Missouri v. PORTFOLIO RECOVERY ASSOCIATES, INC.

• Decision Date: 24 February 2010
• Docket Number: No. 4:09-CV-1641 CAS.,4:09-CV-1641 CAS.
• Citation: 686 F. Supp.2d 942
• Parties: State of MISSOURI, ex rel. Chris KOSTER, Attorney General, Plaintiff, v. PORTFOLIO RECOVERY ASSOCIATES, INC., et al., Defendants.
• Court: U.S. District Court — Eastern District of Missouri

686 F.Supp.2d 942

State of MISSOURI, ex rel. Chris KOSTER, Attorney General, Plaintiff, v. PORTFOLIO RECOVERY ASSOCIATES, INC., et al., Defendants.

No. 4:09-CV-1641 CAS.

United States District Court, E.D. Missouri, Eastern Division.

February 24, 2010.

Debra K. Lumpkins, Assistant Attorney General of Missouri, St. Louis, MO, for Plaintiff.

James R. Wyrsch, Jeffrey S. Russell, John Michael Clear, Angela L. Harris, Bryan Cave LLP, St. Louis, MO, for Defendants.

MEMORANDUM AND ORDER

CHARLES A. SHAW, District Judge.

The matter is before the Court on the State of Missouri's motion to remand. Defendants oppose the motion and have filed a memorandum in opposition. Plaintiff filed a reply memorandum and the motion is ripe for review. For the following reasons, plaintiff's motion to remand will be granted.

I. Background

On August 18, 2009, the State of Missouri (the "State"), through its Attorney General Chris Koster, filed an action against Portfolio Recovery Associates, Inc., and Portfolio Recovery Associates, LLC in the Circuit Court of the City of St. Louis, Missouri, seeking redress for defendants' allegedly deceptive and unfair collection practices. More specifically, the State alleges defendants: purchased debts that had been discharged in bankruptcy with the intent of collecting on the debts; attempted to collect debts from the wrong debtors; induced customers to pay on accounts that had been paid off or discharged; threatened to garnish benefits that could not be garnished; refused to identify themselves or the accounts upon which they were collecting; refused to provide proof of debt when requested; repeatedly called residences even after having been informed that debtors were not residing at those residences; repeatedly called employers after being told to cease calling; submitted false credit reports; assessed interest and fees not owed; filed lawsuits without documentation; and filed false or misleading affidavits. The State alleges defendants' actions violated the Missouri Merchandising Practices Act ("MMPA"), Mo.Rev.Stat. §§ 407.010, et seq. The State is the only named plaintiff in this suit, and it brings this action pursuant to authority conferred by § 407.100. The State seeks injunctive relief, civil penalties, orders that defendant make restitution to the State and consumers who were harmed, as well as prosecution and investigation costs.

Defendants removed this cause of action on October 2, 2009. Defendants contend this Court has federal jurisdiction pursuant to the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1332(d). More specifically, defendants state this case is a "class action" within the meaning of the CAFA in that it is a representative action with diversity of citizenship that necessarily will involve more than 100 plaintiffs and over $5 million in controversy. Defendants have also removed pursuant to 28 U.S.C. § 1452(a). They contend federal question jurisdiction exists in this case pursuant to 28 U.S.C. § 1334, because allegations in the petition concern violations of federal bankruptcy law.

The State has moved to remand the cause of action to state court. It argues the suit does not fall within the definition of "class action" under the CAFA and, therefore, it was not properly removed. In addition, it argues the suit does not relate to bankruptcy law, and it was not properly removed pursuant to 28 U.S.C. § 1452(a).

II. Discussion

"Federal courts are courts of limited jurisdiction." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). A defendant may remove an action originally filed in state court only if the case originally could have been filed in federal court, see 28 U.S.C. § 1441(a), and that defendant bears the burden of showing the propriety of that removal. Sheehan v. Gustafson, 967 F.2d 1214, 1215 (8th Cir.1992). "Unless the balance is strongly in favor of the defendant, the plaintiff's choice of forum should rarely be disturbed." Norwood v. Kirkpatrick, 349 U.S. 29, 35, 75 S.Ct. 544, 99 L.Ed. 789 (1955) (internal quotation marks omitted).

A. This suit is not a "class action" under the CAFA.

Defendants removed this case from state court on the basis of diversity jurisdiction pursuant to the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1332(d). Under the CAFA:

The district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which

(A) any member of a class of plaintiffs is a citizen of a State different from any defendant;

(B) any member of a class of plaintiffs is a foreign state or a citizen or subject of a foreign state and any defendant is a citizen of a State; or

(C) any member of a class of plaintiffs is a citizen of a State and any defendant is a foreign state or a citizen or subject of a foreign state.

28 U.S.C. § 1332(d). Under the statute, a "class action" is defined as "any civil action filed under Rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action." 28 U.S.C. § 1332(d)(1)(B).

Defendants argue this case is a representative class action despite how the State has styled the action. According to defendants, the State's petition includes a request for restitution, which if awarded, would be payable under the provisions of the MMPA to the individual consumers who were harmed. Therefore, they argue, the individuals are the real parties in interest in this suit, not the State, and it qualifies as a "class action" within the meaning of the CAFA. The State responds that the suit is not a representative action. It notes the petition was filed under the MMPA, which is not the equivalent of Rule 23. Furthermore, it argues, the State is a real party in interest because it has an interest in protecting its citizens from consumer fraud and, therefore, the case is not a class action under the CAFA.

Few courts have addressed whether suits by state attorneys general are class actions for purposes of the CAFA, and there is no controlling law from the Supreme Court or Eighth Circuit on the issue. In support of their position that the CAFA applies to this case and removal was proper, defendants cite extensively to State of Louisiana, ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418 (5th Cir. 2008). Caldwell involved a parens patriae action filed by Louisiana's attorney general and a number of private law firms against a number of insurance companies and affiliated companies. Id. at 422. The suit was filed under the Louisiana Monopolies Act and alleged defendants had colluded to fix the prices of repair services used to calculate amounts to be paid under various property insurance policies. The plaintiffs claimed this was price-fixing, which amounted to anti-trust violations under the Louisiana Monopolies Act. Plaintiffs sought forfeiture of illegal profits, treble damages, and injunctive relief. Id.

The defendants in Caldwell removed the state cause of action to federal court pursuant to the CAFA. They argued that although the case was labeled a parens patriae action, it qualified as a "class action" or a "mass action"¹ under the CAFA. The district court agreed and denied plaintiffs' motion to remand. Id. at 423. On interlocutory appeal, the Fifth Circuit affirmed the district court, and found because the plaintiffs were seeking treble damages, the policyholders were the real parties in interest, not the named plaintiffs. Therefore, the case qualified as a "mass action" under the CAFA. Id. at 430. In concluding, the Court of Appeals envisioned that policyholders would be joined in the action. Id. ("we leave it to the district judge's capable hands the manner by which the individual policyholders are to be added to this action.") The Fifth Circuit declined to address whether the action was a "class action" within the meaning of the CAFA.

Caldwell is distinguishable from the issues before the Court. In its opinion the Fifth Circuit determined that the case qualified as a "mass action" under the CAFA. The Fifth Circuit declined to address whether the suit was a "class action" within the meaning of the statute. Defendants here do not maintain that the current cause of action qualifies as a "mass action." For their basis of removal, defendants alleged this case qualified as a "class action" under the CAFA. In addition, the Fifth Circuit directed that upon remand from the court of appeals, the district court was to determine the mechanism by which the policyholders would be joined in the suit. Id. at 430. Defendants in this case do not maintain that consumers must be joined in this suit. In fact, the MMPA provides that a court may enter an order of restitution, which is payable to the State, but "it shall be the duty of the attorney general to distribute such funds to those persons injured." Mo.Rev.Stat. § 407.100. Joinder is not required.

This Court also does not find the legal analysis in the Caldwell majority opinion to be persuasive. As a general matter, the opinion, which noted it was interpreting the CAFA broadly, Caldwell, 536 F.3d at 424, is counter to the Supreme Court's directive that removal statutes are to be "strictly construed," Syngenta Crop Protection, Inc. v. Henson, 537 U.S. 28, 123 S.Ct. 366, 369, 154 L.Ed.2d 368 (2002) (citations omitted), especially those that undermine the authority of the state. Healy v. Ratta, 292 U.S. 263, 270, 54 S.Ct. 700, 78 L.Ed. 1248 (1934) ("Due regard for the rightful independence of state governments... requires that federal courts scrupulously confine their own jurisdiction to the precise limits which the statute has defined"). In addition to construing the removal statute broadly, the Fifth Circuit relied on cases involving fraudulent joinder or fraudulent pleading to justify "piercing...