State of Wisconsin v. Dey, Incorporated ( 2008 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 07-1999
STATE OF WISCONSIN,
Plaintiff-Appellee,
v.
AMGEN, INC., et al.,
Defendants,
and
DEY, INC.,
Defendant-Appellant.
____________
Appeal from the United States District Court
for the Western District of Wisconsin.
No. 06-C-0582-C—Barbara B. Crabb, Chief Judge.
____________
ARGUED JANUARY 11, 2008—DECIDED FEBRUARY 4, 2008
____________
Before BAUER, POSNER, and EVANS, Circuit Judges.
POSNER, Circuit Judge. The State of Wisconsin filed a
suit in a Wisconsin state court against Dey and others,
charging fraudulent pricing of pharmaceutical drugs in
violation of Wisconsin state law. (Dey, a subsidiary of
Merck, is a manufacturer of such drugs.) Many similar
suits have been filed in other state courts. See In re Phar-
maceutical Industry Average Wholesale Price, 509 F. Supp. 2d
2 No. 07-1999
82 (D. Mass. 2007). Three times Dey removed the case to
federal district court under 28 U.S.C. § 1446, which pro-
vides, so far as relates to this case, that if “the case stated
by the initial pleading is not removable, a notice of re-
moval may be filed within thirty days after receipt by
the defendant, through service or otherwise, of a copy of
an amended pleading, motion, order or other paper
from which it may first be ascertained that the case is
one which is or has become removable.” § 1446(b). Three
times the district court remanded the case to state court,
and the third time it sanctioned Dey in the amount of
$14,208 in attorneys’ fees and costs, precipitating this
appeal. The amount is trivial, but since the remand orders
could not be appealed, 28 U.S.C. § 1447(d); Things Remem-
bered, Inc. v. Petrarca, 516 U.S. 124, 127-28 (1995); Phoenix
Container, L.P. v Sokoloff, 235 F.3d 352, 354-55 (7th Cir.
2000), appealing from the sanction gives Dey a shot at
obtaining an appellate ruling on removability.
The third notice of removal was filed more than two
years after the State of Wisconsin’s suit had been filed. The
basis of the notice was the unsealing of a complaint in the
federal district court in Massachusetts, charging Dey and
others with violating the False Claims Act, 31 U.S.C.
§§ 3729 et seq. Dey argued in support of removal that
the filing of that suit had created federal jurisdiction
over Wisconsin’s suit for the first time, and so the suit
was removable to federal court for the first time. The
district judge disagreed. If she was wrong, there is no
basis for the award of sanctions, since she didn’t base
the award on the fact that Dey had twice earlier failed
to remove the case successfully.
The provision of the False Claims Act that brought the
State of Wisconsin’s suit within the original jurisdiction of
No. 07-1999 3
the federal courts, 31 U.S.C. § 3732(b), provides that “the
district courts shall have jurisdiction over any action
brought under the laws of any State for the recovery of
funds paid by a State or local government if the action
arises from the same transaction or occurrence as an
action brought under [31 U.S.C. §] 3730,” the provision
under which the federal suit now pending in Massachu-
setts was brought. The pertinent removal statute, 28 U.S.C.
§ 1441(b), authorizes the removal of a civil action of
which the federal courts have original jurisdiction, but
in a case such as this, a case in which jurisdiction is not
based on a claim or right arising under federal law, only
if none of the defendants is a citizen of the state in
which the suit is brought, in this case Wisconsin—and
that condition is not satisfied. And Wisconsin’s suit is not
a federal-question suit, because it is founded on an al-
leged violation of Wisconsin law, not of any federal law.
Wisconsin has no federal claim; the basis on which it
might have filed its suit in federal court, had the suit in
Massachusetts been filed first, was the existence of a
federal claim possessed not by the State of Wisconsin
but by the plaintiffs in that suit. In re Pharmaceutical
Industry Average Wholesale Price, supra, 509 F. Supp. 2d at 94.
The absence of removal jurisdiction over such a claim
does not appear to have been a congressional oversight.
Despite the wording of section 3732(b), Congress seems to
have been creating a form of supplemental jurisdiction,
as in the better-known 28 U.S.C. § 1367, rather than creat-
ing a right to bring a free-standing suit under state law
when there was no diversity jurisdiction—let alone creat-
ing a right to remove such a case to federal court, years
after it had been filed, because of the filing of a different
case in a remote federal court. See In re Pharmaceutical
4 No. 07-1999
Industry Average Wholesale Price, supra, 509 F. Supp. 2d at
92-93, and cases cited there. Given 28 U.S.C. § 1367, one
might wonder what work 31 U.S.C. § 3732(b) does. But
section 1367 was enacted in 1990, four years after sec-
tion 3732(b) was added to the False Claims Act. And
while there was, even then, a federal common law of
what is now called supplemental jurisdiction, consisting
of the doctrines of pendent jurisdiction and ancillary
jurisdiction, its application to pendent parties, as distinct
from pendent claims, was quite limited. See Finley v. United
States, 490 U.S. 545, 547-50 (1989); Aldinger v. Howard,
427 U.S. 1, 14-15 (1976).
A widely ramified fraud consisting of the making of
false claims to public moneys, such as the fraud alleged
in this case, in the similar cases pending in other state
courts, and in the federal case in Massachusetts, may
give rise to claims under both federal law—since if the
federal government is defrauded, the fraud is a violation
of federal law—and, if the state is defrauded, under
state law, as in this case; often the state’s only remedy
will be under state law. There ought to be a mechanism
that would enable all these claims to be consolidated in
one litigation, and section 3732(b) is a partial answer to
that need, as it confers federal jurisdiction over state
law claims, regardless of diversity of citizenship, arising
from the same fraudulent scheme that is being chal-
lenged in a suit under the federal false-claims statute.
This would enable Wisconsin and the other states to
intervene in the Massachusetts suit for the purpose of fil-
ing their state law claims against the defendants in that
suit or against other participants in the fraud alleged
there. United States ex rel. Long v. SCS Business & Technical
Institute, Inc., 173 F.3d 870, 880 (D.C. Cir. 1999) (dictum);
No. 07-1999 5
see also Hawaii v. Abbott Laboratories, Inc., 469 F. Supp. 2d
842, 849-51 (D. Haw. 2006).
It is true that another subsection of the False Claims Act,
31 U.S.C. § 3730(b)(5), provides that “when a person
brings an action under this subsection no person other
than the [federal] Government may intervene or bring a
related action based on the facts underlying the pending
action.” But the subsection that is referred to authorizes
actions under the False Claims Act brought on behalf of
the federal government. Id., § 3730(b)(1). Those are qui
tam actions, in which the plaintiff (called a “relator”) is
seeking a reward for obtaining a money judgment in the
government’s favor. Congress didn’t want these bounty
hunters piling into the first-filed suit and fighting over
the division of the spoils, or, to the same end, bringing
separate such suits. “When first enacted, the False Claims
Act allowed relators to file suits and receive a share of
the government’s recovery even if they personally did
nothing to help expose the alleged fraud . . . . ‘Qui tam
litigation surged as opportunistic private litigants chased
after generous cash bounties and, unhindered by any
effective restrictions under the Act, often brought para-
sitic lawsuits copied from preexisting indictments or
based upon congressional investigations.’ In response,
Congress amended the False Claims Act . . . ’to do away
with [such] parasitic suits.’ ” United States ex rel. LaCorte v.
Smithkline Beecham Clinical Laboratories, Inc., 149 F.3d 227,
233 (3d Cir. 1998) (citations omitted); see also United States
ex rel. La Corte v. Wagner, 185 F.3d 188, 191-92 (4th Cir.
1999). The State of Wisconsin is not a bounty hunter. It is
not seeking a reward for obtaining a judgment in favor
of someone else. It is suing to recover a loss inflicted on it
by the defendants’ fraud. Such a suit is not “related” to a
6 No. 07-1999
qui tam suit, within the meaning that the word bears in
section 3730(b)(5) interpreted in light of the legislative
purpose. Similarly, the bar to intervention is best inter-
preted, in light of that purpose, as a bar to intervention,
in a qui tam suit, by other relators.
Dey argues that section 3732(b) would have allowed
Wisconsin to bring its fraud suit in a federal district
court because the suit is related to the federal suit pend-
ing in Massachusetts, and it points out that there are
economies from trying related suits together. But if related
suits are filed in different courts, there is no joint trial,
though if the different courts are federal district courts
rather than a federal district court and a state court the
Judicial Panel on Multidistrict Litigation can order them
consolidated for pretrial activity—but it is too late for
that when a case is removed to federal court years after
its initial filing in a state court. The benefit from allowing
a suit not otherwise within the grant of judicial power
to the federal judiciary in Article III of the Constitution to
be filed in a federal district court merely because it is
related to a federal suit filed years later and pending
in another federal court is so exiguous as to draw in
question the constitutionality of section 3732(b) if inter-
preted as Dey asks us to interpret it.
The procedure authorized by the statute cannot be
analogized to bankruptcy proceedings, not only because
they are in rem (where consolidation is highly desirable
regardless of the legal basis of a claim against the res, or
the citizenship of the interested parties), and not only
because the Constitution authorizes Congress to create
uniform bankruptcy laws, Art. I, § 8, cl. 4, but also be-
cause there is no consolidation of claims in a single pro-
ceeding in a single court on the view that Dey takes of the
No. 07-1999 7
scope of section 3732(b). On Dey’s submission, a suit
that has been proceeding for years in a state court is to
be wrenched into federal court and start over. That
would produce the opposite of the judicial economies
that Dey claims from its interpretation of the statute.
Another reason the district court was correct to remand
the case is that the qui tam complaint in the federal district
court in Massachusetts is not an “amended pleading,
motion, order or other paper” from which removability
could first be ascertained. That language of section 1446(b)
of the Judicial Code refers, as most cases hold (though
there is a dearth of appellate rulings because orders
remanding a case to a state court are, with an immaterial
exception, unappealable, 28 U.S.C. § 1447(d)) to pleadings,
etc., filed in the suit sought to be removed, not in some
other suit (“amended” is a clue). Hawaii v. Abbott Laborato-
ries, Inc., supra, 469 F. Supp. 2d at 848-49; Dudley v. Putnam
Investment Funds, 472 F. Supp. 2d 1102, 1110-11 (S.D. Ill.
2007); Morsani v. Major League Baseball, 79 F. Supp. 2d 1331,
1333 (M.D. Fla. 1999); Lozano v. GPE Controls, 859 F. Supp.
1036, 1038 (S.D. Tex. 1994); Johansen v. Employee Benefit
Claims, Inc., 668 F. Supp. 1294, 1296-97 (D. Minn. 1987);
see also Poulos v. Naas Foods, Inc., 959 F.2d 69, 71-73 (7th
Cir. 1992); Dahl v. R.J. Reynolds Tobacco Co., 478 F.3d 965,
969-70 (8th Cir. 2007); but see Young v. Chubb Group of
Ins. Cos., 295 F. Supp. 2d 806, 807-08 (N.D. Ohio 2003);
Davis v. Time Ins. Co., 698 F. Supp. 1317, 1321-23 (S.D. Miss.
1988); Smith v. Burroughs Corp., 670 F. Supp. 740, 741 (E.D.
Mich. 1987). (We left the question open in In re Mutual Fund
Market-Timing Litigation, 495 F.3d 366 (7th Cir. 2007) (per
curiam).)
If the State of Wisconsin filed a paper in its state court
suit that revealed for the first time that the suit was
8 No. 07-1999
removable—maybe it decided to add a federal claim to its
state law claims—then removable it would be, though
more than 30 days had passed since the suit was filed.
Otherwise a plaintiff could defeat removal by holding
its federal claim in reserve when it filed its original suit
and springing it on the defendant when the 30-day dead-
line for removing the case had expired. To allow a filing
in another suit to restart the 30-day time limit would
have a similar effect of belatedness by allowing removal
years after a suit had been proceeding in a state court,
because of the filing of another suit in another court. And
that effect would not be justified by the need to thwart
a strategic move—a plaintiff’s concealing his federal
claim until the 30-day deadline for removal had expired.
Dey points to two appellate decisions, Green v. R.J.
Reynolds Tobacco Co., 274 F.3d 263, 266-68 (5th Cir. 2001),
and Doe v. American Red Cross, 14 F.3d 196, 202-03 (3d Cir.
1993), that allow belated removal on the basis of an order
in a different case. They were distinguished in the Dahl
case, cited above; in both Green and Doe, the different case
resolved a legal uncertainty concerning the existence of
original federal jurisdiction. If the distinction seems too
tenuous to be convincing, this does not invalidate the
soundness of the ruling in Dahl that, when there is no
such distinguishing feature (as there is not in this
case), there can be no removal on the basis of an order
or other document in another case.
All this said, because the issue of removability of a suit
arguably brought within federal jurisdiction by section
3732(b) as a result of the subsequent filing of a suit under
the False Claims Act has been squarely addressed in only
one previous appellate opinion (United States ex rel. Long
v. SCS Business & Technical Institute, Inc., supra), and that
No. 07-1999 9
of another circuit—and in dictum, at that—we do not
think that Dey can be faulted for having attempted to
remove the suit the third time. Although a district court
in its “order remanding the case may require payment
of just costs and any actual expenses, including attor-
ney fees, incurred as a result of the removal,” 28 U.S.C.
§ 1447(c), the Supreme Court has interpreted this language
to mean that “absent unusual circumstances, courts may
award attorney’s fees under § 1447(c) only where the
removing party lacked an objectively reasonable basis
for seeking removal.” Martin v. Franklin Capital Corp.,
546 U.S. 132, 141 (2005). The paucity of appellate authority
gave Dey a reasonable basis for removing (we do not
know what “objectively” is intended to add to “reason-
able,” since reasonableness in the law is an objective
standard). See, e.g., Lott v. Pfizer, Inc., 492 F.3d 789, 792-93
(7th Cir. 2007); Gardner v. UICI, 508 F.3d 559, 562 (9th Cir.
2007); compare Chase Manhattan Mortgage Corp. v. Smith,
507 F.3d 910, 914-15 (6th Cir. 2007). So we reverse the
sanction order—the award to Wisconsin of the fees and
costs that it incurred in getting the case remanded. We
also deny Wisconsin’s request that we award sanctions
for the filing of a frivolous appeal. Fed. R. App. P. 38.
Dey’s appeal was not frivolous, since it has succeeded
in knocking out the monetary award to Wisconsin.
10 No. 07-1999
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—2-4-08