Opinion
Case No. 3:13-cv-00029-SB
03-17-2017
HANNAH FREDRICKSON, ASHLEY KRENING and MAURIALEE BRACKE, Plaintiffs, v. STARBUCKS CORPORATION, a Washington corporation, Defendant.
FINDINGS AND RECOMMENDATION
BECKERMAN, Magistrate Judge.
Plaintiffs filed suit in Oregon state court on December 10, 2012, against Starbucks Corporation ("Starbucks"), seeking unpaid wages and statutory penalties based on Starbucks' improper withholding of state and federal taxes from their tips. Specifically, Plaintiffs alleged that Starbucks made payroll tax deductions from employees' paychecks based on "imputed" tips of fifty cents per hour, in violation of Oregon law. Starbucks timely removed the case to federal court, asserting federal question jurisdiction, diversity jurisdiction under the Class Action Fairness Act ("CAFA"), and jurisdiction under 28 U.S.C. § 1340.
Plaintiffs seek to represent a class consisting of "all current and former Oregon employees of Starbucks who reported or were imputed tips." (Compl. ¶ 34.) --------
Following removal, Starbucks filed a motion to dismiss on the ground that federal law preempts all of Plaintiffs' claims. In response, Plaintiffs moved to remand to state court contending that, among other things, the Tax Injunction Act divests this Court of jurisdiction. On August 28, 2013, a magistrate judge held that Starbucks' removal was proper because all of Plaintiffs' claims are preempted by federal law. Fredrickson v. Starbucks Corp., 980 F. Supp. 2d 1227, 1250 (D. Or. 2013) (Fredrickson I). Subsequently, the district judge adopted the magistrate judge's recommendation, finding that "jurisdiction was proper in this court because [P]laintiff's complaint ultimately raised a substantial federal question." Id. at 1230. The district judge also determined that subject matter jurisdiction was appropriate under CAFA, and that the Tax Injunction Act did not deprive this court of jurisdiction. Id. at 1232-33. Accordingly, the district judge denied the motion to remand, and granted the motion to dismiss. Id. at 1233. Plaintiffs appealed to the Ninth Circuit.
On November 3, 2016, the Ninth Circuit reversed the decision of this Court and held that although Plaintiffs "concede that the Class Action Fairness Act provides a basis for federal subject matter jurisdiction," the Tax Injunction Act and the federal-state comity doctrine deprive the federal courts of jurisdiction. Fredrickson v. Starbucks Corp., 840 F.3d 1119, 1121, 1126 (9th Cir. 2016) (Fredrickson II). On finding that all of Plaintiffs' claims were "jurisdictionally barred or foreclosed by the comity doctrine," the Ninth Circuit ordered that "the entire action must be remanded to state court." Id. at 1126. Based on the Ninth Circuit's holding, Plaintiffs seek a determination that they are entitled to fees and costs under 28 U.S.C. § 1447(c), incurred as a result of Starbucks' removal. For the reasons set forth below, the district judge should find that Plaintiffs are not entitled to fees and costs, and deny Plaintiffs' Motion for 28 U.S.C. § 1447(c) Determination (ECF No. 95).
LEGAL STANDARD
"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." 28 U.S.C. § 1447(c). The standard for awarding costs and fees turns on the reasonableness of the removal. Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005). "Absent unusual circumstances, courts may award attorney's fees under § 1447(c) only where the removing party lacked an objectively reasonable basis for seeking removal." Id. "[R]emoval is not objectively unreasonable solely because the removing party's arguments lack merit[.]" Lussier v. Dollar Tree Stores, Inc., 518 F.3d 1062, 1065 (9th Cir. 2008); see also Burkholder v. Asbestos Claims Mgmt. Corp., No. 07-cv-781, 2007 WL 2463307, at *4 (D. Or. Aug. 28, 2007) ("The mere fact" that a court grants a motion to remand "does not mean the [defendant] removed th[e] action without an objectively reasonable basis."). Remand does not create a presumption in favor of awarding attorney's fees and costs. Martin, 546 U.S. at 137.
DISCUSSION
I. STARBUCKS' REMOVAL WAS OBJECTIVELY REASONABLE
The sole issue before the Court is whether Starbucks' removal was objectively reasonable. The test for objective reasonableness "is whether the relevant case law clearly foreclosed the defendant's basis of removal." Lussier, 518 F.3d at 1066. At the time of Starbucks' removal, the relevant case law was complex and not easily discernable under the facts of this case. See Fredrickson I, 980 F. Supp. 2d at 1230 (noting the "substantial and difficult questions raised by the parties concerning federal question jurisdiction"). Indeed, both the magistrate judge and district judge concluded that Starbucks' removal was proper. Standing alone, those opinions demonstrate that the relevant case law did not clearly foreclose Starbucks' bases for removal. In any event, this Court also concludes, based on the analysis set forth below, that Starbucks' removal of this case was objectively reasonable.
A. Tax Injunction Act
As a threshold matter, the Court notes that CAFA provided an undisputed basis for removal of this case. See Fredrickson II, 840 F.3d at 1121 ("Starbucks removed the case to federal court, and the [P]laintiffs now concede that the Class Action Fairness Act provides a basis for federal subject matter jurisdiction.") (citing 28 U.S.C. § 1332(d)); see also Fredrickson I, 980 F. Supp. 2d at 1230 (finding that "[s]ubject matter jurisdiction is appropriate" under CAFA). The Ninth Circuit ultimately concluded, however, that the Tax Injunction Act and the federal-state comity doctrine deprived the district court of jurisdiction. Plaintiffs now contend that because "clear and binding statutory and case-law authority required remand[,] . . . there was no objectively reasonable basis for Starbucks' removal." (Pls.' Mot. 3-4.) The Court disagrees.
The Tax Injunction Act directs that: "[D]istrict courts shall not enjoin, suspend, or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State." 28 U.S.C. § 1341. In Fredrickson I, the district court found that the "dispositive question" in resolving § 1341's jurisdictional bar is whether Plaintiffs' action would reduce the flow of state tax revenue. 980 F. Supp. 2d at 1232. The district court determined that the Tax Injunction Act was not applicable here, because although "this is a tax refund suit insofar as [P]laintiffs are seeking to recover from Starbucks sums paid as taxes, it does not affect state tax revenue in any way, as [P]laintiffs admit that the tip income is taxable in some manner." Id. at 1233.
On appeal, the Ninth Circuit agreed the dispositive issue was whether Plaintiffs' relief would impede the collection of taxes within the meaning of the Tax Injunction Act. Fredrickson II, 840 F.3d at 1122. Contrary to the district court's finding, however, the Ninth Circuit found that granting Plaintiffs' requested equitable relief would "stop" the collection of taxes, triggering the Tax Injunction Act's bar. Id. In reaching its conclusion, the Ninth Circuit relied in part upon non-binding precedent from the Third and Fourth Circuits. Id. at 1122 ("We agree with the Third and Fourth Circuits and hold that the Tax Injunction Act bars the district court from enjoining Starbucks' withholding of state taxes from the baristas' paychecks.") (citing Sipe v. Amerada Hess Corp., 689 F.2d 396, 401-03 (3d Cir. 1982), and Int'l Lotto Fund v. Virginia State Lottery Dep't, 20 F.3d 589, 591-93 (4th Cir. 1994)). In addition, the Ninth Circuit looked to the post-removal Supreme Court decision in Direct Mktg. Assoc. v. Brohl, ___ U.S. ___, 135 S. Ct. 1124, 1127 (2015) for guidance on the scope of the Tax Injunction Act. See, e.g., id. at 1123 ("[O]ur holding is consistent with the scope of the Tax Injunction Act outlined by the Supreme Court in Direct Marketing."). Even though the Ninth Circuit reached a different conclusion regarding whether Plaintiffs' requested relief would impede the collection of taxes, Starbucks' arguments to the contrary were not clearly foreclosed by existing case law. See Lussier, 518 F.3d at 1066 (finding that test is whether the relevant case law clearly foreclosed defendant's basis of removal). Rather, it was a close question.
Accordingly, the Court concludes that Starbucks' removal was objectively reasonable, and Plaintiffs' request for fees and costs should be denied. See, e.g., Toensmeier v. Amalgamated Transit Union, No. 3:15-CV-01998-HZ, 2016 WL 884644, at *4 (D. Or. Mar. 8, 2016) (denying request for fees because although defendant's removal of state law claims based on federal preemption was erroneous, it was not "objectively unreasonable or frivolous"); Salomon v. Mass. Mut. Life Ins. Co., No. 03:11-cv-01007-HU, 2012 WL 1081191, at *9 (D. Or. Jan. 13, 2012) (denying request for fees because "[e]ach party's arguments were well taken" and it was not obvious that jurisdiction was lacking); Brownlow v. Am. Beef Processing, LLC, No. 09-1277-AC, 2011 WL 3268340, at *3-4 (D. Or. June 21, 2011) (denying request for fees even where defendant conceded that it had improperly removed case because it was unaware of binding precedent that foreclosed jurisdiction); Fed. Home Loan Mortg. Corp. v. Lettenmaier, No. CV-11-165-HZ, 2011 WL 1297960, at *2 (D. Or. Apr. 5, 2011) (denying request for fees despite defendant's knowledge of an adverse decision from the same district that was directly on point, because "defendants' attempt to persuade [the court] to reach a different conclusion was not frivolous").
B. Federal-State Comity
Nor were Starbucks' arguments against application of the federal-state comity doctrine clearly foreclosed by existing case law. In Frederickson II, the Ninth Circuit found that "[a]ny award of statutory damages here would have the same disruptive effect as entry of a declaratory judgment or issuance of an injunction, thereby undermining the state-revenue-protective objectives of the Tax Injunction Act." 840 F.3d at 1124. As a result, federal-state comity would preclude the district court from awarding statutory damages. Id. Before reaching this conclusion, however, the Ninth Circuit first acknowledged that "the Supreme Court has not yet decided whether the Tax Injunction Act bars claims for damages." Fredrickson II, 840 F.3d at 1124. The court did not need to resolve the issue because it found that, in any event, the federal-state comity doctrine precluded the district court from awarding statutory damages. While Starbucks' arguments against application of the comity doctrine were ultimately unsuccessful, that result does not translate to "objectively unreasonable" in light of the unsettled issues relevant to the analysis. See Lussier, 518 F.3d at 1065 ("There is no question that [defendant's] arguments were losers. But removal is not objectively unreasonable solely because the removing party's arguments lack merit, or else attorney's fees would always be awarded whenever remand is granted."). To be sure, many courts have recognized that comity is "a complex and elusive concept." Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 886 (9th Cir. 2012) (quotations and citation omitted); see also Hilton v. Guyot, 159 U.S. 113, 163-64 (1895) (noting that comity "is neither a matter of absolute obligation, on the one hand, nor of mere courtesy and good will, upon the other"). As such, the Court concludes that existing case law did not clearly foreclose Starbucks' bases for removal. Lussier, 518 F.3d at 1066.
CONCLUSION
Following divergent opinions by a magistrate judge, district judge, and the Ninth Circuit, it was finally determined that this case should be remanded to state court. The Ninth Circuit noted in its opinion that its jurisdictional analysis involved matters of first impression in this Circuit, and was aided in part by non-binding precedent from the Third and Fourth Circuits and a post-removal Supreme Court case. Based on relevant case law at the time of removal, Starbucks' removal was objectively reasonable. Accordingly, the district judge should find that Plaintiffs are not entitled to fees and costs incurred as a result of Starbucks' removal, and DENY Plaintiffs' Motion for 28 U.S.C. § 1447(c) Determination (ECF No. 95).
SCHEDULING ORDER
The Findings and Recommendation will be referred to a district judge. Objections, if any, are due fourteen (14) days from service of the Findings and Recommendation. If no objections are filed, the Findings and Recommendation will go under advisement on that date. If objections are filed, a response is due fourteen (14) days after being served with a copy of the objections. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will go under advisement.
DATED this 17th day of March 2017.
/s/_________
STACIE F. BECKERMAN
United States Magistrate Judge