Schillinger v. 360Networks USA, Inc., No. 06-138-GPM, 2006 WL 1388876 (S.D. Ill. May 18, 2006).
In a case that will surely cause a firestorm of controversy about the security of our border with Canada, relation back (and not national security) was the topic du jour in this Southern District of Illinois opinion denying a motion to remand. Chief District Judge Murphy ruled that the addition of a new defendant after CAFA’s effective date “commenced” the litigation, so that removal pursuant to CAFA was proper, even though the lawsuit was first filed before CAFA’s effective date.
On February 17, 2005, the Schillingers filed a putative nationwide class action in state court in Madison County, Illinois. They claimed telecommunications company 360Networks, Inc., a Canadian corporation, installed fiber optic telecommunications lines across their land without obtaining permission. Watch out for those sneaky Canadians! After all, some of them speak French.
Presumably inspired by the national anthem of their Canadian nemesis and wanting to “keep [their] land glorious and free,” the Schillingers declared war against our northern neighbor and sought declaratory judgment and compensatory and punitive damages based on theories of trespass and unjust enrichment, plus attorney’s fees, costs and interest. The Schillingers served the state court lawsuit on the American subsidiary of the Canadian company—360Networks (USA), Inc.—even though the subsidiary was not named as a defendant, nor was it the subject of any of the allegations.
Eventually, on December 19, 2005, the Schillingers moved to dismiss all claims against the Canadian parent company and (inexplicably) moved for a scheduling order to be entered identifying the Canadian parent and the American subsidiary as parties and for the American subsidiary to be directed to file an answer. Although the court dismissed the claims against the Canadian parent, it did not address the other requests. The clerk listed the case as closed. Despite this, the court held a case management conference in the case on February 9, 2006. During that conference, the court issued a default judgment against the American subsidiary, which had not filed an answer.
Based on the premise that the February 9, 2006 rendering of the default judgment against 360Networks (USA), Inc. effectively joined the American subsidiary as a new party defendant, 360Networks, Inc. removed the case alleging federal diversity jurisdiction under CAFA. The Schillingers moved to remand the case.
The parties did not dispute that the case met the requirements for CAFA removal under 28 U.S.C. §1332(d). The bone of contention was whether the case against the American subsidiary “commenced” after the effective date of CAFA such that CAFA applied.
The court characterized as “well-settled” the idea “that an amendment of a class action complaint in state court to join a new defendant will commence (or, perhaps more properly, recommence) the action for purposes of removal under the CAFA,” citing the Seventh Circuit Court of Appeals decision in Knudsen v. Liberty Mutual Ins. Co., 411 F.3d 805 (7th Cir. 2005)(Knudsen I) (Editors’ Note: See CAFA Law Blog analyses of Knudsen dated January 30, 2006, January 5, 2006, and September 3, 2005). The court continued, stating whether an amendment to add a new party defendant commences litigation is dependent on whether that amendment relates back, under state law where the case was filed, to the date of filing of the original complaint.
Applying Illinois relation back standards (but noting the result would be the same under federal standards), the court concluded that the claims against the American subsidiary did not relate back to the filing of the original complaint against the Canadian parent. The court focused on evidence that the Schillingers (1) were aware of the existence of the American subsidiary all along (after all, they served the Canadian parent through the American subsidiary); (2) asserted all the claims in the original complaint against the Canadian parent, leaving the American subsidiary in the dark about any possible claims the Schillingers might be trying to assert against it; (3) made no allegations to support piercing the corporate veil between the entities; and (4) did not request issuance of citation against the American subsidiary.
The court said the American subsidiary’s failure to appear in the state court litigation and failure to retain counsel supported an argument that it never was on notice of any claims the Schillingers might have had against it. The court pointed to evidence indicating that the American subsidiary did not own fiber optic cable in Madison County, and concluded that any claims against the American subsidiary could not arise out of the same transaction or occurrence alleged in the original complaint. The court also said it was not reasonable for the Schillingers to assume the Canadian parent and the American subsidiary were the same entity.
Because the claims against new defendant 360Networks (USA), Inc. did not relate back to the original complaint, the court concluded the case was commenced after CAFA’s effective date, thus making it properly removable. The court concluded with a short analysis of CAFA’s abolition of the unanimity rule and, presumably, the corollary “first-served defendant” rule (the rule that a defendant’s failure to remove waives the right to remove as to later-served defendants). Thus, the court held that 360Networks (USA), Inc.’s removal was proper under 28 U.S.C. §1453 as well. As a result, the court denied the motion to remand, thus welcoming the controversy into federal court and certainly creating “glowing hearts” in the entire 360Networks, Inc. corporate family.