Opinion
02 Civ. 9580 (GEL)
October 1, 2003
Steven L. Wittels, Esq., Armonk, NY, and Jeremy Heisler, Esq., New York, NY, for Plaintiffs.
Richard F. Lawler, Esq., Winston Strawn, New York, NY, for Defendants.
OPINION AND ORDER
Plaintiffs originally brought this action in the Supreme Court of the State of New York on behalf of a proposed class of individuals who received packages shipped from abroad via the defendants' air courier business. Plaintiffs allege that the defendants charged and continue to charge some recipients of international packages an undisclosed and unauthorized "Processing Fee," and seek damages and injunctive relief for alleged violations of New York General Business Law § 349 (deceptive business practices), breach of contract, and unjust enrichment.
Defendants removed the action to federal court asserting diversity and federal question jurisdiction. Plaintiffs now move to remand the action to state court pursuant to 28 U.S.C. § 1447(c). Defendants simultaneously oppose the motion to remand and move to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) on the grounds that the claims are preempted by federal law. For the reasons that follow, the motion to remand will be granted.
BACKGROUND
Defendants DHL Airways, Inc., and DHL Worldwide Express, Inc. (collectively, "DHL"), are air couriers engaged in the air express transportation of cargo to and from international and domestic sites. (Affidavit of Edward J. Paulin, sworn to May 12, 2003, ¶¶ 3-7.) Shippers contract with DHL via an Air Waybill to ship and deliver packages to recipients. Because packages entering the United States from abroad are subject to the payment of customs duties to the United States Customs Service upon entry into the country, it is DHL's practice to pay the required customs duties at the border, deliver the package to the recipient, and recoup the duty fees after delivery. Shippers have the opportunity to indicate on the Air Waybill whether the shipper or the recipient will pay the customs duties, although in some instances the shipper leaves that part of the Air Waybill blank.
Named defendant DHL International, Ltd., is a foreign corporation and was never served with process. (Def. Mem. 1-2, n. 1.)
Plaintiffs allege that, for international shipments of dutiable parcels on which the shipper does not pay the duty, DHL, after paying the duty and delivering the parcel, sends the recipient a Customs Duty Invoice for the customs duty paid by DHL and also for a "Processing Fee," which is 2% of the duty and at least five dollars. Where the recipient fails to pay the Customs Duty Invoice, DHL initiates a collection process.
Plaintiffs allege that package recipients are not alerted to the Processing Fee until after receiving the package, when DHL demands that the recipient pay the Customs Duty Invoice or risk damage to the recipient's credit rating. Plaintiffs brought this action in state court seeking compensatory damages for each member of the class, disgorgement of the fees by which DHL was allegedly unjustly enriched, and reasonable attorneys' fees. In addition, plaintiff's seek to enjoin DHL from charging package recipients the Processing Fee in the future.
Defendants argue that this Court has jurisdiction because (1) the claims arise under federal law pursuant to 28 U.S.C. § 1331, since the plaintiff's' state-law claims are completely preempted by the Airline Deregulation Act; and (2) diversity jurisdiction exists pursuant to 28 U.S.C. § 1332. Defendants also move to dismiss on the grounds that the state-law claims are preempted by federal law. For the reasons that follow, the Court finds that (1) the state-law claims are not completely preempted by federal law for purposes of federal question jurisdiction; and (2) this Court does not have diversity jurisdiction because the amount-in-controversy requirement is not met. Accordingly, the case is remanded to state court for lack of federal jurisdiction, and the Court is precluded from reaching the merits of the preemption defense.
DISCUSSION
I. Legal Standard for Remand
When the removal of an action to federal court is contested, "the burden falls squarely upon the removing party to establish its right to a federal forum by 'competent proof.'" R.G. Barry Corp. v. Mushroom Makers, Inc., 612 F.2d 651, 655 (2d Cir. 1979), quoting McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189 (1936). Out of respect for the independence of state courts, and in order to control the federal docket, "federal courts construe the removal statute narrowly, resolving any doubts against removability." Somlvo v. J. Lu-Rob Enterprises, Inc., 932 F.2d 1043, 1045-46 (2d Cir. 1991) (citingShamrock Oil Gas Corp. v. Sheets, 313 U.S. 100, 108 (1941)).
II. Federal Question Jurisdiction
A civil action filed in state court may be removed to federal court if it is "founded on a claim or right arising under the Constitution, treaties or laws of the United States." 28 U.S.C. § 1331. In determining whether a claim arises under federal law, the court "examine[s] the 'well pleaded' allegations of the complaint and ignore[s] potential defenses[.]" Beneficial National Bank v. Anderson, ___ U.S. ___, ___, 123 S.Ct. 2058, 2062 (2003). The well-pleaded complaint rule "provides that federal question jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint. . . . The rule makes the plaintiff the master of the claim; he or she may avoid federal jurisdiction by exclusive reliance on state law." Caterpillar v. Williams, 482 U.S. 386, 392 (1987). It is well established that a defense relying on the preemptive effect of a federal statute does not normally provide a basis for removal. Beneficial National Bank, 123 S.Ct. at 2062. Thus, as a general matter, where there is no diversity jurisdiction, it is for a state court to decide whether federal law provides a defense to state-law claims by preempting those claims.
A narrowly-defined exception to the well-pleaded complaint rule applies in rare cases in which Congress has either expressly provided that a preempted state claim be removed to federal court, as it did in the Price-Anderson Act provision concerning tort actions, arising out of nuclear accidents, 42 U.S.C. § 2014(hh), or, in which a federal statute has been held to wholly displace the state-law cause of action through so-called "complete preemption." In the latter instances, the preemptive force of the statute is deemed "so extraordinary" that it allows a straightforward state law complaint to "properly be removed to the federal courts, even when the plaintiff's complaint does not itself include a federal cause of action." Foy v. Pratt Whitney Group. 127 F.3d 229, 232-33 (2d Cir. 1997). The Supreme Court has so far found the complete preemption doctrine to apply in only three contexts: the Labor Management Relations Act, 29 U.S.C. § 185, see Avco Corp. v. Int'l Ass'n of Machinists. 390 U.S. 557 (1968); the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., see Metropolitan Life Ins. Co. v. Taylor. 481 U.S. 58, (1987); and, most recently, the National Bank Act, 12 U.S.C. § 85, 86, in cases regarding usury claims against national banks, see Beneficial National Bank. 123 S.Ct. at 2064. These statutes "have so strong a preemptive effect that they do more than merely provide a defense to a state-law claim. Instead, federal law is considered to have taken over [the] entire subject matter and made it inherently federal." 13B Charles Alan Wright, et al, Federal Practice and Procedure § 3566, at 105 (2d ed. 1984).
Defendants argue that plaintiff's' state-law claims regarding the Processing Fee are completely preempted by the Airline Deregulation Act, 49 U.S.C. § 41713(b)(4) ("ADA"). (Notice of Removal, ¶¶ 8-12.) Since neither Congress or the Supreme Court has declared that the ADA completely preempts state law, the argument must be rejected.
Defendants argue that the Processing Fee is a charge for a service provided by the air carrier DHL, and thus that claims regarding the Processing Fee are preempted by the section of the ADA providing that "a State . . . may not enact or enforce a law, regulation, or other provision having the force and effect of a law related to a price, route or service of an air carrier." 49 U.S.C. § 41713(b)(1). While that provision may provide a defense to plaintiff's state-law claims, neither it nor any other provision of the ADA expressly creates federal question jurisdiction or provides that state claims relating to the ADA may be removed to federal court.
This Court cannot and does not decide whether the ADA-preemption defense defeats plaintiff's' state-law claims, because it lacks jurisdiction to decide the merits of that issue.
Nor has the Supreme Court construed the ADA to completely preempt state-law claims. Indeed, defendants have not supplied, and research has not revealed, any support for the proposition that the ADA completely preempts state-law claims for jurisdictional purposes. The cases that defendants cite concern ADA preemption as a defense to state-law claims, not as a basis for federal jurisdiction. See American Airlines, Inc., v. Wolens 513 U.S. 219, 220 (1995) (holding that the ADA's preemption prescription bars state-imposed regulation of air carriers),Breitling U.S.A., Inc. v. Federal Express Corp., 45 F. Supp.2d 179, 182 (D.Conn. 1999) (holding that the ADA preempts unjust enrichment claims and state unfair trade practices claims in a case apparently brought in diversity).
Given the extremely limited scope of the complete preemption doctrine,see Beneficial National Bank. 123 S.Ct. at 2064-70 (Scalia, J., dissenting) (questioning basis for doctrine), this Court will not create an exception to the well-pleaded complaint rule where neither Congress nor the Supreme Court has seen fit to do so. Accordingly, the ADA does not provide a basis for federal jurisdiction in this case.
In their Notice of Removal, defendants also claimed that article 24 of the Convention for the Unification of Certain Rules Relating to International Transport by Air, Oct. 29, 1934, art. 5, 49 Stat. 3000, T.S. No. 876 ("the Warsaw Convention") completely preempts plaintiff's' state-law claims. That argument was abandoned in defendants' opposition to the motion to remand.
III. Diversity Jurisdiction
Defendants argue in the alternative that federal jurisdiction may be based on diversity of citizenship. An action based on state law is removable to federal court when the district court would have original diversity jurisdiction because the amount in controversy exceeds $75,000 and, inter alia, there is complete diversity of citizenship between plaintiff's and defendants, 28 U.S.C. § 1332, provided that none of the parties properly joined and served at the time of removal are residents of the forum state, 28 U.S.C. § 1441(b). Where removal is based on diversity, the defendant has the "burden of proving that it appears to a reasonable probability that the claim is in excess of the statutory jurisdictional amount."Mehlenbacher v. Akzo Nobel Salt, Inc., 216 F.3d 291, 296 (2d Cir. 2000) (internal citations omitted).
It is undisputed that there is complete diversity of citizenship among the parties to this case, since the named plaintiff's are New York residents (Compl. ¶¶ 12, 13) and the defendants (a Nevada corporation with its principal place of business in IIlinois. and a Delaware corporation with its principal place of business in California (Notice of Removal ¶ 14)), are not. Plaintiffs argue, however, that the amount-in-controversy requirement is not satisfied.
In a diversity class action, members of the proposed class are generally not permitted to aggregate their claims to achieve the required jurisdictional amount. Snyder v. Harris 394 U.S. 332, 338 (1969). Instead, each individual class member must independently establish the requisite amount-in-controversy — here, $75,000.Zahn v. Int'l Paper Co., 414 U.S. 291, 294-95 (1973). The class members cannot do that here, as the compensatory damages per plaintiff are minimal; the named plaintiff's Kings Choice and Schneider, for example, claim damages of thirty dollars and five dollars, respectively. (Compl. ¶¶ 48, 51.) Plaintiffs may rely on the total amount in controversy, however, where "several plaintiff's unite to enforce a single title or right, in which they have a common and undivided interest." Troy Bank of Troy, Indiana v. G.A. Whitehead Co., 222 U.S. 39, 40-41 (1911).
Defendants offer three principal theories in an effort to meet the amount in controversy requirement. They argue (1) that the injunctive relief plaintiff's seek has a value to DHL in excess of the jurisdictional minimum; (2) that plaintiff's' request for disgorgement of the money DHL obtained as a result of the Processing Fees permits aggregation of the claims; and (3) that plaintiff's' claim for attorneys' fees provides an independent basis for jurisdiction. For the reasons that follow, none of the defendants' theories are availing.
A. Injunctive Relief
Plaintiffs seek to enjoin DHL from continuing to charge parcel recipients the Processing Fee for international shipments where DHL advances the customs duties. Although none of the class members has asserted an individual claim for damages exceeding $75,000, DHL argues that the jurisdictional requirement is met by the value of the injunctive relief requested. Where injunctive relief is sought, the amount in controversy is measured by "the value of the object of the litigation."Hunt v. Washington State Apple Advertisine Comm'n 432 U.S. 333, 347 (1977).
Here, the value of the injunction differs enormously depending on whether it is considered from the viewpoint of the plaintiff's or defendants. For the plaintiff's, under Snyder's non-aggregation rule, the value to each class member must be considered individually. 394 U.S. at 338. Considering how many packages would have to be received by each class member in the future to recoup $75,000, the value of the injunction to individual class members falls far short of the jurisdictional requirement. However, given the volume of DHL's business, the cost to DHL of dropping the Processing Fee would almost certainly exceed $75,000. In Hunt itself, the Supreme Court measured the value of the injunction by the loss that any individual member of the plaintiff association would suffer if the injunction were not granted. 432 U.S. at 347. But the Court did not consider or reject other approaches, and the lower courts are divided as to whose viewpoint should apply to value injunctive relief sought: the plaintiff's, the defendant's, or that of the party invoking federal jurisdiction. See 14C Wright et al., § 3725.
In this Circuit, however, it remains the general rule that the amount in controversy is measured from the plaintiff's viewpoint. See Kheel v. Port of New York Authority, 457 F.2d 46, 49 (2d Cir. 1972) ("generally . . . the amount in controversy is calculated from the plaintiff's standpoint"). While the Second Circuit has not specifically addressed whether the plaintiff's viewpoint rule also applies to removal jurisdiction, several district courts have found that it does in the context of class actions seeking injunctive relief. See Colon v. Rent-A-Center, Inc., 13 F. Supp.2d 553, 558 (S.D.N.Y. 1998) (applying plaintiff's viewpoint to value an injunction preventing defendant from charging certain prices); Bernard v. Gerber Food Products Co., 938 F. Supp. 218 (S.D.N.Y. 1996) (applying plaintiff's viewpoint to value an injunction preventing defendant from disseminating certain advertising, and mandating alternate advertising).
At least one court in this District has found thatKheel does not completely close the door on valuation from the defendant's viewpoint. Mortgaged Inc., v Wallberg, No. 02 Civ. 5911 (JSM), 2002 WL 31324135 (S.D.N.Y. Oct. 16, 2002) (valuing prospective injunctive relief from the defendant's viewpoint in a non-class action). While there may be some situations where valuing injunctive relief from the defendant's viewpoint is appropriate, this class action (which also seeks damages) is not one of them. Where a plaintiff class seeks damages as well as an injunction, application of the defendant's viewpoint to secure federal jurisdiction would be simply a device to evade the nonaggregation rule of Snyder andZahn. See Colon. 13 F. Supp.2d at 558, quoting 15 James Wm. Moore et al., Moore's Federal Practice, ¶ 102.109[6], at 102-202 ("'if the defendant's viewpoint is to be considered, the rule of nonaggregation may be circumvented. . . . For this reason, courts have been reluctant to adopt any approach other than the plaintiff's viewpoint in class actions'" (emphasis in Colon)).
Seeing no reason to depart from what has been correctly characterized as the "prevailing approach in this Circuit," Katz v. Warner-Lambert Co., 9 F. Supp.2d 363, 364 (S.D.N.Y. 1998), this Court concludes that the value of an injunction prohibiting DHL from charging the Processing Fee must be assessed from the perspective of each individual class member. From that perspective, the amount in controversy falls far short of the required $75,000.
B. Disgorgement
Alternatively, defendants claim that the jurisdictional requirement is met because the "common fund" exception to the nonaggregation rule applies to the disgorgement monies plaintiff's seek. In addition to the compensatory damages allegedly due individual class members for each Processing Fee he or she actually paid after receiving an international package, plaintiff's also request that DHL disgorge the "unlawful profits" by which DHL was allegedly unjustly enriched. (Compl. ¶ 68.) Defendants argue that this lump sum may be considered as a whole, and would clearly exceed the jurisdictional minimum. That argument, however, is precluded by Second Circuit precedent. See Gilman v. BHC Securities, Inc., 104 F.3d 1418 (2dCir. 1997)
It is a "well-established principle . . . that 'when several plaintiff's unite to enforce a single title or right, in which they have a common and undivided interest, it is enough if the their interests collectively equal the jurisdictional amount.'" Gilman, 104 F.3d at 1422, quoting Troy Bank, 222 U.S. at 40-41. Defendants argue that this "common fund" doctrine applies to the claims of unjust enrichment and disgorgement, because all plaintiff's have a "common and undivided interest" in the finite sum disgorged, which is entirely separate from the requested compensatory damages. (Def. Mem. 18.) Essentially, defendants argue that the disgorgement funds will go into a common pot, to which all class members will share an equal right.
It is not necessarily clear that the plaintiff's would share the disgorgement fund (or more accurately, any amount disgorged that remained after plaintiff's were compensated for their losses) equally, rather than in proportion to the damages they have suffered, but for purposes of this discussion defendants' premise may be accepted arguendo.
But in Gilman, the Second Circuit has rejected this very argument, forbidding application of the common fund doctrine to meet the amount-in-controversy requirement in a state-law class action seeking disgorgement of proceeds into a fund to be divided among class members, even though all class members allegedly had an equal right to share in the proceeds. 104 F.3d at 1426-1428. The Gilman Court noted that "[u]nder the classic 'common fund' cases, what controls is the nature of the right asserted, not whether successful vindication of the right will lead to a single pool of money that will be allocated among the plaintiff's." Id. at 1427. Here, the right asserted is the right to be free of the Processing Fee imposed by DHL, not any right to a pre-existing object or amount of money.
Another court has noted that the "paradigm cases of 'common and undivided interest' . . . are those which involve a single indivisible res, such as an estate, a piece of property (the classic example), or an insurance policy." Bishop v. General Motors Corp., 925 F. Supp. 294, 298 (D.N.J. 1996), quoted inBernard, 938 F. Supp. at 222. Such objects of litigation exist and confer shared rights on their joint owners independent of the litigation, unlike the potential disgorgement fund at issue here, which is created by the litigation and does not speak to the nature of the rights the plaintiff's have asserted. As the Second Circuit noted long ago, defendants' argument rests on a fiction: "To call any recovery that a class might win a 'fund' to which the class plaintiff's are jointly entitled is merely added verbiage. There is no fund. The claim remains one on behalf of separate individuals for the damage suffered by each due to the alleged conduct of defendant." Rock Drilling Local Union No. 17 v. Mason Haneer Co., 217 F.2d 687, 695 (2d Cir. 1954), quoted in Gilman. 104 F.3d at 1427. Because plaintiff's' alleged right to share in the potential common disgorgement pot is not "a pre-existing (pre-litigation) interest in the subject of the litigation," Gilman, 104 F.3d at 1427, the disgorgement relief sought may not be aggregated to meet the jurisdictional minimum of $75,000.
C. Attorneys' Fees
Defendants' last-ditch effort to meet the amount-in-controversy requirement travels a well-worn path that has been rejected by at least three courts in this district and followed by none in the context of a class action. Defendants argue that the requested attorneys' fees will exceed $75,000, that such fees may be awarded to the class representative under N.Y.C.P.L.R. Rule 909 (thus meeting the jurisdictional minimum for the class representative), and that this Court may exercise supplemental jurisdiction pursuant to 28 U.S.C. § 1367 over the remaining class members' claims, which do not meet the threshold amount. This Court joins the well-reasoned holdings of Colon, 13 F. Supp.2d at 561, Bernard, 938 F. Supp. at 223-24, and Trapanotto v. Aetna Life Ins. Co., No. 95 Civ. 10704 (LAP), 1996 WL 417519, at *8-11 (S.D.N.Y. July 25, 1996) in rejecting this approach.
N.Y. C.P.L.R. Rule 909 provides in relevant part that:
If a judgement in a . . . class action is rendered in favor of the class, the court in its discretion may award attorneys' fees to the representatives of the class based on the reasonable value of legal services rendered and if justice requires, allow recovery of the amount rewarded from the opponent of the class.
It is true that "[a] potential award of attorneys' fees may be considered by the court when determining whether a case involves the jurisdictional minimum." Gardiner Stone Hunter Int'l v. Iberia Lineas Aereas de España, S.A., 896 F. Supp. 125, 128 (S.D.N.Y. 1995). Here, state statute permits the court in its discretion to award attorneys' fees to the plaintiff's at the conclusion of the litigation. At this time, the prospect of such relief is speculative, since the class has not been certified and there is no basis to decide whether justice requires an award of fees or what those fees might reasonably be. As another court that declined to add prospective attorneys' fees to plaintiff's' damages in order to meet the jurisdictional minimum has noted, "[i]t does not appear that [Rule] 909 of the C.P.L.R. was intended to serve as such an easily invoked jurisdictional hook." Trapanotto, 1996 WL 417519 at *10.
As Judge Sand noted in Colon, 13 F. Supp.2d at 561, n. 4, Gardiner did not involve a class action, and thus did not confront the nonaggregation rule.
Since the Court declines to exercise its discretion to consider prospective attorneys' fees as part of the class representative's damages, the question of supplemental jurisdiction need not be reached. However, the Court notes that defendants' argument that 29 U.S.C. § 1367 effectively overrules the Zahn decision is "the minority view and has not been followed in this Circuit." Bernard, 938 F. Supp. at 223. While the Second Circuit has not considered this question, the district courts that have done so have rejected defendants' argument. See Colon 13 F. Supp.2d at 553, Bernard, 938 F. Supp. at 223, Trapanotto, 1996 WL 417519, at *11. Therefore, even if the Court permitted potential attorneys' fees in excess of $75,000 to be added to the class representative's claimed damages, defendants' argument would still fail because the Court could not exercise supplemental jurisdiction over other class members' claims.
CONCLUSION
For the foregoing reasons, plaintiff's' motion to remand is granted and the case is remanded to the Supreme Court of the State of New York. Because this Court lacks jurisdiction to decide the defendants' motion to dismiss the Complaint, that motion is denied. The Clerk is respectfully directed to close out both motions and to close the case.