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CAFA Class Action Defense Cases–Babasa v. LensCrafters: Ninth Circuit Holds Defense Knew Damages Sought In Labor Law Class Action Exceeded Jurisdictional Limit Under Class Action Fairness Act So Removal Was Untimely

Letter from Plaintiff’s Counsel Sent as Part of Effort to Settlement Labor Law Class Action and Estimating Damages at $10 Million Placed Defense on Notice that Class Action Sought Damages in Excess of Amount Required by Class Action Fairness Act (CAFA) Requiring Removal of Class Action to Federal Court Within 30 Days of Letter Ninth Circuit Holds

In April 2005, plaintiffs filed a class action lawsuit in California state court against LensCrafters alleging violations of various labor laws. Babasa v. LensCrafters, Inc., ___ F.3d ___, Slip Opn., at 2 (9th Cir. August 16, 2007). An amended class action complaint was filed in September 2005, and soon thereafter defense and plaintiffs’ attorneys agreed to mediate the dispute: as part of that process, in December 2005 plaintiffs’ lawyer sent LensCrafters a letter opining that damages would approach $10 million, id. Mediation efforts failed, and state court discovery ensued: in November 2006, plaintiffs’ counsel again stated that damages would exceed $5 million, id. Approximately 4 weeks later, defense attorneys removed the action to federal court under the Class Action Fairness Act of 2005 (CAFA), alleging that the November 1, 2006 telephone conference with opposing counsel “first put it on notice that the amount in controversy exceeded the jurisdictional amount,” id., at 2-3. The district court granted plaintiffs’ motion to remand the class action to state court, holding that the December 2005 letter placed defense counsel on notice of the amount in controversy. Id., at 3. The Ninth Circuit affirmed.

Defense attorneys argued that December 2005 letter “could not serve as proper notice of the amount in controversy for removal purposes, because the letter is privileged under state law.” Babasa, at 3. The Ninth Circuit held that Rule 501 of the Federal Rules of Evidence governs, not California state law, id., at 4-5, and that “LensCrafters could have ascertained, upon receiving the [December 2005] letter, that the case was removable,” id., at 5. The Circuit Court explained at page 5, “We have previously held that ‘[a] settlement letter is relevant evidence of the amount in controversy if it appears to reflect a reasonable estimate of the plaintiff’s claim.’” (Citation omitted.) Here, the December 2005 letter estimated “$4.5 million in unpaid wages, based on missed meal periods, plus an addition[al] $5 million in civil penalties,” and that these amounts easily satisfied the jurisdictional limit under CAFA, id., at 6. The class action thus was not removable in November 2006, because LensCrafters knew in December 2005 that the amount placed in controversy by the class action allegations exceeded CAFA’s jurisdictional limit. Id. Accordingly, the Ninth Circuit affirmed the district court order remanding the class action to state court, id., at 6-7.

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