Rooker v. Budynski, 17-CV-603-EAW-MJR

JOHN H. ROOKER, Plaintiff, v. MICHAEL E. BUDYNSKI, Defendant.

17-CV-603-EAW-MJR

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NEW YORK

August 24, 2018

REPORT AND RECOMMENDATION

This case has been referred to the undersigned by the Hon. Elizabeth A. Wolford pursuant to 28 U.S.C. §636(b)(1) for all pre-trial matters that a Magistrate Judge may hear and determine and those which a Magistrate Judge may hear and thereafter file a report and recommendation for disposition. (Dkt. No. 9). Presently before the Court is removing party Optum's response to the Court's Order to Show Cause (Dkt. No. 13) regarding its Notice of Removal (Dkt. No. 1).

BACKGROUND

The following background information is taken from Optum's Notice of Removal. (Dkt. No. 1). Plaintiff John H. Rooker commenced a negligence action against defendant Michael E. Budynski in New York State Supreme Court, Orleans County, in 2008 (the "State Court Action") alleging that he sustained personal injuries when the motorcycle he was operating collided with Budynski's farm tractor. (Id. ¶¶5, 9). At the time of the collision, Rooker was a participant in the Washington Mutual, Inc. Flexible Benefits Plan (the "WaMu Plan"), an employee welfare benefit plan governed by the Employee Retirement Income Security Act ("ERISA"). (Id. ¶6).¹ The WaMu Plan paid Rooker $47,195.31 in medical benefits relating to injuries he suffered in the collision. (Id. ¶7).

Optum, as successor to Ingenix Subrogation Services, is the subrogation/reimbursement agent for the WaMu Plan. (Id. ¶¶2-3). During the pendency of the State Court Action, Optum advised defense counsel that if Rooker were to obtain a recovery in the State Court Action, Optum would seek to obtain out of that recovery the cost of the medical benefits that the WaMu Plan previously paid to Rooker. (Id. ¶10). According to Optum, "[i]t is well-settled that the terms of an ERISA plan can create an equitable lien by agreement on the tort recovery of a plan participant." (Id. ¶13). In 2015, Rooker and Budynski agreed to settle the State Court Action, but they made the settlement contingent upon extinguishment of the purported lien asserted by the WaMu Plan. (Id. ¶11). In 2017, Rooker applied for (and the state court judge granted) an order requiring Optum to show cause why the state court should not issue an order extinguishing the WaMu Plan's purported lien. (Id. ¶¶1, 12). Rooker served the order to show cause on Optum, after which Optum removed the entire State Court Action to this Court on the basis that the enforceability of the lien is governed by federal law, specifically, ERISA. (Id. ¶¶1-3, 13-16).

After Judge Wolford referred the case to this Court, the Court held a status conference on December 5, 2017 at which it questioned whether Optum properly removed the State Court Action to this Court and whether the Court has subject matter jurisdiction over the dispute. (Dkt. No. 8). At the request of the parties, the Courtpermitted them to engage in limited discovery regarding the lien dispute. (Id.). At the next status conference on May 4, 2018, Rooker informed the Court that the parties were still conducting discovery regarding the lien. (Dkt. No. 11). Rooker further stated that in the event the lien is deemed valid, he and Budynski likely will be unable to settle the State Court Action given that he would have to hand over a substantial portion of the settlement proceeds to Optum. (Id.). At the third and final status conference on June 4, 2018, Rooker informed the Court that he would like to proceed with motion practice to determine the validity of the lien. (Dkt. No. 12). The Court again expressed its concern regarding the propriety of removal and the existence of subject matter jurisdiction, and it thus entered an Order to Show Cause requiring Optum to address the following issues:

1. Does Optum have standing to remove the State Court Action to this Court given that Optum is not a defendant in the State Court Action?

2. If Optum lacks standing to remove the State Court Action to this Court, does this Court have the authority to sua sponte remand the State Court Action?

3. Is Optum's lien claim ripe such that the Court has subject matter jurisdiction over the claim?

4. If the Court has jurisdiction over the lien claim, does the Court also have jurisdiction over the underlying State Court Action?

(Dkt. No. 13). Optum thereafter filed a memorandum of law addressing the foregoing issues (Dkt. No. 15), and Rooker (Dkt. No. 17) and Budynski (Dkt. No. 18) filed response papers. Optum then filed a reply. (Dkt. No. 19). The Court will address each issue in turn.

DISCUSSION

I. Does Optum have standing to remove the State Court Action to this Court given that Optum is not a defendant in the State Court Action?

Under 28 U.S.C. §1441(a), a "defendant" may remove to federal district court "any civil action brought in a State court of which the district courts of the United States have original jurisdiction." Optum is not a named defendant in the State Court Action — rather, it entered the case through an order to show cause filed by Rooker. Optum argues, however, that the order to show cause constitutes an independent civil action — in particular, a special proceeding under New York law — and that as a respondent to the special proceeding, it is a "defendant" for purposes of the removal statute. (Dkt. No. 15 (Optum Memo. of Law) at 3-8); see Sears Roebuck & Co. v. Glenwal Co., 325 F. Supp. 86, 88-89 (S.D.N.Y. 1970) (finding respondent to a special proceeding to be a defendant for purposes of the removal statute), aff'd, 442 F.2d 1350 (2d Cir. 1971).

Under New York law, "[a] special proceeding is a civil judicial proceeding in which a right can be established or an obligation enforced in summary fashion." S.E.C. v. Colonial Inv. Mgmt. LLC, No. 07 Civ. 8849(PKC), 2010 WL 4159276, at *2 (S.D.N.Y. Oct. 6, 2010) (internal quotation marks and citation omitted); see also CSX Transp., Inc. v. Island Rail Terminal, Inc., 879 F.3d 462, 469 (2d Cir. 2018) (describing special proceeding under New York law). "Like an action, it ends in a judgment, but the procedure is similar to that on a motion." Colonial Inv. Mgmt. LLC, 2010 WL 4159276, at *2 (internal quotation marks and citation omitted). A special proceeding is commenced in New York State court by filing a petition. See N.Y. C.P.L.R. §304(a). Here, however, Rooker never filed a petition in state court — he instead filed an order to show cause, which essentially is amotion seeking relief against Optum in the form of an order extinguishing the purported lien. (See Dkt. No. 1-1 (Rooker's order to show cause)); N.Y. C.P.L.R. §2214(d) (providing that an order to show cause may be served in lieu of a notice of motion).²

Although Rooker's order to show cause is a motion, not a special proceeding, a motion may in certain instances constitute an independent action that may be removed to federal court under §1441(a). See Fox & Horan v. Beiny, No. 92 Civ. 2067(LJF), 1992 WL 168261, at *1 (S.D.N.Y. June 29, 1992); see also Travelers Prop. Cas. v. Good, 689 F.3d 714, 724 (7th Cir. 2012) (noting that 28 U.S.C. §1441(a) "has long been interpreted to allow removal only of 'independent suits' but not ancillary or 'supplementary' proceedings"); Wimbledon Fin. Master Fund, Ltd. v. Sage Grp. Consulting Inc., No. 17 Civ. 6563(AT), 2017 WL 6034649, at *2 (S.D.N.Y. Nov. 21, 2017) (acknowledging distinction between independent and ancillary proceedings for purposes of removal statute).³ "Whether a particular state judicial procedure qualifies as a separate action is not an all-or-nothing proposition." Travelers Prop. Cas., 689 F.3d at 724. "It depends on the context of each case in which it arises." Id. Because removability is a question of federal law, "the labels the case had in the state court . . . are not determinative." Labertew v. Langemeier, 846 F.3d 1028, 1031 (9th Cir. 2017) (quoting Swanson v. LibertyNat'l Ins. Co., 353 F.2d 12, 13 (9th Cir. 1965)); see also Travelers Prop. Cas., 689 F.3d at 724 ("[T]he state's own characterizations of the proceeding are not decisive.").

Here, although the State Court Action had only one case number before the state court, it actually consists of two independent actions — Rooker's negligence action against Budynski (the "Personal Injury Action") and Rooker's order to show cause against Optum which, in effect, seeks declaratory relief regarding the validity of the purported lien (the "Declaratory Judgment Action"). See Labertew, 846 F.3d at 1031 (fact that state court proceeding has only one case number does not mean it constitutes only one action for purposes of the removal statute). The Court agrees with Optum that the Declaratory Judgment Action is independent from the Personal Injury Action such that Optum has standing to remove it to this Court under §1441(a). Unlike the Personal Injury Action, which is between Rooker and Budynski and involves a negligence claim arising out of a motor vehicle accident, the Declaratory Judgment Action is between Rooker and Optum and involves the enforceability of a lien pursuant to an employee welfare benefit plan. See Travelers Prop. Cas., 689 F.3d at 725 (stating that a state court proceeding is independent for purposes of the removal statute when it presents a genuine dispute against a new party and raises new issues of fact and law). Thus, because the Declaratory Judgment Action is independent from the Personal Injury Action, Optum has standing to remove the Declaratory Judgment Action to this Court.

Regarding removal of the Personal Injury Action, it appears that when Optum removed the Declaratory Judgment Action to this Court, it removed the Personal Injury Action along with it. Indeed, Optum's Notice of Removal does not differentiate between the Personal Injury Action and the Declaratory Judgment Action — it simply seeksremoval of the entire State Court Action. (See Dkt. No. 1 (Notice of Removal) "Wherefore" Clause). The Personal...