Renegade Swish, L.L.C. v. Emily Wright
857 F.3d 692
| 5th Cir. | 2017Background
- Renegade Swish sued its former employee Emily Wright in Texas state court in June 2015 for breach-of-employment-agreement claims; Wright counterclaimed for unpaid bonuses and alleged FLSA violations.
- Renegade nonsuited (dismissed without prejudice) its state-law claims, then removed the case to federal court asserting federal-question jurisdiction based on Wright’s FLSA counterclaim.
- Renegade also moved to realign the parties in both state and federal court, arguing it was the “functional defendant.”
- Wright moved to remand and requested attorney’s fees under 28 U.S.C. § 1447(c), arguing Holmes Group and subsequent precedent preclude removal based on a federal counterclaim.
- The district court initially remanded and awarded fees, but on Renegade’s Rule 59(e) motion it vacated the fee award, finding an objectively reasonable basis for removal given alleged district-court disagreement; Wright appealed.
- The Fifth Circuit reviewed only whether Renegade had an objectively reasonable basis to remove and held it did not, vacating the district court’s reconsideration and remanding for reconsideration of fees.
Issues
| Issue | Plaintiff's Argument (Wright) | Defendant's Argument (Renegade) | Held |
|---|---|---|---|
| Whether removal was objectively reasonable where removal was based on defendant’s federal counterclaim after plaintiff nonsuited its claims | Holmes Group and Vaden hold a counterclaim cannot establish federal-question removal; removal was not reasonable | Removal was reasonable because federal authority (e.g., Sadeghian, Hickman) supported removal and law was unsettled | Held: Not reasonable — Supreme Court and Fifth Circuit precedent foreclose using counterclaims to confer removal jurisdiction |
| Whether the standard of review for the district court’s refusal to award fees is de novo or abuse of discretion | De novo review appropriate for legal questions decided on Rule 59(e) | Court decisions often review fee denials for abuse of discretion | Court assumed abuse of discretion but found Renegade failed even under that deferential standard |
| Whether an original plaintiff who nonsuits and then removes may be treated as a “functional defendant” so as to permit removal | A plaintiff cannot use an anticipated or actual counterclaim to become a removable defendant; removal improper | Renegade contends it became the functional defendant after counterclaims and before realignment | Held: Functional-defendant theory insufficient; at time of removal Renegade was the plaintiff and § 1441 allows only defendants to remove |
| Whether the existence of some post‑Holmes out‑of‑circuit or district-court authority made removal objectively reasonable | Holmes Group, Vaden, and later Fifth Circuit cases make removal on counterclaims clearly foreclosed; outlier cases like Hickman are not persuasive | Cites a split or unsettled law (Hickman, Sadeghian) that justified a reasonable belief removal was allowed | Held: No meaningful split; contrary district-court cases predate or conflict with Supreme Court precedent and do not render removal objectively reasonable |
Key Cases Cited
- Holmes Group, Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S. 826 (2002) (a defendant’s counterclaim cannot supply ‘arising under’ jurisdiction)
- Vaden v. Discover Bank, 556 U.S. 49 (2009) (reaffirming that counterclaims do not establish federal-question jurisdiction)
- Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100 (1941) (historical limits on removal power; removal is for defendants)
- Franchise Tax Bd. of State of Cal. v. Construction Laborers Vacation Trust for S. California, 463 U.S. 1 (1983) (well‑pleaded complaint rule governs federal-question jurisdiction)
- Martin v. Franklin Capital Corp., 546 U.S. 132 (2005) (attorney’s fees under § 1447(c) should not be awarded if removal was objectively reasonable)
- In re Crystal Power Co., Ltd., 641 F.3d 82 (5th Cir. 2011) (Fifth Circuit precedent consistent with the rule that plaintiffs who initiate state litigation cannot later remove based on counterclaims)