Lead Opinion
Opinion by Judge O’SCANNLAIN; Concurrence by Judge O’SCANNLAIN.
We must decide the proper burden of proof to be borne by the removing defendant when plaintiffs move to remand the case to state court and their complaint alleges damages less than the jurisdictional threshold for diversity cases but does not specify a total amount in controversy.
I
Briant Chun-Hoon and Carlo Guglielmi-no (collectively “the Distributors”) are distributors of McKee Foods’ (“McKee”) bakery products to retail stores. Although the precise meaning of the term “distributor” is at issue in the underlying case, roughly stated, the Distributors purchase bakery products (such as Little Debbie snack cakes) from McKee; they deliver the purchased products to local retail stores; they stock the retail shelves and are responsible for arranging, displaying and advertising the products; and they must remove from the shelves damaged goods or goods that are beyond their sell-by date. In addition, the Distributors contend that McKee requires them to buy a specific quantity of product and further makes them financially responsible for any damaged, stale, or old product.
The Distributors filed a complaint against McKee in California Superior Court on January 3, 2005, on behalf of a putative class of persons who entered into “Distributorship Agreements” with McKee. The complaint alleged that McKee had violated various wage and hour laws by treating its distributors as independent contractors instead of employees. Specifically, the complaint alleged that McKee: (1) violated California Labor Code by failing to pay its distributors overtime wages; (2) intentionally defrauded its distributors; (3) made negligent misrepresentations to its distributors; (4) breached its Distributorship Agreements and other oral and written agreements with its distributors; and (5) violated the California Business and Professions Code by committing unlawful, unfair and fraudulent business practices against its distributors. In addition, in its sixth cause of action, the complaint sought a declaratory judgment that the distributors of McKee products are, in fact, employees of McKee and not independent contractors.
In paragraph four of the complaint, under the heading “Jurisdiction and Venue,” it is alleged that “[t]he damages to each Plaintiff are less than $75,000. In addition, the sum of such damages and the value of injunctive relief sought by plaintiff in this action is less than $75,000.” In its “Prayer for Relief,” however, the complaint sought, among other things, damages under statutory and common law, punitive and exemplary damages (as to the fraud count), an accounting of other moneys due to plaintiffs, attorneys’ fees, payments of back taxes and benefits, a declaration of the respective rights and obligations of the distributors and of McKee, an injunction prohibiting McKee’s unfair business practices, and such other relief as the Court deemed proper.
On February 10, 2005, McKee filed a notice of removal to the United District Court for the Northern District of California pursuant to 28 U.S.C. §§ 1441 and 1332. The removal notice stated that “[although the Complaint affirmatively attempts to allege that the damages suffered by each Plaintiff are less than $75,000.00 ..., the categories of damages actually claimed by Plaintiffs, if recoverable, would be significantly in excess of the $75,000.00 minimum amount in controversy (exclusive of interest and costs) required to invoke diversity jurisdiction.” The notice of removal attempted to calculate the damages suffered by the Distributors and concluded that economic damages for Hoon would
On March 14, 2005, the Distributors filed a motion under 28 U.S.C. § 1447 for an order remanding the action to state court. Although they did not dispute that the plaintiffs were diverse from McKee, they challenged McKee’s calculations of the amount in controversy and sought to show that less than $75,000 was at stake. Hoon and Guglielmino each also filed affidavits stating: “I am not seeking damages in excess of $75,000.”
The district court, Chief Judge Vaughn Walker presiding, issued an order denying the Distributors’ motion to remand on May 3, 2005. The order explained that there were three possible standards for the removing defendant’s burden of proof: (1) that the plaintiff “might recover” in excess of the jurisdictional amount; (2) that the plaintiff is “more likely than not to recover” in excess of the jurisdictional amount (the “preponderance of the evidence standard”); and (3) that the plaintiff is “legally certain to recover” in excess of the jurisdictional amount. The order also explained that no Ninth Circuit precedent was directly on point, because the complaint specified that damages were below the jurisdictional threshold yet did not demand a specific amount. Ultimately, the district court decided that the “preponderance of the evidence” standard should be applied: the defendant has the burden to show that the allegations in the complaint set forth an amount in controversy that is “more likely than not” greater than $75,000. Applying such standard, when (1) economic damages were accounted for, (2) attorneys’ fees (measured by a “conservative” estimate of 12.5% of economic damages) were added, and (3) punitive damages (“conservatively estimated” at a 1:1 ratio to economic damages) were added, the district court determined that the amount in controversy for both plaintiffs was in excess of the jurisdictional threshold.
The district court’s order was “quick to note” that if the more stringent “legal certainty” test was applied, then McKee would not have carried its burden.
Thereafter, and within the ten days provided by 28 U.S.C. § 1292(b), Guglielmino petitioned this Court for permission to pursue an interlocutory appeal, which we granted.
II
A
The question certified for interlocutory review is “[wjhat is defendant’s burden of
As Chief Judge Walker may have anticipated, we have identified at least three different burdens of proof which might be placed on a removing defendant under varying circumstances. In Sanchez v. Monumental Life Ins. Co.,
The second situation we have identified is where it is unclear or ambiguous from the face of a state-court complaint whether the requisite amount in controversy is pled. In such a circumstance, we apply a preponderance of the evidence standard. Sanchez,
Finally, in our recent decision in Lowdermilk v. U.S. Bank National Ass’n,
Therefore, because we have recognized varying burdens of proof depending on the situation and the nature of the plaintiffs complaint, we must as a threshold matter determine precisely what Guglielmino’s complaint alleged.
B
The complaint in this case is hardly a paragon of clarity. In the Jurisdiction and Venue section, it is alleged that “[t]he damages to each Plaintiff are less than $75,000. In addition, the sum of such damages and the value of injunctive relief sought by plaintiff in this action is less than $75,000.” In the complaint’s Prayer for Relief, however, no mention is made of a total dollar amount in controversy. Instead, the complaint seeks: (1) an Order certifying this action as a class action; (2) damages under statutory and common law; (3) punitive and exemplary damages; (4) an accounting of moneys due to the plaintiffs; (5) attorneys’ fees and costs; (6) payment of back taxes and benefits; (7) notice of the right to rescission and restitution to similarly situated distributors; (8) a declaration of the rights and obligations between the distributor-class and McKee; (9) an injunction prohibiting further unfair business practices by McKee; (10) pre-judgment interest; (11) the costs of suit; and (12) “such other and further relief as this Court deems just and proper.”
Even if we assume that relief in the form of common law and statutory damages, exemplary and punitive damages, rescission and restitution, a declaratory judgment, and an injunction prohibiting further unfair business practices constitutes a “sum ... less than $75,000,” that is not all that the complaint seeks. Section 1332(a)’s amount-in-controversy requirement excludes only “interest and costs” and therefore includes attorneys’ fees. Indeed, the Distributors’ complaint seeks attorneys’ fees claimed to be authorized pursuant to California Code of Civil Procedure sections 1021.5 and 1036, Civil Code 1780(d), and relevant sections of the Labor Code. Lowdermilk,
Thus, because the allegation in the Jurisdiction and Venue section is not repeated in the Prayer for Relief and does not take account of attorneys’ fees, accounting of moneys, or payment of back taxes and benefits, the complaint fails to allege a sufficiently specific total amount in controversy. The uncertainty which is inherent in the Distributors’ Prayer for Relief places this case within the Sanchez line of cases, and we therefore apply the preponderance of the evidence burden of proof to the removing defendant. Sanchez,
Ill
The district court applied a preponderance of the evidence standard and determined that, “conservatively estimated,” both named plaintiffs’ allegations met the requisite $75,000 amount-in-controversy threshold. See Exxon Mobil Corp. v. Allapattah Services, Inc.,
Accordingly, because the Distributors’ complaint is unclear and does not specify “a total amount in controversy,” the proper burden of proof in this case is proof by a preponderance of the evidence. Because that is the standard the district court applied in denying the motion to remand this case to state court, the judgment of the district court is
AFFIRMED.
Notes
. The district court noted that the “legal certainty” test had been applied in a similar, though slightly distinguishable, factual circumstance by the Eleventh Circuit. See Burns v. Windsor Ins. Co.,
. In Abrego Abrego, we noted that if "the complaint alleges damages of less than the jurisdictional amount, 'more difficult problems are presented,’ as to which there is no binding precedent in this circuit.” Id. at 683 n. 8 (quoting 14C Charles Alan Wright, Arthur R. Miller, Edward H. Cooper, Federal Practice and Procedure § 3725, at 84).
. McKee contends that Lowdermilk's "legal certainty” standard applies only in the CAFA context. It points out that CAFA has discarded the rule — still applicable in traditional diversity settings such as this case — that closes the removal period one year after a complaint is filed. See 28 U.S.C. § 1453(b) ("A class action may be removed to a district court of the United States in accordance with section 1446 (except that the 1-year limitation under section 1446(b) shall not apply.”)). We acknowledge that the one-year removal period presents a significant potential for "gamesmanship” in that a plaintiff can wait until the removal period has closed and then amend their complaint to seek higher damages. See Lowdermilk,
. There was dispute in Lowdermilk between the majority and dissent whether the complaint included attorneys' fees within its allegation that the total amount claimed was less than CAFA’s $5 million jurisdictional threshold. The complaint in Lowdermilk apparently read " 'THE AGGREGATE OF CLAIMS DOES NOT EXCEED 5 MILLION DOLLARS ... In paragraph 4, under a heading 'JURISDICTION AND VENUE,' it says the ‘[t]he aggregate total of the claims pled herein do [sic] not exceed five million dollars.' ’ "
Concurrence Opinion
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.,
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,
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.,
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.”
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.’ ”
[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.
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.
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
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.,
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,
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
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.
. In Lowdermilk, in adopting our “legal certainty” burden, we stated that "[t]he Seventh Circuit's decision in Brill v. Countrywide Home Loans, [
. 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.,
. 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.”
. 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.’ ”
. 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.”
. 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.,