Tomorrow’s Argument in Martin v. Franklin Capital Corp.

First up tomorrow is Martin v. Franklin Capital Corp., No. 04-1140. The plaintiffs (petitioners) in Martin won a jurisdictional challenge to defendants’ (respondents’) removal of their case to federal court, and now they want the respondents to pay all of the attorney’s fees, expenses, and costs (“fees”) they spent litigating in federal court. The district court declined to require respondents to pay the fees, and the Tenth Circuit affirmed. The Court granted certiorari to decide what standard governs a federal district court’s discretion under 28 U.S.C. 1447(c) to “require payment of just costs and any actual expenses, including attorney fees, incurred as the result of removal” when it remands a removed case to state court.

Sam Heldman will argue the case for petitioners; Jan Chilton will argue on behalf of respondents. Find the briefs here.

Gerald T. and Juana M. Martin (“the Martins”) represent a putative class of individuals who sued Century-National Insurance Co. and Franklin Capital Co. in New Mexico state court, alleging that the companies had illegally overcharged them for certain car financing and insurance contracts. The companies then removed the case to federal court. During oral arguments on the defendant-respondents’ motion to dismiss, the court expressed concern about whether the amount in controversy in the case was sufficient to establish diversity jurisdiction. Taking the hint, the Martins moved to remand. The defendant-respondents countered that the amount in controversy met the statutory minimum because (inter alia) the alleged amounts of (a) punitive damages and (b) attorney’s fees independently came to more than $50,000 when aggregated for the putative class. The district court agreed, denied the remand motion, denied class certification, and granted the motion to dismiss.

On appeal, the Tenth Circuit reversed, holding that the minimum amount in controversy had not been met. In reasoning that ran directly contrary to the Supreme Court’s recent decision in Exxon Mobil Corp. v. Allapattah Servs., Inc., decided after the Tenth Circuit’s ruling, the court of appeals held (inter alia) that, although it was an issue of first impression for the circuit and other courts of appeals disagreed, respondents couldn’t aggregate either their punitive damages or attorney’s fees claims to meet the statutory minimum.

On remand, the district court denied the Martins’ motion for an award of fees under 28 U.S.C. 1447(c), which provides that “[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded. 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.” The district court reasoned that Franklin had “objectively reasonable grounds to believe the removal was legally proper” under the law as it stood prior to the Tenth Circuit’s holding: Franklin’s argument to aggregate punitive damages was not improper because it was supported by other appellate court decisions, and its argument to aggregate attorney’s fees was also compatible with the law at the time. Accordingly, the district court refused to exercise its discretion to require payment of fees, on the theory that a fee award was only appropriate if removal had been improper.

The Martins appealed again. The Tenth Circuit held that the district court had not abused its discretion in refusing to award them fees. The court of appeals agreed that the law on the aggregation of punitive damages had previously been uncertain, that Franklin’s argument was supported by other courts of appeals, and that Franklin had “objectively reasonable grounds” for its assertion that removal was “legally proper.” The Martins petitioned for certiorari on the question whether the district court had used the correct standard in refusing to award them fees.

The Martins argue that Section 1447(c)’s use of the term “may” entails a (implicit) governing legal standard. Of the various standards the Court has read into fee-award statutes using that term, the Martins claim that Newman v. Piggie Park Enterprises supplies the most appropriate one: it directs the court to award fees to prevailing plaintiffs in Title II cases unless exceptional circumstances render that default award unjust. By establishing a British Rule for parties who successfully defeat removal, the Piggie Park standard would set up an economic disincentive for parties (defendants, usually) to remove to federal court even in close cases, and a corresponding economic incentive for parties (plaintiffs, usually) to challenge removal jurisdiction. The Martins offer two main rationales supporting that incentive structure.

First, they claim that the main objective of Section 1447(c) was to ease the crowded federal docket. The Piggie Park rule would provide an incentive for plaintiffs to enforce the interest in less crowded dockets, along with related public interests in comity, reduction of resources spent litigating jurisdictional questions, and clarity of jurisdictional standards. Congress intended that close questions of removal jurisdiction be decided against the defendant, and therefore had no interest in defendants zealously litigating those questions. Accordingly, the Martins argue, the Court should not apply the more defendant-friendly fee award standard of Christianburg Garment Co. v. EEOC, which would award fees only if the defendant’s removal justification were “frivolous, unreasonable, or without foundation”; such a standard would be redundant given Federal Rule of Civil Procedure 11’s policing of frivolous filings.

Second, the Martins press various textual arguments in support of a pro-plaintiff Piggie Park standard. For example, they point out that in 1988 Congress partially altered the text of Section 1447(c), which had provided for a remand “[i]f . . . it appears that the case was removed improvidently and without jurisdiction,” to provide for a remand “[i]f . . . it appears that the district court lacks subject matter jurisdiction.” The Martins assert that the deletion of “improvidently” illustrates Congress’s intent to clarify that even an erroneous removal motion could trigger a fees award. The Martins also point out that the text authorizes fee awards only if the case is remanded, and conclude that the statute “was not written to help defendants when their removals were correct.”

Respondents’ primary contention is that Section 1447(c) is not a fee-shifting statute at all, but instead functions as reversal of the common law rule forbidding a court from awarding fees when it lacked jurisdiction. Franklin points out that until courts interpreting Federal Rule of Civil Procedure 54(d)(1) held that the power to award fees was discretionary rather than mandatory, courts applying Section 1447(c)’s predecessor routinely awarded costs against the party that failed in removing its case. On this theory, Section 1447(c) just grants the power to award fees, while independent federal statutes, rules, and equitable powers set the standard by which to exercise that power. Respondents deny that the 1988 changes to the text, including the addition of the phrase “and any actual expenses, including attorney fees incurred as a result of removal,” set any new standard for a court’s determination of when to award fees. Respondents claim that the statute differs in syntactic structure from most fee-shifting statutes, and that the legislative history reveals no intent to shift fees to prevailing parties. Instead, the addition of “including attorney fees” was added to clear up a pre-1988 dispute in the courts about whether the provision gave courts the power to award attorney’s fees in addition to costs. Moreover, respondents reject the petitioners’ argument that the text of Section 1447(c) makes it a one-way fee shifter, claiming that when interpreted along with Section 1919 – which awards fees against plaintiffs upon dismissal of a motion to remand – the statute is part of a larger “party-neutral system.”

Respondents argue in the alternative that even if Section 1447(c) is a fee-shifting statute, the only standard compatible with courts’ historically party-neutral discretion is the party-neutral balancing test of Fogerty v. Fantasy, Inc. – which, because the “reasonableness” of the attempted removal is a principal factor in the standard, would work in their favor. Rejecting the Piggie Park standard, they deny that Section 1447(c) was primarily intended to reduce the federal caseload. Such an intent would be incompatible with the claimed historical purpose of removal (to supplement, not complement, state court jurisdiction), with the trend to expand federal jurisdiction, and with the fact that fee-shifting would be less effective than stripping courts of diversity jurisdiction altogether. They claim too that equitable considerations do not motivate a pro-plaintiff standard like Piggie Park in the removal context: plaintiffs fighting removal are not enforcing substantive federal law, defendants who lose removal challenges are not violating substantive federal law, there is no average economic imbalance between plaintiffs and defendants for the standard to correct, and removing defendants are at a disadvantage because they must determine the facts and law relevant to removal within thirty days under 28 U.S.C. 1446(b).

In its amicus brief in support of respondents, the United States reiterates that the rationales of the Piggie Park standard are incompatible with removal. First, unlike a civil rights plaintiff, a successfully remanding plaintiff does not enforce federal policy as a private attorney general. Second, a defendant who attempts removal but fails does not violate substantive federal law, and therefore does not deserve the additional liability of fees. Instead, the government advocates application of the Christianburg Garment “frivolous, unreasonable, or without foundation” standard, on the theory that Congress did not intend to deter defendants from invoking their federal right to removal in every case but the most obvious ones. If Congress had had such an intent, the government argues, it would have left significantly more positive evidence in the text and legislative history of the statute. (Petitioners counter that “there simply is no federal interest served” when a defendant exercises its federal right to remove.) The government also spells out in more detail the argument that the 1988 addition of “including attorney fees” addressed a disagreement in the lower courts about whether fees could be awarded under Rule 11, and the argument advocating the public’s interest in overlapping federal jurisdiction and litigation over reasonable but as-yet-unestablished removal jurisdiction.