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 Kelsey-Seybold Medical Group v. Great-West Healthcare of Texas, No. 14-20506 (Aug. 10, 2015, unpublished).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).
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.”
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).
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.”
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.
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.
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.
“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.
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.