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CAFA Law Blog Information, cases and insights regarding the Class Action Fairness Act of 2005

District Court Holds That Removal of Multiple Suits is Barred by the Forum Defendant Rule; However, Removal is Permissible under CAFA

Posted in Case Summaries

In Re Lipitor Marketing, Sales Practices and Products Liability Litigation, 2016 WL 7338594 (D.S.C. Nov. 21, 2016).

In this multi-district litigation (“MDL”), while granting in part the plaintiffs’ motion to remand, the MDL court considered the Class Action Fairness Act of 2005’s (“CAFA”) prohibition on transfers and suggested the Judicial Panel on Multidistrict Litigation (“JPML”) to remand the cases to their transferor courts finding that removal of those actions on the basis of diversity jurisdiction was barred by the forum defendant rule and the only possible basis for removal was CAFA.

The plaintiffs originally filed each of the subject eight lawsuits in California state court against the defendants Pfizer, Inc. and McKesson Corp., alleging that a pharmaceutical product, Lipitor, caused them to develop Type II diabetes and that, among other things, the defendants did not properly disclose the risks associated with Lipitor.

The defendants removed the actions to federal district courts in California, asserting diversity jurisdiction and jurisdiction under CAFA.  After removal, the cases were transferred to the MDL (the “District Court” of South Carolina) by the JPML, and the plaintiffs moved to remand.  The plaintiffs argued that the forum defendant rule barred removal under diversity jurisdiction, as McKesson was a resident of California.  The plaintiffs also disputed whether federal jurisdiction under CAFA existed and argued that the District Court should remand the cases to California federal courts in accordance with CAFA.

The Magistrate Judge granted the motions to remand and ordered that the actions be transferred to the federal district courts in California from which they came. The defendants filed objections to the report.  The District Court granted in part the plaintiffs’ motion to remand.

 

 

At the outset, the District Court noted that the “forum defendant rule” or “home-state defendant rule,” provided that “[a] civil action otherwise removable solely on the basis of [diversity jurisdiction] may not be removed if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.”  28 U.S.C. § 1441(b)(2).  The plaintiffs argued that the forum defendant rule prevented removal of those cases because McKesson was a forum defendant.  Pfizer argued that forum defendant rule was inapplicable (1) in all eight cases because McKesson was not “properly joined and served” at the time of removal and (2) in seven of the cases because plaintiffs had waived this issue under 28 U.S.C. § 1447(c).

The parties agreed that McKesson was not served prior to removal, but was served after removal.  The District Court noted that 28 U.S.C. § 1441(b)(2) prevents removal solely on the basis of diversity jurisdiction “if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.”  (emphasis added).  The District Court further noted that there is a split of authority on whether the “properly joined and served” language in the statute allows an in-state defendant to remove a case as long as it does so before service.  Some cases held that the statutory language was clear, and that removal was proper if done before service.  However, other courts held that despite the clear language, Congress could not have intended to allow such gamesmanship.  They noted that the language was added to the statute to prevent gamesmanship by the plaintiffs and that “[t]he tactics employed by the defendants…turn Congressional intent on its head by allowing defendants to employ gamesmanship, specifically by rushing to remove a newly filed state court case before the plaintiff can perfect service on anyone.”  The District Court also agreed that “the literal application of § 1441(b) in the instant case would both produce bizarre results that Congress could not have intended, and results that were demonstrably at odds with the objectives Congress did intend to effect.”  The District Court therefore found that, notwithstanding the timing of service, the forum defendant rule bars removal of the cases on the basis of diversity jurisdiction.

Next, Pfizer argued that in seven of the eight cases at issue, the plaintiffs waived their arguments under the forum defendant rule because they did not move for remand within 30 days of removal.  The District Court found that although the Fourth Circuit Court of Appeals had not ruled on the issue, nine federal courts of appeal had held that the forum defendant rule was a procedural defect that was waivable under §1447(c).  The District Court further found that only one federal court of appeals had held to the contrary, and its holding was called into question by later statutory changes.  The District Court decided to follow the majority holding and held that the forum defendant rule was a procedural defect that was waivable under § 1447(c).

The plaintiffs argued that Pfizer sought and secured stays in the cases in the transferor courts, pending transfer by the JPML, and that their 30-day time limit under § 1447(c) did not begin running until the stays were lifted.  The District Court found that the stays entered in the cases tolled the 30-day statutory time limit from the date the stay was entered until transfer to the instant MDL.  The District Court, however, rejected the plaintiffs’ argument that 30-day clock completely reset on the day the stay was lifted, and rather found that the 30-day time limit began to run on the date of removal, was then tolled from the date the stay was entered, and began running again when transferred to the MDL and the stay was lifted.  The District Court thus found that the motions to remand were timely under § 1447(c) and the plaintiffs’ had not waived the forum defendant rule.

Pfizer also argued McKesson was fraudulently joined and it should not be considered when applying the forum defendant rule.  The District Court; however, found McKesson was not fraudulently joined for the purposes of determining whether diversity jurisdiction existed.  The District Court further found that even if the fraudulent joinder doctrine applied to the forum defendant rule, McKesson was not fraudulently joined, and the forum defendant rule barred removal on the basis of diversity jurisdiction.

Finally, the defendants asserted federal jurisdiction under CAFA.  The parties disputed whether the cases removed here were a “mass action” within the meaning of CAFA.  The plaintiffs argued the District Court need not reach the issue because even if the cases were mass actions, the CAFA statute prevented their transfer to an MDL and the cases should be remanded back to district courts in California.

The District Court noted that CAFA “does not prohibit § 1407 transfer of an action removed pursuant to CAFA’s mass action provision so long as another ground for removal is asserted.”  The JPML transferred the actions to the MDL because the defendants asserted diversity jurisdiction as well as CAFA jurisdiction.  Due to the District Court holding the cases were not properly removed on the basis of diversity jurisdiction, the only possible proper basis for removal was CAFA jurisdiction.

The plaintiffs argued the case should be remanded to the transferor court, in accord with Congressional intent.  The defendants argued that the statute only restricted initial transfer and that once the case was in the MDL, the issue was moot, and that any attempt to transfer the case back would be “overruling” the JPML.  The Magistrate Judge found that transfer of the cases back to California district courts was proper, as “otherwise, the defendants in any case would be able to circumvent the consent requirement of § 1332(d)(11)(C)(I) simply by adding non-CAFA grounds for removal that are frivolous.”  The District Court found that after the Magistrate Judge’s recommendation in the instant MDL, the MDL court in In re Darvocet, 106 F. Supp. 3d 849 (E.D. Ky. 2015) reached the same conclusion.  (Editor’s Note: see CAFA law blog analysis on In re Darvocet, dated Jan. 17, 2017).  The District Court therefore suggested that the JPML remand the cases to the federal district courts in California.

Accordingly, the District Court granted in part the plaintiffs’ motion to remand finding that removal of the actions on the basis diversity jurisdiction was barred by the forum defendant rule and that the only possible basis for removal was CAFA.  Therefore, the District Court has now suggested to the JPML that these cases be remanded to their transferor courts for further proceedings.

Posted by Yaron Shaham