Summary
remanding action to state court where court became aware that jurisdiction did not exist at the time of removal; prior to remand, diversity jursidiction had been perfected by the stipulated dismissal of non-diverse defendant
Summary of this case from In re AT&T Fiber Optic Cable Installation Litigation, (S.D.Ind. 2001)Opinion
Case No. C99-04700 TEH
March 1, 2001
STIPULATION AND ORDER REGARDING DISCOVERY
Defendant Monsanto having raised, and the Court having considered the potential remand of this matter, and this matter having been set for trial in the United States District Court in and for the Northern District of California for December 19, 2000, and with discovery herein now substantially completed, the parties hereby stipulate to the following clarification for the record regarding the status of the outstanding discovery in this matter. The parties intend for this stipulation and all other discovery orders of the Court to be enforced throughout the duration of this litigation, including post-remand. Good cause herein exists for the court to approve this stipulation and order regarding discovery. The parties hereby agree and this Court hereby orders that discovery is and has been closed in this action for all purposes except for the following:
A. The continued deposition of Carl Randall Bridges, pursuant to a new state court subpoena to be issued, with the Defendant Monsanto Company's counsel allowed five (5) hours of examination and Mr. Rudow's counsel allowed two (2) hours of examination. All questioning of Mr. Bridges shall relate to the documents previously produced by Mr. Bridges, as counsel have already had the opportunity to fully depose Mr. Bridges with regard to all other subjects related to this litigation.
B. The completion of expert witness disclosures and discovery, which shall be governed by the provisions of California law upon remand.
C. Documents from Central Garden Pet are still outstanding and to be produced pursuant to the previously issued subpoena, which may, if the documents are not produced prior to remand, need to be re-issued under California law.
D. Monsanto shall provide to plaintiff documents responsive to Request for Production of documents Nos. 44-46 as soon as practicable and in any case no later than the State Court's first status conference.
E. Monsanto shall provide to plaintiff a further response to plaintiff's Request for Production of Documents No. 2 to reflect Monsanto's inability to locate the documents requested therein, as clarified in plaintiff's counsel's December 7, 2000 correspondence.
F. Monsanto has provided to plaintiff declaration(s) from its custodian of records authenticating as its business records, as defined in California Evidence Code section 1271, the following documents produced by Monsanto: MONT 1-32, 35-39, 45-87, 90-168, 173-1855, 1859-1943, 3504-4376, and any subsequently produced documents which constitute Monsanto's business records. Monsanto has provided declaration(s) from its custodian of records providing basic authentication for the following documents produced by Monsanto: MONT 33-34, 42-44, and 3471-3503.
INTRODUCTION
This matter comes before the Court following Defendant's motion for summary judgment which revealed, for the first time, a lack of federal subject matter jurisdiction at the time Defendant removed the action from state court. Although grounds for diversity jurisdiction were established after removal, this Court is convinced that removal jurisdiction must be founded on existing federal subject matter jurisdiction at the time of removal. Having determined that the Court lacks jurisdiction over the matter, it is hereby remanded to state court. As an ancillary matter, the Court grants Plaintiff's request for leave to file a motion for an award of costs and fees pursuant to 28 U.S.C. § 1447(c).
BACKGROUND
Plaintiff, Robert Rudow, is a former employee of Defendant, Monsanto Company. He is suing Monsanto for damages arising out of his termination and other job-related incidents. Plaintiff originally filed his complaint in state court. Defendant removed the action to federal court, pursuant to 28 U.S.C. § 1441, on October 22, 1999, asserting two grounds for federal subject matter jurisdiction. First, Defendant asserted that federal question jurisdiction, pursuant to 28 U.S.C. § 1331, existed because Plaintiff's claims necessarily arise under preemptive federal law, namely, the Employee Retirement Security Act of 1974 ("ERISA"). Second, Defendant asserted that diversity jurisdiction, pursuant to 28 U.S.C. § 1132(a)(1), existed because Plaintiff, a resident of California, and Defendant Monsanto, a Delaware Corporation, were diverse parties, while Defendant Neal, a resident of California, was fraudulently joined in order to defeat diversity. By order dated February 11, 2000, this Court ruled that defendant Neal was not fraudulently joined; thus, at the time of removal, complete diversity did not exist among the parties. Subsequently, on October 16, 2000, Neal was dismissed with prejudice from this action by stipulation of the parties.
On October 30, 2000, the Court denied Defendant's motion for summary judgment based on ERISA preemption, concluding that ERISA does not apply to Plaintiff's claims. As a result, federal question jurisdiction was lacking. If federal subject matter still existed, it could only be on the basis of the post-removal dismissal of Defendant Neal.
At oral argument on the motion for summary judgment, the Court queried the parties whether, in their view, the law provided for this Court to retain jurisdiction over the matter. Defendant asserted that the matter must be remanded to state court because neither diversity nor federal question jurisdiction was present at the time of removal. Plaintiff disagreed, claiming that jurisdiction was proper because the dismissal of Defendant Neal created complete diversity between Plaintiff and the only remaining Defendant, Monsanto Company. The parties then submitted letter briefs addressing the issue of whether a post-removal cure of diversity jurisdiction is sufficient to provide current jurisdiction or whether the case must be remanded because at the time of removal there was neither diversity jurisdiction nor federal question jurisdiction.
LEGAL STANDARD
A defendant in state court may remove an action to federal court so long as the action could have originally been filed in federal court. See 28 U.S.C. § 1441(b); City of Chicago v. International College of Surgeons, 522 U.S. 156, 163 (1997). Removal can be based on diversity jurisdiction and on federal question jurisdiction. See 28 U.S.C. § 1441(b). If at any time before final judgment it appears that the district court lacks subject matter jurisdiction because of improvident removal, the case shall be remanded to state court. See 28 U.S.C. § 1447(c) ; Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1065 (9th Cir. 1979). Even if no party questions the court's subject matter jurisdiction, the court is under a duty to raise the issue sua sponte. See Harris v. Provident Life And Accident Ins. Co., 26 F.3d 930, 931 (9th Cir. 1994). The removal statute is construed restrictively; doubts about removal are resolved in favor of remanding the case to state court. See Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). The propriety of removal is determined by asking whether the action could have been brought in federal court at the time of removal, i.e., given the parties involved in the action, and the causes of action asserted in the complaint, whether there was an actual basis for original federal subject matter jurisdiction when the defendant removed the action. See Caterpillar, Inc. v. Lewis, 519 U.S. 61, 62 (1996); Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1065 (9th Cir. 1979); United Food Commercial Workers Union, Local 919 v. Centermark Properties Meriden Square, Inc., 30 F.3d 298, 301 (2d Cir. 1994). In the case of removal based on diversity jurisdiction, there must be complete diversity at the time the action was filed and at the time of removal. United Food, 30 F.3d at 301. Although it is error for a district court to exercise jurisdiction over an improvidently removed state court action, where grounds for federal subject matter jurisdiction exist at the time of trial or judgment, a reviewing court will treat as cured the jurisdictional defect existing at the time or removal. See Caterpillar, 519 U.S. at 62-63; Grubbs v. General Elec. Credit Corp., 405 U.S. 699, 702 (1972); Parrino v. FHP, Inc., 146 F.3d 699, 703 (9th Cir.), cert. denied, 525 U.S. 1001 (1998). A district court's order remanding an action to state court for lack of federal subject matter jurisdiction is not reviewable on appeal. See 28 U.S.C. § 1447(d); Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 127 (1995).
28 U.S.C. § 1447(c) provides in relevant part: "If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded."
DISCUSSION
This matter is before the Court in an unusual posture. Plaintiff, who has never opposed removal of his case, is prepared to try the matter in federal court. In contrast, Defendant argues that its improvident removal of the action requires return to state court, lest any judgment rendered in this Court be overturned on appeal on jurisdictional grounds.
Although the parties disagree with respect to the propriety of current federal subject matter jurisdiction, they do agree that the Supreme Court's most recent decision on the subject of removal jurisdiction, Caterpillar, Inc. v. Lewis, 519 U.S. 61 (1996), bears on the issue of whether this action must be remanded to state court. In Caterpillar, the defendant removed to federal court, even while another defendant was involved in the case whose citizenship was the same as the plaintiff. The non-diverse defendant eventually settled with the plaintiff and was dismissed from the case, thus creating complete diversity. In reliance on this change in diversity among the parties, the district court denied the plaintiffs motion to remand. The matter then went to jury trial and final judgment. On appeal, the Sixth Circuit Court ruled that because there was no basis for federal subject matter jurisdiction at the time of removal, the judgment must be reversed and the action remanded to state court for a new trial. The Supreme Court reversed. The Court observed that it was indeed error for the district court to exercise jurisdiction over the case because diversity was absent at the time of removal. Caterpillar, 519 U.S. at 70. Nevertheless, because the jurisdictional flaw was cured and the matter had gone to final judgment, an "overriding consideration" trumped Plaintiff's meritorious argument that the removal rules were violated: "Once a diversity case has been tried in federal court, with rules of decision supplied by state law . . . considerations of finality, efficiency, and economy become overwhelming." Caterpillar, 519 U.S. at 75. The Court then held that (1) when a case is removed to federal court without grounds for federal subject matter jurisdiction at the time of removal, and (2) the jurisdictional defect is cured before the case goes to final judgment, and (3) the case goes to final judgment, then (4) a reviewing court should treat the jurisdictional defect as cured and allow the district court's judgment to stand. Id. at 76-77.
Plaintiff does not dispute the general rule that the propriety of normal jurisdiction is determined by assessing whether the action could have been brought in federal court at the time of removal. Instead, Plaintiff first argues that Caterpillar stands for the following proposition: a district court, which recognizes before trial or final judgment that an action was removed improvidently and without jurisdiction from state court, may retain the action, provided grounds for federal subject matter jurisdiction have arisen in the interim.
Plaintiff has cited no authority interpreting Caterpillar in the fashion he asserts. In contrast, there is Ninth Circuit precedent which cuts against Plaintiff's interpretation. In Parrino v. FHP, Inc., 146 F.3d 699, 703 (9th Cir.), cert. denied, 525 U.S. 1001 (1998), the plaintiff argued on appeal that the district court lacked subject matter jurisdiction because one of the two defendants joined the removal petition later than the deadline set in the removal statute. The Court of Appeals treated the procedural defect as cured, relying on Caterpillar. 146 F.3d at 703. The dissent argued that the decision in effect authorized the district courts to disregard the procedural requirements for removal. Id. at 707. In response, the majority replied, "`[t]he procedural requirements for removal remain enforceable by the federal trial court judges to whom those requirements are directly addressed.' We understand Caterpillar merely to permit the Court of Appeals to treat as cured a procedural defect in the removal process corrected before entry of judgment." Id at 703 n. 1, citing Caterpillar, 519 U.S. at 77 (emphasis added).
Similarly, in Chabner v. United of Omaha Life Ins. Co., 225 F.3d 1042, 1046 and n. 3 (9th Cir. 2000), the defendant removed the action to federal court on the ground of diversity jurisdiction which the Court of Appeals viewed as faulty. After removal, however, the plaintiff amended his complaint to add a federal cause of action, thus triggering federal question jurisdiction. Id. The court noted that typically "jurisdiction must be analyzed on the basis of pleadings filed at the time of removal without reference to subsequent amendments . . . ."Id. at n. 3 (citation and internal quotations omitted). However, in finding the removal defect cured, the court stated that "`an erroneous removal need not cause the destruction of a final judgment, if the requirements of federal subject matter jurisdiction are met at the time the judgment is entered.'" Id. at n. 3, citing Caterpillar, 519 U.S. at 73 (emphasis added).
In short, to whatever extent Caterpillar grants a court discretion to treat as cured a jurisdictional defect existing at the time of removal, that discretion is afforded only to reviewing courts, after final judgment, because at that point "considerations of finality, efficiency, and economy become overwhelming." 519 U.S. at 75. With this thought in mind, the text of 28 U.S.C. § 1447(c) becomes salient: "If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." (Emphasis added). When conjoined with the rule that the propriety of removal jurisdiction is determined as of the time of removal, this language leads to the conclusion that whenever a district court becomes aware that federal subject matter jurisdiction was lacking at the time of removal, that court is constrained to remand the action to state court. Caterpillar merely provides an exception allowing the reviewing court to avoid wastefully negating a final judgment in those cases where the district court never became aware of the removal defect and yet the defect was cured at some later point. But this Court is aware of the removal defect, prior to trial, let alone final judgment. Accordingly, having learned that federal subject matter jurisdiction was lacking at the time of removal, this Court cannot now put the genie of awareness back into its bottle and retain the case. Under the reasoning of Caterpillar and the plain text of Section 1447(c) remand to state court is called for.
Plaintiff's second line of argument is that original diversity jurisdiction and removal jurisdiction predicated on diversity are really the same thing, with the same rules regarding jurisdictional cures. He cites a virtual cornucopia of precedent to prove that where a district court exercises original diversity jurisdiction over a lawsuit, the parties or the district court may dismiss a dispensable party in order to cure a later-appearing jurisdictional defect. See, e.g., Continental Airlines, Inc. v. Goodyear Tire Rubber Co., 819 F.2d 1519, 1523 (9th Cir. 1987); Ross v. Int'l Brotherhood of Elec. Workers, 634 F.2d 453, 456 (9th Cir. 1980); Grant County Deposit Bank v. McCampbell, 194 F.2d 469, 472-73 (6th Cir. 1952); Leroux v. Lomas Nettleton Co., 626 F. Supp. 962, 966 (D.Mass. 1986);. Brown v. Texas Pacific R.R. Co., 392 F. Supp. 1120, 1124-25 (W.D. La. 1975); Graphic Realty Discount Co. v. Home Fire and Marine Ins. Co. of Cal., 193 F. Supp. 421, 422 (D.Mass. 1961).
There is, however, a distinction between removal jurisdiction predicated on diversity and original diversity jurisdiction. Although removal jurisdiction depends on the existence of diversity or federal question jurisdiction for its validity, removal jurisdiction itself is a separate ground for the court to exercise its jurisdiction. See Schwarzer, Federal Civil Procedure Before Trial, 2D-5 at § 2:598-99 (Rutter Group 2000) (citations omitted) ("Removal is an independent basis for invoking federal jurisdiction. . . . Unlike `diversity' and `federal question' jurisdiction, removal jurisdiction does not derive from article III of the U.S. Constitution (dealing with federal judicial power). Removal jurisdiction is entirely statutory and derives from Congress' power under the `necessary and proper' clause. . . ."). Consequently, for removal jurisdiction to be valid, the requirements of the removal statute itself must be met, in addition to the requirements for diversity or federal question jurisdiction. See Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1064 (9th Cir. 1979) ("The removal jurisdiction of the federal courts is derived entirely from the statutory authorization of Congress. We look to federal law to determine whether the elements of removal jurisdiction have been established, keeping in mind that the removal statutes are strictly construed against removal"). For this reason, case law holding that a district court may treat as cured imperfect original diversity jurisdiction is not germane to whether improvident removal jurisdiction also can be cured.
Plaintiff has cited no authority directly holding that where a case has been removed to federal court, the district court may perfect diversity jurisdiction by dismissing a dispensable non-diverse party, or may otherwise treat as cured diversity jurisdiction that was lacking at the time of removal. Plaintiff cites just one case which at best indirectly supports his position. In Home Sav. Loan Ass'n of Joliet v. Samuel T. Isaac Assocs., Inc., 496 F. Supp. 831 (N.D. Ill. 1980) the defendant improvidently removed when neither diversity nor federal question jurisdiction was present. Later, the plaintiff amended his complaint, asserting new causes of action under federal law which ostensibly created federal question jurisdiction. 496 F. Supp. at 835. Significantly, in Home Savings it was the district court, while considering the Defendant's motion to dismiss or for summary judgment, that recognized jurisdiction was lacking at the time of removal. The court noted that having found that removal was improvidently granted, the proper course would ordinarily be to remand to state court. Id. However, the court opined, where a complaint is amended after removal to include claims under federal law, "it appears that . . . the federal court hearing the matter . . . becomes vested with jurisdiction to proceed further, even if it is shown later that removal had been improvidently granted." Id. (emphasis added). The court then ruled that even the amended complaint does not implicate federal questions and remanded the matter to state court. Id. at 835-36. Given that Home Savings is a pre-Caterpillar district court's tentative answer to a theoretical situation concerning federal question jurisdiction, it would be too much of a stretch to conclude, as Plaintiff suggests, that a district court may treat as cured diversity jurisdiction that was wanting at the time of removal.
More to the point is a recent district court case cited by Defendant, Vasura v. Acands, 84 F. Supp.2d 531 (S.D.N.Y. 2000). There the defendant improvidently removed to federal court on the ground of diversity jurisdiction that was arguably cured when the non-diverse party settled with the plaintiff and was dismissed from the action. Opposing plaintiffs motion to remand, the defendant argued that the subsequent dismissal of the non-diverse defendant effected complete diversity among the parties and so the district court properly had jurisdiction over the matter. The court rejected the argument, noting that "[defendant] has not cited, and my own independent research has not discovered, any case that countenances such after the fact validation of removal." The court concluded that,
[t]he applicable test is whether diversity jurisdiction existed when the removal petition was filed, not, as [defendant] suggests, whether it exists at the time the federal court is considering the motion to remand. It is not relevant in determining the propriety of removal — which is measured as of the date of removal — that diversity was later created by dismissal of the non diverse defendant. If the removal was not proper in the first instance, the state court was never divested of jurisdiction and the federal court consequently has no jurisdiction to exercise.84 F. Supp.2d at 536.
The facts of this case fall squarely within the reasoning of Vasura. Simply put, it is of no moment that Defendant Neal was dismissed from the action after Defendant Monsanto removed the matter to federal court, because removal jurisdiction predicated on diversity, unlike original diversity jurisdiction, is not subject to post-hoc justification by changes among the parties.
The Court is, nevertheless, mindful of the eleventh hour appearance of the remand issue. The discovery cut off has passed following extensive exchange of documents and deposition examination of witnesses by the parties. The Court has ruled on Defendant's lengthy dispositive motion. The parties have engaged in substantial trial preparation. The Court itself has only recently become aware that Defendant improvidently removed the matter from state court. One might argue that this matter falls within the broader ambit of Caterpillar's governing rationale, namely, that remand at this stage "would impose an exorbitant cost on our dual court system, a cost incompatible with the fair and unprotracted administration of justice." On the other hand, the discovery and trial preparation the parties have thus far engaged in will not lose their utility in state court. See, e.g., Basile v. H R Block, Inc., 897 F. Supp. 194 (E.D. Pa. 1995) (remand ordered even though case had been in federal court for over two years following remand; the court explained that the discovery work performed by the parties during that time would be "readily available for use in state proceedings"). Remand at this stage will not exact a toll commensurate with remand following trial.
In the final analysis, this Court has strong, well-founded doubts about whether it can retain jurisdiction over this litigation. Bearing in mind that all doubts about removal are resolved in favor of remand, Gaus v. Miles, supra, the Court concludes that it must return this matter for resolution in the state court whence it came.
As an ancillary matter, in his letter brief the Plaintiff requests that, in the event the Court orders the matter remanded, he be granted leave to file a motion for attorney's fees and costs pursuant to 28 U.S.C. § 1447(c). Section 1447(c) provides in relevant part that "[a]n order remanding the case may require payment of just costs and any actual expenses, including attorney's fees, incurred as a result of the removal." Costs and fees "incurred as a result of the removal" are those that would not have been incurred had the case remained in state court. See Avitts v. Amoco Prod. Co., 111 F.3d 30, 32 (5th Cir.), cert. denied, 522 U.S. 977 (1997). Neither a showing of "bad faith" nor a lack of "substantial justification" is necessary for the court to award fees and costs under Section 1447(c). See Moore v. Permanente Medical Group, Inc., 981 F.2d 443, 447 (9th Cir. 1992). The district court may award costs and fees even when a defendant's removal, while "fairly supportable," is wrong as a matter of law. See Balcorta v. Twentieth Century Fox Film Corp., 208 F.3d 1102, 1106 at n. 6 (9th Cir. 2000). The Ninth Circuit reviews Section 1447(c) fee awards under an abuse of discretion standard. See Moore, 981 F.2d at 447. The court will overturn an award "if it is based on an erroneous determination of the law — that is, the district court wrongly determined that the case should be remanded to state court." See Balcorta, 208 F.3d at 1105 (9th Cir. 2000). Attorney's fees and costs can be awarded subsequent to the order remanding an action to state court. See Moore, 981 F.2d at 445. The district court retains jurisdiction for purposes of considering a post-remand motion for attorney's fees and costs. See id.
Having concluded that the defendant lacked proper grounds for removing the action to federal court, it is appropriate that the Plaintiff should at least be allowed to present its case for a discretionary award of costs and fees incurred as a result of the removal. Accordingly, Plaintiff is granted leave to file a motion for an award of costs and fees.
CONCLUSION
For the reasons discussed above, and with GOOD CAUSE APPEARING, the Court hereby REMANDS this action to the state court from which it was originally removed. Plaintiff's request for leave to file a motion, pursuant to 28 U.S.C. § 1447(c), requesting an award of costs and fees incurred as a result of Defendant's removal of the action from state court is hereby GRANTED. The Plaintiff's moving papers in support of its request for costs and fees shall include sufficient proof that such costs and fees are "just" and would not have arisen had the matter proceeded in state court. If plaintiff chooses to file such motion, the moving papers shall be filed no later than twenty days following the date of this order.