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Washington-The Supreme Court last week wrestled with a basic bread-and-butter issue for lawyers-whether to award attorney fees under federal law when a federal court sends a removed case back to state court. While neither a burning constitutional challenge nor a major statutory interpretation issue, the question of the proper standard for awarding fees in these situations has arisen somewhat frequently in litigation: There have been about 200 reported cases in the last two decades, by some accounts. And the federal circuits in those cases have split on what approach to take. The justices heard arguments on Nov. 8 in Martin v. Franklin Capital Corp., No. 04-1140, which stems from a class action initially filed in New Mexico state court, alleging illegalities in automobile financing and insurance contracts. The defendant insurance companies removed the case to federal court. The parties litigated the correctness of the removal up to the 10th U.S. Circuit Court of Appeals, which finally ordered a remand to state court. The plaintiffs’ counsel then sought attorney fees for filing and defending the remand motion under 28 U.S.C. 1447(c). That statute says that a remand order “may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal.” The 10th Circuit, affirming the district court’s denial of fees, held that at the time of the removal, the defendants had “objectively reasonable grounds” to believe the removal was proper. Looking to 1968 In the high court last week, Samuel Heldman, counsel for plaintiffs Gerald T. and Juana M. Martin, urged the justices to follow a 1968 precedent involving an earlier version of Section 1447. Under Newman v. Piggie Park Enterprises, 390 U.S. 400, there is a presumption in favor of a fee award, and the fact that a defendant had reasonable grounds for the removal is not a basis for denying an award. “Incorrect removals have detrimental effects both private and systemic,” said Heldman of Washington’s Gardner Middlebrooks, adding that the text of the statute and larger equitable factors make fee awards the norm. Piggie Park‘s bright-line rule, he argued, would reduce the burden on plaintiffs of the expense in fighting incorrect removals. It would also encourage defendants to make correct removals or to reserve removals for truly close, high-stakes cases, and would reduce satellite litigation, he argued further. “If the argument is ‘may’ means ‘shall,’ it’s an odd choice of words for Congress to make,” noted Chief Justice John Roberts. But Heldman countered that fee awards would not be required in all cases. For example, he said, cases remanded sua sponte by a court or where a plaintiff had misstated residence would not be eligible for fees. However, Justice Ruth Bader Ginsburg noted that the omnibus reform act that Section 1447 is a part of also contains two important “removal-friendly” provisions. Heldman’s argument appeared to run counter to that approach, she suggested. Heldman said that “every incorrect removal harms plaintiffs quite a bit.” The bright-line rule, he argued, best serves public ends, including federalism concerns. But that approach is a “substantial penalty on respondents for what is the reasonable exercise of their statutory right,” argued Jan T. Chilton of San Francisco’s Severson & Werson, counsel to Franklin Capital and Century-National Insurance Co. His opponent’s approach treats Section 1447 as a fee-shifting statute, which it is not, said Chilton. He urged the justices to interpret the section as allowing a fee award only when such fees would be allowed by other rules or laws, such as Rule 11 of the Federal Rules of Civil Procedure. “Rule 11 deals with frivolous actions. Here we are talking about ‘just costs,’ ” said Justice Sandra Day O’Connor. “ That is a different standard.” If the court construes the statute as a fee-shifting one, Chilton replied, “Then the standard should be a multifactor test, but the primary factor is whether the ground for removal was reasonable. Under that standard, we win.” In rebuttal, Heldman said: “Their proposal says no award of fees if there is an objective reasonable ground for removal. That tilts [the law] one way. Does the federal law encourage creative, aggressive advocacy of removals? It does not.”

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