Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_04-cv-04321/USCOURTS-cand-4_04-cv-04321-0/pdf.json

Nature of Suit Code: 710
Nature of Suit: Fair Labor Standards Act
Cause of Action: 28:1441 Petition for Removal- Labor/Mgmnt. Relations

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

J. STEVEN WILEY, et al.,

Plaintiffs,

 v.

TRENDWEST RESORTS, INC., et al.,

Defendants.

 /

No. C 04-4321 SBA

ORDER

[Docket No. 12]

This matter is before the Court on Plaintiffs' motion forremand ofthis action to the California Superior

Court for San Francisco County pursuant to 28 U.S.C. § 1447(c) [Docket No. 12]. 

Having read and considered the arguments presented by the parties in the papers submitted to the

Court, and the argument of counsel at the March 29, 2005 hearing, the Court hereby GRANTS Plaintiffs'

motion to remand the second, third, and fourth causes of action. The Court DENIES Plaintiffs' motion to

remand the first and fifth causes of action.

BACKGROUND

On August 25, 2004, Plaintiffs J. StevenWiley, James D. Harrison, and Fred Dinley("Plaintiffs") filed

a Complaint against Defendants Trendwest Resorts, Inc. and Jeld-Wen, Inc. in San Francisco Superior Court

on behalf of "themselves, the general public, and others similarly situated." Plaintiffs' Complaint alleges five

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1According to the Complaint, a "chargeback"occurs when a sales person's bonus is deducted forsales

that are charged back or cancelled through no fault of the sales person. Cmplt. ¶ 43. 

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causes of action: (1) restitution for overtime pursuant to California Business and Professions Code § 17200

for violations of the Federal Labor Standards Act; (2) restitution for unpaid wages in the form of

"chargebacks"1 pursuant to California LaborCode §§ 221, 300, and 400-410; (3) unjust enrichment pursuant

to California Civil Code § 1670.5 and California Business and Professions Code § 17200;(4) failure to

reimburse employee expenses in violation of California Labor Code §§ 2802 and 400-410; and (5) waiting

time penalties under California Labor Code § 203.

On October 13, 2004, Defendant Trendwest Resorts, Inc.("Defendant"or "Trendwest") removed the

action to federal court under 28 U.S.C. § 1441 on the grounds that Plaintiffs' Complaint invokes a federal

question.

LEGAL STANDARD

The federal removal statute, 28 U.S.C. § 1441, provides that "any civil action brought in a State

court . . . may be removed by the defendant or the defendants" to federal court on the basis of federal

question or diversity jurisdiction. 28 U.S.C. 1441(a); Snow v. Ford Motor Co., 561 F.2d 787, 789 (9th

Cir. 1977). 

The removal statute is to be strictly construed against removal and any doubt is resolved in favor of

remand. Duncan v. Stuetzle, 76 F.3d 1480, 1485 (9th Cir. 1996). The burden of establishing jurisdiction

rests with the party effecting the removal. Emrich v. Touche Ross & Co., 846 F.2d 1190, 1195 (9th Cir.

1988) (citations omitted). 

The Court must determine whether removal was proper by "looking to the complaint at the time the

removal petition was filed." Chesler/Perlmutter Prods. v. Fireworks Entm't, Inc., 177 F. Supp. 2d

1050, 1058 (C.D. Cal. 2001) (citing Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1065 (9th Cir.

1979)). The Supreme Court has explained that "if the case is not then removable it cannot be made

removable by any statement in the petition for removal or in subsequent pleadings by the defendant." Great

N. Ry. v. Alexander, 246 U.S. 276, 281 (1918).

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3

ANALYSIS

A. Removal of Plaintiffs' First Cause of Action.

Defendant argues that removal of this case to federal court is proper under 28 U.S.C. §§ 1331 and

1367 because Plaintiffs' first cause of action is based entirely on an alleged violation of the Fair Labor

Standards Act ("FLSA"), 29 U.S.C. §§ 207, 213. Although Defendant admits that Plaintiffs have brought

their first cause of action under California Business and Professions Code § 17200, and not the FLSA,

Defendant contends that the "artful pleading doctrine" precludes Plaintiffs from avoiding federal jurisdiction

simply by casting in state law terms a claim that actually is based on federal law. See Lippitt v. Raymond

James Fin. Servs., 340 F.3d 1033, 1041 (9th Cir. 2003) ("The artful pleading doctrine allows courts to

'delve beyond the face of the state court complaint and find federal question jurisdiction' by recharacterizing

a plaintiff's state law claim as a federal claim.'") Plaintiffs concede that the Complaint's first cause of action

is premised on the FLSA but nevertheless argue that "[t]he mere presence of a federal issue in a state cause

of action does not automatically confer federal-question jurisdiction." Merrill Dow Pharmaceuticals, Inc.

v. Thompson, 478 U.S. 804, 813 (1986). 

Federal question jurisdiction extends in those cases in which a well-pleaded complaint establishes

either that: (1) federal law creates the cause of action; or (2) the plaintiff's right to relief necessarily depends

on a resolution of a substantial question of federal law. Franchise Tax Bd. v. Construction Laborers

Vacation Trust, 463 U.S. 1, 27, 28. The first relevant inquiry here is whether the FLSA "created"

Plaintiffs' cause of action.

Defendant contends that a federal statute "creates" the cause of action when a "substantial, disputed

question of federal law is a necessary element of the claim." See Franchise Tax Bd., 463 U.S. at 13. 

Defendant further argues that because Plaintiffs' § 17200 claim is premised solely on Plaintiffs' ability to

prove that Defendant violated the FLSA, the FLSA is a necessary element of Plaintiffs' claim. Defendant

cites two Ninth Circuit cases in support of its position. In both cases, the Ninth Circuit found that subject

matter jurisdiction had been established because the plaintiffs' § 17200 claims were predicated on various

federal statutory violations. See Brennan v. Southwest Airlines, 134 F.3d 1405, 1409 (9th Cir. 2004);

Lockyer v. Dynegy Power Marketing, 375 F.3d 831, 838, 843 (9th Cir. 2004). Although these two

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2

Inboth cases, the NinthCircuit's holding turned on a finding that the underlying federalstatute provided

forexclusive jurisdictionin the federalcourts. See Brennan, 134 F.3d at 1409 (federaljurisdictionappropriate

because the InternalRevenue Code "provides the exclusive remedy in tax refund suits and thus preempts statelaw claims that seek tax refunds."); see also Lockyer, 375 F.3d at 843 (federal jurisdiction appropriate

because claims fell "squarely within the exclusive jurisdiction provision of the Federal Power Act."). Here, in

contrast, Plaintiffs argue thatthe FLSA does notnecessarily preclude concurrent jurisdictionin state and federal

courts. See, e.g., 28 U.S.C. § 216(b) ("An action to recover the liability prescribed in either of the preceding

sentences may be maintained against any employer . . . inanyFederalor State court of competent jurisdiction.")

 

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cases are distinguishable from the instant case in certain respects,2 the Court finds them persuasive.

Defendant also cites a recent case in the Northern District closely analogous to the instant case in

which the district court followed Brennan and Lockyer in finding subject matter jurisdiction. See National

Credit Reporting Ass'n, Inc. v. Experian Information Solutions, Inc., No. C 04-01661 WHA 2004

U.S. Dist. Lexis 17303, at *10 (N.D. Cal. July 21, 2004). In National Credit Reporting Ass'n Inc., the

district court specifically found that the plaintiff's reliance on the Sherman Act to establish his § 17200 claim

was sufficient to establish subject matter jurisdiction. In fact, in National Credit Reporting Ass'n, the

court stated that plaintiff "could not have avoided borrowing Section 2 of the Sherman Act" because his

claim was not expressly provided for under California law. Similarly, here, Defendant alleges that Plaintiffs

could not have brought their first cause of action under California law because Plaintiffs would have been

exempt from overtime under the relevant California regulations. Plaintiffs fail to refute this contention. 

Plaintiffs have also failed to show that their right to relief does not necessarily depend on the

resolution of a substantial question of federal law. Although Plaintiffs argue that their first cause of action is

predicated on a "well-settled portion" of the FLSA, Plaintiffs do not – and cannot – deny that their

entitlement to relief under their first cause of action depends on whether the Court finds that Trendwest's

sales personnel fall within the FLSA's "inside salesperson" exemption. It is precisely this analysis that

establishes federal question jurisdiction. The sole authority that Plaintiffs rely on to refute this point is

inapposite. As Defendants aptly point out, in Barnett et al. v. Washington Mutual Bank, FA et al., 2004

WL 2011462 (N.D. Cal Sept. 9, 2004), the question of subject matter jurisdiction was not before the

court. Indeed, in Barnett, the plaintiffs affirmatively alleged violations of the FLSA as a separate cause of

action, thereby clearly establishing the basis for federal question jurisdiction. Id. at * 1. The Barnett court

also noted that the plaintiffs had premised their § 17200 claim on both state and federal labor laws. Id.

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3Plaintiffs concede that the fifth cause of action is so closely related to the first cause of action that,

should the Court find subject matter jurisdiction over the first cause of action, the fifth cause of action should

also remain in federal court. 

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This distinction appears to be the basis for the Barnett court's conclusion that the plaintiffs' § 17200 claim

could be "characterized as a state wage claim." Id. at *7. 

Accordingly, the Court finds that Defendant has met its burden of establishing that the Court has

subject matter jurisdiction over Plaintiffs' first cause of action. 

B. Removal of Plaintiffs' Second, Third, Fourth, and Fifth Causes of Action. 

Plaintiffs argue that, even if this Court finds that it has subject matter jurisdiction over Plaintiffs' first

cause of action, it should nevertheless remand the second, third, and fourth causes of action to state court.3

Plaintiffs present two arguments in support of this contention: (1) that the first and fifth causes of action are

not sufficiently related to the second through fourth causes of action; and (2) that the second through fourth

causes of action present novel and complex issues of state law which substantially predominate over the

first and fifth causes of action. 

When a defendant removes a lawsuit that joins both federal and state law claims, the district court

may exercise supplemental jurisdiction over the state law claims only if those claims are so closely related to

the federal claim that they "form part of the same case or controversy." 28 U.S.C. § 1367(a). Absent this

nexus, the district court lacks jurisdiction over the state law claims, and they must be remanded. 28 U.S.C.

§ 1447. 

Even when there is a basis for supplemental jurisdiction, however, the district court may properly

decline to exercise it. 28 U.S.C. § 1367. Section 1367(c) provides that a district court may refrain from

exercising supplemental jurisdiction over state law claims if they involve novel questions of state law, or if

the state law claims substantially predominate over the claims based on federal law. 28 U.S.C. §

1367(c)(1) and (2). As the United States Supreme Court recognized in United Mine Workers v. Gibbs,

383 U.S. 715, 726 (1966), the district court's jurisdiction over state law claims "need not be exercised in

every case in which it is found to exist ... Needless decisions of state law should be avoided as a matter of

comity . . . ." Id. Additionally, 28 U.S.C. § 1441 provides a separate basis for remanding state law

claims, provided that those claims are "separate and independent" from the federal claim and that the state

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4Even the case that Defendant relies on – Eastus v. Blue Bell Creameries, 97 F.3d 100 (5th Cir.

1996) – stands for this proposition. See Eastus, 97 F.3d at 105 (holding that it was proper to remand the

cause of action for tortious interference with prospective contractual relations claim but finding that it was an

abuse of discretion for the Court to remand a cause of action for intentional infliction of emotional distress

(IIED) because the IIED claim simply asserted a different theory ofrecovery forthe Family and MedicalLeave

Act violation). 

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law matters substantially predominate. 28 U.S.C. § 1441. 

Plaintiffs argue that the first cause of action and the second through fourth causes of action do not

arise from the same nucleus of facts and are therefore "separate and independent" claims. Plaintiffs

concede that all of the causes of action arise out of their employment with Trendwest, but nevertheless

contend that the employer-employee relationship is too tenuous a connection to satisfy jurisdictional

requirements. Plaintiffs cite two cases – Lyons v. Whisman, 45 F.3d 758 (3d Cir. 1995) and Hudson v.

Delta Airlines, 90 F.3d 451 (11th Cir. 1996) – where state law claims arising from the same employment

relationship as the federal claim were held to be insufficiently related. See Lyons, 45 F.3d at 759 (holding

that plaintiff's state law tort and contract claims arising out of the employer's failure to pay a bonus on time

did not arise from the same common nucleus of operative fact as the FLSA claim for unpaid overtime

wages); see also Hunter, 90 F.3d at 456 (holding that the plaintiffs' breach of contract claim did not arise

from the same case or controversy as the ERISA causes of action).

Defendant argues that Plaintiffs' causes of action all arise out of the same nucleus of facts because

they all relate to Plaintiffs' wages. However, numerous federal courts have held that such a "loose" factual

nexus is insufficient to satisfy Article III jurisdictional requirements. Lyons, 45 F.3d at 761-62. The

relevant inquiry is not whether the claims involve some similar factual basis, but whether the state and

federal claims are alternative theories of recovery for the same acts.4 Id. at 761. As noted by the Third

Circuit in Lyons, "when the same acts violate federal and state laws, the common nucleus of operative facts

is obvious and federal courts routinely exercise supplemental jurisdiction over the state law claims." Lyons,

45 F.3d at 761. That is not the case here. In fact, Defendant has strenuously argued that Plaintiffs' first

cause of action is not a viable cause of action under state law. Defendant cannot have it both ways. As

such, Defendants have not met their burden in proving that Plaintiffs' first cause of action is sufficiently

related to the second, third, and fourth causes of action. 

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5Defendant also argues that there may be grounds for diversity jurisdiction in the event that one of the

Plaintiffs amends the Complaint to add a claim formore than $75,000. Since Defendant concedes that this is

merely a possibility at this point, and has not actually occurred, the issue of whether diversity jurisdictionexists

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Moreover, this Court may decline to exercise supplemental jurisdiction pursuant to 28 U.S.C. §

1367 over Plaintiffs' second through fourth causes of action if they involve novel questions of state law or if

the state law claims substantially predominate over the claims based on federal law. Plaintiffs contend that

the second through fourth causes of action are "novel" because there are no reported California decisions

that set forth what types of expenses or losses may be deducted from a real estate broker's earned wages. 

In response, Defendant argues that Plaintiffs' wage claims are not novel due to the California Court of

Appeals recent decision in Steinhebel v. Los Angeles, 126 Cal.App.4th, 696, 24 Cal.Rptr.3d 351 (Cal.

2005). As Plaintiffs point out, however, Steinhebel was decided only two months ago. Moreover, the

holding in Stienhebel was limited to a discrete dispute relating to the commissions earned by newspaper

telesales employees and the analysis turned on the explicit terms of the employees' contract. Id. at 354. 

Thus, the holding of Steinhebel is not necessarily determinative of questions pertaining to commissions

earned by real estate brokers. Accordingly, the Court finds that Steinhebel does not provide the Court

with appropriate guidance with respect to the instant action. 

Plaintiffs also argue that the second through fourth causes of action predominate over the first and

fifth causes of action. Plaintiffs are correct. Plaintiffs' complaint is, in essence, a commissions dispute. The

second through fourth causes of action assert numerous violations of California labor laws that go to the

heart of this dispute. The one federal cause of action, on the other hand, is discrete and and its

determination arguably has no bearing on whether Trendwest included inappropriate deductions of wages

from Plaintiffs' commissions. To counter this, Defendant merely argues that the FLSA issue is the "more

substantial claim" because it will require a significant amount of discovery. However, Defendant does not

cite any authorities in support of its contention that the amount of discovery controls whether federal subject

matter jurisdiction is appropriate. The Court is not aware of any cases that make this distinction. 

In fact, Defendant's sole argument is that this Court should exercise supplemental jurisdiction over

the second through fourth causes of action in the interests of "economy, convenience, [and] fairness"

because Defendant should not be faced with the burden of litigating in two different courts.5 This argument

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28 is not properly before this Court. Thus, the Court declines to consider Defendant's argument. 

8

is not sufficient to meet Defendant's burden of proof. While it is unfortunate that Defendant removed the

case from state court (where it could have been heard in its entirety), the simple fact is that this Court

cannot choose to exercise supplemental jurisdiction over claims when Defendant has not properly shown

that such jurisdiction is appropriate. The removal statute is to be strictly construed against removal and any

doubt is resolved in favor of remand. Duncan v. Stuetzle, 76 F.3d 1480, 1485 (9th Cir. 1996).

Accordingly, the Court finds that Defendant has established that the Court has subject matter

jurisdiction over Plaintiffs' first cause of action. Since Plaintiffs concede that the fifth cause of action is

inextricably intertwined with the first cause of action, subject matter jurisdiction over the fifth cause of action

has been established as well. However, Defendant has not met its burden of proof with respect to the

removability of Plaintiffs' second through fourth causes of action. Since the Court finds that the second

through fourth causes of action raise novel and complex issues of California law and assert legal theories

that are separate from and independent of Plaintiffs' federal cause of action, the Court declines to assert

subject matter jurisdiction over these claims. 

CONCLUSION

IT IS HEREBY ORDERED THAT Plaintiffs' Motion to Remand the second, third, and fourth

causes of action is GRANTED. Plaintiffs' second, third, and fourth causes of action are hereby

REMANDED to the Superior Court of San Francisco County. Plaintiffs' Motion to Remand the first and

fifth causes of action is DENIED. The Court retains jurisdiction over Plaintiffs' first and fifth causes of

action. 

 IT IS FURTHER ORDERED THAT the telephonic Case Management Conference in this case

is continued to June 16, 2005 at 3:15 p.m.. The parties shall meet and confer prior to the conference and

shall prepare a joint Case Management Conference Statement which shall be filed no later than ten (10)

days prior to the Case Management Conference. Plaintiffs shall be responsible for filing the statement as 

//

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well as for arranging the conference call. All parties shall be on the line and shall call (510) 637-3559 at the

above indicated date and time. 

IT IS SO ORDERED.

 /s/ Saundra Brown Armstrong 

Dated: 5-3-05 SAUNDRA BROWN ARMSTRONG

United States District Judge

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