Labor & Employment Law Daily Wrap Up, WAGE-HOUR—CLASS ACTIONS—9th Cir.: Reasonable assumptions in calculating amount in controversy sufficient for federal court removal, (Mar 17, 2025)

By Todd Harrison, J.D.

“… an assumption is not unreasonable simply because another equally valid assumption may exist.”

Vacating a district court’s order remanding to state court an action that was removed to federal court under the Class Action Fairness Act (CAFA), the Ninth Circuit found that the district court erred in requiring the defendant to submit evidence justifying the particular violation rate it had assumed. Rather, the district court should have considered whether the violation rate that the defendant had assumed was a reasonable interpretation of the complaint, as precedent has established that defendants are permitted to rely on a chain of reasoning that includes reasonable assumptions to calculate the amount in controversy (Perez v. Rose Hills Co., No. 25-68 (9th Cir. Mar. 14, 2025)).

In this case, a former hourly employee of Rose Hills Company, a funeral home and mortuary in Whitter, California, sued on behalf of herself and a class of similarly situated employees for violations of various California wage-and-hour laws, including: (1) failure to pay wages for all hours worked; (2) failure to pay overtime; (3) failure to provide meal periods; and (4) failure to provide rest periods.

Amount in controversy. The complaint did not identify the amount in controversy, nor did it describe the frequency with which Rose Hills committed the alleged violations. Rather, it stated that Rose Hills committed the violations “at times” and “throughout the statutory period.” The complaint defined the class as “[a]ll persons who worked for [Rose Hills] in California as an hourly-paid or non-exempt employee at any time during the period beginning four years before the filing of the initial complaint in this action and ending when notice to the Class is sent.”

Rose Hills removed the case to federal court under CAFA. To establish the amount in controversy, it began by identifying the class size, which consisted of 759 employees. It then made a series of assumptions. First, it estimated its violation rate, assuming that for every week during the class period it had failed to pay all class members for one hour of regular time, one hour of overtime, a one-hour compensable meal break, and a one-hour compensable rest break. Applying the minimum wage in effect in California during the class period along with an assumption that the employee’s attorneys would seek a fee award of 33 percent, it alleged an amount in controversy of more than $15 million.

Acting sua sponte, the district court issued an order directing Rose Hills to show cause why the case should not be remanded to state court. In response, Rose Hills argued that its assumption was “well in line with violation rates accepted by Courts in the Ninth Circuit based on similarly vague Complaint allegations.” In an effort to demonstrate the reasonableness of its assumptions, it reran its calculations at half of the initial rate, arriving at an amount in controversy of nearly $7 million—still well above the statutory threshold of $5 million.

Remand and appeal. Ultimately, the district court concluded that it lacked jurisdiction and remanded the case to state court. The court stated that Rose Hills was required to produce evidence supporting its amount-in-controversy estimate and it had failed to do so.

According to the court, the approach taken by Rose Hills “amount[ed] to little more than plucking a violation rate out of the air and calling it ‘reasonable,’” adding that “[i]f one is going to assume a violation rate based on nothing more than language in a complaint referencing a ‘pattern and practice,’ then there is no basis for suggesting that” the violation rate Rose Hills assumed “is any more or less reasonable than a violation rate” of one half or one quarter that rate. This appeal followed.

Ibarra. When a CAFA defendant removes a class action to federal court, it need only state a plausible allegation that the amount in controversy exceeds the jurisdictional threshold, explained the court. Evidence establishing the amount is required only when the plaintiff or the court questions the defendant’s allegation. If the allegation is disputed, then the party seeking removal bears the burden of demonstrating by a preponderance of the evidence that the amount in controversy exceeds $5 million. Ibarra v. Manheim Invs., Inc., 775 F.3d 1193 (9th Cir. 2015).

Because the amount in controversy is simply an estimate of the total amount in dispute, not a prospective assessment of liability, a removing defendant is not required to present evidence of what its ultimate liability will be. In many cases, a defendant will presumably expect that number to be zero, said the court.

Arias. Rather than presenting evidence of what it expects its liability to be, a defendant is permitted to rely on a chain of reasoning that includes assumptions to calculate the amount in controversy. Arias v. Residence Inn by Marriott, 936 F.3d 920 (9th Cir. 2019). While a defendant may not pull those assumptions from thin air, they can be founded on the allegations of the complaint and do not necessarily need to be supported by the evidence, explained the court. The district court’s task is simply to determine if the defendant’s reasoning and underlying assumptions are reasonable.

Reasonableness. What makes an assumption reasonable may depend on which element of the amount-in-controversy calculation is at issue, said the court. For example, Arias involved a complaint alleging that Marriott “routinely” failed to pay overtime or provide compensation for rest breaks. From these allegations, Marriott computed the amount in controversy by assuming that it failed to pay each class member for 30 minutes of overtime per week and for one missed rest break per week. Although the district court characterized these assumptions as “speculation and conjecture,” the Ninth Circuit vacated the district court’s order, explaining that “assumptions made part of the defendant’s chain of reasoning need not be proven.”

Here, the court observed, the approach taken by Rose Hills tracks the approach it had approved in Arias. Under Arias, the district court should have considered whether the violation rate that Rose Hills assumed was a reasonable interpretation of the complaint instead of rejecting the assumption because it was not supported by evidence.

In reaching its conclusion, the district court relied on Ibarra. However, the appeals court explained, that case did not require that defendants support their violation-rate assumptions with evidence. The key to the holding in Ibarra was that the defendant had to submit evidence of the violation rate because its interpretation of the allegations in the complaint was unreasonable. The Ninth Circuit did not hold that violation rates drawn from reasonable interpretations of the compliant must be independently supported by competent evidence.

Competing assumptions. As to the district court’s belief that because Rose Hills did not submit evidence justifying the particular violation rate it assumed, “there is no basis for suggesting that [this] violation rate. .. is any more or less reasonable than a violation rate” one half or one quarter as high, the appeals court stated that, “…an assumption is not unreasonable simply because another equally valid assumption may exist.”

Although it may be true that the phrase “at times” could support a lower violation rate it could just as easily support the violation rate that Rose Hills had assumed, said the court. Further, if the employee had believed that some other assumption would have been more reasonable, she was free to propose that rate, noted the court. Had this been the case, the district court could then have weighed the evidence and arguments in deciding which assumption was more appropriate.

“The legal errors in the remand order prevented the district court from adequately evaluating whether Rose Hills’s violation-rate assumption was a reasonable interpretation of the complaint,” concluded the court. Accordingly, the remand order was vacated and the case was remanded to the district court for further proceedings.

The case is No. 25-68.

Judge: Miller, E.

Attorneys: Edward Kim (Wilshire Law Firm) for Elizabeth Perez. Lonnie James Williams, Jr. (Stinson) for Rose Hills Co.

Companies: Rose Hills Co.

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