Yee v. ClubCorp Holdings, Inc.

Background

The order concerns two related actions against ClubCorp Holdings, Inc. and affiliated subsidiaries. The first was brought by Betty T. Yee, Controller of the State of California, on behalf of the People of California under California’s Unclaimed Property Law. The second was brought by the People of the State of California under California’s Unfair Competition Law and California’s False Claims Act. The court stated that both actions involved identical defendants and the same allegations arising from the same underlying facts.

The plaintiffs alleged that ClubCorp’s membership agreements required membership and initiation deposits to be refunded after 30 years, but that ClubCorp had not refunded them. They alleged that ClubCorp had collected and owed millions of dollars in such deposits. In the first action, the Controller sought an injunction requiring ClubCorp to permit an examination of its books and records, a judicial determination of the amount of unclaimed property that had not been transferred to the state, and an injunction requiring ClubCorp to deliver that property to the Controller. The claims in the second action were based on the alleged violations of the Unclaimed Property Law.

The plaintiffs originally filed both actions in the Superior Court of California for the City and County of San Francisco. ClubCorp removed both cases to federal court based on federal-question jurisdiction, arguing that the state-law claims necessarily depended on substantial questions of federal common law concerning states’ authority to claim abandoned intangible property. The plaintiffs moved to remand, meaning to return the cases to state court, and also requested attorney’s fees and costs.

Federal-question jurisdiction

Federal-question jurisdiction generally exists when federal law creates the claim or when a state-law claim necessarily raises a substantial, disputed federal issue that can be decided in federal court without upsetting the balance between federal and state responsibilities. The court explained that a federal issue appearing only as a defense ordinarily does not support federal-question jurisdiction.

The court rejected ClubCorp’s argument that the plaintiffs first had to plead and prove their authority to claim the property under federal common law before proceeding under California’s Unclaimed Property Law. The court stated that Supreme Court decisions establish priority rules for competing states seeking to claim abandoned intangible property, but have not created an additional pleading step or made every state escheatment case removable to federal court.

The court also held that the possible dispute over whether owner addresses must be determined solely from ClubCorp’s records was not substantial enough to support removal. The court stated that any conflict between federal common law and California’s law would provide ClubCorp with a defense, not federal-question jurisdiction, because federal law did not completely replace the state law at issue.

The court further concluded that the other federal common-law issues raised by ClubCorp were not sufficiently disputed or substantial and that allowing removal would disrupt the balance between federal and state courts by bringing many state-based escheatment claims into federal court. The court distinguished a cited decision involving a claim that directly arose under federal common law and implicated the rights of multiple states. Here, the plaintiffs’ claims arose under California law, concerned California property, and involved federal common law only as a possible defense.

Audit argument

ClubCorp also argued that the Controller’s proposed audit exceeded the limits established by federal common law. The court found that the cited Supreme Court decisions did not prevent a state from conducting an audit to determine the debtor-creditor relationship or the amount owed. If the audit went beyond a legitimate inquiry, ClubCorp could raise that issue as a defense in state court. The court held that this argument likewise did not establish federal-question jurisdiction.

Disposition

The court held that ClubCorp had not met its burden to establish federal jurisdiction. It therefore granted the plaintiffs’ motions to remand. It denied the plaintiffs’ motions for attorney’s fees and costs because they had not met their burden to show entitlement to those amounts.

Judge William Alsup directed the clerk to remand the two civil actions to the Superior Court of California for the City and County of San Francisco and close the federal cases.