Objectively unreasonable removal

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).

Jurisdiction over remand order

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).

No foreclosure, ergo no wrongful foreclosure

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).

Waiver of removal rights – law’s the same –

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.

Copied right, but not copyright.

copyright_symbol_9The plaintiff in GlobeRanger Corp. v. Software AG won a $15 million judgment for misappropriation of trade secrets. The Fifth Circuit affirmed, holding:

  1. 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.”
  2. 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.”
  3. 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.

Removal, remand, and post-removal developments

remove stampJefferson 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).

Remanded, to fight another day

RemandIn 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).

A removal that ran the red light

red light cameraThe 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:

  1. 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.”
  2. 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.”
  3. TexasBarToday_TopTen_Badge_SmallThe “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.
  4. 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.”

Improper joinder clarified, maybe.

joinderAlleging 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).

When is a claim illusory?

illusionistCollins 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).

Anchors aweigh, to state court

navy2in3The 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.]

An exhausting look at improper joinder

LA flagA 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).

ERISA allows many removals, but not this one

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).

Trade secret tactics

copyrightSMI 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.

No “federal officer” removal for government contractor

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).

Don’t forget subject matter jurisdiction . . . UPDATED

The defendants in a wrongful foreclosure case removed and the district court dismissed the borrower’s claims on the pleadings. The Fifth Circuit reversed for jurisdictional reasons.  Smith v. Bank of America, No. 14-50256 (revised March 20, 2015, unpublished).

As to diversity jurisdiction, which was based on improper joinder of several defendants, the Court reminded: “[W]hen confronted with an allegation of improper joinder, the court must determine whether the removing party has discharged its substantial burden before proceeding to analyze the merits of the action.”

What is an objectively reasonable removal?

The issue in Omega Hospital LLC v. Louisiana Health Service & Indemnity was whether the defendant (also known as Blue Cross Blue Shield of Louisiana), had an objectively reasonable basis for removal.  No. 13-31085 (Nov. 18, 2014, unpublished).  Some of the Blue Cross insureds at issue were federal employees covered by a plan overseen by the U.S. Office of Personnel Management.  The Fifth Circuit reversed an award of attorneys fees against Blue Cross, noting “case law arguably supporting Blue Cross, and the absence of a ruling from this court,” and thus concluding: “We cannot say that Blue Cross lacked a reasonable belief in the propriety of removal” under the “federal officer” statute, 28 U.S.C. § 1442(a)(1).

Some jurisdiction, but not much.

The Fifth Circuit withdrew its original opinion in Scarlott v. Nissan North America to issue a revised opinion on rehearing.  No. 13-20528 (Nov.10, 2014).  The Court did not materially change its earlier holding that the amount-in-controversy requirement for diversity jurisdiction was not satisfied, or its disposition by a remand to the district court for purposes of remand to state court.  The Court added discussion — and a dissent — about how the district court should handle a sanctions award on remand.  The plurality simply said: “In light of our holding that the district court did not have jurisdiction over this case, the district court should reconsider whether to award attorneys’ fees and costs to the defendants; and if the court decides that attorneys’ fees and costs are still appropriate, the court should reconsider the amount of the award.”  The dissent would vacate the award; among other points, it made this basic one: “By its very nature, section 1927 involves assessing the merits of the claim, which establishes the inappropriateness of the district court’s order in light of the lack of jurisdiction.”

Remand Orders Not Reviewable. Except When Reviewable.

Vaillancourt sued a mortgage servicer, the substitute trustee for a foreclosure, and her husband.  The defendants removed, claiming fraudulent joinder of the in-state defendants, and the district court rejected that argument and remanded.  In so doing, it declined to exercise supplemental jurisdiction over the accompanying state-law claims.   Vaillancourt v. PNC Bank, N.A., No. 14-40303 (Nov. 5, 2014).  A good exam question for a Federal Courts class resulted.

Because the district court based its remand order on its decision to decline supplemental jurisdiction, the Fifth Circuit (under its prior precedents) had appellate jurisdiction over that ruling, which necessarily included review of the predicate ruling about original jurisdiction. The Court noted that this result “is in some tension with 28 U.S.C. § 1447(d)’s command that ‘[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise,’ which the Supreme Court has construed to insulate from appellate review remands made on the basis of subject matter jurisdiction.”

The Court went on to reverse the ruling about fraudulent joinder, finding no cognizable claim pleaded against the trustee or the husband.  Accordingly, because “‘the district court had diversity jurisdiction over the state law claims at the time of remand,’ and ‘the exercise of that jurisdiction is mandatory,'” it reversed the remand order.

Texas state court: $3 million default taken at 10:15 AM.

In somewhat quirky language, the Texas Rules of Civil Procedure set this deadline to answer a lawsuit: “[O]n or before 10:00 a.m. on the Monday next after the expiration of twenty days after the date of service.”  Despite the specific time stated, attorneys often calendar only the answer day, reasoning that a default judgment is unlikely in the space of a few hours.  That practice failed in G&C Land v. Farmland Management Services, in which the plaintiff obtained a default judgment for over $3,000,000 at 10:15 on the critical Monday.  No. 14-10046 (5th Cir. Sept. 23, 2014).

Plaintiff alleged fraud claims about the costs of an agricultural lease on a West Texas farm; the judgment granted recovery on those claims and trebled the damages under the DTPA.  Two hours later, the defendant removed and then sought to set aside the default judgment.  The district court ultimately granted that motion, along with a summary judgment for the defendant on the merits, and the Fifth Circuit affirmed.

Whilte the Fifth Circuit’s opinion is short and unpublished, the district court opinion (page 31 of the attached) goes into substantial detail about the default judgment.  It found a lack of willfulness by the defendant, a lack of prejudice to the plaintiff, and meritorious defenses.  As to willfulness, the district court noted that “fault is attributed only to Farmland’s counsel,” and held: “There is no dispute that Farmland failed to file an answer or remove before the deadline to answer in state court, which failure is attributed to the negligence of Farmland’s counsel.  Yet, such negligence does not amount to willfulness . . . “   It also noted that while Farmland had timely answered after removal in accordance with the Federal rules, “this alone does not excuse Farmland’s failure to timely answer in state court.”

The federal courts’ decisions to set aside the default judgment are clearly correct – the (affirmed) summary judgment shows that the claim lacked merit, and plaintiff was not prejudiced by having to address the merits instead of resting on a 15-minute “gotcha.”  And as to the deadline, the opinions do not address Rule 5 of the Texas Rule of Civil Procedure, which provides:  “If any document is sent to the proper clerk by first-class United States mail in an envelope or wrapper properly addressed and stamped and is deposited in the mail on or before the last day for filing same, the same, if received by the clerk not more than ten days tardily, shall be filed by the clerk and be deemed filed in time (emphasis added).”  A serious argument says that the state court’s speedy grant of a default judgment did not allow Rule 5 a chance to function as intended.

Nevertheless, the district court faulted defense counsel for not answering before 10:00, and used the word “negligence” to describe what happened.  Had the facts been different – a stronger claim, a change of position in reliance on the judgment – the decision could have been closer and counsel’s situation would have become more awkward.  In light of the facts of this case, defense counsel should be mindful of the 10:00 AM deadline in the rules, and factor it into their calendaring system.

A similar article about this case appeared in a recent Texas LawBook.

Can’t remove issues about workers compensation

The issue does not come up every day, but it can be critical when it surfaces.  “A civil action in any State court arising under the workmen’s compensation laws of such State may not be removed to any district court of the United States.”  28 U.S.C. § 1445(c).  The defendant argued for removal based on common-law bad faith claims — an argument that once worked — but amendments to Texas law meant that “claims of bad faith no longer arise outside of the workers’ compensation laws.”  Trahan v. Liberty Mutual Ins. Co., No. 13-20717 (June 10, 2014, unpublished) (citing Tex. Mut. Ins. Co. v. Ruttiger, 381 S.W.3d 430 (Tex. 2012)).  Accordingly, the case returned to state court.

A “federal question,” but not a federal question.

“The central issue in this case is whether a district court has jurisdiction over an inventorship dispute where the contest patent has not yet issued.”  Camsoft Data Systems v. Southern Electronics Supply, Inc., No. 12-31013 (June 19, 2014).  After a removal based on patent jurisdiction, the plaintiff amended to add federal antitrust and RICO claims.  The Fifth Circuit held: “where — as here — a plaintiff [timely] objects to jurisdiction at removal, that plaintiff does not waive her jurisdictional arguments via post-removal amendment to her complaint.”  Then, as to patent jurisdiction — acknowledging some uncertainty in the law on this specific topic — the Court found that the Patent & Trademark Office had “sole discretion” over a pending patent, not the federal courts. Returning to the other federal claims, because those claims had not proceeded to trial, a potential argument against remand based on Caterpillar, Inc. v. Lewis, 519 U.S. 61, was unavailable.  Accordingly, the district court’s order of remand to state court was affirmed.

Federal question? Where to look . . .

In the published opinion of Davoodi v. Austin ISD, the Fifth Circuit revisited the recurring question of how substantial a federal question must be to create jurisdiction (and thus, allow removal). No. 13-50823 (June 16, 2014).  Notably, the Court did not analyze whether the plaintiff stated a claim under federal law in the causes of action alleged in his pleading.  Rather, the decision turns on how much the pleaded facts involved violation of federal law.  This focus contrasts with the framework of Howery v. Allstate Ins. Co., which rejected jurisdiction because “[f]rom its context, it appears that Howery’s mention of federal law merely served to describe types of conduct that violated the DTPA, not to allege a separate cause of action under the FCRA,” and because a violation of federal law was not an “essential element” of Howery’s state law claims.  243 F.3d 912, 918-919 (5th Cir. 2001).  

Davoodi sued in Texas state court, alleging state law claims for “national origin discrimination” and intentional infliction of emotional distress, and a claim for “retaliation” without a specified basis in state or federal law. The first of the two paragraphs in the “Facts” section of the petition said:

“On or about June 2, 2011 Plaintiff filed a Charge of Discrimination with the EEOC and the Texas Human Rights Commission.  (See Charge attached as Exhibit ‘A’ and fully incorporated herein).  This charge alleged that Defendant discriminated against Plaintiff based on his National Origin (Iranian).  On February 3, 2012 the EEOC issued a Dismissal and Notice of Rights.  The Texas Human Rights Commission did not issue a dismissal/right to sue.”  

The Court noted that the incorporation of the Charge made it “part of [plaintiff’s] complaint for all purposes,” and created federal jurisdiction because the Charge contained the averment and claim: “I have been and continue to be discriminated against, in violation of Title VII of the 1964 Civil Rights Act, as amended, [and] the Texas Commission on Human Rights Act, as amended, because of my national origin (Iranian).”  The Court remanded as to the Rule 12 dismissal of the case, however, to allow the plaintiff a chance to replead under Lozano v. Ocwen Federal Bank, 489 F.3d 636 (5th Cir. 2007).

The movant’s Rule 12 arguments, as reflected in the appellate record excerpts, address whether the plaintiff’s pleading stated a claim for “retaliation” under either state or federal law.  The Fifth Circuit did not engage the basis for that claim in its analysis of federal question jurisdiction, focusing entirely on the fact allegations described above and the statement made to the EEOC.  Allstate can be reconciled with Davoodi  because the mention of federal law in the Allstate pleading is substantially smaller, as a percentage of the overall allegations.  That analytical framework — different than Allstate‘s focus — may invite new removals based on a “percentage-based” analysis of a pleading’s factual allegations.

How much federal question allows removal

In the recent case of French v. EMC Mortgage Corp., No. 13-50417 (April 29, 2014, unpublished), these allegations were deemed to “reference[] the FDCPA by way of asserting a cause of action under this federal statute,” and thus allowing removal:

“V.  ILLEGAL MORTGAGE SERVICING AND DEBT COLLECTION PRACTICES.

. . .

Specifically in collection calls and notices, monthly statements, payoff statements, foreclosure notices, and otherwise, EMC routinely makes misrepresentations to borrowers about their loans, including: [6 topics]

. . .

Plaintiffs submit that Defendant EMC’s conduct in this matter is in direct violation of the Texas Fair Debt Collection Practices Act, the Federal Fair Debt Collection Practices Act and the above referenced stipulated injunction.”

This case rested on Howery v. Allstate Ins. Co., 243 F.3d 912 (5th Cir. 2001), in which the following allegations did not create federal question jurisdiction, because “[f]rom its context, it appears that Howery’s mention of federal law merely served to describe types of conduct that violated the DTPA, not to allege a separate cause of action under the FCRA”:

The acts, omissions, and other wrongful conduct of Allstate complained of in this petition constituted unconscionable conduct or unconscionable course of conduct, and false, misleading, or deceptive acts or practices. As such, Allstate violated the Texas Deceptive Trade Practices Act, Sections 17.46, et seq., and the Texas Insurance Code, including articles 21.21, 21.21-1, 21.55, and the rules and regulations promulgated thereunder, specifically including 28 TAC Section 21.3, et seq. and 21.203.

Allstate’s destruction of [Howery’s] file … constituted a further violation of the Texas Deceptive Trade Practices Act, for which plaintiff sues for recovery. Allstate also engaged in conduct in violation of the Federal Trade Commission rules, regulations, and statutes by obtaining Plaintiff’s credit report in a prohibited manner, a further violation of the Texas Deceptive Trade Practices Act….

While these holdings are consistent, the line between them is only a few words in a lengthy pleading.  They underscore the importance of detail in considering whether removal is appropriate.

How to Have Your Case Removed

The unfortunate plaintiff in Robinson v. Wal-Mart Stores LLC argued that her state court petition referenced a $23,500 medical bill, which was in fact only $235. No. 12-41411 (April 9, 2014, unpublished).  The Fifth Circuit affirmed the denial of her motion to remand, reminding: “If at the time of removal it is facially apparent from the state-court petition that he amount in controversy exceeds $75,000, a plaintiff’s subsequent request to amend her petition to ‘clarify’ the amount in controversy cannot divest jurisdiction.”  The Court also observed: “In addition, prior to removal, Wal-Mart proposed to Robinson that she stipulate to no more than $75,000 in damages in exchange for not removing the case to federal court,” and that the plaintiff had declined to make that stipulation.

 

Finally, a remand.

In Haase v. Countrywide Home Loans, Inc., the district court dismissed the plaintiff’s RESPA claim, declined to exercise supplemental jurisdiction over the remaining state law claims, and remanded them to state court.  No. 12-20806 (April 9, 2014).  Appellees argued that “because this judgment remanded the remaining state claims to the state court without addressing their respective merits, it is not a final disposition of all claims in the case, and therefore not appealable under 28 U.S.C. § 1291.”  The Fifth Circuit disagreed, concluding that “as a practical matter, remands end federal litigation and leave the district court with nothing else to do.”  (applying Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (1996)).

 

CAFA jurisdiction continues after removal

The State of Louisiana sued several insurers, alleging it was the beneficiary of assignments made by the insured in return for help rebuilding after Hurricane Katrina.  The insurers removed to federal court under CAFA.  After extensive proceedings, the district courts ultimately severed the actions by individual policy and ordered remand to state court.  State of Louisiana v. American National Property & Casualty Co., No. 14-30071 (March 26, 2014).  The Fifth Circuit reversed because “at the time of removal, these claims clearly possessed original federal jurisdiction as an integrated part of the CAFA class action.”  Noting language in Honeywell International v. Phillips Petroleum that “a severed action must have an independent jurisdictional basis,” 415 F.3d 429, 431 (5th Cir. 2005), the Court limited that language as “appl[ying] only to severed claims that are based on supplemental jurisdiction.”

Now you’re time-barred, now you’re not.

Taylor sued his employer in state court for violations of Texas law.  Taylor v. Bailey Tool & Manufacturing Co., No. 13-10715 (March 10, 2014). Later, he amended his pleading to add federal claims.  Defendant removed and moved to dismiss on limitations grounds.  Under Texas law, Taylor’s new claims would not relate back because the original state law claims were barred by limitations when suit was filed.  Under Fed. R. Civ. P. 15(c), however, the claims would relate back because they “arose out of the conduct, transaction, or occurrence set out” in the original pleading.  Noting that Rule 81(c) says the Federal Rules “apply to a civil action after it is removed,” the Fifth Circuit concluded that they did not “provide for retroactive application to the procedural aspects of a case that occurred in state court prior to removal to federal court.”  Accordingly, it affirmed dismissal.

No party = No removal

Plaintiff Jongh sued “State Farm Lloyds” and Johnson, a local insurance adjuster, relating to the handling of her property insurance claim for storm damage.  Jongh v. State Farm Lloyds, No. 13-20174 (Feb. 20, 2014, unpublished).  State Farm answered and removed, arguing that (1) Johnson was improperly joined to destroy diversity; (2) Jongh had improperly named Lloyds, a separate entity; and (3) State Farm and Jongh were diverse.  The trial court ruled for the defendants after a 1-day bench trial.   The Fifth Circuit agreed with Plaintiff — who appears to have raised subject matter jurisdiction for the first time on appeal — that “State Farm never became a party in this action. Jongh did not  name State Farm as a defendant in her original petition; although it asserted in its answer and notice of removal that Jongh incorrectly named Lloyds as a defendant, State Farm did not move to intervene or otherwise request that the district court substitute it as the proper party in interest.”  The Court noted that Plaintiff, the “master of her complaint,” consistently asserted that her claim was against Lloyds and not State Farm.  The judgment was vacated and the case remanded.

No more jurisdiction.

A recurring issue in federal litigation arises from cases that “overstay their welcome” in the federal courthouse; for example, where only state law claims remain after dismissal of federal claims.  A variation of that situation arose in Energy Management Services LLC v. City of Alexandria, where a city sued its electricity provider.  After that litigation was removed to federal court, the city then removed a second suit, brought by its utility consulting firm, on the ground of supplemental jurisdiction — after the first case had been settled.  12-31184 (Jan. 9, 2014).  The remand order was certified for interlocutory appeal and the Fifth Circuit reversed, finding that there was no original jurisdiction over the second case as required by the removal statute.  The Court acknowledged that the district court could have continuing jurisdiction over matters related to the original settlement, which could potentially even extend to such matters involving third parties — but here, the second case had no connection to those settled matters.

Alien + Alien = Remand

Su, a citizen of Taiwan, served on the board of Vantage, an offshore drilling contractor. Vantage is incorporated in the Cayman Islands with its principal place of business in Texas.  Vantage sued Su in Texas state court for breach of fiduciary duty and related claims.   Su removed, remand was denied, and the district court certified the jurisdictional issue for interlocutory appeal.  Vantage Drilling Co. v. Su, No. 13-20379 (Jan. 7, 2014). The Fifth Circuit reversed and ordered remand, relying primarily upon  Chick Kam Choo v. Exxon Corp., 764 F.2d 1148 (5th Cir. 1985).  Section 1332(a)(2) requires complete diversity, and section 1332(c)(1) deems a corporation a citizen of “every State and foreign state” in which it is incorporated — thus, “there are aliens on both sides of the litigation, complete diversity is lacking, and there can be no diversity jurisdiction.”  Su argued that Choo could be read to allow federal jurisdiction to protect against local bias, but the Court rejected that argument as inconsistent with the statute.

CAFA reversal; not a “mass action”

Mississippi brought six parens patriae actions alleging inappropriate charges for credit card “ancillary services” in violation of state law.  Defendants removed under CAFA and on the ground of complete preemption, and the district court denied remand. Hood v. JP Morgan Chase & Co. (Dec. 2, 2013).  The Fifth Circuit reversed.  As to CAFA, it found that defendants (who have the burden) did not establish that any plaintiff had a claim of $75,000 – especially when Mississippi offered evidence that the average yearly charge at issue was around $100.  The Court also observed that the defendants likely had similar information in their records.  The Court acknowledged that federal usury laws have the effect of complete preemption, but found that the charges at issue in these cases could not be characterized as “interest” within the meaning of those laws.

Attorney immunity in wrongful collection case

In Ortega v. Young Again Products, the plaintiff sued a judgment creditor and its counsel, claiming that they took assets that belonged to him rather than the judgment debtor.  No. 12-20592 (Nov. 27, 2013, unpublished).  The Fifth Circuit recognized that Texas extends qualified immunity to claims by a third-party against an attorney for conduct requiring the “office, professional training, skill, and authority of an attorney.”  The focus is on the type of conduct, not its merit.  Accordingly, removal of the case was proper because the attorney was fraudulently joined, and dismissal for various reasons was affirmed.

No amendment to defeat remand motion

Moore sued PPG Industries and several local parties for injuries at a chemical complex; the defendants removed, arguing fraudulent joinder.  After some jurisdictional discovery, Moore sought to add three more local parties, and the district court denied him leave to do so.  Moore v. Manns, No. 12-31265 (Oct. 8, 2013). The Fifth Circuit affirmed, first reminding; “If after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State court”; accordingly, a district court should review such a proposed amendment “more closely than an ordinary amendment.”  Factors include the extent to which the amendment is solely for jurisdictional purposes, whether plaintiff was dilatory, and potential harm to plaintiff of not allowing the amendment.  Here, the Court agreed that the “general responsibilit[y]” for safety under which the new parties were sued did not trigger personal fault under Louisiana law, making the amendment tactical and impermissible.

Unreviewable remand order after joinder

In Fontenot v. Watson Pharmaceuticals, a long-running products liability and medical malpractice case about a transdermal pain patch, plaintiffs sought to add nondiverse health care providers to the case after removal.  No. 12-30711 (June 10, 2013).  The district court remanded pursuant to 28 U.S.C. § 1447(e).  The Fifth Circuit dismissed for lack of appellate jurisdiction, concluding that a remand for lack of subject jurisdiction was unreviewable under Thermtron just like a jurisdictional remand under 1447(c), and noting that all other circuits facing the issue reached the same conclusion.  The Court also found that the joinder ruling that led to the jurisdictional issue was unreviewable as a collateral order.

No jurisdiction, no ruling on the merits

Plaintiff sued for violations of Louisiana’s version of RICO; defendants removed and moved to dismiss.  The trial court said in part: “there is no standing, there is no jurisdiction and the court will grant the Motion to Dismiss pursuant to 12(b)(1).”  Cox, Cox, Filo, Camel & Wilson LLC v. Sasol North America, Inc., No. 12-31123 (May 24, 2013, unpublished).  The Fifth Circuit found error in dismissing with prejudice, noting that “to dismiss with prejudice under Rule 12(b)(1) is to disclaim jurisdiction and then exercise it.”  The Court also found it unclear whether the trial court had dismissed on constitutional standing grounds or standing under the racketeering statute, “[b]ut instead of rewriting the district court’s order to affirm on the merits,” it vacated and remanded for further proceedings consistent with its opinion.

Time-bar for Texas Constitution claim to nullify home equity loan

The borrowers in Priester v. JP Morgan Chase alleged two violations of the Texas Constitution about their home equity loan — not receiving notice of their rights 12 days before closing, and closing the loan in their home rather than the offices of a lender, attorney, or title company.  708 F.3d 667 (5th Cir. 2013).  A cure letter was not answered and they sued for forfeiture of interest and principal under the state constitution. The Fifth Circuit affirmed the dismissal of the claim under the Texas 4-year “residual” limitations period, finding that was the prevailing view of courts that had examined the issue, and disagreeing with a district court that had found no limitations period.  That court reasoned that a noncompliant home equity loan was void, but the Fifth Circuit concluded that the cure provision in the Constitution instead made it voidable. Tolling doctrines did not apply since it was readily apparent where the closing occurred.  The Court also affirmed the denial of a motion for leave to amend to add new claims and non-diverse parties, reviewing the factors for both aspects of such a motion.

Removal allowed based on improper joinder

The plaintiff in Akerblom v. Ezra Holdings sued several companies for damages arising from their business dealings.  No. 12-20182 (Jan. 28, 2013, unpublished).  Federal jurisdiction turned on whether one defendant, called “Subsea” in the opinion, was improperly joined.  To determine whether “the defendant has demonstrated that there is no possibility of recovery by the plaintiff against an in-state defendant,” the Court reminded that the focus is on pleadings at the time of removal — any later pleadings or affidavits can only “amplify or clarify facts alleged in the state-court complaint.”  Id. at 7.  Applying Texas’s “fair and adequate notice” standard for proper pleading, the Court found that the fraud claim against Subsea failed to say that misrepresentation Subsea allegedly made, or who from Subsea allegedly made it.  Id. at 10.  There were also substantive issues as to whether several alleged representations were actionable.  The Court’s focus on “what” and “who” under Texas law echoes recent opinions under the federal Twombly standard.

“Any Hurricane Ike cases” includes class action

The parties’ agreement said: “State Farm agrees not to remove any Hurricane Ike cases filed by your firm to Federal Court.”  Horn v. State Farm Lloyds, No. 12-40410 (Dec. 21, 2012).  Roughly a year later, the firm filed a 100,000-member class action against State Farm, who removed the case.  State Farm argued that the agreement was intended to resolve large numbers of individual claims and extending it to a class action was not consistent with the specific consideration given.  The Fifth Circuit affirmed the remand order, finding that the terms “any” and “cases” were not ambiguous.  The Court’s emphasis on contract wording, especially in the insurance context, is consistent with other recent cases, see, e.g., Ballard v. Devon Energy, 678 F.3d 360 (5th Cir. 2012).

CAFA jurisdiction over “mass action”

In State of Mississippi v. AU Optronics Corp., the Fifth Circuit reversed a remand order, finding that a suit brought to protect consumers by the Mississippi Attorney General was a “mass action” under CAFA. 701 F.3d 796 (2012).  The Court reviewed the pleading, the relevant Mississippi statutes, the general contours of parens patriae law, and its prior case of Louisiana ex rel Caldwell v. Allstate Insurance, 536 F.3d 418 (5th Cir. 2008), which found that policyholders rather than the Louisiana AG were the real parties in interest in an analogous suit.  Based on this analysis, the Court concluded that the numerical requirements of CAFA for a mass action were satisfied, and the “general public policy” exception in the statute was not.  A concurrence endorsed the outcome but questioned the framework used to analyze the statutory exception.

Attorneys fee award affirmed on remand ruling

American Airlines v. Sabre affirmed an award of $15,000 in attorneys fees in connection with a remand order. No. 11-10759 (Sept. 5, 2012). The Fifth Circuit found that American’s antitrust claims did not create a substantial federal question within the meaning of Grable & Sons Metal Products v. Darue Engineering, 545 U.S. 308 (2005); thus, the trial court did not abuse its discretion with this fee award.  Id. at 5.  The Court also reviewed prior circuit precedent about the interplay of federal and state antitrust law in the removal context and found it consistent with affirmance here.    

Preemptive reach of Copyright Act

Globeranger Corp. v. Software AG involved Texas state law claims about the development of a radio frequency identification system.   No. 11-10939 (Aug. 17, 2012).  The defendants removed and obtained dismissal on the grounds of Copyright Act preemption.  The Fifth Circuit agreed that section 301(a) of the Act creates complete preemption, and on the applicable test: “whether [the claim] falls ‘within the subject matter of copyright'” and whether it “protects rights that are ‘equivalent'” to those of a copyright.  Id. at 6 (citing Carson v. Dynegy, 344 F.3d 446, 456 (5th Cir. 2003)).  After through review of prior cases, the Court held that the conversion claim was likely preempted (thereby maintaining federal jurisdiction), but that the general basis for the claims included business practices excluded from copyright protection, making dismissal at the Rule 12 stage inappropriate.  Id. at 10-12.

SLUSA does not preclude state class actions in Allen Stanford litigation

In a detailed opinion that surveyed differing Circuit opinions on several topics, the Court found that “the purchase or sale of securities (or representations about the purchase or sale of securities) is only tangentially related to the fraudulent scheme alleged” in state class actions about the Allen Stanford scandal.  Roland v. Green (March 19, 2012).  Therefore, the Securities Litigation Uniform Standards Act (SLUSA) did not preclude those actions.  The opinion will likely have a significant influence on future cases about the scope of SLUSA in the Fifth Circuit.

Remand unreviewable even if defect raised > 30 days from removal

Bepco v. Santa Fe Minerals presented the appeal of a remand order, which was based in part on a contractual waiver issue (reviewable) and in part on a timeliness issue (not generally reviewable).  No. 11-30986 (March 15, 2012).   While the timeliness issue was arguably not presented within 30 days of the removal, the Court held: “Whether a removal defect is not raised by a plaintiff in the motion to remand, or is raised more than 30 days after removal, does not matter.  . . . [W]hat does matter is the timing of the remand motion.”  Op. at 8.  Because the motion itself was timely, and thus satisfied the statutory time limit, and because the remand order relied on a permissible statutory ground for remand, the Court dismissed the appeal for lack of appellate jurisdiction.  Id.

Removal after judgment

The United States removed a case after entry of a default judgment against two doctors associated with the federal government (and after their motion for new trial was overruled by operation of law under Texas rules).  Oviedo v. Hallbauer (revised October 14, 2011)  After reviewing several potentially applicable removal statutes, the Court held: “The weight of authority thus holds that, by the time the government filed its notice of removal in this case, there was no pending case to remove, inasmuch as nothing remained for the state courts to do but execute the judgment.”  (Op. at 7)  Given this conclusion about the timeliness of the removal, the Court also rejected an argument based on the Federal Tort Claims Act that the state court may have lacked jurisdiction over this case.  (Op. at 8-10)