The Third Circuit issued two published opinions today, both fascinating if you enjoy tricky civil procedure issues.
Hoffman v. Nordic Naturals — civil — affirmance — Fuentes
Imagine you file a suit in state court. The defendant removes the case to federal court and then urges the federal court to dismiss your suit on a procedural ground. You’re sure the federal court has no jurisdiction at all to hear the case and so must remand it. The district court agrees with the defendant that dismissal would be warranted on the procedural ground — and it agrees with you that it has no jurisdiction. So what should the district court do?
Before today, I would have said the answer was dead obvious — the district court has to remand because it lacks jurisdiction. Without jurisdiction, it can’t decide your case, no matter how good it thinks either party’s arguments are, and no matter whether those arguments go to the merits of your claims or instead rest on a procedural ground.
But today the Third Circuit reached the opposite conclusion: “The District Court was . . . permitted to ‘bypass’ the jurisdictional inquiry in favor of a non-merits dismissal on claim preclusion grounds,” because “a court is not required to establish jurisdiction before dismissing a case on non-merits grounds.” That rationale seems wrong to me.
Here’s how the issue arose: plaintiff Harold Hoffman brought class-action lawsuit #1 in state court. The defendants removed the suit to federal court pursuant to CAFA, which gives federal courts jurisdiction to hear class actions big enough to meet certain thresholds, including that the amount in controversy exceeds $5 million. The district court denied Hoffman’s remand motion because it held that the suit met CAFA’s thresholds, and then on the merits it dismissed the suit on the pleadings. (Having dismissed the suit on the merits, the court gave Hoffman a chance to amend his suit, which he didn’t do.)
Hoffman then filed suit #2, again in state court. His new claims were basically the same as his old claims, but this time he defined the class more narrowly. Said the Third Circuit, “The purpose of this change, was, it seems, to reduce the amount recoverable and therefore defeat federal jurisdiction.” The defendant again filed notice of removal, Hoffman sought remand because this time CAFA did not confer jurisdiction, and the district court dismissed suit #2.
Today, the Third Circuit affirmed. But, critically, the court did not hold that the district court had jurisdiction over suit #2. Instead, it held that the district court didn’t need to have subject-matter jurisdiction over the case — that is, the removal need not have been legal — if the court ends up dismissing on non-merits grounds, citing the Supreme Court’s 2007 Sinochem case. Sinochem held that “a court need not resolve whether it has authority to adjudicate the cause (subject-matter jurisdiction) or personal jurisdiction over the defendant if it determines that, in any event, a foreign tribunal is plainly the more suitable arbiter of the merits of the case.” In my view, Sinochem is night-and-day different from what the court does here. Sinochem was just about forum selection and efficiency, not about courts nuking cases they don’t have the power to hear.
The whole point of the second removal was to throw out the second suit based on the federal court’s view of the merits. If the federal court didn’t have jurisdiction over the second suit, then it shouldn’t be the one to decide the preclusive effect of its merits ruling in the first suit. Nor should it decide whether tactical gamesmanship in repackaging the second suit warranted its dismissal. Only a court that has jurisdiction over the second suit — here, the state court — should get to decide those things.
As the hypothetical I began this post with suggests, I read today’s opinion to mean that federal courts can decide and dismiss removed state-filed suits — even if the removal was patently illegal — any time they can find a non-merits basis for dismissal. Suffice to say such a rule would be a big deal.
The introduction to today’s opinion emphasizes that the plaintiff here is a “serial pro se class action litigant.” (See, e.g., this law firm’s web page entitled, “Have you been Sued by Harold Hoffman?”) That fact wasn’t relevant to the court’s legal reasoning, but its prominent mention in the opinion may help explain the outcome here. And, frankly, it isn’t easy to imagine the court being eager to grant a rehearing petition filed by that same serial-filing pro se attorney. That’s a shame, because I think today’s opinion does warrant rehearing.
Joining Fuentes were Krause and Roth. The case was decided without oral argument.
UPDATE #1: After I posted the above, I was contacted by the losing party and ultimately retained to prepare a petition for rehearing in the case. I had no connection at all to the case at the time I wrote the post.
UPDATE #2: The same day the court issued its opinion, it also entered an order granting Nordic’s motion under FRAP 38 for sanctions and double its costs for filing an utterly frivolous appeal.
Wallach v. Eaton Corp. — civil — reversal — Krause
The Third Circuit issued a wonderfully cogent opinion today deciding a little point of antitrust procedure and a not-so-little point of class action procedure. The opinion’s introduction crisply explains:
In this case, we are called upon to determine, among other things, the fount and contours of federal common law applicable to the assignment of federal antitrust claims and the reach of the presumption of timeliness for motions to intervene as representatives of a class. Consistent with the Restatement of Contracts and the doctrines undergirding federal antitrust law, we hold that an assignment of a federal antitrust claim need not be supported by bargained-for consideration in order to confer direct purchaser standing on an indirect purchaser; such assignment need only be express, and that requirement was met here. We also hold that the presumption of timeliness, that is, the presumption that a motion to intervene by a proposed class representative is timely if filed before the class opt-out date, applies not only after the class is certified, as we held in In re Community Bank of Northern Virginia, 418 F.3d 277, 314 (3d Cir. 2005), but also in in the pre-certification context. Because the District Court failed to apply that presumption and the intervenors’ motion here was timely considering the totality of the circumstances, we conclude the District Court abused its discretion in denying their motion to intervene on that basis. Accordingly, we will reverse and remand for proceedings consistent with this opinion.
On the antitrust standing issue, the holding (antitrust claim assignments don’t require consideration) matters less than how the court got there. The court followed its prior precedent to conclude that the issue was controlled by federal common law. Since no precedent answered the question, the court then had to decide where to look for the content of federal common law. One side urged the court to look at the state law in all 50 states and adopt the prevailing approach; the other side urged it to follow the Restatement. The court decided that the Restatement was the right starting point and accepted the Restatement’s rule.
The class action timeliness-of-intervention rule has broad significance. The way the issue arose is that the defense sought to knock out the named plaintiff for lack of standing, other members of the putative class realized that the whole suit could be thrown out if the defense standing argument prevailed, so other putative class members moved to intervene but the district court said the intervention request was untimely. The Third Circuit disagreed for practical reasons:
[C]lass members would be compelled to intervene in every class action to protect their interests in the event the proposed class representatives are ultimately deemed inadequate”—giving rise to inefficiencies the class action device was designed to avoid both before and after class certification. Denying the presumption to putative class members also could result in great inefficiencies and reductions in judicial economy in cases like the one before us, which would be dismissed after years of motion practice and discovery, only to be filed anew by plaintiffs who were unable to simply intervene and carry the motion for class certification through to its conclusion. Further, if the presumption of timeliness applied only to certified classes, then motions to intervene brought prior to class certification might be deemed untimely, even though those same motions would be timely if brought years later, after a class was certified.
(Internal quotation marks, alteration, and citation omitted.) Analyzing the timeliness of the motion to intervene itself, the court ruled that it was timely.
Joining Krause were Chagares and Scirica. Arguing counsel were Emmy Levens of Cohen Milstein for the appellants and Pratik Shah, of Akin Gump, for the appellees. On the appellee’s side alone, I count 22 lawyers on the brief from at least 6 household-name big firms. Fun fact: the lawyer who argued the losing side is co-head of Akin Gump’s Supreme Court and appellate practice; the lawyer who argued the winning side is an associate.