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State v. Clubcorp Holdings, Inc.

United States District Court, W.D. Texas, Austin Division

November 5, 2019

STATE OF TEXAS
v.
CLUBCORP HOLDINGS, INC., et al.

          REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

          ANDREW W. AUSTIN, UNITED STATES MAGISTRATE JUDGE.

         TO: THE HONORABLE LEE YEAKEL UNITED STATES DISTRICT JUDGE.

         Before the Court are Plaintiff's Motion to Remand (Dkt. No. 17); Defendant's Response (Dkt. No. 21); and Plaintiff's Reply (Dkt. No. 23). The undersigned submits this Report and Recommendation to the District Judge pursuant to 28 U.S.C. § 636(b)(1)(B), Federal Rule of Civil Procedure 72, and Rule 1(d) of Appendix C of the Local Rules.

         I. GENERAL BACKGROUND

         The State of Texas brings this suit against ClubCorp Holdings, Inc. and 27 ClubCorp country or business clubs. Texas makes three requests for relief: (1) a judgment compelling ClubCorp to permit examination of its books and records; (2) a judgment compelling ClubCorp to report property; and (3) a judgment compelling ClubCorp to deliver property. Dkt. No. 1-1 at 40-42. ClubCorp is one of the largest country club and golf club companies in the country. Texas alleges that ClubCorp has in its possession millions of dollars of “membership initiation deposits” which new members paid to clubs at the beginning of their membership. Texas alleges that the agreements between the members and ClubCorp provide that the member is entitled to the return of the deposit after 30 years. It claims, based on ClubCorp's SEC filings, that ClubCorp possesses millions of dollars of deposits that have not been claimed, despite being subject to return to the member. Texas asserts that, to the extent the deposits were paid by members with a last known address in Texas, they are unclaimed abandoned property, and under the Texas Property Code ClubCorp is obligated to deliver the funds to the State, which will hold the property in a custodial capacity until the owner claims it. In addition to seeking the delivery of any such funds, more fundamentally Texas requests that the Court order ClubCorp to permit the audit of its books and records, and to report to Texas any unclaimed property as required by state law. ClubCorp has objected to any audit or collection for years, and despite negotiations covering several years, the parties have been unable to resolve the dispute. Texas thus brought this suit in Texas state court, and ClubCorp removed it, asserting that the suit raises a federal question.

         Though ClubCorp concedes that the face of the Petition raises solely state law claims under the Texas Property Code, it argues the Petition nevertheless raises issues necessarily resolved by federal common law. Invoking the “well pleaded complaint” rule, ClubCorp asserts that the suit requires the application of federal common law to determine whether Texas has the right, power, and jurisdiction to claim the un-refunded deposits. It argues that this requires application of a trilogy of United States Supreme Court cases: Texas v. New Jersey, 379 U.S. 674 (1965), Pennsylvania v. New York, 407 U.S. 206 (1972), and Delaware v. New York, 507 U.S. 490 (1993). ClubCorp argues that the substantial questions of federal law, resolved by the rules set out in these three cases, brings the case within this Court's subject matter jurisdiction, rendering removal proper under 28 U.S.C. §1331. See M.J. Retail Merchants Ass'n v. Sidamon-Eristoff, 669 F.3d 374, 391-93 (3rd Cir. 2012).

         Texas disagrees, asserting that its power to compel an audit and demand delivery of unclaimed property arises from state sovereignty rather than federal common law. Texas argues that it has pled purely state law claims, claims that do not rest on any disputed or substantial federal question. Texas pushes back on ClubCorp's argument that the federal rules of decision set down in the Texas Trilogy apply to the case at hand, arguing that they only apply in cases where two or more states are making competing claims for the same property, which is not the case here. Texas thus moves to remand under 28 U.S.C. §1447(c) for lack of subject matter jurisdiction.

         II. LEGAL STANDARDS

         A. Federal question jurisdiction and removal

         A defendant may remove an action to federal court if the federal court possesses subject matter jurisdiction. 28 U.S.C. § 1441(a); Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002). The federal court's presumption, however, is that a suit filed in state court “lies outside [its] limited jurisdiction.” Howery v. Allstate Ins. Co., 243 F.3d 912, 916 (5th Cir. 2001). “Any ambiguities are construed against removal because the removal statute should be strictly construed in favor of remand.” Manguno, 276 F.3d at 723. Thus, the removing party bears the burden of showing that the removal was proper. Frank v. Bear Stearns & Co., 128 F.3d 919, 921-22 (5th Cir. 1997). Removal raises significant federal concerns, and thus, “the removal statute is strictly construed ‘and any doubt as to the propriety of removal should be resolved in favor of remand.'” Gutierrez v. Flores, 543 F.3d 248, 251 (5th Cir. 2008).

         One of the two grounds for federal jurisdiction is that the suit “aris[es] under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. A case “arises under” federal law if it appears from the face of a well-pleaded complaint that the cause of action is created by federal law. ” Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 6 (2003). Generally, “[t]he presence or absence of federal-question jurisdiction is governed by the ‘well-pleaded complaint rule,' which provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint.” Caterpillar Inc. v. Williams, 482 U.S. 386 (1987). “Since a defendant may remove a case only if the claim could have been brought in federal court . . . the question for removal jurisdiction must also be determined by reference to the ‘well-pleaded complaint.'” Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804 (1986). If a plaintiff chooses not to present a federal claim, even though one is potentially available, the defendant may not remove the case from state to federal court. See, e.g., The Fair v. Kohler Die & Specialty Co., 228 U.S. 22, 25 (1913). Thus, a plaintiff “may avoid federal jurisdiction by exclusive reliance on state law.” Caterpillar, 482 U.S. at 392. “Even an inevitable federal defense does not provide a basis for removal jurisdiction.” Bernhard v. Whitney National Bank, 523 F.3d 546, 551 (5th Cir. 2008).

         There are, however, rare cases in which, though only state claims are pled, “the vindication of a right under state law necessarily turn[s] on some construction of federal law.” Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation Trust for S. Cal., 463 U.S. 1, 27-28 (1983)). Thus, in some instances federal question jurisdiction will also “lie over state-law claims that implicate significant federal issues” and “turn on substantial questions of federal law.” Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 312 (2005). The Supreme Court has called this category of federal question cases “special and small, ” Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677 (2006), and directed that federal courts not treat “‘federal issue' as a password opening federal courts to any state action embracing a point of federal law.” Grable, 545 U.S. at 314; see also Merrell Dow, 478 U.S. at 813 (holding that the “mere presence of a federal issue in a state cause of action does not automatically confer federal-question jurisdiction”). “Instead, the question is, does a state-law claim necessarily raise a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities.” Grable, 125 S.Ct. at 2368.

         B. The Texas Trilogy

         Unclaimed property laws are very common-every state and the District of Columbia have enacted them. Generally speaking, the laws permit a state to take possession of unclaimed property and hold it as a custodian for its citizen. See, e.g., Tex. Prop. Code §§72.001 et seq. These escheatment statutes are “creatures of state law.” Delaware v. New York, 507 U.S. 490, 502 (1993). The Supreme Court, in a series of three decisions, set about resolving the priority of escheatment between competing states. See, e.g., Texas v. New Jersey, 379 U.S. 674 (1965); Pennsylvania v. New York, 407 U.S. 206 (1972); Delaware, 507 U.S. ...


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