“Avatar” Will Be Screened in California State Court

MacKinnon v. IMVU, Inc., 2012 WL 95379 (N.D. Cal. Jan. 11, 2012).

In this action, a District Court in California held that oral communications and statements are insufficient to qualify as “other papers” that trigger removal pursuant to 28 U.S.C. § 1446(b).

The plaintiff filed a class action complaint against the defendant, IMVU, Inc., in Santa Clara Superior Court alleging violations of the Consumer Legal Remedies Act, breach of contract, conversion, misrepresentation, unfair trade practices and breach of warranty.

IMVU develops and operates a popular Internet-based entertainment service known as the Instant Messaging Virtual Universe. In the Instant Messaging Virtual Universe, users (who do not have real lives and too much time on their hands) can create their own virtual characters, or “avatars,” and interact with other users’ avatars. Users also can purchase virtual items for their avatars to display or broadcast to other users—such as virtual clothing, jewelry, furniture, pets and music—using IMVU “credits,” which users purchase with real money. (Apparently, not only do these users have no lives, they have too much money because they are spending it on virtual items.)

This case concerns purchases of songs and other audio files on IMVU; after IMVU sold these full-length audio files to users, it unilaterally altered those files so that only the first 20 seconds of any audio track could be played, and it refused to give refunds for most purchases. (Hold on! Let me get this straight. The plaintiffs did not mind spending money for virtual clothes, virtual furniture, virtual pets, etc., but they were upset that they bought virtual songs??)

The defendant did not file a notice of removal within 30 days of receipt of the initial, or first amended (and operative) complaint. But under the second removal window of 28 U.S.C. § 1446(b), the defendant removed based on the plaintiff’s counsel’s oral statement on the amount of damages.

The plaintiff moved to remand the action to state court, which the District Court granted.

At the outset, the Court noted that pursuant to CAFA § 1446(b), a removing defendant must file a notice of removal within thirty days from the time of receipt of the initial complaint or receipt 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.”

Here, the parties disputed whether the defendant’s subsequent notice of removal was timely, based upon the defendant’s receipt of information that would qualify as “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.” Specifically, the parties dispute whether the defendant’s September 30, 2011 notice of removal was timely, based upon an in-court, off the record oral statement purportedly made by the plaintiff’s counsel at a September 27, 2011 discovery conference.

According to the defendant, the oral statement made by plaintiff’s counsel at the discovery conference on September 27, 2011 established for the first time that the plaintiff’s class action claims sought damages of “up to and including $10,000,000”—a figure that, if true, would satisfy CAFA’s amount in controversy requirement.

The Court observed that by its express terms, § 1446(b) does not apply to oral statements because §1446(b) specifically refers to an amended pleading, motion, order or other paper. The defendant, however, relied on cases that purportedly confirm the propriety of removal under § 1446(b) on the basis of oral statements made in court. Specifically, Mike Silverman & Assocs., Inc. v. Drai, 659 F.Supp. 741, 745 (C.D.Cal.1987) found that time for removal commenced when defendant learned in court of co-defendant’s dismissal, thereby establishing grounds for diversity jurisdiction.

In response, the plaintiff submitted opposing legal authorities holding that oral communications and statements are insufficient to qualify as “other papers” that trigger removal pursuant to § 1446(b). Specifically, Jiminez v. Sears, Roebuck & Co., 2010 WL 653548 *2 (C.D. Cal. Feb.18 2010) and Mendoza v. OM Financial Life Ins. Co., 2009 WL 1813964, *5 (N.D. Cal. June 25, 2009) held that “oral statements are not an “other paper” which triggers removal under 42 U.S.C. § 1446(b)”.

Construing these cases in the plaintiff’s favor, the Court remarked that while the defendant’s cases suggested that oral statements made in court are a sufficient basis from which a defendant may ascertain removability, the vast majority of the case law cited by the defendants is confined to the diversity of citizenship inquiry, not the amount in controversy question that the court was presented with here. And none expressly dealt with an off the record statement by counsel such as that which was present here.

By contrast, the amount in controversy requirement is discussed in the authorities submitted by the plaintiff, and these cases instruct that removability is to be ascertained from a verifiable “paper” document, consistent with the plain language of §1446(b). Thus, the Court concluded that as applied to the off-record and unrecorded oral statement made by the plaintiff’s counsel here, § 1446(b)’s removal provisions were not satisfied.

Moreover, the Court noted that the defendant’s cited case law did not address the situation where, as here, the parties disputed the content of the oral statement. Defense counsel averred that the plaintiff’s counsel explicitly stated at the discovery conference that damages sought by plaintiff were “up to and including $10,000,000.” Defense counsel then simultaneously submitted his own contemporaneous recording of the discovery conference, in which counsel specifically credited the plaintiff’s counsel with the slightly different claim that there “may be $10M in dispute.” The plaintiff’s counsel, however, declared he had stated only that he “did not know” how much was on dispute, but that there were “probably millions of dollars” in dispute. The plaintiff’s counsel also declared that just a few weeks prior to the discovery conference, defense counsel told the plaintiff’s counsel that there was only $350,000 at issue.

Therefore, the Court concluded that even assuming that counsel’s oral, off the record statement was a sufficient basis from which to ascertain removability, the foregoing factual dispute precluded the court from determining the actual amount in controversy here (indeed, this dispute also served to underscore the wisdom of holding that oral, off the record statements are not a sufficient basis from which to ascertain removability, because such statements are not objectively verifiable).

Accordingly, the Court remanded the action to the Superior Court.