Saturday, April 18, 2015

FYI: 9th Cir Allows Removals Under CAFA Even If Prior Pleading Revealed Alternative Basis for Removal

The U.S. Court of Appeals for the Ninth Circuit recently reversed a district court’s order remanding a putative class action proceeding to state court on the basis that the removal was untimely under 28 U.S.C. § 1446(b).

In so ruling, the Ninth Circuit held that a defendant may remove a case from state court within thirty days of ascertaining that the action is removable under the federal Class Action Fairness Act (“CAFA”), even if an earlier pleading, document, motion, order, or other paper revealed an alternative basis for federal jurisdiction.


A borrower (“Borrower”) obtained a loan to purchase a house in Washington state. The loan was secured by a deed of trust, with the mortgage loan servicer (“Servicer”) as the beneficiary to the deed of trust. The deed of trust contained provisions permitting the beneficiary to enter the house and change the locks if the Borrower fails to perform the covenants and agreements contained in the deed of trust, or if the Borrower abandons the property. In April 2011, after the Borrower defaulted on her loan, the Servicer’s agents entered the Borrower’s home without notice, removed the existing locks, and installed a lockbox.

The Borrower, “as her separate estate, and on behalf of others similarly situated,” sued the Servicer in Washington state court, alleging six causes of action, including violations of the federal Fair Debt Collection Practices Act (“FDCPA”). The Borrower later filed a Second Amended Complaint, adding additional allegations and defining the proposed class.  The Borrower did not specify an amount in controversy in the complaint, but requested “damages in an amount to be proven at trial, including treble damages . . . .” The state court certified the proposed class on May 9, 2014. On June 3, 2014, the Borrower submitted responses to the Servicer’s discovery, stating that “the total amount of monetary damages is expected to exceed $25,000,000.00.”

On June 5, 2014, the Servicer filed a notice of removal to federal court pursuant to CAFA.

The Borrower moved to remand the case to state court, arguing that the Servicer’s notice of removal was untimely because it was filed more than two years after the Borrower’s initial complaint triggered federal question jurisdiction under the FDCPA. See 28 U.S.C. § 1331.

The Servicer countered that removal was timely because the Borrower’s answers to the Servicer’s discovery requests were the first “other paper from which it could be ascertained that the matter in controversy exceed[ed] $5,000,000,” one of the three necessary elements for triggering removal under CAFA.  The Servicer argued for extending the logic of Durham v. Lockheed Martin Corp. and recognize “a second and separate ground for removal, even if the initial complaint provided some other ground for removal,” thereby “reopen[ing]” the thirty-day removal window.

The district court remanded the case to state court because it was “not persuaded by Defendant’s policy argument not supported by the wording of the statute or case law.” The lower court found that “the general principles of removal jurisdiction apply in CAFA cases,” and “the relevant removal date is the date on which the case itself becomes removable, rather than the date on which the case first becomes removable under CAFA.”  The district court held that because the first amended complaint included a federal cause of action, the case was rendered removable within 30 days of the filing of the first amended complaint. 

The Servicer appealed, arguing that “[t]he same three reasons Durham cited for applying the broad interpretation of ‘removable’ to federal officer removals apply with equal force to CAFA removals.” First, the Servicer argued, Congress and the Supreme Court have instructed that section 1453, like section 1442 in Durham, should be interpreted broadly in favor of removal. Second, the Servicer argued, both section 1442 and section 1453 permit a single defendant to remove without the consent of other defendants, and a strict interpretation of “removable” would effectively eliminate single-defendant removals. Durham, 445 F.3d at 1253. Finally, as with section 1442, the Servicer argued that interpreting “removable” strictly would “encourage gamesmanship and defeat the policies underlying” CAFA. Id.

As you may recall, a defendant who is sued in state court may remove the action to federal court on various grounds, such as if the case presents a federal question under 28 U.S.C. § 1331, or if the requirements for diversity of citizenship are met under 28 U.S.C. § 1332. Section 1446(b)(1) requires the defendant to file a notice of removal “within 30 days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based.” 28 U.S.C. § 1446(b)(1).

However, if the case stated by the initial pleading is not removable, a notice of removal may be filed within 30 days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable. 

In 2005, Congress passed CAFA to permit defendants to remove class actions to federal court if they meet three requirements: (1) there must be minimal diversity of citizenship between the parties; (2) the proposed class must have at least 100 members; and (3) the aggregated amount in controversy must equal or exceed the sum or value of $5 million.  The Senate Report on CAFA explains that “[b]ecause interstate class actions typically involve more people, more money, and more interstate commerce ramifications than any other type of lawsuit, the Committee firmly believes that such cases properly belong in federal court.” S. Rep. No. 109–14, at 5; see Dart Cherokee, 135 S. Ct. at 554.

In Durham, the Ninth Circuit recognized that “there are two plausible ways to construe” the term “removable” in section 1446. The first way to interpret “removable” is as “binary—either there’s some basis for removal, or there’s not. . . . The second way to interpret ‘removable’ is to look to each ground for removal separately. Under this reading, a case does not become removable until the particular basis on which removal is sought becomes apparent from the record.” Id.

The initial complaint in Durham made the case eligible for removal on federal enclave grounds, but Lockheed Martin chose not to remove the case at that time. Durham’s answers to the defendant’s subsequent interrogatories, however, revealed that the case was also removable on federal officer grounds under section 1442(a)(1). Lockheed Martin removed the case to federal court within thirty days of discovering this new basis for removal, but more than thirty days after the initial basis for removal had been disclosed. The Ninth Circuit addressed whether Lockheed was “entitled to a new thirty-day period to remove” the case when it discovered a basis for federal jurisdiction under section 1442(a)(1), or whether removal was untimely based on the date of the initial complaint.

The Ninth Circuit held that “a federal officer defendant’s thirty days to remove commence when the plaintiff discloses sufficient facts for federal officer removal, even if the officer was previously aware of a different basis for removal.” Id. at 1253.  In so ruling, the Ninth Circuit noted that “the Supreme Court has mandated a generous interpretation of the federal officer removal statute ever since: ‘It scarcely need be said that such measures are to be liberally construed to give full effect to the purposes for which they were enacted.’” Id.

The Ninth Circuit generally “strictly construes” the requirements of removal, and that in the past, it “declined to construe CAFA more broadly than its plain language indicates,” Progressive W. Ins. Co. v. Preciado, 479 F.3d 1014, 1018 (9th Cir. 2007). See also Nevada v. Bank of Am. Corp., 672 F.3d 661, 667 (9th Cir. 2012). However, it was persuaded that the Supreme Court’s recent decision in Dart Cherokee makes clear that the “federal officer” category identified in Durham as an exception to the strict construction of removal statutes must now be expanded to include CAFA removals.

In Dart Cherokee, the Supreme Court addressed “[w]hether a defendant seeking removal to federal court is required to include evidence supporting federal jurisdiction in the notice removal, or [whether] alleging the required ‘short and plain statement of the grounds for removal’ [is] enough.” 135 S. Ct. at 552–53. There, the defendant removed a case from state to federal court under CAFA, alleging that the three elements triggering CAFA jurisdiction were present. Id. at 552–53. The plaintiff argued, and the district court agreed, that the notice of removal was “deficient as a matter of law” because it included “no evidence” proving that the amount in controversy exceeded $5 million. The district court remanded the action to state court, and the Tenth Circuit denied review. Id. at 552.

The Supreme Court reversed, noting that, no antiremoval presumption attends cases invoking CAFA, which Congress enacted to facilitate adjudication of certain class actions in federal court. See Standard Fire Ins. Co., 568 U.S.[ —, —], 133 S. Ct.[ 1345,] 1350 [(2013)].

The Borrower argued that this statement constituted dicta that could not overcome the Ninth Circuit’s long applied rule of strict construction against removal of class actions.  The Ninth Circuit again looked to the Supreme Court’s decision in Dart Cherokee. According to the Ninth Circuit, even though Dart Cherokee focused primarily on how specifically the “amount in controversy” requirement must be asserted in a defendant’s removal notice under CAFA, the Supreme Court left no doubt “that no antiremoval presumption attends cases involving CAFA.” 135 S. Ct. at 554. The Ninth Circuit noted that this declaration is bolstered by the Court’s reference to Congress’s “overall intent . . . to strongly favor the exercise of federal diversity jurisdiction over class actions with interstate ramifications.” S. Rep. No. 109–14, at 35.

The Ninth Circuit rejected that Borrower’s argument that any presumption in favor of removal expressed in Dart Cherokee and the Senate Report on CAFA applies only to section 1332, and not to removal procedure under section 1446. In Durham, the Ninth Circuit specifically addressed the “clear command from both Congress and the Supreme Court . . . to interpret section 1442 broadly in favor of removal,” and then recognized the need to “extend section 1442's liberal interpretation to section 1446.” Durham, 445 F.3d at 1253. Similarly, the Ninth Circuit held, Congress and the Supreme Court have instructed courts to interpret CAFA’s provisions under section 1332 broadly in favor of removal. 

Accordingly, the Ninth Circuit extended that liberal construction to section 1446.

The Ninth Circuit concluded that the Servicer’s removal under CAFA was timely, and that the action therefore properly belonged in federal court. The Borrower filed her initial complaint on April 3, 2012. The only basis for removal at that time was under section 1331. Not until June 3, 2014, when the Borrower specified in her answers to the Servicer’s interrogatories that the total amount in controversy exceeded $25 million, did the case become removable under CAFA. Two days later, the Servicer timely removed the case to federal court.

Lastly, the Ninth Circuit reversed the award of attorneys’ fees to the Borrower for wrongful removal because it found that the Servicer did have a reasonable basis for removal.



Eric Tsai
McGinnis Wutscher LLP
 
71 Stevenson Street, Suite 400
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Email: etsai@mwbllp.com

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