John Doe I v. Cerebral, Inc.

Background

John Doe I and John Doe II brought a proposed class action against Cerebral, Inc. in San Francisco Superior Court. They alleged that Cerebral, described as a telehealth company, disclosed their personal medical information to Meta Platforms, Inc. without their knowledge. Their claims arose under the unlawful, unfair, and fraudulent prongs of California’s Unfair Competition Law.

Cerebral removed the case to federal court under the Class Action Fairness Act, or CAFA. The plaintiffs moved to remand the case to state court and requested attorney’s fees for the removal.

Minimum Diversity

CAFA permits removal of a qualifying class action when, among other requirements, at least one plaintiff is a citizen of a different state from at least one defendant. A corporation is generally a citizen of its state of incorporation and the state of its principal place of business. The principal place of business is the corporation’s “nerve center,” meaning the place where its high-level officers direct, control, and coordinate its activities.

The plaintiffs argued that Cerebral could not satisfy CAFA’s minimum-diversity requirement because Cerebral was a citizen of California. Cerebral argued that it was a citizen of Delaware and Massachusetts, asserting that its principal place of business was in Massachusetts.

The court found that Cerebral had represented in at least two earlier lawsuits, including in a sworn declaration, that its principal place of business was in California. In this case, Cerebral instead relied on a declaration from its chief executive officer stating that he had directed the company from his residence in Massachusetts since May 2022.

The court rejected Cerebral’s explanation that its earlier position had changed because it updated addresses on Secretary of State forms. The court found that both the California and Delaware addresses were mail drops, not headquarters or locations from which Cerebral’s executives directed and controlled the company. The court also noted that Cerebral’s counsel acknowledged that California had never been the company’s principal place of business.

The court applied judicial estoppel, an equitable doctrine that may prevent a party from taking a position that conflicts with an earlier position accepted by a court when allowing the change would create an unfair advantage or threaten the integrity of the judicial process. The court found all three relevant factors satisfied: Cerebral’s positions were clearly inconsistent, a prior federal court had implicitly accepted its earlier citizenship representation when denying a motion to remand, and allowing the new position would permit unfair forum selection.

The court therefore estopped Cerebral from arguing that its principal place of business was not in California. It concluded that minimum diversity was lacking and that the court lacked subject-matter jurisdiction.

Attorney’s Fees

The plaintiffs also sought attorney’s fees under 28 U.S.C. § 1447(c), which allows a court to award costs and actual expenses resulting from removal in appropriate circumstances. The court explained that fees ordinarily are available only when the removing party lacked an objectively reasonable basis for removal.

The court denied the fee request. It found that removal was not objectively unreasonable because judicial estoppel is discretionary, the governing law did not provide a sufficiently clear general rule, and the plaintiffs had identified no factually similar case. The court also noted that, if judicial estoppel had not applied, Cerebral might have been able to establish that its nerve center was in Massachusetts.

Disposition

The court granted the plaintiffs’ motion to remand, denied their request for attorney’s fees, and remanded the case to San Francisco Superior Court.