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Media Alerts - Jose Ibarra v. Manheim Investments, Inc. - Ninth Circuit
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January 30, 2015
  Jose Ibarra v. Manheim Investments, Inc. - Ninth Circuit
Headline: Ninth Circuit holds that, where defendant seeks removal under the Class Action Fairness Act (CAFA) and the complaint does not state, or understates, the amount in controversy, the defendant can rely on reasonable assumptions to prove that the amount in controversy exceeds $5 million, but "cannot establish removal jurisdiction by mere speculation and conjecture, with unreasonable assumptions."

Area of Law: Civil Procedure, Class Action

Issue Presented: Under CAFA, 28 U.S.C. ยง 1332(d), does a defendant meet its burden of proof to establish an amount in controversy in excess of $5 million by using calculations based on the assumption that each employee was denied one meal break per five hour shift and one rest break per 3.5 hour shift where the complaint alleged, first, that the amount in controversy was less than $5 million and, second, that the defendant had a "pattern and practice" of denying breaks, but did not allege that this "pattern and practice" is universally followed every time the wage and hour violation could arise?

Brief Summary: A plaintiff's precertification stipulation that the plaintiff and the class will not seek damages over $5 million is not dispositive of the amount in controversy under CAFA.

When the amount in controversy is contested, the court must find whether the case meets the $5 million jurisdictional threshold by a preponderance of the evidence and, when a line of reasoning requires assumptions, those assumptions must be reasonable and "cannot be pulled from thin air."

Because the complaint only alleged a pattern of denying breaks, but did "not allege that [defendant] universally, on each and every shift, violates labor laws by not giving rest and meal breaks," defendant's line of reasoning, requiring an assumption that each and every employee was always denied at least one meal break per five hour shift and one rest break per 3.5 hour shift, was not reasonable.

However, because the district court failed to consider any evidence before remanding the case to state court, the Ninth Circuit panel reversed and remanded the case for further proceedings to consider the amount in controversy under the preponderance of the evidence standard. On remand, the defendant bears the burden to show that its estimated amount in controversy relied on reasonable assumptions.

Extended Summary: Jose Ibarra filed a putative class action against his former employer, Manheim, for wage and hour claims. The complaint alleged the aggregate claims of individual class members was less than $5 million.

The case was removed to federal district court twice and remanded back to state court twice. After the first remand, the United States Supreme Court decided Standard Fire Insurance Co. v. Knowles, holding that a "plaintiff's precertification stipulation that the plaintiff and the class will not seek damages over $5 million does not preclude a defendant's ability to remove a case under CAFA."

After the second remand, the Ninth Circuit decided Rodriguez v. AT&T Mobility Services, LLC, establishing the burden of proof for the amount in controversy as the preponderance of the evidence standard. On remand, the district court granted plaintiffs' renewed motion to remand to state court finding that that defendant "had not satisfied its burden of proving that the amount in controversy exceeded $5 million, because Mannheim did 'not provide a basis in the complaint or in evidence for [its] assumption that plaintiffs were never provided breaks.'"

On appeal of the remand order, the Ninth Circuit panel noted that, initially courts are to look to the complaint for the amount in controversy, although an affirmative allegation that damages do not exceed $5 million is not dispositive. The panel further observed that, "when the defendant's assertion of the amount in controversy is challenged by plaintiffs in a motion to remand, the Supreme Court has said [in Dart Basin Operating Co. v. Owens, No. 13-719, 2014 WL 7010692, at *6 (U.S. Dec. 15, 2014)] that both sides submit proof and the court then decides where the preponderance lies [and that] CAFA's requirements are to be tested by consideration of real evidence and the reality of what is at stake in the litigation, using reasonable assumptions underlying the defendant's theory of damages exposure."

Manheim's method of calculating the amount in controversy assumed that each class member was denied one meal break in every one of their five hour shifts and one rest break in every one of their 3.5 hour shifts, basing its violation-rate assumption on the allegations in the complaint that Manheim has a "pattern and practice of failing to pay their Non-Exempt employees for working off-the-clock," and that Manheim "hide[s] behind written policies that purport to forbid these unlawful labor practices while at the same time maintaining an institutionalized unwritten policy that mandates these unlawful practices."

The panel held that, when a damages assessment requires a chain of reasoning that includes assumptions, the assumptions must be reasonable. Manheim's alleged pattern and practice of denying breaks does not necessarily equate to always denying breaks"on each and every shift." Furthermore, the violation rate was not grounded in real evidence.

The panel vacated the district court's judgment and remanded the case for a determination on the preponderance of the evidence to determine the amount in controversy. On remand, "ecause the complaint does not allege that Manheim universally, on each and every shift, violates labor laws by not giving rest and meal breaks, Manheim bears the burden to show that its estimated amount in controversy relied on reasonable assumptions."

For the full opinion: http://cdn.ca9.uscourts.gov/da...15/01/08/14-56779.pdf

Panel: Susan P. Graber, Ronald M. Gould, and Consuelo M. Callahan, Circuit Judges.

Date of Issued Opinion: January 8, 2015

Docket Number: 14-56779

Decided: Reversed and Remanded

Case Alert Author: Brandon Powell

Counsel: Thomas R. Kaufman (argued), and Paul Berkowitz, Sheppard, Mullin, Richter & Hampton LLP, Los Angeles, California, for Defendants-Appellants. Raul Cadena (argued), Cadena Churchill, LLP, San Diego, California; Paul D. Jackson, Jackson Law, LLP, San Diego, California, for Plaintiff-Appellee.

Author of Opinion: Gould, Circuit Judge.

Case Alert Circuit Supervisor: Professor Glenn Koppel

    Posted By: Glenn Koppel @ 01/30/2015 05:27 PM     9th Circuit  

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