Kyla Asbury Mar. 12, 2014, 3:21pm

PASADENA, Calif. (Legal Newsline) - A decision in a class action lawsuit against Michaels Stores Inc. by former store managers who claimed they were wrongly classified as exempt from overtime has been reversed, and the case will proceed in federal court rather than California state court.

P. Rea, S. Sadlowski, D. Sperline, A. Sarabia brought action against Michaels on behalf of Michaels' California store managers, alleging that Michaels had improperly classified managers as exempt from overtime, according to an opinion by circuit judges Andrew J. Kleinfield, Barry G. Silverman and Andrew D. Hurwitz in the U.S. Court of Appeals for the Ninth Circuit.

Michaels removed the case to federal district court under the Class Action Fairness Act, and the district court remanded the case back to state court, finding that CAFA's $5 million amount in controversy requirement was not met because the plaintiffs expressly disclaimed any recovery for the class that was more than $4,999,999.99.

On March 19, 2013, the Supreme Court held in Standard Fire Insurance Co. v. Knowles that attempted damages waivers, such as the plaintiffs', are ineffective and will not defeat removal under CAFA.

"The next day, Michaels removed again under the Class Action Fairness Act and the district court remanded again, this time on the basis that the removal ran afoul of CAFA's 30-day time limit. The court held in the alternative that Michaels had failed to carry its burden to demonstrate that the amount in controversy exceeded $5,000,000," according to the opinion. Michaels appealed.

The plaintiffs argue that after the most recent remand, the amount in controversy cannot exceed $5 million for two reasons.

First, they point out that a class has now been certified in state court, which they contend makes the damages waiver in their complaint binding notwithstanding Standard Fire, and secondly, they argue that the certified class is significantly smaller than the proposed class was, so much so that it could not possibly recover more than $5 million.

"We need not consider whether either of these propositions are correct, however, because the general rule is that 'the amount in controversy is determined from the pleadings as they exist at the time a petition for removal is filed'...This action is not moot based on the state court's subsequent determination to certify the class because 'post-filing developments do not defeat jurisdiction if jurisdiction was properly invoked as of the time of filing," the decision says.

As to timeliness, Michaels did remove the case within 30 days. The removal statutes generally require a party to remove a case within 30 days of receiving the complaint, according to the document.

"The statutes provide an exception to this rule: 'if the case stated by the initial pleading, is not removable, a notice of removal may be filed within 30 days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable," the decision states.

In other words, as long as the complaint or an amended pleading, motion, order or other paper does not reveal that the case is removable, the 30-day time period never starts to run and the defendant may remove at any time, according to the decision.

"To prove the amount in controversy, Michaels submitted evidence that store managers work more than 45 hours a week, which would entitle them to over $5,000,000 if the plaintiffs prevailed," the decision states.

"First, Michaels submitted a declaration from its Vice President of Field Human Resources showing that Michaels' managers were expected to work at least 45 hours a week normally and 50 hours a week during the holiday season. Michaels also submitted a letter sent by the plaintiffs in connection with settlement negotiations where the plaintiffs valued their claim at over $5,000,000. And the named plaintiffs in the case all testified that they worked at least 45 hours each week. No evidence to the contrary was submitted."

The district court faulted Michaels for only showing that the managers were expected to work 45 hours or more each week rather than showing they actually worked that amount. But managers testified without contradiction that they did work 45 hours or more each week. There was no evidence that the expectation of 45 hours or more was not met, according to the decision.

"Under the preponderance of the evidence standard, Michaels established 'that the potential damages could exceed the jurisdictional amount...' There was substantial, plausible evidence that damages as issue exceeded $5,000,000 and no evidence at all to the contrary. The district court's finding that the defendant failed to prove that the amount-in-controversy requirement was met was clearly erroneous even under the preponderance of the evidence standard."

The circuit judges reversed the district court's decision and sent the case back to it.

The plaintiffs were being represented by David J. Gallo of the Law Offices of David J. Gallo.

The defendant was represented by Jessie A. Cripps of Gibson, Dunn & Crutcher LLP.

U.S. Court of Appeals for the Ninth Circuit case number: 14-55008

From Legal Newsline: Kyla Asbury can be reached at

More News