## F I L E D United States Court of Appeals Tenth Circuit 

### DEC 30 2004 

### PATRICK FISHER Clerk 

### PUBLISH UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

GERALD T. MARTIN and JUANA M. MARTIN, individually and on behalf of all persons similarly situated, Plaintiffs-Appellants,

v. FRANKLIN CAPITAL CORPORATION, a Utah corporation; and CENTURY-NATIONAL INSURANCE COMPANY, a California corporation, Defendants-Appellees. No. 02-2048

Appeal from the United States District Court for the District of New Mexico (D.C. No. CIV-96-1480-LH)
James M. Pietz of Malakoff Doyle & Finberg, P.C., P ittsburgh, Pennsylvania (Michael P. Malakoff of Malakoff Doyle & Finberg, P .C., Pittsburgh, Pennsylvania; and Richard N. Feferman of Albuquerqu e, New Mexico, on the briefs), for Plaintiffs-Appellants. Jan T. Chilton of Severson & Werson, San Francisco, California, for DefendantAppellee Franklin Capital Corporation. Stevan Douglas Looney (Jay D. Hertz on the brief) o f Sutin, Thayer & Browne, Albuquerque, New Mexico, for Defendant-Appellee Cen tury-National Insurance Company.* The Honorable James H. Payne, Chief District Judge, United States

District Court for the Eastern District of Oklahoma , sitting by designation. -2- Before SEYMOURand BRISCOE , Circuit Judges, and PAYNE * , District Judge.

SEYMOUR , Circuit Judge.

Gerald T. Martin and Juana M. Martin (Martins) soug ht an award of attorney’s fees and expenses pursuant to 28 U.S.C. § 1447(c) from Franklin Capital Corporation and Century-National Insurance Company (defendants) after this court determined defendants should not have re moved the instant action to federal court. The district court denied the Marti ns’ request for fees and expenses, and they appeal. We exercise jurisdictio n pursuant to 28 U.S.C. § 1291 and affirm.

I In September 1996, the Martins filed a lawsuit agai nst defendants in New Mexico state court. On their behalf and on behalf of all persons similarly situated, the Martins sought damages under state st atutory and common law theories for alleged illegalities with respect to a utomobile financing and insurance contracts they had entered into with defendants. A bout a month after the Martins1 This action was filed in state court on September 1 3, 1996. At the time, 28

U.S.C. § 1332 required the amount in controversy to exceed $50,000. The amount in controversy requirement has since been increased to $75,000 and applies to cases filed on or after January 17, 1997. See Federal Courts Improvement Act of 1996, Pub. L. No. 104-317, § 205, 110 Stat. 3847, 3 850 (Oct. 19, 1996). -3- filed their complaint, defendants removed the actio n to federal court based on diversity of citizenship pursuant to 28 U.S.C. §§ 1 332 and 1441. The Martins raised no objection to defendants’ removal at the t ime and did not seek remand. Over a year later, and during a hearing before the district court on defendants’ motion to dismiss, the Martins first questioned whe ther the court possessed jurisdiction over the case. The Martins subsequent ly filed a motion to remand the action to state court for lack of subject matter ju risdiction on the basis that their claims did not meet the $50,000 amount in controver sy requirement for diversity jurisdiction. 1 In opposition to the Martins’ motion, defendants ar gued variously the amount in controversy requirement was satisfied bec ause the Martins’ complaint sought punitive damages of more than $50,000 in the aggregate; sought attorney’s fees of more than $50,000 in the aggregate; and sou ght monetary relief for the named plaintiffs for more than $50,000. The distri ct court agreed with defendants and denied the Martins’ motion to remand, finding “ [t]he allegations of the complaint and the contents of [defendants’] notice of removal demonstrate the requisite $50,000 amount in controversy.” Aplt. Ap p. at 263.-4-

The Martins requested the district court certify it s order denying remand so they could seek interlocutory appeal under 28 U.S.C . § 1292(b), which the court denied. The Martins subsequently petitioned the co urt to grant judgment against them in order to permit an immediate appeal on the question of jurisdiction. The district court granted the Martins’ voluntary dismi ssal with prejudice and they filed an appeal.
In Martin v. Franklin Capital Corp. , 251 F.3d 1284 (10th Cir. 2001) ( Martin I ), we reversed the district court’s ruling. In the course of our analysis, we rejected defendants’ argument that “the punitive damages claimed by the entire class could be aggregated and attributed to the Martins in determining the amount in controversy” for jurisdictional purposes. Id. at 1291. We also rejected defendants’ contentions that an aggregation of atto rney’s fees or the amount of relief requested by the Martins as class representatives satisfied the amount in controversy requirement. Id. at 1291, 1293. Accordingly, we remanded with directions that the case be sent back to state court. Id. at 1294. Upon returning to the district court, the Martins m oved for an award of attorney’s fees and expenses pursuant to § 1447(c), which grants the district court discretion to award attorney’s fees incurred as a r esult of removal when a case is remanded. The district court denied the Martins’ r equest, determining that at the time defendants removed the case to federal court, they had objectively-5-

reasonable legal grounds to believe removal was pro per. The Martins challenge on appeal the district court’s denial of attorney’s fees and expenses.

II The language of § 1447(c) directs that the award of attorney’s fees rests squarely within the discretion of the district court when a remand is ordered. See § 1447(c) (“An order remanding the case mayrequire payment of just costs and any actual expenses, including attorney fees, incur red as a result of the removal.” (emphasis added)). Given our decision in Martin I that removal was improper in this case, the district court had discretion to awa rd attorney’s fees to the Martins if it believed fees were appropriate. The districtcourt determined defendants possessed objectively reasonable grounds to believe removal was proper and therefore declined to award fees to the Martins. W e review that decision for abuse of discretion. Suder v. Blue Circle, Inc. , 116 F.3d 1351, 1352 (10th Cir. 1997); Excell, Inc. v. Sterling Boiler & Mech., Inc. , 106 F.3d 318, 322 (10th Cir. 1997); Daleske v. Fairfield Cmtys, Inc. , 17 F.3d 321, 323 (10th Cir. 1994). We review de novo the district court’s legal analysis underlying its decision. Daleske , 17 F.3d at 323. In challenging the district court’s ruling, the Martins assert that in a case where a defendant’s removal to federal court serves as what the Martins2 In this context, we note that the Martins’ citation to and reliance on

Wisconsin v. Hotline Indus., Inc. , 236 F.3d 363 (7th Cir. 2000), is misplaced. The controversy in Hotline did not involve entitlement to fees but focused in stead on the appropriate amount of fees awarded. Id. at 366-68. But see Sirotzky v. New York Stock Exch. , 347 F.3d 985, 987 (7th Cir. 2003) (“provided remo val was improper, the plaintiff is presumptivelyentitled to an award of fees”). -6- characterize as “test litigation” regarding the exi stence of federal jurisdiction, and jurisdiction is subsequently found to be lacking, f ees should be awarded to the plaintiff as a matter of course. They also assert the district court did not properly apply the standard articulated by our court in Suderand Daleske . Building upon their test litigation argument, they contend the di strict court should have adhered to what they argue is a more “plaintiff-based stand ard” which they say has been adopted by the Seventh and Ninth Circuits, citing Wisconsin v. Hotline Indus.,
Inc. , 236 F.3d 363 (7th Cir. 2000), and Hofler v. Aetna US Healthcare of Ca. , 296 F.3d 764 (9th Cir. 2002). 2 Under this approach, the Martins urge that attorn ey’s fees should be awarded when removal is deemed impro per, irrespective of whether the defendant had a legitimate or objective basis for believing in the propriety of removal. We are not persuaded. As we have recognized: In deciding whether to award costs under § 1447(c), the key factor is the propriety of defendant’s removal. The districtcourt does not have to find that the state court action has been r emoved in bad faith as a prerequisite to awarding attorney fees and cos ts under § 1447(c). Excell, Inc., 106 F.3d at 322 (internal citations omitted). On the other hand,-7-

attorney’s fees may be denied where the defendant “ had a fair basis for removing the case.” Daleske , 17 F.3d at 324. Other circuits have also recognized that the award of fees under § 1447(c) is left to the wide discretion of the district court once remand is ordered. See, e.g., Balcorta v. Twentieth Century Fox-Film Corp. , 208 F.3d 1102, 1105 (9th Cir. 2000) (reviewing for abuse of discretion distr ict court’s fee award determination); Valdes v. Wal-Mart Stores, Inc. , 199 F.3d 290, 292 (5th Cir. 2000) (“The decision of the district court to award or not to award attorney’s fees is reviewed for an abuse of discretion.”); Mints v. Educ. Testing Serv. , 99 F.3d 1253, 1260 (3d Cir. 1996) (“a district court has br oad discretion and may be flexible in determining whether to require the paym ent of fees under section 1447(c)”); Morris v. Bridgestone/Firestone, Inc. , 985 F.2d 238, 240 (6th Cir. 1993) (agreeing that “the . . . statute affords a g reat deal of discretion in fashioning awards of costs and fees”) (quotation om itted)); Morgan Guar. Trust Co. of N.Y. v. Republic of Palau , 971 F.2d 917, 924 (2d Cir. 1992) (statute provides district courts with discretion in how to award costs and fees). While the Seventh Circuit has suggested there is a presumption that fees be awarded to plaintiffs under § 1447(c) upon a finding of improp er removal, see e.g., Sirotzky v. New York Stock Exch. , 347 F.3d 985, 987 (7th Cir. 2003), “[n]evertheles s, the3 Contrary to the Martins’ assertion, we are not conv inced the Ninth Circuit

follows a similar approach. In Balcorta v. Twentieth Century Fox-Film Corp. , 208 F.3d 1102 (9th Cir. 2000), the court made clearthat “it may be within the discretion of the district court not to award fees” when a defendant’s attempt to remove the action had a sufficient basis in the law , and also that the circuit’s “case law does permit an award of fees when a defen dant’s removal, while ‘fairly supportable,’ was wrong as a matter of law.” Id. at 1106 n.6; see also Hofler v. Aetna US Healthcare of Ca. , 296 F.3d 764, 770 (9th Cir. 2002) (“fees are prop er when removal is wrong as a matter of law, even thou gh the defendant’s position may be ‘fairly supportable’”). In other words, in the Ninth Circuit, as in our circuit, if defendant’s removal position is objecti vely reasonable under the law, the district court may, in its discretion, either a ward attorney’s fees to the plaintiff or decline to award fees. The decision is then rev iewed for an abuse of discretion. -8- entitlement is not automatic – the presumption is n ot irrebuttable . . . .” Id. 3 Between these varied expressions regarding § 1447(c ), there remains the broadly accepted position that if a defendant’s rem oval could be fairly supported by the law at the time, even if later deemed incorr ect, a district court’s discretionary decision not to award fees is appropr iate. Indeed, most courts do not impose fees when the defendant had a legitimate ground for seeking removal.
See 16 J AMES W M
. M OORE ET AL ., M OORE ’ S F EDERAL P RACTICE § 107.41[3][a][ii] (3d ed. 1997); see also 14C C HARLES A LAN W RIGHT ET AL ., F EDERAL P RACTICE

AND P ROCEDURE § 3739 (3d ed. 1998) (noting award of fees is at d iscretion of district court, and fees may be denied “when there are reasons to believe that the removability of the case was plausible”). The Martins incorrectly claim the district court employed a standard other-9-

than that required by our circuit. In accordance w ith Suderand Daleske , the district court recognized that a plaintiff is not a utomatically entitled to attorney’s fees simply because removal was ultimately determin ed to be improper. Instead, relying on Valdes , 199 F.3d at 292, it determined it should “evaluat e the merits of Defendants’ removal action at the time it was filed .” Aplt. App. at 344; see also Valdes , 199 F.3d at 293 (“the question we consider in app lying § 1447(c) is whether the defendant had objectively reasonable gr ounds to believe the removal was legally proper”). This characterization accord s with our decision in Daleske , in which we upheld a denial of fees where the defen dant “had a fair basis for removing the case.” 17 F.3d at 324. Upon determin ing that defendants’ removal position was objectively reasonable at the time the y sought removal, the court exercised its discretion and declined to award fees to the Martins. As we discuss in more depth below, we find no fault in the distri ct court’s articulation or implementation of the fee award standard.

III Having determined the district court employed the p roper standard in deciding whether to award fees to the Martins, we n ow examine whether the court correctly concluded that when defendants removed th e underlying action in October 1996, they had a legitimate basis to believ e the federal court could4 Because we agree with the district court’s conclusi on that defendants’

removal to federal court on an aggregation of punit ive damages theory was objectively reasonable, as well as with the court’s subsequent refusal to award fees to the Martins on the basis of that argument, we need not address defendants’ remaining positions supporting removal. -10- exercise jurisdiction over the case. Valdes , 199 F.3d at 293; Daleske , 17 F.3d at 325. While a close question, we agree with the dis trict court that at the time defendants removed this action to federal court on the basis of aggregating punitive damages, they “had objectively reasonable grounds to believe the removal was legally proper.” 4 Aplt. App. at 347. In support of their motion to remove to federal cou rt, defendants contended that “punitive damage claims in a class action suitmay be considered in the aggregate when determining the amount in controvers y.” Id. at 3. In making this argument, defendants relied on case law from the Fi fth and Eleventh Circuits, which at the time indicated that aggregation of pun itive damages in a class action suit was permissible to reach the amount in controv ersy requirement for diversity jurisdiction. See Tapscott v. MS Dealer Serv. Corp ., 77 F.3d 1353 (11th Cir. 1996); Allen v. R&H Oil & Gas Co. , 63 F.3d 1326 (5th Cir. 1995). Although these cases were subsequently severely limited and overruled by their respective circuits, see H&D Tire & Auto.-Hardware, Inc. v. Pitney Bowe s Inc. , 227 F.3d 326, 330 (5th Cir. 2000); Cohen v. Office Depot, Inc. , 204 F.3d 1069, 1076 (11th Cir. 2000); Ard v. Transcon. Gas Pipe Line Corp. , 138 F.3d 596, 601-02 (5th Cir.-11-

1998), Tapscottand Allen represented viable authority in October 1996 upon which defendants could rely to support their petiti on for removal. As noted above, in Martin I we rejected defendants’ argument regarding aggregating punitive damages. We commented on the demise of Tapscottand Allen , and we noted that “all of the circuits considerin g the issue now hold that punitive damages cannot be aggregated and attribute d in total to each member of a putative class for purposes of satisfying the amo unt-in-controversy requirement of diversity jurisdiction.” Martin I, 251 F.3d at 1292 (emphasis added) (citing Morrison v. Allstate Indem. Co. , 228 F.3d 1255, 1264-65 (11th Cir. 2000); Ard, 138 F.3d at 600-02; Gilman v. BHC Sec., Inc. , 104 F.3d 1418, 1430-31 (2d Cir. 1997); Anthony v. Sec. Pac. Fin. Servs., Inc. , 75 F.3d 311, 315 (7th Cir. 1996)). Based on this precedent, we joined these other circ uits in concluding that the amount in controversy requirement in a class action suit may not be satisfied by aggregating punitive damages. Id. at 1293. On remand, the district court emphasized that we re lied primarily on case law post-dating defendants’ October 1996 removal to federal court in reversing the district court’s earlier ruling. Likewise, the court pointed out that the Fifth and Eleventh Circuit rulings undermining Allen andTapscottwere decided several years after the removal action in this case. Final ly, the court took special notice of our comment that we had not previously “ruled di rectly on [the] matter” of-12-

aggregating punitive damages. Aplt. App. 345 (quot ing Martin I, 251 F.3d at 1292). The district court stated accordingly that [b]ased on the language contained in this Tenth Cir cuit, and given the history of the law in this area, I am unable to conclude that the removal was improper ab initio . . . . It appears that the Tenth Circuit remanded [this case] largely based on chang es in the law during the time between the removal (1996), and its opinion (2001). Id. at 345-46. The district court did not err in this ruling. We acknowledge that in October 1996, several distri ct courts, including some in our own circuit, had rejected the approach adopted in Tapscottand Allen

. See, e.g., Bernard v. Gerber Food Prods. Co. , 938 F. Supp. 218, 222-23 (S.D.N.Y. 1996); Bishop v. Gen. Motors Corp. , 925 F. Supp. 294, 297-99, 301-02 (D.N.J. 1996); Asten v. Southwestern Bell Tel. Co. , 914 F. Supp. 430, 433-34 (D. Kan. 1996); Visintine v. Saab Auto. A.B. , 891 F. Supp. 496, 498-99 (E.D. Mo. 1995); Copeland v. MBNA Am., N.A. , 820 F. Supp. 537, 541-42 (D. Colo. 1993). Moreover, the courts in both Tapscottand Allen sidestepped circuit precedent which, according to H&D Tire and Cohen , should have guided them to conclude it was not permissible to aggregate punitive damages i n a class action suit to establish diversity jurisdiction. See H&D Tire , 227 F.3d at 330; Cohen , 204 F.3d
at 1076. In Lindsey v. Alabama Tel. Co. , 576 F.2d 593 (5th Cir. 1978), a class action, the court had held that claims of individua l class members “cannot be aggregated for the purpose of satisfying this juris dictional predicate.” Id. at 594.5Lindsey v. Alabama Tel. Co. , 576 F.3d 593 (5th Cir. 1978), was decided

before the Fifth Circuit was divided into two circu its on October 1, 1981, resulting in the creation of the Eleventh Circuit. The Eleventh Circuit subsequently held that decisions handed down by the Fifth Circuit prior to September 30, 1981, would be binding precedent in t he Eleventh Circuit. See Cohen v. Office Depot, Inc. , 204 F.3d 1069, 1072 (11th Cir. 2000); Bonner v. City of Prichard, 661 F.2d 1206, 1207 (11th Cir. 1981). Therefore, Lindseyserves as binding precedent for both the Fifth and Eleventh C ircuits. -13- While the court did not specifically discuss the pu nitive damages claim of one million dollars, it reversed the removal decision b ecause the complaint failed to allege the number of class members, an unnecessary result if punitive damages could be aggregated. 5 Id. at 595. Oddly enough, Lindseywas cited in both Tapscottand Allen , although neither decision devoted much discussion to it. See Tapscott , 77 F.3d at 1357 n.9 (referencing Lindseyfor general proposition that “each putative class member must satisfy” jurisdictional requirements); Allen , 63 F.3d at 1332 n.9 (noting disagreement among district courts in Fifth Circuiton whether joint claims of punitive damages constituted common and undivided i nterests allowing for aggregation). When the Fifth and Eleventh Circuits revisited the Allen and Tapscottdecisions, both circuit courts referred to the pre -existing and conflicting precedent of Lindseyand determined it controlled the question of wheth er punitive damages could be aggregated. See H&D Tire , 227 F.3d at 330; Cohen , 204 F.3d at 1076. Nevertheless, that the courts in both Tapscottand Allen cited-14-

Lindseygives weight to the argument that the answer to wh ether punitive damages could be aggregated in the Fifth and Eleventh Circu its was in flux. While Lindsey ’s precedent ultimately prevailed, the Tapscottand Allen courts’ seeming rejection of Lindsey ’s punitive damages analysis created a legitimate b asis on which defendants could rely to support their aggreg ation argument. In challenging defendants’ contentions that there existed legitimate grounds to believe punitive damages could be aggreg ated in order to satisfy the amount in controversy requirement, the Martins asse rt the Supreme Court in Snyder v. Harris , 394 U.S. 332 (1969), and this circuit in Justice v. Atchison, Topeka & Santa Fe Ry. Co. , 927 F.2d 503 (10th Cir. 1991), made clear that any argument regarding the aggregation of punitive dama ges in a class action case would be rejected outright. We disagree. In Snyder , the Supreme Court reiterated the general rule “that the separate and distinct cl aims of two or more plaintiffs cannot be aggregated in order to satisfy the jurisd ictional amount requirement.” 394 U.S. at 335. But the Court noted an exception to this non-aggregation rule, stating in part that aggregation would be permitted “in cases in which two or more plaintiffs unite to enforce a single title or rightin which they have a common and undivided interest.” Id. Hence, under Snyder , there was room to argue that the nature of a punitive damage claim in a class action suit was common and undivided, therefore possibly permitting aggregatio n.6 See also 14C C HARLES A LAN W RIGHT ET AL

. F EDERAL P RACTICE AND

P ROCEDURE § 3724 (3d ed. 1998) . The Martins vigorously assert that because we had previously recognized in Justice that federal law determines whether claims are separate and independent, defendants’ reliance on Tapscottand Allen was (continued...) -15- The courts in Tapscottand Allen tested the Snyderexception and held that punitive damage claims could be deemed common and u ndivided based on the characterization of punitive damages in the two states in those respective cases. Therefore they could be aggregated for the purposes of meeting the amount in controversy requirement. Tapscott , 77 F.3d at 1357-59; Allen , 63 F.3d at 1334- 35. So holding, the courts reached a supportable c onclusion that the aggregation of punitive damages was permitted under the Snyderexception.
In Justice , our court acknowledged Snyder ’s general rule barring aggregating claims of multiple plaintiffs where tho se claims are separate and distinct, rather than common and undivided. 927 F. 2d at 504. However, we did not devote any further discussion to whether the ag gregation of common claims was permitted. Rather, we focused on “whether stat e law or federal common law determines if the claims are separate and independe nt.” Id. We noted that federal law is used to determine whether the claims are separate and independent, and state law determines the nature of the claims to which the federal law test is applied. In other wo rds, state law determines the character of plaintiff’s claim, and federal law determines whether that claim meets the standard of Section 1441(c). Id. (internal citation omitted). 6 We then examined the nature of the plaintiffs’6 (...continued)

unwarranted. However, as we also recognized in Justice , state law often plays a role in determining whether a case can be removed. Professor Wright begins his discussion by stating “ [b]oth federal and state law play a part in determining t he removability of a case under Section 1441(c),” noti ng that “state law determines the substantive character of the plaintiff’s claim. ” Id. For example, “state law is relevant to the question of whether an alleged liab ility is joint and federal law controls whether a case concerning joint liability is removable.” Id. (emphasis added); see also, e.g., Kirkland v. Midland Mortgage Co. , 243 F.3d 1277, 1280-81 (11th Cir. 2001) (referring to state law to determi ne nature of punitive damages and then holding state characterization does not al low for aggregation); Spriggs v. Wolf , 496 F. Supp. 990, 991 (W.D. Okla. 1979) (court lo oked to Oklahoma law to determine if garnishment proceeding was separate fr om other claims asserted in action); Anderson v. Union Pac. R.R. Co. , 200 F. Supp. 465, 467 (D. Kan. 1962) (local law determines whether claim is joint or sev eral in character). -16- claims, determined they were in fact separate and i ndependent, and held they satisfied the amount in controversy requirement wit hout aggregation. Id. at 504- 05. Contrary to the Martins’ assertions, neither Snydernor Justice directly addressed the specific question of whether a puniti ve damage claim in a class action suit may be aggregated for jurisdictional pu rposes. In sum, in October 1996, when defendants in the ins tant case removed this action to federal court, they possessed legitimate grounds upon which to believe punitive damage claims could be aggregated in a cla ss action suit in order to satisfy the amount in controversy requirement. We consequently agree with the district court that based on the law existing at th at time, defendants possessed “objectively reasonable grounds to believe the remo val was legally proper.” Aplt. App. at 347. Given the uncertain state of the law on aggregation of punitive-17-

damages when defendants removed this action, we can not say the district court abused its discretion in declining to award fees to the Martins.
We AFFIRM the judgment of the district court.