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noting that “ district court's subject matter jurisdiction is determined from the complaint at the time of removal, not as subsequently amended”
Summary of this case from Horne v. Wells Fargo Bank, N.A.Opinion
No. 02-01106 SC
June 20, 2002
ORDER REMANDING ACTION TO STATE COURT
I. INTRODUCTION
Plaintiff Boston Reed Company ("Plaintiff") filed suit in California state court against Defendants Pitney Bowes, Inc., Pitney Bowes Credit Corp. and various unnamed defendants ("Defendants") on February 2, 2002, alleging violations of the California Business and Professions Code ("CBPC"), §§ 17200 et seq., and five state law causes of action. On March 7, 2002, Defendants removed the case to federal court on diversity grounds. Now before the Court is Plaintiff's Motion to Remand. For the reasons discussed below, Plaintiff's Motion is granted.
Also before the Court is Defendants' Motion to Dismiss. Because the Court remands the action to state court, Defendants' Motion will not be addressed as moot.
II. BACKGROUND
On February 2, 2002, Plaintiff filed suit against Defendants in the Superior Court for the State of California, County of Napa seeking restitution and injunctive relief for alleged violations of California Business and Professions Code §§ 17200 et seq., known familiarly as California's Unfair Competition Law ("UCL"). In addition, Plaintiff alleged five state law causes of action: intentional and negligent misrepresentation, breach of contract, unjust enrichment/imposition of a constructive trust and conspiracy. Plaintiff seeks restitution and injunctive relief, individually and on behalf of the general public as a private attorney general pursuant to CBPC § 17204.
Defendants are Delaware corporations each doing business in the state of California and each with its principal place of business in Connecticut. Plaintiff is a citizen of California with its principal place of business in St. Helena, California.
Plaintiff leases postage metering equipment from Defendants. The dispute centers around the "ValueMax" charge that appears on Plaintiff's bill. Plaintiff claims that the charge purports to be a fee for a "risk management program" when it is really a quarterly surcharge for property and casualty insurance, assessed unilaterally. According to Plaintiff, Defendants purposefully label the charge as something other than insurance "in order to avoid California's Rules and Regulations concerning the sale of insurance and for the purpose of depriving Plaintiff of the protection that these insurance regulations provide to consumers and businesses." (Compl. § 13.) Plaintiff is charged a ValueMax quarterly fee of $21.20. (Pl. Mot. to Remand, Ex. 1.)
Defendants timely removed the case to federal court on March 7, 2002 on diversity grounds. Defendants claim that because Plaintiff brought its action on behalf of the public as a private attorney general, the damages suffered by all California residents due to Defendants' actions should be aggregated, thus inflating the amount in controversy over the $75,000 statutory minimum for federal diversity jurisdiction. On March 12, 2002, Plaintiff amended its Complaint to include class action allegations under Federal Rule of Civil Procedure 23 and California Code of Civil Procedure § 382. Plaintiff filed a Motion to Remand on April 3, 2002, alleging that the amount in controversy does not meet the jurisdictional minimum for diversity.
III. LEGAL STANDARD
A. Removal
A complaint filed originally in state court may be removed "to the district court of the United States for the district and division embracing the place where such action is pending," if the district court would have had original jurisdiction over the action in the first place. 28 U.S.C. § 1441(a). Removal must be effected within thirty days of service on the defendant. 28 U.S.C. § 1446(b). The plaintiff has thirty days in which to contest removal for any defect except subject matter jurisdiction. 28 U.S.C. § 1447(c). If at any time before final judgment it appears the court lacks subject matter jurisdiction over a case, the case will be remanded to state court. Id.
A defendant bears the burden of showing that a federal court would have had jurisdiction from the outset; in other words, that removal was proper. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). There is a "strong presumption" against removal and the removal statute is strictly construed against removal jurisdiction. Id. All doubts are resolved in favor of remand. Plute v. Roadway Package Sys., Inc., 141 F. Supp.2d 1005, 1008 (N.D.Cal. 2001); Tortola Restaurants, L.P. v. Kimberly-Clark Corp., 987 F. Supp. 1186, 1188 (N.D.Cal. 1997)
A district court's subject matter jurisdiction is determined from the complaint at the time of removal, not as subsequently amended. Sparta Surgical Corp. v. National Ass'n of Sec. Dealers, Inc., 159 F.3d 1209, 1213 (9th Cir. 1998); Rudow v. Monsanto Co., No. C99-4700 TEH, 2001 WL 228163, at *4 (N.D. Cal. March 1, 2001) ("[W]henever 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.")
B. Diversity Jurisdiction
A district court has original jurisdiction over a civil action "where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between . . . citizens of different states." 28 U.S.C. § 1332(a)(1).
IV. DISCUSSION
A. Jurisdiction
In support of its Motion to Remand, Plaintiff argues that its Amended Complaint does not surmount the jurisdictional minimum of $75,000. This is so, Plaintiff argues, because individual claims cannot be aggregated in class actions. According to Plaintiff, its quarterly charge for ValueMax is $21.20, and, because in California breach of contract and UCL causes of action have four-year statutes of limitations, the most damage Plaintiff could have possibly suffered during the statutory period is $339.20, far below the $75,000 jurisdictional minimum. In sum, Plaintiff argues that because no one class member paid close to $75,000 for ValueMax during the statutory period, and because the individual claims cannot be aggregated by law, federal jurisdiction does not lie and the case should be remanded to state court.
In their Opposition to Plaintiff's Motion, Defendants argue that because the Court must look at the Complaint at the time it was removed, Plaintiff's amendment to include a class action allegation subsequent to removal is irrelevant. Moreover, Defendants argue, because a § 17200 claim is not analogous to a class action, the Court should look to the cost to the Defendants to comply with an injunction and to disgorge profits in calculating the amount in controversy rather than to the damage suffered by the Plaintiff. Defendants do not support their allegations with hard numbers; they do not estimate how much it would cost to comply with the injunction or return the charge to its customers. Rather, they point to Plaintiff's statement in its Complaint that Defendants would be liable for "millions" if Plaintiff's lawsuit is successful.
A district court has original jurisdiction over a civil action "where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between . . . citizens of different states." 28 U.S.C. § 1332(a)(1). Defendants correctly note that a court, in assessing its jurisdiction over a removed complaint, looks to the complaint at the instant of removal and generally does not consider subsequent amendment. Sparta Surgical Corp., 159 F.3d at 1213. Events "occurring subsequent to the institution of suit which reduce the amount recoverable below the statutory limit do not oust jurisdiction." St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289-90 (1938); Hill v. Blind Indus. Servs. of Md., 179 F.3d 754, 757 (9th Cir. 1999). Consequently, the Court declines to consider Plaintiff's post-removal amendment restyling its Complaint as a class action. Rather, the Court will address its jurisdiction over the Complaint filed in state court.
The parties agree about their diversity of citizenship. Defendants are citizens of Delaware and Connecticut and Plaintiff is a citizen of California.
The UCL prohibits unfair competition, defined as "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertisement and any act prohibited by Chapter 1 . . . of Part 3 of Division 7 of the Business and Professions Code." Cal. Bus. Prof. Code § 17200. The UCL has a private attorney general provision, which allows "any person acting for the interests of itself, its members or the general public" to bring an action for relief. Cal. Bus. Prof. Code § 17204. Plaintiff originally sued under this provision, seeking restitution and disgorgement of Defendants' ValueMax profits and an injunction prohibiting Defendants from continuing to levy the charge. Plaintiff did not seek punitive damages for itself or any member of the public. (Compl., Prayer ¶ 9.) In its Complaint, Plaintiff averred that neither it nor any single individual member of the public had incurred damages in excess of $74,500, all costs included. Id.
Claims by multiple plaintiffs joined together in one lawsuit can only be aggregated when those claims are not separate and distinct; that is, when they represent "a single title or right in which they have a common and undivided interest." Snyder v. Harris, 394 U.S. 332, 335 (1969). Moreover, the jurisdictional amount in controversy may only be assessed according to the total detriment to the defendant when the plaintiffs' claims can in fact be aggregated. Snow v. Ford Motor Co., 561 F.2d 787, 790 (9th Cir. 1997) ("The threshold question is aggregation, and it must be resolved affirmatively before total detriment can be considered.").
According to Defendants, because Plaintiff's state-court complaint was filed pursuant to California's private attorney general provision, and was not filed as a class action, this Court should look to the cost to the Defendants should they be forced to disgorge all profits from the ValueMax charge in addition to their cost in complying with an injunction prohibiting them from continuing to charge it. Thus, Defendants argue, because their cost to comply with a potential award in this case is sure to exceed $75,000, Plaintiff's Complaint has been properly removed to federal court.
The Court is not persuaded by Defendants' argument. The question turns on whether a state private attorney general action should be treated as a class action for purposes of determining the amount in controversy, and, if so, whether the plaintiffs' claims can be aggregated. After considering the California courts' interpretation of the statute and recent district court decisions addressing the issue, the Court answers the first question in the affirmative and the second in the negative and remands this case to state court.
1. The UCL's Private Attorney General Cause of Action
Defendants argue that a UCL private attorney general action should not be treated as a class action when determining the amount in controversy. The Court disagrees. While acknowledging that a § 17204 action is not the same as an action brought by a certified class, California courts recognize that the purpose served by a § 17204 action is very similar. The California Supreme Court has said:
Both consumer class actions and representative UCL actions serve important roles in the enforcement of consumers' rights. Class actions and representative UCL actions make it economically feasible to sue when individual claims are too small to justify the expense of litigation and thereby encourage attorneys to undertake private enforcement actions. Through the UCL a plaintiff may obtain restitution and/or injunctive relief against unfair or unlawful practices in order to protect the public and restore to the parties in interest money or property taken by means of unfair competition. These actions supplement the efforts of law enforcement and regulatory agencies. This court has repeatedly recognized the importance of these private enforcement efforts.
Kraus v. Trinity Mgmt. Servs., Inc., 23 Cal.4th 116, 126 (2000) (footnotes and citations omitted); see also America Online, Inc. v. Superior Court, 90 Cal.App.4th 1, 15 n. 10 (2001) (recognizing that the UCL "shares some remedial similarities with the [California Consumer Legal Remedies Act], including a private right to sue as a class action") (emphasis added); Reese v. Wal-Mart Stores, Inc., 73 Cal.App.4th 1225, 1239 (1999) (describing a private attorney general action filed under the UCL as offering "plaintiff the prospect of an alternative form of class-wide relief for purposes of deterring future violations — without class certification")
The Court acknowledges that it saw the issue differently when it decided Mangini v. R.J. Reynolds Tobacco Co., 793 F. Supp. 925 (N.D. Cal. 1992) (Conti, J.). It that case, decided over ten years ago, the plaintiff sued under the Federal Cigarette Labeling and Advertising Act and under the UCL. Id. at 926. Defendants removed citing federal question and diversity jurisdiction. Id. at 927. This Court remanded for lack of standing, which it noted to be a threshold issue in all cases. Id. at 930 (citing Warth v. Seldin, 422 U.S. 490, 498 (1975)). The Court also addressed the parties' jurisdictional arguments — both federal question and diversity — even though not dispositive to the remand decision. While concluding that there was no federal question jurisdiction, the Court did briefly discuss diversity jurisdiction and the amount in controversy, and concluded that "this case is not a class action, nor does it possess many of the defining characteristics of a class action." Id. at 928. Having drawn this conclusion, the Court followed the well-settled rule that "in non-class action cases, the amount in controversy may be measured either by the value of the relief sought by the plaintiff or the cost to the defendant if the relief is granted." Id. (citing Schwarzer, Federal Civil Procedure Before Trial, 2:486 at 2C-46 (1991) and Ridder Bros. v. Blethen, 142 F.2d 395 (9th Cir. 1944)).
The issue was revisited in this district more recently in Surber v. Reliance Nat'l Indem. Co., 110 F. Supp.2d 1227 (N.D.Cal. 2000), in which the plaintiff sued her automobile insurer under the UCL. There, the defendant made the same argument as Defendants do in this case: because a § 17204 cause of action is not a class claim, the court should consider the administrative cost of compliance to defendant in determining the amount in controversy for subject matter purposes. Id. at 1232. In rejecting the defendant's argument, the Surber court looked at Mangini and disagreed with its reasoning, concluding that denying class-action status to a private attorney general provision claim under the UCL "would essentially create federal question jurisdiction over any section 17200 claim between diverse parties, no matter how small the injury to the representative plaintiff. Such a result is untenable. Section 17200 is not a federal cause of action." Id. at 1233.
The Surber decision drew support from another recent case, Phipps v. Praxair, Inc., No. 99-CV-1848 TW (LAB), 1999 WL 1095331 (S.D.Cal. Nov. 12, 1999), which, while unpublished, addresses a nearly identical fact situation to the one before the Court today. In remanding to state court the plaintiff's UCL private attorney general action, the Phipps court concluded that "it does not matter whether an action involves a simple joinder of multiple plaintiffs, a representative action, or a class action. So long as asserted claims are 'separate and distinct,' diversity jurisdiction exists only for plaintiffs whose claims exceed $75,000." 1999 WL 1095331, at *3
The Court finds the reasoning in Phipps and Surber to be persuasive, especially since the California courts themselves have recently recognized the representative nature of a § 17204 claim. Therefore, because the Court finds that a UCL private attorney general action is a collection of "separate and distinct" claims, the claims may not be aggregated to reach the amount in controversy and each plaintiff's claim must exceed the jurisdictional amount for this Court's subject matter jurisdiction to be invoked. Phipps, 1999 WL 1095331 at *6; see also Snyder, 394 U.S. at 338 (declining to allow plaintiffs to aggregate separate and distinct claims to reach the jurisdictional minimum in a Rule 23(b)(3) class action); Snow, 561 F.2d at 790 (rejecting federal jurisdiction by following Snyder's proscription against aggregation for both equitable and injunctive relief in a suit filed under California's Consumers Legal Remedies Act, Cal. Civ. Code §§ 1750, et seq.). Thus because the Court refuses to aggregate Plaintiffs' equitable or injunctive claims, unless Defendants can prove by preponderance of the evidence that any individual claim is greater than $75,000 the case must be remanded to state court. Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 404 (9th Cir. 1996); Gaus, 980 F.2d at 566-67.
The Court recognizes that this question is by no means settled in this district. Judge Orrick's decision in Myers v. Merrill Lynch Co, Inc., No. C-98-3532 WHO, 1999 WL 696082 (N.D.Cal. Aug. 23, 1999), for example, follows Mangini by holding that the value of the injunctive relief sought by the plaintiff can be aggregated and measured from the defendant's perspective. Id. at *5. But Myers held firm to the notion that a § 17204 cause of action is not a class action, a notion that the Court today reconsiders and rejects.
2. The Jurisdictional Minimum Applied to Individual Claims
Plaintiff notes, and Defendants do not contest, that the UCL's statute of limitations is four years. Cal. Bus Prof. Code § 17208. Plaintiff claims that its damages total $339.20 or four years' worth of quarterly charges of $20.21 each. Defendants make several arguments as to why Plaintiff's damages are in fact greater than $75,000. The Court will address each in turn.
First, Defendant points to a statement in Plaintiff's Complaint, claiming that Defendants' allegedly unlawful charges to the general public total in the millions. (Compl. ¶ 38). This argument is easily dispensed with, since the Court has already decided supra that it will look to Plaintiff's recovery, not to Defendants' potential cost in having to rectify its conduct in assessing the amount in controversy. Moreover, the Court has also already noted that damages in a representative action cannot be aggregated; each claim must be greater than $75,000 for jurisdiction to attach. Snyder, 394 U.S. at 338. No such proof has been presented here and the Court doubts there is any to be had. This is true even if the Court were to enter an injunction, for the Court would measure the value of the injunction not according to Defendants' loss of business but according to the amount Plaintiff would save by not being charged. Snow, 561 F.2d at 790-91.
Defendants next argue that Plaintiffs' attorney fees should be counted toward the amount in controversy because they are permitted by statute. For support, Defendants cite Gault G/S v. JSS Scandanavia, 142 F.3d 1150 (9th Cir. 1998). Defendants correctly cite Gault G/S for the holding that "where an underlying statute authorizes an award of attorneys' fees, either with mandatory or discretionary language, such fees may be included in the amount in controversy." Id. at 1156. Defendants argue that the relevant underlying statute in this case is § 1021.5 of the California Code of Civil Procedure, which authorizes a court to award attorneys' fees "to a successful party against one or more opposing parties in any action which has resulted in the enforcement of an important right affecting the public interest" if certain criteria are met. Cal Civ. Pro. Code § 1021.5.
It is true that some California courts have assumed, without deciding, that § 1021.5 fees may be available in UCL cases. See, e.g., Stop Youth Addiction, Inc. v. Lucky Stores, Inc., 17 Cal.4th 553, 575-76 (1998); Wise v. Pacific Gas Elec. Co., 77 Cal.App.4th 287, 292 (1999). But the Court cannot ignore California Supreme Court precedent explicitly prohibiting attorney fee awards in § 17200 actions, most notably, the recognition in Cel-Tech Communications, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163 (1999), that "Plaintiffs may not receive damages . . . or attorney fees" in such cases. Id. at 179; see also America Online, Inc. v. Superior Court, 90 Cal.App.4th 1, 15 n. 10 (2001).
A very recent, unpublished case from the California Court of Appeal goes so far as to say that attorney fees are available in UCL actions under § 1021.5 if the relief obtained "results in the enforcement of an important right affecting the public interest." Braco v. Superior Court, No. B152188, 2002 WL 472257, at *3 (Cal.Ct.App. 2d Dist. March 28, 2002). The Court respectfully notes that this decision seems to directly contradict the law of the state, as set forth in Cel-Tech Communications, and declines to follow it.
Moreover, even if attorney fees were recoverable in this case, they could not be aggregated. Goldberg v. CPC Int'l, Inc., 678 F.2d 1365, 1367 (9th Cir. 1982); Phipps 1999 WL 1095331, at *4 ("The law is clear in the Ninth Circuit . . . that a district court may not aggregate a possible award of attorney's fees to reach the amount in controversy."). Rather, "[d]efendants must show that each plaintiff's pro-rata share of awarded restitution, disgorgement, attorney's fees, punitive damages and injunctive relief satisfies the amount in controversy requirement." Phipps, 1999 WL 1095331, at *4. Even aside from the fact that Plaintiff's Complaint makes clear that it only seeks $74,500 in total costs, interest and equitable and monetary relief for itself, for jurisdictional purposes, the amount of a potential attorney fee awarded is calculated by dividing it among the represented members of the class. Id.
To conclude, the UCL is fundamentally a state-law cause of action, meant to redress unlawful business practices in the state of California carried out against California citizens. Plaintiff here simply wants its money back, and wants Defendants to stop charging for ValueMax. It would like a court to enjoin Defendants from making the charge and to order Defendants to pay back charges already assessed. While the Court passes no judgment on the merits of Plaintiff's case, it believes it lacks jurisdiction to decide it, for given the representative nature of the lawsuit, the amount in controversy is not met and diversity jurisdiction is not satisfied.
B. Standing
Plaintiff also attempted to avoid federal court by arguing that it lacks standing. The point is rendered moot by the Court's decision above that it lacks jurisdiction, but suffice it to say, standing would not have been an issue in this case. To have standing to sue in federal court a party must establish 1) a personal injury or threat of injury; 2) that the injury is fairly traceable to the challenged action; and 3) that the injury would likely be redressed by the requested relief. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992). It is often the case that one who has standing to sue under the UCL in state court does not enjoy standing in federal court. See, e.g., Mortera v. North America Mortg. Co., 172 F. Supp.2d 1240, 1244 (N.D.Cal. 2001). This is because the UCL allows an individual to sue on behalf of the general public without proof that he or she was directly injured by the allegedly wrongful business practice. Id.; Stop Youth Addiction, 17 Cal.4th at 561.
Unlike in Mortera, where the plaintiff had no standing in federal court because, as a non-veteran, she was not personally affected by the defendant's loan practices, 172 F. Supp.2d at 1242, here Plaintiff was one of Defendants' customers and did in fact incur the allegedly fraudulent ValueMax charge. Thus, Plaintiff would have had standing in this Court because there was an injury, traceable to Defendants' conduct, that could have been redressed by an restitution order and an injunction. Lujan, 504 U.S. at 561.
V. CONCLUSION
Because the amount in controversy in this case does not meet the jurisdictional minimum set forth in 28 U.S.C. § 1332(a)(1), Plaintiff's Motion to Remand is hereby GRANTED. The above-captioned case shall herewith be REMANDED to Superior Court for the State of California, County of Napa. The Clerk shall close the file.