Serrano v. 180 Connect, Inc.

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

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.  D.C. No.
CV-06-01363-THE
180 CONNECT, INC.; MOUNTAIN OPINION
SATELLITE, INC.; IRONWOOD
COMMUNICATIONS, INC.; MOUNTAIN
CENTER, INC.,
Defendants-Appellants.

Appeal from the United States District Court
for the Northern District of California
Thelton E. Henderson, District Judge, Presiding

Argued and Submitted
February 15, 2007—San Francisco, California

Filed February 22, 2007

Before: J. Clifford Wallace, Richard D. Cudahy,* and
M. Margaret McKeown, Circuit Judges.

Opinion by Judge McKeown

*The Honorable Richard D. Cudahy, Senior United States Circuit Judge
for the Seventh Circuit, sitting by designation.

2243
2246 SERRANO v. 180 CONNECT, INC.

COUNSEL

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

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

OPINION

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
 SERRANO v. 180 CONNECT, INC. 2247
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 puta-
tive class action alleging claims for unpaid wages, paycheck
violations, inaccurate wage statements, failure to provide ade-
quate 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 per-
form 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 dis-
trict court concluded that: (1) the Employers, as the removing
party, bear the burden of showing both that CAFA’s jurisdic-
tional 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 dem-
onstrated that the § 1332(d)(4)(A) “local controversy” excep-
1
Throughout this opinion, all section references are to Title 28 of the
United States Code.
2248 SERRANO v. 180 CONNECT, INC.
tion did not apply, but (4) the Employers did not satisfy their
burden to show the inapplicability of the “home-state contro-
versy” exception, § 1332(d)(4)(B).

As to the last point, regarding the “home-state controversy”
exception, the district court permitted the parties to file sup-
plemental 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 con-
struction 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 jurisdic-
tion to review remand orders in actions that were removed
under CAFA. We review de novo the district court’s order
2
The Employers’ application for appeal was filed on the sixth court day
after entry of the district court’s second and final remand order and was
therefore timely. See Amalgamated Transit Union Local 1309 v. Laidlaw
Transit Servs., Inc., 435 F.3d 1140, 1146 (9th Cir. 2006) (holding that an
application for appeal under § 1453(c)(1) must be filed within seven court
days of entry of district court’s order granting or denying remand). The
application also satisfied Federal Rule of Appellate Procedure 5, as
required. See id. at 1145.
 SERRANO v. 180 CONNECT, INC. 2249
remanding the action. Abrego Abrego v. Dow Chem. Co., 443
F.3d 676, 679 (9th Cir. 2006).

ANALYSIS

I. ORIGINAL JURISDICTION UNDER CAFA

[1] As a threshold matter, CAFA applies to “class action”
lawsuits where the aggregate number of members of all pro-
posed 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).
3
The Fifth Circuit characterized § 1332(d)(5) as an “exception” to
CAFA jurisdiction conferred under § 1332(d)(2). See Frazier, 455 F.3d at
546. We view § 1332(d)(5) somewhat differently. Although subsection (5)
appears later in the statute, it plainly provides that “paragraphs (2)
through (4) shall not apply to any class action in which (A) the primary
defendants are States, State officials, or other governmental entities
against whom the district court may be foreclosed from ordering relief; or
(B) the number of members of all proposed plaintiff classes in the aggre-
gate is less than 100.” § 1332(d)(5) (emphasis added). Thus, satisfaction
of § 1332(d)(5) serves as a prerequisite, rather than as an exception, to
jurisdiction under § 1332(d)(2). This distinction is important because, as
we address later, there are “exceptions” to the statute in which jurisdiction
otherwise exists under § 1332(d)(2) but the federal courts either may or
must decline to exercise that jurisdiction. See, e.g., § 1332(d)(3)-(4). Our
approach is consistent with the view adopted by the Seventh Circuit in
Hart, 457 F.3d at 679 (holding that the provisions of § 1332(d)(5) must
be satisfied before CAFA applies to a class action).
2250 SERRANO v. 180 CONNECT, INC.
Thus, under CAFA, complete diversity is not required; “mini-
mal diversity” suffices. Bush v. Cheaptickets, Inc., 425 F.3d
683, 684 (9th Cir. 2005); see Abrego, 443 F.3d at 680-82 (dis-
cussing changes to federal diversity jurisdiction with the
adoption of CAFA).4

[2] The district court concluded that the Employers satis-
fied their burden to establish the elements of § 1332(d)(2) and
(d)(5). Neither party disputes this conclusion on appeal. How-
ever, 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
(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).
4
Although we construe § 1332(b)(5) as a prerequisite to application of
CAFA’s “minimal diversity” jurisdiction, this is a specific requirement
under CAFA. Federal diversity jurisdiction still exists for other class
actions that satisfy the general diversity jurisdiction provision of
§ 1332(a). See, e.g., Snyder v. Harris, 394 U.S. 332, 340 (1969) (noting
that in class actions under § 1332(a), only the citizenship of the named
parties counts for purposes of determining “complete diversity”).
5
A fourth defendant named in the complaint, Mountain Satellite, had not
been served with the complaint when the district court decided Serrano’s
motion to remand. The Employers allege that Mountain Satellite is a
“sham” defendant. The district court did not consider this defendant’s
effect on jurisdiction, nor do we, because under CAFA only “minimal
diversity” must be shown and the Employers satisfied this requirement.
 SERRANO v. 180 CONNECT, INC. 2251
II. BURDEN OF PROOF

A. BURDEN TO ESTABLISH REMOVAL JURISDICTION UNDER
CAFA

We recently addressed whether CAFA altered the “long-
standing, near-canonical rule” that the burden of establishing
removal jurisdiction is on the proponent of federal jurisdic-
tion. Abrego, 443 F.3d at 684. CAFA, though silent as to the
burden of proof, is not ambiguous. See id. at 683-84. We con-
cluded 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 contro-
versy 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
6
Subsection (d)(3) provides:
A district court may, in the interests of justice and looking at the
2252 SERRANO v. 180 CONNECT, INC.
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 dis-
trict courts to decline jurisdiction, the so-called “local contro-
versy” and “home-state controversy” exceptions. Implicit in
both subsections (d)(3) and (d)(4) is that the court has juris-
diction, 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

totality of the circumstances, decline to exercise jurisdiction
under [§ 1332(d)(2)] over a class action in which greater than
one-third but less than two-thirds of the members of all proposed
plaintiff classes in the aggregate and the primary defendants are
citizens of the State in which the action was originally filed based
on consideration of—
(A) whether the claims asserted involve matters of national or
interstate interest;
(B) whether the claims asserted will be governed by laws of
the State in which the action was originally filed or by the laws
of other States;
(C) whether the class action has been pleaded in a manner that
seeks to avoid Federal jurisdiction;
(D) whether the action was brought in a forum with a distinct
nexus with the class members, the alleged harm, or the defen-
dants;
(E) whether the number of citizens of the State in which the
action was originally filed in all proposed plaintiff classes in the
aggregate is substantially larger than the number of citizens from
any other State, and the citizenship of the other members of the
proposed class is dispersed among a substantial number of States;
and
(F) whether, during the 3-year period preceding the filing of
that class action, 1 or more other class actions asserting the same
or similar claims on behalf of the same or other persons have
been filed.
§ 1332(d)(3) (emphasis added).
 SERRANO v. 180 CONNECT, INC. 2253
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 con-
troversy.7 Although the parties disputed this exception before
the district court, it is not raised in this appeal.

[3] Section 1332(d)(4)(B) sets forth what has been dubbed
the “home-state controversy” exception:

A district court shall decline to exercise jurisdiction
under [§ 1332(d)(2)] . . . (B) where two-thirds or
more of the members of all proposed plaintiff classes
in the aggregate, and the primary defendants, are cit-
izens of the State in which the action was originally
filed.
7
(4) A district court shall decline to exercise jurisdiction under
[§ 1332(d)(2)]—
(A)(i) over a class action in which—
(I) greater than two-thirds of the members of all proposed
plaintiff classes in the aggregate are citizens of the State in which
the action was originally filed;
(II) at least 1 defendant is a defendant—
(aa) from whom significant relief is sought by members
of the plaintiff class;
(bb) whose alleged conduct forms a significant basis for
the claims asserted by the proposed plaintiff class; and
(cc) who is a citizen of the State in which the action was
originally filed; and
(III) principal injuries resulting from the alleged conduct or
any related conduct of each defendant were incurred in the State
in which the action was originally filed; and
(ii) during the 3-year period preceding the filing of that class
action, no other class action has been filed asserting the same or
similar factual allegations against any of the defendants on behalf
of the same or other persons.
§ 1332(d)(4)(A) (emphasis added).
2254 SERRANO v. 180 CONNECT, INC.
§ 1332(d)(4)(B) (emphasis added).

[4] Serrano argues that the circumstances enumerated in
§ 1332(d)(4) do not represent “exceptions” to CAFA’s juris-
diction, but simply constitute additional elements that must
affirmatively be shown by the party seeking to establish
CAFA jurisdiction in the first instance. Serrano cites to a
recent district court opinion, Lao v. Wickes Furniture Co.,
Inc., 455 F. Supp. 2d 1045 (C.D. Cal. 2006), for support. In
Lao, the district court held that §§ 1332(d)(3) and (d)(4) pro-
vide additional criteria that must be proven as part of the
prima facie case of diversity jurisdiction under CAFA, and
that § 1332(d)(5) is an exception to the application of CAFA.
Id. at 1054-59. We are not persuaded by Lao’s reasoning
because it is inconsistent with the statute. As noted above,
§§ 1332(d)(4)(A) and (B) require federal courts — although
they have jurisdiction under § 1332(d)(2) — to “decline to
exercise jurisdiction” when the criteria set forth in those pro-
visions are met. Subsections (d)(4)(A) and (B) are not part of
the prima facie elements of jurisdiction.

[5] That the provisions of §§ 1332(d)(4)(A) and (B) are not
labeled as “exceptions” does not prevent them from operating
as such, as Serrano suggests. Nor does it solve the interpretive
puzzle to label them as “negative conditions,” another of Ser-
rano’s suggestions. The provisions fit into the statutory struc-
ture as exceptions to jurisdiction, not elements of original
jurisdiction. We thus hold that the provisions set forth in
§§ 1332(d)(3) and (4) are not part of the prima facie case for
establishing minimal diversity jurisdictional under CAFA,
but, instead, are exceptions to jurisdiction. See Hart, 457 F.3d
at 681 (construing §§ 1332(d)(4)(A) and (B) as “express
exceptions” to § 1332(d)(2)’s grant of jurisdiction).

2. BURDEN OF PROOF

The question thus arises whether the removing party or the
party seeking remand bears the burden to establish an excep-
 SERRANO v. 180 CONNECT, INC. 2255
tion to jurisdiction. The statute separates the section regarding
the prima facie case — § 1332(d)(2) — from the sections that
set out exceptions to jurisdiction — §§ 1332(d)(3) and (d)(4).
In this respect, the statute fits neatly with the structure of the
general removal statute, § 1441(a). The latter statute provides
that “[e]xcept as otherwise expressly provided by Act of Con-
gress, any civil action brought in a State court of which the
district courts of the United States have original jurisdiction,
may be removed by the defendant or the defendants . . . .”
§ 1441(a) (emphasis added).

In Breuer v. Jim’s Concrete of Brevard, Inc., 538 U.S. 691
(2003), the Supreme Court addressed the burden of proof
under § 1441(a). The Court noted that prior to 1948, the stat-
ute provided simply that any action within the original subject
matter jurisdiction of the federal courts could be removed. Id.
at 697. The statute was amended in 1948 to add the limiting
language — “[e]xcept as otherwise expressly provided by Act
of Congress” — thus carving out potential express exceptions
to such removal jurisdiction. See id. (quoting Act of June 25,
1948, § 1441(a), 62 Stat. 937). The Court stated that “[s]ince
1948, therefore, there has been no question that whenever the
subject matter of an action qualifies it for removal, the burden
is on a plaintiff to find an express exception.” Id. at 698.

[6] Similarly here, CAFA confers subject matter jurisdic-
tion and provides express “exceptions” to the exercise of that
jurisdiction. The well-established rule that the party seeking
remand must prove the applicability of such exception gov-
erns with equal force in the context of CAFA as with the gen-
eral removal statute.

[7] Consistent with the plain language of the statute and
this well-established rule, we conclude that although the
removing party bears the initial burden of establishing federal
jurisdiction under § 1332(d)(2), once federal jurisdiction has
been established under that provision, the objecting party
2256 SERRANO v. 180 CONNECT, INC.
bears the burden of proof as to the applicability of any express
statutory exception under §§ 1332(d)(4)(A) and (B).

Each of our sister circuits to address this issue has reached
the same conclusion. See Evans, 449 F.3d at 1164-65 (holding
that once the removing party has established the appropriate-
ness of CAFA jurisdiction, the objecting party bears the bur-
den to prove the applicability of any exception to CAFA’s
grant of jurisdiction); Frazier, 455 F.3d at 546 (adopting the
reasoning of the Eleventh Circuit in Evans and holding that
the burden to prove an exception to CAFA jurisdiction rests
with the party challenging removal); Hart, 457 F.3d at 680-81
(holding same; reasoning that CAFA’s text and structure, in
addition to comparison to the § 1441(a) removal statute,
require placement of the burden to show an exception to
CAFA jurisdiction on the party objecting to removal).8

As we observed in Abrego, we do not think that Congres-
sional silence on the burden of proof results in ambiguity in
the statute, Abrego, 443 F.3d at 683-84, and thus we do not
rely on the legislative history as the basis for our holding. The
proper allocation of the burden may be determined by refer-
ence to the text and structure of § 1332(d) and the well-
established rule reiterated by the Supreme Court in Breuer
that plaintiffs bear the burden of proving the applicability of
an exception to the general removal statute.
8
The courts in Evans and Frazier also concluded that plaintiffs (the
party most often seeking remand) are generally in a better position to show
the facts regarding the citizenship of the plaintiff class. See Evans, 449
F.3d at 1164 n.3; Frazier, 455 F.3d at 546. But see Hart, 457 F.3d at 680
(indicating that the court was not persuaded that this rationale supported
the result). We recognize that the burden may play out differently depend-
ing on the case. Although the plaintiff controls the framing of the com-
plaint, the plaintiff may not always have access to a complete data set as
to the citizenship of the class members or information about the defen-
dants. Because it is difficult to make such a judgment in the abstract, we
do not rest our decision on this policy rationale.
 SERRANO v. 180 CONNECT, INC. 2257
III. APPLICATION OF BURDEN OF PROOF TO SERRANO’S CASE

[8] The district court found that the Employers sufficiently
proved that § 1332(d)(4)(A)’s “local controversy” exception
was inapplicable. Neither party challenges that finding on
appeal. Although the burden should have been placed on Ser-
rano to prove the applicability of the exception, in fact, Ser-
rano was the beneficiary of the district court’s imposition of
the burden on the Employers.

[9] As to the “home-state controversy” exception, the dis-
trict court imposed the burden on the Employers and held that
they had “not met their burden with respect to either prong of
the exception.” Because the district court has not had an
opportunity to consider whether Serrano has satisfied his bur-
den of establishing the requirements of § 1332(d)(4)(B), we
remand to the district court for a determination of this issue
in the first instance. As a consequence of this remand, we do
not address the “primary defendants” issue. It would be pre-
mature for us to advise as to the meaning of “primary defen-
dants” without the benefit of a district court proceeding (and
the corollary record) conducted under the correct burden of
proof.

REVERSED AND REMANDED.