United States District Court, D. Arizona
G. Campbell United States District Judge
Special Asset NT 168, LLC and IMH Special Asset NT 161, LLC
(collectively, “IMH”) ask the Court to award
attorneys' fees and costs against Hart Interior Design,
LLC 401(k) Profit Sharing Plan, by and through Athena
Hart-Kolle, Trustee (“the Plan”), pursuant to 28
U.S.C. § 1447(c) and Local Rule 54.2(b). Doc. 42 at 1.
The motion has been fully briefed (Docs. 42, 48, 49, 50), and
the Court concludes that oral argument is not necessary. For
the reasons set forth below, the Court will grant IMH's
filed a motion to remand (Doc. 11) after the Plan removed a
complex state receivership case from Maricopa County Superior
Court (Doc. 1). The case is IMH Special Asset NT 168, LLC
v. Aperion Communities, LLLP, et al., No. CV2010-010990
(“the State Court Action”). The Court granted the
motion to remand, finding that only a defendant may remove a
claim to federal court and that the Plan was not a defendant.
Doc. 35 at 4. The Court's previous order provides a
summary of the relevant background information. Id.
Reasonable Basis for Removal.
order remanding [a] case may require payment of just costs
and any actual expenses, including attorney fees, incurred as
a result of the removal.” 28 U.S.C. § 1447.
Although district courts retain discretion to award fees
under this statute, the decision “should turn on the
reasonableness of the removal. Absent unusual circumstances,
courts may award attorney's fees under § 1447(c)
only where the removing party lacked an objectively
reasonable basis for seeking removal.” Martin v.
Franklin Capital Corp., 546 U.S. 132, 141 (2005);
Patel v. Del Taco, Inc., 446 F.3d 996, 999 (9th Cir.
2006). When assessing objective reasonableness, a court
considers “whether the relevant case law clearly
foreclosed the defendant's basis of removal, ”
taking into account “clarity of the law at the time of
removal.” Lussier v. Dollar Tree Stores, Inc.,
518 F.3d 1062, 1066 (9th Cir. 2008).
argues that the Plan lacked on objectively reasonable basis
for removal because the Plan did not satisfy three clear
requirements for removal - the Plan was not a defendant, the
removal was untimely, and the Plan did not obtain the consent
of all defendants to remove. Doc. 42 at 9. The Plan contends
that its removal raised an issue of first impression in the
Ninth Circuit that was not foreclosed by relevant case law
and was actually supported by precedent from other circuits.
Doc. 48 at 6-11. As a result, the Plan contends, its basis
for asserting standing to remove was objectively reasonable.
Id. at 5. The Plan also argues that it had
objectively reasonable grounds for asserting that removal was
timely and that it did not need consent of other defendants.
Id. at 12-16. In its order, the Court found that the
Plan was not a defendant and did not reach the issues of
whether the Plan timely removed or should have sought consent
from other defendants. Doc. 35. The Court did note, however,
that there “appear[ed] to be serious questions of
whether the Plan's attempted removal was timely and
whether it should have been joined by all other interested
parties.” Id. at 7.
Court has already emphasized, “[f]ederal law makes
clear that only a defendant may remove a claim to federal
court.” Id. at 4. The Plan does not appear to
dispute this. Doc. 48 at 8 (recognizing the “general
rule prohibiting a non-party from removing”). Federal
law determines who is a plaintiff and who is a defendant.
Chicago, R.I. & P.R. Co. v. Stude, 346 U.S. 574,
580 (1954). Thus, the question before the Court is whether it
was reasonable for the Plan to argue that it was a defendant
under federal law. The Court finds that it was not.
the Plan conceded that it was not a party to the underlying
deficiency actions, but argued that it was a party to the
post-judgment receivership resulting from those deficiency
actions. Doc. 35 at 4. The Court rejected this argument,
finding “that the receivership proceedings [do not]
constitute a separate case from the 2010 deficiency actions
for purposes of removal. Rather, the receivership proceedings
are an extension of the relief granted to the Judgment
Creditors, intended to ensure the adequate provision of
remedies ordered by the Court as a result of the deficiency
actions.” Id. at 5. The Court noted that the
case number and name of the State Court Action had remained
constant since 2010, and there were no allegations that the
named parties had changed. Id.
Plan contends that there was no Ninth Circuit precedent
explicitly stating that a claimant in a receivership could
not be a party for purposes of removal. Doc. 48 at 6. This
lack of precedent, the Plan asserts, renders its argument
reasonable. Id. The Court disagrees. The State Court
Action on its face confirmed that the Plan is not a party.
The entire State Court Action, not just the receivership
proceedings, was removed to this Court. The Plan identifies
no precedent suggesting that receivership proceedings should
be considered separate from the underlying action from which
they arose. And even if the receivership proceedings were
considered independent, the Plan has not shown that, as a
claimant, it would be considered a defendant in those
Plan cites two cases to support its proposition - a 1937 case
from the Fifth Circuit and a 1968 case from the District of
Minnesota. Doc. 48 at 9-10 (citing Bethke v. Grayburg Oil
Co., 89 F.2d 536 (5th Cir. 1937), and Magnusson v.
Am. Allied Ins. Co., 286 F.Supp. 573, 574 (D. Minn.
1968)). The Plan did not cite Magnusson in its
opposition to IMH's motion to remand, and neither case
supports the Plan's argument here. The Bethke
court concluded that individuals who filed a proof of claim
in a receivership proceeding in federal court had intervened
sufficiently to be bound by the outcome of that proceeding.
89 F.2d at 539. The case says nothing about whether a
claimant may be a party for purposes of removal, but rather
adopts the logical conclusion that an individual who
participates in a proceeding should be bound by its outcome.
Magnusson deals with the attempted removal of a
state receivership proceeding. 286 F.Supp. at 573. The
district court addressed only whether a claimant was in the
position of a plaintiff or a defendant for purposes of
removal. Id. at 574. Concluding that the claimant
was a plaintiff and thus could not have properly removed the
claim, the court remanded without reaching other arguments.
Contrary to the Plan's assertion, the case says nothing
about whether a claimant is considered a party for purposes
of removal. Moreover, only a counterclaim was removed to
federal court, not the underlying action itself. Id.
Magnusson specifically stated that it was assuming,
without deciding, that the counterclaim constituted an
independent cause of action. Id. This assumption
allowed the court to consider only whether the claimant was
in the position of a plaintiff or a defendant in the context
of a removed counterclaim. Id.
Plan also opposed the remand motion on the ground that, even
if it was not a formal party, it should have been considered
one under the functional test. The Plan relied on a 1907
Supreme Court case allowing for realignment of
parties for purposes of removal when state law had
improperly positioned those parties Doc. 28 at 4 (citing
Mason City & Fort Dodge RR Co. v. Boynton, 204
U.S. 570 (1907)). The Plan cited no case law suggesting this
“functional test” may be applied to nonparties.
In rejecting the Plan's argument, the Court relied on a
2012 case from the Central District of California - a case
not discussed by the Plan but easily found by the Court
through a Westlaw search - holding that the functional test
of Mason City could not be used to recharacterize a
nonparty as a defendant for purposes of removal. Anaya v.
QuickTrim, LLC, No. CV 12-1967-CAS DTBX, 2012 WL 6590825
(C.D. Cal. Dec. 17, 2012). Anaya cited a series of
federal cases uniformly holding that non-parties cannot
remove state cases to federal court. Doc. 35 at 6-7.
Ninth Circuit has made clear that “defendant”
should be construed strictly for purposes of removal. See
Westwood Apex v. Contreras, 644 F.3d 799, 804 (9th Cir.
2011) (“‘defendant' for purposes of
designating which parties may remove a case under § 1441
has been limited by a majority of the courts to mean only
‘original' or ‘true' defendants;
‘defendant' in Chapter 89, thereby, excludes
plaintiffs and non-plaintiff parties who become defendants
through a counterclaim.”). In light of this strict
approach, the Ninth Circuit's general presumption against
removal, Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th
Cir. 1992), and the clear inapplicability of the cases relied
on by the Plan, the Court finds that the Plan did not have a
reasonable basis for removing the State Court Action. Because
the Court finds that removal was not reasonable, it need not
address IMH's other arguments. See Doc. 42 at 4.