United States: Supreme Court Docket Report - October Term, 2004 - No. 10

On April 25, 2005, the Supreme Court granted certiorari in two cases of interest to the business community. Barring extensions, amicus briefs in support of petitioners will be due on June 9, 2005, and amicus briefs in support of respondents will be due on July 14, 2005.

1. Attorneys’ Fees — Removal. Under 28 U.S.C. § 1447(c), a federal district court "may" order payment of attorneys’ fees and expenses incurred as a result of the removal to federal court of a case originally filed in state court, removed to federal court, and then remanded back to state court. The statute provides no explicit guidance as to when a district court should order payment of such fees and expenses. The Supreme Court granted certiorari in Martin v. Franklin Capital Corp., No. 04-1140, to determine what legal standard governs the decision to award or deny attorneys’ fees and expenses under this statute.

Petitioners Gerald and Juana Martin filed a consumer class action in New Mexico state court against Franklin Capital Corporation and Century-National Insurance Corporation, alleging violations of state law with respect to automobile financing and insurance contracts. After the defendants removed the case to federal court on the basis of diversity jurisdiction, the Martins moved to have the case remanded back to state court, arguing that the amount in controversy did not satisfy the minimum required—$50,000 at the time—for diversity jurisdiction. Among other things, the Martins urged that an aggregate punitive damages award in excess of $50,000 would not satisfy the requisite amount in controversy. The district court denied the motion to remand and thereafter dismissed the case, but the Tenth Circuit reversed and directed the lower court to remand the litigation to state court. Martin thereafter moved for an award of attorneys’ fees and expenses pursuant to 28 U.S.C. § 1447(c). The district court denied the motion.

The Tenth Circuit affirmed. 393 F.3d 1143. It agreed with the district court that "a plaintiff is not automatically entitled to attorney’s fees simply because removal was ultimately determined to be improper." Id. at 1147. The court explained that "if defendant’s removal position is objectively reasonable under the law, the district may, in its discretion, either award attorney’s fees to the plaintiff or decline to award fees. The decision is then reviewed for an abuse of discretion." Id. at n.3. Describing the state of the law on the aggregation of punitive damages to satisfy the amount in controversy requirement as "uncertain" at the time defendants removed the action, the Court of Appeals held that the district court had not "abused its discretion in declining to award fees to the Martins." Id. at 1151.

Other federal courts of appeals apply different standards for determining whether attorneys’ fees should be awarded. In the Seventh Circuit, for example, "[i]f removal is found to be improper, the plaintiff is presumptively entitled to an award of fees." Hart v. Wal-Mart Stores, Inc. Assocs.’ Health & Welfare Plan, 360 F.3d 674, 678 (7th Cir. 2004). In the Fifth Circuit, by contrast, district courts may award fees only "if the removing defendant lacked objectively reasonable grounds to believe the removal was legally proper." Hornbuckle v. State Farm Lloyds, 385 F.3d 538, 541 (5th Cir. 2004).

Because businesses frequently remove cases to federal court only to have them remanded, the standard for determining whether to award attorneys’ fees should be of importance to the business community.

2. Racial Discrimination in Contracting — Standing of Non-Contracting Parties to Bring Claims Under the Civil Rights Act of 1866. 42 U.S.C. § 1981, part of the Civil Rights Act of 1866, protects the ability "to make and enforce contracts" free from racial discrimination. In Domino’s Pizza, LLC v. McDonald, No. 04-593, the Supreme Court granted certiorari to determine whether a nonparty to a contract has standing to bring a suit for discrimination under § 1981.

Respondent John McDonald is the president and sole shareholder of a Nevada corporation, JWM Investments, Inc. JWM, which is not a party to the litigation, contracted with the petitioner, Domino’s Pizza, to construct four restaurants in Las Vegas. After that relationship soured and Domino’s terminated the contract, McDonald sued Domino’s on his own behalf, alleging that Domino’s terminated the contract with JWM because McDonald is African- American. The district court dismissed the lawsuit on the ground that, not being a party to the contract at issue, McDonald lacked standing to sue under § 1981. The Ninth Circuit reversed. 107 Fed. Appx. 18 (2004). According to that court, "[w]hile McDonald was not formally a party to the contract, he may nonetheless sue under § 1981 insofar as he seeks recovery for individual injuries separate and distinct from contract damages suffered by JWM." Id. at 19. The Ninth Circuit’s decision conflicts with the decisions of several other federal courts of appeals, which have held that only contracting parties have standing to bring claims under § 1981. E.g., Kyles v. J.K. Guardian Sec. Servs., Inc., 222 F.3d 289 (7th Cir. 2000).

Insofar as the Ninth Circuit’s decision in this case widens the scope of liability under the Civil Rights Act, that decision is important to all businesses.

On April 18, 2005, the Supreme Court also invited the Acting Solicitor General to file a brief expressing the views of the United States in the following case of interest to the business community:

Carpenters Health and Welfare Trust for Southern California v. Vonderharr, No. 04- 1049: The questions presented address (1) whether Section 502(a)(3) of ERISA authorizes plan fiduciaries to maintain actions to enforce a plan’s reimbursement clause in instances when a participant receives payment from, for example, a personal injury settlement for injuries caused by another party, and (2) whether courts have jurisdiction to award fees under Section 502(g)(1) of ERISA if the underlying action is dismissed for lack of subject matter jurisdiction under Section 502(a)(3).

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