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.