Summary
finding "fatal" to defendants' argument the fact that plaintiff's unlawful § 17200 claim was also supported by state law such that "a jury could find defendants violated section 17200 [] without finding [they] violated TILA"
Summary of this case from Pangilinan v. Downey Savings Loan AssociationOpinion
No. C-00-4256 VRW
December 29, 2000
ORDER
Before the court is a motion for remand, request for fees and costs and request for sanctions filed by plaintiffs, a class of California customers of defendants Providian National Bank and its related entities. Benjamin B Castro is the lead plaintiff. For the reasons set forth below, plaintiffs' motion is GRANTED in part and DENIED in part.
I
Plaintiffs originally commenced this matter in San Mateo County Superior Court on April 7, 1999, and filed a first amended complaint (FAC) on May 28, 1999. In essence, plaintiffs challenge various aspects of defendants' "Performance Based Pricing" program as that program applies to California customers of a particular credit product called Capital Cash. The program is embodied in plaintiffs' account agreements; it allows defendants to review the creditworthiness of customers and change their interest rates if they demonstrate risky behavior. All of plaintiffs' claims against the program are based on state law.
Plaintiffs' claim at the crux of the current dispute is the fourth cause of action in which plaintiffs assert that defendants have violated California Business and Professions Code §§ 17200, et seq. Plaintiffs allege, inter alia, that the challenged program is "unlawful" under one prong of section 17200. Specifically, the relevant portion of plaintiffs' fourth cause of action states:
[Defendants'] business practices and acts * * * are unlawful in that they are unconscionable, void and unenforceable and violate, among other laws, the California Legal Remedies Act and California Civil Code section 1670.5.
Declaration of Daniel J Mulligan (Mulligan Decl), Exh A, Compl ¶ 36. The fourth cause of action, as the remainder of the complaint, includes no reference to federal law in support of section 17200.
On October 19, 2000, plaintiffs moved for summary adjudication on the issues of duty and breach relevant to the FAC's first, third and fourth causes of action. See Mulligan Decl, Exh C at 1. In particular, plaintiffs sought summary adjudication that defendants owed and breached "a duty to provide Plaintiffs with advance notice prior to imposing increased interest rates * * *" Id at 6. Defendants argued in their opposition to that motion that they had provided all the notice that was "required by law," citing the provisions of the federal Truth in Lending Act (TILA), 15 U.S.C. § 1601, et seq and its implementing Regulation Z, 12 C.F.R. § 226, et seq. Defendants asserted that these federal laws specifically allowed them to give no notice to customers before changing credit terms. In their reply in support of summary adjudication filed on November 9, 2000, plaintiffs responded to defendants' arguments under the TILA and Regulation Z, arguing that these federal laws do actually require advance notice by defendants.
Defendants assert that until plaintiffs' discussion of the TILA and Regulation Z in their summary adjudication reply brief, plaintiffs had never before intimated that federal law played a part in their claims. Defendants thus contend that plaintiffs, by way of that reply brief, have thereby raised a federal claim triggering removal jurisdiction. On November 15, 2000, therefore, defendants filed a notice of removal. Seven days later, plaintiffs filed the motion for remand currently before the court.
II
Any civil action brought in state court may be removed to federal court by a defendant when federal courts have original jurisdiction over the matter. 28 U.S.C. § 1441. In the Ninth Circuit, however, it is well established that section 1441 is to be construed strictly against such removal jurisdiction. Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1064 (9th Cir 1979). "Federal jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance." Gaus v. Miles, 980 F.2d 564, 566 (9th Cir 1992) (citing Libhart, 592 F.2d at 1064).
After removal, a plaintiff may move to remand the matter to state court under 28 U.S.C. § 1447 for lack of federal jurisdiction or for procedural defects. Under those circumstances, "[t]he defendant bears the burden of establishing federal jurisdiction, and must overcome a strict construction of the removal statute against removal." Mangini v. RJ Reynolds Tobacco Co, 793 F. Supp. 925, 927 (ND Cal 1992) (citing Ethridge v. Harbor House Restaurant, 861 F.2d 1389, 1393 (9th Cir 1988)).
A
As a preliminary matter, the court assumes for purposes of analyzing the question of removal jurisdiction that despite defendants' delay in removing this matter until one and a half years after its initiation in state court, the notice of removal was nonetheless timely filed. Plaintiffs concede that 28 U.S.C. § 1446 (b) allows for removal of cases that are not removable under the initial pleading when defendants receive "a copy of an amended pleading, motion or order or other paper from which it may first be ascertained that the case is one which is or has become removable * * *" (emphasis added). Regardless of the merits of defendants' arguments in support of federal jurisdiction, the court will deem that plaintiffs' summary adjudication reply brief contained sufficient discussion of federal law to warrant a good faith belief that the case "has become removable." See 28 U.S.C. § 1446 (b). Accordingly, the court will not ground a remand on the basis that defendants' notice of removal was not timely filed.
B
The essence of plaintiffs' contention in support of remand, therefore, is that this court lacks subject matter jurisdiction. Plaintiffs argue in this regard that they have not asserted a claim under federal law because they were merely responding to references made to the TILA and Regulation Z by defendants and, even if they were asserting the TILA and Regulation Z as the basis for the unlawful prong of their section 17200 claim, such an assertion would be insufficient to provide federal removal jurisdiction.
Article III of the Constitution gives federal courts the power to hear cases "arising under" federal statutes. Merrell Dow Pharmaceuticals Inc v. Thompson, 478 U.S. 804, 807 (1986). 28 U.S.C. § 1331 executes that grant of power by providing that "district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws or treaties of the United States." Id at 808 n4. Whether a claim "arises under" federal law must be determined in the first instance by reference to the "well-pleaded complaint." Id at 808. "[F]ederal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint." Caterpillar Inc v. Williams, 482 U.S. 386, 292 (1987). "A defense that raises a federal question is inadequate to confer federal jurisdiction." Merrell Dow, 478 US at 808. Because defendants may remove the case only if the claim at issue could have been brought in federal court, 28 U.S.C. § 1441 (b), determining the existence of removal jurisdiction must also be assessed by reference to the "well-pleaded complaint." Merrell Dow, 478 US at 808.
As previously noted, the FAC in this matter alleges no claim under federal law. Unlike the "vast majority" of cases that come under federal question jurisdiction, therefore, the present matter does not involve a federal law that "creates the cause of action." See id (citing Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 8-9 (1983), quoting American Well Works Co v. Layne Bowler Co, 241 U.S. 257, 260 (1916) (Holmes dissent)). Rather, the laws creating plaintiffs' causes of action are state laws.
A case may also arise under federal law, however, when "the vindication of a right under state law necessarily turned on some construction of federal law." Franchise Tax Board, 463 US at 9. The question here is whether the arguable presence of a federal issue in a state-created cause of action under section 17200 of the California Business and Professions Code affords federal jurisdiction. According to defendants, plaintiffs now assert that the unlawful prong of section 17200 is supported by alleged violations of the federal TILA and Regulation Z.
Fatal to defendants' argument, however, is the fact that plaintiffs have both pled and intend to prove that the unlawful prong of section 17200 is supported by violations of state law as well. See Compl ¶ 36 (alleging violations of the California Legal Remedies Act and California Civil Code section 1670.5 to assert that defendants' behavior is "unlawful" under section 17200). Hence, whether or not plaintiffs have asserted the TILA as a basis for their section 17200 claim, the TILA is not a necessary element for a finding of liability under the state law at issue. Indeed, a jury could find that defendants have violated section 17200 — even just the unlawful prong of section 17200 — without finding that defendants have violated the TILA. As a result, plaintiffs' cause of action under section 17200 does "not depend necessarily upon a question of federal law." Merrell Dow, 478 US at 807 (quoting the lower appellate court's opinion with approval, 766 F.2d 1005, 1006 (6th Cir 1985)). Consequently, the court finds that plaintiffs' fourth cause of action does not arise under federal law and removal to this court was improper.
The court recognizes that both Merrell Dow and Franchise Tax Board, the two cases establishing the road map for the court's analysis of this issue, involved federal laws that did not provide private rights of action. As the Ninth Circuit has explained, "under Merrell Dow, if a federal law does not provide a private right of action, then a state law action based on its violation perforce does not raise a 'substantial' federal question" sufficient to confer federal-question jurisdiction.Utley v. Varian Associates, Inc, 811 F.2d 1279, 1283 (9th Cir 1987). Defendants have correctly pointed out that, unlike these cases, the TILA specifically provides a private right of action for truth in lending violations. See 15 U.S.C. § 1640. Nevertheless, the crucial message from the Supreme Court is that "original jurisdiction is unavailable unless it appears that some substantial, disputed question of federal law is a necessary element of one of the well-pleaded state claims * * *."Franchise Tax Board, 463 US at 13. Defendants have failed to meet their burden in this regard.
III
Plaintiffs have also moved for fees and costs under 28 U.S.C. § 1447 (c) and for sanctions pursuant to FRCP 11. Section 1447(c) specifically provides that the court has discretion "to require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal." Such fees and costs may be awarded without a finding that defendants acted in bad faith. See Moore v. Permanente Medical Group, Inc, 981 F.2d 443, 446-48. The court has broad discretion in this determination. See id. Defendants made the decision to remove this matter to federal court despite the absence of federal jurisdiction. Accordingly, the court concludes that plaintiffs should receive the fees and costs incurred in opposing this removal.
Nevertheless, the court finds that given defendants' good faith belief that a federal question may have been raised by plaintiffs' summary adjudication reply brief, sanctions under FRCP 11 are not appropriate.
For the foregoing reasons, plaintiffs' motion for remand is GRANTED and their motion for fees and costs under section 1447(c) is likewise GRANTED. Plaintiffs' motion for sanctions under FRCP 11, however, is DENIED. The clerk is directed to mail a certified copy of this order to the clerk of the San Mateo County Superior Court pursuant to section 1447(c).