Proskauer on Class and Collective Actions

Ninth Circuit Holds that Last-Known Addresses of Putative Class Members Are Insufficient To Satisfy CAFA Exceptions

The Class Action Fairness Act (“CAFA”) permits removal of many class actions from state to federal court, but includes a “local controversy” exception that forbids removal where two-thirds or more of the proposed class resides in the state where the action is brought. In disputes over efforts to use CAFA to remove class actions, the residence of the class members often is difficult to assess. Earlier this month, in King v. Great American Chicken Corp., Inc., d/b/a Kentucky Fried Chicken, No. 18-55911, the Ninth Circuit reversed the district court’s order remanding a California wage-and-hour putative class action to state court, holding that the district court improperly relied on the last-known addresses of current and former employees to find that most of them were likely citizens of California and the United States. The Ninth Circuit’s holding may prove very helpful to defendants removing class actions to federal court.

The Ninth Circuit’s Decision

Plaintiff-Appellee Celena King filed a putative class action in California state court on behalf of approximately 6,000 current and former non-exempt employees of Defendant-Appellant Great American Chicken Corp., Inc. d/b/a Kentucky Fried Chicken (“GAC”) who were employed in California. King alleged that GAC violated various provisions of California’s wage-and-hour law.   GAC removed the case to the United States District Court for the Central District of California pursuant to CAFA, which requires that the amount in controversy be greater than $5 million; that the putative class size be greater than 100 members; and that any member of the class of plaintiffs be a citizen of a state different from any defendant. There are several exceptions to CAFA that deprive a federal court of jurisdiction, including the local controversy exception, which requires that the party opposing removal prove, by a preponderance of the evidence, that more than two-thirds of the putative class are citizens of the state in which the action was originally filed and the home state exception, which requires that the party opposing removal prove that at least two-thirds of the putative class (and the primary defendants) are citizens of that state.

To avoid conducting jurisdictional discovery, the parties agreed to stipulate that at least 67% of the last known addresses of the putative class members were in California. The Ninth Circuit was skeptical of the stipulation because a figure of “at least 67%” would only produce a figure “greater than two-thirds” by an extremely narrow margin. In light of GAC’s evidence that former employees had moved to other states, and because the last-known addresses were several years old, the Court determined that it was likely that other employees had done the same. The Ninth Circuit also held that it was “very likely that some putative class members were not United States citizens” and therefore were not citizens of California. The Court explained that it could not be assumed that all residents of California were citizens of the United States. Accordingly, the Court indicated that it would have to consider the proportion of California residents who are not U.S. citizens and extrapolate that to the putative class in determining whether the CAFA exceptions has been satisfied. The Court then ordered that King be permitted to conduct jurisdictional discovery if she wished to renew her motion to remand.

Implications

While federal courts have consistently placed the burden of establishing the CAFA exceptions on the party seeking to remand, the Ninth Circuit has taken this burden a step further. Now, if a party wants to successfully oppose a motion to remand based on the local controversy or home state exceptions, it will need to prove not only that more than or at least two-thirds of the putative class members are citizens of the state in question but also that they are citizens of the United States. A party’s ability to satisfy this burden will likely depend on the class of workers involved, as well as on the state in question. In short, the Ninth Circuit’s decision signals that plaintiffs who attempt to bring class actions on behalf of classes comprised of non-U.S. citizens and/or in states with a higher proportion of residents who are not U.S. citizens may have a more difficult time availing themselves of CAFA’s local controversy and home state exceptions and may be required to proceed in federal court.

 

 

Seventh Circuit Affirms Denial of Class Certification for Failure to Show Commonality under Dukes in Vacation Pay Suit

Last week, in McCaster et al. v. Darden Restaurants, Inc. et al., No. 15-3258 (7th Cir. Jan. 5, 2017), the Seventh Circuit relied on Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011) and affirmed the district court’s denial of class certification of Plaintiffs’ claims for vacation pay under state law.  The Seventh Circuit’s reliance on Dukes demonstrates that the Supreme Court’s holding extends beyond the discrimination context and applies with equal force in wage and hour class actions (at least within the Seventh Circuit).  The Court concluded that Plaintiffs’ proposed class definition constituted an impermissible “fail safe” class because an individual’s membership in the class turned on the merits of his or her claim, and that Plaintiffs’ alternative class definition did not satisfy the commonality requirement of Rule 23 under Dukes. This decision exemplifies the critical balance plaintiffs must strike in defining their proposed classes; while a “fail safe” class will not be permitted, a class definition that is too broad will not satisfy the requirements of Rule 23. Continue Reading

Fifth Circuit Addresses FLSA Tip Credits Once Again

The Fifth Circuit has had tipping on its mind, as the decision of Steele v. Leasing Enterprises, Ltd., represents its second opinion within ten months addressing this pay practice. On the heels of Montano v. Montrose, the Steele decision tackles the question of whether an employer violates 29 U.S.C §203(m) of the Fair Labor Standards Act (FLSA) when it offsets tip credits to recover costs related to processing credit card transactions – essentially passing on some of those costs to the tipped employee. (No. 15-20139), 2016 WL 3268996, (5th Cir. June 14, 2016).

Continue Reading

Supreme Court Takes Away a Class Action Defense Tool That We Couldn’t Really Use Anyway

Yesterday, the Supreme Court held in Campbell-Ewald Co. v. Gomez, No. 14-857 (U.S. Jan. 20, 2016), that when a defendant makes an offer to resolve the named plaintiff’s claim for full value, but the plaintiff turns it down, the case is not moot, and simply proceeds. Campbell-Ewald had argued that since it had offered to pay everything the plaintiff demanded, there was no longer any live controversy for the court to adjudicate, and the case should be dismissed. The Supreme Court disagreed, in a 6-3 decision authored by Justice Ginsburg.

Continue Reading

Eleventh Circuit Adopts Second Circuit’s “Primary Beneficiary” Test for Unpaid Interns

On September 11, 2015, the Eleventh Circuit became the first appellate court to address the standard for lawful unpaid internships since the Second Circuit’s ruling in Glatt et al. v. Fox Searchlight Pictures, Inc. et al. (For more on Glatt, see our post here). The new decision adopts the Glatt test and reasoning wholesale, and provides helpful guidance on applying the Glatt factors. The case also strengthens the trend away from relying on the DOL’s Fact Sheet 71, which purports to provide restrictive guidance on unpaid internships.

Continue Reading

Fifth Circuit Tips Its Hand as to Analysis of FLSA’s Tip Credit

Restaurants throughout the Fifth Circuit, and even beyond, should review the recent decision of Montano v. Montrose Restaurant, which discusses the often tricky and always fact-intensive question of whether a restaurant employee is properly included in a tip pool.

Continue Reading

Second Circuit Revives Contract Attorney’s Misclassification Suit

On July 23, 2015, the Second Circuit, in Lola v. Skadden, Arps, Slate, Meagher & Flom LLP, Tower Legal Staffing, Inc., revived a putative collective action brought by David Lola, a contract attorney, against Skadden and Tower Legal Staffing, Inc., alleging violations of the overtime provisions of the Fair Labor Standards Act.  The Second Circuit held that the plaintiff adequately pled that document review may not necessarily constitute “practicing law” under North Carolina law.

Continue Reading

Second Circuit Adopts The “Highly Individualized” Primary Beneficiary Test In Unpaid Intern Lawsuits

On July 2nd, the United States Court of Appeals for the Second Circuit issued its decisions in Glatt et al. v. Fox Searchlight Pictures, Inc. et al. and Wang et al.  v. The Hearst Corp., the two unpaid intern lawsuits heard in tandem by the court on January 30, 2015.  The court’s opinion in Glatt, and summary order in Wang, adopted the employer-proposed “primary beneficiary” test to determine whether an unpaid intern should be considered an “employee” under the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”) and thus entitled to compensation.

Continue Reading

Magistrate Recommends Denial of Class Certification in Goldman Sachs Gender Discrimination Suit

On March 10, 2015, a group of plaintiffs suing Goldman Sachs for gender discrimination suffered another setback in their attempt to certify a company-wide class in the case of Chen-Oster et al. v. Goldman, Sachs & Co., 10 Civ. 6950, pending in the Southern District of New York.  In that decision, linked here, Magistrate Judge Francis issued a report and recommendation holding that individualized issues of causation would “swamp” any classwide questions and that the predominance requirement of Rule 23(b)(3) was not met.

Continue Reading

LexBlog