Thank you for sharing!

Your article was successfully shared with the contacts you provided.
One might think that a tobacco company would steer as clear as possible from the federal government. The U.S. Justice Department brought a Racketeer Influenced and Corrupt Organizations Act action against the industry seeking $280 billion. Although the industry is in the driver’s seat in that action (see U.S. v. Philip Morris USA Inc., 396 F.3d 1190 (D.C. Cir.), cert. denied, 126 S. Ct. 478 (2005) (rejecting government’s claim that disgorgement is a proper RICO remedy)), it is somewhat ironic that it would seek to remove a state court consumer fraud class action to federal court on the theory that it is a federal agent under 28 U.S.C. 1442(a)(1), the so-called federal officer removal statute. Yet that is precisely what Philip Morris did. Why would a private company want to label itself a federal agent? Well, as the readers of this column well know, corporate defendants generally want to avoid state courts, specifically consumer state court class actions. Before the Class Action Fairness Act was enacted in 2005, plaintiff’s had the upper hand in keeping such cases in state court, by naming local defendants to destroy complete diversity under 28 U.S.C. 1332(a). Since CAFA was enacted, corporate defendants have gained the forum-selection advantage. Under CAFA, only minimal diversity is required, and CAFA has resulted in an influx of consumer class actions to federal court. Nonetheless, there are some who believe that CAFA may not serve as the death knell of consumer class actions. See Edward F. Sherman, “Decline & Fall,” A.B.A. J. (June 2007) (federal courts are the “only game in town” for multistate class actions, but forum shopping has not come to an end). Pre- and post-CAFA: Why the need for removal? Before CAFA was enacted, because plaintiffs could defeat federal subject-matter jurisdiction over state-claim-based class actions by naming nondiverse parties, defendants looked to alternative removal strategies. And, as we have seen, even with CAFA, defendants are not ensured of a federal forum. Third, not all cases filed in state court are class actions. So, CAFA is irrelevant. Therefore, there was good reason why the U.S. Supreme Court looked at the issue of official removal by private defendants post-CAFA. Here’s the theory. Industry is regulated in some manner, shape or form, by the federal government. An industry member becomes a delegate of the federal government, entitled to remove under 28 U.S.C. 1442(a)(1). Let’s see how Philip Morris used this argument successfully in the 8th U.S. Circuit Court of Appeal, but not in the Supreme Court. Watson v. Philip Morris Cos., 2007 U.S. Lexis 7514 (U.S. June 11, 2007). Plaintiffs filed a state-court suit claiming that Philip Morris violated Arkansas unfair business practice laws by manipulating testing results to register lower levels of tar and nicotine in the advertised cigarettes and advertising those cigarettes as “lighter” than in those actually sold to consumers. Philip Morris removed the case to federal court under 28 U.S.C. 1442(a)(1), the federal-officer removal statute. The statute provides for removal of an action against “any officer (or any person acting under that officer) of the United States or of any agency thereof.” The district court and the 8th Circuit refused to remand the case, finding that the complaint attacked Philip Morris’ use of the government’s method of testing cigarettes such that Philip Morris was “acting under” the Federal Trade Commission. The 8th Circuit emphasized the FTC’s detailed supervision of the cigarette-testing process. Philip Morris’ argument could open the door to federalization of almost any case involving highly regulated industries. This may not make most federal district judges, already somewhat unhappy about CAFA, very happy. So, not surprisingly, the Supreme Court reversed, holding that even when a federal agency directs, supervises and monitors a company’s activities in considerable detail, that company does not fall within the scope of � 1442(a)(1), and, therefore, removal is not proper. The court began by noting that the statute’s words “acting under” are broad, and that the statute itself should be construed liberally. However, even a liberal construction of the statute can find limits in the text’s language, context, history and purposes. The basic purpose of the removal statute is to protect the federal government from interference from state-court proceedings that may be affected by local prejudice against unpopular federal laws or officials. The removal statute allows federal officials a federal forum to raise official immunity defenses. Justice Stephen G. Breyer, writing for a unanimous court, then turned to the dictionary: “Under” refers to what the dictionaries describe as a relationship involving acting in a certain capacity, considered in relation to one holding a superior position or office, and typically includes subjection, guidance or control. In other words, the private person’s “acting under” must involve an effort to assist or help a federal official carry out the federal official’s duties or tasks. A private party does not act under a federal official when it is simply complying with the law or regulatory order. Even if the regulation is highly detailed and even if the private firm’s activities are highly supervised and monitored, buying Philip Morris’ argument would expand intolerably the statute’s scope. The court rejected Philip Morris’ argument that it is “acting under” FTC officers when it conducts cigarette testing because the FTC “delegated” the authority for such testing to the tobacco industry in 1987. The problem with this argument is that there was no evidence of any delegation of legal authority from the FTC to the tobacco industry. Although the industry was doing the testing, there was nothing to show that the detailed FTC rules indicated anything other than regulation, and not delegation. In a case decided while Watson was pending in the Supreme Court, the 2d Circuit shows why federal-officer removal remains an important issue, apart from CAFA. It involves a regulated industry, and it is not a class action case. In In re Methyl Tertiary Butyl Ether (“MTBE”) Prods. Lia. Litig., 2007 U.S. App. Lexis 12114 (2d Cir. May 24, 2007), California and New Hampshire sued the manufacturers of MTBE, a gasoline additive that is intended to reduce pollution in the air, but that resulted in groundwater contamination, in state court. The cases were removed by the defendants under the federal-officer removal statute, and consolidated in a New York federal court. The district court declined to remand. The issue litigated before the district court was whether the 11th Amendment barred removal of actions brought in state court by states as plaintiffs. It did not address the propriety of the defendant’s use of the officer-removal statute. The 2d Circuit did, and it rejected the defendants’ reliance on Watson, which was then pending in the Supreme Court. The 2d Circuit distinguished the case before it as a less compelling case for removal because the defendants before it were not as heavily regulated as the tobacco industry. Additionally, the 2d Circuit explored the standards for determining when a private party is acting under a federal official. The district judge had begun her analysis with three observations: First, the defendants alleged in their notices of removal that “the Clean Air Act, and regulations promulgated thereunder, require them to blend oxygenates into gasoline.” Second, “defendants allege that at the time the Clean Air Act was amended and the seven oxygenates were approved for use, both Congress and the EPA were aware that defendants would have to use MTBE in order to comply with the Act’s requirements.” Third, “[a]lthough the EPA has identified seven additives that may be used to meet these requirements, MTBE is the only approved oxygenate that is available in quantities sufficient to comply with the Act and regulations.” Accordingly, the district judge concluded, “defendants have sufficiently alleged that they added MTBE to gasoline at the direction of the EPA, a federal agency.” The 2d Circuit disagreed, finding that there was no explicit directive in either the Clean Air Act or its implementing regulations. Removal, under the statute, therefore was improper. However, the 2d Circuit noted that removal would have been proper if the defendants had been compelled to use a particular additive, i.e., MTBE. That would demonstrate that the defendants were acting pursuant to the direct orders of a federal agency. How will opinion fare under a ‘Watson’ analysis? What remains to be seen now is how the 2d Circuit’s opinion would fare when analyzed through the prism of Watson. It is quite certain that the 2d Circuit’s refusal to allow removal under the federal-officer statute would be affirmed, but on different and important grounds. The 2d Circuit stated that had the government compelled the defendants to use MTBE, removal might have been permitted. Under the Supreme Court’s analysis, the proper distinction would be to determine whether the government is regulating or not. Compelling an industry to engage in a particular act strikes me as regulation, and not delegation or direction of the sort that would justify removal. Such compulsion would not suffice to show that the industry was assisting a federal officer or agency. Simply because the defendants would have a defense � the feds made me do it � to state-court claims, such a defense does not rise to the type of federal immunity that the Supreme Court said federal officials ought to be allowed to present in federal court. On the other hand, it is possible that by telling an industry to use a particular product to help the environment, it is assisting government in protecting the environment. Georgene M. Vairo is a professor of law and William M. Rains Fellow at Loyola Law School, Los Angeles. She can be reached by e-mail at [email protected]. She is on the board of editors of Moore’s Federal Practice, and writes the Moore’s chapters on removal and venue problems.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.