General Credit Acceptance Co, LLC v. Deaver, 2013 WL 2420392 (E.D. Mo. June 3, 2013).

Once a plaintiff, always a plaintiff, at least for purposes of removal jurisdiction under CAFA.  A District Court in Missouri, while granting a motion to remand, held that a plaintiff who chose to commence an action in state court, cannot later remove to federal court, even when the counterclaim forming the basis for removal is the only remaining claim in the action.

General Credit Acceptance Co, LLC, (“GCAC”) brought an action in the Twenty-First Judicial Circuit Court, St. Louis County, Missouri for breach of contract.  The defendant, David Deaver, filed his answer and subsequently was granted leave to amend his answer to include a consumer class action counterclaim.  GCAC then voluntarily dismissed its contract claim, and Deaver’s class action counterclaim was the only remaining claim in the state court action.  Thereafter, Deaver sent a Settlement Demand Letter to GCAC seeking $10,000,000 to settle the counterclaim and estimating statutory liability at $30,400,000.

GCAC then removed the action to the District Court under CAFA, and asserted that the action was removable pursuant to 28 U.S.C. §§ 1446(b)(3) and 1453.  GCAC contended that the Settlement Demand Letter constituted an “other paper” under 28 U.S.C. 1446(b)(3), which provided the necessary affirmative proof that the jurisdictional amount was satisfied in accordance with 28 U.S.C. § 1446(b) and triggered the 30-day removal period, during which it properly removed the action.

Deaver moved to remand, and the District Court granted the motion.

First, Deaver claimed that GCAC was the original plaintiff in the case, and now the counterclaim-defendant, and having submitted itself to the jurisdiction of the state court, was not now entitled to remove the case.  Deaver cited Shamrock Oil and Gas Corp. v. Sheets, 313 U.S. 100 (1941) for the proposition that if a party is a true plaintiff at the time it filed its lawsuit, it remains a plaintiff and can never remove.  Deaver also maintained that in actions in which the original claim filed by the plaintiff is settled or dismissed, the original plaintiff remains the plaintiff for purposes of removing the remaining counterclaims.

The District Court stated that a plaintiff cannot remove an action to federal court on the basis that a counterclaim permits removal, and noted that Shamrock Oil concluded that a litigant who files suit in state court is a “plaintiff” and cannot remove the case, even if the defendant files a counterclaim and the original plaintiff then wears two hats, one as plaintiff and one as defendant, and even if the counterclaim is distinct from the original claim and could have been a separate piece of litigation.

Although GCAC pointed to cases wherein removal by the counterclaim-defendant was found to be proper, the District Court observed that in those cases the federal courts had held that when a state court realigns parties, the realigned defendant can properly remove an action to federal court.  Here, the state court did not realign the parties, and GCAC was still the plaintiff at removal.

GCAC also relied on Hickman v. Alpine Asset Management Group, LLC, 2013 WL 342806 (W.D. Mo. 2013) for the proposition that a nominal plaintiff may remove where the only claims in the case are those being asserted by the nominal defendant.  The District Court observed, however, that the counterclaimant in Hickman did not oppose the removal or the realignment of the parties, and filed a motion to remand only after summary judgment was granted in favor of the original plaintiff.  Here, Deaver opposed the Motion to Realign, and the District Court had not disposed of the case on its merits.

The District Court stated 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 “defendants.”  Accordingly, the District Court opined that GCAC, the original plaintiff, could not remove the action.

Next, GCAC moved to realign the parties.  GCAC contended that, as it dismissed with prejudice all of its claims against Deaver, and Deaver’s putative class action was the only remaining claim before the state court, Deaver substantively was the plaintiff, and GCAC substantively was the defendant.

At issue was whether the question of realignment is properly tested at the time of filing of the original suit or at the time of removal.  The District Court noted that in Universal Underwriters Ins. v. Wagner, 367 F.2d 866, 871 (8th Cir. 1966), the Eighth Circuit stated that the question of realignment, involving jurisdiction, must be tested at the time of filing the complaint.  GCAC failed to offer persuasive case law in support of the proposition that the precedent in Wagner was inapplicable when realignment was sought after removal, but instead argued that Hickman provided support for realignment under the factual scenario at issue here.

The District Court remarked that Hickman, which had realigned parties after removal when the only claim pending was a counterclaim, was distinguishable as the plaintiff/counterclaim-defendant’s Motion to Realign was unopposed.  Accordingly, the District Court concluded that Wagner was applicable in the context of a case removed to federal court, and that the federal court should, accordingly, assess realignment at the time of filing the complaint.

Next, the District Court observed that the realignment inquiry generally examines whether parties with the same ultimate interests in the outcome of the action are on the same side.  The District Court noted two tests in this context.  One test examines the original plaintiff’s primary or principal purpose for filing suit, and then aligns the parties according to the primary purpose of the lawsuit and their respective interests.  The second test provides that realignment of the parties is not required when there is an actual and substantial conflict between the parties that are sought to be realigned, even if it is not necessarily the primary dispute.

The court did not find that realignment was warranted under either test in this case.  Under the principal purpose test, the District Court noted that GCAC’s principal purpose in filing the complaint was to seek a deficiency judgment from Deaver, and hence GCAC and Deaver were properly aligned according to the principal purpose of the litigation.  Under the substantial conflict test, the District Court observed that there was an actual and substantial conflict between the parties.

The District Court concluded that realignment would only serve to manufacture federal jurisdiction.  The only justification for realignment was that the original complaint by GCAC had been voluntarily dismissed, and GCAC no longer wished to litigate in the forum it originally selected.  The District Court held that this justification did not comprise a valid reason to grant GCAC a change in status for removal purposes, and accordingly, denied the Motion to Realign the Parties.