City of Fairview Heights v. Orbitz, Inc., Slip Copy, 2006 WL 6319817 (S.D. Ill., Jul 12, 2006) (NO. 05-CV-840-DRH).

The Illinois District Court refused to remand the action holding that given the different standards for consolidation under 28 U.S.C. § 1407 and the subject-matter jurisdiction under 28 U.S.C. § 1332(d)(4)(A)(ii), the defendants’ inconsistent arguments against consolidation of a similar case and against remand because of pendency of a similar case did not foreclose federal jurisdiction. It also helps if you have a hovercraft.

The City of Fairview Heights, an Illinois municipality, brought this suit in state court on behalf of a putative class of Illinois municipalities to redress the defendants’ failures to pay taxes allegedly owed to it and other putative class members.  The City alleged that the defendants–owners and operators of Internet travel sites, unlawfully neglected to pay the full amount of hotel taxes due and owing under city ordinances.  The City contended that the defendants accomplished this first by contracting with hotels and motels to resell their hotel rooms to consumers (at higher rates), and then by paying taxes only on the lower, contracted-for rates they paid to the hotels and motels themselves, not the rates actually paid by consumers.

After the defendants removed the action to the District Court, the City petitioned the Judicial Panel on Multidistrict Litigation (MDL Panel) in vain to consolidate this matter with three other cases pending elsewhere in federal courts.  

Although the City agreed that the Court had jurisdiction under CAFA, it sought remand under the exceptions in 28 U.S.C. § 1332(d)(4)(A)(ii), arguing that no similar class action was filed against any defendant in the three-year window preceding this case. The Court, however, found that a similar case, City of Los Angeles, California et al.v., L.P; et al.,involved the exact same defendants as here, was filed in 2004, within the three-year window, and contained not only similar factual allegations, but in some places identical wording and structure to the City’s complaint. Hmmmm.

The City, without challenging these similarities, argued that because both City of Los Angeles and the cases previously up for consolidation sought unpaid hotel-occupancy taxes, there were no differences between them, and that because the defendants argued against consolidation before the MDL Panel, § 1332(d)(4)(A)(ii) foreclosed federal jurisdiction in this case.

The Court disagreed with the City and found that the case that the defendants argued asserted similar claims was City of Los Angeles, not any of the cases that were before the MDL Panel. The Court opined that the City’s current attempt to equate the MDL cases with City of Los Angeles–without so much as attempting to identify specific similarities between them–was accordingly off base and irrelevant.  In order for federal jurisdiction to exist, there need only be one similar case filed in the preceding three years, and the defendants argued that City of Los Angeles was such a case.  At least initially, therefore, the Court must examine only the allegations in that case to determine whether remand was appropriate.

Second, the Court stated that even if it was to accept the City’s position that City of Los Angles and the cases previously up for consolidation were functionally interchangeable, the defendants’ statements to the MDL Panel concerning those cases were of no consequence in the Court’s analysis.  The Court observed that a district court’s determination of whether it has subject matter jurisdiction over a case is made independent of the parties’ arguments or positions; thus, it is the allegations in the complaints themselves, not what the parties say about those allegations, that matters here.

Finally, the Court remarked that even if it was to rely on the defendants’ statements to the MDL Panel in evaluating its jurisdiction, there are different standards for consolidation under 28 U.S.C. § 1407 and subject-matter jurisdiction under § 1332(d)(4)(A)(ii).  Section 1407 focuses on the question of whether cases involve common fact issues, while § 1332(d)(4)(A)(ii) centers on whether allegations in cases are “the same or similar.” Because of these divergent standards, the fact that the defendants argued against consolidation on the one hand and for subject matter jurisdiction on the other was not necessarily inconsistent.  

Thus, the Court concluded that the City failed to explain why or how the defendants’ position before the MDL Panel against consolidation under § 1407 foreclosed an argument for subject matter jurisdiction under § 1332(d)(4)(A)(ii).