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United States: Amend A Complaint To Add A Few Billion Dollars And A Few Thousand Plaintiffs And, Voila!, A Defendant's Right To Remove Is Revived (Say That Last Part Five Times Fast)
A district court in New York retained jurisdiction over an
action, finding that when an amended complaint alters the very
nature of a suit and virtually makes it a "new action,"
the defendant's right to remove is "revived."
The plaintiffs in this action, MG Building Materials, Ltd. and
Excellence Mortgage, Ltd., originally filed suit against the
defendant, Paychex Inc., in a Texas state court, asserting breach
of contract and other claims arising out of a payroll
administration contract between the parties. It was undisputed that
diversity jurisdiction existed at the time the plaintiffs filed the
petition, as both of the plaintiffs were citizens of Texas, the
defendant was a citizen of New York, and the petition indicated
that the plaintiffs' damages were in excess of $150,000.
Instead of filing a notice of removal, however, Paychex filed a
motion to abate and to compel arbitration. The state court denied
the motion and directed that the plaintiffs be allowed to conduct
discovery as to whether the arbitration provision was
unconscionable.
After some discovery, the plaintiffs filed an amended petition,
asserting additional claims of fraud and breach of fiduciary duty.
Again, Paychex did not remove the action. The plaintiffs then filed
a third amended petition, asserting class claims on behalf of
"all major market services clients" for Paychex's
"Taxpay Services" at any time since 2004.
Enough was enough. Paychex timely filed a motion to remove after
the third amended petition, and the plaintiffs filed a motion to
remand.
After a thorough review, the court held that, although Paychex
had lost its right to remove when it did not file a notice of
removal within thirty days of receipt of the original petition,
that right was "revived" once the plaintiffs filed their
third amended petition which alleged an "essentially new
lawsuit." The court noted that the third amended petition
"transformed [the case] from a two-plaintiff case involving
less than $170,000 in damages, to a class action involving many
thousands of putative class members, and billions of dollars in
damages." This significant change afforded Paychex a new
opportunity to remove, which it had timely done.
The court was not persuaded by the plaintiffs' argument
that, since this case was originally removable and the third
amended petition had not set forth a new basis for removal, Paychex
had permanently lost its right to remove. The court noted that a
considerable, long standing body of case law holds that an
amendment that substantially changes the character of a lawsuit can
give rise to a new right to remove, irrespective of whether the
legal basis for removal was the same as that alleged in the
original petition. The court further noted that the relevant
inquiry was not whether the most recent petition had substantially
changed the petition immediately preceding it, but whether the
litigation had substantially changed as a whole.
Here, the action began as a lawsuit by two plaintiffs who
alleged that Paychex's failure to make timely and adequate tax
payments on their behalf had caused them to incur some $162,000 in
penalties. But by the third amended petition, it had morphed into a
class action involving potentially thousands of class members
across the country, and the damage claims had grown to a whopping
$15 billion, an increase of over nine million percent.
Finally, the court dismissed the plaintiffs' argument that
Paychex had waived its right to remove by seeking to compel
arbitration in state court, noting that Paychex had moved to compel
arbitration before the plaintiffs had filed their third amended
petition. The court noted that "even if the motion to compel
arbitration could be interpreted as a sign of Paychex's
'willingness ... to remain in' state court, then, that
should not bar Paychex from later seeking removal based upon an
amended pleading that so substantially changed the character of
this action as to render [it] an effectively new lawsuit."
Accordingly, the Court denied the plaintiffs' motion to
remand and retained jurisdiction under CAFA.
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