Schwartz Foundation v. Schwartz

Background

On November 22, 2023, attorney Donald Charles Schwartz filed a federal RICO action on behalf of himself and the other plaintiffs. At the same time, the plaintiffs purported to file a notice of removal seeking to bring two separate state-court actions into that federal case. The two actions had originally been filed in Santa Cruz County Superior Court.

The court explained that federal law permits a defendant to remove a state-court action to federal court when the federal court has original jurisdiction. The removing party bears the burden of establishing federal jurisdiction, and federal courts must independently examine whether jurisdiction exists.

Reasons for Remand

The court identified five independent problems with the attempted removal:

1. A plaintiff cannot remove: Only defendants may remove a state-court action. The court found that the plaintiff in one of the state cases could not remove that action. The court noted that Schwartz Foundation, represented by counsel, could potentially attempt removal of that action, but the attempted removal did not comply with that requirement.

2. The cases could not be removed into an existing federal case: A removed action must be separately initiated with a notice of removal and a completed civil cover sheet. If a party believes the action is related to another federal case, the party may file a notice of related case; it may not simply place the state case into the existing federal action.

3. The state cases were not officially consolidated: Although the removal notice stated that the two state cases were consolidated, the plaintiffs later acknowledged that the Santa Cruz County Superior Court had not officially consolidated them. Each case therefore had to be removed separately and in compliance with federal removal requirements.

4. The removal was untimely: Federal law generally gives a defendant 30 days after receiving or being served with the initial pleading or summons to remove. The court found the attempted removal facially untimely because defendants had appeared in the state cases in 2021.

5. Federal-question jurisdiction was absent: The plaintiffs relied on federal-question jurisdiction. Under the well-pleaded complaint rule, a case generally presents a federal question only when a federal claim appears on the face of the plaintiff's properly pleaded complaint. The court found that one state case sought appointment of board members and that the other sought relief under California Corporations Code section 709, including declaratory and injunctive relief. The court found that neither pleading stated a federal claim. Allegations of criminal activity and the possibility of a federal defense also did not establish federal-question jurisdiction.

Disposition

The court REMANDED both state-court actions to Santa Cruz County Superior Court. The federal case was ordered to proceed only on the RICO complaint. Judge Jacqueline Scott Corley signed the order.