A recent Law.com story by Riley Brennan, “3rd Circ. Clarifies When District Courts Can Award Attorney Fees on Remand”, reports that, in a precedential decision, the U.S. Court of Appeals for the Third Circuit concluded that district courts lack the authority to award attorney fees under 28 U.S.C. Section 1447(c) when a case has been properly removed from state court but subsequently remanded based on a forum-selection clause. In an opinion, authored by Third Circuit Judge David J. Porter, the court vacated a district court’s awarding of attorney fees to the Medical Associates of Erie, concluding that, because a forum-selection clause isn’t a removal defect and doesn’t deprive the district court of subject matter jurisdiction, the court can’t remand and award attorney fees under 28 U.S.C. Section 1447(c).
The Medical Associates of Erie (MAE) and Michael B. Zaycosky originally entered into an employment contract but couldn’t agree on when Zaycosky promised to start his employment, leading MAE to sue Zaycosky in the state court, as prescribed in the contract between the two parties. However, Zaycosky removed the suit to federal court, leading MAE to move for remand to enforce the contract’s forum-selection clause and for an award of attorney fees. The district court had remanded and granted MAE 30 days to petition for costs and fees, with MAE timely submitting a petition for $29,517.25.
Zaycosky opposed the petition, arguing the district court “lacked authority under 28 U.S.C. § 1447(c) to award costs and attorney fees for a remand based on a forum-selection clause, and, alternatively, that a fee award was not warranted because he had an objectively reasonable basis for removal.” The district court rejected Zaycosky’s arguments and awarded MAE its requested amount.
On appeal, the Third Circuit looked to answer whether courts can award attorney’s fees against the “American Rule,” which holds that court’s presume “[e]ach litigant pays his own attorney’s fees, win or lose, unless a statute or contract provides otherwise.” “Courts may award fees when Congress provides ‘a sufficiently ‘specific and explicit’ indication of its intent to overcome the American Rue’s presumption against fee shifting,’” the court said, determining the question on appeal was whether “§ 1447(c) specifically and explicitly indicates Congress’s intent to allow fee shifting when courts enforce a forum-selection clause.”
Ultimately, the court agreed with Zaycosky’s argument that “§ 1447(c) allows fee shifting only for remands where removal failed to meet the statutory requirements or where the court lacks subject matter jurisdiction over the removed case.”
According to the court, Section 1447(c) limits a plaintiff’s ability to challenge the removal of a case and limits a district court’s authority to remedy abuses of the removal procedure. Further, while plaintiffs “may move for remand at any time if the district court lacks subject matter jurisdiction,” “they must challenge removal defects within thirty days after the filing of the notice to remove.”
“Courts, meanwhile, may issue ‘[a]n order remanding’ and ‘may require payment of the just costs and any actual expenses, including attorney fees, incurred as a result of the removal,’” noted Porter. And as a result of the Supreme Court maintaining that “the distinction between ‘properly removed’ cases and cases ‘failing in subject-matter jurisdiction,” since Congress amended § 1447 in 1996, the court reads § 1447(c) as authorizing “courts to shift fees when remanding cases removed without subject matter jurisdiction and cases defectively removed.”
The court further examined whether an order remanding to enforce a forum-selection clause authorizes courts to shift fees, holding that “a remand pursuant to a forum selection clause does not fall within the reasons for remand listed in § 1447(c),” per the court’s 2015 decision in Carlyle Investment Management v. Moonmouth.
The court applied the Supreme Court’s holding that a “forum-selection clause has no bearing” regarding whether a case meets the statutory requirements of venue, to the case, ultimately determining that the district court “had subject matter jurisdiction under § 1332, so it may not remand and award fees under § 1447(c) for a failure of subject matter jurisdiction.” Further, Mae didn’t identify a defect in the removal, with MAE failing to argue before the district court that Zaycosky failed to satisfy the statutory requirements of removal, arguing instead “that the forum-selection clause was the single obstacle to removal.”
According to the court, “an enforceable forum-selection clause is not a removal defect,” with Zaycosky having “had a statutory right to remove, and he did so according to the statutory requirements, so his removal was proper.” Therefore, the district court could not award fees under § 1447(c) based on a defective removal. However, the inability to award fees under the statute didn’t foreclose the power to remand, as Section 1447(c) doesn’t occupy the filed for permissible remands.
Per the court’s 1991 ruling in Foster v. Chesapeake Insurance, “a forum-selection clause an be ‘a proper, non-statutory ground for remand.’” Since the Third Circuit’s Foster ruling, the Supreme Court has declared that the appropriate way to enforce a forum-selection clause pointing to a state forum is through the doctrine of forum non conveniens, of which the “traditional remedy” of outright dismissal. However, according to the court, it doesn’t eliminate remand as an available remedy for removed cases.
“Nor is Section 1447(c) the only deterrent against abusing removal. Rule 11 requires attorneys and unrepresented litigants to certify that every pleading, written motion, or other paper presented to the court is not presented ‘for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation,’” said the court.
“We presume each litigant bears its own fees and costs, and we do not see a specific and explicit indication of Congress’s intent to displace that presumption for remands not specified in § 1447(c),” concluded the court, vacating the fee award. “A remand to enforce a forum selection clause is not a remand specified in § 1447(c). Accordingly, we hold that the District Court lacked the authority to award attorney fees under § 1447(c) when Zaycosky properly removed a case within the District Court’s subject matter jurisdiction.”