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Fourth Circuit Reverses and Remands Case and Holds That 28 U.S.C. § 1447 Did Not Deprive Maryland District Court of Jurisdiction to Consider Merits of Rule 60(b)(3) Motion

Joyce Barlow v. Colgate Palmolive Company
United States Court of Appeals for the Fourth Circuit, Case No. 13-1839 (4th Cir. Nov. 25, 2014)
by Jhanelle A. Graham, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://www.ca4.uscourts.gov/Opinions/Published/131839A.P.pdf

In Joyce Barlow v. Colgate Palmolive Company, the Fourth Circuit decided an appeal that involved the interplay between 28 U.S.C. § 1447(d)—which prohibits federal courts from reviewing orders remanding cases to state court—and Federal Rules of Civil Procedure 11 and 60(b)(3)—which provide the means for federal courts to remedy and deter the perpetration of fraud on the courts. Despite the appellate court’s determination that there was “strong evidence” that the plaintiffs misrepresented their intent to pursue claims against certain defendants, the Fourth Circuit disagreed with the Maryland district court that § 1447(d) deprived it of jurisdiction to either impose certain sanctions under Rule 11 or afford relief under Rule 60(b)(3). Thus, on rehearing en banc, the Fourth Circuit reversed and remanded the case to the trial court, concluding instead that the rules to ward off fraud on the courts did not amount to the “review” proscribed by § 1447(d).

This action arose from an asbestos lawsuit brought by two (2) individuals in Maryland state court. Plaintiffs, Joyce Barlow and Clara Mosko, separately sued Colgate–Palmolive Company—among numerous other companies—and asserted that each of the defendants’ products had at some point exposed them to asbestos. Specifically, Plaintiffs’ theory was that Colgate’s “Cashmere Bouquet” line of powder makeup products contained harmful levels of asbestos and had thereby contributed to Plaintiffs’ health problems. Despite Plaintiffs’ joinder of in-state defendants, Colgate removed the two (2) cases on fraudulent joinder grounds—i.e., Colgate asserted that the two (2) in-state, non-diverse defendants were fraudulently joined to destroy diversity jurisdiction and that Plaintiffs’ deposition testimony and interrogatory answers demonstrated that Plaintiffs lacked sufficient facts to prove a prima facie case against any defendant other than Colgate, a diverse defendant.

Plaintiffs’ counsel moved to remand the cases to Maryland state court, arguing that Plaintiffs had viable claims against the non-diverse defendants. In a motion for remand in Barlow’s case, counsel represented that there was some circumstantial evidence to suggest that Ms. Barlow could possibly have been exposed to asbestos-containing products during her employment, and stated further that it was possible that a claim could be successfully proven against any of the non-diverse defendants. Based on these representations, the Maryland federal district court (Judge Nickerson) remanded Barlow’s case to state court. The district court relied solely on the claim that Barlow was exposed to asbestos during employment, and opined that joinder of the in-state defendants was not, therefore, fraudulent.

Similarly, in Mosko’s case, Plaintiff’s counsel represented that it was plausible that there was a viable claim against at least one (1) of the non-diverse defendants and that local defendants should be implicated. Plaintiff’s counsel even stated that there was “some circumstantial evidence that Ms. Mosko may have been exposed to asbestos at the Department of Agriculture.” Based on these representations, the Maryland federal district court (Judge Quarles) found a possibility that Ms. Mosko could successfully pursue a claim against the non-diverse defendants, and remanded Mosko’s case to state court, opining that “Mosko has shown more than a ‘glimmer of hope’ of recovering against . . . an in-state defendant[] for exposure during the renovations in the DOA building. Therefore, removal was improper.”

Shortly after returning to state court, Plaintiffs filed a joint motion to consolidate their cases with two (2) other asbestos-related cases. Colgate opposed the motion, arguing that it could not receive a fair trial in a consolidated proceeding because the alleged sources of asbestos (other than Cashmere Bouquet) were too different among the cases. In response, Plaintiffs stated that: (1) all Plaintiffs were exposed, in their homes, to asbestos-containing Cashmere Bouquet only; (2) the occupations or worksites of the Plaintiffs should not affect the consolidation of these cases for trial because none of the Plaintiffs testified that he/she was exposed to asbestos as a result of his/her employment; and (3) there was absolutely no evidence to indicate or even suggest that the Plaintiffs were exposed to asbestos in any form other than Cashmere Bouquet. This reply, however, expressly contradicted Plaintiffs’ representations to the federal district court judges.

After the post-remand hearing, Colgate moved for sanctions under Rule 11 of the Federal Rules of Civil Procedure. Colgate also moved for relief under Rule 60(b)(3) as a supplement to its Rule 11 motions, seeking vacatur of the remand orders. On June 26, 2013, District Judge William M. Nickerson denied Colgate’s motions, although he acknowledged that the allegations in the motions were “substantial” and that the different statements by Plaintiffs’ counsel “appear[ed] to be in sharp conflict.” He concluded that 28 U.S.C. § 1447(d) deprived the court of jurisdiction to vacate or strike its remand orders. Further, the district court was “not convinced that counsel’s conduct [wa]s sanctionable” because the alleged misrepresentations were “attributable to different attorneys in markedly different litigation contexts.” Colgate appealed timely to the Fourth Circuit.

First, the Fourth Circuit articulated that it reviews questions of law, including a lower court’s determination of its subject matter jurisdiction, de novo, and reviews a district court’s decision on Rule 11 and Rule 60(b)(3) motions for an abuse of discretion. Trans Energy, Inc. v. EQT Prod. Co., 743 F.3d 895, 900 (4th Cir. 2014); Lontz v. Tharp, 413 F.3d 435, 439 (4th Cir. 2005); Hunter v. Earthgrains Co. Bakery, 281 F.3d 144, 150 (4th Cir. 2002) (stating the standard of review for Rule 11 motions); Green v. Foley, 856 F.2d 660, 665 (4th Cir. 1988) (stating the standard of review for Rule 60(b) motions).

The appellate court then explained that 28 U.S.C. § 1447(d) generally precludes review of a remand order if the remand is for lack of subject matter jurisdiction or for defects in the removal procedure. Powerex Corp. v. Reliant Energy Servs., Inc., 551 U.S. 224, 229, 234 (2007). Although three (3) exceptions to this general rule exist, the appellate court determined that none applied in this context. Further, because the types of relief provided by Rule 11 and Rule 60(b)(3) did not involve “review” as proscribed by § 1447(d), the Fourth Circuit held that Colgate’s motions never implicated § 1447(d) in the first instance. That is, Rule 11(b) specifically authorizes courts to impose sanctions for misrepresentations, and requires attorneys to submit a filing in good faith and without knowledge of the falsity of its contents.

According to the appellate court, the Rule 11 jurisdictional issue involved two (2) similar but distinct questions: (1) whether a district court retains jurisdiction to impose sanctions after remanding an action to state court and (2) whether an appeals court can review a district court’s determination regarding the imposition of sanctions in such a circumstance. The appellate court answered both questions in the affirmative, based on the Supreme Court’s decision in Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 389-90 (1990). Thus, the Fourth Circuit opined that district courts have jurisdiction to decide Rule 11 sanctions motions on the merits, even when they are filed after the underlying action is remanded to state court.

In holding that § 1447(d) does not limit a court’s authority to provide relief from a fraudulently obtained remand order under Rule 60(b)(3), the appellate court noted that § 1447(d) prohibits “reviewing” an order but does not prohibit “vacating” an order as permitted by Rule 60(b)(3). Rule 60(b)(3) provides that a court “may relieve a party” from a “final judgment, order, or proceeding” for “fraud . . . , misrepresentation, or misconduct by an opposing party.” Rather than assess the merits of a judgment or order, it focuses on the unfair means by which a judgment or order is procured. Schultz v. Butcher, 24 F.3d 626, 631 (4th Cir. 1994); see also Gonzalez v. Crosby, 545 U.S. 524, 532 (2005) (distinguishing a Rule 60(b)(3) motion as not attacking “the substance of the federal court’s resolution of a claim on the merits, but some defect in the integrity of the federal habeas proceedings”). The appellate court concluded that Colgate sought vacatur based on a collateral consideration—i.e., Colgate’s allegation that the remand orders were procured through attorney misconduct—rather than on the remands’ merits. In doing so, the Fourth Circuit adopted the Eleventh Circuit’s “well-reasoned analysis” in Aquamar S.A. v. Del Monte Fresh Produce N.A., Inc., 179 F.3d 1279 (11th Cir. 1999) (recognizing that vacatur of a remand order does not necessarily constitute a proscribed review of a remand decision). Thus, the appellate court articulated that if a court vacates an order for “reasons that do not involve a reconsideration or examination of its merits,” then there is no review of the order, and a court does not run afoul of § 1447(d)’s prohibition on review. Id.; see also Tramonte v. Chrysler Corp., 136 F.3d 1025, 1028 (5th Cir. 1998) (“[V]acatur of the remand order would . . . not constitute a review of the merits of that order, prohibited by 28 U.S.C. § 1447(d).”).

Further, the Fourth Circuit opined that the district court had jurisdiction to consider Colgate’s motions and should have resolved the motions on their merits. Given the district court’s misconception that it lacked jurisdiction to give full consideration to the merits of the Rule 60(b)(3) motions (and possibly the Rule 11 motions), the appellate court gave no weight to the district court’s determination, but considered its holding to be “mere dicta.” Accordingly, the Fourth Circuit reversed the district court’s orders, and remanded the cases to the district court to decide Colgate’s Rule 60(b)(3) motions and whether vacatur of the remand orders was warranted. Specifically, on remand, the Fourth Circuit directed the district court to make specific findings—supported by cogent reasoning—on whether Plaintiffs engaged in misconduct while in federal court and whether Rule 11 relief was warranted. Given the district court’s familiarity with the issues and litigants, the appellate court considered the lower court to be better situated “to marshal the pertinent facts and apply the fact-dependent legal standard mandated by Rule 11.” Cooter & Gell, 496 U.S. at 402. In making these determinations, the district court was also directed to provide more analysis than that included in the orders’ dicta, which would be too perfunctory to merit meaningful review. Cf. United States v. Engle, 592 F.3d 495, 503-04 (4th Cir. 2010) (remanding a case for new sentencing because the district court failed to give an adequate explanation for its determination).