When can a federal judge decline jurisdiction?

Federal judges love to exercise control over their docket. But sometimes they move the cases too fast. And sometimes they decline jurisdiction over the case, sending it to state court. In this case, the federal judge kicked the case over to state court right before trial after deciding the plaintiff's attorneys were forum-shopping in filing this wage and hour case in federal court. The Court of Appeals reinstates the case and the plaintiffs are back in federal court.

The case is Catzin v. Thank You & Good Luck, decided on August 18. After litigating the hell out of  the case for a few years, plaintiff's attorneys decided to drop the federal claim brought under the Fair Labor Standards, determining that plaintiffs would get the same relief under the state labor law claims. A week before trial started, the district court, noting the pre-trial filings focused solely on the state law claims and that plaintiffs had abandoned their federal claims, sua sponte decided against exercising supplemental jurisdiction over the state law claims, effectively sending the case over to state court. The district court "concluded that while plaintiffs' 'motives are not entirely clear, it appears to the Court that plaintiffs may have strategically asserted FLSA claims for the purpose of manufacturing [federal] jurisdiction, when they truly intended to litigate only claims under the New York Labor Law.'"

The Court of Appeals (Parker, Hall and Lohier) reverses on several grounds. First, trial courts cannot simply dismiss cases without allowing the parties an opportunity to be heard. You know, due process. That did not happen here. The district court closed the case without any input from the plaintiffs' lawyers. "Sua sponte dismissals without notice and an opportunity to be heard 'deviate from the traditions of the adversarial system' and 'tend to produce the very effect they seek to avoid -- a waste of judicial resources -- by leading to appeals and remands.'" That happens here: a remand. It is not "unmistakably clear" that the district court lacked jurisdiction over the case, and courts are supposed to weigh the factors under the supplemental jurisdiction statute, 28 USC sec. 1367 before declining federal jurisdiction. The Court of Appeals notes it has "upheld the exercise of supplemental jurisdiction even when all federal-law claims were eliminated prior to trial, for example, in long-pending cases presenting no novel issues of state law where 'discovery had been completed, dispositive motions had been submitted, and the case would soon be ready for trial.'" The trial court did not weigh the factors under Section 1367. But the case is more interesting than that, as the trial court also accused plaintiffs' lawyers of screwing around to get the case into federal court.

Plaintiffs may have had good reason to abandon their federal claims in this case because the Second Circuit held in Chowdhury v. Hamza Express Food Corp., 666 Fed. Appx. 59 (2d Cir. 2016), that the state labor law and FLSA liquidated damages provisions are largely identical "and can provide only one overlapping award if liquidated damages for the same conduct." Had the district court given the plaintiffs an opportunity to be heard, "light might have been shed on whether this clarification in the law had impacted the case," that is, "the plaintiffs could have explained whether they were trying to streamline the issues for the jury by not having to prove FLSA elements not required for NYLL liability, under which all their recovery could be obtained."

The Second Circuit also doesn't like how the district court accused plaintiffs of forum shopping. There is no evidence of this and this allegation is undercut by the extensive litigation that took place in this case, like motion practice and significant discovery. "We cannot glean from the record why could would have gone through all this effort if the federal-law claims were simply a ploy to get into federal court." It also bothers the Court of Appeals that the trial court came "perilously close to charging plaintiffs' counsel with unethical behavior, something a court should never do except with the support of a careful inquiry, through analysis, and thoughtfully expressed findings."