Cowan v. Lifelong Medical Care

Background

LifeLong Medical Care experienced a data breach that exposed confidential patient information. Herman Cowan and Mary Scott brought state-law claims against LifeLong in California state court, alleging that it failed to take proper precautions to prevent data breaches. They sought to represent a class of California residents whose confidential information was exposed.

LifeLong filed a cross-complaint against Netgain Technology, a Minnesota-based data vendor with which LifeLong had a computer-services contract. The cross-complaint alleged that Netgain was ultimately responsible for damages arising from the breach. LifeLong then removed the case to federal court, asserting that the Class Action Fairness Act (CAFA) supplied federal jurisdiction because Netgain was a Delaware corporation based in Minnesota and therefore created the required minimal diversity.

Federal jurisdiction and remand

CAFA generally gives federal courts jurisdiction over certain class actions involving at least 100 class members, more than $5 million in controversy, and minimal diversity—meaning that at least one class member is a citizen of a different state from at least one defendant. The issue was whether minimal diversity could be based only on a diverse third-party defendant added through a cross-complaint.

The court relied on the Supreme Court’s decision in Home Depot U.S.A., Inc. v. Jackson. That decision held that a third-party defendant brought into a case through a counterclaim could not remove the case under CAFA because the third-party defendant did not qualify as a “defendant” for the relevant removal provisions. The court reasoned that the same logic applied more strongly here: Cowan and Scott could not have brought their original case in federal court, and LifeLong’s later cross-complaint against a diverse third party could not create federal jurisdiction.

The court also rejected LifeLong’s argument that Cowan and Scott had deliberately structured their complaint to avoid federal jurisdiction by not suing Netgain. The court explained that the statutory language LifeLong relied on concerns a discretionary exception allowing remand in some cases that already satisfy CAFA’s requirements; it does not allow a court to exercise jurisdiction when jurisdiction otherwise does not exist. The court also stated that LifeLong had not adequately alleged that the plaintiffs engineered their complaint to avoid federal jurisdiction.

Rulings

The court granted the plaintiffs’ motion to remand. The Clerk of Court was directed to remand the matter to the Alameda County Superior Court.

The court denied the plaintiffs’ motion for attorney’s fees under 28 U.S.C. § 1447(c). That statute allows a remand order to require payment of costs and expenses caused by removal, but the court cited the rule that fees generally require the removing party to have lacked an objectively reasonable basis for removal. The opinion says that LifeLong’s arguments “may be strained” but also says they “do count as ‘objectively unreasonable,’” before concluding that the motion for fees was denied. The opinion does not explain this apparent inconsistency.