Lin v. Kennewick

• Decision Date: 29 June 2021
• Docket Number: Case No. C20-1029RSL
• Court: U.S. District Court — Western District of Washington
• Parties: MEI-JUI LIN et al., Plaintiffs, v. MICHAEL KENNEWICK, et al., Defendants.

MEI-JUI LIN et al., Plaintiffs, v. MICHAEL KENNEWICK, et al., Defendants.

Case No. C20-1029RSL

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE

June 29, 2021

ORDER REGARDING MOTION TO REMAND

I. INTRODUCTION

This matter comes before the Court on plaintiffs' "Motion to Remand to State Court" (Dkt. # 7). The Court has reviewed the parties' submissions.¹ For the reasons discussed below, the Court GRANTS plaintiffs' motion to remand to state court and DENIES plaintiffs' request for attorney's fees and costs.

II. BACKGROUND

This litigation commenced in King County Superior Court in 2018. On August 31, 2018, defendants removed the case to federal court based on diversity jurisdiction, and the case was assigned to the Honorable Barbara J. Rothstein, United States District Judge. See Peterson v. Kennewick, No. C18-1302BJR, at Dkt. # 1. Plaintiff David Peterson moved to remand the case to state court (id. at Dkt. # 13), and defendants Michael Kennewick, Richard Kennewick, and Robert Kennewick moved to dismiss plaintiff's claims against them (id. at Dkt. # 15). On December 13, 2018, Judge Rothstein granted plaintiff's motion to remand and accordinglydenied defendants' motion to dismiss for lack of subject matter jurisdiction and as moot. Id. at Dkt. # 28. The case was remanded to King County Superior Court.

On June 5, 2020, plaintiff David Peterson filed the current Second Amended Class Action Complaint ("SAC"), adding plaintiff Mei-Jui Lin and asserting a claim on behalf of class members, and naming Todd Kenck and Arnold Gia-Shuh Jang as additional defendants. Dkt. # 1-1 ("SAC"). Defendants Michael Kennewick, Richard Kennewick, Robert Kennewick, Arnold Gia-Shuh Jang, and Todd Kenck (collectively, the "defendants"² hereinafter) removed the SAC from King County Superior Court on July 1, 2020. See Dkt. # 1. Plaintiffs move to remand to state court, on the ground that this Court lacks jurisdiction under the Class Action Fairness Act of 2005.³ Dkt. # 7. Defendants filed motions to seal exhibits related to their opposition to plaintiffs' motion to remand. Dkts. # 16, # 33. Plaintiffs do not oppose these motions to seal,⁴ and the Court finds that compelling reasons warrant sealing the designated documents (Dkts. # 19, # 20, # 21, # 22, # 34). Accordingly, the Court hereby GRANTS defendants' motions to seal (Dkts. # 16, # 33).

Plaintiffs' motion to remand (Dkt. # 7) presents two key issues for the Court to address: (1) whether the Court should remand the SAC to King County Superior Court; and (2) if the Court does remand the SAC, whether the Court should impose an award of fees and costs.

III. REMAND

Plaintiffs have moved to remand the case for lack of jurisdiction. Defendants contend that the SAC is removable under the Class Action Fairness Act of 2005, 28 U.S.C. §§ 1332(d), 1453, 1711-1715 ("CAFA").⁵ Dkt. # 1 ¶ 9. Plaintiffs argue that federal jurisdiction under CAFA does not lie for two reasons: (1) the CAFA numerosity requirement, 28 U.S.C. § 1332(d)(5)(B), has not been met; and (2) the "securities exception" to CAFA, 28 U.S.C. §§ 1332(d)(9), 1453(d) applies. Defendants contest both arguments.

A. Legal Standard for Removal and Burden of Proof

CAFA amended § 1332 and added § 1453 to title 28 of the United States Code, and these sections govern federal jurisdiction under CAFA. In particular, there are two key CAFA provisions underlying the parties' dispute in this matter. First, under CAFA, federal jurisdiction exists only where the numerosity requirement is met, i.e., "where the aggregate number of members of a proposed plaintiff class is 100 or more." Benko v. Quality Loan Serv. Corp., 789 F.3d 1111, 1116 (9th Cir. 2015); 28 U.S.C. § 1332(d)(5)(B). Second, Congress excluded certain types of claims from federal jurisdiction under CAFA, including claims regarding "rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security." 28 U.S.C. § 1332(d)(9)(C); 28 U.S.C. § 1453(d)(3). This exclusion is colloquially known as the "securities exception." See, e.g., Eminence Inv'rs, L.L.L.P. v. Bank of New York Mellon, 782 F.3d 504, 505-10 (9th Cir. 2015).

"The party seeking a federal forum has the burden of establishing that federal jurisdiction is proper." Xavier v. Allstate Prop. & Cas. Ins. Co., C12-00920 RAJ, 2012 WL 13024685, at *1 (W.D. Wash. Aug. 29, 2012) (citing Abrego Abrego v. Dow Chem. Corp., 443 F.3d 676, 682-83 (9th Cir. 2006)). The parties appear to agree on who bears the burden of proving the numerosity requirement. See Dkts. # 7 at 5-6, # 17 at 4-5 (discussing the burden of proof). Where a state court defendant removes a putative class action from state court, the defendantbears the burden of demonstrating that this numerosity requirement has been reached. Abrego Abrego, 443 F.3d at 685-86, 689-90; Serrano v. 180 Connect, Inc., 478 F.3d 1018, 1020 n.3 (9th Cir. 2007). The parties disagree, however, as to which of them carries the burden of proving that the securities exception to CAFA does or does not apply. Compare Dkt. # 7 at 22 with Dkt. # 17 at 4-5, 16. Although the Ninth Circuit has not specifically addressed whether the removing defendant bears the burden of proving the securities exception, this Court finds the reasoning of Becher v. Nw. Mut. Life Ins. Co., CV 10-6264 PSG (AGRx), 2010 WL 5138910 (C.D. Cal. Dec. 9, 2010) persuasive.

Drawing from the Ninth Circuit's analysis in Serrano, the Becher court explained that the language preceding the CAFA provision at issue dictates who bears the burden to prove that provision's existence or absence. Becher, 2010 WL 5138910, at *3. If the provision affirmatively grants or denies jurisdiction, the removing party has the burden to show that the provision does or does not apply. Id. (citing Serrano, 478 F.3d at 1020 n.3). For example, § 1332(d)(5), provides that CAFA jurisdiction "shall not apply" if the conditions in § 1332(d)(5)(A) and (B) are met, and thus, the removing party must show that neither of these conditions are present to establish CAFA jurisdiction. Id. (citing Serrano, 478 F.3d at 1020 n.3). However, if the provision states that "jurisdiction otherwise exists under [CAFA] but the federal courts either may or must decline to exercise that jurisdiction," then the party seeking remand has the burden to prove that the condition divesting jurisdiction is met. Serrano, 478 F.3d at 1020 n.3. For example, §§ 1332(d)(3) and (d)(4) state that "[a] district court shall decline to exercise jurisdiction" if certain conditions are met, so the party seeking remand has the burden to show that one of these provisions applies. Id.

The Becher court concluded that because the language "shall not apply" prefaces § 1132(d)(9), it is "a prerequisite — not an exception — to a federal court's exercise of CAFA jurisdiction that the removing party has the burden of negating." Becher, 2010 WL 5138910, at *3 (citing Madden v. Cowen & Co., 576 F.3d 957, 975 (9th Cir. 2009) (holding that a similar provision in the Securities Litigation Uniform Standards Act of 1998 is a "prerequisite" rather than an "exception" to federal jurisdiction).

Evergreen Cap. Mgmt. LLC v. Bank of New York Mellon Tr. Co., N.A., No. CV 20-7561-MWF (AGRx), 2020 WL 6161509, at *3 (C.D. Cal. Oct. 20, 2020) (summarizing Becher's

analysis). The Court adopts Becher's reasoning and holds that defendants bear the burden to show that the securities exception does not apply to this action.

B. CAFA Numerosity Requirement

As stated above, federal jurisdiction exists under CAFA only "where the aggregate number of members of a proposed plaintiff class is 100 or more." Benko, 789 F.3d at 1116; 28 U.S.C. § 1332(d)(5)(B). The proposed class at issue here is defined as "[a]ll [VoiceBox shareholders] who did not have the opportunity to approve or disapprove the Nuance Transaction and did not release claims relating to the Nuance Transaction." SAC ¶ 4.38. When evaluating a CAFA jurisdictional requirement, a district court may consider whether the requirement is "facially apparent" from the complaint, and if not, the court may consider "summary-judgment-type evidence." Abrego Abrego, 443 F.3d at 690 (quoting Singer v. State Farm Mut. Auto. Ins. Co., 116 F.3d 373, 377 (9th Cir. 1997) (analyizing the amount in controversy requirement)). The Supreme Court has generally characterized a party's burden of proving federal jurisdiction in terms of "preponderance of evidence." See McNutt v. Gen. Motors Acceptance Corp. of Ind., 298 U.S. 178, 189 (1936) (discussing a party's burden to show that federal jurisdiction is appropriate and that he "justify his allegations by a preponderance of evidence"). And "[d]istrict courts have applied the preponderance of the evidence standard to CAFA's 100-person numerosity requirement." Fergerstrom v. PNC Bank, N.A., No. CIV. 13-00526 DKW, 2014 WL 1669101, at *9 (D. Haw. Apr. 25, 2014) (citing Kitazato v. Black Diamond Hospitality Invs., LLC, Civ. No. 09-00271 DAE-LEK, 2009 WL 3824851, at *1 (D. Haw. Nov. 13, 2009); Coit v. Fidelity Assurance Assocs., LLC, No. 08-0285, 2008 WL 3286978, at *4 (N.D. Cal. Aug. 6, 2008)).

Plaintiffs argue that defendants cannot show that the number of potential class members exceeds 100, as required for federal jurisdiction to exist under CAFA. The SAC alleges that the number of potential class members exceeds 30, but it is silent on whether the number exceeds 100. SAC ¶ 4.40. Plaintiff Lin's initial declaration concludes that the total number of potential class members is between 30 and 50. Dkt. # 9 ¶ 9. Lin explains that she arrived at this estimate by comparing "the list of individuals who approved the sale to Nuance or who expresslyreleased Voicebox's officers and directors with the total Voicebox shareholders known to" her, as well as her "conversations with certain investors." Id. Defendants ask the Court to strike paragraph nine of Lin's declaration as inadmissible.⁶ Dkt. # 17 at 6. Plaintiffs' reply does...