Gau v. Hillstone Restaurant Group, Inc.

Background

Edward Scott Gau and Brandy Foster-Gau, former employees of the Los Altos Grill restaurant, filed a wage-and-hour class and representative action in Santa Clara County Superior Court on September 30, 2020. The proposed classes covered current and former non-exempt restaurant employees in California who worked shifts meeting specified length requirements beginning April 6, 2016.

Hillstone Restaurant Group, Inc. removed the case to federal court on November 23, 2020. It relied on the Class Action Fairness Act (CAFA), which allows federal jurisdiction over certain class actions when there is minimal diversity of citizenship, the proposed class has at least 100 members, and more than $5 million is at stake. The plaintiffs moved to remand, arguing that Hillstone had not established the required citizenship or amount in controversy.

Citizenship

The court concluded that the plaintiffs were California citizens on both the filing date and the removal date. The complaint did not allege their citizenship, but Hillstone submitted evidence that their last known address was in San Mateo, California. The court treated their California residence as initial evidence of California domicile and applied the presumption that a person’s domicile continues unless sufficient evidence shows a change.

Foster-Gau stated that she and Gau had considered staying with family in Phoenix, Arizona and later told their manager that they were in Arizona. The court found that these statements did not establish that the plaintiffs resided in Arizona on either relevant date or intended to remain there indefinitely. The court therefore concluded that the plaintiffs were California citizens for purposes of CAFA’s diversity requirement.

The court found that Hillstone was incorporated in Delaware and had its principal place of business in Phoenix, Arizona. Under the “nerve center” test, a corporation’s principal place of business is generally the place where its officers direct, control, and coordinate the company’s activities. Hillstone submitted evidence that executives worked from its Phoenix office, where they managed core company functions and kept virtually all corporate files. The court found that this evidence outweighed evidence concerning Hillstone’s Beverly Hills location and some executives’ possible presence in California.

Amount in Controversy

The court found that Hillstone plausibly alleged and supported an amount in controversy exceeding CAFA’s $5 million threshold. Hillstone estimated that more than 3,300 employees fell within the proposed classes and calculated nearly $7.2 million in potential damages for the rest-period and meal-period claims, using a 20 percent estimated violation rate.

The plaintiffs argued that Hillstone’s calculation improperly included potential recoveries for people who might be bound by arbitration agreements containing class waivers, including Foster-Gau. The court rejected that argument for jurisdictional purposes. The amount in controversy measures the amount at stake, not the likelihood of recovery, and potential defenses do not eliminate amounts otherwise placed at issue by the complaint. The court also noted that even excluding the amount associated with Foster-Gau, the amount at stake remained well above $5 million.

Jurisdictional Discovery and Disposition

Neither party requested discovery related to federal jurisdiction. The court declined to order such discovery on its own and denied the plaintiffs’ motion to remand the case to state court.

The order addressed federal jurisdiction for removal and did not decide the merits of the plaintiffs’ wage-and-hour claims.