(PS) Grassi, et al v. Moody's Investors Services, et al

OPPOSITION to Plaintiffs' 18 Motion to Remand

E.D. Cal.March 31, 2009

KEITH E. EGGLETON, State Bar No. 159842 DAVID A. MCCARTHY, State Bar No. 226415 WILSON SONSINI GOODRICH & ROSATI Professional Corporation 650 Page Mill Road Palo Alto, CA 94304-1050 Telephone: (650) 493-9300 Facsimile: (650) 565-5 100 James J. Coster SATTERLEE STEPHENS BURKE & BURKE LLP 230 Park Avenue, 1 lth Floor New York, NY 1 0 169 Telephone: (212) 81 8-9200 Facsimile: (2 12) 8 18-9606 (Admitted Pro Hac Vice) Attorneys for Defendant Moody's Investors Service, Inc. Additional Counsel Listed On Signature Page UNITED STATES DISTRICT COURT 141 EASTERN DISTRICT OF CALIFORNIA RONALD M. GRASSI and SALLY GRASSI, ) Case No. 2:09-CV-00543-JAM-DAD j DEFENDANTS' OPPOSITION TO ) PLAINTIFFS' MOTION TO ) REMAND ) '1 MOODY'S INVESTOR'S SERVICES, STANDARD AND POOR'S and FITCH j RATINGS, 1 1 ) Plaintiffs, v. Defendants. Remand Opposition-(PALIB1-3641063-1) (3).DOC Case 2:09-cv-00543-JAM-DAD Document 38 Filed 03/31/09 Page 1 of 9 All defendants in this action, Moody's Investors Service, Inc. ('Moody's"), incorrectly sued herein as b'Moody's Investor's Services," The McGraw-Hill Companies, Inc. ("McGraw- Hill"), incorrectly sued herein as "Standard and Poor's," formerly a division of McGraw-Hill, and Fitch, Inc., incorrectly sued herein as "Fitch Ratings" ("Fitch") (collectively, "Defendants"), by their undersigned attorneys, submit this Memorandum in opposition to Plaintiffs' Motion for Remand, filed on March 1 1,2009. I. INTRODUCTION This action clearly meets the $75,000 jurisdictional threshold for cases grounded in the federal courts' diversity jurisdiction. Indeed, at no point in their motionto remand do Plaintiffs concede - and are careful not even to imply - that they seek less than $75,000 in damages. Moreover, Plaintiffs nowhere dispute that they are. in fact, seeking punitive damages in addition tc $40,000 in compensatory damages. Rather, Plaintiffs merely contend, without any reasonable basis, that Defendants cannot demonstrate that a punitive damage award in this action, were Plaintiffs to prevail, would be sufficient to raise the amount of Plaintiffs' claim above the jurisdictional bar. In fact, remand is entirely inappropriate here because, contrary to Plaintiffs' misconceptions concerning Defendants' burden of proof, it is beyond dispute that a punitive damage award in this action would "more likely than not" result in a total award of more than $75,000. Indeed, even a punitive damage award at the most conservative of ratios -- 1-to-1 to Plaintiffs' compensatory damages -- would exceed the jurisdictional threshold. As the relevant California jury verdicts cited below clearly establish, it is most likely that a jury award of punitive damages in this case - assuming, armendo, that Plaintiffs should or will prevail on their claims, which Defendants vigorously dispute - would involve a ratio of greater than 1 -to- 1. As demonstrated below, given that Defendants easily meet their burden of proof regarding the amount in controversy, this Court should deny Plaintiffs' motion to remand. 11. RELEVANT FACTS Plaintiffs Ronald M. Grassi and Sally A. Grassi filed their Complaint in this action on January 26,2009, in the Superior Court of California, County of Placer, Tahoe City branch, DEFS' OPPOSITION TO PLTFS' MOTION TO -1- Remand Opposition-(PALIB 1-3641063-1) (3).DOC REMAND Case 2:09-cv-00543-JAM-DAD Document 38 Filed 03/31/09 Page 2 of 9 41 Defendants assert that removal is proper based on diversity because Plaintiffs are citizens of 1 2 3 4 5 ;I1 California, while none of the Defendants are citizens of California, and the amount in controversy alleging causes of action against Defendants for general negligence, fraud and deceit. (Compl. 7 10.)' Plaintiffs allege that they have suffered the ''loss of use of property" as well as "[plunitive [dlamages based upon defendant's reckless disregard in publishing false and misleading information relating to Lehman Brother's [sic] bonds." (Id. 7 11 .) On February 25,2009, Defendants removed to this Court pursuant to 28 U.S.C. 8 1441(a). (1 exceeds the jurisdictional threshold of $75,000.~ (Notice of Removal, 774-5.) With respect to the amount in controversy, the Notice of Removal states: "The matter in controversy exceeds the sum 1 or value of $75,000 because Plaintiffs seek at least $40,000 in compensatory damages and the jl 11 complaint also seeks punitive damages. In a telephone conversation with counsel for McGraw- I I 141 Hill on February 17,2009, Plaintiff Ronald M. Grassi stated that Plaintiffs are seeking 1 approximately $40,000 in compensatory damages and confirmed that, as set forth in the 41 141 complaint, Plaintiffs are seeking, in addition, punitive damages in an unspecified amount." (& 7 Plaintiffs responded to the Notice of Removal with the present Motion to Remand on the 141 ground that Defendants have "failed to meet their burden of proof' regarding the $75,000 jurisdictional requirement. (Plaintiffs' Memorandum of Points and Authorities in Support of Motion for Remand ("Pls.' Mem."), at 2.) In support of their motion, Plaintiffs reiterate that they 2 paid $40,000 for two Lehman Brothers bonds, which they contend are now worth "considerably jl 21 less than their stated value when sold" and that they would not have purchased these bonds had I I 2 Defendants "correctly valued Lehman Bros.' credit worthiness." (m Plaintiffs at no point state 41 2 or otherwise concede that they are seeking less than $75,000. Nor do they deny that they are 41 241 seeking punitive damages. ' Plaintiffs' Summons and Complaint is attached as Exhibit A to Defendants' Notice of Removal, Docket Entry No. 1. Remand Opposition-(PALIB 1-3641 063-1) (3).DOC 2l Plaintiffs do not dispute that there is complete diversity between plaintiffs and defendants. Case 2:09-cv-00543-JAM-DAD Document 38 Filed 03/31/09 Page 3 of 9 111. ARGUMENT A. Defendants' Burden of Proof in Opposing Remand To establish that the amount in controversy meets diversity jurisdiction requirements Defendants need only show that it is "more likely than not" that the amount in controversy, i.e., the amount Plaintiffs will recover if their allegations are borne out and Defendants' defenses all fail, exceeds $75,000. See Sanchez v. Monumental Life Ins. Co., 102 F.3d 398,404 (9th Cir. 1996). Contrary to Plaintiffs' arguments, Defendants need not offer documents and likely testimony in opposition to the motion and are not required to prove Plaintiffs' case for them. See Kenneth Rothschild Tmst v. Morgan Stanlev Dean Witter, 199 F. Supp. 2d 993, 1001 (C.D. Cal. 2002) ("In measuring the amount in controversy, a court must assume that the allegations of the complaint are true and assume that a jury will return a verdict for the plaintiff on all claims made in the complaint") (internal citations omitted); see also Minnoch v. Kaiser Foundation Health Plan. Inc., Civ. No. 08-00176, WL 4527343, *1-2 (D. Haw. Oct. 8,2008) ("Defendant need not prove the amount in controversy 'to a legal certainty' . . . . To meet the evidentiary burden, Defendant must show that 'more likely than not' Plaintiffs recovery would exceed the jurisdictional amount, assuming the failure of all the Defendant's affirmative defenses.") (additional citations omitted). B. Plaintiffs' Probable Punitive Damages Recoverv Raises Amount in Controversv Above Jurisdictional Threshold Plaintiffs are seeking.$40,000 in compensatory damages plus punitive damages. "It is well established that punitive damages are part of the amount in controversy in a civil action." Gibson v. Chrvsler Cor~., 261 F. 3d 927 (9th Cir. 2001) (citing Bell v. Preferred Life Assur. Society, 320 U.S. 238 (1943)); see also Surber v. Reliance Nat. Indem. Co., 110 F. Supp. 2d 1227, 1232 (N.D. Cal. 2000) ("In calculating the amount in controversy, the Court must also consider punitive damages that plaintiff can recover as a matter of law."); Winew v. Graham, No. C 06- 36182007,2007 WL 963252, *3 (N.D. Cal. Mar. 29,2007). Thus, to prove the amount in controversy, Defendants need only show that Plaintiffs' probable punitive damages, if awarded, would exceed $35,000. DEFS' OPPOSITION TO PLTFS' MOTION TO -3- Remand Opposition-(PALIB 1-3641063-1) (3).DOC REMAND Case 2:09-cv-00543-JAM-DAD Document 38 Filed 03/31/09 Page 4 of 9 "Whether punitive damages are sufficient to meet the amount in controversy requirement is a two-part test. First, punitive damages must be available as a matter of state law. Secondly, the c o w inquires 'whether the amount of punitive damages will more likely than not exceed the required amount in controversy."' Martinez v. Infinity Ins. Co., No. SA CV 08-1444,2009 WL 302189 (C.D. Cal. Feb. 4,2009) (internal citations omitted)); Lange v. State Farm Mut. Auto. Ins. Co No. SA CV 08-1466,2009 WL 322835, *1 (C.D. Cal. Feb. 9,2009) (holding the same). 2' As to the first requirement, applicable California law clearly allows for punitive damages where fraud is proven by clear and convincing evidence. California Civil Code § 3294(a). Fraud, under the relevant statute, is expressly defined to include "an intentional misrepresentation, deceit, or concealment of a material fact." Section 3294(c); Winery, 2007 WL 963252, at *3 ("a properly pled cause of action alleging intentional misrepresentation is sufficient to support a claim for punitive damages."). Such misrepresentations are precisely what Plaintiffs have alleged in this action. (See Compl., Second Cause of Action - Intentional Tort ("Said defendants intentionally over-rated the quality and value of the bonds described below . . . .").) As to the second requirement - establishing that the amount of probable punitive damages, were they to be awarded, will "more likely than not" exceed $35,000 - Defendants can satisfy their burden by introducing evidence of sufficiently analogous California jury verdicts. Surber, 110 F. Supp. 2d at 1232 ("In order to establish probable punitive damages, a party asserting federal diversity jurisdiction may introduce evidence of jury verdicts in cases involving analogous facts.") (citations omitted); Simmons v. PCR Technology, 209 F. Supp. 2d 1029, 1033 (N.D. Cal. 2002) (same). Here, because Plaintiffs claim compensatory damages of at least $40,000, the amount in controversy exceeds the jurisdictional threshold even if punitive damages are awarded on a 1-to-1 ratio to compensatory damages. Such a ratio, at minimum, is exceedingly likely given that California juries have o Aen awarded punitive damages, where misrepresentations of similar magnitude have been found, with ratios well in excess of 1 -to-1. See Behne v. 3M Microtouch Systems. Inc., 11 Fed. Appx. 856,858 (9th Cir. 2001) (employee brought action against employer alleging discrimination and fraud based on alleged false promises made by the employer; circuit DEFS' OPPOSITION TO PLTFS' MOTION TO -4- Remand Opposition-(PALIB 1-3641 063-1) (3).DO( REMAND Case 2:09-cv-00543-JAM-DAD Document 38 Filed 03/31/09 Page 5 of 9 court concluded that a 4-to-1 ratio of compensatory to punitive damages was not excessive under California fiaud law and reversed district court's reduction of damages); Glovatorium. Inc. v. NCR Cornoration, 684 F. 2d 658,663 (9th Cir. 1982) (buyer of computer system sued seller for, inter alia, intentional and negligent misrepresentation, alleging that seller had knowledge of the system's defects; circuit court determined that punitive damage award that was 9.1 times the compensatory damage award was not excessive). Notably, highly reprehensible or egregious conduct is not necessary to sustain a jury verdict in excess of a 1-to-1 ratio of punitive' to compensatory damages. See Konvitz v. Midland Walww Capital, Inc., 129 Fed. Appx. 344,347-348 (9th Cir. 2005) (the court, in reducing the punitive damage award, found that defendant's "conduct was not particularly reprehensible: the harm caused was primarily economic as opposed to physical; it did not involve any acts taken in reckless disregard for the health and safety of others; and the target of the conduct . . . was not vulnerable financially or otherwise"; nevertheless, court found a five-to-one ratio to be permissible); Glovatorium, Inc., 684 F.2d at 663 ("[tlhere is no requirement under 3294 that malice, reprehensible or outrageous conduct or willful disregard be shown in addition to the fraud."); Bardis v. Oates, 1 19 Cal. App. 4th at 26 ("a case in which the compensatory damages are neither exceptionally high or exceptionally low, and in which the defendant's conduct is neither exceptionally extreme or trivial, the outer constitutional limit on the amount of punitive damages is approximately four times the amount of compensatory damages."). In light of the specific cases cited above, Plaintiffs' contention that Defendants cannot meet their burden of proof is without merit. In the four cases cited by Plaintiffs in their motion to remand, the defendants therein offered "no facts whatsoever," Gaus v. Miles, Inc., 980 F.2d 564, 567 (9" Cir. 1992), only a bbconclusory statement," Valdez v. Allstate. Inc. Co., 372 F.3d 11 15, 11 17 (gth Cir. 2004), a statement "upon information and belief," Ritthaler v. IDS Property Cas. Ins. Co No. CV-07-1233,2007 WL 2081479, * l (D. Ariz. July 20,2007), or relied upon jury awards ., that were "clearly inapplicable," Haisch v. Allstate Ins. Co., 942 F. Supp. 1245, 1249-1250 @. Ariz. 1996) (in a class action, where meeting the punitive damage threshold for each of the purported 100,000 class members would require a punitive damage award of approximately $5.0 DEFS' OPPOSITION TO PLTFS' MOTION TO -5- Remand Opposition-(PALIB1-3641063-1) (3).DOC REMAND Case 2:09-cv-00543-JAM-DAD Document 38 Filed 03/31/09 Page 6 of 9 il towards extraordinary punitive damages awards, support the proposition that Defendant is 1 1 potentially liable for a $5.0 billion judgment") (internal citations omitted). billion, "neither of the Arizona cases cited by Defendant as examples of the purported recent trend (1 In contrast, Defendants here have specifically pointed to several sufficiently analogous 511 cases where juries have awarded punitive damages in excess of a 1-to-1 ratio, which is all that is 41 required to raise the amount in controversy above the jurisdictional threshold. To meet their 41 burden, Defendants are not required to prove that these exact facts have previously resulted - or (1 necessarily would in this instance result - in a sufficiently large punitive damage award. Defendants need merely put forth evidence demonstrating the potential for such an award under [I1 the present facts were Plaintiffs to prevail. See Simmons, 209 F. Supp. 2d 1029 at 1033 ("The fact 1 that the cited cases involve distinguishable facts is not dispositive. Notwithstanding these II 1 differences, the jury verdicts in these cases amply demonstrate the potential for large punitive 1 damage awards . . . . Although the facts of the instant action are far less egregious, defendant has 1 met its burden of showing by a preponderance of the evidence that the amount in controversy 5(1 should include a punitive damages award."). C(I Given that Defendants have established by a preponderance of the evidence that 41 compensatory and punitive damages, if awarded, would more likely than not exceed $75,000, 41 Plaintiffs' motion to remand must be denied. 9 C 1 Dated: 2 3 4 5 6 7 March WILSON SONSINI GOODRICH & ROSATI Professional Corporation IsKeith Eggleton Keith E. Eeeleton David A. 6:carthy 650 Page Mill Road Palo Alto, CA 94304 Telephone: (650) 493-9300 Facsimile: (650) 565-5 100 Remand Opposition-(PALIB 1-3641063-1) (3).DO( Case 2:09-cv-00543-JAM-DAD Document 38 Filed 03/31/09 Page 7 of 9 Dated: March 3 1, Dated: March 3 1, James J. Coster (Admitted Pro Hac Vice) SATTERLEE STEPHENS BURKE & BURKE LLP 230 Park Avenue, 1 1 th Floor New York, NY 10169 Telephone: (212) 81 8-9200 Facsimile: (2 12) 8 18-9606 Attorneys for Defendant Moody's Investors Service, Inc. PERKINS COIE, LLP IsIDavid T. Biderman David T. Biderman (SBN 101 577) Farschad Farzan (SBN 21 5 194) Four Embarcadero Center, Suite 2400 San Francisco, CA 941 1 1 Telephone: (41 5) 344-7000 Facsimile: (41 5) 344-7050 Floyd Abrarns Brian T. Markley Julie Allsman (Admitted Pro Hac Vice) CAHILL GORDON & REINDEL, LLP 80 Pine Street New York, NY 10005 Telephone: (2 12) 70 1-3000 Facsimile: (212) 269-5420 Attorneys for Defendant The McGraw-Hill Companies, Inc. TAYLOR & COMPANY LAW OFFICES, LLP IsIStephen E. Taylor Stephen E. Taylor (SBN 58452) Jayesh Hines-Shah (SBN 2 14256) Jonathan A. Patchen (SBN 237346) One Ferry Building, Suite 355 San Francisco, CA 941 11 Telephone: (41 5) 788-8200 Facsimile: (41 5) 788-8208 -7- Remand Opposition-(PALIB1-3641063-1) (3).DOC Case 2:09-cv-00543-JAM-DAD Document 38 Filed 03/31/09 Page 8 of 9 Martin Flumenbaum Andrew J. Ehrlich Jason Williamson (Admitted Pro Hac Vice) PAUL, WEISS, RIFKIND, WHARTON & GARRISON, LLP 1285 Avenue of the Americas New York, NY 10019 Telephone: (212) 373-3000 Facsimile: (21 2) 757-3990 Attorneys for Fitch, Inc. -8- Remand Opposition-(PALIB 1-3641063-1) (3).DOC Case 2:09-cv-00543-JAM-DAD Document 38 Filed 03/31/09 Page 9 of 9