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Public School Teachers'pension and Retirement Fund of Chicago v. Guthart

United States District Court, N.D. California, San Jose Division

June 25, 2014

PUBLIC SCHOOL TEACHERS' PENSION AND RETIREMENT FUND OF CHICAGO, Plaintiff(s),
v.
GARY S. GUTHART, et. al., Defendant(s)

ORDER GRANTING PLAINTIFF'S MOTION TO REMAND [Docket Item No(s). 13]

EDWARD J. DAVILA, District Judge.

Defendants Gary S. Guthart, Lonnie M. Smith, Eric H. Halvorson, Alan J. Levy, Floyd D. Loop, Craig H. Barratt, Amal M. Johnson, Mark J. Rubash, George Stalk, Jr., Marshall M. Mohr, Salvatore J. Brogna, Augusto V. Castello, Jerome J. McNamara, Mark Meltzer, Colin Morales, David J. Rosa (the "Individual Defendants"), and Nominal Defendant Intuitive Surgical, Inc. ("Intuitive")[1] removed the instant shareholder derivative action to this court from San Mateo County Superior Court because the Complaint purportedly "implicates a substantial federal interest" within the purview of Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing , 545 U.S. 308 (2005) ("Grable"). See Not. of Removal, Docket Item No. 1. Plaintiff Public School Teachers' Pension and Retirement Fund of Chicago ("Plaintiff") believes otherwise, and has filed the Motion to Remand presently before the court. See Docket Item No. 13.

This court finds the Complaint incapable of sustaining federal jurisdiction, even under Grable. Accordingly, the Motion to Remand will be granted and the case will be returned to the state court from which it originated.

I. BACKGROUND

This action is one of a number of securities and shareholder derivative cases currently pending this in district concerning "serious defects" with Intuitive's da Vinci surgery system. The plaintiffs in each case allege that the system's defects were known to and concealed by the Individual Defendants, most of whom are the directors and officers of Intuitive.[2] The defects were eventually discovered and disclosed to Intuitive's shareholders and, in turn, to the public, and Intuitive's market value deteriorated as a result. Intuitive shareholders suffered a loss of portfolio value due to the drop in stock price. But the Individual Defendants escaped unscathed since they had, by that time, allegedly sold their own Intuitive shares at an inflated price for significant profit.

The other shareholder derivative actions were filed directly in federal court because they each met the requirements for diversity jurisdiction under 28 U.S.C. § 1332.[3] But, as already mentioned, this case was not. Although it is indistinguishable in substance from the related cases, it was initiated on February 21, 2014 in San Mateo County Superior Court.

Plaintiff asserts four causes of action under Delaware and California state law against the Individual Defendants or subsets of them; two are for breach of fiduciary, one for unjust enrichment, and one for violation of California Corporations Code § 25402. Defendants removed the case on March 26, 2014, citing Grable. This motion followed.

II. LEGAL STANDARD

Removal jurisdiction is a creation of statute. See Libhart v. Santa Monica Dairy Co. , 592 F.2d 1062, 1064 (9th Cir. 1979) ("The removal jurisdiction of the federal courts is derived entirely from the statutory authorization of Congress."). In general, only those state court actions that could have been originally filed in federal court may be removed. 28 U.S.C. § 1441(a) ("Except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant."); see also Caterpillar, Inc. v. Williams , 482 U.S. 386, 392 (1987) ("Only state-court actions that originally could have been filed in federal court may be removed to federal court by defendant."). Accordingly, the removal statute provides two basic ways in which a state court action may be removed to federal court: (1) the case presents a federal question, or (2) the case is between citizens of different states and the amount in controversy exceeds $75, 000. 28 U.S.C. §§ 1441(a), (b); 1332(a).

On a motion to remand, it is the removing defendant's burden to establish federal jurisdiction, and the court must strictly construe removal statutes against removal jurisdiction. Gaus v. Miles, Inc. , 980 F.2d 564, 566 (9th Cir. 1992) ("The strong presumption' against removal jurisdiction means that the defendant always has the burden of establishing that removal is proper."). "Where doubt regarding the right to removal exists, a case should be remanded to state court." Matheson v. Progressive Speciality Ins. Co. , 319 F.3d 1089, 1090 (9th Cir. 2003).

III. DISCUSSION

The court will first frame the issue before it. This is not a remand motion that can be decided through the normal course of searching the face of a well-pleaded complaint for a claim created by federal law. See Caterpillar Inc. , 482 U.S. at 392 ("The presence or absence of federal-question jurisdiction is governed 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."); see also Franchise Tax Bd. v. Constr. Laborers Vacation Trust , 463 U.S. 1, 10 n.9 (1983) ("The well-pleaded complaint rule applies to the original jurisdiction of the district courts as well as to their removal jurisdiction."). Indeed, no obvious federal claims exist here. For that reason, this Complaint is not standard dish for removal based on federal question jurisdiction. See Grable , 545 U.S. at 314 (explaining that the statute providing for federal question jurisdiction, 28 U.S.C. § 1331, "is invoked by and large by plaintiffs pleading a cause of action created by federal law.").

This is more nuanced territory. Here, Defendants argue that Plaintiff skillfully mixed together the deconstructed ingredients of federal jurisdiction, poured them into vessels created by state law, and then carefully plated them in the Complaint so as to prevent federal courts from being able to consume it. According to Defendants, the legal morsels that form the basis of a federal question are broken into small bites, purposely, so this case will remain on the state court's menu.

That strategy, assuming Plaintiff actually utilized it here, is sometimes acceptable. It is perfectly palatable for a plaintiff to choose the state forum over the federal one by omitting federal claims that could otherwise be plead. ARCO Envtl. Remediation, L.L.C. v. Dep't of Health & Envtl. Quality , 213 F.3d 1108, 1114 (9th Cir. 2000) ("As the master of the complaint, a plaintiff may defeat removal by choosing not to plead independent federal claims."). In fact, federal law is designed with respect to a plaintiff's choice. If a case of pure state concern is improvidently removed, or if there is any doubt that the removed action actually belongs in federal court, it must be returned to its original source. Gaus , 980 F.2d at 566 ("Federal jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance."). What a plaintiff cannot do, though, is disguise a federal cause of action as one under state law in order to completely foreclose the federal forum. Under the artful pleading doctrine, "[a] state-created cause of action can be deemed to arise under ...


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