Guglielmino v McKee Foods Corporation, No. 05-16144 (9th Cir. October 9, 2007).

This case touches on a subject that is near and dear to the hearts, and stomachs, of the CAFA Law Blog editors – Twinkies. All those late nights slaving away for your CAFA reading pleasure lends itself to the occasional Twinkie or three. In this case, the Ninth Circuit examines the burden of proof for certain types of cases removed under CAFA depending on how the damages were requested in the plaintiff’s Complaint.

The Plaintiffs in this case were distributors of McKee Foods’ Bakery Products to retail stores. These distributors purchased bakery products such as Little Debbie snack cakes from McKee and delivered the products to local retail stores. The distributors were responsible for stocking the retail shelves and arranging, displaying and advertising the products. They also removed damaged goods or goods that were expired from the retail stores. These distributors brought suit against McKee for wage and hour violations in California state court.

On January 3, 2005, the distributors filed a Complaint against McKee in California Superior Court on behalf of a putative class of persons who had entered into distributorship agreements with McKee. The Complaint alleged that McKee had violated various wage an hour laws by treating its distributors as independent contractors instead of employees. The Complaint alleged various California state law causes of action, along with the request for a declaratory judgment that the distributors were in fact employees of McKee and not independent contractors.

The damages alleged in Paragraph number four of the Complaint stated the damages to each plaintiff are less that $75,000. Additionally, the value of the injunctive relief sought by the plaintiffs was stated as less than $75,000. The prayer for a relief, however, sought other things such as statutory damages, punitive damages, attorneys’ fees, back taxes, and other relief as the Court deemed proper.

On February 10, 2005, McKee filed a Notice of Removal to the United States District Court for the Northern District of California pursuant to Sections 1441 and 1332. The Notice stated that “although the Complaint affirmatively attempts to allege that the damages suffered by each Plaintiff are less than $75,000…the categories of damages actually claimed by plaintiffs, if recoverable, would be significantly in excess of the $75,000 minimum amount in controversy (exclusive of interest and cost) required to invoke the federal court jurisdiction.” McKee’s calculations purported to show an amount in controversy sufficient to invoke federal court jurisdiction.

On March 14, 2005, the distributors filed their Motion to Remand the action to state court. They challenged McKee’s calculations of the amount in controversy and sought to show that less than $75,000 was at stake. The two plaintiffs in the case also filed affidavits stating that they were not seeking damages in excess of $75,000.

On May 3, 2005, the District Court entered an order denying the Motion to Remand. The District Court order stated that there were three possible standards for the removing defendant’s burden of proof. The order also explained that no Ninth Circuit precedent was directly on point, because the Complaint specified that damages were below the jurisdictional amount, yet did not demand a specific amount. The District Court decided that the “preponderance of the evidence” standard should be applied. The standard, therefore, was that 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. The District Court determined that the amount in controversy for both plaintiffs was in excess of the jurisdictional threshold. The District Court also noted that the more stringent “legal certainty” test was applied then McKee would not have carried its burden.

Thereafter, the District Court certified its order for interlocutory review pursuant to Section 1292(b). The Court stated that the burden of proof standard was dispositive of the remand motion, and it felt that resolution of the question might substantially advance the termination of the litigation. The plaintiff petitioned the Ninth Circuit for permission to pursue an interlocutory appeal, which the Ninth Circuit granted.

The Ninth Circuit certified the question as “What 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 requirements?” The Ninth Circuit began its opinion by noting that there were at least three different burdens of proof which might be placed on a removing defendant under varying circumstances.

First, 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 can not actually recover that amount.

Second, when it is unclear or ambiguous from the fact of a state court complaint whether the requisite amount of controversy is plead, the Ninth Circuit applies a “preponderance of the evidence” standard. Under this burden, the defendant must provide evidence establishing that it is “more likely than not” that the amount in controversy exceeds the jurisdictional amount. The Ninth Circuit noted that it applied the preponderance standard to complaints filed under CAFA that do not specify a particular amount in controversy. (Editors’ Note: See the CAFA Law Blog analysis of Abrego posted on May 25, 2006 ).

Third, the Ninth Circuit’s decision in Lowdermilk holds that in the CAFA context, when a state court complaint affirmatively alleges that the amount in controversy is less than the jurisdictional threshold, the party seeking removal must prove with legal certainty that CAFA’s jurisdictional amount is met. (Editors’ Note:  See the CAFA Law Blog analysis of the Lowdermilk case from the 9th Circuit posted on July 30, 2007).

After recognizing the varying burdens of proof depending on the situation and the nature of the plaintiff’s complaint, the Ninth Circuit undertook to determine precisely what the plaintiffs’ complaint alleged. The Ninth Circuit found that the Complaint failed to allege a sufficiently specific total amount in controversy. This put the plaintiffs’ complaint within the second burden of proof and the Ninth Circuit applied the “preponderance of the evidence” burden of proof to the removing defendant.

The Ninth Circuit noted that the District Court had applied a “preponderance of the evidence” standard and determined that both named plaintiffs’ allegations met the requisite $75,000 amount in controversy threshold. The distributors had not challenged the District Court’s factual findings on appeal. Therefore, the Ninth Circuit found no need to address any arguments that the calculations by the District Court were clearly erroneous. In concluding, the Ninth Circuit stated that because the distributors’ complaint was unclear and did not specify a total amount in controversy, the proper burden of proof was proof by a “preponderance of the evidence.” Because this was the standard that the District Court applied in denying the motion to remand the case, the judgment of the District Court was affirmed.

It is interesting to note that Circuit Judge O’Scannlain wrote a special concurrence noting his view that a uniform burden of proof is required in all cases when removal to Federal Court is challenged. The Judge stated that in his view it is incumbent upon the party seeking federal jurisdiction to prove the facts giving rise to such jurisdiction by a “preponderance of the evidence.” Only then, and only by proof to a legal certainty, can a party defeat the exercise of federal jurisdiction which those established facts support. The Judge stated that if the court had applied such a uniform rule this would have been an easy case that would not have come before the Ninth Circuit on interlocutory appeal. This special concurrence is a good read for anyone possibly briefing this issue.