Sanctions: Court creates circuit split over appellate attorneys’ fees following improper removal

Where the district court awarded attorneys’ fees to the plaintiffs, after finding that defendants improperly removed a case to federal court, it did not err. But this court rejects the plaintiffs’ argument – and decisions from the Seventh Circuit – that  § 1447(c) automatically awards them their fees and costs for defending this appeal.

Background

Plaintiffs filed a class action against defendants in state court alleging violations of state securities laws. Thinking that the Securities Litigation Uniform Standards Act, or SLUSA, might preclude this case, defendants removed the case to federal court. In response, plaintiffs amended their complaint to eliminate all possibility that SLUSA would apply. The district court accordingly remanded the case, explaining in an opinion how the class action no longer fell within SLUSA and how no other basis for federal jurisdiction was present.

After three years of litigation in state court, defendants removed the case a second time, making the same arguments the district court had rejected in its prior opinion. Unsurprisingly, the district court remanded the case a second time, and required defendants to pay plaintiffs’ attorney’s fees.

Second removal

“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.” But even when removal was improper, “fees should be denied” so long as the removal was “objectively reasonable.”

Defendants contend that Dr. McCann, plaintiffs’ expert witness, erred in labelling the Barclays notes as “not covered,” and that this error gave them two bases for re-removal. First, SLUSA, which they argue provides a right to have a federal court settle the dispute over whether the Barclays notes are covered. And second, 28 U.S.C. § 1441, the general removal statute, which they argue permits removal because the dispute over the Barclays notes presents a federal question within the jurisdiction of the federal courts. Both of these bases fail.

Defendants next contend that, even if their removal was wrong, that’s all it was. But defendants’ second removal was more than wrong. The district court explained in its first remand opinion that the case needed to return to state court because “the [amended complaint] eliminates the possibility the suit will ever implicate a covered security” and “no federal question remains.” The complaint remained the same but defendants removed again anyway, asserting the exact two removal rationales—SLUSA and federal question jurisdiction— that the district court rejected.

Defendants counter by saying that their second removal had an intervening event: McCann’s testimony, which raised the possibility that the state court would conclude that the Barclays notes were covered securities. But the district court’s first remand opinion answered this question too. It predicted that “a court might need to make later preclusion determinations on individual products” and presciently explained that such determinations would need to be made in state court because they would neither implicate SLUSA nor create a federal question. Accordingly this court finds no abuse of discretion in the district court’s fee award.

Appellate fees

Plaintiffs claim that, having successfully defended the assessment of attorney’s fees below, § 1447(c) automatically awards them their fees and costs for defending this appeal. Their argument relies on a trio of Seventh Circuit decisions interpreting § 1447(c). But this court respectfully disagrees with the Seventh Circuit.

Section 1447(c) provides that “An order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal.” This court’s decision will not be an order remanding the case. Indeed, it is not even reviewing an order remanding the case. Instead, it is reviewing the decision to award fees in an order remanding the case. This court cannot discern in § 1447(c) any authority to award fees in such a posture.

Instead, an order remanding the case—and thus an award of fees under § 1447(c)— can only come from the district court, not the court of appeals. This comports with § 1447’s clear and exclusive textual emphasis on the district court. Even if the text of § 1447(c) were ambiguous—it’s not—this court would decline to broadly construe the statute as authorizing a fee award on appeal. And even if the text of § 1447(c) authorized fee awards on appeal—it doesn’t—a fee award would be discretionary at most.

Affirmed.

Black v. Mantei & Associates Ltd., Case No. 24-1439, July 30, 2025. 4th Cir. (Richardson), from DSC at Columbia (Lewis). Joshua D. Jones for Appellant. Robert W. Humphrey II for Appellees. VLW 025-2-293. 22 pp.