of wages at the termination of employment, late payment penalties for untimely payment 12 of wages during employment, and wage statement penalties for failure to provide complete and 13 accurate wage statements, all of which are derivative of the minimum wage, overtime, meal 14 period, and rest period claims. To calculate waiting time, late payment, and wage statement 15 penalties, Grace Holmes assumes a 100% violation rate. It relies on Wicker v. ASC Profiles LLC, 16 in which the court held that such an assumption was reasonably supported by evidence because the 17 defendants had shown that it was more likely than not that putative class members each suffered 18 one meal and one rest break violation per week. No. 2:19-cv-02443-TLN-KJN, 2021 WL 19 1187271, at *4 (E.D. Cal. Mar. 30, 2021). But whether an assumed violation rate is reasonable 20 depends on the specific facts of the case, and in this case Grace Holmes has not shown that it is 21 more likely than not that putative class members each suffered at least one underlying violation 22 per week. As Madriz-Rivas argues, the complaint’s allegation that Grace Holmes at times failed to 23 provide some putative class members with timely final wages does not indicate that 100%, or even 24 20%, of former employees experienced those violations. If the violation rates for untimely 25 payment of wages and wage statement violations are assumed to be 50%, which is arguably more 26 1 Grace Holmes similarly fails to explain why it is reasonable to assume that all class members 27 worked off the clock for 5 minutes each shift and incurred $20 in unreimbursed expenses per pay 1 reasonable than 100% based on the limiting language of the complaint, the amount in controversy 2 for those three claims alone is reduced by $2,111,040.2 3 Grace Holmes’s assumption that the attorneys’ fees award in this case will equal 25% of 4 the value of the underlying wage-and-hour claims is also unreasonable, for two reasons. First, the 5 25% benchmark applies to awards of attorneys’ fees in common-fund cases. Where, as here, 6 attorneys’ fees are awarded under a fee-shifting statute and calculated using the lodestar/multiplier 7 approach, attorneys’ fees may be substantially less or substantially more. Second, because the 8 estimated amount in controversy on the underlying wage-and-hour claims is based on 9 unreasonable assumptions, those claims do not provide a reasonable basis for estimating the 10 amount in controversy with respect to the derivative attorneys’ fees. 11 There is no evidence before the Court from which it might be able to formulate a 12 reasonable estimate of plaintiffs’ attorneys’ fees based on plaintiffs’ counsels’ hourly rates and the 13 number of hours likely to be expended in this litigation. But even if attorneys’ fees are calculated 14 as 25% of the amount in controversy with respect to the underlying wage-and-hour claims (as 15 Grace Holmes proposes), if violation rates are assumed to be 5% for meal and rest period 16 violations and 50% for untimely payment of wages and wage statement violations, as discussed 17 above, the amount in controversy with respect to plaintiffs’ request for attorneys’ fees would be 18 $794,082, and the total amount in controversy in this case would be $3,970,409. This amount does 19 not reach CAFA’s minimum threshold. 20 CONCLUSION 21 Because Grace Holmes has not established that the amount in controversy exceeds 22 $5,000,000, Grace Holmes has not satisfied its burden of establishing removal jurisdiction by a 23 preponderance of the evidence. Accordingly, the Court remands this case to the Santa Clara 24 County Superior Court. 25 26 IT IS SO ORDERED. 27 1 Dated: January 17, 2025 Ze. 2 P. Casey Pitts 3 United States District Judge 4 5 6 7 8 9 10 11 12

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