In Rea v. Michaels Stores Inc., ___ F.3d ___ (9th Cir. Feb. 18, 2014), the Ninth Circuit Court of Appeals reversed the order of the U.S. District Court for the Central District of California (Judge Wu) that plaintiffs in a class action for unpaid overtime wages did not meet the $5 million threshold requirement for federal court jurisdiction under the Class Action Fairness Act (“CAFA”).

Plaintiffs brought a class action in California Superior Court against defendant retail employer on behalf of store managers who claimed that they had been improperly classified as exempt from state overtime requirements and were thus owed unpaid overtime wages.  The defendant removed the case to federal court under CAFA but the case was remanded because “plaintiffs expressly disclaimed any recovery for the class over $4,999,999.99,” and therefore did not satisfy the $5 million amount in controversy requirement of that statute.  Subsequently, the U.S. Supreme Court held in Standard Fire Insurance Co. v. Knowles, 568 U.S. ___  (2013) “that attempted damages waivers, such as the plaintiffs’, are ineffective, and will not defeat removal under CAFA.” Accordingly, defendant again removed the action to federal court but the district court again remanded, this time because removal had not been effected within 30 days, as required by CAFA.  The state court then certified the class and defendant appealed.

On appeal, plaintiff argued that because the class had already been certified by the state court, the damages waiver was now binding.  Additionally, they argued, the “certified class was significantly smaller than the proposed class was, so much so that it could not possibly recover more than $5,000,000.”  The appellate court refused to consider these arguments, however, because the amount in controversy was determined from the pleadings as they existed at the time the petition for removal was filed.

The appellate court went on to conclude that the evidence defendant submitted to prove the amount in controversy was over $5 million – a declaration from the company’s Vice President of Field Human Resources showing that the managers were expected to work at least 45 hours per week and a letter plaintiffs had prepared during settlement negotiations in which they valued their claim at over $5,000,000 – was sufficient to satisfy the CAFA requirement.