Canela v. Costco Wholesale Corp.

• Decision Date: 09 July 2020
• Docket Number: No. 18-16592,18-16592
• Parties: Liliana CANELA, individually and on behalf of all others similarly situated, Plaintiff-Appellee, v. COSTCO WHOLESALE CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

971 F.3d 845

Liliana CANELA, individually and on behalf of all others similarly situated, Plaintiff-Appellee,

v.COSTCO WHOLESALE CORPORATION, Defendant-Appellant.

No. 18-16592

United States Court of Appeals, Ninth Circuit.

Argued and Submitted January 6, 2020 San Francisco, California

Filed July 9, 2020

Amended August 21, 2020

ORDER

The opinion in Canela v. Costco Wholesale Corporation , 965 F.3d 694 (9th Cir. 2020), is amended as follows:

Page 697, final sentence:

Replace "strictly construed," and a "defendant seeking removal has the burden to establish that removal is proper," with "any doubt ... resolved against removability." Luther v. Countrywide Home Loans Servicing LP , 533 F.3d 1031, 1034 (9th Cir. 2008) (citations omitted).> with "defendant seeking removal has the burden to establish that removal is proper." Luther v. Countrywide Home Loans Servicing LP , 533 F.3d 1031, 1034 (9th Cir. 2008) (citation omitted); see also Ehrman v. Cox Commc'ns, Inc. , 932 F.3d 1223, 1227 (9th Cir. 2019).>

The panel has unanimously voted to deny the petition for panel rehearing. Judge Friedland voted to deny the petition for rehearing en banc, and Judge Wallace and Judge Hillman so recommend. The full court has been advised of the petition for rehearing en banc and no judge has requested a vote on whether to rehear the matter en banc. Fed. R. App. P. 35.

The petition for panel rehearing and the petition for rehearing en banc are DENIED . No further petitions for panel rehearing or rehearing en banc will be considered.

WALLACE, Circuit Judge:

Costco Wholesale Corporation appeals from the district court's summary judgment in favor of Liliana Canela. We have appellate jurisdiction under 28 U.S.C. § 1292(b). Because the district court lacked subject matter jurisdiction at the time of removal, we vacate the district court's summary judgment with instructions to remand the case to state court.

I.

Costco is a nationwide retail chain that sells merchandise and offers services to registered members. To verify that those entering its warehouses are members, Costco hires greeters to stand near the entrance where customers display their membership card. Costco also hires exit checkers to stand near the exit and check customers’ purchases against their receipts. Costco classifies its greeters and exit checkers as "member service" employees.

Canela worked as a greeter and exit checker at two of Costco's warehouses in California. She sued Costco in a state trial court in California, alleging that Costco had violated California Labor Code section 1198 by failing to provide her and other member service employees who worked as greeters and exit checkers with "suitable seat[ing]" under section 14 of California's Wage Order 7-2001. Cal. Code Regs. tit. 8 § 11070. Because a violation of Labor Code section 1198 confers a cause of action under California's Private Attorneys General Act of 2004 (PAGA), Canela's only claim arises under PAGA. Cal. Labor Code § 2698. Canela's Complaint said "Class Action Complaint" on its cover page and included references to the lawsuit as a class action.

Relying on both the federal diversity statute, see 28 U.S.C. § 1332(a), and the Class Action Fairness Act of 2005 (CAFA), see id. § 1332(d), Costco removed the case to federal court.

About a year later, Canela notified the district court that she no longer planned to seek class status. Canela suggested that the district court lacked jurisdiction because her PAGA claim was always a "representative action" and could have never been brought as a "class action" under CAFA. In light of Canela's submission, the district court ordered the parties to brief the issue of its jurisdiction. Because Canela had denominated her lawsuit as a "class action" and had sought class status on her PAGA claim as of the time the case was removed from state court, the district court concluded that it had retained CAFA jurisdiction even though Canela had later decided not to pursue class certification.

Costco then moved for partial summary judgment, contending that without a certified class, Canela lacked Article III standing to represent absent aggrieved employees and could not represent absent "aggrieved employees" under Federal Rule of Civil Procedure 23. The district court denied Costco's motion.

Costco swiftly moved to certify an interlocutory appeal under 28 U.S.C. § 1292(b), raising two questions: (1) "Whether, absent class certification, a PAGA plaintiff in federal court has Article III standing to represent absent aggrieved employees[?]" and (2) "Whether a PAGA plaintiff in federal court can represent absent aggrieved employees without qualifying for class certification under Rule 23 [?]" Canela v. Costco Wholesale Corp. , No. 13-cv-03598-BLF, 2018 WL 3008532, at *1 (N.D. Cal. June 15, 2018). Concluding that they presented controlling issues of law over which there was a substantial ground for difference in opinion, the district court certified both questions. Id. at *4. We agreed and granted Costco permission to appeal. Costco timely appealed.

II.

" Section 1292(b) authorizes appeals from orders, not questions, so ‘our review of the present controversy is not automatically limited solely to the question deemed controlling by the district court.’ " Baumann v. Chase Inv. Servs. Corp. , 747 F.3d 1117, 1120 (9th Cir. 2014), quoting In re Cinematronics, Inc. , 916 F.2d 1444, 1449 (9th Cir. 1990). The district court's order on its jurisdiction led to and was discussed in the district court's summary judgment from which Costco now appeals. Because the district court's subject matter jurisdiction is "material " to the summary judgment before us, we address it here. In re Cinematronics, Inc. , 916 F.2d at 1449 (citation omitted; emphasis in original). We must do so before we may turn to the merits. See Steel Co. v. Citizens for a Better Env't , 523 U.S. 83, 94, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998). To that end, we ordered the parties to submit briefing on the jurisdictional question.

"We review de novo a district court's denial of a motion to remand to state court for lack of federal subject matter jurisdiction." Chapman v. Deutsche Bank Nat'l Tr. Co. , 651 F.3d 1039, 1043 (9th Cir. 2011) (citation omitted). We review the "construction, interpretation, or applicability" of CAFA de novo. Bush v. Cheaptickets, Inc. , 425 F.3d 683, 686 (9th Cir. 2005) (citation omitted). A "defendant seeking removal has the burden to establish that removal is proper." Luther v. Countrywide Home Loans Servicing LP , 533 F.3d 1031, 1034 (9th Cir. 2008) (citation omitted); see also Ehrman v. Cox Commc'ns, Inc. , 932 F.3d 1223, 1227 (9th Cir. 2019).

III.

In removing the case, Costco invoked two independent bases for federal subject matter jurisdiction: diversity under section 1332(a) and CAFA jurisdiction. We address each in turn.

A.

Traditional diversity jurisdiction requires complete diversity of citizenship and an amount in controversy greater than $75,000. 28 U.S.C. § 1332(a). Where, as here, "a plaintiff's state court complaint does not specify a particular amount of damages, the removing [party] bears the burden of establishing, by a preponderance of the evidence, that the amount in controversy exceeds" the threshold at the time of removal. Sanchez v. Monumental Life Ins. Co. , 102 F.3d 398, 404 (9th Cir. 1996).

We hold that the amount in controversy did not meet the statutory threshold at the time of removal. Our decision in Urbino v. Orkin Services of California, Inc. , 726 F.3d 1118 (9th Cir. 2013), controls.

In Urbino , the plaintiff employee had brought a representative PAGA cause of action in state court. Id. at 1121. The defendants removed the case to federal court, submitting evidence that the alleged labor code violations involved over 800 other employees and over 17,000 paychecks, thereby establishing that the aggregated claims exceeded $75,000. Id. If the claims could be aggregated among all employees with potential claims, the civil penalties for the alleged violations exceeded $9,000,000, well above the $75,000 threshold. Id. However, with no aggregation, the action fell short of the $75,000 threshold because the named plaintiff's pro rata share was only a little over $11,000. Id.

The question before us was therefore whether the penalties of all employees could be aggregated to satisfy the amount in controversy requirement. Id. We concluded that PAGA civil penalties could not be aggregated for this purpose, and therefore that the district court lacked diversity jurisdiction. Id. at 1122–23.¹

For the same reason, diversity jurisdiction is lacking here. In its Notice of Removal, Costco said that the 968 employees collectively sought $5,324,000 in civil penalties. Costco also said that it could be liable for $1,064,800 in attorney's fees. Because Canela's pro-rata share of civil penalties, including attorney's fees, totaled $6,600 at the time of removal, and the claims of other member service employees may not be aggregated under Urbino , the $75,000 jurisdictional threshold was not met. See id. at 1122 ; Gibson v. Chrysler Corp. , 261 F.3d 927, 942 (9th Cir. 2001) (explaining that we consider a successful party's pro rata share of attorney's fees in assessing whether her claim meets the jurisdictional threshold).² Thus, the district court lacked diversity jurisdiction at the time of removal.

B.

We next turn to the question whether the district court had CAFA jurisdiction. CAFA "relaxed" the diversity requirements for putative class actions. Dart Cherokee Basin Operating Co., LLC v. Owens , 574 U.S. 81, 84, 135 S.Ct. 547, 190 L.Ed.2d 495 (2014). Under CAFA, federal courts have jurisdiction over a "class action" when the parties are minimally diverse, i.e. , any member of a class of plaintiffs is a citizen of a state different from that of any defendant, and the amount in controversy exceeds $5,000,000, see 28 U.S.C. § 1332(d)(2)(A), and when the proposed class has at least 100 members, see id. § 1332(d)(5)(B...