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Split 4th Circuit Rejects CAFA Removal

By Sean E. Andrussier

In yet another case on removal under the Class Action Fairness Act (CAFA), the Fourth Circuit yesterday held that the defendant didn't establish CAFA's amount-in-controversy requirement. The case is Barnikowski v. NVR, Inc. Judge Gregory wrote the majority opinion. Judge Wilkinson dissented. (For other recent CAFA removal cases by the Fourth Circuit, see our posts here and here and here.)

In this case, plaintiffs represent a putative class of current and former N.C. sales reps of NVR. They allege that NVR wrongfully denied them overtime pay.

Their complaint didn't specify their damages. In its notice of removal, NVR asserted that the amount in controversy exceeded $5M. In response to plaintiffs' motion to remand, NVR submitted a declaration from its payroll director who provided data about average annual compensation to sales reps. Based on that figure, NVR calculated the average hourly wage and then the average hourly overtime wage. NVR then assumed that putative class members will claim to have worked an average of five overtime hours per week. This yielded projected damages of $2.6M. NVR then assumed that plaintiffs would seek statutory double damages under N.C.'s Wage and Hour Act, which would push the damages over CAFA's $5M jurisdictional line.

A majority of the Fourth Circuit held that NVR didn't satisfy its burden of of demonstrating by a preponderance of the evidence that jurisdiction was proper. To be sure, the majority agreed that NVR was correct to include statutory double damages in its calculation, i.e., doubling was proper. And the majority had no problem with NVR's figures on average annual compensation which led to an average overtime rate. But the majority found that one key variable in NVR's equation was too speculative: NVR's assumption that plaintiffs and the class members will each claim to have worked an average of five overtime hours per week. This was a key variable, the majority held, because if the average weekly overtime hours was less than four hours per class member, NVR wouldn't clear the $5M hurdle.

The majority recognized that the decision may prompt plaintiffs to plead tactically by leaving damages unspecified to block CAFA removal, without foreclosing an ultimate recovery of more than the jurisdictional minimum. But the majority noted that since Congress has eliminated the one-year time limit on CAFA removal (see 28 U.S.C. 1453(b)), a CAFA defendant can remove at a later stage of litigation once the amount in controversy is acertained.

In his dissent, Judge Wilkinson accused the majority of "conflat[ing] burdens of proof with burdens of production": once the defendant sets forth a prima facie case establishing jurisdiction, he argued, the burden of production shifts to the the plaintiffs to offer something in response (even though the burden of persuasion always remains with the defendant). Judge Wilkinson disputed the majority's finding that the five-hour estimate was too speculative. And he worried that the majority's approach puts defendants in a difficult position of serving voluminous discovery requests and document production at the preliminary stages of what is itself a preliminary jurisdictional issue. "Encouraging this sort of deluge," he warned, "adds more litigiousness to already litigious class action undertakings." Judge Wilkinson also took a swipe at plaintiffs, observing that they "have been litigation class action overtime pay cases against [NVR] since 2004, but have passed on every opportunity to submit an affidavit or even make a declaration as to the likely amount of damages they will claim."

Oddly, this split decision isn't published. The third member of the panel was a district court judge sitting by designation.

Full post as published by North Carolina Appellate Blog on January 17, 2009 (boomark / email).