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holding that since defendant failed to timely remove the original complaint, which was removable based on federal question jurisdiction, defendant thereby waived its right to file a subsequent removal even though the complaint was amended to add a new federal claim, where “the amendment to the complaint did not change the nature of the action so as to constitute a substantially new suit,” since the new allegations and claims were not substantially different from those in the original complaint
Summary of this case from MG Building Materials, Ltd. v. Paychex, Inc.Opinion
No. C 01-1750 SI
August 10, 2001
ORDER GRANTING PLAINTIFFS' MOTION TO REMAND AND REMANDING ACTION TO SAN MATEO COUNTY SUPERIOR COURT
On August 10, 2001, the Court heard argument on Plaintiffs Patrick and Barbara Sehl's motion to remand this case to state court. Having carefully considered the arguments of the parties and the papers submitted, the Court GRANTS plaintiffs' motion to remand this case to state court; and REMANDS this case to the San Mateo County Superior Court.
BACKGROUND
On September 5, 1999, Patrick and Barbara Sehl entered a sales contract to purchase a 1999 model "Zanzibar" motorcoach from Guaranty RV Centers ("Guaranty") for $316,390,09. Defendant's Amended Memorandum of Points and Authorities in Opposition to Plaintiff's Motion ("Opposition"), Exhibit A, Plaintiff's First Amended Complaint ("Amended Complaint") at ¶ 15. The manufacturer of the motorcoach was Safari Motor Coaches, Inc. Both Safari and Guaranty provided the Sehls with warranties on the vehicle. Amended Complaint at ¶ 17-18. According to the Sehls, over a period of eleven months, the motorcoach suffered numerous break-downs that Safari and Guaranty failed to repair. Id. at ¶ 19-21. The Sehls allege that they notified Safari and Guaranty of the defects by mail on or about July 21, 2000. Id. at 22. The Sehls assert that they sought replacement or refund from Safari and Guaranty, but were refused. Id. at 35. The Sehls stopped making payments on the sales contract. Mound the same time, Guaranty assigned its rights in the sales contract to Bank One. Id. at 46.
Bank One started collection efforts against the Sehls to collect on the loan, but the Sehls refused to pay. The Sehls assert that Bank One initiated communications with the Sehls by letter and telephone after Bank One knew that the Sehls were being represented by counsel regarding the debt allegedly owed. Id. at ¶ 53. The Sehls further contend that Bank One mailed collection notices alleging that the debt was past due, when it was in dispute, and knew that doing so could defame the Sehls. Finally, the Sehls allege that Bank One published information about the Sehls' loan account that indicated that the loan payments were past due or delinquent. Id. at ¶ 55. The Sehls contend that the information published was libelous, and was published "with malice, oppression, fraud, and in reckless disregard of the truth, in that [Bank One] knew that the information published about plaintiffs' motorcoach loan account was false." Id. at 62.
On October 23, 2000, the Sehls filed suit against Safari, Guaranty, and Bank One in San Mateo County Superior Court. The first complaint alleged six causes of action: (1) breach of express warranty (against Safari and Guaranty), (2) breach of implied warranties (against Safari and Guaranty), (3) breach of the Magnuson-Moss Warranty Act, 15 U.S.C.A. § 2310 (against Safari). (4) negligent repair (against Guaranty), (5) breach of the anti-holder in due course statute (against Bank One), and (6) violation of the State Fair Debt Collection Practices Act (against Bank One). On December 15, 2000, Bank One removed this action to the Northern District of California based on federal question jurisdiction. The court, however, granted the Sehls' motion to remand the case. Opposition, Exhibit B.
While the court's order granting the remand motion does not state the reasons for this decision, neither party disputes that the motion was granted on timeliness grounds, the court having found that the removal notice was not filed within thirty days after receipt of the first pleading in the state action that sets forth a removable claim. See 28 U.S.C. § 1446(b).
On April 11, 2001, the San Mateo Superior Court granted the Sehls' motion to amend the complaint to add a seventh cause of action alleging libel against Bank One. On May 1, 2001, the Sehls voluntarily dismissed with prejudice the third cause of action alleging breach of the Magnuson-Moss Warranty Act. Plaintiffs Declaration of Counsel in Support of Motion to Remand, Exhibit 1. On May 4, 2001, Bank One filed a notice of a second removal from state court to this court. On May 24, 2001, the Sehls filed this motion to remand the case to state court.
LEGAL STANDARD
A suit filed in state court may be removed to federal court if the federal court would have had original subject matter jurisdiction over that suit. 28 U.S.C. § 1441 (a); Snow v. Ford Motor Co., 561 F.2d 787, 789 (9th Cir. 1977). The potential basis for federal subject-matter jurisdiction in this suit is federal question jurisdiction under 28 U.S.C. § 1331. In general, notice of removal must be filed within thirty days after receipt of the first pleading in the state action that sets forth a removable claim. 28 U.S.C. § 1446 (b). However, "[i]f the case stated by the initial pleading is not removable, a notice of removal may be filed within thirty 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." Id.
28 U.S.C. § 1331 states that "[t]he district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States."
A motion to remand is the proper procedure for challenging removal. Remand to state court may be ordered either for lack of subject matter jurisdiction or for any defect in removal procedure. See 28 U.S.C. § 1447 (c). The court may remand sun sponte or on motion of a party, and the parties who invoked the federal court's removal jurisdiction have the burden of establishing federal jurisdiction. See Emrich v. Touche Ross Co., 846 F.2d 1190, 1195 (9th Cir. 1988) (citingWilson v. Republic Iron Steel Co., 257 U.S. 92, 97 (1921)); Schwarzer, Tashima Wagstaffe, Cal. Prac. Guide: Fed. Civ. Pro. Before Trial, ¶ 2:1093 (The Rutter Group 1998) (hereinafter "Schwarzer"). In this case, defendant must meet this burden. The removal statute is strictly construed against removal jurisdiction and doubt is resolved in favor of remand. Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1064 (9th Cir. 1979).
The existence of federal jurisdiction on removal must be determined on the face of the plaintiffs complaint. See Louisville Nashville R.R. v. Mottley, 211 U.S. 149 (1908). A "cause of action arises under federal law only when the plaintiffs well pleaded complaint raises issues of federal law." Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987). There are three circumstances under which the court can find that a state law claim arises under federal law: (1) if federal law completely preempts state law, (2) if the state claim is necessarily federal in character, or (3) if the right to relief requires resolution of a substantial, disputed federal question. Arco Environmental Remediation, L.L.C. v. Montana, 213 F.3d 1108, 1114 (9th Cir. 2000).
The Court may examine the entire record to determine if the real nature of the claim is federal, notwithstanding plaintiffs characterization to the contrary, when the plaintiff has, by "artful pleading," attempted to defeat defendant's right to a federal forum. See Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 397 n. 2 (1981). A complainant cannot "avoid federal jurisdiction simply by omitting from the complaint federal law essential to his claim, or by casting in state law terms a claim that can be made only under federal law." Harper v. San Diego Transit Corp., 764 F.2d 663, 666 (9th Cir. 1985).
Ordinarily, federal preemption is used as a defense to the plaintiffs suit; therefore it does not appear on the face of a well-pleaded complaint and does not warrant removal to federal court. Metropolitan Life Ins. Co., 481 U.S. at 63. "One corollary of the well-pleaded complaint rule developed in the case law, however, is that Congress may so completely pre-empt a particular area that any civil complaint raising this select group of claims is necessarily federal in character." Id. at 63-64. Where federal law completely preempts the entire subject matter of the claim, and supplants any state law claim so that the only viable claim is the one created under federal law, the claim may be removed.Id; see Schwarzer at ¶ 2:703.
DISCUSSION
The Sehls argue that this case should be remanded because Bank One's second removal is procedurally defective, and, alternatively, that this Court does not have subject matter jurisdiction because there is no federal question in this case. Bank One argues that its second removal is based on the Sehls' amended complaint stating a new cause of action for libel against Bank One, which alleges that Bank One falsely reported that the Sehls were delinquent in their loan payment. Bank One argues that this libel action arises under the laws of the United States because it is preempted by the Fair Credit Reporting Act (FCRA), and that this removal is timely.
1. Timing of Removal on Amended Complaint
The Sehls argue that under Samura v. Kaiser Foundation Health Plan, 715 F. Supp. 970 (N.D. Cal. 1989), Bank One effectively waived its right to a second removal by not filing a timely removal at Bank One's first opportunity to remove. They contend that an amended pleading is removable to federal court thirty days after the complaint has been amended only when the action was not originally removable. In this case, it is undisputed that the complaint was removable as originally filed because the face of the complaint alleged a federal claim, i.e., a violation of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2310.
In Samura, the plaintiff filed a class action on November 20, 1985 against Kaiser Foundation Health Plan in state court alleging violations of the California Unfair Practices Act, Cal. Bus. Prof. Code §§ 17200, et seq. Id. at 971. The defendant answered the complaint by asserting as a defense that the complaint was barred and preempted by the federal Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1144 (a). Id. On April 10, 1989, the plaintiff filed a first amended complaint, adding two new defendants and a new allegation that defendants were a federal qualified Health Maintenance Organization under 42 U.S.C. § 300e, et seq. Id. On April 25, 1989, the defendants removed the action to federal court, and plaintiffs timely moved for remand. Id. The court held that the addition of defendants "does not start the time for removal running anew when the original complaint was removable." Id. As to federal question jurisdiction, the court held that since the case was removable at the original filing, and defendants had failed to remove the case within thirty days of the original complaint, the defendants had waived their right to file a subsequent notice of removal even though the complaint was amended to create an additional basis for removal. Id. at 972. The court found that the amendment to the complaint did not change the nature of the action so as to constitute a substantially new suit which would have made removal otherwise timely.Id.
As noted by Bank One, the Fifth Circuit appears to apply a different standard. In S.W.S. Erectors, Inc. v. Infax, Inc., 72 F.3d 489, 492 (5th Cir. 1996), the court held that even if the legal theory of a second removal is the same as that for the first removal (i.e., federal question or diversity jurisdiction), a change in the factual basis upon which the removal is sought is sufficient grounds for a second removal because "[a] remand order is conclusive only regarding the matters actually adjudged."Id. at 492. In S.W.S. Erectors, the court found that facts concerning the amount in controversy contained in a deposition taken after the first removal had been denied were sufficient new grounds for a valid second removal on the basis of diversity jurisdiction. Id. at 494. The court found that the thirty-day clock for a timely removal was triggered by the deposition and the discovery of the facts found therein demonstrating an adequate amount in controversy to support diversity jurisdiction. Id.
Given the unusual posture of this case — where removal on the basis of federal question jurisdiction was denied due to untimeliness and a subsequent notice of removal was filed after plaintiff amended the complaint to add a new cause of action — case law does not provide clear direction. However, this Court must be mindful of "the need for careful judgments about the exercise of federal judicial power in an area of uncertain jurisdiction." Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804, 814, 106 S.Ct. 3229, 3235 (1986). Here, as inSamura, the original claim was removable because the Sehls alleged a federal claim, i.e., the Magnuson-Moss Warranty Act, 15 U.S.C. § 2310. Unlike in Samura, Bank One tried to remove the case based on the original complaint, but the case was remanded because removal was untimely. Bank One's untimely removal has the same effect as a failure to remove a removable claim under 28 U.S.C. § 1446 (b). Such a failure constitutes a waiver of Bank One's right to subsequent removal. According to Samura, since Bank One failed to remove the case within thirty days of the original complaint which was removable at that time, Bank One thereby waived its right to file a subsequent removal even though the complaint was amended to create a new basis for removal.
Furthermore, this Court finds that the amendment to the complaint did not change the nature of the action so as to constitute a substantially new suit. Bank One argues that the libel cause of action is "based on a new set of facts different from those stated in the original complaint and involving a completely new and different basis for federal question jurisdiction." Opposition at 1. This Court does not agree. The sixth cause of action in the original complaint alleges Bank One's violation of the state Fair Debt Collection Practices Act (FDCPA). In the complaint, the Sehls assert:
Defendant [Bank One] violated Civil Code section 1788.10(c) by its mailed collection notices on August 31, 2000, September 25, 2000 and October 6, 2000, that alleged that the debt was past due, when, in fact, it knew that the debt was disputed, and thus, defendant's action was contrary to law, and it knew such information could defame plaintiff.
Defendant's Notice of Second Removal, Exhibit A, Plaintiffs First Amended Complaint ("Amended Complaint"), at ¶ 53(b) (emphasis added).
This court cites the sixth cause of action as included in the amended complaint rather than the original complaint because neither party submitted the original complaint to this court. However neither party asserts that any changes have been made to this cause of action.
The allegations against Bank One in the sixth cause of action regarding the FDCPA are not substantially different from those alleged in the libel action against Bank One. The Sehls explicitly allege that Bank One's actions were potentially defamatory — a cause of action substantially similar to libel.
For the foregoing reasons, the Court finds that removal was untimely.
2. Preemption Under the Fair Credit Reporting Act
Plaintiffs argue in the alternative that there is no federal jurisdiction in this case. Evaluation of this claim requires a determination whether the Fair Credit Reporting Act ("FCRA"), 15 U.S.C. § 1681 et seq., preempts Sehls libel claim for removal purposes.
While Bank One may have a federal preemption defense to the libel claim, federal preemption generally "does not authorize removal to federal court." Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987). Removal based on federal preemption is limited to exceptional circumstances. See Magee v. Exxon Corp., 135 F.3d 599, 601 (8th Cir. 1998). One such circumstance is the "complete preemption" doctrine, which permits removal when Congress has "so completely pre-empted a particular area that any civil complaint raising this select group of claims is necessarily federal in character." Metropolitan Life, 481 U.S. at 63-64. This determination is based on Congressional intent and requires a court to find that Congress "has clearly manifested an intent to make causes of action within the scope of [the statute] removable to federal court."Id. at 66.
The "complete preemption" doctrine has been limited primarily to state law claims that are displaced by the ERISA, the Labor Management and Relations Act (LMRA), and the Railway Labor Act. Schwarzer at ¶ 2:726.1. Most federal statutes do not preclude enforcement of state laws, and "[e]ven where federal statutes do supersede state law, in most cases they do not completely preempt state law so as to allow removal."Id. at ¶ 2:726.5. More often, federal preemption is used as a defense to a state law claim. Since removability is determined from the face of the complaint and a federal preemption defense is not part of the complaint, such a defense would not warrant removability under the "well-pleaded complaint rule," and the case should be remanded. See Metropolitan Life, 481 U.S. at 65; see also Swecker v. Trans Union Corporation, 31 F. Supp.2d 536, 539 (E.D. Va. 1998) ("The complete preemption exception to the well-pleaded complaint rule only applies where the federal preemption provision preempts all possible causes of action in a certain area, not just where it preempts some causes of action or even the specific cause of action at issue.").
It is undisputed that the Sehls do not allege a violation of the FCRA or any other federal law in their complaint. Bank One, however, contends that the Sehls' libel claim is completely preempted by the FCRA, and that by artfully pleading the libel claim, the Sehls have disregarded a necessary area of federal law. Bank One contends that it was the intent of Congress to regulate all claims concerning the furnishing of inaccurate credit information to consumer credit reporting agencies under the FCRA.
In general, the FCRA prohibits people who furnish information to consumer reporting agencies from providing information that the person knows or consciously avoids knowing is inaccurate, and prohibits the furnishing of information after the person has been notified that the information is inaccurate. See 15 U.S.C. § 1681s-2(a)(1)(A)-(a)(1)(B). The FCRA also requires those who furnish information to correct information that is known to be inaccurate and to report when any information is disputed by the consumer. 15 U.S.C. § 1681s-2(a)(2)(B)-(a)(3). The Act goes on to impose specific duties on how furnishers of information must proceed when a consumer disputes the completeness or accuracy of the information provided to a consumer reporting agency. 15 U.S.C. § 1681s-2(b).
Under 15 U.S.C. § 1681t, the FCRA "does not annul, alter, affect, or exempt any person subject to the provisions of this subchapter from complying with the laws of any State with respect to the collection, distribution, or use of any information on consumers, except to the extent that those laws are inconsistent with any provision of this subchapter, and then only to the extent of the inconsistency." 15 U.S.C. § 1681t(a). In other words, furnishers of information are still subject to state statutes which are not inconsistent with the FCRA. The FCRA provides certain explicit exemptions to this provision:
No requirement or prohibition may be imposed under the laws of any State —
(1) with respect to any subject matter regulated under —
(F) section 1681s-2 of this title, relating to the responsibilities of persons who furnish information to consumer reporting agencies, expect that this paragraph shall not apply —
(ii) with respect to section 1785.25(a) of the California Civil Code (as in effect on September 30, 1996).15 U.S.C. § 1681t(b)
Therefore, states cannot regulate any subject matter relating to § 1681s-2 even if it is consistent with the FCRA, except furnishers of information are still subject to the requirements or prohibitions of California Civil Code § 1785.25(a). Under Cal. Civil Code § 1785.25(a), "[a] person shall not furnish information on a specific transaction or experience to any consumer credit reporting agency if the person knows or should know the information is incomplete or inaccurate."
The issue before this Court is not whether the libel claim in this complaint is preempted. Rather, the question is whether the FCRA's preemptive reach is complete for removal purposes: "The complete preemption doctrine operates only when the statute at issue preempts all possible state actions that could otherwise be brought based on the facts alleged." Swecker, 31 F. Supp.2d at 539.
Based on the statutory framework, the Court finds that the FCRA's preemption is not complete and that removal was improper. Although the Ninth Circuit has not yet addressed this issue as it relates to the FCRA, other circuits and district courts have. See Watkins v. Trans Union, L.L.C., 118 F. Supp.2d 1217 (N.D. Ala. 2000) (no complete preemption for removal purposes — defamation); Swecker, 31 F. Supp. 2d at 539 (no complete preemption for removal purposes — defamation); Rule v. Ford Receivables, 36 F. Supp.2d 335, 339 (S.D. Va. 1999) (sole potential federal question is defendants' potential FCRA preemption defense, but "[s]uch a defense, which may be asserted, successfully or unsuccessfully, in the state court, does not provide a basis for removal"); Harper v. TRW, Inc., 881 F. Supp. 294, 299 (S.D. Mich. 1995) (holding in a privacy action that "[t]here is nothing in the legislative history or the FCRA itself to establish that Congress intended that state law causes of action such as Plaintiffs should be removable").
The Eleventh Circuit looked at a similar issue in Lockhard v. Equifax, Inc., 163 F.3d 1259, 1264 (11th Cir. 1998). There the court denied the plaintiff's motion to remand after removal, concluding that the FCRA "does not provide evidence that Congress intended to preclude removal." However, the situation in this case is significantly different from that in Lockhard. The plaintiff in Lockhard explicitly alleged violations of the FCRA in the complaint. Id. at 1261. Here, there are no explicit allegations regarding the FCRA; rather Bank One argues that the Sehls artfully pleaded around the FCRA issues. This distinction changes the analysis since this Court must evaluate removal in light of the well-pleaded complaint doctrine.
In Swecker, the plaintiff filed a defamation complaint based on allegations that the defendant had reported false and libelous information on the plaintiffs credit report. Swecker, 31 F. Supp.2d at 536. The defendants removed the action to federal court, claiming that the complaint raised a federal question under the FCRA. Id. In its analysis of a previous decision on this issue, the court stated:
Because the FCRA explicitly declines to replace all state causes of action or to provide exclusive jurisdiction in the federal courts, and fails to reflect clearly an intent to make claims removable, the court found that it does not provide for the removal of state law claims. In addition, Congress provided concurrent jurisdiction to hear FCRA actions for "any other court of competent jurisdiction." 15 U.S.C. § 1681p.Id. at 540 (discussing Sherron v. Private Issue by Discover, 977 F. Supp. 804, 807 (N.D. Miss. 1997)). The Swecker court held that state law claims are not removable under the FCRA, even if they are preempted by that statute. Id.
In Watkins, the court held that "Congress did not intend to make state law causes of action defensively preempted by the FCRA removable to federal court." The Watkins court noted that the FCRA does establish federal causes of action, id. at 1221, and that "The 1996 amendments to the act expanded the preemptive effect of the statute by adding to the `Relation to State Laws' provision." Id; see 15 U.S.C. § 1681t. However, the court concluded that this expansion of the preemptive effect of the statute did not justify removal of state law claims. Id. at 1222. Claims explicitly based on the FCRA are removable, but state law claims are not.
Defendant relies on Jaramillo v. Experian Information Solutions, Inc., 2001 U.S. Dist. LEXIS 5876 (E.D. Pa. 2001), to show the complete preemptive effect of 15 U.S.C. § 1681t. Jaramillo holds that § 1681t supersedes § 1681h, and that Congress wanted to eliminate all state cause of action relating to the responsibilities of furnishers of in formation to credit reporting agencies. Jaramillo, 2001 U.S. Dist. LEXIS at *14. However, on a Motion for Reconsideration, the Jaramillo court reinstated the defamation claim against the defendants who had furnished the allegedly false information to the credit reporting agency. Jaramillo v. Experian Information Solutions, Inc., 2001 U.S. Dist. LEXIS 10221 (E.D.Pa. 2001).
This analysis is consistent with the structure of the statute involved. The FCRA grants concurrent jurisdiction to both federal and state courts. See 15 U.S.C. § 1681p ("An action to enforce any liability under this subchapter may be brought in any appropriate United States district court without regard to the amount in controversy, or in any other court of competent jurisdiction.") The jurisdictional grants in the LMRA and ERISA — the two primary statutes under which complete preemption sufficient for removal exists — are grants of exclusive federal court jurisdiction. See 29 U.S.C. § 185(a) and 29 U.S.C. § 1132(f).
At oral argument, defendant argued that even if this case is not removable due to complete preemption, under Arco v. Environmental Remediation L.L.C., 213 F.3d 1108, 1114 (9th Cir. 2000), the case is removable because the claim is necessarily federal in character, or in the alternative, the right to relief depends on the resolution of a federal question. In Arco, the case had been removed to federal court because a claim for relief under an exclusively Montana state statute discussed the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The Ninth Circuit remanded the case holding that the claim was not preempted by CERCLA, and there was no federal claim. See Arco, 213 F.3d at 1115-1117. Likewise here, this Court finds nothing in this case is necessarily federal in character, nor does relief depend on a substantial, disputed federal question.
Bank One relies heavily on 15 U.S.C. § 1681t to argue that a libel claim is preempted by the FCRA. Even if correct, this argument is insufficient for removal. In any event, there are several exceptions in the statute which may defeat preemption.
For example, under 15 U.S.C. § 1681h(e), the FCRA does not allow consumers to bring a defamation, invasion of privacy or negligence action, "except as to false information furnished with malice or willful intent to injure such consumer." 15 U.S.C. § 1681h(e).
A primary purpose of the well pleaded complaint rule is to allow the plaintiff to be the master of the complaint. In this case, no federal question appears on the face of the complaint, and the Court finds that the FCRA does not completely preempt the applicable field. Therefore, the Court GRANTS plaintiffs' motion to remand.
3. Request for Attorney's Fees
The Sehls' request that this court should order Bank One to pay "just costs and actual expenses, including attorney's fees, incurred as a result of the removal." 28 U.S.C. § 1447 (c). This Court DENIES the Sehls' request for attorney's fees, finding such an award would be inappropriate under the circumstances of this case.
CONCLUSION
For the foregoing reasons this Court GRANTS plaintiffs' motion for remand to the state court and DENIES the request for attorney fees, costs, and expenses (Docket No. 17). This action is REMANDED to the San Mateo County Superior Court.
IT IS SO ORDERED.