Jose Ibarra v. Manheim Investments, Inc.

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
JOSE L. IBARRA, an individual; No. 14-56779
DOES, 1–50, on behalf of themselves
and in a representative capacity for D.C. No.
all others similarly situated and on 3:13-cv-00857-
behalf of the general public, CAB-BLM
Plaintiffs-Appellees,
v. OPINION
MANHEIM INVESTMENTS, INC., a
Nevada Corporation; COX
ENTERPRISES, INC., a Delaware
Corporation,
Defendants-Appellants.
Appeal from the United States District Court
for the Southern District of California
Cathy Ann Bencivengo, District Judge, Presiding
Argued and Submitted
December 8, 2014—Pasadena, California
Filed January 8, 2015
Before: Susan P. Graber, Ronald M. Gould,
and Consuelo M. Callahan, Circuit Judges.
Opinion by Judge Gould
2 IBARRA V. MANHEIM INVESTMENTS
SUMMARY*
Class Action Fairness Act / Amount in Controversy
The panel vacated the district court’s order remanding the
putative class action to state court, and remanded to the
district court to allow both parties the opportunity to submit
evidence and arguments whether the $5 million amount in
controversy requirement under the Class Action Fairness Act
had been satisfied where the complaint did not include a
facially apparent amount in controversy or may have
understated the true amount in controversy.
The plaintiff putative class of employees sued in state
court alleging violations of California’s Labor Code, and
explicitly alleging that damages did not exceed $5 million.
Defendant Manheim Investments, Inc. removed the case to
federal court under the Class Action Fairness Act, asserting
more than $5 million was at stake based on a “pattern and
practice” of labor law violations.
The panel held that because the complaint did not allege
that Manheim universally, on each and every shift, violated
labor laws by not giving rest and meal breaks, Manheim bore
the burden to show that its estimated amount in controversy
relied on reasonable assumptions. The panel also held that a
remand to the district court was necessary to allow both sides
to submit evidence – direct or circumstantial – related to the
contested amount in controversy. The panel further held that
if the damages assessment included assumptions, the chain
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
IBARRA V. MANHEIM INVESTMENTS 3
of reasoning and the assumptions needed some reasonable
ground underlying them. The panel concluded that Manheim
relied on an assumption about the rate of its alleged labor law
violations that was not grounded in real evidence, and
remanded on an open record for both sides to submit proof
related to the disputed amount in controversy.
COUNSEL
Thomas R. Kaufman (argued), and Paul Berkowitz, Sheppard,
Mullin, Richter & Hampton LLP, Los Angeles, California,
for Defendants-Appellants.
Raul Cadena (argued), Cadena Churchill, LLP, San Diego,
California; Paul D. Jackson, JacksonLaw, LLP, San Diego,
California, for Plaintiff-Appellee.
OPINION
GOULD, Circuit Judge:
We must decide what proof a defendant seeking removal
must produce to prove the amount-in-controversy
requirement under the Class Action Fairness Act of 2005
(“CAFA”), 28 U.S.C. § 1332(d), when the complaint does not
include a facially apparent amount in controversy or the
plaintiff may have understated the true amount in
controversy.
CAFA gives federal district courts original jurisdiction
over class actions in which the class members number at least
100, at least one plaintiff is diverse in citizenship from any
4 IBARRA V. MANHEIM INVESTMENTS
defendant, and the aggregate amount in controversy exceeds
$5 million, exclusive of interest and costs. Id. A CAFA-
covered class action may be removed to federal court, subject
to more liberalized jurisdictional requirements, i.e., the one-
year limitation under § 1446(c)(1) does not apply, the case
may be removed even if one or more defendants are citizens
of the state in which the action was brought, and the case may
be removed by any defendant without the consent of
co-defendants. Id. §§ 1441(a), 1453(b).
But even with this special liberalization, there still must
be a requisite amount in controversy that exceeds $5 million.
In this case, plaintiffs sued in state court alleging that
damages do not exceed $5 million, and defendants Manheim
Investments, Inc., and Cox Enterprises, Inc. (collectively,
“Manheim”), removed the case to federal court, asserting that
more than $5 million was at stake. The district court
concluded that Manheim’s proof of the amount in controversy
was inadequate and remanded the case to state court.
Manheim appealed, bringing the issue to us.
For the reasons that follow, we vacate and remand
because neither side has submitted proof regarding the
violation rate. As the Supreme Court has held, a removing
party must initially file a notice of removal that includes “a
plausible allegation that the amount in controversy exceeds
the jurisdictional threshold.” Dart Basin Operating Co. v.
Owens, No. 13-719, 2014 WL 7010692, at *6 (U.S. Dec. 15,
2014). When, as here, “a defendant’s assertion of the amount
in controversy is challenged . . . both sides submit proof and
the court decides, by a preponderance of the evidence,
whether the amount-in-controversy requirement has been
satisfied.” Id. at *5 (citing 28 U.S.C. § 1446(c)(2)(B)). We
conclude that “both sides” should have an opportunity to
IBARRA V. MANHEIM INVESTMENTS 5
submit evidence and argument to the district court in light of
the standards we state here. We therefore vacate and remand
for further proceedings consistent with this opinion.
I
The named plaintiff Jose Ibarra filed a putative class
action in California state court on December 22, 2011, against
his former employer, Manheim, alleging Manheim’s
violations of the California Labor Code for failure to pay
minimum wages and overtime, failure to provide meal and
rest periods, failure to furnish compliant wage statements,
and failure to pay timely wages upon termination. In his
complaint, Ibarra also asserted claims under the unfair
business practices statute, and claims for theft of labor,
declaratory relief, an accounting, and injunctive relief. Ibarra
sought to represent a putative class of all current and former
non-exempt hourly-paid employees of Manheim within four
years before filing the complaint until the date of
certification. Ibarra explicitly alleged in his complaint that
“the aggregate claims of the individual class members do not
exceed the $5,000,000 jurisdictional threshold for federal
court under the Class Action Fairness Act.”
Manheim removed the case to federal court, and the
district court remanded the case to state court. The district
court relied on our decision in Lowdermilk v. U.S. Bank
National Ass’n, 479 F.3d 994 (9th Cir. 2007), and held that
Manheim did not prove to a legal certainty that the amount in
controversy exceeded $5 million. But about three weeks
later, the Supreme Court decided Standard Fire Insurance
Co. v. Knowles, 133 S. Ct. 1345, 1350 (2013), which held that
a class action plaintiff’s precertification stipulation that the
plaintiff and the class will not seek damages over $5 million
6 IBARRA V. MANHEIM INVESTMENTS
does not preclude a defendant’s ability to remove the case
under CAFA.
Manheim filed a second notice of removal on April 9,
2013, in light of Standard Fire. The district court again
remanded the case to state court on July 12, 2013, holding
that Standard Fire was not irreconcilable with Lowdermilk.
Manheim appealed the district court’s remand order. While
the appeal was pending, we decided Rodriguez v. AT&T
Mobility Services LLC, 728 F.3d 975, 977 (9th Cir. 2013), in
which we concluded that Lowdermilk had been overruled by
Standard Fire and that “the proper burden of proof imposed
upon a defendant to establish the amount in controversy is the
preponderance of the evidence standard.” Pursuant to
Rodriguez, we vacated the district court’s July 12, 2013
remand order and remanded the case back to the district
court.
On remand, plaintiffs renewed their motion to remand the
class action to state court, Manheim opposed plaintiffs’
motion, and plaintiffs filed a reply in support of their remand
motion. The district court considered the amount-in-
controversy question for a third time. After evaluating the
record, the parties’ briefs, and the evidence proffered by
Manheim with its post-Rodriguez notice of removal, the
district court concluded that Manheim had not satisfied its
burden of proving that the amount in controversy exceeded
$5 million, because Manheim did “not provide a basis in the
complaint or in evidence for [its] assumption that plaintiffs
were never provided breaks.” The district court once more
remanded the case to state court. Manheim petitioned for
permission to appeal, which we granted on November 10,
2014.
IBARRA V. MANHEIM INVESTMENTS 7
II
We have jurisdiction under 28 U.S.C. § 1453(c), and we
review the district court’s remand order de novo. Abrego
Abrego v. Dow Chem. Co., 443 F.3d 676, 679 (9th Cir. 2006)
(per curiam). The parties do not contest CAFA’s
jurisdictional requirements of minimum diversity and class
numerosity on appeal; the sole dispute is whether CAFA’s
requirement that the amount in controversy exceed $5 million
is met here.
Congress designed the terms of CAFA specifically to
permit a defendant to remove certain class or mass actions
into federal court. 28 U.S.C. § 1332(d). Congress intended
CAFA to be interpreted expansively. S. Rep. No. 109-14, at
42 (Feb. 28, 2005). A defendant seeking removal must file in
the district court a notice of removal “containing a short and
plain statement of the grounds for removal . . . .” 28 U.S.C.
§ 1446(a). The Supreme Court recently held that “a
defendant’s notice of removal need include only a plausible
allegation that the amount in controversy exceeds the
jurisdictional threshold,” and need not contain evidentiary
submissions. Dart, 2014 WL 7010692, at *6. But
“[e]vidence establishing the amount is required” where, as
here, defendant’s assertion of the amount in controversy is
contested by plaintiffs. Id. “In such a case, both sides submit
proof and the court decides, by a preponderance of the
evidence, whether the amount-in-controversy requirement has
been satisfied.” Id. at *5 (citing 28 U.S.C. § 1446(c)(2)(B)).
In determining the amount in controversy, courts first
look to the complaint. Generally, “the sum claimed by the
plaintiff controls if the claim is apparently made in good
faith.” St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S.
8 IBARRA V. MANHEIM INVESTMENTS
283, 289 (1938) (footnote omitted). Whether damages are
unstated in a complaint, or, in the defendant’s view are
understated, the defendant seeking removal bears the burden
to show by a preponderance of the evidence that the
aggregate amount in controversy exceeds $5 million when
federal jurisdiction is challenged. Rodriguez, 728 F.3d at
981. In light of Standard Fire, 133 S. Ct. at 1350, this rule is
not altered even if plaintiffs affirmatively contend in their
complaint that damages do not exceed $5 million. Rodriguez,
728 F.3d at 981. The parties may submit evidence outside the
complaint, including affidavits or declarations, or other
“summary-judgment-type evidence relevant to the amount in
controversy at the time of removal.” Singer v. State Farm
Mut. Auto. Ins. Co., 116 F.3d 373, 377 (9th Cir. 1997)
(internal quotation marks omitted). Under this system, a
defendant cannot establish removal jurisdiction by mere
speculation and conjecture, with unreasonable assumptions.
This procedure is consistent with other circuits’ decisions
in challenges of CAFA jurisdiction. See, e.g., Pretka v.
Kolter City Plaza II, Inc., 608 F.3d 744, 754, 771–72 (11th
Cir. 2010) (reviewing the defendant’s declaration that made
a “ministerial determination that the complaint called for”
over $5 million and holding that “when a removing defendant
makes specific factual allegations establishing jurisdiction
and can support them . . . with evidence combined with
reasonable deductions, reasonable inferences, or other
reasonable extrapolations[,] [t]hat kind of reasoning is not
akin to conjecture, speculation, or star gazing”).
When plaintiffs favor state court and have prepared a
complaint that does not assert the amount in controversy, or
that affirmatively states that the amount in controversy does
not exceed $5 million, if a defendant wants to pursue a
IBARRA V. MANHEIM INVESTMENTS 9
federal forum under CAFA, that defendant in a jurisdictional
dispute has the burden to put forward evidence showing that
the amount in controversy exceeds $5 million, to satisfy other
requirements of CAFA, and to persuade the court that the
estimate of damages in controversy is a reasonable one. But
the Supreme Court has said that a defendant can establish the
amount in controversy by an unchallenged, plausible
assertion of the amount in controversy in its notice of
removal. Dart, 2014 WL 7010692, at *6. Yet, when the
defendant’s assertion of the amount in controversy is
challenged by plaintiffs in a motion to remand, the Supreme
Court has said that both sides submit proof and the court then
decides where the preponderance lies. Id. Under this system,
CAFA’s requirements are to be tested by consideration of real
evidence and the reality of what is at stake in the litigation,
using reasonable assumptions underlying the defendant’s
theory of damages exposure.1
1
Even when defendants have persuaded a court upon a CAFA removal
that the amount in controversy exceeds $5 million, they are still free to
challenge the actual amount of damages in subsequent proceedings and at
trial. This is so because they are not stipulating to damages suffered, but
only estimating the damages that are in controversy. See Sparta Surgical
Corp. v. Nat’l Ass’n of Sec. Dealers, Inc., 159 F.3d 1209, 1213 (9th Cir.
1998) (holding that jurisdiction must be analyzed on the basis of pleadings
filed at the time of removal and recognizing that damages may change as
a result of post-removal events); see also Worthams v. Atlanta Life Ins.
Co., 533 F.2d 994, 998 (6th Cir. 1976) (acknowledging that the amount
recoverable may drop below the jurisdictional limit as a result of
discovery and application of a legal defense, but the post-removal event
does not deprive the district court of federal jurisdiction).
10 IBARRA V. MANHEIM INVESTMENTS
A
Manheim calculated the amount in controversy as
follows.2 Manheim relied on a declaration of its senior
director of employee services and administration, which had
a table listing all of its non-exempt employees and their
corresponding number of shifts worked in excess of 5 hours
and 3.5 hours during the relevant class period. Per this table,
Manheim employed about 1,900 non-exempt employees in
California from January 1, 2008, to December 31, 2012, and
these employees worked 476,865 shifts of more than 5 hours
and 553,027 shifts of more than 3.5 hours during this period.
The average hourly wage of these employees was $11.66.
Assuming that each class member missed one meal break in
a 5-hour shift and that each class member missed one rest
break in a 3.5-hour shift, Manheim estimated the amount of
meal period penalties at issue to be $5,560,246 ($11.66 x
476,865 shifts) and the amount of rest break penalties at issue
to be $6,448,295 ($11.66 x 553,027 shifts).
Manheim’s method of calculation assumed that Manheim
denied each class member one meal break in each of their
476,865 5-hour shifts and one rest break in each of their
553,027 3.5-hour shifts. Manheim based its violation-rate
assumption on the allegations in the complaint that Manheim
has a “pattern and practice of failing to pay their Non-Exempt
2
Although the complaint alleged multiple labor law violations,
including failure to pay minimum wages and overtime, failure to provide
meal and rest periods, failure to furnish compliant wage statements, and
failure to pay timely wages upon termination, Manheim calculated the
potential damages only for its alleged meal and break period violations
and contends that the amount in controversy for the meal and break
penalties alone exceeds $5 million. If so, for purposes of assessing CAFA
jurisdiction, there is no need to calculate damages on other claims.
IBARRA V. MANHEIM INVESTMENTS 11
employees for working off-the-clock,” and that Manheim
“hide[s] behind written policies that purport to forbid these
unlawful labor practices while at the same time maintaining
an institutionalized unwritten policy that mandates these
unlawful practices.”
B
We agree with the district court that a “pattern and
practice” of doing something does not necessarily mean
always doing something. The complaint alleges a “pattern
and practice” of labor law violations but does not allege that
this “pattern and practice” is universally followed every time
the wage and hour violation could arise. In fact, the named
plaintiff Ibarra alleged that he worked overtime hours without
compensation on “multiple occasions during his
employment,” suggesting that Manheim’s practices occurred
several times but not on each and every shift. Because the
complaint does not allege that Manheim universally, on each
and every shift, violates labor laws by not giving rest and
meal breaks, Manheim bears the burden to show that its
estimated amount in controversy relied on reasonable
assumptions. While it is true that the complaint alleges that
Manheim maintains “an institutionalized unwritten policy
that mandates” the employment violations alleged in the
complaint, including the denial of meal and rest periods, this
does not mean that such violations occurred in each and every
shift.3
3
In its initial notice of removal filed with the district court, Manheim
analyzed the rest and meal break violations as if they occurred, on
average, twice a week, but then it shifted to a 100% violation rate
calculation, i.e., assuming that violations occurred in every identified shift
for each class member, without giving any evidentiary explanation.
12 IBARRA V. MANHEIM INVESTMENTS
A remand is necessary to allow both sides to submit
evidence related to the contested amount in controversy. As
with other important areas of our law, evidence may be direct
or circumstantial. In either event, a damages assessment may
require a chain of reasoning that includes assumptions. When
that is so, those assumptions cannot be pulled from thin air
but need some reasonable ground underlying them.
C
Here, Manheim relied on an assumption about the rate of
its alleged labor law violations that was not grounded in real
evidence. Ibarra contested the assumption, but did not assert
an alternative violation rate grounded in real evidence, such
as an affidavit by Ibarra asserting how often he was denied
meal and rest breaks. We remand on an open record for both
sides to submit proof related to the disputed amount in
controversy, and the district court must then determine if a
preponderance of the evidence shows that the amount in
controversy exceeds $5 million, Dart, 2014 WL 7010692, at
*5. Manheim, as the removing defendant, has the burden of
proof on this. Abrego Abrego, 443 F.3d at 684. Under the
preponderance of the evidence standard, if the evidence
submitted by both sides is balanced, in equipoise, the scales
tip against federal-court jurisdiction.
The parties, pursuant to Federal Rule of Appellate
Procedure 28(j), submitted conflicting letters in support of
their proposed procedures to submit proof when the amount
in controversy is contested. Manheim contends that plaintiffs
cannot “simply say nothing and offer no evidence of amount
in controversy at all.” Plaintiffs contend, on the other hand,
that plaintiffs’ motion to remand need not include evidence
and is allowed to “be based on the fact that Defendant’s
IBARRA V. MANHEIM INVESTMENTS 13
evidence is insufficient to meet the burden of proof,” and that
requiring plaintiffs to submit evidence first “would
fundamentally switch to plaintiffs the burden of defeating
subject-matter jurisdiction.” The Supreme Court did not
decide the procedure for each side to submit proof on
remand,4 and here we need not decide the procedural issue,
either. Rather, we remand with instructions to the district
court to consider the parties’ briefs on this issue and set a
reasonable procedure in the first instance so that each side has
a fair opportunity to submit proof.
III
We vacate the district court’s judgment and remand on an
open record for further proceedings consistent with this
opinion.5
VACATED and REMANDED. Each party shall bear its
own costs on appeal.
4
Without deciding the procedure under which the parties should submit
proof, the Supreme Court stated in Dart that “[i]n such a case [when the
defendant’s assertion of the amount in controversy is challenged], both
sides submit proof and the court decides, by a preponderance of the
evidence, whether the amount-in-controversy requirement has been
satisfied.” Dart, 2014 WL 7010692, at *5.
5
The district court may hold such further proceedings as it thinks
appropriate to permit the parties to submit their evidence and arguments
for and against propriety of removal.