It’s an old and by now tedious and depressing story: plaintiffs file an aggregated action in the notorious courts of Madison or St Clair Counties in Illinois, the corporate defendant removes the case to the federal court in the Southern District of Illinois, and the federal judge lunges for any available basis to remand the case to the friendly (for plaintiffs) neighborhood judicial Hellhole. Call it docket management or call it judicial creativity. But don’t call it rational, fair, or just.
And it doesn’t just happen in tort-ville. Plaintiff lawyers filed heaps of mutual fund market-timing cases in southern Illinois state courts, and it’s not as if so many investors were concentrated in Edwardsville, Illinois. Despite a federal statute explicitly designed to keep those cases in federal court – the Securities Litigation Uniform Standard Act of 1998 – SD Illinois federal judges cheerfully and rapidly pulled the remand trigger. It got so bad that the Seventh Circuit held a remand order appealable and reversed it. Kirchner v Putnam Funds Trust, 373 F3d 847 (7th Cir 2004), rev’d, 547 US 633 (2006). Sadly, as the last part of that Kirchner cite reveals, the section 1447(d) issue in that case ultimately went the plaintiffs’ way.
The latest case of remand fever is Aaron v Smithkline Beecham Corp., 2010 WL 1752546 (S.D. Ill. April, 28, 2010), where 99 plaintiffs sued Smithkline in St Clair County, Illinois alleging injuries from Avandia.
GlaxoSmithKline removed the case to SD Illinois federal court and plaintiffs sought remand.
The issue in the Aaron case was whether there was diversity jurisdiction. GSK is a Delaware resident and none of the plaintiffs called Delaware home, so this looks like classic, plain vanilla federal diversity jurisdiction, right? (There was no dispute as to the $75000 amount in controversy).
But surely you noticed when you first saw the case name that plaintiffs had sued Smithkline, not GSK. Smithkline had been a Pennsylvania citizen, and so are some of the plaintiffs. Note the “had been.” After Smithkline had been a Pennsylvania citizen, it had then been dissolved and reconstituted as GSK. GSK, not Smithkline, is now the living, breathing, suing or being-sued entity. So GSK made what seems like a perfectly sensible argument: how can plaintiffs defeat federal jurisdiction simply by suing a nondiverse entity that no longer exists? It’s forum shopping via corporate-history-entity shopping.
But this is SD Illinois, remember, and when the first thing the court talks about is the presumption against removability, we expect trouble. And we get it.
The court okays plaintiffs’ selection of a has-been corporate defendant by twisting Pennsylvania corporate law past the points of logic or legislative intent. There is a Pennsylvania statute providing that a dissolved corporation continues to exist (for purposes of suing and being sued) for some specified period of time after dissolution. 15 Pa Cons. Stat. Ann. §1979. Plaintiffs can sue a dissolved corporation up to two years after dissolution. Such “survival” statutes have the effect of preventing a corporation from escaping its creditors by dissolution. Smithkline became GSK in October 2009, and plaintiffs filed their case in St. Clair County in November 2009, so they were well within the two years.
That’s all well and good, but such protection certainly isn’t necessary here, because the plaintiffs can sue GSK. Not only that, there’s a 2001 Pennsylvania statutory commentary that makes clear that the “survival” statute is unnecessary if the corporation continues to exist as the citizen of another the state: “The effect of filing under this section is not to dissolve the corporation in the ordinary sense but simply to terminate its status as a domestic business corporation. The existence of the corporation is not affected because the same entity continues to exist in the new jurisdiction of incorporation.” 15 Pa Cons. Stat. Ann. §1980, comment. Put plainly, if a corporation is domesticating in another state – as Smithkline-GSK did – then it’s not really a dissolution. Put even more plainly, dying and moving to Delaware are two very different things. (We live in PA and like it here just fine. But if we had to choose between relocating to Delaware or departing this veil of tears, we’d happily go house-hunting in the land of tax-free shopping)
But the SD Illinois court was unsure of the “provenance” of the commentary. It also didn’t like the fact that the commentary came ten years after the statute. In any event, the court held that “ambiguities in the pertinent state law are to be decided against removal and in favor of remand,” so remand it is. Once again, the presumption in favor of remand operates as the Big Hammer in SD Illinois. But is there really any ambiguity?
Here is what we are left with: the SD Illinois court took a Pennsylvania statute designed to protect the right of creditors to sue a dissolved corporation, and applied it in a case where the creditors needed no such protection because they were perfectly free to sue the company in federal court. Instead, the SD Illinois court ended up protecting the “right” of creditors to sue in state court. Some right. Some protection. Somehow, we doubt that’s what the Pennsylvania legislators intended.