About Us  |  About Cheetah®  |  Contact Us

Future attorneys’ fees recoverable by statute or contract must be included to assess CAFA amount in controversy

By Kathleen Kapusta, J.D.

When assessing whether CAFA’s amount-in-controversy requirement is met, a court must include future attorneys’ fees recoverable by statute or contract, the Ninth Circuit ruled. Applying that rule here, the appeals court vacated the lower court’s order remanding an employee’s wage-and-hour class action complaint to state court. Because the employee demanded attorneys’ fees permitted by California law, and the law entitled him to an award of fees if successful, future attorneys’ fees were at stake in the litigation. Thus, the lower court’s conclusion that, as a matter of law, the amount in controversy included only attorneys’ fees incurred up to the time of removal and could not include any future fees was incorrect (Fritsch v. Swift Transportation Co. of Arizona, LLC, August 8, 2108, Ikuta, S.).

Suing his employer in state court, the employee alleged that the trucking and transportation company denied him and other employees proper overtime pay, meal periods, and appropriate wage statements. He sought wages and premiums owed, prejudgment interest, statutory penalties, attorneys’ fees under California Labor Code §§ 218.5 and 1194,1 and costs of suit as well as equitable relief under California’s unfair competition law and statutory damages under the state’s Private Attorneys General Act (PAGA).

Damages chart. In October 2017, the employee delivered a mediation brief to his employer that included a damages chart listing damages totaling almost $6 million. Based on this chart, and subtracting estimated interest payments and PAGA penalties (which are not included in the amount in controversy), the employer filed a notice of removal, alleging the district court had jurisdiction under CAFA. In addition to the $150,000 in attorneys’ fees and costs that had been incurred as of October 2017 (according to the damages chart), the company noted that the court could also recognize future attorneys’ fees that would accrue over the course of the case. Such future fees, it estimated, would increase the amount in controversy to $6,553,375.

Remand. The district court, however, held that because the employee’s complaint did not include a claim for failure to provide rest periods, the $948,192 entry in the damages chart for “Unpaid Rest Period Premiums” could not be included as part of the jurisdictional amount. It also found “that when calculating attorneys’ fees to establish jurisdiction, the only fees that can be considered are those incurred as of the date of removal.” Therefore, it included only the $150,000 of attorneys’ fees the employee had set forth in the damages chart as having been incurred prior to removal. Finding as a result that the employer had not been able to prove the amount in controversy exceeded $5 million, the court found it lacked jurisdiction and remanded to state court.

Chavez. The employer then appealed but while the appeal was pending, the Ninth Circuit decided Chavez v. JPMorgan Chase & Co., which held that “the amount in controversy is not limited to damages incurred prior to removal,” but rather “is determined by the complaint operative at the time of removal and encompasses all relief a court may grant on that complaint if the plaintiff is victorious.” Several weeks later, the court granted the employer’s petition to appeal and two days after that, contending that Chavez demonstrated the amount in controversy exceeded CAFA’s jurisdictional minimum, the employer filed a second notice of removal in the district court. The employee then moved to remand the employer’s second notice of removal on a number of grounds, including that it was untimely.

Mootness. As an initial matter, the Ninth Circuit first considered the employee’s argument that the present appeal was moot because the only relief available to the employer was a reversal of the district court’s remand order, which would merely return it to district court. Because the employer was already in district court, the employee argued that the Ninth Circuit could not give it any effective relief. However, observed the appeals court, if a party can demonstrate that a lower court’s decision, if allowed to stand, may have collateral consequences adverse to its interests, the party can avoid dismissal for mootness.

Applying the collateral consequences doctrine here, the appeals court noted that the district court determined the company’s first notice of removal was timely because it removed the action within 30 days of receiving the employee’s damages chart. But in his motion to remand the company’s second removal, the employee argued the removal was untimely because the company removed the action more than 30 days after the Ninth Circuit issued Chavez. Thus, said the court, if it were to dismiss the company’s appeal of the first remand as moot, it would have to defend against this timeliness challenge. Because its decision on the merits would put the company on better footing with regard to the timeliness argument, the court found that the company’s appeal of the first remand order was not moot.

Amount in controversy. Turning to whether the district court erred in concluding that the company failed to prove, by a preponderance of the evidence, that CAFA’s amount-in-controversy requirement was met, the appeals court noted it had previously explained that the amount in controversy is the “amount at stake in the underlying litigation.” Prior to Chavez, however, the court had not clarified what it meant to say that the amount in controversy is determined “at the time of removal,” and district courts had not consistently applied this language.

Attorneys’ fees. Although Chavez noted that the amount in controversy may include damages, costs of compliance with injunctions, and attorneys’ fees awarded under contract or fee-shifting statutes, it did not expressly address whether attorneys’ fees incurred after removal were properly included in the amount in controversy. Addressing this issue here, the appeals court found that “in light of Chavez and our precedents,” a court must include future attorneys’ fees recoverable by statute or contract when assessing whether the amount-in-controversy requirement is met. Accordingly, said the court, if the law entitles the plaintiff to future attorneys’ fees if the action succeeds, then there is no question that future attorneys’ fees are “at stake” in the litigation, and the defendant may attempt to prove that future attorneys’ fees should be included in the amount in controversy.

Applying that rule here, the court found it was required to vacate the lower court’s remand order as it erred in concluding that as a matter of law, the amount in controversy included only the $150,000 in attorneys’ fees incurred up to the time of removal and could not include any future fees.

Not limited to its facts. Rejecting the employee’s contention that Chavez should be limited to its facts, the Ninth Circuit noted that while Chavez concerned a claim for future wage loss, its holding applies to any class of damages included in the amount in controversy. As to his argument that future attorneys’ fees should not be included in the amount in controversy because they are inherently speculative and can be avoided by the defendant’s decision to settle an action quickly, the court explained that it has held that attorneys’ fees awarded under fee-shifting statutes or contracts are part of the amount in controversy and that the amount in controversy includes all relief to which the plaintiff is entitled if the action succeeds. “We may not depart from this reasoning to hold that one category of relief—future attorneys’ fees—are excluded from the amount in controversy as a matter of law.”

Further, observed the appeals court, district courts are well equipped to determine whether defendants have carried their burden of proving future attorneys’ fees, and to determine when a fee estimate is too speculative because of the likelihood of a prompt settlement.

Finally, the court rejected the employer’s argument that it should hold, as a matter of law, that the amount of attorneys’ fees in controversy in class actions is 25 percent of all other alleged recovery. The employer contended that this per se rule is appropriate because, in common fund cases, the Ninth Circuit has estimated reasonable attorneys’ fees to be 25 percent of the total recovery. However, such a per se equitable rule was inapplicable in this context, as the defendant must prove the amount of attorneys’ fees at stake by a preponderance of the evidence, and the court cannot relieve the defendant of its evidentiary burden by adopting a per se rule for one element of the amount at stake in the underlying litigation.