Consumer Finance Insights
June 19, 2014

“If I go there will be trouble, and if I stay it will be double”: Second Circuit Provides …

Move to federal court or stay in state court—an essential strategic question for defendants of state-court-filed class actions.  Pace of litigation, applicable discovery rules, court familiarity with class actions—the right forum can make a significant difference in litigating a class action.  Although the first choice of forum belongs to the plaintiff, there are a number of tools available to defendants to change the ultimate forum.  Recently, the Second Circuit issued an important decision regarding one of these tools—removal under the Class Action Fairness Act of 2005 (“CAFA”).  In Cutrone v. Mortgage Electronic Registration System, the Second Circuit concluded that removal, over ninety days after the complaint was filed, was timely.  In the process, the Second Circuit addressed two critical issues in state-court-filed class actions:  1) when does the defendant’s removal clock start to run and 2) can the defendant remove on the basis of its own investigation.  The Cutrone decision significantly clarifies the analysis defendants should undertake when they face state-court-filed class actions.

The plaintiffs in Cutrone filed a putative class action in New York state court, asserting several state-law claims against the Mortgage Electronic Registration System (MERS) based on an alleged mortgage-recording-tax overpayment of $6,835.20.  Cutrone, 749 F.3d 137, 139 (2d Cir. 2014).  Nowhere in their complaint and discovery responses did plaintiffs allege a specific number of class members or the total amount of taxes overpaid.  Id. at 140.  Over ninety days later—after examining its records—MERS removed the case.  Id.  The United States District Court of the Eastern District of New York concluded that this was untimely because the complaint’s reference to “hundreds, and likely thousands, of persons and entities” coupled with the plaintiffs’ $6,835.20 tax bill should have put MERS on notice that there plaintiffs’ allegations exceeded the $5,000,000 threshold.  Id. at 140-41.

Reiterating its decision in Moltner v. Starbucks Coffee Co., the Second Circuit held that the 30-day deadline to remove under CAFA does not begin to run “until the plaintiff serves the defendant with an initial pleading or other document that explicitly specifies the amount of monetary damages sought or sets forth facts from which an amount in controversy in excess of $5,000,000 can be ascertained.”  Id. at 145.  Applying this rule, the Second Circuit held that removal was not ascertainable based on plaintiffs’ complaint because it did not “explicitly specif[y] the amount of monetary damages sought or set[] forth facts from which an amount in controversy in excess of $5,000,000 can be ascertained.”  Id. at 145.  As a result, MERS’ notice of removal was not untimely because neither the complaint nor any other paper had allowed MERS to ascertain that the case was removable—the 30-day clock never began to run.

In such a case, the Second Circuit held, a defendant may remove based on its own investigation without concern for the 30-day deadline.  Id. at 146.  The basis for MERS’ removal was its examination of its own records, not a “pleading, motion, order or other paper” served by the plaintiffs.  Adopting the view of the Seventh and Ninth circuits, the Second Circuit held that “[d]efendants are permitted to remove outside of [the 30-day time limits imposed by § 1446] when [those] time limits . . . are not triggered.”  Id. at 147.  Thus, absent some paper or filing, defendants are free to conduct their own investigations into removability without limiting those investigations to the 30 days following the filing of a complaint.

Providing critical clarity on removability, Cutrone should be a significant part of early strategy sessions when defendants face state-court-filed class actions.