McPhatter v. Sweitzer

• Decision Date: 18 November 2005
• Docket Number: No. 1:05CV00027.,1:05CV00027.
• Citation: 401 F.Supp.2d 468
• Court: U.S. District Court — Middle District of North Carolina
• Parties: Victoria T. MCPHATTER; Alexis M. Schoenthal; and Hugh Q. Smith, on behalf of themselves and others similarly situated, including but not limited to: James Michael McSwain; Deborah M. Michalic; Sharon Alesia Miller; Barbara P. Moore; Shirley J. Moore; John Dennis Morgan; Bettie H. Noblitt; Diane Wilson Shytle; Linda T. Smart; Carol Jean Nash Spencer; Mary Staten Spears; Thelma L. Hardin; Marsha Rollins McKee; Patricia Ann Hanna; Rebecca M. Hopkins; Barbara R. Houston; Cora L. Hudson; Mary L. Huntley; Vivian B. Reichart; Lavonne M. Thompson; Alvin Lewis Underdown; Marion C. Alexander; Kaye Gamble Falls, and Husband, Albert Herman Falls; Nancy B. Fox; William Alonzo Ghent; Betty B. Gilbert; J.W. Kaylor; Janice B. Carter; Linda B. Chitwood; Carolyn B. Evans; Waldene C. Berry; Elaine D. Black; Brenda Y. Burgin; Myra G. Graham; Linda D. Griffin; Dennis R. Hamrick; Faye J. Ertzberger; Johnny C. Patterson; Brenda M. Perry; Delosie P. Walker; Judith S. Lytle; Allison Grant; Lucinda B. Gardin; Vera P. Clifton; Deborah Davis; Kathryn White; Lynda S. Mintz; Gabriel F. Eberle; Carolyn Franck; Jacqueline Black; Phyllis J. Jones; Joyce F. Pressley; Nellie J. Tyson; and Sandra A. Moore; Brenda L. Munday, Plaintiffs, v. Jeffrey Lin SWEITZER; Matthew James Muller, Sr.; Samuel Boyce Rankin; Randy Matz; Joseph M. Zentner, Jr.; and Other Defendants to be Named; and Salomon, Smith, Barney, Inc., Defendants.

401 F.Supp.2d 468

Victoria T. MCPHATTER; Alexis M. Schoenthal; and Hugh Q. Smith, on behalf of themselves and others similarly situated, including but not limited to: James Michael McSwain; Deborah M. Michalic; Sharon Alesia Miller; Barbara P. Moore; Shirley J. Moore; John Dennis Morgan; Bettie H. Noblitt; Diane Wilson Shytle; Linda T. Smart; Carol Jean Nash Spencer; Mary Staten Spears; Thelma L. Hardin; Marsha Rollins McKee; Patricia Ann Hanna; Rebecca M. Hopkins; Barbara R. Houston; Cora L. Hudson; Mary L. Huntley; Vivian B. Reichart; Lavonne M. Thompson; Alvin Lewis Underdown; Marion C. Alexander; Kaye Gamble Falls, and Husband, Albert Herman Falls; Nancy B. Fox; William Alonzo Ghent; Betty B. Gilbert; J.W. Kaylor; Janice B. Carter; Linda B. Chitwood; Carolyn B. Evans; Waldene C. Berry; Elaine D. Black; Brenda Y. Burgin; Myra G. Graham; Linda D. Griffin; Dennis R. Hamrick; Faye J. Ertzberger; Johnny C. Patterson; Brenda M. Perry; Delosie P. Walker; Judith S. Lytle; Allison Grant; Lucinda B. Gardin; Vera P. Clifton; Deborah Davis; Kathryn White; Lynda S. Mintz; Gabriel F. Eberle; Carolyn Franck; Jacqueline Black; Phyllis J. Jones; Joyce F. Pressley; Nellie J. Tyson; and Sandra A. Moore; Brenda L. Munday, Plaintiffs, v. Jeffrey Lin SWEITZER; Matthew James Muller, Sr.; Samuel Boyce Rankin; Randy Matz; Joseph M. Zentner, Jr.; and Other Defendants to be Named; and Salomon, Smith, Barney, Inc., Defendants.

No. 1:05CV00027.

United States District Court, M.D. North Carolina.

November 18, 2005.

COPYRIGHT MATERIAL OMITTED

Robert Neal Hunter, Jr., Robert G. McIver, Hunter Higgins Miles Elam & Benjamin, PLLC, Greensboro, NC, Tracy Pride Stoneman, Westcliffe, CO, for Plaintiffs.

George C. Covington, John H. Culver, III, Kennedy Covington Lobdell & Hickman, L.L.P., Charlotte, NC, for Defendants.

MEMORANDUM OPINION

BULLOCK, District Judge.

This action was originally filed in the General Court of Justice, Superior Court Division, Guilford County, North Carolina on February 10, 2003.¹ Defendants removed the case to this court for the first time on February 21, 2003.² This court remanded pursuant to its order and memorandum opinion dated September 8, 2003. Defendants filed a second notice of removal on January 10, 2005. The case is currently before this court on Plaintiffs' second motion to remand and motion for costs and expenses pursuant to 28 U.S.C. § 1447(c).³ For the following reasons, the court will grant Plaintiffs' motion to remand and motion for costs and expenses.

FACTS

Plaintiffs Victoria T. McPhatter, Alexis M. Schoenthal, and Hugh Q. Smith, on behalf of themselves and others similarly situated, including but not limited to those persons named in the caption (collectively "Plaintiffs"), filed this class action suit on February 10, 2003, in Guilford County Superior Court alleging various state law causes of action. Plaintiffs are former employees and/or spouses of former employees of Bell South. Plaintiffs allege that Defendants induced them to retire early from Bell South, take a lump sum payout option, and entrust their lump sum retirement funds to Defendants, who represented themselves to be competent and trustworthy financial advisors. Plaintiffs have not yet been certified as a class.

Defendants Salomon Smith Barney, Inc.⁴ and its employees, Jeffrey Lin Sweitzer, Matthew James Muller, Sr., Samuel Boyce Rankin, Randy Matz, and Joseph M. Zentner, Jr. (collectively "Defendants") removed the case to this court for the first time on February 21, 2003, pursuant to 28 U.S.C. §§ 1441 and 1446(b). Defendants argued that Plaintiffs' state law claims were preempted by the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), 15 U.S.C. §§ 77p and/or 78bb(f),⁵ which required the action to be heard in federal court. Plaintiffs moved to remand, arguing that their complaint alleged only state law claims and, as such, was not preempted by SLUSA. After briefing and oral argument, this court found that because Plaintiffs' allegations were "not in connection with the purchase or sale of covered securities," SLUSA did not apply. Accordingly, this court granted Plaintiffs' motion and remanded the action to state court by order dated September 8, 2003.

Since remand, the case has proceeded in state court. The parties have conducted extensive discovery, including written discovery, the exchange of a significant number of documents, and depositions of each of the five individual Defendants and twelve named Plaintiffs, including all three of the putative class representatives.

On January 10, 2005, Defendants filed a second notice of removal, again asserting preemption under SLUSA ("Second Removal"). Defendants seek to remove this second time pursuant to the portion of 28 U.S.C. § 1446(b) that allows successive removal "within thirty 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." The "other paper" on which Defendants' Second Removal is based is neither a pleading nor a motion; it is the transcript of the deposition of Hugh Q. Smith, a putative class representative, taken on December 13 and 14, 2004 (hereinafter "the Smith Deposition" or "Smith's Deposition"). Defendants contend that the Smith Deposition contains "newly discovered facts" and, as such, is the first "paper" from which they could ascertain that the case has become removable under SLUSA.

Smith's Deposition was the ninth of twelve depositions taken by Defendants. Plaintiffs argue that it was not unique. They point to substantially similar information that was provided in several of the depositions Defendants took before Smith's Deposition. Plaintiffs also point out that affidavits they served in the Spring of 2004 contain similar information. Therefore, Plaintiffs argue, Defendants' Second Removal was untimely and defective, as not within thirty days of when grounds for removal could first be ascertained. In the alternative to their timeliness argument, Plaintiffs argue that even if the Second Removal was timely, the case should be remanded because Smith's Deposition does not establish that SLUSA applies. Finally, Plaintiffs seek reimbursement of their just costs and expenses incurred as a result of the Second Removal.

For the reasons set forth below, the court finds that the Second Removal was untimely. Further consideration of the parties' more substantive arguments is unnecessary because defective removal mandates immediate remand pursuant to 28 U.S.C. § 1447(c). The court will award Plaintiffs their just costs and expenses as provided by § 1447(c).

DISCUSSION

I. Remand is Required Because Removal Was Untimely

28 U.S.C. § 1446(b) prescribes the time limits for removing an action where the initial complaint does not render the case removable. It provides that notice of removal must be filed "within thirty 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." The standard by which this court must evaluate Defendants' Second Removal was set out by the Fourth Circuit in Mulcahey v. Columbia Organic Chems. Co., Inc., 29 F.3d 148, 151 (4th Cir.1994):

The burden of establishing federal jurisdiction is placed upon the party seeking removal. Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 42 S.Ct. 35, 66 L.Ed. 144 (1921). Because removal jurisdiction raises significant federalism concerns, we must strictly construe removal jurisdiction. Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 61 S.Ct. 868, 85 L.Ed. 1214 (1941). If federal jurisdiction is doubtful, a remand is necessary. In re Business Men's Assur. Co. of America, 992 F.2d 181, 183 (8th Cir.1993); Cheshire v. Coca-Cola Bottling Affiliated, Inc., 758 F.Supp. 1098, 1102 (D.S.C.1990).

Thus, the burden is on Defendants to establish that they filed their Second Removal in a timely manner. If there are doubts, remand is required pursuant to 28 U.S.C. § 1447(c). Accord Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir.2002) ("Any ambiguities are construed against removal because the removal statute should be strictly construed in favor of remand.").

Defendants seek to establish federal jurisdiction on the basis of preemption under SLUSA, which requires removal of all class actions based on state law if they allege "(1) an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security; or (2) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security." 15 U.S.C. §§ 77p(b),(c) & 78bb(f)(1),(2) (2002). Thus, Defendants must show that the Smith Deposition was the first paper to establish the applicability of SLUSA, such that it (and no previous "other paper"), triggered the start of Defendants' thirty days to remove under § 1446(b).⁶ Any delay beyond the thirty-day window cannot be overlooked. Cline v. Fairbanks Capital Corp., 2004 WL 1146694, at *3 (M.D.N.C.2004) (noting that because time limits for removal must be strictly observed and court is without discretion to overlook such procedural defects, case must be remanded even though individual defendants had removed on time and corporate defendants' notice of removal was only seven days late).

In order to meet their burden, Defendants seek to assign critical importance to a certain document called the Hypothetical Asset Allocation. The Hypothetical Asset Allocation was not before this court at the time of the first removal and remand in 2003. Thus, Defendants seek to use it as the basis for their second removal, arguing that the Hypothetical Asset Allocation "demonstrates on its face that the misrepresentations at issue in this case were made in...