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Michaels Stores Wins Ninth Circuit Decision Lowering the Bar for Retailers to Remove Class Action Lawsuits to Federal Court

This post was prepared by Jesse Cripps, a partner in Gibson Dunn’s Los Angeles office.

For a retailer hit with a putative class action lawsuit in state court, removing the case to federal court is often a pivotal first step in mounting an effective defense against class certification.  Often, the biggest hurdle a defendant must overcome when removing a lawsuit under the Class Action Fairness Act (“CAFA”) is demonstrating that the classwide claims put more than $5 million in controversy—the jurisdictional minimum under CAFA.  In a case where the amount in controversy turns on the number of hours worked by the putative class members, proving the amount in controversy can often be challenging, particularly where the putative class members are salaried exempt employees who do not keep detailed records of their work time.  For this reason, to require a removing defendant to prove the actual number of hours worked by each and every exempt employee at the time of removal would, in most cases, deny the defendant any opportunity to have the lawsuit heard in federal court.

And yet, that is precisely what the U.S. District Court for the Central District of California sought to require of Gibson Dunn client Michaels Stores, Inc. last year when the company removed a putative wage and hour class action to federal court.  In remanding the case, the district court faulted Michaels for relying on the number of hours that putative class members were expected to work rather than the hours actually worked.

On February 18, 2014, however, the Ninth Circuit Court of Appeals issued a published decision, unanimously reversing the district court’s remand order.  The Ninth Circuit held that the type of evidence submitted by Michaels—including the company’s expectations about the hours to be worked by putative class members—was sufficient to meet the “preponderance of evidence” standard because such evidence shows “that the potential damages could exceed the jurisdictional amount.”

Separately, the Ninth Circuit also held, as a matter of first impression, that a defendant may remove a lawsuit to federal court under CAFA when a change in case law makes it clear for the first time that federal jurisdiction exists.  Together, these holdings reduce the challenges that retailers face when seeking to remove putative class action lawsuits under CAFA.

 The full decision in Rea v. Michaels Stores, Inc., No. 14-55008 (9th Cir. Feb. 18, 2014) can be found here.  The Gibson Dunn team that represented Michaels Stores included Catherine A. Conway and Jesse A. Cripps, partners in Gibson Dunn’s Los Angeles Office, and Justin T. Goodwin, an associate in Gibson Dunn’s Orange County office.

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