Chalk up a victory for JPMorgan Chase & Co. now that a federal appeals court has ruled that the bank never should have been ordered to pay more than $17,000 in attorney fees as a punishment for improperly removing a state court suit to federal court.
Voting 2-1, the 3rd U.S. Circuit Court of Appeals ruled that since JPMorgan's legal position in seeking the removal was "objectively reasonable," the lower court abused its discretion in awarding fees.
Third Circuit Judge Dolores K. Sloviter found that the lower court erred by failing to recognize that it had the power to "realign" the parties so that the case could qualify for federal diversity jurisdiction.
"We cannot fault JPMorgan for its effort to realign the defendants," Sloviter wrote in an opinion joined by 3rd Circuit Judge Jane R. Roth.
But in dissent, visiting 9th Circuit Judge A. Wallace Tashima said he would have upheld the fee award against JPMorgan because he believed the lower court was correct in rejecting both of JPMorgan's arguments for justifying the improper removal.
The dispute in First American Title Insurance Corp. v. JPMorgan Chase & Co. stemmed from an alleged failure to record a mortgage on a property that was later used as security for two more loans and then foreclosed on.
First American, the title insurer, filed suit in Pennsylvania state court against JPMorgan, the trustee for a securitized trust, and Ideal Settlement Services, the settlement agent, seeking a declaratory judgment that it owed no coverage to JPMorgan.
Lawyers for JPMorgan removed the suit from the Washington County Court of Common Pleas to the U.S. District Court for the Western District of Pennsylvania.
But First American responded by seeking remand to state court and demanding attorney fees.
U.S. District Judge Nora B. Fisher sided with First American and remanded the case, ordering JPMorgan to pay nearly $8,500 in attorney fees.
JPMorgan urged Fisher to reconsider, arguing that the suit would qualify for federal diversity jurisdiction if Ideal Settlement Services were removed from the case on the grounds that it had been fraudulently joined for the purpose of defeating diversity, or if Ideal were realigned as a co-plaintiff with First American.
Fisher again rejected JPMorgan's arguments and stiffened the penalty by adding nearly $9,000 in additional fees to the award.
Now the 3rd Circuit has ruled that the fee award must be overturned because JPMorgan's legal position was a reasonable one.
"We have held that courts can realign such insurers -- even those whose interests are potentially or actually adverse as to coverage -- to be on the same side of a lawsuit for the purpose of finding or defeating diversity jurisdiction on the basis that they share a common interest in avoiding liability to the insured," Sloviter wrote.
Sloviter said the 3rd Circuit would not revisit the issue of whether the case was properly removed -- since remands to state court are not appealable -- and that the issues on appeal were therefore limited to whether the fee awards were proper.
On that point, Sloviter found that Fisher had abused her discretion because JPMorgan's legal positions could not be labeled "objectively unreasonable." The ruling is a victory for attorney Jonathan J. Bart of Wilentz Goldman & Spitzer in Philadelphia.
In dissent, Tashima said he would have upheld Fisher's rulings because he believes that JPMorgan had no valid basis for arguing either for realignment or for a dismissal of Ideal on fraudulent joinder grounds.
Tashima noted that Fisher, in rejecting the fraudulent joinder argument, cited plaintiff First American's request for declaratory relief against both JPMorgan and Ideal.
Similarly, Tashima said, JPMorgan could not show that the suit qualified for realignment of the parties because Fisher properly held there was an "actual controversy" between First American and Ideal.
First American's lawyer, Jeffrey P. Brahan of Blumling & Gusky in Pittsburgh, could not be reached for comment.