One strategy some plaintiffs’ attorneys have used to try to avoid federal jurisdiction under the Class Action Fairness Act (CAFA) is to voluntarily dismiss a case after it has been removed to federal court, and then re-file a new complaint in state court with amended allegations framed in a way that will bar federal jurisdiction. For example, after a defendant’s notice of removal explains how the $5 million amount in controversy is satisfied for the proposed class, the plaintiff might attempt to voluntarily dismiss the case and then re-file a new complaint that withdraws certain causes of action, or narrows the time period for the proposed class or the manner in which the class is defined, in order to reduce the amount in controversy to below $5 million. (Some defendants might welcome such a limitation if the state courts in the jurisdiction closely adhere to federal precedent on class certification. This tactic is more commonly used in states where class action law differs markedly from federal law, or where the judicial climate is considered much more friendly to plaintiffs in a state court.) This tactic also might be employed to try to fit a case into CAFA’s local controversy exception or home state exception.
This issue was recently addressed in a case in which I represented the defendants. In Thatcher v. Hanover Ins. Group, Inc., No. 11-1610, 2011 WL 5247892 (8th Cir. Nov. 4, 2011) (slip opinion available on the 8th Circuit website), the defendants had answered shortly before the plaintiff sought a voluntary dismissal, and opposed the motion for voluntary dismissal. The district court allowed dismissal before taking up the issue of jurisdiction under CAFA. The Eighth Circuit reversed and remanded. The court wrote that:
[T]he district court failed to address Thatcher’s [i.e., the plaintiff’s] purpose in seeking to voluntarily dismiss. If the trial court had done so, it could have concluded that Thatcher was dismissing so he could return to the more favorable state forum. Thatcher’s expressed intent was to amend his complaint in order to avoid federal jurisdiction. . . . This reading of Thatcher’s purpose is supported by his failure to consider the effects of his actions on the putative class that he purportedly represents. In the original complaint, Thatcher included claims for unjust enrichment, fraud, constructive fraud, and breach of contract. In his motion to dismiss without prejudice, Thatcher set forth his intention to refile this matter in state court as a breach of contract claim only. Thatcher set forth no adequate reason why it would benefit the class to abandon these additional claims.
In addressing whether a district court should allow voluntary dismissal, we have repeatedly stated that it is inappropriate for a plaintiff to use voluntary dismissal as an avenue for seeking a more favorable forum. See, e.g., Cahalan v. Rohan, 423 F.3d 815, 818 (8th Cir. 2005) (“A party may not dismiss simply to … seek a more favorable forum.”). In the removal context, this rule coincides with other measures which “strike a balance between the plaintiff’s right to select a particular forum and the defendant’s right to remove the case to federal court.” Knudson v. Sys. Painters, Inc., 634 F.3d 968, 976 (8th Cir. 2011). For example, under the fraudulent-joinder exception, a plaintiff cannot defeat a defendant’s right of removal by “fraudulently joining a defendant who has no real connection with the controversy.” Id. (citation omit-ted). Likewise, under the St. Paul Mercury rule, in a diversity action a plaintiff may not merely amend his complaint after removal to claim damages below the jurisdictional amount and deprive the federal court of jurisdiction. St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 292, 294 (1938) ( “If the plaintiff could, no matter how bona fide his original claim in the state court, reduce the amount of his demand to defeat federal jurisdiction the defendant’s supposed statutory right of removal would be subject to the plaintiff’s caprice.”); see also Jones v. Mosher, 107 F. 561, 564 (8th Cir.1901) (“As the right to remove an action which falls within the jurisdiction of the federal courts is a substantial right, the federal courts … should be astute not to permit devices to become successful which are used for the very purpose of destroying that right.” (internal citation omitted)).
In this case, the determination of whether the motion to dismiss was an improper forum-shopping measure, by its very nature, called into question the trial court’s subject matter jurisdiction. Defendants exercised their right to removal under CAFA, and Thatcher appears to have sought dismissal merely to deprive the federal court of jurisdiction. As a result, determining whether the district court had subject matter jurisdiction was at the crux of the issue of whether the motion to dismiss was being used for the improper purpose of seeking a more favorable forum. The district court erred in failing to take up the jurisdictional question, thereby necessitating remand of this matter. After the trial court determines whether it has subject matter jurisdiction, it can consider whether dismissal without prejudice is appropriate, taking into consideration whether the motion to dismiss is a forum-shopping measure. Alternatively, if the court finds that it does not have subject matter jurisdiction, it should remand to the state court.
Thatcher, 2011 WL 5247892, at *2-3.
A key practice pointer here is that if the defendant has not filed an answer or summary judgment motion, there will be no opportunity to object to a voluntary dismissal – in that circumstance, Rule 41(a)(1)(A)(i) allows a plaintiff to voluntarily dismiss a case as of right, without any need for court approval. The only way to ensure that you preserve the right to oppose a voluntary dismissal is to file an answer or summary judgment motion together with your notice of removal. Some defense counsel are concerned about not being able to file a motion under Rule 12(b)(6) after you have answered, but the same relief should be available on a Rule 12(c) motion for judgment on the pleadings.
SPECIAL DISCLAIMER: While I intend this blog to serve as an informational resource on insurance class actions and not advertising for my services as a lawyer, because I’m writing here about one of my own cases someone might think it is advertising. Please understand that every case is different and the result achieved in the case described above may differ from the result in some other case, which may involve different facts, different applicable law or a different jurisdiction. Past results do not guarantee future results, and you should always consult your own lawyer about your own case.