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CAFA Class Action Defense Cases-Lott v. Pfizer: Seventh Circuit Holds Defense Basis For Erroneous Removal Of Class Action Pursuant To CAFA (Class Action Fairness Act of 2005) Was Objectively Reasonable So Sanction Award Was Improper

District Court Erred in Awarding Attorney Fees Against Defendant for Removing Class Action Under CAFA (Class Action Fairness Act of 2005) Because even though Basis for Removal was Flawed – that Class Action was “Commenced” when Removed rather than when Filed – Defense had Objectively Reasonable Grounds for its Interpretation of the Statute Seventh Circuit Holds

In an effort to avoid removal to federal court, plaintiffs filed a putative class action in Illinois state court on February 17, 2005: the class action alleged violations of Illinois’ Consumer Fraud and Deceptive Business Practices Act in that defendant Pfizer misrepresented the health risks of using Celebrex and Bextra, and charged more than fair market value for these drugs. Lott v. Pfizer, Inc., 492 F.3d 789, 790-91 (7th Cir. 2007). Defense attorneys removed the class action to federal court on the basis of CAFA, id., at 790, arguing that the action “commenced” when defense attorneys removed the class action to federal court, id., at 791. The district court remanded the class action to state court on the ground that CAFA applied only to class actions filed after CAFA’s effective date, and awarded attorney fees and costs against Pfizer. Id. The defense appealed the award of fees and the Seventh Circuit reversed.

We do not here discuss the unsuccessful arguments made by the defense in support of removal, both under CAFA and under traditional diversity jurisdiction: suffice it to say that the district court remanded the class action to state court based on its conclusion that it lacked subject matter jurisdiction and that the requirements for diversity jurisdiction had not been met – a decision affirmed by the Seventh Circuit in Pfizer, Inc. v. Lott, 417 F.3d 725, 727 (7th Cir.2005), which held that for purposes of CAFA jurisdiction a class action was “commenced” when it was “filed” not when it was “removed,” and that Pfizer had not established diversity jurisdiction. We address here the defense appeal from the award of attorney fees against Pfizer.

The Seventh Circuit began its analysis by noting that under Martin v. Franklin Capital Corp., 546 U.S. 132 (2005), “a district court may award attorneys’ fees under § 1447(c) only where the removing party lacked an objectively reasonable basis for seeking removal.” Lott, at 791. In denying a defense motion to reconsider the attorney fee award in light of Martin, which came down after the award of fees against Pfizer, the district court found that (1) Martin was not retroactive, and (2) removal on the basis of diversity jurisdiction was not objectively unreasonable. Id. However, “Notably, the district court did not assess the reasonableness of Pfizer’s attempt to remove the case under CAFA.” Id., at 791-92.

The Circuit Court noted that it reviewed the district court order for abuse of discretion. Lott, at 792. It also noted that plaintiffs conceded that the district court erred in concluding that Martin did not apply: “Supreme Court decisions announcing a rule of federal law always govern civil cases pending in the district courts.” Id. (citation omitted). Thus, the issue on appeal was whether either basis for removal was “objectively reasonable,” id. The Seventh Circuit held that the appropriate standard for determining whether a defense basis for removal was “objectively reasonable” is determined by examining whether “at the time the defendant filed his notice in federal court, clearly established law demonstrated that he had no basis for removal,” id., at 793. If so, then the district court should award attorney fees; but “if clearly established law did not foreclose a defendant’s basis for removal, then a district court should not award attorneys’ fees.” Id.

The Seventh Circuit held that Pfizer’s removal under CAFA was “objectively reasonable” because at the time it removed the class action to federal court “no circuit court had rejected Pfizer’s argument that the word ‘commenced’ means the date on which a case is removed to federal court.” Lott, at 793. Moreover, district court decisions had been split on whether “commenced” meant the date of filing or the date of removal. Id. (citing conflicting district court decisions). The Seventh Circuit therefore concluded at page 793, “District court decisions, let alone conflicting district court decisions, do not render the law clearly established. [Citation.] Accordingly, Pfizer acted reasonably when it attempted to remove this case under CAFA.” The Seventh Circuit therefore reversed the district court award of attorney fees. Id., at 794.

NOTE: The Seventh Circuit rejected plaintiffs’ claim that Pfizer “should have know that its construction of CAFA was wrong” because (1) Pfizer lobbied Congress on CAFA and the legislative history suggests that “commenced” means the date of filing, and (2) Lott, at 793-94. The Circuit Court was not persuaded by quotes from two congressmen and three senators that CAFA would not impact pending state court litigation, particularly since two of them voted against CAFA so their views “do not bear on the legislature’s intent.” Id., at 793. The Court rejected the “Pfizer-had-special-insight” argument because the test is whether the defendant’s conduct was “objectively reasonable,” not subjectively reasonable. Id., at 794.

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