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Guggenberger v. Starkey Laboratories, Inc.

United States District Court, D. Minnesota

December 29, 2016

KEITH GUGGENBERGER, Plaintiff,
v.
STARKEY LABORATORIES, INC., Defendant, and UNITED STATES OF AMERICA, Movant. JULIE MILLER, Plaintiff,
v.
STARKEY LABORATORIES, INC., Defendant, and UNITED STATES OF AMERICA, Movant.

          William Michael, Jr., MAYER BROWN LLP, and Mark J. Briol and William G. Carpenter, BRIOL & ASSOCIATES, for plaintiff Keith Guggenberger.

          David H. Redden, FABIAN MAY & ANDERSON, PLLP, for plaintiff Julie Miller.

          David Bradley Olsen and Scott Nielson, HENSON & EFRON, PA, for defendant.

          Benjamin F. Langner, Craig R. Baune, Erin M. Secord, and Lola Velazquez-Aguilu, Assistant United States Attorneys, UNITED STATES ATTORNEY'S OFFICE, for movant.

          MEMORANDUM OPINION AND ORDER

          JOHN R. TUNHEIM CHIEF JUDGE

         Plaintiffs Keith Guggenberger and Julie Miller filed these two related employment cases in state court, seeking damages arising from their September 2015 termination by Defendant Starkey Laboratories, Inc. (“Starkey”). In state court, Guggenberger and Miller served Starkey with various discovery requests. In separate proceedings, the United States indicted a number of other former Starkey employees, who were also terminated in September 2015, on federal conspiracy, mail fraud, wire fraud, and money laundering charges; the indictment alleges that those employees defrauded Starkey of more than $20 million. The United States attempted to permissively intervene in the civil state-court matters for the purpose of delaying discovery pursuant to Minn. R. Civ. P. 24.02, arguing discovery in the civil matters could disturb the integrity of the federal criminal case. The state court denied intervention and the United States subsequently removed both cases to federal court pursuant to 28 U.S.C. § 1442(a)(1).

         Guggenberger and Miller move for remand to state court, arguing the Court lacks jurisdiction; they also request an award to cover costs and fees related to the improper removal. The United States moves for permissive intervention and a stay of discovery. Starkey moves to stay the civil litigation, or alternatively, to stay discovery.

         The Court will grant Guggenberger's and Miller's motions for remand because it lacks jurisdiction and removal under § 1442(a)(1) was improper. However, because the United States' good-faith argument for removal was objectively reasonable, the Court will deny Guggenberger's and Miller's requests for costs and fees. The Court will deny as moot all other pending motions.

         BACKGROUND

         I. FACTS

         A. Federal Indictment of Former Starkey Executives

         Starkey is a large hearing aid company based in Minnesota. (Guggenberger[1]Notice of Removal (“Guggenberger Removal Notice”), Ex. 1 (“Guggenberger Am. Compl.”) ¶ 1, June 20, 2016, Docket No. 1.) Starkey terminated a number of employees in September 2015, when an alleged large-scale fraud scheme orchestrated by top-level executives came to light. (Id. ¶ 14; Guggenberger Second Decl. of Erin M. Secord (“Guggenberger Second Secord Decl.”), Ex. M (“Indictment”) ¶ 1, Oct. 4, 2016, Docket No. 37.) Guggenberger and Miller were among those fired. On September 21, 2016, three of the terminated employees - Scott Nelson, Larry Miller, and former Starkey President Jerry Ruzicka - were federally indicted on charges including mail fraud, wire fraud, money laundering, and conspiracy. (Indictment ¶¶ 1, 17-55.) The indictment alleges that the criminal defendants defrauded Starkey of more than $20 million over many years. (Id. ¶ 64.)

         B. Termination of Guggenberger and Miller

         At the time of his termination, Guggenberger was a twenty-nine-year employee of Starkey who most recently served as Senior Vice President of Operations; he reported to Ruzicka. (Guggenberger Am. Compl. ¶¶ 2, 9.) Miller worked at Starkey for almost forty years; at the time of her termination she was Senior Executive Assistant to Ruzicka, and she is married to Larry Miller. (Miller Notice of Removal (“Miller Removal Notice”), Ex. 1 (“Miller Compl.”) ¶¶ 3, 9, June 20, 2016, Docket No. 1; Indictment ¶ 1.)

         On September 30, 2015, Guggenberger filed a lawsuit against Starkey in Minnesota state court, alleging breach of employment contract, breach of the implied covenant of good faith and fair dealing, defamation, unpaid wages under Minn. Stat. § 181.13, unjust enrichment/quantum meruit, and a federal statutory claim under 29 U.S.C. § 1132. (Guggenberger Removal Notice ¶ 2; Guggenberger Am. Compl. ¶¶ 24-45.) Guggenberger demands damages in excess of $11 million. (Guggenberger Am. Compl. ¶¶ 29, 35.)

         On December 22, 2015, Miller filed a lawsuit against Starkey in Minnesota state court. Miller asserts three claims: marital status discrimination under the Minnesota Human Rights Act, Minn. Stat. § 363A.08, subd. 2, breach of contract, and promissory estoppel. (Miller Compl. ¶¶ 14-30.) Miller demands damages in excess of $50, 000. (Id. ¶¶ 18, 24, 30.)

         II. PROCEDURAL HISTORY

         A. State Court

         On March 16, 2016, the state court granted Starkey's motion to companion Guggenberger and Miller for discovery pursuant to Minn. Gen. R. Prac. 113 and Minn. R. Civ. P. 42.01 because of the substantial overlap of fact and law between the cases. (Guggenberger Aff. of William Carpenter (“Carpenter Aff.”), Ex. 2 at 33-34, July 1, 2016, Docket No. 15.) The state court reasoned that “[t]here will be identical questions of law presented by discovery, particularly concerning Fifth Amendment protections for witnesses while a criminal investigation is pending.” (Id. at 33.)[2] Starkey has not yet filed an Answer in either case.[3]

         On April 29, 2016, Guggenberger served discovery requests on Starkey, seeking the names of all Starkey employees and vendors who provided information about Guggenberger to law enforcement; the names of the law enforcement officers who received that information; a description of all such communications between Starkey and law enforcement; and documents related to any law enforcement investigation of Guggenberger in Starkey's possession. (Id., Ex. 3 at 39-40, 46-47.) Guggenberger also noticed a number of depositions, including a deposition of Starkey and Starkey's private investigation firm. (Id. at 49-50, 58; see also Id. at 60-61.)[4]

         On May 9, 2016, Miller served Starkey with discovery requests. (Miller Decl. of Erin M. Secord (“Miller Secord Decl.”), Ex. C at 37-50, Aug. 2, 2016, Docket No. 17.) Miller requested, among other things, documents relating to and a detailed explanation of the reasons for Miller's and her spouse's termination, and information regarding Miller's employment contract and Starkey's anticipated defenses. (Id. at 40-42.) Like Guggenberger, Miller noticed depositions of Starkey executives. (Id. at 4.) Unlike Guggenberger's requests, Miller's discovery requests make no mention of the criminal investigation or Starkey's communications with law enforcement. (See Id. at 4-5, 37-50.)

         On May 19, 2016, the United States filed Notices of Permissive Intervention in Guggenberger and Miller pursuant to Minn. R. Civ. P. 24.02, [5] stating:

Guggenberger's publicly-filed pleadings acknowledge the existence of a criminal investigation, and he has served discovery requesting information that [Starkey] provided or identified to law enforcement or “prosecutorial personnel.”
The government is conducting an investigation into criminal conduct of which Starkey may be a victim, and there are questions of fact or law common to the investigation, this case, and the related cases, [Miller and Ruzicka].
The United States seeks to protect the integrity of its criminal investigation by, among other things, preventing circumvention of limitations on discovery pursuant to the Federal Rules of Criminal Procedure. The government also seeks to protect from disclosure the focus and scope of the grand jury investigation as well as information provided to the grand jury. See Fed. R. Crim. P. 6(e). The discovery sought in this matter and in the related Miller matter would undermine those interests.

(Carpenter Aff., Ex. 5 (citation omitted); see also Miller Secord Decl., Ex. D (near-identical language).) Guggenberger stipulated to the United States' permissive intervention for the sole purpose of allowing the United States to argue for a stay of discovery and reserved the right to object to the motion to stay discovery. (Carpenter Aff., Ex. 6.) Miller objected to the United States' intervention, and the United States moved to intervene as required by Minn. R. Civ. P. 24.03. (Miller Secord Decl., Exs. E-F.) The United States argued that it sought intervention to “protect the integrity of its criminal investigation” by (1) “preventing circumvention of limitations on discovery pursuant to the Federal Rules of Criminal Procedure” and (2) “protect[ing] from disclosure the focus and scope of the grand jury investigation as well as information provided to the grand jury.” (Id., Ex. A ¶ 8.)

         Five days before the state-court hearing on the United States' motion for permissive intervention, the United States filed briefing indicating, for the first time, its intent to remove the case to federal court after intervention in order to “submit its Motion to Stay Discovery to a federal judge authorized to receive and evaluate federal grand jury materials that are subject to [Fed. R. Crim. P.] 6(e) protection.” (Carpenter Aff., Ex. 7; id., Ex. 8 at 82.) Guggenberger responded that his prior “stipulation to intervention [was] not valid for intervening for the purpose of removal, ” and objecting to the United States' intervention for that purpose. (Id., Ex. 9 at 85.)

         Shortly before the state-court hearing began, the court issued a written order granting the United States permissive intervention in Guggenberger based on the parties' joint stipulation, apparently unaware of the United States' plan to remove the case immediately after intervening and Guggenberger's opposition. (Guggenberger Decl. of Erin M. Secord (“Guggenberger Secord Decl.”), Ex. K, July 21, 2016, Docket No. 23.) At the hearing, the judge stated that he was inclined to grant permissive intervention in Miller to allow the United States to argue for a stay of discovery. (Carpenter Aff., Ex. 10 (“State Tr.”) at 91.)

         After the parties explained that the United States planned to immediately remove the case after intervening, the court changed course, denying the United States' motion for permissive intervention in Miller and revoking intervention in Guggenberger. (Id. at 91-94.) The state court expressed irritation with the United States' strategy to first portray intervention as a path to argue for staying discovery in state court, then later seeking intervention solely in order to generate removal jurisdiction. (Id. at 95-97; see also Guggenberger Removal Notice, Ex. 2 at 3.) In a subsequent written order, the court explained that “the court is aware of no authority - nor was any cited by [the United States] - that mandates a permissive intervention so that a case may be removed to federal court.” (Guggenberger Removal Notice, Ex. 2 at 3.) Despite denying intervention, the state court instructed the parties to propose language for a protective order and an order partially staying discovery. (State Tr. at 105-06.)

         B. Federal Court

         On June 20, 2016, after the state court denied permissive intervention, the United States removed Guggenberger and Miller pursuant to 28 U.S.C. § 1442(a)(1). In the Notices of Removal, the United States explained:

This notice of removal is filed pursuant to 28 U.S.C. § 1442(a)(1) because the Hennepin County District Court's Order Dated June 20, 2016 is “against or directed to” the United States. See, e.g., People's Nat'l Bank of Mora v. BWHC, LLC, No. 08-408 (PJS/JJG), 2008 WL 10973336 (D. Minn. Oct. 10, 2008). Further, the United States has raised issues in response to the Plaintiff's requested discovery that . . . arise out of its obligations to enforce federal law. See Fed. R. Crim. P. 6(e).

(Guggenberger Removal Notice at 2; Miller Removal Notice at 2.)

         Guggenberger and Miller filed motions to remand pursuant to 28 U.S.C. § 1447(c). (Guggenberger Mot. for Remand, July 1, 2016, Docket No. 11; Miller Mot. for Remand, July 12, 2016, Docket No. 9.) Guggenberger and Miller argue that § 1442(a)(1) does not provide a basis for removal in this case. They seek an award of costs and fees pursuant to § 1447(c).

         After removal, the United States filed a letter with the Court under D. Minn. LR 7.1(j) requesting leave to file a motion to reconsider the state court's denial of permissive intervention. The Court denied the United States' request and, instead, directed that the Court would consider new motions for intervention and a stay. Subsequently, the United States filed motions to stay discovery and motions for permissive intervention. On the same date, Starkey filed motions to stay litigation, or alternatively, to stay discovery in both cases.

         ANALYSIS

         I. ...


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