Opinion
Case No.: 19-cv-985 DMS AHG
2019-11-13
CHI-FU HSUEH, an individual, Plaintiff, v. BANKERS LIFE AND CASUALTY COMPANY, an Illinois corporation, Maryam Habashi, an individual, and Does 1 through 20, inclusive, Defendants.
Gordon Wayne Renneisen, Harry Girard Lewis, Cornerstone Law Group, San Francisco, CA, for Plaintiff. William Hays Weissman, Littler Mendelson, P.C., Walnut Creek, CA, for Defendants.
Gordon Wayne Renneisen, Harry Girard Lewis, Cornerstone Law Group, San Francisco, CA, for Plaintiff.
William Hays Weissman, Littler Mendelson, P.C., Walnut Creek, CA, for Defendants.
ORDER GRANTING PLAINTIFF'S MOTIONS TO REMAND AND FILE PREVIOUSLY FILED DOCUMENT UNDER SEAL AND DENYING PLAINTIFF'S AND DEFENDANTS' MOTIONS FOR SANCTIONS
Hon. Dana M. Sabraw, United States District Judge
Pending before the Court is Plaintiff Chi-Fu Hsueh's motion to remand this case to the Superior Court of California, County of San Diego and Plaintiff's motions to seal. Defendants Bankers Life and Casualty Company and Maryam Habashi filed an opposition, and Plaintiff filed a reply. The parties also moved for sanctions. For the reasons discussed below, the Court grants Plaintiff's motions to remand and file a previously filed document under seal. The motions for sanctions are denied.
I.
BACKGROUND
This action arises from Plaintiff's individual claims for wrongful termination and representative claims for civil penalties under the Private Attorneys General Act, Labor Code § 2699 ("PAGA"), as well as numerous class claims for violations of wage and hour laws under the California Labor Code and unfair competition laws under California Business and Professions Code §§ 17200, et seq. (Not. of Rem., Exh. 2). The parties have litigated this case for more than five years in both state and federal court. The case has been removed from state court twice before, and is now before the Court on Plaintiff's third motion to remand.
Plaintiff filed the original complaint in this action in state court on July 23, 2014. (Id. ). Defendants removed the case, alleging diversity jurisdiction. (Not. of Rem., ¶ 5). Thereafter, Plaintiff moved to remand the case to state court. On December 17, 2014, the district court, Judge Michael Anello presiding, granted Plaintiff's motion. (Id. at ¶ 6).
On October 19, 2015, Defendants again removed the action to federal court—this time alleging the court had original jurisdiction under the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1332(d). (Id. at ¶ 12). In response, Plaintiff moved to remand the case to state court. On June 15, 2016, Judge Anello granted Plaintiff's motion, finding Defendants failed to meet the amount in controversy requirement for CAFA. (Id. at ¶ 13). Defendants appealed the remand order to the Ninth Circuit, and their appeal was denied. (Id. ).
Following remand, Plaintiff filed a second amended complaint in state court and moved to certify the class. On November 18, 2019, the state court certified Plaintiff's class. (Id. at ¶ 26). Defendants filed a petition for writ of mandate with the California appellate court challenging the certification order.
While the writ was pending, the parties agreed to pursue settlement through mediation. They executed a stipulation and proposed order setting out the parameters of the mediation and prohibiting use of information exchanged during the mediation "for any purpose" unrelated to the mediation. On January 23, 2019, Judge Ronald Frazier of the superior court signed the stipulation and order. (Lewis Decl., Exh. K, hereinafter "Mediation Order"). The case did not settle.
After Defendants' petition for writ of mandate was denied by the state appellate court, Defendants once again removed the case to this Court. Defendants based their removal on information contained in Plaintiff's confidential mediation brief that clearly indicated CAFA's amount in controversy requirement was met and the case had become removable. (Not. of Rem., Dkt No. 1). In total, Defendants alleged an amount in controversy of $10,393,154.04, after adjusting the numbers provided by Plaintiff's mediation brief. (Id. at ¶ 47(n)). The subject motion followed.
II.
MOTION TO REMAND
A. LEGAL STANDARD
Federal courts are courts of limited jurisdiction, having subject matter jurisdiction only over matters authorized by the Constitution and Congress. See Kokkonen v. Guardian Life Ins. Co. of Am. , 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). A defendant may remove a civil action from state court to federal court only if the district court could have original jurisdiction over the matter. 28 U.S.C. § 1441(a). A removed action must be remanded to state court if the federal court lacks subject matter jurisdiction. See 28 U.S.C. § 1447(c) ; Kelton Arms Condo. Owners Ass'n, Inc. v. Homestead Ins. Co. , 346 F.3d 1190, 1192 (9th Cir. 2003) ("Subject matter jurisdiction may not be waived, and, ... the district court must remand if it lacks jurisdiction.").
Pursuant to CAFA, this Court has original jurisdiction over class actions in which there are at least 100 class members, at least one of which is diverse in citizenship from any defendant, "and for which the aggregate amount in controversy exceeds the sum of $5 million, exclusive of costs and interest." Ibarra v. Manheim Invs., Inc. , 775 F. 3d 1193, 1196 (9th Cir. 2015) ; 28 U.S.C. § 1332(d). A "class action" is defined as "any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action." 28 U.S.C. § 1332(d)(1)(B). To "determine whether the matter in controversy" exceeds the sum of $5 million, "the claims of the individual class members shall be aggregated." Id. § 1332(d)(6). And those "class members" include "persons (named or unnamed) who fall within the definition of the proposed or certified class." Id. § 1332(d)(1)(D).
The Ninth Circuit has directed courts to "strictly construe the removal statute against removal jurisdiction[,]" so that "any doubt as to the right of removal" is resolved in favor of remanding the case to state court. Gaus v. Miles, Inc. , 980 F.2d 564, 566 (9th Cir. 1992). However, this presumption does not apply to cases removed under CAFA. See Dart Cherokee Basin Operating Co., LLC. v. Owens , 574 U.S. 81, 88, 135 S. Ct. 547, 190 L.Ed.2d 495 (2014) ("It suffices to point out that no antiremoval presumption attends cases invoking CAFA, which Congress enacted to facilitate adjudication of certain class actions in federal court.") (internal quotation marks and citations omitted). Thus, when dealing with cases arising under CAFA, its provisions must be "read broadly, with a strong preference that interstate class actions should be heard in a federal court if properly removed by any defendant." See id. (internal quotation marks and citations omitted). Nevertheless, "under CAFA the burden of establishing removal jurisdiction remains, as before, on the proponent of federal jurisdiction." Abrego Abrego v. The Dow Chem. Co. , 443 F.3d 676, 695 (9th Cir. 2006) (per curiam).
B. DISCUSSION
There is no dispute this action is subject to CAFA and meets the requirements of a class action with more than 100 members, minimum diversity, and an amount in controversy in excess of $5 million. However, Plaintiff argues the Court lacks subject matter jurisdiction and the case must be remanded because Defendants' notice of removal is untimely. Plaintiff contends Defendants had thirty days after receiving the state court class certification order to remove because information in that order put Defendants on notice that the amount in controversy exceeded $5 million and had become removable, thereby triggering CAFA's thirty-day removal clock. Plaintiff also argues Defendants' removal based on information contained in Plaintiff's confidential mediation brief was improper. Each issue is addressed in turn. 1. Timeliness of Removal
CAFA provides two timelines for removal: (1) "during the first thirty days after the defendant receives the initial pleading"; or (2) "during the first thirty days after the defendant receives an amended pleading, motion, order or other paper from which it may be first ascertained that the case is one which is or has become removable." Reyes v. Dollar Tree Stores, Inc. , 781 F. 3d 1185, 1189 (9th Cir. 2015) (quoting 28 U.S.C. § 1446(b)(1) and (b)(3) ) (internal quotation marks omitted). The first time period under § 1446(b)(1) is "triggered if the case stated by the initial pleading is removable on its face," and the second time period under § 1446(b)(3) is "triggered if the initial pleading does not indicate that the case is removable, and the defendant receives a copy of an amended pleading, motion, order or other paper from which removability may first be ascertained." Carvalho v. Equifax Info. Servs., LLC. , 629 F. 3d 876, 885 (9th Cir. 2010) (internal quotation marks and citations omitted). Plaintiff argues Defendants' removal is untimely under the second thirty-day time period set out in § 1446(b)(3).
Specifically, Plaintiff contends Defendants' removal was untimely because it occurred on May 24, 2019—over six months after the state court class certification order was issued on November 19, 2018. Plaintiff argues the class certification order provided Defendants with constructive notice that CAFA's amount in controversy requirement was met and the case had become removable. Plaintiff points out that the earlier motion to remand before Judge Anello was granted based on an amount in controversy of $3.4 million and a class period of July 23, 2010 through 2015, and the class certification order both significantly extended the class period from July 23, 2010 through November 19, 2018, and enlarged the class from 530 to 822 members, representing a 55 percent increase in class size. (P's Mem. Re: Mot. to Rem. at 9).
In response, Defendants argue they did not receive adequate notice of a jurisdictional basis for removal under CAFA because the class certification order was "indeterminate" or unclear as to the amount in controversy, and thus, § 1446(b)(3)'s thirty-day clock to remove was not triggered. Defendants further argue that because they removed within thirty days of receiving Plaintiff's mediation brief, which clearly put them on notice that the case had become removable, they timely removed under § 1446(b)(3). Defendants advance several arguments in support of their position.
First, Defendants point to the Ninth Circuit's decision in Harris v. Bankers Life and Casualty Co. , where the court held "the ground for removal must be revealed affirmatively in the initial pleading in order for the first thirty-day clock under § 1446(b) to begin." 425 F.3d 689, 695 (9th Cir. 2005). But the present case involves removability under the second thirty-day clock provided by § 1446(b)(3), which is triggered by subsequent pleadings or other papers or orders "from which removability may first be ascertained[,]" not the initial pleading. Accordingly, the requirement that the ground for removal be "revealed affirmatively" in the initial pleading is not applicable to this case.
Relatedly, Defendants contend they were not required to investigate the amount in controversy after receiving the class certification order, pointing to the Ninth Circuit's decision in Roth v. CHA Hollywood Medical Center, L.P. , 720 F.3d 1121 (9th Cir. 2013). There, the court held a defendant could remove a case outside of the two thirty-day periods described in § 1446(b)(1) and (b)(3), if the defendant discovered based on its "own investigation, that a case is removable." See id. at 1123. In so holding, the court noted that "even if a defendant could have discovered grounds for removability through investigation [of an indeterminate document], it does not lose the right to remove because it did not conduct such an investigation and then file a notice of removal within thirty days of receiving the indeterminate document." Id. at 1125. Thus, Defendants contend they did not forfeit their right to remove because they did not investigate the amount in controversy after receiving the class certification order—an order they characterize as "indeterminate" or unclear on the matter of the amount in controversy.
The instant case is distinguishable. In Roth , the court addressed whether a defendant can remove outside of the two thirty-day periods specified in § 1446(b), when the defendant discovers grounds for removability based on its own independent investigation separate from an initial pleading or other indeterminate document. 720 F. 3d at 1123-24. There, the court noted a defendant could remove outside of these two periods "provided that it has not run afoul of either of the thirty-day deadlines." Id. at 1125. However, Defendants here have run afoul of the second thirty-day deadline because removability could be ascertained from the class certification order without an investigation.
The class certification order both enlarged class membership and extended the class period. Ultimately, a defendant "cannot ignore pleadings or other documents from which removability may be ascertained and seek removal only when it becomes strategically advantageous for it to do so." Roth , 720 F.3d at 1125. Given notice of the increase in class size—some 55 percent—Defendants readily could have ascertained removability without an independent investigation. See, e.g., Kuxhausen v. BMW Financial Servs. NA, LLC., 707 F. 3d 1136, 1140 (9th Cir. 2013) (finding defendants must apply a "reasonable amount of intelligence in ascertaining removability," such as by multiplying the average claim amount by the number of class members to determine the amount in controversy). Defendants only needed to consult the prior estimates of damages, and multiply them. Instead of removing the case based on the state court's class certification order, Defendants elected to wait to remove until after receiving an adverse ruling on their class certification petition. As such, the Court is "wary" of the "theoretical possibility that the instant removal was motivated by the gamesmanship about which the Ninth Circuit was concerned in Roth. " See Garcia v. Wal-Mart Stores, Inc. , 207 F. Supp. 3d 1114, 1131 (C.D. Cal. 2016) (quoting Roth , 720 F. 3d at 1126 ) (internal quotation marks omitted).
By choosing not to remove until after their class certification petition was denied, it appears Defendants "chose to remain ignorant of the meaning of certain objective facts from which removability could easily have been ascertained, perhaps hoping it could rely on other papers to remove the matter at a later, more advantageous time." See Garcia , 207 F. Supp. 3d at 1132. The "more advantageous time" was after the class certification petition was denied. Because Defendants were notified through the class certification order on November 19, 2018 of the change in class size and period—and hence an amount in controversy in excess of $5 million—the notice of removal over six months later on May 24, 2019 was untimely. The Court therefore lacks subject matter jurisdiction.
2. Use of Information contained in Confidential Mediation Brief
Plaintiff argues that even if the class certification order did not trigger the thirty-day clock, Defendants cannot remove the case by using confidential information in violation of an agreement and court order. Defendants dispute those arguments and contend removal of the case based on information obtained from Plaintiff's mediation brief was proper. The Court agrees with Plaintiff.
On January 23, 2019, Judge Frazier of the superior court signed the Mediation Order, which was requested by the parties in accordance with their stipulations. Pursuant to the Mediation Order, Defendants provided updated class-wide data in advance of the mediation, and Plaintiff provided calculations of "damages and penalties at issue." (Id. at B.1-B.2). Specifically, the Order addressed how information exchanged between the parties during the mediation could be used:
No party may disclose, or use for any purpose unrelated to the mediation, data provided by Defendants in accordance with Paragraph B.1; calculations prepared by Plaintiff in accordance with Paragraph B.2; or any other written or oral statement that is made in connection with the mediation and is confidential or inadmissible under the terms of Evidence Code §§ 1115 - 1129.
(Id. at B.4).
Neither the Supreme Court nor the Ninth Circuit has addressed whether information disclosed in violation of the parties' agreement and a court order can be used as a basis for removal under § 1446(b)(3). While the Ninth Circuit has held "[a] settlement letter is relevant evidence of the amount in controversy if it appears to reflect a reasonable estimate of the plaintiff's claim," ( Cohn v. Petsmart, Inc. , 281 F.3d 837, 840 (9th Cir. 2002) ), it has not addressed the specific issue presented here.
Plaintiff contends the Mediation Order, which memorialized the parties' agreement, bars Defendants from using information provided in the mediation as a basis for removal. (P's Mem. re: Mot. To Rem. at 12-13). Defendants dispute that assertion, citing Molina v. Lexmark , No. CV-08-04796-MMM (FMx), 2008 WL 4447678 *11 (C.D. Cal. 2008), wherein the court found the defendant could remove based on information provided during mediation. There, the defendant removed based on a damages assessment prepared by the plaintiff's expert witness during settlement negotiations. See id. at *1. The court found this was an appropriate basis for removal, rejecting plaintiff's argument that this information could not be used by the defendant for removal because of California's mediation privilege. Id. at *6. Instead, the court found federal law applies in the removal context and found no federal mediation privilege that would "prevent reliance on documents exchanged during mediation to establish the amount in controversy." See id. at *16. The court also relied on numerous cases holding confidential settlement communications may be used as a basis for removal. See id. at *14—16. Defendants argue this Court should follow Molina and find their removal based on information provided in the mediation is fair game.
But there is an important distinction between this case and Molina. The parties in Molina did not stipulate as to how information shared in mediation could be used. Here, Defendants removed based on information they explicitly agreed not to disclose or use "for any purpose" outside of the mediation. The parties' agreement is clear and unambiguous: "No party may disclose, or use for any purpose unrelated to the mediation, data[,] ... calculations[,] ... or any other written or oral statement that is made in connection with the mediation[.]" (Mediation Order at B.4.). Stipulations matter, more so when they are sanctified by court order.
Defendants contend the Mediation Order cannot trump federal law because the Supremacy Clause of the United States Constitution requires a state law or order to "yield to the law of Congress" when it collides with such an act. (D's Opp. To P's Mot. to Rem. at 11). But there is no such collision here. While removal is a creature of statute, the Mediation Order has nothing to do with removal or CAFA. There is no conflict with the statutory scheme, as the state court order simply sanctifies the parties' agreement regarding how information shared in the mediation may be used.
The parties here are sophisticated, and they are represented by experienced counsel. They expressly agreed they would not use information exchanged during their mediation "for any purpose" unrelated to the mediation. "Because stipulations serve both judicial economy and the convenience of the parties, courts will enforce them absent indications of involuntary or uninformed consent." CDN Inc. v. Kapes , 197 F.3d 1256, 1258 (9th Cir. 1999) (citing United States v. McGregor , 529 F.2d 928, 931 (9th Cir. 1976) ). Defendants use of information contained in Plaintiff's confidential mediation brief is contrary to the parties' agreement and the Mediation Order.
Although "CAFA's provisions should be read broadly, with a strong preference that interstate class actions should be heard in a federal court if properly removed by any defendant," ( Dart Cherokee Basin Operating Co. , 574 U.S. at 88, 135 S.Ct. 547 ), that preference certainly does not require the Court to ignore the parties' agreement, particularly where, as here, the agreement effectively waives Defendants' right to remove based on information obtained during the mediation. An agreement containing an express or implied waiver of the right to seek removal is enforceable. See Schmalle v. Prudhomme , No. 18-CV-02469 W (MDD), 2019 WL 1772436 *2 (S.D. Cal. 2019) (granting plaintiff's motion to remand because the defendant's contract with plaintiff included a valid forum selection clause limiting the action to state court). Similarly here, Defendants willingly entered into an agreement prohibiting the use of materials provided during mediation for any other purpose. Honoring the parties' agreement "give[s] effect to the legitimate expectation of the parties, manifested in their freely negotiated agreement." M/S Bremen v. Zapata Off-Shore Co. , 407 U.S. 1, 10, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972).
The thirty-day time period under § 1446(b)(3) is triggered when a defendant "receives an amended pleading, motion, order or other paper from which it may be first ascertained that the case is one which is or has become removable." Here, the class certification order provided sufficient notice for Defendants to ascertain that the case had become removable. Defendants' argument that the thirty-day period under § 1446(b)(3) was triggered not by the class certification order but by receipt of Plaintiff's mediation brief invites gamesmanship and ignores the parties' agreement. Defendants ought not to be able to take advantage of a statutory right, here the thirty-day time period to remove under § 1446(b)(3), by looking past the class certification order and ignoring their own agreement and a court order. This Court lacks subject matter jurisdiction, therefore Plaintiff's motion to remand is granted.
3. Attorney's Fees under the Removal Statute
Plaintiff seeks attorney's fees under the removal statute, which provides: "[a]n order remanding [a] case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal." 28 U.S.C. § 1447(c). The statute provides for such fees because "[t]he process of removing a case to federal court and then having it remanded back to state court delays resolution of the case, imposes additional costs on both parties, and wastes judicial resources." Martin v. Franklin Capital Corp. , 546 U.S. 132, 140, 126 S.Ct. 704, 163 L.Ed.2d 547 (2005). Nevertheless, courts may only award attorney's fees when the removing party lacks an "objectively reasonable basis for removal." Id. at 136, 126 S.Ct. 704. However, "bad faith need not be demonstrated." Moore v. Permanente Med. Grp., Inc. , 981 F.2d 443, 448 (9th Cir. 1992).
Here, Plaintiff contends Defendants should be liable for attorney's fees because their reliance on the mediation materials was objectively unreasonable. (P's Memo re: Mot. to Rem. at 14). Although Defendants improperly relied on such materials, Defendants put forth arguments with some basis in reason to support their position. The Court therefore declines to award attorney's fees.
III.
PLAINTIFF'S MOTION TO FILE UNDER SEAL
Plaintiff filed a motion to seal Defendants' notice of removal and supporting declaration of William Hays Weissman. (Dkt. No. 11). Defendants' notice of removal included a copy of Plaintiff's mediation brief—one that was made pursuant to the Mediation Order mandating the confidentiality of all mediation materials. (Id. at 1—2).
Documents related to non-dispositive motions, like the one at issue here, may be filed under seal if the party filing the documents shows "good cause by making a ‘particularized showing’ that ‘specific prejudice or harm will result’ should the information be disclosed." Digital Reg of Texas, LLC. v. Adobe Sys., Inc. , No. C 12-1971-CW, 2015 WL 604055, at *1 (N.D. Cal. 2015) (quoting Kamakana v. City & Cty. Of Honolulu , 447 F.3d 1172, 1179–80 (9th Cir. 2006) ). Plaintiff contends the documents at issue should be sealed because they include confidential information, in violation of the parties' agreement and the state court's Mediation Order. (P's Mot. to Seal at 1—2). Plaintiff has adequately demonstrated prejudice or harm resulting from the continued disclosure of these documents under the circumstances. Plaintiff's motion to seal Defendants' notice of removal and supporting declaration of William Hays Weissman is therefore granted.
Plaintiff has also moved to file the April 22, 2019 mediation email under seal. (Dkt. No. 15). Because the Court is remanding the case back to state court, the issue is moot and will not be further addressed.
IV.
SANCTIONS
Both parties seek sanctions. Plaintiff contends Defendants should be sanctioned because they disclosed mediation materials in violation of a state court order. (P's Rep. to Mot. for Rem. at 10). Defendants argue Plaintiff should be sanctioned for two "abuses": (1) for "failing to disclose to this Court directly applicable precedent that is directly contrary to its position"; and (2) "for seeking the same relief from federal and state courts simultaneously." (D's Opp. To P's Mot. For Rem. at 17).
District courts have the authority to impose Rule 11 sanctions when an "attorney has abused the judicial process." Willy v. Coastal Corp. , 503 U.S. 131, 138, 112 S.Ct. 1076, 117 L.Ed.2d 280 (1992). The Court declines to make that finding. Therefore, the motions for sanctions are denied.
V.
CONCLUSION
For the reasons above, the Court grants Plaintiff's motion to remand. This case shall be remanded to the Superior Court, County of San Diego. The Court denies Plaintiff's motion for attorney's fees. The Court grants Plaintiff's motion to file a previously filed document under seal and denies Plaintiff's motion to file a document under seal as moot. The parties' motions for sanctions are denied.