Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_18-cv-01662/USCOURTS-casd-3_18-cv-01662-0/pdf.json

Nature of Suit Code: 790
Nature of Suit: Other Labor Litigation
Cause of Action: 28:1441fl Removal- Fair Labor Standards Act

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

ADAN MORALES, RICHARD

CONTRERAS, and JUAN

GONZALES,

Plaintiffs,

CASE NO. 18cv1662 JM(AGS)

ORDER GRANTING MOTION TO

REMAND; DENYING MOTION FOR

SANCTIONS

v.

JEROME’S FURNITURE

WAREHOUSE, DIAKON

LOGISTICS (DELAWARE) INC.,

Defendants.

Plaintiffs Adan Morales, Richard Contreras, and Juan Gonzales (“Plaintiffs”)

move (1) to remand this wage and hour class action to the Superior Court of the State

of California in and for the County of San Diego and (2) for the imposition of monetary

sanctions based upon a perceived improvidently removed action. Diakon Logistics

(Delaware) Inc. (“Diakon”) opposes the motion. Pursuant to Local Rule 7.1(d)(1), the

court finds the matters presented appropriate for decision without oral argument. For

the reasons set forth below, the court grants the motion to remand and denies the

motion for sanctions.

BACKGROUND

On June 16, 2018, Plaintiffs filed a Consolidated Class Action Complaint

(“CCAC”) in the Superior Court of the State of California, County of San Diego by

alleging twelve state law wage and hour claims for relief: (1) misclassification of an

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employee (Cal. Lab. Code §226.8); (2) failure to pay required wages (Cal Lab. Code

§§200, et seq.); (3) failure to pay overtime premium pay (Cal. Lab. Code §1194); (4)

failure to pay meal period premium pay (Cal. Lab. Code §512); (5) failure to pay rest

break premium pay (Cal. Lab. Code §226.7); (6) recovery of waiting time penalties for

failure to provide wages upon termination or discharge (Cal. Lab. Code §203); (7)

California record-keeping provisions (Cal. Lab. Code §§226, 226.2, 1174, and 1175);

(8) unauthorized deductions (Cal. Lab. Code §§221, 224); (9) failure to reimburse or

indemnify expenses or losses incurred as a result of performing work duties (Cal. Lab.

Code §2802); (10) violations of California’s unfair competition laws (Cal. Bus. & Prof.

Code §§17200, et seq.); (11) conversion; and (12) violations of the Private Attorney

General Act (“PAGA”) (Cal. Lab. Code §§2698, et seq.).

Plaintiffs bring this action on behalf of two classes. The Diakon Class is defined

as “All current and former Drivers and Helpers who performed delivery related services

for Diakon in California.” The Jerome’s Class is defined as “All current and former

Drivers who performed delivery and related services for Jerome’s in California.” 

(CCAC ¶¶17, 18). The Jerome’s Class is an alleged subclass of the Diakon Class.

Diakon operates a shipping, delivery, and logistics business that contracts with

third-party companies, or “Independent Contract Carriers.” Jerome’s is one of

Diakon’s clients in California. Plaintiffs allege that Diakon managed its Delivery

Drivers and Helpers either by (1) directly engaging them on a per-delivery basis or (2)

contracting with subcontractors, frequently incorporated as LLCs or sole

proprietorships. In either case, Diakon exercised significant control over directly

employed Delivery Drivers and Helpers or their subcontractors. (CCAC ¶32-33). 

Diakon’s wrongful conduct allegedly includes misclassification of the Drivers

and Helpers as independent contractors; requiring class members to wait up to six

hours before being sent home without a delivery or pay; providing inadequate meal and

rest periods; failing to pay minimum wage and overtime; maintaining inadequate wage

statements or time records; and making unauthorized deductions for business expenses.

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Plaintiffs allege that Diakon provided a fleet of Drivers and Helpers to Jerome’s. 

Jerome’s payed Diakon a flat fee for each delivery made by Diakon. Prior to

contracting with Diakon, “Jerome’s performed all of the delivery and assembly itself,

using its own employees.” (CCAC ¶45). Plaintiffs seek to hold Jerome’s vicariously

liable as a “client employer,” within the meaning of Cal. Lab. Code §2810.3. (CCAC

¶47).

Procedurally, this matter is the combination of two putative class action lawsuits

filed against Defendants in state court: one filed by Plaintiff Morales on June 12, 2017,

and the other by Plaintiffs Contreras and Gonzales on September 7, 2017. The parties

have conducted substantial discovery in these cases. On February 1, 2018, state court

judge Richard E. L. Strauss ordered the two actions consolidated and the CCAC was

served on Defendants on June 26, 2018. On July 20, 2018, Defendants removed the

action based upon the Class Action Fairness Act (“CAFA”). 28 U.S.C. §1332(d).

DISCUSSION

Legal Standards

The parties only dispute whether the amount in controversy satisfies CAFA’s

statutory minimum requirement of $5,000,000. 28 U.S.C. §1332(d)(2). Federal courts

are courts of limited jurisdiction. “Without jurisdiction the court cannot proceed at all

in any cause. Jurisdiction is power to declare the law, and when it ceases to exist, the

only function remaining to the court is that of announcing the fact and dismissing the

cause.” Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 94 (1998)

(quoting Ex Parte McCardle, 74 U.S. (7 Wall.) 506, 514, 19 L.Ed. 264 (1868)). 

Accordingly, federal courts are under a continuing duty to confirm their jurisdictional

power and are “obliged to inquire sua sponte whenever a doubt arises as to [its]

existence...” Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 278

(1977) (citations omitted). 

A state court civil action may be removed to federal court if the district court had

“original jurisdiction” over the matter. 28 U.S.C. §1441(a). Defendant, as the party

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who invokes federal removal jurisdiction, has the burden of demonstrating the

existence of federal jurisdiction. See Gaus v. Miles, Inc. 980 F.2d 564, 566 (9th Cir.

1992); B., Inc. v. Miller Brewing Co., 663 F.2d 545 (5th Cir. 1981). While doubts

regarding removal jurisdiction are generally construed against Defendant, and in favor

of remanding the case to state court, See Gaus, 980 F.2d at 566, there is “no

antiremoval presumption [to] cases invoking CAFA” jurisdiction. Dart Cherokee

Basin Operating Co., LLC v. Owens, 135 S.Ct. 547, 554 (2014). Even after enactment

of CAFA, the burden of demonstrating subject matter jurisdiction at the time the Notice

of Removal is filed remains with Defendant. See Abrego Abrego v. The Dow

Chemical Co., 443 F.3d 676, 682-83 (9 Cir. 2006) (under CAFA, defendant retains th

the burden of establishing federal jurisdiction, including the amount in controversy).

Here, the CCAC does not allege an amount in controversy. Consequently,

Diakon has the burden to show by a preponderance of the evidence that the amount in

controversy is satisfied. See Ibarra v. Manheim Investments, Inc., 775 F.3d 1193, 1197

(9th Cir. 2015); 28 U.S.C. §14 46(c)(2)(B) (removal is appropriate “if the district court

finds, by the preponderance of the evidence, that the amount in controversy exceeds”

the jurisdictional threshold). In satisfying this burden, the removing party must come

forward with summary judgment type evidence. See Singer v. State Farm Mut. Auto.

Ins. Co., 116 F.3d 373, 377 (9th Cir. 1997).

In order to determine the amount in controversy, the court follows Diakon’s

methodology and considers the number of class members and then damages

calculations related to Plaintiffs’ causes of action. Each is discussed in turn.

The Number of Class Members

To establish the number of Class Members, Diakon comes forward with the

declaration of its chief financial officer, Douglas Turner, who declares that Diakon

“investigated potential membership of the expanded class” definition at his direction

and concludes that there are about 224 individuals who performed driving duties for

Diakon. (First Turner Decl. ¶6, ECF 1-11). Mr. Turner also believes that for every

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Driver there is one Helper to reach a total of 448 class members. (Id. ¶¶4, 7). The

Second Turner Declaration identified that he personally instructed the accounting

department to review the contracts with Independent Contractor Carriers (“ICCs”) and

Qualified Second Drivers (employed by ICCs) to, among other things, determine the

identity of the potential class member individuals and the start and end dates of the

contracts, if any. (Second Turner Decl. ¶¶4-11, ECF 21-2). Based upon this analysis,

Mr. Turner concluded that there are a total of 224 individuals who “personally

performed driving duties for one or more of Diakon Logistics clients in California from

June 12, 2013 to the present.” (Id. ¶12). As there is “typically at least one helper that

works with each driver,” there are 448 class members.

Despite substantial discovery conducted by the parties since June 2017, the

factual record submitted by Plaintiffs sheds no light on the number of potential class

members. Plaintiffs respond that Diakon has yet to produce in discovery the

“employment records of drivers and helpers.” (Reply at p.5:19-2). 

For purposes of the present motion only, the court concludes that the Turner

Declarations provisionally establish, by a preponderance of the evidence, that there are

448 class members, subject to future challenge as discovery progresses. As noted by

Plaintiffs, Fed.R.Civ.P. 56(c)(4) requires that declarations be made on personal

knowledge and set forth “admissible” evidence. The declarations of Mr. Turner are

made on personal knowledge as Diakon’s chief financial officer. The declarations also

satisfy the foundational requirements of Fed.R.Evid. 104 and identify the accounting

business records at issue, reflecting the identities of class members; the procedures

implemented to determine the identity of potential class members; and the steps taken

to ensure that class members are not double-counted. At this early stage in the

proceeding, where Plaintiffs have yet to complete class related discovery, the court

concludes by a preponderance of the evidence, based upon the current record submitted

by the parties, that Diakon has provisionally established the number of class members. 

Further discovery will permit the court and parties to make more informed

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determinations about the number of class members.1

In sum, for purposes of the present motion, Diakon preliminarily establishes that

there are 448 class members.

The Misclassification Claim

Diakon represents that the CCAC “expressly seeks” an award of $25,000 per

each allegedly misclassified individual, representing $11.2 million for 448 class

members. The court rejects this damages calculation because PAGA claims, Cal. Lab.

Code §2698 et seq., are not class actions claims, see Baumann v. Chase Inv. Servs.

Corp, 747 F.3d 1117, 1124 (9th Cir. 2014), and “‘the amount involved in the non-class

claims cannot be used to satisfy the CAFA jurisdictional amount,’ Yocupicio v. PAE

Grp., LLC, 795 F.3d 1057, 1062 (9th Cir. 2015).” Santoyo v. Consol. Foundries, Inc.,

2016 WL 5955851, *3 (2016). Accordingly, Diakon fails to show that the amount in

controversy for misclassification penalties includes $11.2 million. 

Minimum Wage Claims

Diakon represents that there is no amount in controversy with respect to this

claim.

Overtime Wage Claims

 In broad brush, Plaintiffs allege that they regularly worked in excess of eight

hours in a workday and 40 hours in a week; and therefore they are entitled to overtime

compensation. (CCAC ¶60). Based upon the deposition testimony of Plaintiff

Morales, who testified that he regularly worked 20 hours of unpaid overtime each

week, Diakon then assumes that each class member worked 20 uncompensated

overtime hours each week for a period of about four years. Based upon this

unsupported assumption, Diakon then concludes that class damages are $7.19 million. 

 Plaintiffs contend that the Turner declarations lack foundation and constitute 1

inadmissible hearsay because (1) the ICC reports are not attached to the declarations

and (2) Mr. Turner fails to declare that he personally reviewed the ICC reports. The

court rejects these objections. Submission of the ICC documents is not a foundational

requirement for the admissibility of the Turner declarations and, additionally, the

declarations were made upon personal knowledge. 

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In order to meet its evidentiary burden, Diakon must show some reasoned basis

for its assumption that each class member worked 20 hours of uncompensated overtime

each week for over four years (the class period). The information concerning

employment/payment records is uniquely within the possession of Diakon. 

Notwithstanding, Diakon sheds no light on the number of overtime hours worked by

class members. Diakon fails to articulate and support their conclusory assumption that

all class members worked 20 hours of uncompensated overtime each week. As 2

Diakon’s submissions fail to establish by a preponderance of the evidence that the

amount in controversy for unpaid overtime wage claims is $7.9 million, the court does

not include this amount in calculating the amount in controversy.

Meal Period Premiums

In his deposition, Plaintiff Morales was asked “What is your best estimate in a

percentage from zero to a hundred that you did not take a lunch break?” (ECF 21-3 at

82, ln 11-12). Plaintiff Morales responded “one hundred percent.” Based solely upon

this question and response, Diakon assumes that each class member never took a meal

break and, therefore, the total amount for Plaintiffs’ meal break claim is $1,197,920.

As with the overtime wage claim, Diakon provides no analysis, or any evidence,

to support its assumption that class members never took the mandated meal period. 

Diakon does not analyze the deposition testimony of the other class representatives,

analyze its own records, or otherwise enlighten the court regarding evidentiary support

for its assumptions.

Rest Period Premiums

In his deposition, Plaintiff Morales testified that he would only take a break if

necessary, maybe once a day, but not more. Diakon then assumes that if Plaintiff

Morales worked 12 hour days, he would be entitled to three rest breaks per day. 

Diakon then assumes that no class member received a rest period, and therefore

 The court notes that Diakon fails to analyze the overtime claim of either 2

Plaintiff Contreras or Gonzalez.

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concludes that total rest period claims are $1,197,920. Diakon’s failure to articulate

a reasoned analysis for its methodology, supported by evidence, constitutes a failure

to meet its evidentiary burden on this motion to remand. That is particularly true in

this case where the information concerning Drivers and Helpers is uniquely within the

possession of Diakon and has been subject to discovery since June 2017.

Inaccurate Wage Statements

Labor Code §226(a) requires employers to provide each employee with “an

accurate itemized [wage] statement in writing.” The failure to provide a wage

statement is subject to a maximum statutory penalty of $4,000. A one year statute of

limitations applies to this claim. Lab. Code §226(e)(1); Civ. Proc. §340). 

Diakon represents that “134 class members were engaged in contract [] for

longer than 41 weeks.” (Oppo. at p.12:7-8). Diakon then assumes a maximum

statutory recovery of $4,000 for 134 class members for a total of $536,000. The

difficulty with these representations is that Diakon fails to explain the relevance of the

134 class members with contracts exceeding 41 weeks. The time period identified in

the Turner declarations for these 134 class members commences on June 12, 2013. 

(Turner Decl. ¶8). However, the one year statute of limitations reaches back in time

to June 2016, not June 2013. Diakon’s failure to articulate a reasoned analysis for its

methodology, supported by evidence, constitutes a failure to meet its evidentiary

burden on this motion to remand. 

Waiting Time Penalties

Plaintiffs do not oppose Diakon’s calculation for waiting time penalties in the

amount of $691,200.

Unauthorized Deductions

In his deposition, Plaintiff Contreras testified that his weekly compensation had

improper deductions of “approximately $50 - $100 due to refused products or damaged

products.” (Oppo. at p.12:26). Assuming that each class member had $50 wrongfully

deducted each week throughout the class period, Diakon asserts an amount in

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controversy of $1,497,400. Once again, Diakon fails to satisfy its evidentiary burden. 

Even though the information concerning alleged unauthorized deductions is uniquely

within the possession of Diakon, it fails to show that a $50 unauthorized deduction is

representative of the claims of all class members. Diakon’s failure to articulate a

reasoned analysis for its methodology, supported by evidence, constitutes a failure to

meet its evidentiary burden on this motion to remand. 

Failure To Reimburse Business Expenses

Plaintiffs do not dispute Diakon’s calculation for failure to reimburse business

expenses in the amount of $448,000. However, Plaintiffs dispute Diakon’s assertions

that Plaintiffs seek $8.01 million for unreimbursed mileage expenses. Diakon

represents that Plaintiff Morales testified that “he drove an average of 200 miles per

day for which he should have received reimbursement.” (Oppo. at p.13:14-15). 

Diakon then assumes that each Driver class member is in the same position as Plaintiff

Morales and, therefore, potential damages exceed $8 million. The court rejects this

argument.

The evidentiary record demonstrates that Plaintiff Morales testified that he was

provided with a gas card and did not pay for the gas used by the delivery truck, owned

by an unidentified third party. (FinleyDecl. Exh. H at 43:12 - 44:18). As Plaintiff

Morales does not have a claim for unreimbursed mileage expenses, Diakon fails to

meet its evidentiary burden to show that the class has a claim for $8.01 million in

unreimbursed business expenses.

Attorney’s Fees

Diakon argues that Plaintiffs may also be entitled to an award of attorney’s fees. 

Diakon cites Flores v. City of Westminster, 2014 LEXIS 200551, *38 (C.D. Cal.

October 23, 2014), for the proposition that counsel in that case were awarded $3.28

million in attorney’s fees. Diakon’s failure to articulate a reasoned analysis for a

proposed award of attorney’s fees, supported by evidence, constitutes a failure to meet

its evidentiary burden on this motion to remand. 

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CONCLUSION

The court grants the motion to remand this action to San Diego Superior Court. 

Diakon’s claimed amount in controversy, $32.51 million, is not supported by a

preponderance of the evidence. The amount in controversy established by Diakon fails

to satisfy the jurisdictional minimum required for the exercise of CAFA jurisdiction. 

The Clerk of Court is instructed to remand this action to the San Diego Superior Court.3

IT IS SO ORDERED.

DATED: January 23, 2019

 Hon. Jeffrey T. Miller

 United States District Judge

cc: All parties

 The court also denies Plaintiffs’ request for sanctions pursuant to 28 U.S.C. 3

§1447(c). That provision authorizes the court to award attorney’s fees and costs

“where the removing party lack[s] an objectively reasonable basis for seeking

removal.” Otay Land Co. v. United Enters., 672 F.3d 1152, 1157 (9th Cir. 2012). 

Here, in light of Plaintiff’s various labor violation claims, potential statutory penalties

at issue, and Plaintiffs’ failure to identify an amount in controversy in the CCAC,

Diakon had a reasonable basis to challenge the amount in controversy allegations. The fact that Diakon failed to carry its burden cannot serve as a basis for an award of fees.

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