Connecticut v. McGraw-Hill Cos.
| Decision Date | 24 April 2013 |
| Docket Number | No. 3:13-cv-311 (SRU),3:13-cv-311 (SRU) |
| Court | U.S. District Court — District of Connecticut |
| Parties | STATE OF CONNECTICUT, Plaintiff, v. THE MCGRAW-HILL COS., INC., and STANDARD & POOR'S FINANCIAL SERVICES, LLC, Defendants. |
On March 10, 2010, the State of Connecticut ("Connecticut" or "the plaintiff") filed this action in Connecticut Superior Court against The McGraw-Hill Companies, Inc. and Standard and Poor's Financial Services, LLC (the "defendants") alleging violations of the Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. § 42-110a, et seq. ("CUTPA"). See Compl. (doc. # 1-3). Almost three years later, on March 6, 2013, the defendants removed the action to federal district court, asserting that the plaintiff's state-law claims necessarily raised substantial and disputed issues of federal law. See Notice of Removal (doc. # 1). Now pending is the plaintiff's motion to remand the case to state court (doc. # 26). For the reasons that follow, the plaintiff's motion is GRANTED.
Standard & Poor's Rating Services ("S&P"), a business unit of defendant Standard & Poor's Financial Services, LLC, is the largest credit rating agency on the globe, publishing widely-read, forward-looking opinions about the creditworthiness of various financial instruments and issuers of debt, including corporations and sovereign countries. As a Nationally Recognized Statistical Rating Organization ("NRSRO") registered with the Securities andExchange Commission ("SEC"), S&P operates under the regulatory aegis of the Credit Rating Agency Reform Act of 2006, 15 U.S.C. § 78o-7, et seq. ("CRARA"). The CRARA vests the SEC with "exclusive authority" to promulgate rules governing NRSROs, and generally prohibits state agencies from "seek[ing] to regulate the 'substance of credit ratings' or the 'procedures or methodologies' by which NRSROs determine credit ratings." Anshutz Corp. v. Merrill Lynch & Co. Inc., 785 F. Supp. 2d 799, 829 (N.D. Cal. 2011) (citation omitted). The statute goes on to provide, however, that "[n]othing in this subsection prohibits the securities commission (or any agency or office performing like functions) of any State from investigating and bringing an enforcement action with respect to fraud or deceit against any nationally recognized statistical rating organization or person associated with a nationally recognized statistical rating organization." 15 U.S.C. § 78o-7(o)(2). Thus, despite its broad sweep, the CRARA explicitly recognizes the authority of individual states to pursue state-law enforcement actions alleging fraud or deceit.
In March 2010, as consumers began to emerge from the economic detritus left by the 2008 financial crisis, Connecticut filed suit against the defendants in Connecticut Superior Court, alleging that S&P violated state law by making false statements regarding its objectivity and independence in issuing ratings for certain financial instruments at the heart of the crisis: namely, residential mortgage-backed securities and collateralized debt obligations.1 In the years that followed, the defendants vigorously litigated the case in state court, arguing, inter alia, that the CRARA and the free-speech provisions of the First Amendment precluded Connecticut'sCUTPA claims from the outset. Those arguments failed to persuade,2 and as Connecticut's case gained traction, two other states brought nearly-identical actions against the defendants under their own states' unfair trade practices laws. Specifically, Mississippi filed suit on May 10, 2011, and Illinois did the same on January 25, 2012.
Thereafter, on February 5, 2013, Arizona, Arkansas, Colorado, Delaware, Idaho, Iowa, Maine, Missouri, North Carolina, Pennsylvania, Tennessee, Washington, and the District of Columbia simultaneously filed separate suits against the defendants in their respective state courts alleging causes of action similar to those brought by Connecticut, Mississippi, and Illinois. South Carolina followed suit on February 13, 2013. Based on this latest wave of state-court litigation—which the defendants claim was precipitated, at least in part, by the efforts of Connecticut's attorney general—the defendants removed this action to federal court on March 6, 2013, asserting for the very first time that the plaintiff's CUTPA claims raised substantial and disputed issues of federal law sufficient to confer federal subject-matter jurisdiction. See Notice of Removal (doc. # 1). The plaintiff's motion to remand (doc. # 26) soon followed.
"[F]ederal courts are courts of limited jurisdiction and, as such, lack the power to disregard such limits as have been imposed by the Constitution or Congress." Purdue Pharma L.P. v. Kentucky, 704 F.3d 208, 213 (2d Cir. 2013) (internal quotation omitted). "The federal removal statute allows a defendant to remove an action to the United States District Court in 'any civil action brought in a State court of which the district courts of the United States have original jurisdiction.'" Bounds v. Pine Belt Mental Health Care Res., 593 F.3d 209, 215 (2d Cir. 2010) (quoting 28 U.S.C. § 1441(a)). The party seeking removal bears the burden of establishing federal jurisdiction. United Food & Commercial Workers Union v. CenterMark Props. Meriden Square, Inc., 30 F.3d 298, 301 (2d Cir. 1994). "However, '[i]n light of the congressional intent to restrict federal court jurisdiction, as well as the importance of preserving the independence of state governments, federal courts construe the removal statute narrowly, resolving any doubts against removability.'" Purdue Pharma L.P., 704 F.3d at 213 (quoting Lupo v. Human Affairs Int'l, Inc., 28 F.3d 269, 274 (2d Cir. 1994)).
The defendants removed this action based solely on federal-question jurisdiction. See Notice of Removal (doc. # 1). Federal-question jurisdiction permits district courts to hear suits "arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. In assessing federal-question jurisdiction, courts are guided by the well-pleaded complaint rule, which provides that "'federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint.'" Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 12 (2003) (quoting Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987)); see also Marcus v. AT&T Corp., 138 F.3d 46, 52 (2d Cir. 1998) () (internal citations omitted). Although a plaintiff "may not defeat federal subject-matter jurisdiction by 'artfully pleading' his complaint as if it arises under state law where the plaintiff's suit is, in essence, based on federal law," the existence of a federal defense, by itself, is insufficient to support removal. Sullivan v. Am. Airlines, Inc., 424 F.3d 267, 271 (2d Cir. 2005).
Connecticut moves to remand this case to state superior court, arguing that (1) the notice of removal is untimely; and (2) even if timely, the defendants' notice otherwise fails to meet the requirements for establishing federal-question jurisdiction under Grable & Sons Metal Prods. Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 313 (2005).3 Because I agree that this action was removed well outside the time limits imposed by 28 U.S.C. § 1446(b), I need not address whether the Grable factors are satisfied here.
As a general rule, a case originally filed in state court may only be removed within thirty days after the defendant receives a copy of the initial pleading setting forth the claim for relief. See 28 U.S.C. § 1446(b)(1). "While this pleading triggering removal is often the plaintiff's complaint, other papers which describe 'what the suit is about' can qualify." Pantalone v. Aurora Pump Co., 576 F. Supp. 2d 325, 332 (D. Conn. 2008) (quoting Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344, 352 (1999)). Specifically, the removal statute provides:
[I]f the case stated by the initial pleading is not removable, a notice of removal may be filed within 30 days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable.
28 U.S.C. § 1446(b)(3).4 To avail itself of the delayed-removal provision, however, the "defendant must 'apply a reasonable amount of intelligence in ascertaining removability.'" Pantalone, 576 F. Supp. 2d at 332 (quoting Whitaker v. Am. Telecasting, Inc., 261 F.3d 196, 205-06 (2d Cir. 2001)).
Here, there is no dispute that the defendants filed the notice of removal well outside the thirty-day period following service of the complaint. Nor is there any dispute that the plaintiff's allegations remain unchanged from March 2010, and that no amended pleading, motion, or order otherwise provides a basis for removal. Instead, the defendants argue that the February 5, 2013 filing of thirteen separate—albeit substantively similar—sovereign enforcement actions by different states, under different consumer-protection statutes, in different jurisdictions qualified as "other paper" triggering a renewed thirty-day period for removal under section 1446(b). On that basis, the defendants submit that the removal of this case on March 6, 2013 was both timely and proper.
I disagree.
The majority of courts to consider the issue—both within this Circuit and without—have held that, for section 1446(b) purposes, the term "other paper" refers solely to documents generated in or arising out of the state-court action that is the subject of the defendant's removal petition. See, e.g., Gruner v. Blakeman, 517 F. Supp. 357, 361 (D. Conn. 1981) (...
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