Haith v. Bronfman, Jr. et al

Filing 43

MEMORANDUM Opinion and Order Written by the Honorable Gary Feinerman on 3/1/2013.Mailed notice.(jlj)

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ROBERT HAITH, derivatively on behalf of
ACCRETIVE HEALTH, INC.,

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Plaintiff,
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vs.
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EDGAR M. BRONFMAN JR., J. MICHAEL CLINE,
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STEVEN N. KAPLAN, STANLEY N. LOGAN,
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DENIS J. NAYDEN, ARTHUR H. SPIEGEL III,
MARY A. TOLAN, JOHN T. STATON, and MARK A. )
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WOLFSON, and ACCRETIVE HEALTH, INC.,
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nominal defendant,
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Defendants.
_____________________________________________ )
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JEFFREY GOODWIN, derivatively on behalf of
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ACCRETIVE HEALTH, INC.,
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Plaintiff,
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vs.
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EDGAR M. BRONFMAN JR., J. MICHAEL CLINE,
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STEVEN N. KAPLAN, STANLEY N. LOGAN,
DENIS J. NAYDEN, GEORGE P. SHULTZ, ARTHUR )
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H. SPIEGEL III, MARY A. TOLAN, MARK A.
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WOLFSON, and JOHN T. STATON, and
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ACCRETIVE HEALTH, INC., nominal defendant,
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Defendants.
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12 C 6781
Judge Feinerman

_______________________

12 C 6798
Judge Feinerman

MEMORANDUM OPINION AND ORDER
Plaintiffs Robert Haith and Jeffrey Goodwin brought these state law shareholder
derivative actions on behalf of Accretive Health, Inc., a Delaware corporation, in the Circuit
Court of Cook County, Illinois. Doc. 1-1 (12 C 6781); Doc. 1-1 (12 C 6798). Although the suits
have not been consolidated, they are materially identical for purposes of this opinion. The

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individual defendants, who are directors and officers of Accretive Health, removed the suits to
federal court under 28 U.S.C. §§ 1441. Doc. 1 (12 C 6781); Doc. 1 (12 C 6798). Defendants do
not assert that the case falls within the federal courts’ diversity jurisdiction, see 28 U.S.C.
§ 1332, or that Plaintiffs’ claims were created by federal law. Rather, they contend that the
claims, although created by state law, fall within the federal courts’ “arising under” jurisdiction,
28 U.S.C. § 1331, under the standard set forth in Grable & Sons Metal Products, Inc. v. Darue
Engineering & Manufacturing, 545 U.S. 308, 314 (2005). Plaintiffs disagree, and each has
moved to remand his case to state court under 28 U.S.C. § 1447(c). Doc. 17 (12 C 6781); Doc.
14 (12 C 6798). The motions are granted, but Plaintiffs’ request for an award of attorney fees
and costs is denied.
Background
Haith’s and Goodwin’s complaints make substantially similar factual allegations and
legal claims. Plaintiffs are Accretive Health shareholders and were shareholders at all relevant
times. Doc. 1-1 (12 C 6781) at ¶ 13; Doc. 1-1 (12 C 6798) at ¶ 11. Plaintiffs allege that
Defendants made numerous public statements, in press releases and SEC filings, that made false
or misleading statements and omissions about Accretive Health’s operations and financial
prospects. Doc. 1-1 (12 C 6781) at ¶¶ 3, 8, 38, 40, 42, 49, 54; Doc. 1-1 (12 C 6798) at ¶¶ 3, 2831, 33-34, 36-37, 43. In particular, Plaintiffs allege that Defendants concealed their knowledge
that Accretive Health was violating consumer privacy standards imposed by the Health Insurance
Portability and Accountability Act of 1996 (“HIPAA”), 42 U.S.C. § 1320d et seq., the Health
Information Technology for Economic and Clinical Health Act (“HITECH Act”), 42 U.S.C.
§ 17921 et seq., state consumer protection laws, and its contract with a large client. Doc. 1-1 (12
C 6781) at ¶ 54; Doc. 1-1 (12 C 6798) at ¶ 43. Plaintiffs allege that Defendants’ alleged

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misstatements and omissions had the effect of artificially inflating the price of Accretive
Health’s stock and then, when the truth came out, of causing that price to fall substantially, to the
detriment of shareholders. Doc. 1-1 (12 C 6781) at ¶¶ 5, 7, 9, 50; Doc. 1-1 (12 C 6798) at ¶¶ 4,
6, 32, 38-39, 42. Plaintiffs further allege that Accretive Health’s violations led the Attorney
General of Minnesota to file a lawsuit against it and to release a report detailing its unsavory debt
collection practices; led the New York Times to publish an article that put the company’s debt
collection practices in bad odor, see Jessica Silver-Greenberg, “Debt Collector Is Faulted for
Tough Tactics in Hospitals,” New York Times (April 24, 2012); led the Minnesota Department of
Commerce to temporarily suspend the company’s Minnesota debt collection license; and led a
group of plaintiffs to sue the company for violating federal securities law. Doc. 1-1 (12 C 6781)
at ¶¶ 4, 6, 9, 44-46, 51-52; Doc. 1-1 (12 C 6798) at ¶¶ 35, 40-41.
Because Accretive Health is a Delaware corporation, the internal affairs doctrine provides
that Delaware law governs Plaintiffs’ claims. See Nagy v. Riblet Prods. Corp., 79 F.3d 572, 576
(7th Cir. 1996). Haith asserts three counts of breach of fiduciary duty, one count of unjust
enrichment, one count of abuse of control, one count of gross mismanagement, and one count of
waste of corporate assets. Doc. 1-1 (12 C 6781) at ¶¶ 94-123. Goodwin asserts a single count of
breach of fiduciary duty. Doc. 1-1 (12 C 6798) at ¶¶ 83-88. Neither Haith nor Goodwin made a
demand on Accretive Health’s Board of Directors to bring this action against Defendants; both
allege that demand would be futile and thus is excused. Doc. 1-1 (12 C 6781) at ¶¶ 59-93; Doc.
1-1 (12 C 6798) at ¶¶ 64-82; see Braddock v. Zimmerman, 906 A.2d 776, 784-85 (Del. 2006)
(describing the demand futility doctrine); In re Abbott Labs. Derivative Shareholders Litig., 325
F.3d 795, 803-04 (7th Cir. 2003). One other derivative suit alleging essentially the same
misconduct by the same group of defendants, and also alleging demand futility, is pending before

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the undersigned judge. Marvin H. Maurras Revocable Trust v. Bronfman, 12 C 3395 (N.D. Ill.
filed May 3, 2012). Unlike Haith’s and Goodwin’s suits, the Maurras Trust suit falls within the
court’s diversity jurisdiction. Defendants in Maurras Trust there have moved to dismiss on the
ground, among others, that the plaintiffs there did not adequately allege demand futility under
Federal Rule of Civil Procedure 23.1. Id., Doc. 93.
Discussion
I.

Whether Plaintiffs’ Claims “Arise Under” Federal Law
As mentioned, Defendants contend that Haith’s and Goodwin’s suits fall within the

federal courts’ “arising under” jurisdiction, 28 U.S.C. § 1331. Grable held that “arising under”
jurisdiction extends to state law claims that “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.” 545 U.S. at 314.
Defendants assert that Plaintiffs’ claims necessarily raise the following issues of federal law: (1)
whether Accretive Health violated two federal privacy statutes, the HIPAA and the HITECH
Act; (2) whether Accretive Health violated the federal Fair Debt Collection Practices Act
(“FDCPA”), 15 U.S.C. § 1692 et seq., as incorporated into Minnesota law; and (3) whether
Defendants made or caused to be made misleading statements and omissions in SEC filings, in
violation of federal securities law. Grable jurisdiction does not apply for at least two reasons:
none of the federal issues ostensibly raised by Plaintiffs’ state law claims is “substantial,” and
entertaining this case in federal court would disrupt the congressionally approved balance of
federal and state judicial responsibilities.
The Supreme Court clarified Grable’s “substantial issue” requirement in Gunn v. Minton,
No. 11-1118, 568 U.S. ___ (U.S. Feb. 20, 2013). Gunn reaffirmed the principle, articulated in

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Grable, that “federal jurisdiction over a state law claim will lie if a federal issue is: (1)
necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal
court without disrupting the federal-state balance approved by Congress.” Gunn, slip op. at 6.
With respect to the third element, there is no doubt that the federal issues noted above are
substantial to the parties in these cases, in the sense that they could decide the outcome of this
litigation. As Gunn notes, however, “that will always be true when the state claim ‘necessarily
raise[s]’ a disputed federal issue.” Id. at 8. Accordingly, instead of considering whether an issue
is substantial to the parties, “[t]he substantiality inquiry under Grable looks instead to the
importance of the issue to the federal system as a whole.” Ibid. Gunn provides two examples of
state law claims that did raise “substantial” federal issues:
In Grable itself, for example, the Internal Revenue Service had seized
property from the plaintiff and sold it to satisfy the plaintiff’s federal tax
delinquency. Five years later, the plaintiff filed a state law quiet title action
against the third party that had purchased the property, alleging that the IRS
had failed to comply with certain federally imposed notice requirements, so
that the seizure and sale were invalid. In holding that the case arose under
federal law, we primarily focused not on the interests of the litigants
themselves, but rather on the broader significance of the notice question for
the Federal Government. We emphasized the Government’s strong interest
in being able to recover delinquent taxes through seizure and sale of
property, which in turn required clear terms of notice to allow buyers to
satisfy themselves that the Service has touched the bases necessary for good
title. The Government’s direct interest in the availability of a federal forum
to vindicate its own administrative action made the question an important
issue of federal law that sensibly belonged in a federal court.
A second illustration of the sort of substantiality we require comes from
Smith v. Kansas City Title & Trust Co., 255 U. S. 180 (1921), which Grable
described as the classic example of a state claim arising under federal law.
In Smith, the plaintiff argued that the defendant bank could not purchase
certain bonds issued by the Federal Government because the Government
had acted unconstitutionally in issuing them. We held that the case arose
under federal law, because the decision depends upon the determination of
the constitutional validity of an act of Congress which is directly drawn in
question. Again, the relevant point was not the importance of the question
to the parties alone but rather the importance more generally of a

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determination that the Government securities were issued under an
unconstitutional law, and hence of no validity.
Gunn, slip op. at 8-9 (citations, brackets, and internal quotation marks omitted).
Gunn itself provides a contrasting case. The plaintiff, Vernon Minton, was an inventor
who had hired the defendants to represent him in a federal court patent suit. Id. at 1-2. The
federal court ruled that Minton’s patent was invalid and then, when Minton’s attorneys sought
reconsideration based on a new argument regarding validity, the court held that Minton had
forfeited the argument by raising it too late. Id. at 2. Minton then brought a state law attorney
malpractice suit against his patent attorneys, alleging that their untimely submission of the new
argument had cost him his patent. Ibid. A dispositive question presented by Minton’s
malpractice suit was whether the forfeited argument would have succeeded on the merits; if it
would not have succeeded, then the defendants’ forfeiture of the argument did not cost Minton
his patent and thus caused him no harm. Id. at 2-3. This question necessarily raised a disputed
issue of federal law, since federal law governs the validity of United States patents. Id. at 3-4, 7.
The question before the Supreme Court was whether all this made Minton’s state law
malpractice claim fall within the “arising under” jurisdiction under Grable.
The Court held that it did not. Id. at 6. Although Minton’s suit necessarily raised a
federal question that was actually disputed, the Court concluded that the patent law issue was
“not substantial in the relevant sense” of being significant not only to the individual litigants, but
also “to the federal system as a whole.” Id. at 8, 12. In so holding, the Court made several
points. First, the state courts’ decision on the merits of the forfeited federal patent law argument
would “not change the real-world result of the prior patent litigation. Minton’s patent will
remain invalid.” Id. at 9-10. Second, the Court noted that allowing state court resolution of
federal patent law issues under such circumstances would not undermine the federal interest in

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the development of a uniform body of patent law, which interest Congress has asserted by
vesting the federal district courts with exclusive jurisdiction over suits arising under the patent
laws, because most questions of patent law would continue to be decided by the federal judiciary
and state court rulings on patent issues would not bind the federal courts. Id. at 10 (citing Tafflin
v. Levitt, 493 U.S. 455, 465 (1990)). Third, the Court explained that any preclusive effect that
the state courts’ determination might have “would be limited to the parties and patents that had
been before the state court” and that “[s]uch ‘fact-bound and situation-specific’ effects are not
sufficient to establish federal arising under jurisdiction.” Id. at 10-11 (quoting Empire
HealthChoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 701 (2006)). Fourth, the Court rejected
the argument that cases raising patent issues belong in federal court due to the federal courts’
greater expertise in patent law, reasoning that “the possibility that a state court will incorrectly
resolve a state claim is not, by itself, enough to trigger the federal courts’ exclusive patent
jurisdiction, even if the potential error finds its root in a misunderstanding of patent law.” Id. at
11-12. The Court concluded that “[t]here is no doubt that resolution of a patent issue in the
context of a state legal malpractice action can be vitally important to the particular parties in that
case. But something more, demonstrating that the question is significant to the federal system as
a whole, is needed. That is missing here.” Id. at 12.
The same holds for these cases. As Gunn makes clear, the fact that Plaintiffs’ state law
claims turn in part on the application of federal laws—the HIPAA, the HITECH Act, the
FDCPA, and the federal securities laws—is not enough to satisfy Grable. Defendants suggest
that the federal issues are substantial to the federal system as a whole because resolving
Plaintiffs’ state law claims will require the state courts to perform “the analysis and interpretation
of dozens of regulatory provisions promulgated under these statutes, most or all of which have

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never previously been adjudicated.” Doc. 27 (12 C 6798) at 16. (Defendants’ brief in Case No.
12 C 6781 is nearly identical to their brief in Case No. 12 C 6798, so the court will cite only the
latter.) That may be so, but Gunn answers that argument: the state court’s rulings will not bind
the federal courts in future cases and will have no preclusive effect beyond the parties to the state
litigation, and the possibility that the parties might be subjected to a state court’s incorrect
interpretation of federal law does not suffice to create “arising under” jurisdiction. Gunn, slip
op. at 10, 12. The state court’s resolution of those federal issues, in other words, will not have
effects beyond the parties to these suits and certainly could not pose a threat to the workings of
the federal system as a whole.
These cases therefore are unlike Grable, in which the state court, by accepting the
plaintiff’s argument that the Internal Revenue Service’s seizure of his land had violated federal
law, might have jeopardized the IRS’s ability to recover delinquent taxes by seizing and selling
the delinquent’s property; such a ruling would likely have forced the IRS to reimburse the
defendant for his lost property, and may also have made it more difficult for the IRS to sell
property in the future because potential buyers would fear losing it to the delinquent taxpayer in
a quiet title action. Gunn, slip op. at 8-9; see also Bennett v. Sw. Airlines Co., 484 F.3d 907, 910
(7th Cir. 2007) (“The [Grable] Court thought a federal forum especially appropriate for contests
arising from a federal agency’s performance of duties under federal law, doubly so given the
effect on the federal Treasury.”). Nor are the federal issues here akin to the issue in Smith, where
the state court would have harmed the federal government’s interest in issuing securities that
would be treated as valid, thereby endangering federal revenues, had it accepted the plaintiff’s
contention that the securities had been issued pursuant to an unconstitutional federal law and that
the defendant bank was therefore unable to purchase them. Gunn, slip op. at 9.

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These cases, rather, are much like Gunn: right or wrong, the state courts’ resolution of the
federal issues will not have a substantial effect beyond the parties themselves. At oral argument
on February 25, 2013, Defendants sought to distinguish Gunn on the ground that the federal
issue there arose in the context of a state malpractice law “case-within-a-case”—in which the
malpractice court must decide whether the patent court would have accepted the forfeited
argument had it been asserted in a timely manner—while the federal issues here are perhaps
raised more directly by the state law claims. Gunn cannot plausibly be read to apply only to the
“case-within-a-case” scenario. The reach of Supreme Court decisions are not limited to the
particular facts and circumstances presented in the case being decided; lower courts must apply
the reasoning of those decisions even to cases that are factually dissimilar. See United States v.
Skoien, 614 F.3d 638, 641 (7th Cir. 2010) (en banc) (“This is the sort of message that, whether or
not technically dictum, a court of appeals must respect, given the Supreme Court’s entitlement to
speak through its opinions as well as through its technical holdings.”). Even if these cases were
factually distinguishable from Gunn, the reasoning of Gunn clearly requires that federal issues
raised by state law claims be “substantial” in a sense that, as discussed above, the federal issues
raised here are not.
At any rate, the way in which Plaintiffs’ claims raise federal issues is very similar to the
way that the malpractice claim in Gunn raised federal patent law issues. The federal issues in
Gunn and here are raised not for their own sake but as a predicate to a state law claim: Minton
could not win his state malpractice action without showing that the federal patent law argument
forfeited by his attorneys was meritorious, and Plaintiffs here cannot win their state derivative
suits without showing that Defendants failed to prevent or publicly disclose some wrongdoing by
Accretive Health, with that wrongdoing potentially taking the form of violations of federal law.

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Suppose that the Illinois courts determine that Defendants or Accretive Health indeed violated
the HIPAA, the HITECH Act, the FDCPA, or the federal securities laws, and that Defendants
therefore breached duties they owed to Accretive Health’s shareholders, rendering them liable
under Delaware law. That conclusion would not render Defendants or Accretive Health liable
for the underlying violations of federal law or otherwise alter the result of the Minnesota
Attorney General’s enforcement action or any other action that may have been brought under
federal law. Even if the state courts’ decision could be asserted against Defendants or Accretive
Health by way of nonmutual collateral estoppel, that would not distinguish this suit from Gunn,
in which the Court held that the possibility that “a state court’s case-within-a-case adjudication
may be preclusive under some circumstances” did not render the underlying federal issue
“substantial” under Grable. Gunn, slip op. at 11.
Gunn also applied the fourth element of Grable, which asks whether the federal issue
raised by the state law claim is “capable of resolution in federal court without disrupting the
federal-state balance approved by Congress.” Id. at 6. Gunn held that Minton’s malpractice suit
failed this requirement because, while the suit did not present a substantial federal question,
“[t]he States … have ‘a special responsibility for maintaining standards among members of the
licensed professions.’” Id. at 12 (quoting Ohralik v. Ohio State Bar Ass’n, 436 U.S. 447, 460
(1978)). Because the States have traditionally regulated the legal profession, the Court
concluded that “[w]e have no reason to suppose that Congress—in establishing exclusive federal
jurisdiction over patent cases—meant to bar from state courts state legal malpractice claims
simply because they require resolution of a hypothetical patent issue.” Ibid.
Similar logic applies to this case. Shareholder derivative suits have traditionally been
governed by state corporate law. Under the corporate law of Delaware and other States, one duty

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that directors owe to shareholders is the duty to prevent the corporation from violating other
laws, state or federal, and thereby incurring liability that could harm shareholders by decreasing
the value of the corporation’s stock. See South v. Baker, __ A.3d __, 2012 WL 6114952, at *1
(Del. Ch. Sept. 25, 2012) (“directors can be held liable under [In re Caremark International Inc.
Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996)] for knowingly causing or consciously
permitting the corporation to violate positive law, or for failing utterly to attempt to establish a
reporting system or other oversight mechanism to monitor the corporation’s legal compliance”).
Thus, a corporation’s violation of federal laws such as the HIPAA, the HITECH Act, the
FDCPA, and the securities laws can be a predicate to a state law derivative action. There is no
reason to suppose, however, that in passing those laws to regulate patient privacy, debt collection
practices, and the issuance and trading of securities, Congress also intended to bring derivative
claims based on violations of those laws into the federal courts and thus upset the traditional
relegation of derivative actions to state courts—absent some other source of federal jurisdiction,
such as diversity, as in Maurras Trust.
For these reasons, Plaintiffs’ claims do not satisfy the third and fourth requirements of
Grable, and they therefore do not fall within the “arising under” jurisdiction of § 1331.
II.

Whether The Court Should Defer Decision on the Motion to Remand and First
Consider Whether Plaintiffs Adequately Alleged Demand Futility Under Rule 23.1
Defendants contend that this court should not remand these suits to state court, but

instead should first decide, as a “threshold” matter, whether the suits should be dismissed for
failure to adequately allege demand futility under Rule 23.1. Doc. 35 (12 C 6781); Doc. 33 (12
C 6798); see Fed. R. Civ. P. 23.1(b)(3) (providing that a complaint in a derivative action “must
… state with particularity (A) any effort by the plaintiff to obtain the desired action from the
directors …; and (B) the reasons for not obtaining the action or not making the effort”); In re

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Abbott Labs. Derivative Shareholders Litig., 325 F.3d at 807 (“The two-pronged test in Aronson
[] provides that demand futility is established if, accepting the well-pleaded facts as true, the
alleged particularized facts raise a reasonable doubt that either (1) the directors are disinterested
or independent or (2) the challenged transaction was the product of a valid exercise of the
directors’ business judgment.”). Defendants speak of the demand futility issue as one of
“standing”: if Plaintiffs did not make a pre-suit demand on the Accretive Health board and
cannot show that the demand futility doctrine excused them from doing so, Defendants say, then
Plaintiffs lack “standing” to bring these derivative actions. Doc. 35 (12 C 6781) at 2, 4, 6; Doc.
33 (12 C 6798) at 2, 4, 6.
If the demand issue were truly a question of “standing” within the meaning of Article III
of the Federal Constitution, then the issue would go to the court’s subject matter jurisdiction and
would present a classic threshold issue that could be decided prior to or instead of the Grable
issue. See Lewis v. Casey, 518 U.S. 343, 349 n.1 (1996) (“standing … is jurisdictional”). But
the demand requirement does not go to Article III standing, and thus does not give rise to a
question of subject matter jurisdiction. If Plaintiffs’ substantive allegations are true, they have
suffered financial loss that constitutes injury-in-fact, that was caused by Defendants’ actions, and
that could be redressed by the relief they seek. See Monsanto Co. v. Geertson Seed Farms, 130
S. Ct. 2743, 2752 (2010) (to establish Article III standing, an injury must be “concrete,
particularized, and actual or imminent; fairly traceable to the challenged action; and redressable
by a favorable ruling”). It necessarily follows that Plaintiffs have Article III standing, regardless
of whether they have adequately alleged demand futility. See In re Digimarc Corp. Derivative
Litig., 549 F.3d 1223, 1237 (9th Cir. 2008) (“Federal Rule of Civil Procedure 23.1’s pleading
requirement does not directly implicate subject matter jurisdiction”); Plumbers & Pipefitters

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Local 572 Pension Fund v. Cook, 2004 WL 5349589, at *2 (S.D. Ohio Sept. 22, 2004) (holding
that a plaintiff’s failure to satisfy Rule 23.1’s pleading requirement does not deprive the federal
court of subject matter jurisdiction); see also Rawroof v. Texor Petrol. Co., 521 F.3d 750, 756-57
(7th Cir. 2008) (distinguishing between Article III’s standing requirement and the real party in
interest requirement of Rule 17(a)); Freed v. JPMorgan Chase Bank, N.A., 2012 WL 3307091, at
*5 (N.D. Ill. Aug. 13, 2012) (same). Even the decision upon which Defendants principally rely
recognizes that the demand requirement does not implicate Article III. See Potter v. Hughes, 546
F.3d 1051, 1055 (9th Cir. 2008) (deeming the plaintiff’s compliance with Rule 23.1 “an issue of
state statutory standing,” as distinct from an “Article III issue[]”).
Because the demand futility issue does not implicate subject matter jurisdiction or
personal jurisdiction, the order of battle that Defendants propose—decide the demand futility
issue before the Grable issue—might contravene the rule of Steel Co. v. Citizens for a Better
Environment, 523 U.S. 83 (1998), that “[w]ithout jurisdiction the court cannot proceed at all in
any cause.” Id. at 94. This is not entirely clear; as Defendants correctly point out, the Supreme
Court has carved a narrow exception to the rule that subject matter jurisdiction must be resolved
first, holding that “a federal court has leeway to choose among threshold grounds for denying
audience to a case on the merits.” Sinochem Int’l Co. v. Malaysia Int’l Shipping Corp., 549 U.S.
422, 431 (2007) (internal quotation marks omitted); see also Ruhrgas AG v. Marathon Oil Co.,
526 U.S. 574, 578 (1999) (“We hold that in cases removed from state court to federal court, as in
cases originating in federal court, there is no unyielding jurisdictional hierarchy.”). Recognized
“threshold grounds” upon which a federal court may dispose of a case without first considering
subject matter jurisdiction include dismissal for lack of personal jurisdiction, abstention pursuant
to Younger v. Harris, 401 U.S. 37 (1971), dismissal under Totten v. United States, 92 U.S. 105

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(1876), transfer under 28 U.S.C. § 1404(a), and dismissal under the doctrine of forum non
conveniens. See Sinochem, 549 U.S. at 431-32; In re LimitNone, LLC, 551 F.3d 572, 576 (7th
Cir. 2008).
It is an open question, at least in this Circuit, whether a derivative plaintiff’s failure to
adequately plead demand futility is among the “threshold grounds” that a court can address
before reaching subject matter jurisdiction. A divided Ninth Circuit panel and a federal district
judge in New York have held that compliance with Rule 23.1 is a “threshold ground” under
Sinochem. See Potter, 546 F.3d at 1055-56 (“In this case, the issue of whether Potter satisfied
the demand pleading requirements of Rule 23.1 is ‘logically antecedent’ to the issue of whether
we have jurisdiction over this action.”); In re Facebook, Inc., IPO Secs. & Derivative Litig., __
F. Supp. 2d __, 2013 WL 525158, at *5-7 (S.D.N.Y. Feb. 13, 2013). Dissenting in Potter, Judge
Ikuta made a very strong case that compliance with Rule 23.1 is not an appropriate threshold
ground under Sinochem. See Potter, 546 F.3d at 1060-64 (Ikuta, J., dissenting).
There is no need to take sides here; even if a derivative plaintiff’s compliance with Rule
23.1 were among the “threshold grounds” that Sinochem allows a federal court to address before
resolving subject matter jurisdiction, it would not be appropriate to do so here given the
particular facts and circumstances of these cases. In recognizing that courts may decide nonjurisdictional threshold issues without first considering subject matter or personal jurisdiction,
Sinochem makes clear that this should be the exception rather than the rule:
If … a court can readily determine that it lacks jurisdiction over the cause or
the defendant, the proper course would be to dismiss on that ground. In the
mine run of cases, jurisdiction will involve no arduous inquiry and both
judicial economy and the consideration ordinarily accorded the plaintiff’s
choice of forum should impel the federal court to dispose of those issues
first.
549 U.S. at 436 (citations, brackets, and internal quotation marks omitted).

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In these cases, the jurisdictional issue presented by Grable is not a heavy lift, especially
after Gunn. The demand futility issue, by contrast, does not have an obvious resolution. The
issue has not been briefed at all in these two cases, and it will not be fully briefed in Maurras
Trust until early April. Having reviewed Defendants’ lengthy motion to dismiss in Maurras
Trust, the court can say without any hesitation or doubt that it would be far more arduous to
resolve the demand futility issue in these cases than it has been to resolve the Grable issue. See
Khanna v. McMinn, 2006 WL 1388744, at *14 (Del. Ch. May 6, 2006) (noting that the demand
futility “analysis is fact-intensive and proceeds director-by-director and transaction-bytransaction”); Lerner ex rel. Citigroup Inc. v. Prince, 945 N.Y.S.2d 520, 530 (N.Y. Sup. Ct.
2012) (noting that Delaware’s demand futility test “requires a fact-intensive determination as to
whether the pleadings allege a lack of independence or disinterestedness of a majority of the
directors sitting at the time of the commencement of the derivative claim at issue”). True, it is
likely that this court ultimately will have to decide a similar if not identical demand futility issue
in Maurras Trust. But the fact that there is a third Accretive Health derivative action pending
before the undersigned judge is pure serendipity, and therefore is of insufficient moment to
deprive Goodwin and Haith of the “consideration ordinarily accorded the plaintiff’s choice of
forum.” Sinochem, 549 U.S. at 436.
In the end, because the “court can readily determine that it lacks jurisdiction over the
cause …, the proper course” is “to dismiss on that ground.” Ibid.
III.

Whether Attorney Fees and Costs Should Be Awarded Under 28 U.S.C. § 1447(c)
The removal statute provides that “[a]n order remanding a case may require payment of

just costs and any actual expenses, including attorney fees, incurred as a result of the removal.”
28 U.S.C. § 1447(c). Plaintiffs request attorney fees and costs under that provision. Doc. 17 (12

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C 6781) at 8-9; Doc. 15 (12 C 6798) at 14-16. The Supreme Court has held that “the standard
for awarding fees [under § 1447(c)] should turn on the reasonableness of the 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. Conversely, when
an objectively reasonable basis exists, fees should be denied.” Martin v. Franklin Capital Corp.,
546 U.S. 132, 141 (2005).
In another Grable case where the plaintiff sought fees and costs under § 1447(c) upon
remand, this court wrote that “[t]he Seventh Circuit recently described Grable as ‘one of those
cases in which the Supreme Court seems shy about taking a definite stand.’ The governing
jurisdictional standard is flexible enough, and the body of governing precedent thin enough, that
it cannot be said that [the defendant] acted unreasonably in removing this case to federal court.”
Navistar Int’l Corp. v. Deloitte & Touche LLP, 837 F. Supp. 2d 926, 933 (N.D. Ill. 2011)
(quoting Samuel C. Johnson 1988 Trust v. Bayfield Cnty., 649 F.3d 799, 801 (7th Cir. 2011)).
The Supreme Court exhibited no such shyness in Gunn, taking a definite stand on the
“substantial” element of Grable jurisdiction. A defendant who removes a suit like Goodwin’s
and Haith’s suits after Gunn might be said to have acted unreasonably. But Defendants did not
have the benefit of Gunn when they filed their notices of removal, and Gunn itself recognized
that some lower courts had interpreted Grable’s “substantial issue” requirement to refer to the
federal issue’s importance to the parties as opposed to the federal system as a whole, in the
manner Defendants interpreted it here. Gunn, slip op. at 8 (citing Air Measurement Techs., Inc.
v. Akin Gump Strauss Hauer & Feld, L.L.P., 504 F.3d 1262, 1272 (Fed. Cir. 2007) (“the issue is
substantial, for it is a necessary element of the malpractice case”)). Given the unsettled state of

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the law when Defendants removed these cases, it cannot be said that they lacked an objectively
reasonable basis for the removal.
Perhaps recognizing this, Goodwin argues that “Defendants have acted unreasonably in
failing to heed this Court’s pronouncement in Navistar.” Doc. 31 (12 C 6798) at 19. In other
words, Goodwin maintains that because removal was improper under the analysis of Grable set
forth in Navistar, the removal was objectively unreasonable. That argument, more than any
other that has been made in these cases, is wholly without merit. A district court decision has no
precedential weight. See Wirtz v. City of S. Bend, 669 F.3d 860, 863 (7th Cir. 2012). A party
does not act in an objectively unreasonable manner simply by taking a position contrary to the
position articulated by a single district judge in a single (necessarily) non-precedential opinion.
Conclusion
For the foregoing reasons, Plaintiffs’ motions to remand are granted. These cases are
remanded to the Circuit Court of Cook County, Illinois. Plaintiffs’ requests for attorney fees
under 28 U.S.C. § 1447(c) are denied.

March 1, 2013
United States District Judge

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