Lopez v. Advanced Drainage Systems, Inc.

Background

Arnulfo Lopez, described as a former employee of Advanced Drainage Systems, Inc., filed a proposed wage-and-hour class action for hourly or non-exempt employees employed during the four years before the complaint was filed. The complaint asserted nine California-law claims involving minimum and overtime wages, meal and rest periods, wages at termination, wage statements, employee expenses, employment records, and unfair competition.

Advanced Drainage Systems removed the case from state court under the Class Action Fairness Act (CAFA), which can allow federal jurisdiction over qualifying class actions. It asserted that the proposed class had more than 100 members, the amount in dispute exceeded $5 million, and the parties had diverse citizenship. It also asserted ordinary diversity jurisdiction over Lopez’s individual claims, claiming that the amount in dispute exceeded $75,000.

Lopez moved to remand, meaning to return the case to state court. Advanced Drainage Systems moved to transfer the case to the Eastern District of California or, alternatively, to stay the case while a purportedly related case was resolved there.

CAFA Jurisdiction

The court found that two CAFA requirements were uncontested: minimal diversity and a class size of at least 100 employees. The dispute concerned whether the amount in controversy exceeded $5 million. Advanced Drainage Systems initially estimated the amount at $6,250,559.80 and later submitted a revised estimate of approximately $6.76 million.

The court held that the company had not proved the required amount by a preponderance of the evidence, meaning that it had not shown that the threshold was more likely than not satisfied. The court found several assumptions unreasonable:

- For unpaid overtime and minimum wages, the company assumed that each class member had one unpaid overtime hour and one unpaid minimum-wage hour per pay period. The court found no adequate basis for treating the same work as both overtime and minimum-wage work. - For meal and rest periods, the company assumed one violation of each type per class member per week without accounting for shift length, which affects how many breaks employees were entitled to receive. - For waiting-time penalties, the company initially used a four-year period even though the applicable limitations period was three years. Its proposed 25% reduction required another unsupported assumption about how terminations were distributed over the four-year period. - For attorneys’ fees, the company used a 25% common-fund settlement benchmark. The court found that benchmark unsuitable for estimating fees in this case because the fees would arise under California fee-shifting statutes rather than be paid from a common settlement fund. The company provided no alternative evidentiary basis for its fee estimate.

After removing or correcting these unsupported assumptions, the amount in controversy fell below CAFA’s $5 million threshold. The court therefore held that it lacked jurisdiction under CAFA.

Ordinary Diversity Jurisdiction

The court also rejected jurisdiction over Lopez’s individual claims under 28 U.S.C. § 1332(a), which generally requires parties from different states and more than $75,000 in dispute. The court found unreasonable the company’s estimate of attorneys’ fees based on an hourly rate derived from previously approved rates and an assumed 200 hours of work. The company also relied on an unrelated, heavily litigated class action to estimate the work required for Lopez’s individual claims.

The court further reasoned that attributing class-action work to Lopez’s individual claims could improperly assign fees belonging to other proposed class members to Lopez. The company offered no other evidentiary or complaint-based support for its estimate. The court concluded that even under assumptions favorable to the company, the amount in controversy for Lopez’s individual claims remained below $75,000.

Disposition

The court concluded that Advanced Drainage Systems had not established federal jurisdiction under either CAFA or ordinary diversity jurisdiction. It remanded the case to Santa Clara County Superior Court. The court denied Advanced Drainage Systems’ motion to transfer as moot. The order addressed federal jurisdiction and did not resolve whether Lopez or the proposed class would prevail on the wage-and-hour claims.