Capital2Market Consulting, LLC v. Camston Wrather, LLC

Background

Capital2Market Consulting brought a state-court contract action against Camston Wrather, alleging that Camston Wrather failed to pay $600,000. Camston Wrather removed the case to federal court based on diversity jurisdiction, which allows a federal court to hear certain disputes between citizens of different states. For a limited liability company, citizenship is determined by the citizenship of all its members.

In its removal papers, Camston Wrather represented that it had two members, Dirk Wray and Aaron Kamenash, and that it was a citizen of California and Nevada. Capital2Market questioned whether Camston Wrather had additional members, including CW Partners Carlsbad, LLC, and pointed out that Capital2Market had Delaware citizenship through its owner, C2M Holding Inc. Camston Wrather initially denied having undisclosed members and maintained that there were no grounds for remand.

After the court ordered Camston Wrather to provide more information, the company disclosed that it had 77 members with various citizenships, including Delaware citizenship. It also disclosed that CW Partners Carlsbad, LLC was one of its members, despite previously denying that fact. The court concluded that complete diversity was absent, remanded the action to state court, and ordered Camston Wrather to explain why sanctions should not be imposed for its repeated misrepresentations.

Attorney’s-fee standard

Under 28 U.S.C. § 1447(c), a federal court may require the removing party to pay costs and actual expenses, including attorney’s fees, caused by the removal. The court explained that fees ordinarily may be awarded when the removing party lacked an objectively reasonable basis for removal. Bad faith is not required.

The court had already found that Camston Wrather lacked an objectively reasonable basis for removing the case. It determined that the issue involved basic facts about Camston Wrather’s own corporate structure, rather than an unclear legal question or an uncertain fact. The court cited the company’s internal capitalization table, its filing with the California Secretary of State stating that it was formed in Delaware, and publicly available state records. The court also found that Camston Wrather and its counsel compounded their lack of diligence by obscuring and deflecting instead of acknowledging the misrepresentations.

Fee calculation

Capital2Market submitted time records for attorneys Richard J.J. Scarola and Alexander Zubatov. Their rates were $765 and $495 per hour, respectively. The court found those rates reasonable, and Camston Wrather did not object to them.

For work concerning removal, Scarola and Zubatov recorded 49.2 and 46.1 hours. The court found those hours reasonable and awarded $60,457.50: $37,638 for Scarola’s work and $22,819.50 for Zubatov’s work.

For work concerning sanctions, Scarola and Zubatov initially recorded 9.9 and 13 hours. The court found the work generally reasonable but removed one hour from Scarola’s time and 5.1 hours from Zubatov’s time because certain entries were outside the scope of the sanctions order or appeared duplicative. The court awarded $10,719 for this work.

The court rejected Camston Wrather’s argument that no fees should be awarded because Capital2Market had an alternative fee arrangement with its attorneys. It concluded that such an arrangement did not prevent a fee award and that compensating work caused by Camston Wrather’s baseless removal would not be an improper windfall.

Ruling

The court ordered Camston Wrather to pay Capital2Market $71,176.50 in attorney’s fees within 20 days. The amount consisted of $60,457.50 for removal-related work and $10,719 for sanctions-related work. The court denied Capital2Market’s request to submit additional documentation, while noting that Capital2Market could raise its concerns in state court or before appropriate ethical bodies. The clerk was directed to close the federal case, terminate pending motions, and transmit the remand order to the New York state court.