Proctor v. Vishayintertechnology, Inc.: the Ninth Circuit Failed to Follow the Rule of Unanimity When Applying Rule 11 to a Case With Multiple Defendants

• Publication year: 2022

44 Creighton L. Rev. 261. PROCTOR V. VISHAYINTERTECHNOLOGY, INC.: THE NINTH CIRCUIT FAILED TO FOLLOW THE RULE OF UNANIMITY WHEN APPLYING RULE 11 TO A CASE WITH MULTIPLE DEFENDANTS

PROCTOR V. VISHAYINTERTECHNOLOGY, INC.: THE NINTH CIRCUIT FAILED TO FOLLOW THE RULE OF UNANIMITY WHEN APPLYING RULE 11 TO A CASE WITH MULTIPLE DEFENDANTS

Kathryn A. Kotlik

I. INTRODUCTION

Since 1900, federal courts have consistently held that all defendants must join in the removal of an action from state to federal court.(fn1) Pursuant to 28 U.S.C. § 1441,(fn2) a defendant or defendants may remove a state action to a federal district court where the federal district court would have original jurisdiction of the action.(fn3) When the action involves more than one defendant, the removal is subject to the rule of unanimity.(fn4) The rule of unanimity is a common-law rule that requires all defendants join in the removal of the action.(fn5) The rule is derived from 28 U.S.C. § 1446,(fn6) which outlines the procedural requirements for removal.(fn7) However, § 1446 does not prescribe how co-defendants in multiple-defendant cases must join in the removal.(fn8) Although the rule of unanimity is well-settled, federal courts have disagreed over the ways defendants may satisfy the rule.(fn9) A majority of courts have required each defendant to consent directly by submitting some type of written confirmation.(fn10) Courts have yet to agree on the kind of writing that satisfies the rule.(fn11) On the other hand, a few courts have concluded that a single defendant's filing of a removal notice is effective without each defendant's written consent.(fn12)

In Proctor v. Vishay Intertechnology, Inc.,(fn13) the United States Court of Appeals for the Ninth Circuit concluded that effective notice of removal does not require each defendant to submit written con-sent.(fn14) In Proctor, Rebecca Proctor and other minority shareholders in Siliconix, Inc. (collectively, "Proctor") sued the majority shareholder, Vishay Intertechnology, Inc. ("Vishay") in the Superior Court of California, County of Santa Clara, alleging Vishay breached its fiduciary duties and misappropriated Siliconix's assets.(fn15) Proctor also claimed Vishay's auditor, Ernst and Young, LLP ("Ernst and Young") helped Vishay hide its misappropriations.(fn16) Seeking to remove the state action to federal court, Ernst and Young filed a removal notice representing all defendants consented to the removal.(fn17) The United States District Court for the Northern District of California accepted jurisdiction and denied Proctor's motion to remand.(fn18) Proctor appealed to the Ninth Circuit, asserting that lack of a written indication of Vishay's joinder in the removal rendered Ernst and Young's removal improper.(fn19) The Ninth Circuit concluded that effective removal did not require Vishay's individual consent.(fn20) Where Ernst and Young represented Vishay's consent in the removal notice under a threat of sanctions and Vishay could object to the removal, Ernst and Young's removal notice was procedurally proper.(fn21) The Ninth Circuit reasoned the availability of objections and sanctions pursuant to Federal Rule of Civil Procedure 11(fn22) ("Rule 11") mitigated any concerns that one defendant may falsely represent consent of another defendant or that a defendant may allow another defendant to remove to reserve an objection if the federal forum later proved disadvantageous.(fn23)

This Note will first review the facts and holding of Proctor.(fn24) This Note will discuss statutes and rules establishing removal procedures and relevant federal court decisions concerning what form of joinder satisfies the rule of unanimity.(fn25) This Note will then establish the following: (A) the Ninth Circuit properly concluded Rule 11 mitigates the concern that one defendant will misrepresent another defendant's consent; (B) the Ninth Circuit erred in determining that Rule 11 binds a non-signing defendant to the removal; and (C) the Ninth Circuit erred in determining the rule of unanimity is satisfied when all defendants are not bound to the removal.(fn26) This Note will conclude that the Ninth Circuit expanded defendants' ability to remove cases without regard to plaintiffs' and courts' interests under the rule of unanimity.(fn27)

II. FACTS AND HOLDING

In Proctor v. Vishay Intertechnology, Inc.,(fn28) minority shareholders in Siliconix, Inc. ("Siliconix"), a publicly owned semiconductor manufacturer, brought a class action and shareholders' derivative suit against the majority shareholder, Vishay Intertechnology, Inc. ("Vishay"), and related defendants in the Superior Court of California, County of Santa Clara.(fn29) The minority shareholders, Rebecca Proctor, Rex Brooks, John Donovan, and Robert Needles (collectively, "Proctor") alleged that Vishay breached its fiduciary duties and misappropriated Siliconix's assets.(fn30) Proctor also claimed Vishay's auditor, Ernst and Young, LLP ("Ernst and Young") helped hide Vishay's misappropriations from Siliconix's minority shareholders and the United States Securities Exchange Commission.(fn31)

After Proctor filed the complaint and served the defendants, Proctor stalled the California proceedings for two years while it sought corrective action through communications with Siliconix.(fn32) However, Proctor's attempts failed and Vishay subsequently announced its intention to make a tender offer.(fn33) Vishay wanted to obtain enough shares of Siliconix stock to execute a freeze-out or short-form merger, which under Delaware law would allow Vishay to force minority shareholders to sell their remaining shares to Vishay.(fn34) After Vishay's announcement, several minority shareholders joined in a class-action shareholders' suit against Vishay in the Delaware Court of Chancery, alleging Vishay breached its fiduciary duties to the shareholders by making an unfair tender offer.(fn35) The minority shareholders and Vishay reached an agreement, and in October 2005, the Delaware Court of Chancery issued a final judgment dismissing the action with prejudice and releasing Vishay's liability pursuant to the settlement agreement.(fn36)

Proctor did not participate in the Delaware proceedings.(fn37) Instead, Proctor filed an amended complaint in the California proceedings alleging inadequate notice of appraisal rights and unfair settlement terms in the Delaware action.(fn38) Defendants Ernst and Young and Vishay filed demurrers to the complaint arguing the Delaware judgment precluded the California action.(fn39) Vishay petitioned the Delaware court for an injunction halting the California action.(fn40) On June 13, 2006, the Delaware court issued the injunction prohibiting all plaintiffs in the Delaware action from pursuing the California action.(fn41) The California judge challenged the Delaware injunction, stating the Delaware court acted extraordinarily in telling the California court how to rule on the issue.(fn42) Consequently, Ernst and Young filed notice in the California action, seeking to remove the action to the United States District Court for the Northern District of California pursuant to the Securities Litigation Uniform Standards Act,(fn43) which provided a jurisdictional basis for removal of actions covered by the Act.(fn44)

Denying Proctor's motion to remand and accepting jurisdiction over the action, the district court found that, according to 28 U.S.C. §§ 1441(a)(fn45) and 1446(b),(fn46) the defendants properly removed the ac-tion.(fn47) The district court concluded that by filing a formal joinder after learning of Proctor's allegations, Vishay cured any procedural defect in Ernst and Young's removal notice.(fn48) The district court dismissed the case against Ernst and Young and granted summary judgment in favor of Vishay.(fn49)

Proctor appealed the district court's denial of its motion to remand, dismissal of its claims against Ernst and Young, and summary judgment ruling in favor of Vishay to the United States Court of Appeals for the Ninth Circuit.(fn50) Proctor argued that Ernst and Young provided improper notice of removal because co-defendant Vishay did not submit timely written consent to the removal.(fn51)

In opposition, Ernst and Young argued its removal notice properly indicated all defendants' consent.(fn52) Ernst and Young also argued that courts requiring each defendant to consent directly have not agreed on how defendants should express consent.(fn53) Ernst and Young maintained that the concern that only written consent binds defendants carries little weight because the court would promptly remand the action if one defendant misrepresented another defendant's consent to remove.(fn54)

The Ninth Circuit affirmed the district court's denial of Proctor's motion to remand.(fn55) The court approved of the procedure utilized by Ernst and Young to provide removal notice.(fn56) Noting the circuit courts of appeals are divided on the proper procedure defendants should use to join in the removal decision, the Ninth Circuit adopted the position of the United States Court of Appeals for the Sixth Circuit as fully sufficient to satisfy the rule of unanimity.(fn57) In Harper v. AutoAlliance International, Inc.,(fn58) the Sixth Circuit stated Federal Rule of Civil Procedure 11(fn59) ("Rule 11") did not require all defendants to submit written consent and allowed defendants' counsel to represent the consent of another defendant.(fn60) The...