The Supreme Court’s Knowles Ruling Is Not “Other Paper” Within the Meaning of 28 U.S.C. 1446(b)(3)

Henry v. Michaels Stores, Inc., 2013 WL 2208070 (N.D. Ohio May 20, 2013).

The District Court held that the Supreme Court’s recent opinion in Standard Fire Insurance Co. v. Knowles, 133 S. Ct. 1345 (2013), is not an “other paper,” which could make a previously un-removable case removable under 28 U.S.C §1446(b)(3).

The plaintiff alleged that, although the defendant advertised that its products were discounted, the defendant never actually gave the discount. The plaintiff claimed this was a violation of the Ohio Consumer Sales Practices Act, Ohio Revised Code, breach of contract, unjust enrichment, and fraud. The plaintiff disclaimed damages over $5,000,000 to preclude federal jurisdiction under the CAFA.

The defendant filed its notice of removal in the District Court, relying on the Knowles decision where the Supreme Court held that a putative class action complaint’s damages disclaimer does not preclude federal jurisdiction. (Editors’ Note: see CAFA law blog analysis of Knowles posted on April 12, 2013). The plaintiff moved to remand, arguing that the defendant failed to file its notice of removal in a timely manner. The District Court granted the plaintiff’s motion.

Under 28 U.S.C § 1446(b)(1), a defendant must file its notice of removal within 30 days of receiving a copy of the initial pleading, and if the initial pleading is not removable, a defendant under 28 U.S.C. § 1446(b)(3) may file a notice a notice of removal within 30 days after receipt 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.

First, the plaintiff claimed that the case was removable at the time he filed his complaint, and the relevant Sixth Circuit precedent allowed a defendant to remove a case upon a demonstration that damages were more likely than not to meet 28 U.S.C. § 1332(d)(2)’s amount in controversy requirement. Therefore, the defendant’s earlier failure to remove barred subsequent removal. The defendant, however, argued that the Sixth Circuit precedent, at the time of filing, recognized the validity of damages disclaimers to avoid federal jurisdiction.

In Smith v. Nationwide Property and Casualty Insurance Co., 505 F.3d 401 (6th Cir. 2007), the Sixth Circuit held that a disclaimer in a complaint, regarding the amount of recoverable damages, does not preclude a defendant from removing the matter to federal court upon a demonstration that damages are more likely than not to meet the amount in controversy requirement. Remand was warranted in Smith because the defendant could not show that total damages exceeded $5,000,000. (Editors’ Note: see CAFA law blog analysis of Smith posted on July 11, 2008).

Relying on In re: Travelers Casualty and Surety Company of America, No. 11-0311 (6th Cir. Jan. 27, 2013), the defendant argued that it could not have removed the plaintiff’s complaint upon filing. In Travelers Casualty, however, the Sixth Circuit stated that under the appropriate circumstances, a plaintiff may limit the damages sought in a class action, and removal would be appropriate if the plaintiff were to file an amended complaint or other pleading demonstrating a substantial likelihood or reasonable probability that he or she intends to seek damages in excess of the CAFA amount-in-controversy requirement.

The District Court remarked that this language, which does not require the absence of a damages disclaimer, supported the plaintiff’s and not the defendant’s position. Thus, the District Court opined that a plaintiff could avoid federal jurisdiction through a damages disclaimer, unless the defendant showed that the actual amount in controversy exceeded the jurisdictional threshold.

Second, the plaintiff asserted that, even if the case was not immediately removable, an intervening Supreme Court opinion could not make a previously un-removable case removable. The defendant, however, contended that a recent Supreme Court decision was an “other paper” that made the instant case removable under 28 U.S.C. §1446(b)(3).

The District Court found that the phrase “other paper” was informed by the words preceding it in 28 U.S.C. § 1446(b)(3), and ejusdem Generis, a principle of statutory construction, provides that where general words follow specific words in a statutory enumeration, the general words are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words.

The District Court also noted that the rule applied to lists of specific items separated by commas and followed by a general or collective term, but not to disjunctive phrases comprising both specific and general categories. The District Court stated that the words “pleading, motion and order” plainly referred to documents within the instant case, and to say otherwise would allow removal based on anything at all, running afoul of the rule that statutes conferring removal jurisdiction are to be construed strictly in favor of state court jurisdiction. Thus, the phrase “other paper” must share the prior terms’ limiting characteristic, and another court’s order–even the Supreme Court’s–was outside these bounds.

28 U.S.C. § 1446(b)(3) states that the tolled removal period accrues after receipt by the defendant, through service or otherwise, of the document providing the grounds for removal. The District Court remarked that holding that an intervening Supreme Court case was an “other paper” would render this phrase meaningless.

The District Court further observed that the language in 28 U.S.C. §1446 (b)(3) suggested, by use of the word “disclosure,” that removability under 28 U.S.C. § 1446(b)(3) would be triggered by the revealing of some fact –like the dropping of a nondiverse party or a settlement demand in excess of the jurisdictional threshold. Per the District Court, a Supreme Court opinion is not “disclosed” or “revealed.”

Finally, the District Court noted that 28 U.S.C. §1446(b) was not intended to provide a defendant with an escape route to federal court on the eve of a judgment in state court. Moreover, removal is disfavored in the late stages of litigation.

Accordingly, the District Court granted the plaintiff’s motion and remanded the action to the state court.