Summary
denying award of attorneys' fees where Court found that removal was not a "frivolous or dilatory tactic."
Summary of this case from Rubin v. Mastercard International, LLCOpinion
03 Civ. 2111 (WHP)
September 10, 2003, Decided. September 11, 2003, Filed
For Plaintiffs: Michael A. Fischer, Esq., Law Office of Michael A. Fischer, New York, New York.
For Plaintiffs: David R. Scott, Esq., Scott & Scott, LLC, Colchester, Connecticut.
For MasterCard International, Inc., Defendant: Jay N. Fastow, Esq., Bruce A. Colbath, Esq., Theodore Allegaert, Esq., Weil, Gotshal & Manges LLP, New York, New York.
MEMORANDUM AND ORDER
WILLIAM H. PAULEY III, District Judge:
Plaintiffs originally brought this suit in New York State Supreme Court, New York County. Defendant MasterCard International Incorporated ("MasterCard") removed the action to this Court based on federal question jurisdiction, and filed it as related to In re Currency Conversion Fee Antitrust Litigation, MDL No. 1409, M 21-95, currently pending before this Court. Plaintiffs now seek to remand this action to state court, as well as an award of attorneys fees because removal was frivolous.
Plaintiffs allege that MasterCard acted deceptively and misleadingly in connection with the disclosure of its currency conversion "fee" on foreign currency transactions. Specifically, plaintiffs allege two causes of action: (1) violation of New York General Business Law ("GBL") § 349; and (2) common law fraud. It is undisputed that plaintiffs do not expressly allege any federal cause of action, nor do they explicitly mention the Truth in Lending Act ("TILA"). MasterCard nonetheless removed this action pursuant to 28 U.S.C. § 1441, and alleged federal question jurisdiction citing D'Alessio v. New York Stock Exchange, 258 F.3d 93 (2d Cir. 2001).
"Removal statutes are construed narrowly and all uncertainties are resolved in favor of remand in order to promote the goals of federalism, restrict federal court jurisdiction, and support the plaintiff's right to choose the forum." Curtin v. Port Authority of N.Y., 183 F. Supp. 2d 664, 667 (S.D.N.Y. 2002); accord Somlyo v. J. Lu-Rob Enter., Inc., 932 F.2d 1043, 1045-46 (2d Cir. 1991); Stamm v. Barclays Bank of N.Y., 1996 U.S. Dist. LEXIS 15781, No. 96 Civ. 5158 (SAS), 1996 WL 614087, at *1 (S.D.N.Y. Oct. 24, 1996). The defendant has the burden of proving federal jurisdiction. Grimo v. Blue Cross/Blue Shield, 34 F.3d 148, 151 (2d Cir. 1994); Curtin, 183 F. Supp. 2d at 667.
A case may be removed to federal court only if it could have been filed in federal court in the first instance. Vera v. Saks & Co., 335 F.3d 109, 113 (2d Cir. 2003); Cicio v. Does, 321 F.3d 83, 92 (2d Cir. 2003); D'Alessio, 258 F.3d at 99. Thus, the question is whether this case falls within this Court's original federal question jurisdiction. In the removal context, the Supreme Court has held that federal question jurisdiction exists when "federal law creates the cause of action" or "where the vindication of a right under state law necessarily turns on some construction of federal law." Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 9, 27-28, 77 L. Ed. 2d 420, 103 S. Ct. 2841 (1983); accord Cicio, 321 F.3d at 92; D'Alessio, 258 F.3d at 99; Curtin, 183 F. Supp. 2d at 667.
A court must determine whether there is a federal question by reference to the "well-pleaded complaint" doctrine, which requires that the Court look merely to the claims pleaded by the plaintiffs and the elements thereof. D'Alessio, 258 F.3d at 100; Aetna U.S. Healthcare Inc. v. Maltz, 1999 U.S. Dist. LEXIS 6708, No. 98 Civ. 8829 (WHP), 1999 WL 285545, at *2 (S.D.N.Y. May 4, 1999); Curtin, 183 F. Supp. 2d at 667. One exception to that rule is where the complaint is "artfully pleaded" to avoid making explicit reference to what is in fact a federal claim. D'Alessio, 258 F.3d at 100; Curtin, 183 F. Supp. 2d at 667. In essence, when reviewing the allegations and claims in the complaint, "the Court must … determine whether the substance of those allegations raises a federal question." West 14th St. Commercial Corp. v. 5 West 14th Owners Corp., 815 F.2d 188, 193-94 (2d Cir. 1987); accord D'Alessio, 258 F.3d at 100.
MasterCard argues that plaintiffs have artfully pleaded only state law claims to avoid federal jurisdiction and inclusion in the main MDL action pending before this Court. Thus, MasterCard maintains that under the artful pleading doctrine, this Court has jurisdiction over this case because it involves a substantial federal question.
In support of their motion, MasterCard argues that in order to prevail on their Section 349 and fraud claims, plaintiffs must ultimately prove, inter alia, that MasterCard owes - and has breached - a duty to make certain disclosures to plaintiffs concerning currency conversion fees. MasterCard contends that any adjudication of plaintiffs' Section 349 and common law fraud claims will require analysis of whether MasterCard had a duty to make the repetitive disclosures plaintiffs allege are required. See Swerky v. Dreyer & Traub, 219 A.D.2d 321, 643 N.Y.S.2d 33, 36 (1st Dep't 1996); Mobil Oil Corp. v. Joshi, 202 A.D.2d 318, 609 N.Y.S.2d 214, 215 (1st Dep't 1994); Mendelson v. Trans World Airlines, 120 Misc. 2d 423, 466 N.Y.S.2d 168 (Sup. Ct. Queens Cnty. 1983).
MasterCard asserts that plaintiffs have failed to identify any such duty grounded in state law, and that the only potential source of a duty is TILA. A recent New York State Appellate Division, First Department case supports MasterCard's argument. In Sims v. First Consumers National Bank, 303 A.D.2d 288, 758 N.Y.S.2d 284 (1st Dep't 2003), a case involving credit card disclosures where plaintiffs alleged Section 349 and fraud claims, the Court held "the applicable legal standards against which the disclosure statement must be analyzed are provided by Regulation Z, which is derived from the federal Truth in Lending Act." 758 N.Y.S.2d at 286. Thus, MasterCard insists that plaintiffs cannot overcome the fact that any adjudication of their claims necessitates an interpretation of federal law, namely Regulation Z and TILA. As such, according to MasterCard, this case involves the vindication of a right under state law that necessarily turns on a construction of federal law, namely TILA. Therefore, under D'Alessio, where adjudication of plaintiffs' claims require analysis of a duty to disclose that was expressly created by federal law, remand is not warranted. See 258 F.3d at 100-01.
Plaintiffs argue that their complaint is based entirely on state law, alleges no latent federal claim, and goes out of its way not to mention or refer to any federal cause of action or federal statute. They contend that their Section 349 and common law fraud claims can be adjudicated without establishing or enforcing any federal right. As such, they disavow any reliance on federal law. In fact, at oral argument the following exchange occurred between the Court and Mr. David R. Scott, counsel for plaintiffs:
THE COURT: Well, are you giving up any right to rely on a duty imposed by TILA?
MR. SCOTT: That is an interesting question because as I understand it, there is a possibility that we may be collaterally estopped in the state court action. And in all candor to the Court, I have not really thought about this issue, but as --
THE COURT: It may become a question of judicial estoppel.
MR. SCOTT: Exactly, your Honor, and I'm not certain -- we may, and I have not had an opportunity to think about it, other than this discourse that you and I are having. There may be an issue where we would not be able to rely on any aspect of TILA in the state court action. I'm sorry I am not able to give a more intelligent answer to that. But to the extent, perhaps to the extent that we are in state court, and to the extent that we do not make any claim based upon TILA currently, and we do not invoke any federal statute, then I'm not certain that the issue would arise on the plaintiff's side in the state court.
THE COURT: But you'd have a state law claim for fraud, right? And isn't an element of the state law claim for fraud the need for a duty to exist, some of sort of privity, if you will, in order to sustain a claim of fraud?
MR. SCOTT: We believe that -- yes, I think there would need to be a duty on -- there would need to be a duty, but our reading of the cases which address 349, suggest that you just need to show that we need to show that there is a likelihood that the conduct engaged in would be likely to deceive the reasonable consumer. And that [the] issue of duty is an issue which may very be handled at the demurrer or [motion] to dismiss stage, but as it relates to [whether] this Court has subject matter jurisdiction, I don't believe that it is a relevant issue.
…
In this case, we have not alleged any federal claim or statute. The Court in the state court need not establish or interpret or enforce any federal law, or any federal statute.
(Transcript of Oral Argument dated June 17, 2003 ("Tr."), at 3-5.) Plaintiffs' counsel succinctly summarized his position when he stated,
The case should be back in state court, where we're going to assert our 349 violation, we are going to assert our common law fraud claim, to the extent at the demurrer stage or motion to dismiss stage, the issue is raised concerning the duty, then we will live or die by our pleading.
(Tr. at 9.)
Further, plaintiffs attempt to distinguish D'Alessio, on which MasterCard heavily relied, by arguing that a violation of federal law is not an element of any of their claims. They contend that MasterCard's conduct is deceptive and unfair regardless of any independent duty to disclose under TILA, and consequently it will be unnecessary to construe any federal law to adjudicate their claims. At most, plaintiffs contend, any argument concerning whether MasterCard's duty to disclose existed under federal or state law would be a defense MasterCard can raise, but which is properly heard in state court. See Franchise Tax Bd., 463 U.S. at 13.
The question before this Court is whether it has jurisdiction over this action, not whether plaintiffs have stated sufficient claims for common law fraud and violation of Section 349 of the New York GBL. As the Second Circuit recently reiterated,
Whether a federal court possesses federal-question subject matter jurisdiction and whether a plaintiff can state a claim for relief … are two questions that are easily, and often, confused.
The Supreme Court long ago explained that 'if the plaintiff really makes a substantial claim under an act of Congress, there is jurisdiction whether the claim ultimately be held good or bad.' The Fair v. Kohler Die & Specialty Co., 228 U.S. 22, 25, 33 S. Ct. 410, 57 L.E. 716, 1913 Dec. Comm'r Pat. 530 (1913) (Holmes, J.). In other words, the question of whether a federal statute supplies a basis for subject matter jurisdiction is separate from, and should be answered prior to, the question of whether the plaintiff can state a claim for relief under the statute.
Carlson v. Principal Fin. Group, 320 F.3d 301, 305-06 (2d Cir. 2003) (citations omitted).
Here, MasterCard is arguing that plaintiffs cannot state a claim for common law fraud and a violation of Section 349 of the GBL without asserting a duty to disclose certain information arising from federal law. Plaintiffs dispute that, and argue that they have not cited, relied on, or implicated any federal law. MasterCard's arguments, whether they are correct or not, are misplaced on a motion to remand where plaintiffs have disavowed any reliance on federal law. See Carlson, 320 F.3d at 307 ("In assessing its jurisdiction, however, the District Court erred in even examining these issues, which go to the merits of [plaintiff's] claims."). Thus, as plaintiffs do not allege any federal causes of action and disavow any reliance on federal law for their state causes of action, and because this Court narrowly construes removal statutes, this Court finds that it lacks subject-matter jurisdiction over this case. Therefore, in these limited factual circumstances remand is warranted.
In determining that this case should be remanded to state court, this Court relies primarily on plaintiffs' representations to the Court, both in its submissions and at oral argument, that they are not relying on any federal law. Counsel for plaintiffs has even acknowledged that they may now be estopped from asserting any reliance on federal law (Tr. at 3-5), but that is not a determination for this Court to make. Notably, a district court in the District of Arizona, in a case presenting claims very similar to those in this action, has similarly found that it lacked federal jurisdiction where the plaintiffs asserted no federal claims and disavowed any reliance on federal law. Perry v. MasterCard Int'l Inc., No. CV 03-0881, slip op. at 1-2 (D. Ariz July 22, 2003). This Court agrees with the Perry court and finds that remand is warranted.
However, MasterCard is free to remove this action once again if, in the state court proceeding, plaintiffs assert an argument that relies on federal law or attempt to rely on federal law for their claims, and the state court permits them to do so. Plaintiffs will not be permitted to disavow reliance on federal law in this Court and then assert federal law in state court.
One such reason for removal would arise if the state court found plaintiffs are not estopped from relying on federal law.
Lastly, plaintiffs have also moved for attorneys' fees pursuant to 28 U.S.C. § 1447(c), which provides that "an order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal." Although this Court is remanding this action, it does not find that an award of attorneys fees is warranted. The removal of this action was not in any way frivolous or a dilatory tactic. The remand motion involved legitimate issues concerning the subject matter jurisdiction of this Court, and any award of attorneys fees for the removal in this action could have an unjustified chilling effect.
Accordingly, plaintiffs' motion to remand this case to New York State Supreme Court, New York County is granted. Plaintiffs' motion for attorneys fees, however, is denied. The Clerk of the Court is directed to close this case.
Dated: September 10, 2003
SO ORDERED:
WILLIAM H. PAULEY III
U.S.D.J.