Delores Lewis v. Verizon Communications, Inc.

FILED
FOR PUBLICATION NOV 18 2010

MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS

FOR THE NINTH CIRCUIT

DELORES LEWIS, individually and on No. 10-56512
behalf of a class of similarly situated
individuals, D.C. No. 2:10-cv-02337-PSG-
MAN
Plaintiff - Appellee,

v. OPINION

VERIZON COMMUNICATIONS, INC., a
Delaware corporation,

Defendant - Appellant.

Appeal from the United States District Court
for the Central District of California
Philip S. Gutierrez, District Judge, Presiding

Argued and Submitted November 3, 2010
Pasadena, California

Before: SCHROEDER, TALLMAN and M. SMITH, Circuit Judges.

Opinion by Judge SCHROEDER:

This is an appeal under the Class Action Fairness Act (“CAFA”), Pub. L.

No. 109-2, 119 Stat. 4 (2005) (codified in scattered sections of 28 U.S.C.). The

Act authorizes the removal of class action lawsuits from state to federal court
where the amount in controversy exceeds $5 million, exclusive of interest and

costs. 28 U.S.C. § 1332(d)(2). The issue before us is whether the district court

properly remanded the case to state court on the ground that this requirement was

not satisfied.

CAFA mandates a prompt disposition of controversies that arise over issues

relating to jurisdiction under the Act. All of the deadlines have been satisfied by

the parties, thus an appeal must be decided within 60 days after it is filed. 28

U.S.C. § 1453(c)(2). Hence, we are required to decide this appeal no later than

November 22, 2010, 60 days after the petition for appeal was granted. See

Amalgamated Transit Union v. Laidlaw Transit Services, Inc., 435 F.3d 1140,

1144 (9th Cir. 2006) (“[T]here is no appeal until the petition for permission is

granted, and the entry of the order granting permission serves as the notice of

appeal for all timing issues.”).

In this circuit, when the complaint does not contain any specific amount of

damages sought, the party seeking removal under diversity bears the burden of

showing, by a preponderance of the evidence, that the amount in controversy

exceeds the statutory amount. Guglielmino v. McKee Foods Corp., 506 F.3d 696,

699 (9th Cir. 2007); see also Lowdermilk v. U.S. Bank Nat’l Ass’n., 479 F.3d 994

(9th Cir. 2007) (removing defendant has the burden to show amount in controversy

2
“to a legal certainty” when complaint pleads damages less than CAFA’s

jurisdictional amount). To satisfy its burden in this case, the removing defendant,

Verizon Communications, Inc. (“Verizon”), supplied an affidavit to show that the

potential damages could exceed the jurisdictional amount. We conclude that this

showing satisfies Verizon’s burden. We therefore vacate the district court’s order

remanding the case to state court, and remand to the district court for further

proceedings. In doing so, we reach a conclusion similar to that reached by the

Seventh Circuit in Spivey v. Vertrue, Inc., 528 F.3d 982 (7th Cir. 2008). That case,

like this one, involved claims for unauthorized billings, and the defendant in that

case, like Verizon, submitted an affidavit showing its total billings exceeded the

jurisdictional amount. Id. at 985.

BACKGROUND

The named plaintiff, Delores Lewis, filed this case in California state court

on December 9, 2009. The complaint concerns charges billed by the defendant,

Verizon, on behalf of Enhanced Services Billing, Inc. (“ESBI”), a billing

processor, or “aggregator,” for third-party vendors who offer telephone-related

services. This includes weather and traffic reports, sports scores, stock tips, and

jokes—all of which are known as “premium content.” ESBI bills customers for

3
this premium content through local landline telephone providers, like Verizon,

which places a charge on a subscriber’s bill.

Lewis claims Verizon billed her for services that she never ordered.

Describing these charges as “unauthorized,” she seeks to represent a class of

landline Verizon customers in California who have been billed for such services

that they never expressly agreed to or requested. The operative complaint states no

fixed amount for damages sought.

On March 30, 2010, Verizon filed a notice of removal in the District Court

for the Central District of California alleging that the case satisfied the $5 million

amount in controversy requirement under CAFA, 28 U.S.C. § 1332(d). That

section provides in relevant part “[t]he district courts shall have original

jurisdiction of any civil action in which the matter in controversy exceeds the sum

or value of $5,000,000, exclusive of interest and cost . . . .” Id. at § 1332(d)(2).

In support of their notice of removal, Verizon submitted a declaration of

Paul E. Glover, Verizon’s Senior Consultant for Product Management and

Development, to establish that members of the class were billed more than $5

million during the relevant period:

I have reviewed Verizon’s records for charges billed by Verizon on
behalf of ESBI to landline telephone subscribers in California from
March 1, 2006 to the present. The records show that these subscribers

4
were billed more than $5 million, exclusive of fees and interest, from
March 1, 2006 until the present for ESBI charges . . . .

On April 29, 2010, Plaintiff filed a motion to remand the action to state court

on the ground that Verizon failed to carry its burden of demonstrating that the case

satisfies CAFA’s amount in controversy requirement. Plaintiff’s motion to remand

proffered no evidence or new allegation that the amount the class might be entitled

to receive was less than Verizon’s total ESBI billings. Nor did Plaintiff concede

that the class sought a recovery of less than $5 million. Instead, Plaintiff

contended that, because the complaint challenged only “unauthorized” charges,

there was a distinction between “unauthorized” and “authorized” charges for the

purposes of determining the amount in controversy. Relying on such a distinction,

Plaintiff attacked the Glover Declaration as “incompetent,” since it only spoke to

the amount of Verizon’s gross billings to consumers for ESBI content. On June

30, 2010, the district court granted Plaintiff’s motion to remand, and on September

24, 2010, we granted Verizon’s petition for permission to appeal the remand

pursuant to 28 U.S.C. § 1453(c), authorizing interlocutory review of a CAFA

removal order.

In ordering the matter remanded to the state court, the district court adopted

Plaintiff’s distinction between “authorized” and “unauthorized” charges to hold

that the complaint placed only the unauthorized charges into controversy. Lewis v.

5
Verizon Commc’ns, Inc., 2010 WL 2650363, at *3 (C.D. Cal. June 30, 2010).

Thus, according to the district court, the Glover Declaration did not satisfy the

Defendant’s burden to demonstrate the requisite amount in controversy, since it

describes the total sum of all ESBI charges billed by Verizon, not just the

“unauthorized” ones. Id. at *3. There was, however, no evidence to support the

premise that some portion of the charges alleged in the complaint were

“authorized.” Nor did any pleading suggest the class recovery would be less than

$5 million.

Verizon contends on appeal that, given the Plaintiff’s refusal to limit the

damages sought and Verizon’s showing that the total billings exceed $5 million,

the total billings constitute the “amount in controversy.” We agree.

DISCUSSION

Prior to CAFA, a class action could be heard in federal court under diversity

jurisdiction only if there was complete diversity, i.e., all class representatives were

diverse from all defendants, and if at least one named plaintiff satisfied the amount

in controversy requirement of more than $75,000. Exxon Mobil Corp. v.

Allapattah Servs., Inc., 545 U.S. 546 (2005). Viewing these two limitations as

“defects in diversity jurisdiction,” Congress, in 2005, passed CAFA, which

significantly expanded federal jurisdiction in diversity class actions. See David

6
Marcus, Erie, the Class Action Fairness Act, and Some Federalism Implications of

Diversity Jurisdiction, 48 W M. & M ARY L. R EV. 1247, 1289–90 (2007).

CAFA, however, aimed to limit federal jurisdiction to larger class actions.

CAFA originally included a $2 million amount in controversy requirement, but it

was increased to $5 million after the Congressional Budget Office reported that

“the bill would impose additional costs on the Federal district court system” since

most class-action lawsuits would likely satisfy the $2 million requirement. See

Letter from Dan L. Crippen, Dir., Cong. Budget Office, to F. James Sensenbrenner,

Jr., Chairman, Comm. on the Judiciary, U.S. House of Representatives (Mar. 11,

2002), in H.R. Rep. No. 107-370, at 27.

CAFA was also designed to settle jurisdictional issues early. Thus, appeals

must be filed “not less than 7 days” after a remand order. 28 U.S.C. § 1453(c)(1).

If the court of appeals accepts the appeal, the court must issue a final judgment not

more than 60 days later. Id. at § 1453(c)(2). And if the court of appeals does not

issue judgment within the time allowed, “the appeal shall be denied.” Id. at §

1453(c)(4).

Although CAFA is relatively new, the concept of an “amount in

controversy” has a long history. Congress originally created a jurisdictional

amount for diversity jurisdiction in the Judiciary Act of 1789. That statute

7
established a $500 jurisdictional amount, intended as a floor for the size of cases

that could reach the federal courts. “Congress has used the requirement of an

amount in controversy to limit the original and derivative access to the lower

federal courts.” Thomas E. Baker, The History and Tradition of the Amount in

Controversy Requirement: A Proposal to “Up the Ante” in Diversity Jurisdiction,

102 F.R.D. 299, 302–03 (1984). Over the years, Congress has seen fit to increase

the amount, but its purpose has remained the same — “to ensure that a dispute is

sufficiently important to warrant federal-court attention.” Exxon Mobil Corp., 545

U.S. at 548. The law with respect to establishing an “amount in controversy” has

thus developed in the context of diversity jurisdiction.

In determining the amount, we first look to the complaint. Generally, “the

sum claimed by the plaintiff controls if the claim is apparently made in good faith.”

St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289 (1938). The

complaint, however, does not always state a specific sum, and in such cases, this

court has recognized different burdens of proof depending on the specific

circumstances. Guglielmino, 506 F.3d at 699. The fundamental principle laid

down in diversity cases, nevertheless, remains under CAFA: the party asserting

federal jurisdiction has the burden of showing the case meets the statutory

requirements for the exercise of federal jurisdiction and therefore belongs in

8
federal court. This traditional rule of burden allocation to determine removal

jurisdiction comports with the Supreme Court’s view that “[t]he dominant note in

the successive enactments of Congress relating to diversity jurisdiction is one of

jealous restriction, of avoiding offense to state sensitiveness, and of relieving the

federal courts of the overwhelming burden of ‘business that intrinsically belongs to

the state courts’ in order to keep them free for their distinctive federal business.”

Indianapolis v. Chase Nat’l Bank, 314 U.S. 63, 76, 62 S.Ct. 15, 86 L.Ed. 47 (1941)

(citing Henry J. Friendly, The Historic Basis of Diversity Jurisdiction, 41

H ARV.L.R EV. 483, 510 (1928)).

Thus we expressly recognized in Abrego Abrego v. Dow Chemical Co., 443

F.3d 676, 685 (9th Cir. 2006), that under CAFA the burden of establishing removal

jurisdiction is, as it was before CAFA, on the party wishing to see the case in

federal court. While CAFA relaxed the federal removal requirements in some

respects, it did not alter the traditional rule which places the burden of establishing

removal jurisdiction “on the proponent of federal jurisdiction.” Id. This means

that jurisdictional issues may be disputed, and, when they are, the burden is on the

party removing the case from state court to show the exercise of federal

jurisdiction is appropriate.

9
In this case the Plaintiff alleges that she and the other putative class

members are being billed by Verizon for premium services they never ordered. In

the complaint the charges at issue are termed “unauthorized” charges. To support

removal, Verizon submitted an affidavit that it’s total billings for all ESBI services

in California exceeded $5 million. There was no contrary evidence, no showing

that some substantial part of the total billings was “authorized,” and no allegation

that Plaintiff sought less than $5 million.

In what may well be at root a semantic misunderstanding, the district court

refused to accept the total billings as representing the amount in controversy.

Instead, looking to the allegations of the complaint, it held that the total billings

could not represent the amount in controversy because the complaint was claiming

liability only for charges that were “unauthorized.” Lewis, 2010 WL 2650363 at

*2. The district court thus assumed total billings would include both authorized

and unauthorized charges and held that the Defendant had failed to meet its burden

under our case law to show the amount in controversy, i.e., unauthorized charges,

exceeded the jurisdictional amount. Id. at *4.

There is no evidence or allegation to support this assumption, however. The

Plaintiff has alleged that the putative class has been billed for unauthorized

charges; the Defendant has put in evidence of the total billings and the Plaintiff has

10
not attempted to demonstrate, or even argue, that the claimed damages are less than

the total billed. Indeed, even though it was not apparent in the district court, before

us the Defendant has conceded that where proposed class members have been

billed for services they did not order, they are entitled to a refund. Hence, on this

record, the entire amount of the billings is “in controversy.” The amount in

controversy is simply an estimate of the total amount in dispute, not a prospective

assessment of defendant’s liability. See McPhail v. Deere & Co., 529 F.3d 947,

956 (10th Cir. 2008) (“The amount in controversy is not proof of the amount the

plaintiff will recover. Rather, it is an estimate of the amount that will be put at

issue in the course of the litigation.”). To establish the jurisdictional amount,

Verizon need not concede liability for the entire amount, which is what the district

court was in essence demanding by effectively asking Verizon to admit that at least

$5 million of the billings were “unauthorized” within the meaning of the

complaint.

The district court rejected the reasoning of the two circuits that have, in

circumstances similar to this, held a showing on the part of the defendant of the

total amounts billed for services challenged by the complaint is sufficient to

establish the jurisdictional amount. Spivey, 528 F.3d at 985–986; Stawn v. AT&T

Mobility LLC, 530 F.3d 293, 295 (4th Cir. 2008). The district court followed other

11
district courts in this circuit that incorrectly read the other circuits’ decisions as

resting on pleadings rather than on an evidentiary showing. See, e.g., Amezcua v.

Cellco P’ship, 2009 WL 1190553 (N.D. Cal. May 4, 2009).

The law in our circuit is articulated a little differently from that of others, in

that we expressly contemplate the district court’s consideration of some evidentiary

record. See generally Diane B. Bratvold & Daniel J. Supalla, Standard of Proof to

Establish Amount in Controversy When Defending Removal Under the Class

Action Fairness Act, 36 W M. M ITCHELL L. R EV. 1397 (2010). We employ a

preponderance of the evidence standard when the complaint does not allege a

specific amount in controversy. Guglielmino, 506 F.3d at 699. The Seventh

Circuit, along with the First and Second Circuits, apply what may be a lower

standard of proof: a “reasonable probability” standard. See, e.g., Brill v.

Countrywide Home Loans, Inc., 427 F.3d 446, 449 (7th Cir. 2005) (when the

complaint is “silent or ambiguous on one or more of the ingredients needed to

calculate the amount in controversy . . . the removing litigant must show a

reasonable probability that the stakes exceed the minimum.”); see also Amoche v.

Guarantee Trust Life Ins. Co., 556 F.3d 41, 48 (1st Cir. 2009); DiTolla v. Doral

Dental IPA of New York, 469 F.3d 271, 277 (2nd Cir. 2006). The Fourth Circuit

has not adopted a specific standard of proof, although “several district courts

12
within the Fourth Circuit have concluded that the appropriate standard of proof is

preponderance of the evidence.” Laws v. Priority Trustee Services of N.C., L.L.C.,

2008 WL 3539512 at * 2 (W.D.N.C. Aug. 11, 2008). Both the Seventh Circuit in

Spivey and the Fourth Circuit in Strawn have looked to evidence outside the

complaint when the complaint is silent as to the amount. Regardless of the label

applied to the standard of proof, the result in this case should be the same as that in

the Seventh and Fourth Circuits’ decisions in Spivey and Strawn.

Spivey is the closest to our case. In Spivey, the plaintiff filed suit in state

court seeking to represent a class of customers allegedly billed by a marketing

company for unauthorized charges. 528 F.3d at 983. The complaint alleged that

imposing unauthorized charges on customers was a standard practice of the

defendant. Id. at 985–86. As in this case, the defendant removed the action to

federal court under CAFA, and also supplied an affidavit to show that its total

charges exceeded $5 million, but the district court found the evidentiary showing

insufficient, remanding the case to state court. Id. The Seventh Circuit reversed,

holding that the defendant had satisfied its burden. It concluded that if the

defendant routinely imposed such charges without authorization, all such charges

are in play. “Once the proponent of federal jurisdiction has explained plausibly

13
how the stakes exceed $5 million, . . . then the case belongs in federal court unless

it is legally impossible for the plaintiff to recover that much.” Id. at 986.

The Fourth Circuit decision is similar. In Strawn, the plaintiff filed suit in

state court seeking to represent a class of customers who were automatically

enrolled in a “Roadside Assistance” program when signing up for cellular phone

service. 530 F.3d at 294. The district court limited the class to customers who

paid the fee “unwillingly.” Id. The Fourth Circuit vacated the remand order

because the complaint did not distinguish between “willing” and “unwilling”

customers, and thus included any phone customer who was charged the fee after

being automatically enrolled in the program. Id. at 299. It relied on AT&T’s

affidavit stating the approximate number of customers in West Virginia enrolled in

the program, coupled with the existence of minimum statutory damages, to hold

that AT&T satisfied the jurisdictional burden. Id. at 298–299 (“[T]he minimum

amount of class damages, if the plaintiffs were to succeed on the merits, would be

$11,760,000 (the minimum statutory damages of $200 per customer x 58,800

customers)”).

Here, as in Spivey and Strawn, the stakes exceed $5 million. The Plaintiff is

seeking recovery from a pot that Defendant has shown could exceed $5 million and

the Plaintiff has neither acknowledged nor sought to establish that the class

14
recovery is potentially any less. The amount in controversy on this record

therefore comprises the total billings and the jurisdictional amount is satisfied.

Verizon has acknowledged at oral argument that Plaintiff is due refunds of billings

for services never requested. The district court, on the basis of a record that lacked

the clarity provided by the arguments on appeal, erred in assuming, without

pleading or proof, that some significant portion of the total billings were

“authorized” and separate from the damages the Plaintiff seeks. Verizon has borne

its burden to show the amount in controversy exceeds $5 million.

The remand order is VACATED and the case is REMANDED for further

proceedings in district court.

15
COUNSEL

Michael J. McMorrow, Chicago, Illinois, for plaintiff-appellee Delores Lewis, et
al.

Paul J. Watford, Los Angeles, California, for defendant-appellant Verizon
Communications, Inc.