Summary
disregarding defendants' arguments for removal based on a substantial federal question, in light of Beneficial National Bank
Summary of this case from Coker v. Purdue Pharma CompanyOpinion
No. C2-03-144
July 1, 2003
OPINION AND ORDER
This matter is before the Court for consideration of the following filings: a March 28, 2003 motion to remand pursuant to 28 U.S.C. § 1447 (c) filed by Plaintiff; Thomas K. Bourke (Doc. # 7); an April 22, 2003 memorandum in opposition filed by Defendants, Thomas T. Schultz and Thomas D. Carnahan (Doe. # 9); and a reply filed by Bourke on May 5, 2003 (Doe. # ii). For the reasons that follow, the Court finds the motion to remand well taken.
I. Background
Bourke, an attorney for Richard D. Schultz's creditors, filed a complaint pursuant to Ohio Rev. Code § 2923.31 et .seq. in the Franklin County Court of Common Pleas on December 17, 2002, seeking relief against Schultz and Carnahan. He alleged state law claims: violations of Ohio Rev. Code § 2923.32(A)(1); conspiracy to violate Ohio Rev. Code § 2923(A)(l); and fraudulent conveyance. (Doc. # 1, Complaint, at ¶¶ 89, 101, 108, and 115.) Bourke claims that both Schultz and Carnahan willfully and knowingly conspired, combined, confederated, and agreed with Richard D. Schultz to delay, hinder and defraud creditors of Richard Schultz and their attorneys, including Bourke, by concealing the true ownership, location, nature, and control of assets belonging to Richard Schultz. Bourke contends that this was done to impede, impair, obstruct, and defeat Bourke's efforts to collect an award of a prior judgment in 1994.
On February 14, 2003, Schultz and Carnahan removed this suit from the state court pursuant to 28 U.S.C. § 1441 and 1446 on the ground that Bourke's Ohio Civil RICO claim arises under federal law because it alleges violations of the federal RICO law, 18 U.S.C. § 1961 etseq., and of other federal criminal statutes. (Doc. # 1.) Schultz and Carnahan argue, for example, that Bourke's allegations concerning violations of 18 U.S.C. § 1341 and 1343 require the adjudication of substantial questions of federal law. (Doc. #9, at 4.)
Bourke argues that the removal was improper. He contends that although his complaint alleges violations of federal statutes as predicate acts to prove his Ohio Civil RICO claim, it does not arise under federal law. Bourke alternatively argues that even if the allegations of the federal statutes as predicate acts under Ohio Rev. Code § 2923.32 could provide grounds for federal question jurisdiction, Schultz and Carnahan's admission of other state and federal statutomy violations remove any grounds for federal questionjurisdiction. (Doc. # 11, at 1, 5.)
After the parties completed briefing on the remand issue, the United States Supreme Court decided Beneficial National Bank V. Anderson, 123 S.Ct. 2058 (2003). In that case, the Court recognized that "[als a general rule, absent diversity jurisdiction, a case will not be removable if the complaint does not affirmatively allege a federal claim." Id. at 2062. The Court also recognized that when a complaint pleads no federal claims, a party can remove a state claim based on federal question jurisdiction "in only two circumstances — when Congress expressly so provides . . . or when a federal statute wholly displaces the state-law cause of action through complete pre-emption." Id. at 2063 (emphasis added). Thus, this Court's inquiry is whether there is a federal statute that expressly pre-empts Bourke's Ohio RICO claim or a federal statute that wholly displaces Ohio's RICO statute. Because the following analysis reveals that neither situation exists here, this Court does not have federal jurisdiction and must remand to the Franklin County Court of Common Pleas. Further, because the theory behind the removal is not without foundation and the equities warrant it, the Court declines to award costs to Bourke.
II. Remand
A defendant may remove to federal court an action initially brought in a state court that could have been heard originally in a federal court. 28 U.S.C. § 1441 (b). If the federal court finds that it lacks subject matter jurisdiction over the case, it must remand the case. 28 U.S.C. § 1447 (c). Federal courts must also construe removal statutes narrowly, resolving uncertainties in favor of remand. Burns v. Windsor, 31 F.3d 1092, 1095 (11th Cir. 1994).
In order to determine whether a claim arises under federal law, a court will examine the "well pleaded" allegations of the complaint. The well-pleaded complaint rule provides that a cause of action arises under federal law only if a plaintiffs properly pleaded complaint affirmatively alleges a federal question — i.e., the complaint's statement of a cause of action shows that it is based upon federal law or the Federal Constitution. See Beneflcial Nat'l Bank, 123 S.Ct. at 2062; Horowitz v. Marlton, 116 F. Supp.2d 551, 553 (D.N.J. 1999). Moreover, when both federal and state law claims are available, a plaintiffs decision to proceed exclusively under state law does not give rise to federal jurisdiction. See Caterpillar v. Williams, 482 U.S. 386, 392 (1987).
Some courts have recognized that the artful pleading doctrine provides two possible exceptions to the "well pleaded" complaint rule, thereby permitting removal where a plaintiff "artfully pleads" a state claim even though no federal question appears on the face of the complaint. Little v. Purdue Pharma, 227 F. Supp.2d 838, 853 (S.D. Ohio 2002). The first exception is the complete pre-emption doctrine. Successful removal under this doctrine depends upon the availability of a federal cause of action so sweeping in nature that it completely does away with any state cause of action. See Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987); Avco Corp. v. Aero Lodge 735 Int'l Assoc. of Machinists Aerospace Workers, 390 U.S. 557 (1968).
Schulz and Caniahan, however, rely upon the second possible exception to the wellpleaded complaint rule, the substantial federal question exception. Under this exception, a state law cause of action actually arises under federal law "where the vindication of a right under state law necessarily turn[s] on some construction of federal law." Franchise Tax Bd. of Calif. v. Construction Laborers Vacation Trust for S. Calif., 463 U.S. 1, 9 (1983). The mere presence of a federal issue in a state cause of action, however, does not automatically confer federal question jurisdiction; rather, the federal issue must be of sufficient weight to be considered substantial. Merrell Dow Pharmaceuticals, Inc. v. Thompson, 478 U.S. 804, 813 (1986).
The application of this doctrine has not been uniform. Two circuit courts have held that complete pre-emption is the only exception to the well-pleaded complaint rule. See, e.g., Waste Control Specialists, L.L. C. v. Environcare of Texas, Inc., 199 F.3d 781, 783 (5th Cir. 2000); M. Nahas Co., Inc. v. First Nat'l Bank of Hot Springs, 930 F.2d 608, 612 (8th Cir. 1991). Other decisions have affirmed the validity of the substantial federal question exception. See, e.g., Chicago V. International Coil. of Surgeons, 522 U.S. 156, 164 (1997); Christian v. Colt Indus. Operating Corp., 486 U.S. 800, 808 (1988). But even where the exception has been accepted as valid, an important historical limitation on the substantial federal question exception has been the necessity of a federal private cause of action. The United States Supreme Court has stated that "[t]he significance of the necessaay assumption that there is no federal private cause of action . . . cannot be overstated." Merrell Dow, 478 U.S. at 812. The Merrell Dow court added that the congressional detennination that there should be no federal remedy for the violation of a federal statute is tantamount to a congressional conclusion that the presence of a claimed violation of the statute as an element of a state cause of action is insufficiently "substantial" to confer federal question jurisdiction. Id. at 814.
Some district courts have interpreted Merrell Dow as requiring a finding of a private cause of action under the federal statute in question before federal question jurisdiction may exist. See, e.g., Meinders V. Refco Securities, Inc. 865 F. Supp. 721. 723 (D.Colo. 1994) (" Merrell Dow simply stands for the proposition that in the absence of a federal private right of action, the presence of federal law in a state law claim is insufficient to establish federal jurisdiction."). These courts found that because Congress has not provided a private cause of action under federal criminal statutes, those statutes cannot create federal question jurisdiction when used as predicate acts for a state RICO claim. See id. at 723; Horowitz, 116 F. Supp.2d at 554-55.
The Sixth Circuit Court of Appeals, however, has recognized that a private cause of action may not be necessary to establish federal question jurisdiction under the substantial federal question exception. The appellate court has held that even though a complaint does not state a federal cause of action, it may in some cases invoke federal jurisdiction. Long v. Bando, 201 F.3d 754, 757 (6th Cir. 2000). The Long court found that the holding in Merrell Dow left open the possibility of federal jurisdiction even in the absence of an express or implied federal cause of action, if a substantial federal question of great federal interest is raised by a complaint framed in terms of state law, and if resolution of that federal question is necessazy to the resolution of the state-law claim. Id. at 759 (citing International Coll. of Surgeons, 522 U.S. a.t 164). In any event, however, the appellate court has recognized that it is the nature of the federal interest that matters. Miller v. Norfolk and Western Ry. Co., 834 F.2d 556, 562 (6th Cir. 1987) ("[Elven when there is [a private] cause of action, the use of a federal statute as an element of a state cause of action may or may not raise a substantial federal question depending upon the nature of the federal interest at stake in the case."). See also Merrell Dow, 478 U.S. at 814 n. 12. Here, the nature of the federal question at issue — the purported violations of federal statutes — is ultimately of a limited nature arguing against a characterization as "substantial."
Regardless, Beneficial National Bank, apparently resolves much of the foregoing uncertainty that has surrounded the validity of the substantial federal question exception. Although only the dissent targeted this point, the Beneficial National Bank majority effectively reconsidered removal jurisprudence. By recognizing removal only in cases involving a congressional mandate or complete pre-emption, the Court arguably eliminated the substantial federal question exception. The Beneficial National Bank majority characterized the complete pre-emption inquuy as asking whether the state-law cause of action is in reality based on federal law and cited two instances of complete pre-emption — both of which concerned federal statutes that provide the exclusive cause of action for the claim asserted. Id., 123 S.Ct. at 2063.
In light of Beneficial National Bank, Schultz and Carnahan's arguments opposing remand are ineffective. Beneficial National Bank would permit removal only if the Federal RICO statute, 18 U.S.C. § 1961, provided an exclusive cause of action that pre-empted any Ohio law claims. The case would then be removable because the cause of action would necessarily arise under federal law, despite being framed in terms of state law in the complaint. But given that Congress did not provide an exclusive cause of action under 18 U.S.C. § 1961, this case is not suitable for removal. Concerning the Federal RICO Act, Congress stated that "[niothing in this title shall supersede any provision of Federal, State, or other law imposing criminal penalties or affording civil remedies in addition to those provided for in this title." Pub.L. No. 91-452, § 904(b). Thus, "under RICO, the States remain free to exercise their police powers to the fullest constitutional extent in defining and prosecuting crimes within their respective jurisdictions." Neibel v. Transwork Assurance Co., 108 F.3d 1123, 1130 (9th Cir, 1997) (quoting United States v. Turkette, 452 U.S. 576, 586 n. 9 (1981)). See also Avery Denniso Corp. v. Four Pillars Enterprise Co., 45 Fed. Appx. 479, 488 (6th Cir. 2002) (affirming Neibel's reasoning).
Bourke has limited his cause of action to Ohio Rev. Code § 2923.31, Ohio's RICO law, and has not attempted to allege a federal cause of action in his complaint. Schultz and Carnahan argue that it is the interpretation of 18 U.S.C. § 1341 and 1343 under Ohio's state RICO act that gives rise to federal jurisdiction. But because the federal law allows plaintiffs to bring claims understate RICO laws as well as 18 U.S.C. § 1961, the action was improperly removed from state court.
Further, even if the substantial federal question exception survives Beneficial National Bank, Schultz and Carnahan would still be unable to sustain removal from state court. Relying on Ayres v. General Motors Corp., 234 F.3d 514 (11th Cir. 2000), Schultz and Carnahan argue that by relying upon federal mail and wire fraud statutes, 18 U.S.C. § 1341 and 1343, Bourke's complaint sets forth allegations that raise federal questions creating not only jurisdiction in the federal court, but also sufficient grounds for removal to this Court.
But this argument ignores that the holding of Ayres is narrow; there, the Eleventh Circuit held that "[tihe particular controversy may very well make this case one of those exceptional cases requiring that we decide a "federal question substantial enough to confer federal question jurisdiction.'" Ayres, 234 F.3d at 519 (citing City of Huntsville v. City of Madison, 24 F.3d 169, 174 (11th Cir. 1994)) (emphasis added). The Ayres court's finding ofjurisdiction turned on the necessity of interpreting the National Traffic and Motor Vehicle Safety Act to determine whether there was a state law claim. If the court found that the Safety Act provided an independent duty for the defendant in that case to report defects in its products, then the defendant could be guilty of the predicate crimes: federal mail and wired fraud ( 18 U.S.C. § 1341 and 1343). But if the court interpreted the Safety Act as not requiring disclosure of a defect, then the Ayres plaintiffs would have been precluded from carrying the complaint forward.
The Eleventh Circuit determined that federal question jurisdiction existed because proof of the state RICO claim required (1) proof of the predicate acts of federal mail and wire fraud, and (2) proof that the alleged federal mail and wire fraud crimes involved a substantial federal question, that is, whether the failure to report an automobile defect to the purchaser of the vehicle as required by the Safety Act was a violation of federal mail and wire fraud statutes. Ayres, 234 F.3d at 5 18-20.
In the instant case, however, Schultz and Carnahan argue that it is the court's interpretation of two federal predicate acts related to 18 U.S.C. § 1341 and 1343 that raises a substantial federal question concerning an essential element of the case. Unlike in Ayres, there is no independent statute here that a court must interpret in order to reach its decision. As noted, the alleged wire and mail fraud raises no substantial question about the correct construction of federal law. Moreover, even if a significant interpretation of the predicate acts were required, that interpretation would have no dispositive effect on whether Bourke's state RICO claim could go forward because Bourke has alleged several other federal and state predicate acts that would be sufficient to carry forward his state RICO claim. (Doc. # 1, Comp., at ¶¶ 89, 101, and 107.) Thus, the argument against remand fails to meet the Ayres court's criteria for removing a state RICO claim to federal court.
The Court further notes that several other district courts have ruled that federal violations used as predicate acts for state RICO claims cannot create federal question jurisdiction. See Patterman v. Travelers, Inc., II F. Supp.2d 1382, 1388-89 (S.D. Ga. 1997) (finding allegations of federal mail and wire fraud as insufficiently substantial to confer federal question jurisdiction); Meinders V. Refco Securities. Inc. 865 F. Supp. 721, 724(1). Cob. 1994) ("Given the limited purpose for which violations of federal law are asserted in this case, the presence of the claimed violation of federal law as an element of the (Colorado Organized Crime Control Act] claim is not sufficiently substantial to confer federal-question jurisdiction"). See also Graham Commercial Realty, Inc. v. Shamsi, 75 F. Supp.2d 1371, 1373 (N.D. Ga. 1998) (citing Patterman and Meinders to conclude that asserting violations of federal criminal laws as predicate acts to the state's RICO act is not sufficiently substantial to confer federal question jurisdiction).
Against this backdrop, the Court finds that (1) there is no complete pre-emption necessitating removal, and (2) even if the substantial federal question exception survives, it is inapplicable because the nature of the inquiry into the predicate acts implicating federal statutes involved here — a mere construction of statutes as opposed to an inquiry into the constitutionality of the statutes, for example — is of insufficient substance to create arising under, or federal question, jurisdiction warranting removal. See Miller, 834 F.2d at 563 (citing Moore v. Chesapeake Ohio Ry., 291 U.S. 205 (1934)). Accordingly, the Court concludes that based on all the foregoing reasons, removal was improper in this case.
III. Award of Costs
In his motion to remand, Bourke seeks an award of the costs, including attorney's fees, incurred as a result of this removal. Pursuant to 28 U.S.C. § 1447 (c), the Court has the discretion to "require payment of just costs and any actual expenses, including attorney's fees, incurred as a result of" the removal. Publix Supermarkets, Inc. v. United Food Commercial Workers International Union AFL-CIO CLC, 900 F. Supp.2d 419, 421 (M.D. Fla. 1995). A finding of bad faith or improper purpose by the removing party is not necessary. See Miranni v. Lee, 3 F.3d 925, 929 (5th Cir. 1993); Morris v. Bridgestone/Firestone, Inc., 985 F.2d 238, 240 (6th Cir. 1993). Nevertheless, an award of attorney fees is inappropriate "where the defendant's attempt to remove the action was "fairly supportable, ' or where there has not been at least some finding of fault with the defendant's decision to remove." Ahearn v. Charter Twp. of Bloomfield, 149 F.3d 1182, 1998 WL 384558, at *2 (6th Cir. 1998) (unpublished table decision) (citations omitted).
Although Schultz and Carnahan's reliance on Scaccia v. Lemmie, 236 F. Supp.2d 830 (S.D. Ohio 2002), is of debatable value for finding a "fairly supportable" decision to remove here, the Court concludes that an award of attorney fees and costs would not be fair and equitable under these circumstances. The arguments in support of removal, while unable to cany the day, are nonetheless reasonable in light of the fact that no directly on-point United States Supreme Court precedent existed at the time of removal. The Court hesitates to regard as without debatable merit the proposition that federal violations used as predicate acts for state RICO claims could create federal question jurisdiction. Although a number of courts have rejected such an argument for removal, the Court is not inclined to characterize Schultz and Camahan's acting on this flawed but reasonable legal theory as devoid of any fair support. Thus, the Court in its discretion concludes that Bourke is not entitled to reasonable costs and attorney fees related to the improper removal.
IV. Conclusion
For the foregoing reasons, the Court GRANTS Bourke's March 3, 2003 motion and REMANDS this cause to the Franklin County Court of Common Pleas. (Doc. # 7.) The Court further DENIES Bourke his costs, including attorney's fees, incurred as a result of the removal. Each party is to bear their own costs. The Clerk is instructed to process the paperwork necessary to effect the remand.