F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

J O S E L

. I B A

R R A , an individual; D O E S , 1–50, on behalf of themselves and in a representative capacity for all others similarly

situated and on behalf of the g eneral public,

Plaintiffs-Appellees

,

v

.

M A N H E I M I N V E S T M E N T S , I N C ., a Nevada Corporation; C O X E N T E R P R I S E S , I N C ., a Delaware Corporation, Defendants-Appellants

. N o. 14-56779

D.C. No. 3:13-cv-00857- CAB -B L M

OPI NI ON

A ppeal from the United States District Court for the Southern District of California Cathy Ann B enciveng o, District J u dg e, Presiding

Arg ued and Submitted December 8, 2014—Pasadena, California

F iled J a nuary 8, 2015

B efore: Susan P. Graber, Ronald M. Gould, and Consuelo M. Callahan, Circuit J udg es.

O pinion by

J udg e GouldI B A R R A V

. M A N H E I M I N V E S T M E N T S 2

SUMMARY *

Class Action F a irness Act / Am o unt in Controversy

The panel vacated the district court’s order remanding the putative c lass action to state co u r t , a nd remanded to the district c ourt to allow both parties the oppo r tunity to submit

e v i dence and arg uments whether the $5 million amount i n controversy requirement under the Class Action F airness A ct had been satisfied whe r e t h e complaint did not include a facially apparent amount in controversy o r m a y have understated the true amount in controversy

.

The plaintiff putative class o f employ ees sued in state court alleg ing violations of California’s L abor Code, a nd

ex p licitly alleg ing that damag es did n ot ex ceed $5 mill i on. Defendant Manheim I nvestments, I nc. removed t h e case to federal c ourt under the Class Action F airness Act, ass erting

more than $5 million was at stake based on a “ p attern a nd practice” of labor law violations.

The panel held that because the complaint did not alleg e that Manheim universally

, on e a ch a nd every shift, v iolated labor laws by not g iving rest and meal breaks, Manheim bore the burden to show that its es t imated amount in controversy relied on r easonable assumptions. The panel also held that a remand to the district court was n ecessary to allow both sides to submit evidence – direct or circumstantial – related to the contested amount in controversy

. The panel further held that i f t h e damag es assessment included assumptions, the chain

* T h is su m m ary co n stitu

tes n o part o f th e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.I B A R R A V

. M A N H E I M I N V E S T M E N T S 3

of reas o n i n g a

nd the assumptions needed some reasonable
g round underly

ing them. The p anel c oncluded that Manheim relied on a

n assumption a

bout the rate o f its alleg ed labor law

v i olations that was not g rounded in real evidence, a n d remanded on an open r eco r d f or both sides to submit proof related to the disputed amount in controversy

.

COUNSEL

Thomas R. Kaufman (arg

ued), and Paul B e r

k o w i t z, S h e p p a

rd, Mullin, Richter & Hampton L L P, L os Ang eles, California, for Defendants-Appellants.

Raul Cadena (arg

ued), Cadena Churchill, L L P, San Dieg o, California; Paul D. J ackson, J acksonL a w , L L P, San Dieg o, California, for Plaintiff-Appellee.

OP INION

GOUL D, Circuit J udg e :

W e must decide what proof a d efendant seeking removal

m u s t p r o d u c e t o p r o v e t h e a m o u n t

- i n

- c o n t r o ve rs y requirement u nder the Class A ction F a irness Act of 2005 (“CAF A”), 28 U.S.C. § 1332(d), when the complaint does not include a facially appare n t a mount in controversy or the plaintiff may have understated the true am o u n t in controversy

.

CAF A g ives federal district courts orig inal jurisdiction

over class actions in which the class members number at least 100, a t least o ne plaintiff is diverse in c itiz enship from anyI B A R R A V

. M A N H E I M I N V E S T M E N T S 4

defendant, a

nd the ag g reg ate amount in controversy ex ceeds $ 5 m i l lion, e x clusive o f interest a n d costs. I

d. A CAFA

covered class action may be removed to federal court, subject to more liberaliz ed jurisdictional requirements, i.e., the oney ear limitation under § 1 4 4 6(c)(1) does not apply

, the case may be removed even if one or more defendants are citiz ens of the state in which the action was broug ht, and the c ase may be removed by any defe n d a n t without the consent o f co-defendants. I

d. §§ 1441(a), 1453(b).

B u t eve n w ith this special liberaliz ation, there still must be a requisite a mount in controversy that ex ceeds $5 million. I n this case, plaintiffs sued in state court a l leg ing that damag es do not e x ceed $5 million, and d efendants Manheim I nvestments, I nc., and Cox E nterprises, I nc. (collecti v e l y , “Manheim”), removed the case to f ederal court, asserting that

more than $5 million was at stake

. T h e district court concluded that Manheim’s proof of the amount i n controversy

was inadequ a t e and remanded the case to state court. Manheim appealed, bring ing the issue to us.

F or th e r easons that follow, we vacate and remand because n either side h a s submitted proof reg arding the violation rate. As the Supreme Co u r t h a s held, a removing party mus t initially file a notice of removal that includes “a plausible alleg ation t hat the amount in controversy ex ceeds the jurisdictional t h r e shold.” Dart Basin Operating Co. v

. Owens
, N o. 1 3-719, 2 014 W L 7010692, at *6 (U.S. Dec. 15, 2014). W hen, as here, “ a defendant’s assertion of the amount in controversy is challeng ed . . . both sides submit proof a nd the c ourt decides, by a p r e p onderance of the evidence, whether the amount-in-controve r sy r equirement h as been satisfied.” Id. at *5 (citing 28 U.S.C. § 1446(c)(2)(B )). W e conclude that “both sides” s h o u l d have an o pportunity toI B A R R A V

. M A N H E I M I N V E S T M E N T S 5

submit evidence and a

r g ument to the district court in lig ht o f the standards we state here. We therefore vacate and remand for further proceeding s consistent with this opinion.

I

The named p lainti f

f J ose I barra filed a putative class action in California state court on December 22, 2011, ag ainst his former employ er, Manheim, alleg ing Manheim’s violations of the California L abor Code for fail u re to pay mi nimum wag es and overtime, failure to p rovide meal a nd
rest p eriods, failure to furnish compliant wag e statements, and failure to pay timely wag es u pon termination. I n his complaint, I

barra a l so asserted claims under the unfair business practices statute, and claims for t h e ft of labor, declaratory relief, an accounting

, and injunctive relief. I barra
soug h t to represent a putative class of all current and former

non-ex empt hourly -paid employ ees of Manheim within four
y ears before filing the co m p laint until the date o f

c ertification. I

barra ex plicitly alleg ed in his complaint that “the ag g reg ate claims of the individual class members do not

ex c e ed the $5,000,000 jurisdictional threshold for federal court under the Class Action F airness Act.”

Manheim removed the case to f e d e r al court, a

nd the d i s t r i ct court remanded the case to state court. The district
court relied on our decisio n i n Lowdermilk v. U .S. Bank National A ss’n
, 4 7 9 F .3d 9 94 (9th Cir. 2007), and held that Manheim did not prove to a leg al certainty that the amount in controversy ex ceeded $5 million. B ut abou t t hree weeks later, the Supreme Court decided Standard Fire Insurance Co. v. Knowles

, 133 S. Ct. 1 345, 1 350 (2013), which held that

a class action plaintiff’s precer t i fication stipulation that the plaintiff and the class will not seek damag es over $5 millionI B A R R A V

. M A N H E I M I N V E S T M E N T S 6

d o e s n o t preclude a defendant’s ability to remove the c as e under CAF A.

Ma n h e i m f

iled a second notice of removal on April 9, 2013, in lig ht of Standard Fire

. The district court a ga in

r e manded the case to state c ourt o n J uly 12, 2013, h o l d i n g that Standard Fire was not irreconcilable with Lowd e r milk

. Manheim appealed the district court’s remand o r der. W hile the a p p e al w as pending

, we decided R odriguez v. A T& T Mobility Services LLC
, 728 F .3d 9 7 5, 977 (9th Cir. 2013), in which we concluded that Lowdermilk had been overruled b y Standard Fire and that “the proper burden of proof imposed
upon a defendant to establish the amount in controversy is the preponderance o f the e v idence standard.” Pursuant to Rodriguez

, we v acated the d istrict court’s J uly 12, 2013 remand order and remanded t h e c a s e back to the district
court.

On remand, plaintiffs renewed their motion to remand the class a ction to state c ourt, Manheim oppos e d plaintiffs’ motion, and p laintiffs filed a reply in support o f their remand motion. The d istrict court considered the a mount-incontroversy question for a t h i r d time. After e valuating the record, the parties’ briefs, and t he e vidence proffered b y Manheim with its post- Rodriguez not i c e of removal, the district court c onclu d ed that Manheim had not satisfied its burden of p r oving that the amount in controver sy ex ceeded $5 million, because Manheim did “not provide a b asis in the complaint or in evidence for [ its] assumption t h a t plaintiffs

were n ever provided breaks.” The district c ourt once more remanded the case to state court. Manheim petitioned for permission to appeal, which we g r an ted on November 10, 2014.I B A R R A V

. M A N H E I M I N V E S T M E N T S 7

II

W e have jurisdiction under 28 U.S.C. § 1453(c), and we review the district cou r t ’ s remand order de novo

. A b rego Abrego v. Dow Chem. Co.
, 443 F .3d 676, 679 (9th Cir. 2 006) (per curiam). T h e p arties do not contest CAF A ’s jurisdictional requirements of minimum diversity an d class

numero s i ty on appeal; the sole dispute is whether CAF A ’s requirement that the a mount in controversy ex ceed $ 5 million is met here.

Cong r ess d esig ned the terms of CAFA specifically to permit a defendant to remove certain class or m a s s actions into f ederal court. 28 U .S.C. § 1332(d). Cong ress intended CAF A to be interpreted ex pansively

. S. Rep. No. 109-14, at 42 (F eb. 2 8
, 2 005). A defendant seeking removal must file in the district c ourt a notice of removal “containing a short a nd plain statement of the g rounds for removal

. . . .” 28 U .S.C. § 1446(a). The Supreme Court r ecently h e ld that “a defendant’s notice of removal need incl u d e only a plausible alleg ation that the a mount in controversy ex c eeds the jurisdictional threshold,” and ne e d not contain evidentiary sub m i s s i o ns. Dart
, 2014 W L 7010692, at *6. B ut “[ e] vidence establishing the amoun t is required” where, a s here, d efendant’s a ssert i on of the amount in controversy is contested by plaintiffs. Id. “I n such a c ase, both sides submit
p r oof and the c ourt d ecides, by a preponderance o f t h e evidence, wheth e r t

h e a m o u n t

- i n

- c o n t r o v e rsy requirement has been satisfied.” Id. at *5 (citing 28 U.S.C. § 1446(c)(2)(B )).

I n determining the amou n t in controversy , courts first l o ok to the c omplaint. Generally

, “ the sum claimed b y t h e plaintiff controls if the c l aim is apparently made in g ood faith.” St. Paul Mercury Indem. Co. v. R e d Cab Co
., 3 0 3 U.S.I B A R R A V

. M A N H E I M I N V E S T M E N T S 8

283, 289 (1938) (footnote omitted). W het h er damag e s a re unstated in a complaint, or, in the defendant’s view a re understated, the d efendant seeking removal bears the burden
to show by a preponderance of th e e vidence that the
ag g r eg ate amount in controv e r sy ex ceeds $5 million when federal jurisdiction i s challeng ed. Rodriguez

, 728 F .3d at 981. I n lig ht of Standard Fire
, 133 S. Ct. at 1 350, this rule is
not altered even if plaintiffs a ffirmatively contend in their complaint that damag es do not e x ceed $ 5 million. Rodriguez

, 728 F

. 3d a t 981. The p arties may submit evidence outside the complaint, including affidavit s o r declarations, o r other “summary

-

judg ment-ty

pe evidence relevant to the amount in controversy at the time of removal.” Singer v

. S t a t e Farm Mut. Auto. I

n s

. Co.
, 116 F .3d 373, 3 77 (9th Cir. 1 997) (internal quotation marks omitted)

. Under this sy stem, a defendant cannot establish r emoval jurisdiction by mere speculation and conjecture, with unreasonable assumptions.

This procedure is consistent w ith other circuits’ decisions in challeng es of CAF A jurisdiction. See, e.g. , Pretka v

. Kolter City Plaza II, Inc.
, 608 F .3d 744, 754, 771–72 (11th Cir. 2010) (reviewing the defenda n t ’ s declaration that made

a “ministerial determination that the complaint called for”

over $5 million and holding that “when a removing defendant makes specific fa ct u al a lleg ations e stablishing jurisdiction and can support them

. . . with evidence c o m b i n e d with reasonable deductions, reasonable inferences, or o t her

re asonable ex trapolations[ ,] [ t] hat kind of reasoning is not akin to conjecture, speculation, or star g az ing ”).

W h en plaintiffs favor state court and have prepared a complaint that does not assert the amount i n controversy , o r that a ffirmativel y states that the amount in controversy does
not ex c eed $5 million, if a defendant wants to pursue aI B A R R A V

. M A N H E I M I N V E S T M E N T S 9

federal f orum under CAF A, that defendant in a jurisdictional dispute has the burden to put forward evidence showing that the amount in controversy ex ceeds $5 million, to satisfy other requirements o f CAF A, and to persuade the court th a t t h e estimate of damag es in controversy is a reasonable one. B ut the Supreme Court has said that a d efendant can establish the
amount in controvers y by an u nchalleng ed, plausible assertion of the amount in c o ntroversy in i t s n o t ice o f removal. Dart
, 2014 W L 7010692
, a t *6. Yet, when the defendant’s assertion o f the amount in controversy is challeng ed by

plaintiffs in a motion to remand, the Supreme Court has said that both sides submit proof and the c ourt then decides where the preponderance lies. Id. Under this sy stem, CAF A’s requirements are to be tested by consideration of real evidence and the reality of what is a t stake in the lit i g ation, using reasonable assumption s underly ing the defendant’s theory of damag es ex posure. 1

1 Ev en w h en d ef en d an ts h av e persu ad ed a co u rt u p on a CA FA rem o v al th at th e am o u n t i n c o n tro v ersy ex ceed s $5 m illio n , th ey are still f ree to ch allen g e th e actu al am ou n t o f dam ag es in s u b seq u en t p ro ceed in g s an d at trial. T h is is so b ecau se th ey are n o t stip u latin g to d am ag es su f f ered

, b u t

o n ly estim atin g th e d am ag es th at are in co n t ro v ersy

. See S

pa rta S u rg ica l Co rp

. v. Na t’l Ass’n o

f S ec. Dea lers, In c. , 1 5 9 F.3 d 1 2 0 9
, 1 2 1 3 (9 th Cir. 1 9 9 8 ) (h o l d in g th at j u risd ictio n m u st b e an aly zed o n th e b asis o f p lead in g s f iled at th e tim e o f rem o v al an d reco g n i zin g th at d am ag es m ay ch an g e as

a resu lt o f p o st- rem o v a l ev en ts); s ee a lso W o rth a ms v. Atla nta Life In s. Co

. , 5 3 3 F.2 d 99 4
, 9 9 8 (6 th Cir. 1 9 7 6 ) ( a c k n o w led g in g th at t

h e am o u n t

reco v era b le m ay d ro p b elo w th e j u risd i ctio n al lim it as a resu lt of d isco v ery an d ap p li c a t io n of a l eg al def en se, b u t th e p o st- rem o v al ev en t d o es n o t d ep riv e th e d istrict co u rt o f f ed eral j u risd ictio n ).I B A R R A V

. M A N H E I M I N V E S T M E N T S 10

A

Manheim calculated the amount in cont r o v ersy a s follows. 2 Manheim relied on a declaration of its se n i o r director of e mploy ee services a nd administration, which h ad

a table listing all of its non-ex empt e mploy ees and their corresponding number of shifts worked in ex cess of 5 hours and 3.5 hours during the relevant class period. Per this table, Manhe im employ ed about 1,900 non-ex empt employ ees in California from J anuary 1, 2008, to December 31, 2012, a nd these employ ees worked 476,865 shifts of more than 5 hours and 553,027 shifts o f more than 3.5 h ours during this period. The a v e r age hourly wag e of these employ ees was $11.66. Assuming that each class member missed one meal break in

a 5-hour shift and that e ach class m em b e r missed o ne r e st break in a 3.5-hour shift, Manheim e stimat e d t h e amount o f 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 c lass member one meal break in each o f t h eir 476,865 5 -hour shifts and one rest break i n each of their 553,027 3.5-hour shifts. Manheim b a s ed its violation-rate assumption on the alleg ations in the complaint that Manheim has a “pattern and p r actice of failing to pay their Non-Ex empt

2 A lth o u g h th e co m

p lain t alleg ed m

u ltip le lab o r law v io latio n s , in clu d in g f

ailu re to p ay m in i m

u m w ag es an d o v ertim e, f ailu re to p ro v id e

m e a l an d rest p erio d s, f

ailu re to f u rn ish co m

p lian t w ag e statem en ts, a n d f ailu re t o p ay tim ely w ag es u p o n term in atio n , Man h eim calcu lated th e p o ten tial d am ag es o n ly f or its alleg ed m e al an d b reak p erio d v io latio n s

an d co n t e n d s t h a t th e am o u n t in co n tro v ersy f o r th e m eal an d b reak
p en alties alo n e ex ceed s $ 5 m illio n

. If so , f o r p u rp o ses o f assessin g C A FA j u risd ictio n , th ere is n o n eed to calcu late d am ag es o n o th er claim s.I B A R R A V

. M A N H E I M I N V E S T M E N T S 11

employ e es for working off-the

- c l ock,” and that Manheim “hide[ s] behind written policies that p urport to forbid these unlawful labor practices while a t the same time maintaining

an institutionaliz ed un w r i tten policy that mandates these unlawful practices.”

B

W e a gr e e with the district court that a “pattern a nd practice” of doing something does not n ec e ssarily mean always doing something

. The c o mplaint alleg es a “pattern and practice” of labor law violations but does not alleg e that this “pattern and practice” is universally followed every time the wag e and hour violation could arise. I n fact, the named plaintiff I barra alleg ed that he worked overtime hours without

c o m p e n s a t i o n o n “ m u l t i p l e o c c a s i o n s d u r i n g h i s employ ment,” sug g esting that Manheim’s practices occurred several times but not on each and every shift

. B ecause the complaint does not alleg e that Manheim universally

, on e ach and every shift, violates labor laws by n o t gi v ing rest a nd meal br e ak s , M anheim bears the burden to show that its estimated amount in controversy relied on re a s o nable assumptions. W hile it is true that the complaint alleg es that M a nheim maintains “an institutionaliz e d unwritten poli c y that mandates” th e e m p loy ment violations alleg ed 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 in itial n o tice o f rem o v al f iled w ith th e d istrict co u rt, Man h eim

an aly zed th e rest an d m eal break v io lat i o n s a s if th ey o ccu rred

, on

a v e r a g e , t

w i ce a w eek

, b u

t th en it sh if

ted to a 1 0 0 % v io latio n rate calcu latio n , i.e., assu

m in g th at v i o latio n s occu rred in ev ery id en t if ied sh i f t f o r each class m em

b er, w ith o u t g iv in g an y

ev id en tiary

ex p lan atio n

.I B A R R A V

. M A N H E I M I N V E S T M E N T S 12

A remand is necessary to allow both sides to s ubmit evidence related to the contested amount in controversy

. A s with other important areas of our law, evidence may be direct

or circumstantial. I n either event, a damag es a ssessment may require a chain of reasoning that includes assumptions. W h en that is so, those assumptions c annot b e pulled from t h i n ai r but need some reasonable g r ound underly ing them.

C

Here, Manheim relied on a n assumption about the rate o f its alleg ed labor law violations that was not g rounded in real evidence. I

b arra contested the assumption, but did not assert

an alternative violation rat e gr o u nded in real evidence, such

a s an affidavit by I

b arra asserting how often he was d en i e d meal a nd rest breaks. W e remand on an open record for both sides to submit proof related to t h e disputed amount in controversy , and the district court must then determ i n e i f a preponderance of the evidence shows that the am o u nt in controversy ex ceeds $5 million, Dart
, 2014 W L 7010692, at *5. Manheim, as the removing defendant, has the burden of proof o n this. Abrego Abrego

, 443 F. 3 d at 684. Under the prepond e ra n ce of the evidence standard, if the evidence submitted by both s i d e s is balanced, in equipoise, the scales tip ag ainst federal-court jurisdiction.

The par t i es, pursuant to F ederal Rule of Appellate Procedure 28(j), submitted conflicting letters in support o f their proposed procedures to submit proof when t h e amount in c o n troversy is contested. Manheim contends that plaintiffs
cannot “simply say nothing and o ffer n o evidence of amount in controversy at all.” Plaintiffs contend, on the other h and,
t h a t p laintiffs’ motion to remand n eed not include evidence and is allowed to “be based o n the fact that Defendant’sI B A R R A V

. M A N H E I M I N V E S T M E N T S 13

evidence is insufficient to meet the burden of proof,” and that requiring plaintiffs to submit e v i d ence first “ would fundamentally switch to plaintiffs the burden of defeat ing subject-matter jurisdiction.” The Supreme Court d i d not decide the procedure for each side t o s u b mit p roof on remand, 4 and here we n eed not decide the procedura l i s sue, either. Rather, we remand w ith instructions to t h e district
court to c onsider the parties’ briefs on this issue a nd set a reasonable procedure in the first instance so that each side has a fair opportunity

to submit proof.

III

W e vacate the d istrict court’s judg ment and remand on an open r ecord for further p ro c e e ding s consistent with this opinion. 5

VACATED and REMANDED

. E ach party shall bear its own costs on appeal.

4 With o u t d ecid in g th e pro ced u re u n der w h ich th e p arties sh o u ld su

b m i t p ro o f

, th e Su p rem e Co u rt stated i n Da r t th at “ [i]n su ch a case [w h en th e d ef en d an t ’ s assertio n o f th e am o u n t in co n t ro v ersy is ch allen g ed ], bo th sid es su b m i t p ro o f an d th e co u rt d ecid es, b y a p rep o n d eran ce o f th e

ev id en ce, w

h eth er th e am o u

n t

- in

- co n tro v ersy req u irem en t h as b een satisf ied .” Da rt , 2 0 14 W L 7 0 1 0 6 9 2 , at * 5

.

5 T h e district co u rt m ay h o ld su ch f u rth er pro ceed i n g s as i t t hi n k s ap p ro p riate to p erm it th e p arties to su b m it th eir ev id en ce an d arg u m en ts f o r an d ag ain st p ro p riety

o f rem ov al.