Apex v. Contreras, No. CV 10-1382 (C.D. Cal. Nov. 4, 2010).
A District Court in California remanded the action to state court finding that use of the term, “any defendant” in 28 U.S.C. § 1453(b) does not change the long standing rule that only original defendants can remove.
The plaintiff, Westwood Apex, filed suit against the defendant, Jesus Contreras, for breach of contract in state court based on allegations that Contreras failed to pay amounts due on his student loan note. Contreras, who did not agree with the assertion that he should pay back his student loan, answered the complaint, and in order to keep members of the California bar busy for quite some time filed a class action cross-complaint against Westwood and several additional defendants–Cross Defendants, alleging violation of inter alia the Consumers Legal Remedies Act, California’s Unfair Competition Law by engaging in unfair and deceptive practices in connection with their operation of for-profit college campuses.
All the Cross-Defendants, except Westwood, removed the action to the District Court pursuant to CAFA.
The District Court, skeptical about the removal, wanted to know what the attorneys were thinking and issued a show cause order wanting to know why the matter had been properly removed under CAFA, 28 U.S.C. § 1453(b).
Ultimately the court said no, no, no and remanded the matter finding that removal was not authorized by CAFA. (Editors’ Note: Regular readers of the CAFA Law Blog, all of whom are scholars, know that we disagree with this decision. But we don’t get to wear the robe. As an aside, if we did get to wear the robe, we would wear it commando style. If you want to see our position, see the article published in the Consumer Financial Services Law Report by clicking here).
Because § 1453(b) refers to “any defendant” rather than “the defendant or the defendants,” the issue before the Court was whether § 1453(b) allows cross-defendants who are not plaintiffs in the original action to remove a class action to federal court.
In Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100 (1941), the Supreme Court construed a predecessor removal statute to preclude a cross-defendant that was originally a plaintiff in the state action from removing. That version of the removal statute, like the current version,allowed removal “by the defendant or defendants.” The Supreme Court took particular note of the fact that the prior removal statute allowed removal by “either party” and reasoned that the change to allow removal “by the defendant or defendants” reflected Congress’s intent to narrow the availability of removal. The current version in § 1441(a) is slightly different, referring to “the defendant or the defendants.”
Extending application of the Shamrock Oil rule, the Ninth Circuit, in Progressive West Ins. Co. v. Preciado, 479 F.3d 1014, 1015 (9th Cir. 2007), addressed whether § 1453(b) departed from Shamrock Oil’s rule barring removal by a plaintiff/cross-defendant in cases where a plaintiff is subject to a class action counterclaim, and concluded that CAFA did not allow such a plaintiff/cross-defendant to remove. The Ninth Circuit noted that § 1453(b) allows a class action to be removed to federal court “in accordance with § 1446,” which sets forth the removal procedure for “a defendant or defendants desiring to remove any civil action from a State court.” From that, the Ninth Circuit concluded that the interpretation of “defendant or defendants” for purposes of federal removal jurisdiction continues to be controlled by Shamrock, which excludes plaintiff/cross-defendants from qualifying as “defendants.” (Editors’ Note: See CAFA Law Blog analysis of Preciado posted on August 1, 2007).
The Court stated that Shamrock Oil and Progressive West do not control the issue whether a non-plaintiff third-party defendant can remove a class action to federal court. Although the Ninth Circuit has not yet decided this issue, in non-CAFA cases most courts including Palisades Collections LLC v. Shorts, 552 F.3d 327, 332 (4th Cir.2008) have extended the Shamrock Oil rule also to bar removal by a third-party defendant, i.e. a defendant who was not the original plaintiff. (Editors’ Note: See the CAFA Law Blog analysis of Palisades Collections posted on March 9, 2009).
The Cross-Defendants, however, contended that the use of “any” in § 1453 has an expansive meaning and thus that “any defendant” must include cross-defendants because “any defendant” should mean “any defendant.” The District Court said no, no, no do not pass go. Although the phrase “any defendant” may be ambiguous out of context, the Court concluded that, in context, the use of the word “any” to modify “defendant” does not alter the background rule that a “defendant” for purposes of the removal statutes refers only to an original defendant. The phrase “any defendant” appears twice in § 1453(b). First, that section provides that a class action may be removed “without regard to whether any defendant is a citizen of the State in which the action is brought.” This provision makes § 1441(b)’s rule barring a defendant who is a citizen of the forum state from removing an action to federal court inapplicable to class actions. Second, § 1453(b) provides that a class action “may be removed by any defendant without the consent of all defendants.” This provision eliminates for purposes of class actions the general rule requiring all defendants to consent to removal. The Court thus concluded that there is no reason to conclude that the use of “any defendant” abrogates the background rule allowing only original defendants to remove and since cross defendant’s were not original defendants they were not eligible to pass go and back to state court they went.
While concluding so, the Court remarked that because removal statutes are strictly construed against removal, and as Congress did not explicitly eliminate the original defendant rule for class actions while explicitly departing from other background rules, it would not read into the statute a congressional intent to eliminate this rule opaquely by using the phrase “any defendant.”
The Cross-Defendants next objected that § 1453(b) did not incorporate § 1441, the section containing the reference to “the defendant or the defendants” from which the original defendant rule arose; rather, they contended, § 1453(b) incorporated only § 1446, which referred more broadly to “a defendant or defendants.” The Court remarked that this argument implied that § 1441’s provision limiting removal to cases “of which the district courts have original jurisdiction” would not apply to removals under § 1453(b), and reading of § 1453(b) as standing independent from § 1441, § 1453(b) would authorize removal of class actions without regard to whether the district court would have original jurisdiction over that action. The Court pointed out that Congress plainly did not intend such a result.
Finally, the Court observed that all courts in the United States except one have considered this issue, and concluded that CAFA’s § 1453(b) does not authorize a non-plaintiff third-party defendant to remove a class action to federal court. Accordingly, the Court concluded that this near-unanimous authority bolstered the Court’s conclusion that Cross-Defendants were not authorized to remove this case to this Court and thus “any defendant” does not mean “any defendant.”
(Editors’ Note: On May 2, 2011, the 9th Circuit affirmed Westwood Apex and held that the District Court was correct in saying no, no, no to the removal attempt. See the CAFA Law Blog analysis of the 9th Circuit decision in Westwood Apex posted on July 6, 2011).