Defense Removal of Class Action to New York Federal Court under CAFA (Class Action Fairness Act of 2005) was not Objectively Reasonable thus Warranting Award of Attorney Fees to Plaintiff Following Remand of Class Action to State Court
Plaintiff filed a putative class action lawsuit in New York state court against Circuit City. Alicea v. Circuit City Stores, Inc., 534 F.Supp.2d 432, 2008 WL 344695, *1 (S.D.N.Y. 2008). The class action complaint, a copy of which may be found here, alleged that Circuit City’s “return policy and imposition of a ‘restocking fee’ in the amount of 15% of the purchase price of certain returned items” violated New York General Business Law § 349. Defense attorneys removed the class action to federal court on the ground that removal jurisdiction existed under the Class Action Fairness Act of 2005 (CAFA); plaintiff’s lawyer moved to remand the class action complaint to state court arguing that Circuit City had failed to establish that the $5 million amount-in-controversy requirement had been met for CAFA removal jurisdiction. Alicea, at *1. Plaintiff also sought attorney fees under 28 U.S.C. § 1447(c), id. The district court granted the motion to remand the class action to state court, and in the order summarized here, awarded plaintiff attorney fees under § 1447(c). (The order remanding the class action to state court may be found here.)
As a threshold matter, the district court noted that “the standard governing the application of section 1447(c)…is whether the removing party ‘lacked an objectively reasonable basis for seeking removal.’” Alicea, at *1 (quoting Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005)). The federal court also “‘recognize[d] the desire to deter removals sought for the purpose of prolonging litigation and imposing costs on the opposing party, while not undermining Congress’ basic decision to afford defendants a right to remove as a general matter, when the statutory criteria are satisfied.’” Id. (quoting Martin, at 140). Here, defense attorneys argued that a reasonable basis existed for removing the class action under CAFA because “(1) it was ‘unclear to defendant whether plaintiff was seeking treble damages’…, (2) ‘at the time of removal, it objectively appeared that plaintiff’s claims were not limited to New York State consumers’…, and (3) ‘the costs of compliance would extend in perpetuity,’ and thus ‘CAFA’s jurisdictional limits would have been easily met.’…” Id. The district court rejected each of these arguments.
First, the district court held that the class action complaint did not seek treble damages and that “New York law clearly precluded treble damages for class actions brought under N.Y. General Business Law § 349.” Alicea, at *1. Defense claims that it was only plaintiff’s motion to remand that clarified whether treble damages would be sought, id., was belied by the allegations in the class action complaint, id., at *2. Quite simply, “[t]here is no mention of treble damages” in the class action complaint, and entitled to treble damages would, in any event, have required proof that Circuit City “willfully or knowingly violated” § 349, see N.Y. Gen. Bus. Law, § 349(h), but the class action complaint did not allege a willful or knowingly violation of the statute. Alicea, at *2. The bottom line is that Circuit City could have clarified this issue in state court, but “[i]n light of the wording and the law…Circuit City did not have a reasonably objective basis to assume that plaintiff was seeking treble damages to reach the $5 million amount-in-controversy requirement.” Id.
Second, the federal court rejected defense claims that the class action complaint reasonably could be read to seek damages on behalf of a nationwide class. Alicea, at *2. The class action seeks damages under section 349, which by its terms is limited to acts committed “in this state,” see N.Y. Gen. Bus. Law, § 349(a), and case law confirms that the deceptive practices alleged must have occurred in New York. Alicea, at *2 (citations omitted). Because the statute “does not protect out-of-state consumers from out-of-state deceptive business practices,” the putative class action could not seek relief on a nationwide basis, id. Accordingly, removal on this ground was not objectively reasonable.
Finally, the defense argued that “CAFA’s amount in controversy would have been met if ‘the Court had considered a greater than five year period’ in calculating its costs of compliance,” but the district court found this argument to be “neither factually nor legally tenable.” Alicea, at *3. The federal court noted that the notice of removal focused on the “aggregate class claims,” not the cost of compliance, id. But more fundamentally, under Second Circuit authority the value of the claims for purposes of class action removal is “measured from the plaintiff’s perspective,” not the defense. Id. (citing DiTolla v. Doral Dental IPA of New York, 469 F.3d 271 (2d Cir. 2006)). And CAFA itself provides that it is “the claims of the individual class members” that are aggregated to determine if the $5 million threshold has been met. Alicea, at *3 (citing 28 U.S.C. § 1332(d)(6)). This, too, then failed to present an “objectively reasonable basis for removal.” Id.
The district court concluded at page *4, “If Circuit City had conducted a reasonable investigation of the facts, it would have been apparent, under well-settled law, that the amount in controversy did not exceed $5 million.” Accordingly, the court granted plaintiff’s motion for attorney fees. Alicea, at *4. The federal court explained that it was awarding fees not because Circuit City “incorrectly removed this case” but, rather, because “the removal was not objectively reasonable.” Id.