Knowles Gives Employer Second Chance To Seek And Win Removal

The Ninth Circuit Court of Appeals held that neither a damages waiver nor the passage of more than 30 days after receipt of a complaint prevented an employer’s removal under CAFA.  A putative class of California store managers suing for lost overtime successfully prevented the defendant-employer’s first attempt at removal by expressly disclaiming any right to recover damages over $4,999,999.99, thereby ensuring that CAFA’s $5 million amount in controversy requirement could not be met.  The district court accepted this argument under the Ninth Circuit’s Lowdermilk decision, which held that such waivers were valid and effective unless defendant could prove to a “legal certainty” that damages exceeded $5 million.  After the Supreme Court decided in Standard Fire Ins. Co. v. Knowles that such damages waivers are ineffective to defeat removal under CAFA, the employer sought removal a second time.  In response, the district court remanded again, this time reasoning that the removal was not timely and, further, that the employer had failed to demonstrate that the amount in controversy exceeded $5 million. 

The Ninth Circuit reversed, concluding that the removal was timely because only after Knowles had been decided could the complaint have been read to “affirmatively reveal on its face facts necessary for federal court jurisdiction”; therefore, the removal statutes’ 30-day period was triggered anew upon Knowles issuance.  As to the amount in controversy, the Ninth Circuit held that, under the preponderance of evidence standard—the relevant standard in the Ninth Circuit after Knowles and the Ninth Circuit’s subsequent decision in Rodriquez vs. ATT Mobility Services, LLC—the district court’s findings were clearly erroneous in light of the uncontroverted evidence that the damages at issue exceeded $5 million.  The court further refused to consider that, during the interim period between removal attempts, a state court had certified a smaller class with damages less than $5 million, because, the court reasoned, post-filing developments do not defeat jurisdiction if jurisdiction was properly invoked as of the time of filing.

Rea, et al. v. Michaels Stores Inc., No. 14-55008 (9th Cir. Feb. 18, 2014).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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