Guglielmino v. McKee Foods Corp.

Decision Date09 October 2007
Docket NumberNo. 05-16144.,05-16144.
Citation506 F.3d 696
PartiesCarlo GUGLIELMINO; Briant ChunHoon, Plaintiffs-Appellants, v. McKEE FOODS CORPORATION, a Tennessee Corporation, Defendant-Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

Edward S. Zusman, San Francisco, CA, argued the cause and filed briefs for the plaintiffs-appellants. Kevin K. Eng, San Francisco, CA, was also on the briefs.

William H. Pickering, Chattanooga, TN, argued the cause and filed a brief for the defendant-appellee. Anthony A. Jackson, Chattanooga, TN, R. Brian Dixon, San Francisco, CA, and Michael Hoffman, San Francisco, CA, were also on the briefs.

Appeal from the United States District Court for the Northern District of California; Vaughn R. Walker, District Judge, Presiding. D.C. No. CV-05-00620-VRW.

Before: DIARMUID F. O'SCANNLAIN, MICHAEL DALY HAWKINS, and KIM McLANE WARDLAW, Circuit Judges.

Opinion by Judge O'SCANNLAIN; Concurrence by Judge O'SCANNLAIN.

O'SCANNLAIN, Circuit Judge:

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 Guglielmino (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 "[a]lthough 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 total roughly $76,000 (without including attorneys' fees, back taxes, or punitive damages), and that for Guglielmino separately, economic damages (prior to including attorneys' fees, back taxes, or punitive damages) would total roughly $150,000. Thus, McKee's calculations purported to show an amount in controversy sufficient to invoke federal jurisdiction.

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.1 It reached this conclusion because it could not be certain that plaintiffs would recover any attorneys' fees or punitive damages. Therefore, because it determined that a question of law — namely the burden of proof standard — was dispositive of the remand motion, and because it felt that resolution of the question might "substantially advance the termination of the litigation," the district court certified its order for interlocutory review pursuant to 28 U.S.C. § 1292(b).

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 "[w]hat is defendant's burden of proof when plaintiffs move to remand pursuant to 28 U.S.C. § 1447(c) and their state-court complaint specifies that their damages are less than the jurisdictional requirement?"

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., 102 F.3d 398 (9th Cir.1996), we noted that when a complaint filed in state court alleges on its face an amount in controversy sufficient to meet the federal jurisdictional threshold, such requirement is presumptively satisfied unless it appears to a "legal certainty" that the plaintiff cannot actually recover that amount. Id. at 402 (discussing Garza v. Bettcher Indus., Inc., 752 F.Supp. 753, 755-56 (E.D.Mich.1990)); see also St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 288-89, 58 S.Ct. 586, 82 L.Ed. 845 (1938) (stating that when a complaint filed pleads more than the jurisdictional amount "the sum claimed by the plaintiff controls if the claim is apparently made in good faith" and that "[i]t must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal").

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, 102 F.3d at 404 ("[T]he removing defendant bears the burden of establishing, by a preponderance of the evidence, that the amount in controversy exceeds[the jurisdictional amount]. Under this burden, the defendant must provide evidence establishing that it is `more likely than not' that the amount in controversy exceeds that amount."). We have since applied the preponderance holding in Sanchez to complaints filed under the Class Action Fairness Act ("CAFA") that do not specify a particular amount in controversy. Abrego Abrego v. Dow Chemical Co., 443 F.3d 676, 683 (9th Cir.2006) (per curiam).2

Finally, in our recent decision in Lowdermilk v. U.S. Bank National Ass'n, 479 F.3d 994 (9th Cir.2007), we held in the CAFA context that when a state-court complaint...

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