Plaintiffs Can Go Forum Shopping After All

• Posted on: Jul 24 2017

Earlier this month, Judge Richard J. Sullivan of the Southern District of New York dismissed a federal claim at the plaintiffs’ request, despite the defendants’ argument that the plaintiffs were “clearly and intentionally attempting to engage in forum manipulation.”

In Nix v. Office of The Commissioner of Baseball, D/B/A Major League Baseball, Judge Sullivan found that while the plaintiffs’ “manifest purpose” was “to defeat federal jurisdiction” it was not the only factor to consider in determining whether to permit withdrawal of the federal claim and remand the remaining claims to state court. Instead, there are many factors to consider – namely, judicial economy, convenience, fairness, and comity.

Background

The Long and Winding Road Between State Court and Federal Court

The case involved allegations that former major league baseball player Neiman Nix (“Nix”) ran a fake player development academy and later a sports science testing facility through which he and the other plaintiff, DNA Lab, sold performance-enhancing drugs to players that had been banned by the MLB.

In February 2014, the plaintiffs filed a claim in Florida state court seeking relief against the defendants. However, the plaintiffs missed several initial case management conferences and failed to perfect service of their amended complaint, resulting in the dismissal of the action for failure to prosecute. Although the plaintiffs appealed that decision, they voluntarily withdrew the appeal on April 24, 2015.

On July 14, 2016, Nix and DNA Lab filed a diversity jurisdiction action in the Southern District of New York, alleging tortious interference with prospective economic advantage and defamation against the same defendants. See Nix v. Office of the Comm’r of Baseball, No. l 6-cv-5604 (ALC) (S.D.N.Y. July 14, 2016). On October 19, 2016, the defendants filed a pre-motion letter regarding their contemplated motions for dismissal pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction and sanctions under Rule 11 of the Federal Rules of Civil Procedure. After the court held a pre-motion conference on October 27, 2016, the plaintiffs filed a motion for voluntary dismissal without prejudice pursuant to Rule 4l(a)(l)(A)(i) of the Federal Rules of Civil Procedure on November 3, 2016.

On November 9, 2016, the plaintiffs took their case against the defendants to state court again, this time in New York State Supreme Court, alleging tortious interference with business relations, defamation, and violations of the Computer Fraud and Abuse Act (“CFAA”). On February 17, 2017, the defendants removed the case to federal court pursuant to 28 U.S.C. § 1441(a), asserting that the Court had: (1) original jurisdiction pursuant to the 28 U.S.C. § 1331 over the plaintiffs’ CFAA claim, and (2) supplemental jurisdiction over the Plaintiffs’ state law tort claims pursuant to 28 U.S.C. § 1367. On February 27, 2017, Judge Sullivan issued an order directing the plaintiffs to file either: (1) a motion to remand, pursuant to 28 U.S.C. § 1447(c), or (2) an amended complaint conforming to the pleading standards under Rule 8 of the Federal Rules of Civil Procedure.

On March 29, 2017, the plaintiffs moved to voluntarily dismiss their CFAA claim and remand the case to New York State Supreme Court pursuant to 28 U.S.C. § 1447. The defendants opposed the motion, arguing that the plaintiffs were engaging in prohibited forum manipulation.

The Court’s Decision

Judge Sullivan found that since the plaintiffs were “willing to dismiss their CFAA claim with prejudice,” there was no reason under Rule 41(a)(2) not to grant the plaintiffs’ motion, especially since “the defendants [did] not even attempt[] to articulate any [prejudice] they [would] suffer as a result of such a dismissal.…” In fact, said the Court, despite the forum shopping (i.e., the attempt to defeat federal jurisdiction through voluntary dismissal), “[c]ourts have uniformly held that defendants are not prejudiced under Rule 41(a)(2) by having to face trial in state court.”

Having granted the motion to voluntarily dismiss the CFAA claim with prejudice, the Court turned its attention to the issue of remand. On this issue, Judge Sullivan found that the balance of factors to be considered by the Court – “judicial economy, convenience, fairness, and comity” – “point[ed] toward declining to exercise jurisdiction over the remaining state-law claims.” (Citations and internal quotation marks omitted.)

Judicial Economy

The Court noted that it had not expended any time and resources to the matter: “the Court has dismissed Plaintiffs’ only federal claim with prejudice long before ‘the investment of significant judicial resources’ – that is, long before any conferences before this Court, motion practice under Rule 12, or discovery. Thus, there [was] ‘no indication that … judicial economy … would be advanced by the Court’s exercise of supplemental jurisdiction.’” (Citations omitted.)

Convenience, Fairness and Comity

The Court said that it could “discern no extraordinary inconvenience or inequity occasioned by permitting Plaintiffs to bring their claims across the street in the New York State Supreme Court, where they will be afforded a surer-footed reading of applicable law.” (Citations and internal quotation marks omitted.) This was so, said Judge Sullivan, because the state law claims involved were “not complex or unsettled,” as the defendants contended. (Citations and internal quotation marks omitted.)

The Court rejected the defendants’ argument that the Court should retain jurisdiction because the plaintiffs were “clearly and intentionally attempting to engage in forum manipulation,” to avoid “the adjudication of their claims and avoid an unfavorable decision in this Court.” (Internal quotation marks omitted.)  In doing so, the Court noted that although forum manipulation is a factor to consider “in determining whether the balance of factors” support remand, it is not dispositive. Thus, “where, as here, a plaintiff has voluntarily dismissed his federal claims prior to the start of discovery, even when his ‘manifest purpose’ in doing so ‘is to defeat federal jurisdiction,” a court should decline to exercise supplemental jurisdiction. (Citations omitted.)

Finally, the Court concluded that “while Plaintiffs’ failure to prosecute and their general inattentiveness to jurisdictional issues in other cases [were] very troubling,” remand was nevertheless appropriate because “all federal claims have been dismissed before the Court has overseen any discovery or resolved any substantive motions.” Accordingly, the case was remanded to the New York State Supreme Court.

Takeaway

While forum manipulation is frowned upon, Nix teaches that is not the dispositive consideration in determining whether to permit withdrawal of a federal claim and exercise supplemental jurisdiction. Instead, it is one of many factors (e.g., “judicial economy, convenience, fairness, and comity”) to be considered by the courts.

Tagged with: Business Litigation, Commercial Litigation, Complex Litigation