Until a couple of years ago, plaintiffs’ attorneys seeking to keep their class actions in state court would frequently stipulate that they would not seek damages in excess of the $5 million CAFA threshold. This practice fell by the wayside as courts increasingly rejected such stipulations. It ended officially with the Supreme Court’s 2013 holding that stipulations cannot bind absent members of the putative class, and therefore cannot defeat CAFA jurisdiction.
An alternative strategy for plaintiffs that may be gaining traction is to allege a narrower class than they might be able to represent, in order to keep the amount in controversy below $5 million. But a recent Ninth Circuit opinion illustrates the potential danger to plaintiffs in this approach—and a potential opportunity for defense counsel to raise or renew the jurisdictional issue after the class certification stage.
In Reyes v. Dollar Tree Stores, Inc., the plaintiff alleged that Dollar Tree had denied proper rest breaks to its employees. The original complaint, filed in California state court, sought to recover on behalf of assistant managers of Dollar Tree stores in California who worked at least one 3.5-hour period during the class period without receiving a paid rest break. Although the complaint alleged that the amount in controversy was below the $5 million CAFA threshold, Dollar Tree removed the case to federal court, arguing that given the class definition and the other allegations in the complaint, the $5 million threshold was necessarily exceeded.
In response, the plaintiff pointed to language in the complaint limiting the class to only those assistant managers who worked without another manager present. The plaintiff argued that this narrow class definition rendered Dollar Tree’s calculations inaccurate. The district court agreed and remanded the case to state court.
The plaintiff subsequently moved for certification of the narrow class. The state court, however, concluded that this class would not be ascertainable. In compliance with California law, which permits a court to depart from the plaintiff’s proposed definition and redefine the class, the state court certified a broader class of all assistant managers who had failed to receive the rest break—the same class definition on which Dollar Tree had based its original, unsuccessful removal.
Dollar Tree filed a second notice of removal. Although it was undisputed that the state court’s ruling had increased the amount in controversy to above $5 million, the district court again remanded the case—this time on the ground that the removal was untimely because it was based on the same class definition that had been the basis of the first removal.
The Ninth Circuit reversed. The court held that the state court’s certification order was “functionally indistinguishable” from an order permitting amendment of the complaint to alter the class definition. The court further reasoned that the state court order was precisely the type of new or intervening event that would trigger a new removal period. The court acknowledged that “defendants are not entitled to more than one bite at the apple, but the superior court’s certification order substituted a new apple.”
The plaintiff’s unusual class definition presumably was crafted with an eye toward avoiding removal. There would appear to be no other reason for excluding managers who were denied their rest breaks merely because another manager was present. (The plaintiff also appears to have been hedging his bet by avoiding any mention of the narrowed class in the class definition itself, leaving the door open to seek certification of the broader class if the defendant had not attempted to remove.)
Narrowing the class is sufficient to defeat federal jurisdiction when the complaint is filed, but when the plaintiff has to strain to do so, obstacles to certification—in this case, ascertainability—can result. Thus, to the extent that plaintiffs rely on such arbitrarily narrow class definitions to avoid CAFA removal, the effect may be to shift the jurisdictional battle from the pleading stage to the class certification stage.
If the state court broadens the scope of the class—whether directly, as was done in Reyes, or through a denial of certification that forces the plaintiff to amend the complaint—defense counsel may have a basis for removal. Thus, in some cases, it may be in defense counsel’s interest to argue for a broader class definition at certification. In any event, any changes to the class definition in the middle of a state court class action should cue defense counsel to revisit the possibility of removal.