Guglielmino v. McKee Foods Corp. ( 2007 )

O’SCANNLAIN, Circuit Judge,

specially concurring:

While we have faithfully applied our precedents to resolve the case before us, I write this special concurrence to note my difficulty with the varied and inconsistent burdens of proof that we place upon defendants who seek to exercise their statutory right of removal under 28 U.S.C. § 1441. In particular, I disagree with the imposition of a “legal certainty” burden on a party seeking to invoke federal jurisdiction, rather than seeking to defeat it. See St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 288-89, 58 S.Ct. 586, 82 L.Ed. 845 (1938). In my view, in all cases where removal to federal court is challenged in any appropriate way, it is incumbent upon the party seeking federal jurisdiction to prove the facts giving rise to such jurisdiction by a preponderance of the evidence. See McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 80 L.Ed. 1135 (1936). Only then, and only by proof to a legal certainty, can a party defeat the exercise of federal jurisdiction which those established facts support. If we had applied such a uniform rule, this would be an easy case that would not be here on interlocutory appeal.

I

A

Based on my view that a uniform burden of proof is required, I find myself in respectful disagreement with our holding in Lowdermilk v. U.S. Bank National Ass’n, 479 F.3d 994, 1000 (9th Cir.2007), that, at least in the context of the Class Action Fairness Act (“CAFA”) and perhaps beyond, when a plaintiff alleges a specific amount in controversy less than the jurisdictional threshold, a removing defendant must prove to a “legal certainty” that the threshold is not exceeded. In my view, this test — which inverts the “legal certainty” test of St. Paul Mercury, 303 U.S. at 288-89, 58 S.Ct. 586, by placing such burden on the party seeking to assert rather than defeat federal jurisdiction — places too high a barrier in the path of defendants seeking to remove a case which it believes belongs in federal court.

In my view, the preponderance of the evidence standard should apply in any case where there is a challenge to the jurisdictional facts of the party seeking to assert federal jurisdiction. This rule is followed in the Fifth, Sixth, Seventh and Eighth Circuits. See De Aguilar v. Boeing Co., 47 F.3d 1404, 1411 (5th Cir.1995); Rogers v. Wal-Mart Stores, Inc., 230 F.3d 868, 871 (6th Cir.2000) (relying upon Gafford v. General Elec. Co., 997 F.2d 150 (6th Cir.1993)); Meridian Security Ins. Co. v. Sadowski, 441 F.3d 536 (7th Cir.2006); In re Minn. Mut. Life Ins. Co. Sales Practices Litig., 346 F.3d 830, 834 (8th Cir.2003).

In De Aguilar, “the plaintiffs, in a bold effort to avoid federal court ... specifically alleged that their respective damages will not exceed the jurisdictional amount.” 47 F.3d at 1410-11. The Fifth Circuit, noting that the majority of states do not limit damage awards to the ad damnun amounts pled in the complaint, adopted the preponderance of the evidence test: “[T]he plaintiffs claim remains presumptively correct unless the defendant can show by a preponderance of the evidence that the amount in controversy is greater than the jurisdictional amount ... The defendant must produce evidence that establishes the actual amount in controversy exceeds [the jurisdictional amount].” Id. at 1412. Then, after a defendant meets this burden, removal is proper unless the plaintiff can show that it is legally certain that his or her recovery will not exceed the amount stated in the original complaint. Id. (citing St. Paul Mercury at 303 U.S. 288-89, 58 S.Ct. 586).

Similarly, in Meridian, the Seventh Circuit attempted to organize and to clarify its removal law into a coherent whole. Judge Easterbrook, writing in Meridian, explained that “[w]hat the proponent of jurisdiction must ‘prove’ is contested factual assertions ... Jurisdiction itself is a legal conclusion, a consequence of facts rather than a provable ‘fact.’ ” 441 F.3d at 540-541 (emphasis in original). The Meridian opinion thus emphasized that jurisdictional facts must be distinguished from jurisdictional conclusions: contested facts have been established only when they are proved by a preponderance of the evidence. Id. at 542.¹

Concluding, Judge Easterbrook described the appropriate methodology as follows:

[A] proponent of federal jurisdiction must, if material factual allegations are contested, prove those jurisdictional facts by a preponderance of the evidence. Once the facts have been established, uncertainty about whether the plaintiff can prove its substantive claim, and whether damages (if the plaintiff prevails on the merits) will exceed the threshold, does not justify dismissal. Only if it is “legally certain” that the recovery (from plaintiffs perspective) or cost of complying with the judgment (from defendant’s) will be less than the jurisdictional floor may the case be dismissed. Once ‘jurisdictional facts’ have been proved by a preponderance of the evidence standard, federal jurisdiction may be defeated only by meeting St. Paul’s legal certainty test.

Id. at 543.²

B

Thus, in both the Fifth and Seventh Circuits, even where the plaintiff alleges damages less than the jurisdictional amount, a preponderance of the evidence standard applies: when the facts supporting jurisdiction (i.e., that a claim is worth more than $75,000) are established as more likely than not, federal jurisdiction is proper unless the “opponent” of federal jurisdiction can show to a legal certainty that jurisdiction is not proper.

This formulation of the respective burdens, as Judge Easterbrook intimated, serves to harmonize the Supreme Court’s decisions in McNutt and St. Paul Mercury.³ It correctly places the burden of establishing the jurisdictional facts on the party seeking federal jurisdiction. It then allows the party seeking to defeat federal jurisdiction to show that, notwithstanding the proponent of jurisdiction’s facts, recovery cannot exceed the jurisdictional threshold.

C

In addition to being faithful to Supreme Court precedent, the preponderance standard strikes the proper balance between a plaintiffs desire to remain in state court and a defendant’s statutory right to remove. As the De Aguilar court noted, imposing a more stringent burden may “fail[ ] adequately to protect defendants from plaintiffs who seek to manipulate their state pleadings to avoid federal court while retaining the possibility of recovering greater damages in state court following remand.”⁴ 47 F.3d at 1411. Yet at the same time, the standard is not empty rhetoric: the preponderance burden “forces the defendant to do more than point to a state law that might allow the plaintiff to recover more than what is pled. The defendant must produce evidence that establishes that the actual amount in controversy exceeds [the jurisdictional amount].” Id.; see also McNutt, 298 U.S. at 189, 56 S.Ct. 780 (noting that the limits of federal jurisdiction “precludes the idea that jurisdiction may be maintained by mere averment or that the party asserting jurisdiction may be relieved of his burden by any formal procedure”). In this way, plaintiffs and defendants are placed on equal footing in seeking a federal courtroom.

II

Further, there are practical concerns with Lowdermilk’s “legal certainty” burden. For one thing, it may put defendants in neighboring states within this circuit to different burdens of proof based on nothing more than differing state codes of pleading. Some states do not allow any mention of damages in state court complaints. Thus, in those states, it may never be possible to plead with the specificity required that damages are less than the jurisdictional threshold. In other words, in these states, the complaint will always be silent, triggering the less demanding preponderance of the evidence inquiry of Sanchez v. Monumental Life Ins. Co., 102 F.3d 398 (9th Cir.1996). Or, conversely stated, plaintiffs in these states will never see the benefit of Lowdermilk’s deferential standard. See Valdez v. Allstate Ins. Co., 372 F.3d 1115, 1117 (9th Cir.2004) (noting defendants’ frustration that Ariz. R. Civ. P. 8(g) bars plaintiffs from stating a dollar amount or figure for damages); see also Gaus v. Miles, 980 F.2d 564, 566 (9th Cir.1992) (discussing Nev. R. Civ. P. 8(a) which provides that “[w]here a claimant seeks damages of more than $10,000, the demand shall be for damages ‘in excess of $10,000’ without further specification of amount.”).⁵

In my view, the availability of federal jurisdiction should not be subject to such vagaries of state pleading law. See, e.g., Carlsberg Resources Corp. v. Cambria Sav. and Loan Ass’n, 554 F.2d 1254, 1261 (3d Cir.1977) (refusing to adopt a rule which “would make diversity jurisdiction, in situations such as the one at hand, largely dependent upon the vagaries of state law.”).

In addition, it is unclear how the legal certainty burden is to be applied against a defendant seeking to establish federal jurisdiction. What type of proof can satisfy such a burden? The very able district judge in this case ran into this very problem when, in alternatively applying the legal certainty test, he calculated the amount of punitive damages and attorneys fees “in controversy” as zero, because “the court cannot say that plaintiffs will recover any particular amount of attorneys fees or punitive damages.” Does this mean that punitive damages, because they are inherently speculative, will never count towards the total amount in controversy under the legal certainty burden? If not, what type of proof suffices to reach the necessary quantum of a legal certainty? ⁶ By inverting the St. Paul Mercury test and applying it against a party seeking federal jurisdiction, we raise these practical problems to which there are no easy answers.

Ill

If our court applied a single, consistent burden of proof which a removing defendant must confront, this interlocutory appeal would never have been certified. The preponderance of the evidence standard strikes the correct balance between a plaintiffs right to remain in state court and a defendant’s statutory right to remove an action which meets the diversity requirements. In my view, yet recognizing that binding circuit precedent is to the contrary, such a preponderance standard should be applied in all cases where the jurisdictional facts of the party seeking to invoke federal jurisdiction have been properly challenged.

1 . In Lowdermilk, in adopting our “legal certainty” burden, we stated that "[t]he Seventh Circuit's decision in Brill v. Countrywide Home Loans, [427 F.3d 446, 448 (7th Cir.2005)] is not to the contrary.” Lowdermilk, 479 F.3d at 999 n. 6. After the Seventh Circuit’s decisions in Meridian and Oshana v. Coca-Cola Co., 472 F.3d 506, 511 (7th Cir.2006), it is clear that our decision in Lowder-milk in fact conflicts with the Seventh Circuit's reasoning.

2 . Judge Easterbrook's formulation and, in particular, his explanation of the role of jurisdictional facts, finds support in older case law of our circuit. See Uston v. Grand Resorts, Inc., 564 F.2d 1217, 1218 (9th Cir. 1977) (noting that the proponent of jurisdiction "ha[s] the burden of establishing the jurisdictional facts once they were challenged in an appropriate way”); accord Taylor v. Portland Paramount Corp., 383 F.2d 634, 639 (9th Cir.1967) (“The question is one of jurisdiction, and we think that we should apply the rules laid down in McNutt v. General Motors Acceptance Corp., that the trial court is not bound by the pleadings and that the party asserting jurisdiction has the burden of establishing it if his allegations are challenged in any appropriate manner.”) (emphasis added).

3 . In McNutt, the Supreme Court stated that "[i]f [a party's] allegations of jurisdictional facts are challenged by his adversary in any appropriate manner, he must support them by competent proof. And where they are not so challenged the court may still insist that the jurisdictional facts be established or the case be dismissed, and for that purpose the court may demand that the party alleging jurisdiction justify his allegations by a preponderance of evidence.” 298 U.S. at 189, 56 S.Ct. 780.

4 . There is little doubt in my mind that Chief Judge Walker was correct in observing that Guglielmino’s disclaimer of "the jurisdictional amount is not so obviously the product of counsel’s specific assessment of his client's case.” Instead, "the complaint here simply maintains — almost too conveniently — that plaintiffs’ damages 'are less than $75,000.’ ”

5 . The Advisory Committee Note to Nev. R. Civ. P. 8(a) explains, "[i]n 1971, a restriction was inserted to prohibit allegation of specific amounts of damages in excess of $10,000. This was principally to eliminate adverse publicity that results from extravagant claims of damage, and does not restrict counsel in the presentation of their case nor the court or jury on the amount it may award.”

6 . In the days of the St. Paul Mercury decision, plaintiffs could sue for less by stating an amount claimed. See Singer v. State Farm Mut. Auto. Ins. Co., 116 F.3d 373, 375 (9th Cir.1997) ("At common law, a statement of the amount claimed was required, and was an upper limit on recovery.”) (citing Benjamin J. Shipman, Common Law Pleading, 223, 487-89 (3d ed.1923)). In most jurisdictions, however, the common law rule no longer prevails and the ad damnum clause does not set forth an upper limit on recovery. Nonetheless, the St. Paul Mercury legal certainty test might still be met by those seeking to defeat federal jurisdiction. One obvious way to meet this burden is to show that recovery under the theory alleged is capped by statute. Or, alternatively, the party might file a binding stipulation, prior to removal, that it will not seek more in recovery than the jurisdictional threshold. With the legal certainty standard inverted and projected onto those seeking to establish federal jurisdiction, such stratagems are of no help or comfort.