Serrano v. 180 Connect, Inc.

• Decision Date: 22 February 2007
• Docket Number: No. 06-17366.,06-17366.
• Parties: William SERRANO, on behalf of himself, the general public, and as an "aggrieved employee" under the California Labor Code Private Attorneys General Act, No. 06-17366, Plaintiff-Appellee, v. 180 CONNECT, INC.; Mountain Opinion Satellite, Inc.; Ironwood Communications, Inc.; Mountain Center, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

478 F.3d 1018

William SERRANO, on behalf of himself, the general public, and as an "aggrieved employee" under the California Labor Code Private Attorneys General Act, No. 06-17366, Plaintiff-Appellee, v. 180 CONNECT, INC.; Mountain Opinion Satellite, Inc.; Ironwood Communications, Inc.; Mountain Center, Inc., Defendants-Appellants.

No. 06-17366.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 15, 2007.

Filed February 22, 2007.

Mark R. Thierman, Esq., Thierman Law Firm, Reno, NV, for the plaintiff-appellee.

Michael Hoffman, Esq., Littler Mendelson, San Francisco, CA, for the defendants-appellants.

Appeal from the United States District Court for the Northern District of California; Thelton E. Henderson, District Judge, Presiding. D.C. No. CV-06-01363-THE.

Before J. CLIFFORD WALLACE, RICHARD D. CUDAHY,^* and M. MARGARET McKEOWN, Circuit Judges.

McKEOWN, Circuit Judge.

This case presents yet another unresolved issue under the Class Action Fairness Act of 2005 ("CAFA"), Pub.L. 109-2, 119 Stat. 4 (2005). Defendants-Appellants 180 Connect, Inc., Ironwood Communications, Inc. and Mountain Center, Inc. ("the Employers") appeal from the district court's order remanding a putative class action lawsuit to California state court under CAFA's "home-state controversy" exception to federal jurisdiction. The district court held that the Employers, the parties seeking removal, bear the burden to establish the exception. We disagree. The structure of the statute and the long-standing rule on proof of exceptions to removal dictate that the party seeking remand bears the burden of proof as to any exception under CAFA. Consequently, we reverse, thus joining our sister circuits that have considered the issue. See Hart v. FedEx Ground Package System Inc., 457 F.3d 675 (7th Cir.2006); Frazier v. Pioneer Americas LLC, 455 F.3d 542 (5th Cir.2006); Evans v. Walter Indus., Inc., 449 F.3d 1159 (11th Cir.2006).

FACTUAL BACKGROUND

Plaintiff-Appellee William Serrano ("Serrano") filed a complaint in California state court in January 2006, as a putative class action alleging claims for unpaid wages, paycheck violations, inaccurate wage statements, failure to provide adequate rest and meal breaks, and unfair business practices in violation of various California state labor and unfair business practices laws. Serrano seeks certification of a class of current and former residential installation technicians employed by the Employers in California. The complaint alleges that 180 Connect employs residential installation contractors to perform installation services across the United States, but does not allege any facts regarding the relationship among 180 Connect, Inc., Ironwood Communications, Inc. and Mountain Center, Inc.

The Employers timely removed the case to the United States District Court for the Northern District of California, citing CAFA, 28 U.S.C. § 1332(d)(2), and the general removal statute, 28 U.S.C. § 1441(b).¹ Serrano filed a motion to remand based on two exceptions to CAFA jurisdiction, namely, the "local controversy" exception, § 1332(d)(4)(A), and the "home-state controversy" exception, § 1332(d)(4)(B). After briefing and oral argument, the district court issued a tentative order granting Serrano's motion to remand. The district court concluded that: (1) the Employers, as the removing party, bear the burden of showing both that CAFA's jurisdictional elements are satisfied and that no exceptions to CAFA jurisdiction apply; (2) the Employers satisfied their burden to show that CAFA applied; (3) the Employers sufficiently demonstrated that the § 1332(d)(4)(A) "local controversy" exception did not apply, but (4) the Employers did not satisfy their burden to show the inapplicability of the "home-state controversy" exception, § 1332(d)(4)(B).

As to the last point, regarding the "home-state controversy" exception, the district court permitted the parties to file supplemental briefing and evidence. The district court then issued a second order affirming and adopting its tentative order and granting Serrano's motion to remand based on § 1332(d)(4)(B). Pursuant to § 1453(c)(1), the Employers timely filed an application for appeal,² which we granted on December 22, 2006.

On appeal, the Employers challenge both of the district court's orders. The Employers contend that the district court erred in placing the burden of proof on them to establish the inapplicability of CAFA's exceptions, rather than requiring Serrano to establish the applicability of any exception. The Employers also claim that the district court erred in its construction of the term "primary defendants" as used in the "home-state controversy" exception. Finally, the Employers challenge the district court's conclusion that they failed to show the inapplicability of the "home-state controversy" exception.

Although remand orders generally are not appealable, see § 1447(d), § 1453(c) confers discretionary appellate jurisdiction to review remand orders in actions that were removed under CAFA. We review de novo the district court's order remanding the action. Abrego Abrego v. Dow Chem. Co., 443 F.3d 676, 679 (9th Cir.2006).

ANALYSIS

I. ORIGINAL JURISDICTION UNDER CAFA

As a threshold matter, CAFA applies to "class action" lawsuits where the aggregate number of members of all proposed plaintiff classes is 100 or more persons and where the primary defendants are not "States, State officials, or other governmental entities against whom the district court may be foreclosed from ordering relief." § 1332(d)(5); see § 1332(d)(1)(B) (defining "class action" as "any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action"). Once the prerequisites of § 1132(d)(5) are satisfied,³ CAFA vests federal courts with "original" diversity jurisdiction over class actions if: (1) the aggregate amount in controversy exceeds $5,000,000, and (2) any class member is a citizen of a state different from any defendant. § 1332(d)(2).

Thus, under CAFA, complete diversity is not required; "minimal diversity" suffices. Bush v. Cheaptickets, Inc., 425 F.3d 683, 684 (9th Cir.2005); see Abrego, 443 F.3d at 680-82 (discussing changes to federal diversity jurisdiction with the adoption of CAFA).⁴

The district court concluded that the Employers satisfied their burden to establish the elements of § 1332(d)(2) and (d)(5). Neither party disputes this conclusion on appeal. However, we have an independent obligation to determine that subject matter jurisdiction exists both in this court and in the district court, even where the parties do not raise the issue. Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 95, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998); Valdez v. Allstate Ins. Co., 372 F.3d 1115, 1116 (9th Cir.2004). Based on our review of the record and the district court's detailed findings, we are satisfied that the Employers met their preliminary burden under § 1332(d)(5) to establish that the putative plaintiff class includes 100 or more persons, and that neither the state, its officers nor government agencies are primary defendants. In addition, the record reveals that the amount in controversy exceeds $5,000,000 and minimal diversity exists among the parties.⁵ Thus, the district court properly concluded that original subject matter jurisdiction exists under § 1332(d)(2).

II. BURDEN OF PROOF

A. BURDEN TO ESTABLISH REMOVAL JURISDICTION UNDER CAFA

We recently addressed whether CAFA altered the "long-standing, nearcanonical rule" that the burden of establishing removal jurisdiction is on the proponent of federal jurisdiction. Abrego, 443 F.3d at 684. CAFA, though silent as to the burden of proof, is not ambiguous. See id. at 683-84. We concluded that Congress intended to maintain the historical rule that it is the proponent's burden to establish a prima facie case of removal jurisdiction. See id. at 684-85.

B. BURDEN TO ESTABLISH EXCEPTIONS TO CAFA JURISDICTION

We now turn to the question of who bears the burden to establish any exceptions to CAFA's jurisdiction. The district court held that the burden remains on the removing party to disprove applicability of any exceptions to CAFA's grant of jurisdiction. Put another way, this construction requires the removing party to show the inapplicability of the exceptions to jurisdiction. Our reading of the statute, coupled with the Supreme Court's jurisprudence regarding the general removal statute, § 1441, leads us to reject that approach. Rather, we conclude that the party seeking remand bears the burden to prove an exception to CAFA's jurisdiction.

1. EXCEPTIONS TO CAFA JURISDICTION

Our resolution of this issue derives first and foremost from the plain text and structure of the statute. Section 1332(d)(2) confers "original jurisdiction" where the amount in controversy exceeds $5,000,000 and minimal diversity exists. Thus, this section sets out the contours of original jurisdiction. In contrast, § 1332(d)(3)⁶ describes situations where district courts may "decline to exercise jurisdiction" "in the interests of justice and looking at the totality of the circumstances"; and § 1332(d)(4) sets out two circumstances that require district courts to decline jurisdiction, the so-called "local controversy" and "home-state controversy" exceptions. Implicit in both subsections (d)(3) and (d)(4) is that the court has jurisdiction, but the court either may or must decline to exercise such jurisdiction. See § 1332(d)(3)-(4).

The "local controversy" exception provides that a "district court shall decline to exercise jurisdiction" over a class action in which the plaintiff class and at least one defendant meet certain characteristics that essentially make the case a local controversy.⁷ Although the parties disputed this exception before the district court, it is not...