Callahan’s Opinion Says Remand Was Improper Based on Notice of Removal Not Containing Proof That Jurisdictional Minimum of $75,000 in Diversity Case Was Met; Federal Jurisdiction Not Cut Off by Order
By a MetNews Staff Writer
District Court Judge R. Gary Klausner of the Central District of California erred as a matter of law in shunting a removed case back to the Los Angeles, on his own motion, because he wasn’t convinced by the removal order that the jurisdictional amount in a diversity case—$75,000—was in issue, the Ninth U.S. Circuit Court of Appeals held yesterday.
The fact that Klausner had a copy of the remand order sent to the Superior Court did not mean that the case was rendered outside the jurisdiction of the federal court, with the remand order subject to no review, the panel declared in an opinion by Circuit Judge Consuelo M. Callahan.
“The district court shall enter an order recalling the remand and shall notify the Los Angeles County Superior Court that the district court has resumed jurisdiction over the action,” the opinion directs.
On Feb. 24, 2020, the action was brought in the Superior Court by the Academy of Country Music against Continental Casualty Company, alleging breach of contract and tortious breach of the covenant of good faith and fair dealing, seeking proceeds under a policy. The insurer filed a notice of removal on April 1.
The case went to Klausner the following day, and on April 10, he lobbed it back to the Superior Court (of which he was a presiding judge in 1995 and 1996), explaining in the minute order:
“The Court is not satisfied that Defendant has satisfied its burden to show that the amount in controversy meets the jurisdictional requirement. Defendant makes no attempt to calculate damages, nor does it offer evidentiary support as to the existence and amount of punitive damages. The Court is unable to find a plausible allegation that the amount in controversy has been met. That Plaintiff’s Complaint alleges damages ‘in an amount exceeding the Court’s jurisdictional limit’ is not persuasive, given that this likely refers to the jurisdictional limit of $25,000 for unlimited civil cases in California state court. There is nothing from which the Court could conclude that this reference to the ‘jurisdictional limit’ refers to the jurisdictional limit for diversity jurisdiction.”
He added that while there is a recitation by Continental that the academy had made a claim in excess of $75,000, that was “not dispositive.”
$2.7 Million Controversy
Continental on April 27 made a motion under Federal Rules of Civil Procedure Rule 59 calling upon Klausner to “alter the judgment re order of remand” and set its motion for a hearing. It attached a stipulation by the parties that the amount in controversy was $2.7 million.
Klausner cancelled the hearing, took the matter under submission, and on June 1 denied the motion, saying that the case was out of his hands.
It is now before Los Angeles Judge Gregory Keosian, with a jury trial set for March 15, 2022. Although Klausner is under orders to retrieve the case, the prospect looms that it will shunt it back, after holding a hearing.
Ninth Circuit Opinion
Klausner erred in ordering a remand, Callahan said in yesterday’s opinion, explaining:
“[A] shortcoming in a notice of removal concerning the amount in controversy is not jurisdictional, at least not until the movant has an opportunity to correct any perceived deficiency in the notice….
“[T]he fact that the party removing a case to a federal district court has the burden of proving that the district court has jurisdiction does not mean that the notice of removal must in and of itself meet this burden.”
She went on to say:
“Here, the district court erred as a matter of law in requiring that the notice of removal ‘prove’ subject matter jurisdiction. Furthermore, by acting sua sponte, and thereby refusing to allow Continental to offer proof to substantiate its allegations in the notice of removal that the amount in controversy exceeded $75,000, the district court denied Continental ‘a fair opportunity to submit proof’….What the court should have done was to issue an order to show cause requiring the removing party to prove more than $75,000 was in controversy. Both sides agreed at argument that ample proof existed to establish that key jurisdictional element.”
In addition to vacating the order of remand, the opinion vacates Klausner’s denial of the motion under Rule 57, declaring that jurisdiction to hear the motion existed, notwithstanding transmittal of the remand order to the Los Angeles Superior Court.
Jurisdiction Over Appeal
The opinion also says that the Ninth Circuit has jurisdiction, despite that transmittal.
Callahan pointed to the U.S. Supreme Court’s 1976 decision in Thermtron Products, Inc. v. Hermansdorfer. There, Justice Byron White wrote for the majority in finding that, in a case that was properly removed to federal court but remanded based on the District Court’s heavy caseload, appellate review is not barred by 28 U.S.C. §1447(d), which provides:
“An order remanding a case to the State court from which it was removed is not review- able on appeal or otherwise, except that an order remanding a case to the State court from which it was removed pursuant to section 1442 or 1443 of this title shall be reviewable by appeal or otherwise.”
The majority held that §1447(d) only bars review of a remand order where the remand is on a ground not set forth in §1447(c). That subdivision, as it then read, authorized a remand where a removal was effected “improvidently and without jurisdiction.”
“There is no mention in Thermtron of whether the district court transmitted its remand order to the state court. But the Court’s strong statement that a district courts actions beyond that ‘recognized by the controlling statute’ were reviewable certainly suggests that it would not countenance a district court evading review by immediately transmitting its remand order to the state court.”
Sec. 1447(c) now authorizes a remand where there is a lack of subject matter jurisdiction. Klausner characterized his remand order as being based on that defect.
“We read Supreme Court precedent and our precedent as holding that § 1447(d) precludes review only of a remand order based on one of the grounds in § 1447(c)—subject matter jurisdiction or nonjurisdictional defects—and that we may look behind the district court’s characterization of its order to determine whether its assertion of a § 1447(c) ground is colorable.”
She said Klausner’s notion that a notice of removal must include proof that at least $75,000 is involved in the controversy is contrary to case law “and accordingly, is not a ‘colorable’ ground under 28 U.S.C.”
The case is Academy of Country Music v. Continental Casualty Company, 20-55589.
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