Graphic Communs. Local 1B Health & Welfare Fund “A” v. CVS Caremark Corp., No. 11-1067, 2011 U.S. App. LEXIS 4747 (8th Cir. Minn. Mar. 11, 2011).

In this case the Eighth Circuit held that the local controversy provision is not a “defect” within the meaning of §1447(c), thus, 30 days time limitation to file a motion to remand the case on the basis of any ‘defect’ in removal does not apply.

The plaintiffs, a group of union-sponsored health benefit plans, brought a class action in state court alleging various generic drug pricing claims against the defendants, who represent leading retail pharmacy chains.

On August 21, 2009, the defendants removed the case to federal court, asserting diversity jurisdiction under CAFA.  On November 24, 2009, the district court dismissed the complaint without prejudice.  The next day, the plaintiffs filed a second amended complaint, and shortly thereafter, they moved to remand the case to state court based on CAFA’s local controversy provision.  The district court remanded the case to state court after it determined it lacked subject matter jurisdiction over the matter.  On appeal, the Eighth Circuit reversed the order.

Editors’ Note:  See the CAFA Law Blog analysis of the district court decision posted on January 20, 2011.

Before the Eighth Circuit, the defendants first argued the district court erred in concluding it lacked subject matter jurisdiction due to CAFA’s local controversy provision.  The Eighth Circuit agreed and found that the local controversy provision, which is set apart from the CAFA’s jurisdictional requirements, inherently recognizes the district court has subject matter jurisdiction by directing the court to “decline to exercise” such jurisdiction when certain requirements are met. Thus, the local controversy provision operates as an abstention doctrine, which does not divest the district court of subject matter jurisdiction.

In conjunction with the above discussion, the defendants next argued that because the plaintiffs moved to remand the matter more than thirty days after removal, the remand motion should have been denied as untimely pursuant to 28 U.S.C. §1447(c). Under §1447(c), “a motion to remand the case on the basis of any ‘defect’ other than lack of subject matter jurisdiction must be made within 30 days after the filing of the notice of removal…”  Having determined the local controversy provision is akin to an abstention doctrine, which is not jurisdictional in nature, the Eighth Circuit examined whether it constitutes “any ‘defect’ other than subject matter jurisdiction,” such that the plaintiffs’ remand motion was untimely because it was not brought within thirty days after removal.

The Eighth Circuit stated that § 1447(c) does not define what constitutes a “defect,” but Black’s Law Dictionary defines “defect” as the want or absence of some legal requisite, deficiency, imperfection or insufficiency. Based on this commonly-understood definition of “defect,” the plaintiffs urged the Court to construe the term narrowly, such that § 1332(d)(4) does not constitute a “defect.”  Conversely, the defendants urged a broad reading of “defect,” pointing to the statute’s full phrase “defect other than subject matter jurisdiction,” which suggested that subject matter jurisdiction itself was a “defect” under the language of the statute.

Due to the ambiguous statutory text, the Eighth Circuit examined the history of §1447(c).  It noted that prior to 1988, the statute provided for remand if any time before final judgment it appears to the court that the case was removed “improvidently” and without jurisdiction. Holmstrom v. Peterson, 492 F.3d 833, 836 (7th Cir. 2007) held that despite the broad language, courts construed the statute to mean removals that were defective in terms of the statutory conditions that Congress had placed on removal, whereas removals based on abstention, among other doctrines, were held to be outside the scope of the statute.

In 1988, §1447(c) was amended to provide: A motion to remand the case on the basis of “any defect in removal procedure” must be made within 30 days after the filing of the notice of removal.  Holmstrom further explained that the 1988 amendments sought to confirm the courts’ narrow reading of §1447(c) by replacing the term “improvidently” with “defect in the removal procedure,” and thus doctrines such as abstention continued to be interpreted as being outside the statute’s bounds.  The 1996 amendment replaced the language of “any defect in removal procedure” with “any defect other than lack of subject matter jurisdiction.”  Commentators have suggested a possible reading of the amendments to the effect that §1447(c) now covers all remand orders. Specifically David D. Siegel, Commentary on 1996 Revision of Section 1447(c), opined that abstention doctrines qualify as something other than subject matter jurisdiction, and therefore come within the purview of 1996 amendment to §1447(c).

However, in Snapper, Inc. v. Redan, 171 F.3d 1249, 1257-58 (11th Cir. 1999), the Eleventh Circuit concluded “defect” is limited to removal defects, rather than any removable ground.  Looking at the legislative history of 1996 amendment, Snapper stated that the Bill was passed without any hearing by the House Judiciary Committee because it viewed the Bill as technical and noncontroversial. Snapper noted that a contrary view in which the statute is read expansively to cover all remands would radically depart from the established law and would overrule two then-recent Supreme Court cases. Following Snapper, other circuits — Kamm v. ITEX Corp., 568 F.3d 752, 757 (9th Cir. 2009) and Autoridad de Energia Electrica de Puerto Rico v. Ericsson, Inc., 201 F.3d 15,17 (1st Cir. 2000) concluded that the thirty-day limit did not apply to a forum selection clause because it was not a “defect” within the meaning of the statute.

Although Congress undoubtedly intended to broaden §1447(c) in 1996, the Eighth Circuit did not read the term “defect” as broadly as the defendants suggested because Congress could have changed §1447(c) to cover a motion to remand the case on ‘any basis’ or ‘any ground,’ but instead kept the narrower term “defect.”  Accordingly, the Eighth Circuit concluded that the local controversy provision was not a “defect” within the meaning of §1447(c). The Eighth Circuit, however, maintained that the mere fact that the statutory time limitation on raising motions to remand does not apply does not mean that non-1447(c) remands are necessarily authorized at any time. Snapper found that the pre 1988 amendment that remand motions were required to be brought within a “reasonable” time frame continues for remands not covered by §1447(c).

Accordingly, the Eighth Circuit remanded the action to the district court to decide whether the more than 100 days the plaintiffs took to move to remand constituted a “reasonable” time frame.