Martin v. Franklin Capital Corp.

• Decision Date: 07 December 2005
• Docket Number: No. 04-1140.,04-1140.
• Citation: 546 U.S. 132,126 S. Ct. 707,163 L. Ed. 2d 547
• Parties: MARTIN ET UX. <I>v.</I> FRANKLIN CAPITAL CORP. ET AL.
• Court: U.S. Supreme Court

546 U.S. 132

126 S. Ct. 707

163 L. Ed. 2d 547

MARTIN ET UX.

v. FRANKLIN CAPITAL CORP. ET AL.

No. 04-1140.

Supreme Court of United States.

Argued November 8, 2005.

Decided December 7, 2005.

In removing petitioner Martins' state-court class action to federal court on diversity grounds, respondents (collectively, Franklin) acknowledged that the amount in controversy was not clear from the face of the state-court complaint, but argued that this requirement for federal diversity jurisdiction was nonetheless satisfied under precedent suggesting that punitive damages and attorney's fees could be aggregated in making the calculation. The District Court denied the Martins' motion to remand to state court and eventually dismissed the case with prejudice. Reversing and remanding with instructions to remand to state court, the Tenth Circuit agreed with the Martins that their suit failed to satisfy the amount-in-controversy requirement and rejected Franklin's aggregation theory under decisions issued after the District Court's remand decision. The latter court then denied the Martins' motion for attorney's fees because Franklin had legitimate grounds for believing this case fell within federal-court jurisdiction. Affirming, the Tenth Circuit disagreed with the Martins' argument that attorney's fees should be granted on remand as a matter of course under 28 U.S.C. § 1447(c), which provides that a remand order "may require payment of just costs and any actual expenses, including attorney fees," but provides little guidance on when fees are warranted. The court noted that fee awards are left to the district court's discretion, subject to review only for abuse of discretion; pointed out that, under Circuit precedent, the key factor in deciding whether to award fees is the propriety of removal; and held that, because Franklin had relied on case law only subsequently held to be unsound, its basis for removal was objectively reasonable, and the fee denial was not an abuse of discretion.

Held: Absent unusual circumstances, attorney's fees should not be awarded under § 1447(c) when the removing party has an objectively reasonable basis for removal. Conversely, where no objectively reasonable basis exists, fees should be awarded. This Court rejects the Martins' argument for adopting a strong presumption in favor of awarding fees. The reasons for adopting such a presumption in Newman v. Piggie Park Enterprises, Inc., 390 U.S. 400, 402 (per curiam), are absent here. Also rejected is Franklin's argument that § 1447(c) simply grants courts jurisdiction to award costs and attorney's fees when otherwise warranted. Were the statute strictly jurisdictional, there would be no need to limit awards to "just" costs; any award authorized by other provisions of law would presumably be "just." The Court therefore gives the statute its natural reading: Section 1447(c) authorizes courts to award costs and fees, but only when such an award is just. That standard need not be defined narrowly, as the Solicitor General argues, by awarding fees only on a showing that the unsuccessful party's position was frivolous, unreasonable, or without foundation. Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 422, and Flight Attendants v. Zipes, 491 U.S. 754, 762, distinguished. The fact that a § 1447(c) fee award is discretionary does not mean that there is no governing legal standard. When applying fee-shifting statutes, the Court has found limits in "`the large objectives'" of the relevant Act. E. g., id., at 759. The appropriate test for awarding fees under § 1447(c) should recognize Congress' desire to deter removals intended to prolong litigation and impose costs on the opposing party, while not undermining Congress' basic decision to afford defendants a right to remove as a general matter, when the statutory criteria are satisfied. In light of these "`large objectives,'" the standard for awarding fees should turn on the reasonableness of the removal. In applying the general rule of reasonableness, district courts retain discretion to consider whether unusual circumstances warrant a departure in a given case. A court's reasons for departing, however, should be "faithful to the purposes" of awarding fees under § 1447(c). Fogerty v. Fantasy, Inc., 510 U.S. 517, 534, n. 19. Pp. 136-141.

393 F.3d 1143, affirmed.

Roberts, C. J., delivered the opinion for a unanimous Court.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

Sam Heldman argued the cause for petitioners. With him on the briefs were Hilary E. Ball, Michael P. Malakoff, and James M. Pietz.

Jan T. Chilton argued the cause for respondents. With him on the brief was Ronald J. Segel.^*

CHIEF JUSTICE ROBERTS delivered the opinion of the Court.

A civil case commenced in state court may, as a general matter, be removed by the defendant to federal district court, if the case could have been brought there originally. 28 U.S.C. § 1441 (2000 ed. and Supp. II). If it appears that the federal court lacks jurisdiction, however, "the case shall be remanded." § 1447(c). An order remanding a removed case to state court "may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal." Ibid. Although § 1447(c) expressly permits an award of attorney's fees, it provides little guidance on when such fees are warranted. We granted certiorari to determine the proper standard for awarding attorney's fees when remanding a case to state court.

I

Petitioners Gerald and Juana Martin filed a class-action lawsuit in New Mexico state court against respondents Franklin Capital Corporation and Century-National Insurance Company (collectively, Franklin). Franklin removed the case to Federal District Court on the basis of diversity of citizenship. See §§ 1332, 1441 (2000 ed. and Supp. II). In its removal notice, Franklin acknowledged that the amount in controversy was not clear from the face of the complaint— no reason it should be, since the complaint had been filed in state court—but argued that this requirement for federal diversity jurisdiction was nonetheless satisfied. In so arguing, Franklin relied in part on precedent suggesting that punitive damages and attorney's fees could be aggregated in a class action to meet the amount-in-controversy requirement. See App. 35.

Fifteen months later, the Martins moved to remand to state court on the ground that their claims failed to satisfy the amount-in-controversy requirement. The District Court denied the motion and eventually dismissed the case with prejudice. On appeal, the Court of Appeals for the Tenth Circuit agreed with the Martins that the suit failed to satisfy the amount-in-controversy requirement. The Tenth Circuit rejected Franklin's contention that punitive damages and attorney's fees could be aggregated in calculating the amount in controversy, in part on the basis of decisions issued after the District Court's remand decision. The Court of Appeals reversed and remanded to the District Court with instructions to remand the case to state court. 251 F.3d 1284, 1294 (2001).

Back before the District Court, the Martins moved for attorney's fees under § 1447(c). The District Court reviewed Franklin's basis for removal and concluded that, although the Court of Appeals had determined that removal was improper, Franklin "had legitimate grounds for believing this case fell within th[e] Court's jurisdiction." App. to Pet. for Cert. 20a. Because Franklin "had objectively reasonable grounds to believe the removal was legally proper," the District Court denied the Martins' request for fees. Ibid.

The Martins appealed again, arguing that § 1447(c) requires granting attorney's fees on remand as a matter of course. The Tenth Circuit disagreed, noting that awarding fees is left to the "wide discretion" of the district court, subject to review only for abuse of discretion. 393 F.3d 1143, 1146 (2004). Under Tenth Circuit precedent, the "`key factor'" in deciding whether to award fees under § 1447(c) is "`the propriety of defendant's removal.'" Ibid. (quoting Excell, Inc. v. Sterling Boiler & Mechanical, Inc., 106 F.3d 318, 322 (CA10 1997)). In calculating the amount in controversy when it removed the case, Franklin had relied on case law only subsequently held to be unsound, and therefore Franklin's basis for removal was objectively reasonable. 393 F.3d, at 1148. Because the District Court had not abused its discretion in denying fees, the Tenth Circuit affirmed. Id., at 1151.

We granted certiorari, 544 U.S. 998 (2005), to resolve a conflict among the Circuits concerning when attorney's fees should be awarded under § 1447(c). Compare, e. g., Hornbuckle v. State Farm Lloyds, 385 F.3d 538, 541 (CA5 2004) ("Fees should only be awarded if the removing defendant lacked objectively reasonable grounds to believe the removal was legally proper" (internal quotation marks omitted)), with Sirotzky v. New York Stock Exchange, 347 F.3d 985, 987 (CA7 2003) ("[P]rovided removal was improper, the plaintiff is presumptively entitled to an award of fees"), and Hofler v. Aetna U.S. Healthcare of Cal., Inc., 296 F.3d 764, 770 (CA9 2002) (affirming fee award even when "the defendant's position may be fairly supportable" (internal quotation marks omitted)). We hold that, absent unusual circumstances, attorney's fees should not be awarded when the removing party has an objectively reasonable basis for removal. We therefore affirm the judgment of the Tenth Circuit.

II

The Martins argue that attorney's fees should be awarded automatically on remand, or that there should at least be a strong presumption in favor of awarding fees. Section 1447(c), however, provides that a remand order "may" require payment of attorney's fees—not "shall" or "should." As Chief Justice Rehnquist explained for the Court in Fogerty v. Fantasy, Inc., 510 U.S. 517, 533 (1994), "[t]he word `may' clearly connotes discretion. The automatic awarding...