Relying on the Supreme Court’s recent decision in Mississippi ex rel. Hood v. AU Optronics Corp, which prohibited the court from exercising subject matter jurisdiction when there did not exist at least 100 named plaintiffs, the Central District Court of California sua sponte remanded the case to the state court.
A qui tam Plaintiff, David Sherwin, filed an action against the defendant, Office Depot, Inc., to recover damages and civil penalties pursuant to the California False Claims Act (“CFCA”). For those who are not aware of qui tam suits – these suits are brought for the government as well as the plaintiffs against a person or company who is believed to have violated the law in the performance of a contract with the government.
Sherwin was representing the State of California and all political subdivisions within the state that purchased goods and services from the defendant pursuant to a contract with the U.S. Communities Government Purchasing Alliance. Nineteen political subdivisions intervened in the action to assume control over their claims, and eighteen filed separate complaints-in-intervention asserting CFCA and common law causes of action.
The defendant removed the action to federal court under CAFA. As you may know, an action under CAFA arises when the monetary claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law and fact.
At the outset, the District Court noted that it has an independent duty to ascertain its own subject-matter jurisdiction, so it ordered the parties to show cause for its subject matter jurisdiction. In response to the court’s order to show cause, the parties contended that the action met the 100 plaintiffs requirement because there were over 100 real parties in interest in the lawsuit. The parties cited Nevada v. Bank of Am. Corp., 672F. 3d 661, 669 (9th Cir. 2012), where the court held that the characterization of a case as a mass action turned on whether the plaintiff or the 100-plus entities or persons on whose behalf it sought restitution are the real parties in interest, which affects CAFA’s numerosity requirement.
The District Court also ordered the parties to show whether and how the Supreme Court’s grant of certiorari in Mississippi ex rel. Hood v. AU Optronics, Corp., 701 F.3d 796 (5th Cir. 2012) affected the court’s subject matter jurisdiction. The parties contended that it did not affect the court’s subject matter jurisdiction because, unlike Mississippi ex rel. Hood, this was not a parens patriae action, and the parties asserted no sovereign interest separate from the claims for relief on behalf of the individual government purchasers.
Moreover, the circuit split that the Supreme Court resolved in Mississippi ex rel. Hood regarding which test applies in determining who the real parties in interest were, was not relevant here because under either test, the real parties in this action were the government entities on whose behalf the plaintiff sued.
The District Court, however, noted that the Mississippi ex rel. Hood recent decision prohibited the court from exercising subject matter jurisdiction, over this action if there do not exist at least 100 named plaintiffs. Here, the complaint named as plaintiffs only the State of California and relator Sherwin, and there were only 19 intervenors. The lawsuit failed to satisfy the 100 named plaintiffs requirement, therefore the case did not qualify as a CAFA mass action granting the court subject matter jurisdiction.
The defendant also asserted that removal was proper because the action was completely diverse as defined by 28 U.S.C. § 1332(a) because relator was fraudulently joined. The District Court rejected the defendant’s fraudulent joinder argument. The court found that a ruling on whether the plaintiff was fraudulently joined, could only be determined after making factual findings and determining the legal issues on the merits pursuant to a summary judgment motion.
Accordingly, the District Court opined that it lacked subject matter jurisdiction and sua sponte remanded the action.