A business named “Renegade Swish” sued Wright in Texas state court for breach of an employment agreement. Wright counterclaimed for violations of the FLSA. For reasons not explained in the opinion, Swish then nonsuited its contract claims, moved to realign the parties so it would be the new defendant, and removed the case to federal court based on federal jurisdiction. The Fifth Circuit held that Swish lacked an objectively reasonable basis for removal, citing both precedent (primarily, Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U.S. 826 (2002)), and the text of 28 U.S.C. § 1441(a), which refers to removal by “defendants.” The Court did not credit Swish’s reliance on the pending motion to realign, declining to “invite federal courts to dream of counterfactuals when actual litigation has defined the parties’ controversy,” and rejected the cases cited by Swish as not presenting a meaningful conflict: “As compared to [a controlling case]m where the disagreement among the courts was ‘hotly contested,’ any disagreement here is tepid and lopsided.” Renegade Swish v. Wright, No. 16-11152 (May 22, 2017).
The case of Decatur Hospital Authority v. Aetna Health Inc. involved a remand order, granted on the basis of timelieness (a ruling not ordinarily appealable because of 28 USC § 1447(c)), but where the notice of removal referred to the federal officer removal statute (made reviewable by the less-well-known § 1447(d)). The Fifth Circuit concluded that its review involved “[n]ot particular reasons for an order, but the order itself,” and went to affirm the remand and a related fee award, finding that the defendant did not learn new facts from an interrogatory answer that were not also contained in the original petition. No. 16-10313 (April 18, 2017).
Foster sued about a foreclosure; the state court granted a TRO (so no foreclosure occurred); and the mortgage servicer defendants removed and obtained summary judgment. Foster challenged the denial of her motion to remand, arguing that she did not improperly join the substitute trustee appointed to conduct the foreclosure sale. The Fifth Circuit affirmed: “[B]reach of a trustee’s duty does not constitute an independent tort; rather, it yields a cause of action for wrongful foreclosure. A claim of wrongful foreclosure cannot succeed, however, when no foreclosure has occurred.” Foster v. Deutsche Bank, No. 16-11045 (Feb. 8, 2017).
Defendants removed, the plaintiff moved to remand, and the the district court granted the motion. It found a waiver of the right to remove, noting this contract provision: “The Parties hereto hereby irrevocably and unconditionally consent to the sole and exclusive jurisdiction of the courts of Harris County in the State of Texas for any action, suit or proceeding arising out of or relating to this Agreement or the Proposed Transaction . . . .” The defendants claimed ambiguity (which would make the waiver no longer be “clear and unambiguous,” and thus not satisfy the demanding standard in this area) from (1) the definition of “Proposed Transaction,” (2) the definitions of the relevant parties, and the use of “Proposed Transaction” in the above part of the relevant clause, but not in another, similar provision later in it. The Fifth Circuit rejected these arguments and affirmed, but also affirmed the denial of any award of attorneys’ fees. Grand View PV Solar Two, LLC v. Helix Elec., Inc., No. 16-20384 (Feb. 1, 2017). The opinion is a good summary of the law on this topic, which has not been addressed in detail recently.
The plaintiff in GlobeRanger Corp. v. Software AG won a $15 million judgment for misappropriation of trade secrets. The Fifth Circuit affirmed, holding:
- After a thorough review of Circuit precedent – not all entirely consistent – “that GlobeRanger’s trade secret misappropriation claim requires establishing an additional element than what is required to make out a copyright violation: that the protected information was taken via improper means or breach of a confidential relationship. Because the state tort provides substantially different protection than copyright law, it is not preempted.”
- Recognizing the “jurisdictional Catch-22” created by that ruling, and referring back to an earlier panel opinion from the time of the case’s removal: “As the complaint [then] alleged only conversion of intangible property for which there is equivalency between the rights protected under that state tort and federal copyright law, complete preemption converted the conversion claim into one brought under the Copyright Act that supported federal question jurisdiction at the time of removal and supplemental jurisdiction after it was dismissed.”
- Found that GlobeRanger had offered sufficient evidence of: (1) what specifically constituted its claimed trade secrets; (2) whether Software AG acquired trade secrets improperly or with notice of impropriety, particularly in light of federal contracting regulations; and (3) whether Software AG “used” any trade secret.
The opinion concluded with an unfortunately apt observation about the business litigation that is the focus of this blog: “This case demonstrates the unfortunate complexity of much of modern civil litigation. A trial involving a single cause of action—misappropriation of trade secrets (plus a derivate conspiracy claim)—has resulted in an appeal raising numerous issues that span the lifecycle of the lawsuit: jurisdiction; preemption; federal contracting regulations; expert testimony on damages; and jury instructions.
Jefferson v. Certain Underwriters at Lloyds visited the intricate rules surrounding appellate review of remand orders. Here: “Dismissals of non-diverse parties allow for the exercise of diversity jurisdiction, and the propriety of remand in a properly removed case is judged on the basis of the district court’s jurisdiction over the claims remaining at the time of remand, not the time of removal.” Accordingly, “the district court had no discretion to remand this case if the remaining parties were diverse at the time of removal.” No. 15-30211 (Aug. 15, 2016, unpublished).
In Wright v. ANR Pipeline, the Fifth Circuit concluded that the plaintiff had not stated a plausible claim against a (nondiverse) employee of a pipeline company, and affirmed the remand of the matter to state court. It changed the disposition of the merits, however, reminding that because the improper joinder “inquiry does not concern the merits, where the court determines that defendant has been improperly joined and should be dismissed, that dismissal must be without prejudice.” No. 15-30741 (June 14, 2016, unpublished).
The plaintiff in Watson v. City of Allen sued, in Texas state court, several Texas cities about the operation of their “red light camera” programs.No. 15-10732 (May 5, 2016). The cities removed based on his RICO claim and CAFA. Plaintiff then dropped the RICO claim and sought remand based on CAFA’s “local controversy” and “home state” exceptions. The district court kept the case, finding it untimely as to CAFA, finding supplemental jurisdiction over the remaining state-law claims, and dismissing many claims for lack of standing. The Fifth Circuit reversed, concluding:
- The 30-day deadline in 28 U.S.C. § 1447(c) does not apply to CAFA mandatory abstention provisions, since it “does not deprive federal courts of subject matter jurisdiction, but rather, acts as a limitation upon the exercise of jurisdiction granted by CAFA.”
- The CAFA motion was filed within a reasonable time of removal, when “[a]ll indications are that [Plaintiff] acted diligently to gather evidence,” and because “fifty-two days is simply not a very long time.”
- The “home state” exception applied because “[t]his suit’s primary thrust is an attempt to declare unconstitutional red light camera scheme,” meaning that the State of Texas and its municipalities were the “primary defendants,” and not the companies hired to carry out the program.
- The district court should have declined to exercise supplemental jurisdiction, since “Texas courts have a strong interest” in the remaining issues and the plaintiff’s “motion to amend . . . to delete the federal claims is not a particularly egregious form of forum manipulation, if it is manipulation at all.”
Alleging that a toe joint implant did not work properly, Flagg sued “Manufacturing Defendants” (who built the implant) and “Medical Defendants” (who surgically installed it in Flagg’s foot.) The Manufacturing Defendants were diverse from Flagg, a Louisiana citizen, while the Medical Defendants were not.
Affirming the district court while reversing the panel, an 11-4 en banc opinion holds “the plaintiff had improperly joined the non-diverse defendants because [he] has not exhausted his claims against those parties as required by statute.” That Louisiana statute requires review by a “medical review panel” before suit is filed against a health care provider; the Fifth Circuit concluded that pursuant to it, “there is no doubt that the state court would have been required to dismiss the Medical Defendants from the case,” as no such review had occurred at the time of removal. A vigorous dissent raised questions about the Court’s standard for analyzing claims of improper joinder, as well as whether this kind of state statute (“a non-adjudicative, non-comprehensive, waivable process since concluded in this case”) was a proper foundation for an improper joinder claim. Flagg v. Stryker Corp., No. 14-31169 (March 24, 2016) (en banc).
Collins challenged bankruptcy court jurisdiction over “illusory indemnity and contribution claims” that he alleged had no conceivable effect on the bankruptcy estate due to their lack of merit. The Fifth Circuit rejected his argument: “Both the Supreme Court and this court have gravitated away from conflating jurisdiction and merits, and Collins’s proposed standard results in exactly that conflation.” The Court also noted that the claims, based on a principal’s alleged commitment to indemnify its agent, were not “wholly insubstantial and frivolous” on their merits. Collins v. Sidharthan, No. 14-41226 (Dec. 15, 2015).
The defendants in Bartel v. Alcoa Steamship Co. sought to remove three Jones Act cases to federal court under the Federal Officer Removal Statute, 28 U.S.C. § 1442(a)(1). While each of the cases involved a United States Naval Ship (one owned by the Navy but operated by civil contractors), “no evidence show[ed] that the government actually exercised continuing oversight over operations aboard ship,” meaning that “the Federal Officer Defendants operated the vessels in a largely independent fashion and, at a minimum, were free to adopt the safety measures the plaintiffs now allege would have prevented their injuries.” Accordingly, the Fifth Circuit affirmed the remand of the cases. No. 15-30004 (Oct. 19, 2015). [As a procedural note, those defendants had already been dismissed, but their dismissal did not affect the analysis of whether removal was proper at the time it occurred.]
A prospective plaintiff in a medical malpractice case in Louisiana must submit the claim to a medical review panel before filing suit. When suit is filed before the panel is done, district courts have divided on whether an in-state defendant is “improperly joined” for purposes of a diversity analysis in a removal. In Flagg v. Stryker Corp., the Court concluded that such a defendant is not improperly joined, finding that the panel did not actually adjudicate the claim, and that the panel process could be waived by the parties. A dissent reasoned that the Louisiana statute was analogous to federal statutes where thee court had found improper joinder in similar situations. No. 14-31169 (Sept. 4, 2015).
A medical group sued a payor for underpayments. The payor removed under ERISA complete preemption, contending that “about 98% of [Plaintiff’s] claims are claims for ERISA plan benefits.” The district court kept the case and entered judgment for the payor; the Fifth Circuit reversed: “a claim that implicates the rate of payment as set out in the Provider Agreement, rather than the right to payment under the terms of the benefit plan, does not run afoul of [Aetna Health, Inc. v. Davila, 542 U.S. 200 (2004)] and is not preempted by ERISA.” Kelsey-Seybold Medical Group v. Great-West Healthcare of Texas, No. 14-20506 (Aug. 10, 2015, unpublished).
SMI alleged ten causes of action, claiming that the defendants “had stolen both technical and business trade secrets related to VaultWorks,” a software program that helps banks manage their cash inventories. Spear Marketing, Inc. v. Bancorpsouth Bank, No. 14-10753 (June 30, 2015). A series of unfortunate events for SMI ensued:
1. Defendants removed on the grounds of complete preemption under the copyright laws. Acknowledging a lack of Fifth Circuit precedent on the specific issues in this case, as well as a split among other circuits, the Court found that “the technical trade secrets found within VaultWorks fall within the subject matter of copyright,” and that SMI’s Texas Theft Liability Act claim — and to the extent it involved intangible assets, its conversion claim – – were preempted.
2. SMI’s post-removal amendment to drop the key language for preemption failed because “jurisdictional facts are determined at the time of removal, and consequently post-removal events do not affect that properly established jurisdiction.” The Court concluded that “SMI has conflated the question whether the initial removal was proper . . . with the question whether the district court should, in its discretion, remand the case when the federal claims disappear as the case progresses.”
3. The remaining claims — trade secret misappropriation, in particular — failed for a lack of proof that the defendants actually used the information in question.
A shipbuilder, under contract to the federal government, sought to remove an asbestos claim to federal court under the “Federal Officer Removal Statute,” 28 U.S.C. § 1442. The Fifth Circuit concluded that the shipbuilder was acting at the direction of the federal government, but that the plaintiff’s pleading did not establish a link between his alleged exposure and the shipbuilder’s boat (a seemingly fundamental causation problem, but not implicated at this initial procedural stage). Wilde v. Huntington Ingalls, Inc. (June 19, 2015, unpublished).