23-944 Link Motion Inc. v. DLA Piper LLP, et al.
In the United States Court of Appeals for the Second Circuit
AUGUST TERM 2023 No. 23-944
LINK MOTION INC., Plaintiff-Appellant, v. DLA PIPER LLP (US); CARYN G. SCHECHTMAN, Defendants-Appellees. __________
ARGUED: FEBRUARY 1, 2024 DECIDED: JUNE 10, 2024 __________ Before: LEVAL, RAGGI, and BIANCO, Circuit Judges. ________________
In this legal malpractice action removed from the New York State Supreme
Court to the United States District Court for the Southern District of New York
(Victor Marrero, Judge), plaintiff Link Motion Inc. appeals from the dismissal of its
complaint as time-barred and from the denial of its motion to remand the action
to state court. This court concludes that remand is warranted for lack of federal
jurisdiction. The federal law standing question that the district court identified as embedded in Link Motion’s malpractice claim does not fall within the narrow
category of “disputed and substantial” questions of federal law permitting the
exercise of federal jurisdiction over a state law claim. Gunn v. Minton, 568 U.S. 251,
258 (2013); see Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308,
316 (2005).
VACATED AND REMANDED.
_________________
MICHAEL J. MALONEY (Rosanne E. Felicello, on the briefs), Felicello Law P.C., New York, N.Y., for Plaintiff-Appellant.
NANCY E. HART (Kevin S. Rosen, Peter M. Wade, William J. Moccia, and Katherine Moran Meeks, on the brief), Gibson, Dunn & Crutcher LLP, New York, NY, Los Angeles, CA, Washington, DC, for Defendants-Appellees. _________________
REENA RAGGI, Circuit Judge:
Link Motion Inc. (“LKM”), a Chinese company incorporated in the Cayman
Islands, brought this legal malpractice action against the law firm of DLA Piper
LLP (US) and one of its attorneys (hereafter referred to collectively as “DLA
Piper”) in the New York State Supreme Court for New York County. After DLA
Piper removed the case to the United States District Court for the Southern District
of New York (Victor Marrero, Judge), that court entered a judgment of dismissal
on May 26, 2023, finding LKM’s action to have been untimely filed. On this appeal,
LKM challenges both that timeliness determination and the district court’s earlier
denial of LKM’s motion to remand the case to state court. For reasons explained
in this opinion, we conclude that the case must be returned to state court for lack
2 of federal jurisdiction over LKM’s state law claim. The federal law standing
question that the district court identified as embedded in LKM’s malpractice claim
does not fall within the narrow category of “disputed and substantial” questions
of federal law permitting the exercise of federal jurisdiction over a state law claim.
Gunn v. Minton, 568 U.S. 251, 258 (2013); see Grable & Sons Metal Prods., Inc. v. Darue
Eng’g & Mfg., 545 U.S. 308, 316 (2005). Accordingly, we vacate the judgment of
dismissal without considering the question of timeliness, and we remand the case
to the district court with instructions that it return LKM’s malpractice action to the
New York Supreme Court.
BACKGROUND
The facts relevant to this appeal derive from LKM’s complaint, documents
referenced therein, and matters arising in this and related litigation of which we
may take judicial notice in considering federal jurisdiction. See Romano v. Kazacos,
609 F.3d 512, 520 (2d Cir. 2010) (“[I]f subject matter jurisdiction is contested, courts
are permitted to look to materials outside the pleadings.”).
In July 2018, LKM engaged DLA Piper for “corporate advice,” both
generally and specifically in connection with a stock offering. LKM Compl. ¶ 12,
J. App’x 22. Later that year, Wayne Baliga, a holder of LKM’s American
Depositary Receipts (“ADRs”), sued LKM; its chairman, Vincent Shi; and other
executives and directors by filing what was styled as a “Verified Shareholder
Derivative Complaint” in the United States District Court for the Southern District
of New York. See Compl., Baliga v. Link Motion Inc., No. 1:18-cv-11642 (S.D.N.Y.
3 Dec. 13, 2018), Dkt. 1 [hereafter “Baliga Compl.” and “Baliga Dkt.”]. 1 In that
action—also assigned to Judge Marrero—Baliga asserted common law claims for
breach of fiduciary duty and unjust enrichment, and federal securities law claims.
Id. ¶¶ 36–54. LKM’s present malpractice action arises out of DLA Piper’s
purported negligent representation of LKM in the Baliga action. Accordingly, we
briefly review the history of that action before turning to jurisdictional analysis in
the instant case. 2
I. The Baliga Action
A. DLA Piper’s Conduct in the Baliga Action
DLA Piper learned of the Baliga action on December 13, 2018, when Baliga’s
counsel, knowing that DLA Piper had represented LKM in connection with a stock
offering, sent the firm a courtesy copy of the Baliga complaint and advised that it
would move the next day for a temporary restraining order (“TRO”), preliminary
injunction, and appointment of a receiver.
LKM’s instant complaint alleges that ADRs “represent[] rights to 1
ownership of stated denominations of American Depositary Shares (ADS).” LKM Compl. ¶ 19 n.3, J. App’x 23. As such, ADRs are “contractual rights” providing “evidence of the underlying ADSs,” but “are not registered shares of stock.” Id. 2 A more detailed history of the Baliga case is provided in decisions of the district judge and magistrate judge handling that case as well as this one. See Baliga v. Link Motion Inc., No. 1:18-cv-11642, 2022 WL 3699339, at *1–3 (S.D.N.Y. Aug. 25, 2022); Baliga v. Link Motion Inc., No. 1:18-cv-11642, 2022 WL 2531535, at *1–3 (S.D.N.Y. Mar. 9, 2022).
4 DLA Piper promptly emailed notice of the Baliga action to LKM’s in-house
counsel and reported that an associate would appear in connection with the next
day’s TRO application and advise the court that the firm had not yet received
instructions from LKM on how to proceed.
The next day, December 14, 2018, the district court entered a TRO enjoining
LKM from transferring or dissipating any assets for fourteen days. At the same
time, the district court ordered the parties to confer and to submit a joint letter by
December 21 indicating whether LKM consented to extend the TRO and
proposing a briefing schedule on the preliminary injunction and receiver motions.
Over the next several days, DLA Piper repeatedly sought LKM’s guidance
as to how to proceed in the Baliga action. Receiving none, on December 21, 2018,
Baliga’s counsel and a DLA Piper attorney submitted a joint letter to the district
court consenting to extension of the TRO pending decision on Baliga’s preliminary
injunction and receiver motions. On December 27, 2018, the district court ordered
LKM to file a response to these outstanding motions by January 21, 2019.
Over the next month, DLA Piper continued to seek LKM’s instructions as to
how it wished to proceed in the Baliga action. On January 14, 2019, DLA Piper sent
an email, in both English and Mandarin, to all members of the LKM Board,
including Board Chair Shi, stating that the firm had “repeatedly asked for
instruction on how to proceed” in the Baliga action “but ha[d] not received any
guidance from the Company or the individual defendants.” Ex. D at 3, Decl. of
Nancy Hart, China AI Cap. Ltd. v. DLA Piper LLP (US), et al., No. 1:21-cv-10911
5 (S.D.N.Y. Sept. 26, 2022), Dkt. 37-4 (Jan. 14, 2019 email). 3 Receiving no response to
this communication, on January 18, 2019, DLA Piper sent LKM another email
advising that if no instructions were received within 24 hours, DLA Piper would
“assume that [it] ha[d] [LKM’s] consent to not oppose the [Baliga] motion.” Id. at
1 (Jan. 18, 2019 email).
With no response forthcoming from LKM, on January 21, 2019, DLA Piper
and Baliga’s counsel filed a joint stipulation with the district court stating that
LKM did not oppose entry of a preliminary injunction and that Baliga agreed to
an extension of time for LKM to answer the complaint. The district court
so-ordered the stipulation and, on February 1, 2019, issued the requested
preliminary injunction and appointed a receiver.
On March 1, 2019, DLA Piper sought leave to withdraw from the Baliga
action, citing LKM’s failure both to pay the firm’s overdue legal fees and “to
cooperate in the [firm’s] representation by failing to respond to [counsel’s]
inquiries.” Letter at 3, Baliga Dkt. 28. The district court granted the request the
same day.
B. Dissolution of Preliminary Injunction and Receivership
Several years later, on review of various motions and amended pleadings
filed in the Baliga action, the district court adopted a magistrate judge’s detailed
report recommending rejection of a challenge to the court’s jurisdiction but also
dissolution of the receivership. As to the former, the district court concluded that
3 See infra at 8 (discussing China AI Capital Ltd. v. DLA Piper LLP (US) in relation to instant action).
6 although Baliga, as an LKM ADR holder but not a registered shareholder,
appeared to lack standing under Cayman Islands law to bring derivative common
law claims on behalf of LKM, he had standing under federal law to pursue his
federal securities claims. See Baliga v. Link Motion Inc., No. 1:18-cv-11642, 2022 WL
2531535, at *10–14 (S.D.N.Y. Mar. 9, 2022), report and recommendation adopted, 2022
WL 3699339, at *1, *5 (S.D.N.Y. Aug. 25, 2022). 4 Accordingly, the district court
found that its order imposing receivership was not void ab initio. See Baliga v. Link
Motion Inc., 2022 WL 3699339, at *5. Further, because Baliga’s second amended
complaint stated only direct, not derivative, claims for which he could not show
that available legal remedies would be inadequate, the court concluded that
continued receivership was unwarranted and ordered dissolution. See id. at *5–6. 5
II. The Instant Action
A. Initiation and Removal
The road to the instant action has not been direct. Prior to dissolution of the
LKM receivership, only the receiver could sue in the name of the company. The
receiver did not bring suit against DLA Piper for legal malpractice in the Baliga
4 The question of Baliga’s standing to pursue his derivative claims thus appears to be statutory rather than constitutional. See In re Facebook, Inc. Initial Pub. Offering Derivative Litig., 797 F.3d 148, 156 (2d Cir. 2015) (holding that failure to satisfy contemporaneous ownership requirement does not raise jurisdictional issue under Article III, but, rather, means that plaintiff does not have standing to represent nominal defendant’s interests in derivative capacity). 5 The Baliga action appears to be ongoing, with a third amended complaint filed on September 11, 2023.
7 action. Instead, on December 20, 2021, LKM registered shareholder China AI
Capital Ltd. (“China AI”) brought such a claim derivatively in the Southern
District of New York, where it too was assigned to Judge Marrero. After
dissolution of the receiver, China AI moved voluntarily to dismiss its malpractice
action. 6
On September 12, 2022, LKM initiated the instant malpractice action in New
York Supreme Court. Therein, it alleges that, in the Baliga action, DLA Piper acted
without LKM’s informed consent in representing to the district court that LKM
did not oppose entry of the preliminary injunction. LKM also alleges that no
preliminary injunction or receivership would have been ordered had DLA Piper
timely advised LKM and argued to the district court that Baliga (1) lacked
standing to bring derivative claims on behalf of the company (which DLA Piper
knew or should have known based on its representation of LKM in the July 2018
stock offering); (2) failed to state the elements of a federal securities law claim; and
(3) in any event, was required by Fed. R. Civ. P. 65(c) to post security.
DLA Piper removed the action to federal court on September 29, 2022, where
it was assigned to Judge Marrero as related to the Baliga action. DLA Piper based
the removal on federal question jurisdiction under 28 U.S.C. § 1331 and the
Supreme Court’s decision in Grable & Sons Metal Products, Inc. v. Darue Engineering
6That, however, did not end the matter. In 2024, Judge Marrero adopted a magistrate judge’s recommendation that China AI be sanctioned under Fed. R. Civ. P. 11 for making false and frivolous allegations in its malpractice complaint. Litigation over the costs and fees due to DLA Piper under the sanctions order is ongoing.
8 & Manufacturing, 545 U.S. at 314, and supplemental jurisdiction under 28 U.S.C.
§ 1367. As to federal question jurisdiction, DLA Piper argued that LKM’s
malpractice action required evaluation of the merits of the federal defenses that
LKM claimed DLA Piper should have raised in the Baliga action. As to
supplemental jurisdiction, DLA Piper argued that the factual nexus between the
state malpractice action and the federal Baliga action permitted the court to hear
the former.
LKM moved for remand of its malpractice action to state court, arguing that
federal question jurisdiction did not lie because DLA Piper could not show that
the claim presented substantial federal issues as required by Gunn v. Minton, 568
U.S. at 258. As to supplemental jurisdiction, LKM argued that the plain language
of 28 U.S.C. § 1441(a) permits removal only of those civil actions “of which the
district courts of the United States have original jurisdiction.” LKM Mem. Supp.
Mot. Remand at 8, J. App’x 173 (quoting 28 U.S.C. § 1441(a)) (emphasis added).
The district court denied remand. See Link Motion Inc. v. DLA Piper LLP (US),
No. 1:22-cv-8313, 2022 WL 17884167 (S.D.N.Y. Dec. 23, 2022). While agreeing with
DLA Piper that LKM’s state malpractice claim did not arise directly under federal
law, the district court concluded that it, nevertheless, fell within the narrow
category of state law claims presenting substantial federal issues so as to warrant
the exercise of federal jurisdiction. See id. at *5–9. The district court also denied
LKM’s subsequent motion for reconsideration or, in the alternative, certification
of the issue for immediate interlocutory appeal.
9 B. Dismissal
On May 26, 2023, the district court dismissed LKM’s complaint with
prejudice as time barred. See id., 2023 WL 3687731 (S.D.N.Y. May 26, 2023).
Applying New York law, the district court found that LKM’s claim accrued, at the
latest, on January 21, 2019—the date on which DLA Piper joined Baliga’s counsel
in filing the joint stipulation stating that LKM did not oppose entry of a
preliminary injunction. See id. at *4–5. LKM’s September 12, 2022 filing of the
instant malpractice action thus fell outside the applicable New York three-year
statute of limitations, see id. at *5, and no tolling principles supported a contrary
conclusion, see id. at *5–7. Denied reconsideration by the district court, see id., 2023
WL 4080638 (S.D.N.Y. June 20, 2023), LKM timely filed this appeal challenging
both the district court’s judgment of dismissal and its earlier denial of LKM’s
motion to remand the malpractice action to state court.
For reasons that we will now discuss, we vacate the judgment of dismissal
without considering timeliness because we conclude that the case must be
remanded to the state court for lack of federal subject matter jurisdiction.
DISCUSSION
I. Standard of Review
We review de novo a district court’s denial of a motion to remand a removed
case to the state court where it was originally filed, mindful that (1) the removing
party—here DLA Piper—“bears the burden of demonstrating the propriety of
removal,” O’Donnell v. AXA Equitable Life Ins. Co., 887 F.3d 124, 128 (2d Cir. 2018)
(internal quotation marks omitted); (2) “statutory procedures for removal are to
10 be strictly construed”; and (3) we must “resolve any doubts against removability,”
Taylor v. Medtronic, Inc., 15 F.4th 148, 150 (2d Cir. 2021) (alteration adopted)
(internal quotation marks omitted).
II. Subject Matter Jurisdiction
Federal law states that civil actions brought in state court over which “the
district courts of the United States have original jurisdiction” may be removed to
federal court. 28 U.S.C. § 1441(a). However, “[i]f at any time before final judgment
it appears that the district court lacks subject matter jurisdiction, the case shall be
remanded.” Id. § 1447(c).
The question of federal jurisdiction here depends on whether the asserted
claim “aris[es] under the Constitution, laws, or treaties of the United States.” Id.
§ 1331. 7 A claim most directly “arises under federal law when federal law creates
the cause of action asserted.” Gunn v. Minton, 568 U.S. at 257. Nevertheless, the
Supreme Court has identified a “‘special and small’ category of actual state claims
that present significant, disputed issues of federal law.” NASDAQ OMX Grp., Inc.
v. UBS Sec., LLC, 770 F.3d 1010, 1019 (2d Cir. 2014) (quoting Gunn v. Minton, 568
U.S. at 258). For a state law claim to fall within this “slim category,” the embedded
federal issue must be “(1) necessarily raised, (2) actually disputed, (3) substantial,
and (4) capable of resolution in federal court without disrupting the federal-state
7 Neither in its notice of removal nor in its briefs to this court did DLA Piper assert diversity as the source of federal jurisdiction. See Behrens v. JPMorgan Chase Bank, N.A., 96 F.4th 202, 207 (2d Cir. 2024) (holding that party forfeits invocation of subject matter jurisdiction when it fails timely to raise it and citing “familiar example” of forfeiture under federal removal statute).
11 balance approved by Congress.” Gunn v. Minton, 568 U.S. at 258; see Grable & Sons
Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. at 314. While the first two factors
here support the exercise of federal jurisdiction, the third and fourth do not.
A. Federal Issue “Necessarily Raised”
The parties here agree that LKM’s malpractice action implicates the federal
law question of whether Baliga had standing to pursue his federal securities
claims. 8 LKM nevertheless contends that this issue is not “necessarily raised”
within the meaning of Gunn because it “relates to [a] defense,” not an element of
its malpractice claim. Appellant’s Reply Br. at 4; see Caterpillar Inc. v. Williams, 482
U.S. 386, 393 (1987) (“[I]t is now settled law that a case may not be removed to
federal court on the basis of a federal defense[.]” (emphasis in original)). We are
not persuaded.
Although LKM characterizes the federal law standing issue as a “defense,”
its own complaint, on its face, demonstrates that the issue is integral to its
malpractice claim. LKM there alleges that DLA Piper “breache[d] . . . the duty of
care owed to the Company” by, inter alia, “failing to advise the Company that
Baliga lacked standing.” LKM Compl. ¶ 78, J. App’x at 37–38. Thus, to prove
malpractice, particularly the causation element of that claim, LKM must show that
it would have prevailed on a federal law standing challenge in the Baliga action.
8 LKM’s malpractice complaint also faults DLA Piper for failing to challenge the sufficiency of Baliga’s pleadings as to his federal securities claims. DLA Piper, however, does not argue that this raises issues warranting the exercise of federal jurisdiction over the instant malpractice action. Accordingly, we here consider only the federal law standing issue on which it does rely.
12 See Rudolf v. Shayne, Dachs, Stanisci, Corker & Sauer, 8 N.Y.3d 438, 442 (2007)
(holding that to establish causation in legal malpractice action, “plaintiff must
show that he or she would have prevailed in the underlying action or would not
have incurred any damages, but for the lawyer’s negligence”); see also Gunn v.
Minton, 568 U.S. at 259 (“In cases like this one, in which the attorney’s alleged error
came in failing to make a particular argument, the causation element requires a
‘case within a case’ analysis of whether, had the argument been made, the outcome
of the earlier litigation would have been different.”). Standing to pursue a federal
securities claim necessarily raises a federal law issue. See Drachman v. Harvey, 453
F.2d 722, 727 (2d Cir. 1971) (“Federal law must be consulted to decide whether
there is standing to sue under the Exchange Act[.]”); accord CILP Assocs., L.P. v.
PriceWaterhouse Coopers LLP, 735 F.3d 114, 122 (2d Cir. 2013).
B. Federal Issue “Actually Disputed”
Because the federal law standing issue is critical to the causation element of
LKM’s malpractice claim, it qualifies as a “central point of dispute” in that state
action, satisfying the second requirement for the exercise of federal jurisdiction in
this case. Gunn v. Minton, 568 U.S. at 259. It may well be that the district court’s
ruling in the Baliga action—that, as a matter of federal law, the plaintiff had
standing to pursue his securities claims—will prevent LKM from succeeding on
this point. The weakness of its position, however, does not alter the fact that the
dispute, grounded in federal law, is central to its malpractice claim.
Nevertheless, as the Supreme Court has cautioned, “the mere presence of a
[disputed] federal issue in a state cause of action does not automatically confer
federal-question jurisdiction.” Merrell Dow Pharm., Inc. v. Thompson, 478 U.S. 804,
13 813 (1986). To avoid remand, DLA Piper also must satisfy Gunn’s third and fourth
factors. This it cannot do.
C. Substantiality
The federal issue raised and disputed in a state action must be “substantial”
to support the exercise of federal jurisdiction. To satisfy this third Gunn
requirement “it is not enough that the federal issue be significant to the particular
parties in the immediate suit”; rather, “[t]he substantiality inquiry . . . looks instead
to the importance of the issue to the federal system as a whole.” Gunn v. Minton,
568 U.S. at 260. The law draws this distinction to ensure “a serious federal interest
in claiming the advantages thought to be inherent in a federal forum.” Grable &
Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. at 313. Upon “careful, case-
specific consideration, most federal law questions raised in connection with state
law claims will not be deemed substantial.” NASDAQ OMX Grp., Inc. v. UBS Sec.,
LLC, 770 F.3d at 1029. That is the case here. The federal law standing issue
embedded in LKM’s state malpractice claim, however important to DLA Piper in
this particular action, lacks the sort of significance to the federal system as a whole
warranting the exercise of federal jurisdiction.
To explain, we discuss Gunn in more detail. The Supreme Court there
considered whether a state law claim of legal malpractice in the handling of a
patent case had to be brought in federal court because Congress had vested
“exclusive jurisdiction” over patent disputes in the federal courts. Gunn v. Minton,
568 U.S. at 253. The Court concluded that it did not because the malpractice claim
did not itself arise under federal law. See id. at 258. The Court further explained
that “[b]ecause of the backward-looking nature of a legal malpractice claim, the
14 [federal] question is posed in a merely hypothetical sense.” Id. at 261. As such,
“[n]o matter how the state courts resolve[d] that hypothetical ‘case within a case,’
it [would] not change the real-world result of the prior federal patent litigation.”
Id. Accordingly, the Court ruled that “something more, demonstrating that the
[federal] question is significant to the federal system as a whole, is needed” to
warrant exercising federal jurisdiction over such a state law claim. Id. at 264.
DLA Piper argues that the “something more,” missing in Gunn but present
here, is the district court’s August 25, 2022 order deciding the federal law issue
embedded in LKM’s instant malpractice action, i.e., Baliga’s standing to pursue
federal securities law claims against LKM. See supra at 7. DLA Piper submits that
as a result of this ruling—adverse to LKM—the malpractice action does not require
the sort of retrospective, hypothetical analysis that the Supreme Court determined
was, by nature, unlikely to hold significance for the federal system as a whole. See
Gunn v. Minton, 568 U.S. at 259. Rather, it characterizes this action as a “collateral
attack” on the August 2022 order that asks the state court “effectively to overrule
[a] decision[] that the district court actually rendered.” Appellee’s Br. at 25, 32.9
DLA Piper argues that “the possibility that a state court might render a contrary
decision on an issue already decided—without any opportunity for correction by
9 Further to this point, DLA Piper suggests that LKM acted in bad faith in bringing this malpractice action because it is a “copycat lawsuit” to the frivolous one brought in federal court by China AI, an entity allegedly connected to LKM Board Chair Shi. Appellee’s Br. at 13; see supra at 8. We do not pursue this point further because the district court did not dismiss on this ground, and, on return of this case to state court, the New York Supreme Court will be able to address any claims of litigant misconduct in the initiation of the action.
15 the federal courts—threatens to undermine the finality of federal decisions and the
development of a uniform body of federal law.” Id. at 32 (internal quotation marks
omitted). The argument fails to persuade.
In the unlikely event that the state court were to misapply federal law on
remand, the error would not necessarily be federally unreviewable. Rather,
review would be to the Supreme Court. See 28 U.S.C. § 1257. While such review
is not automatic, its availability mitigates any risk to uniformity of federal law
from possible state error. See Merrell Dow Pharm. v. Thompson, 478 U.S. at 816
(stating that “concern about the uniformity of interpretation . . . is considerably
mitigated by the fact that, even if there is no original district court jurisdiction . . .
this Court retains power to review the decision of a federal issue in a state cause
of action”); see also Liana Carrier Ltd. v. Pure Biofuels Corp., 672 F. App’x 85, 92 (2d
Cir. 2016) (concluding no federal jurisdiction over state claim, in part, because state
court’s “resolution of any embedded federal issue, if decisive to the case, would
ultimately be subject to possible Supreme Court review”).
Even absent federal review, substantiality is not shown by the mere
possibility of a state court ruling at odds with federal law. See Gunn v. Minton, 568
U.S. at 263 (explaining that possibility “that a state court will incorrectly resolve a
state claim is not, by itself, enough to trigger” federal jurisdiction, “even if the
potential error finds its root in a misunderstanding of” federal law). Such a ruling
would not alter the district court’s federal law standing decision in the Baliga
action itself. Nor would it control in any future federal securities cases. See
Fracasse v. People’s United Bank, 747 F.3d 141, 145 (2d Cir. 2014) (observing that
“question that will control many other cases is more likely to be a substantial
16 federal question”). It also would be unlikely to bear on other state malpractice
cases, which, like this case, tend to arise under unique circumstances. Compare
Gunn v. Minton, 568 U.S. at 262 (identifying no substantial issue in state legal
malpractice claim based on federal patent litigation because state court decision
would not “be controlling in numerous other cases” (internal quotation marks
omitted)), with Tantaros v. Fox News Network, 12 F.4th 135, 142, 146 (2d Cir. 2021)
(concluding that where New York law prohibits mandatory arbitration clauses
“except where inconsistent with federal law,” substantial federal issue arises that
“will inform all future claims brought” under state statute). At most, a ruling
favorable to LKM would shift certain costs in the Baliga action from client to
attorney. But that is the same relief sought in every legal malpractice action,
including the one at issue in Gunn.
Old Dominion Electric Cooperative v. PJM Interconnection, LLC, 24 F.4th 271
(4th Cir. 2022), cited by DLA Piper, is not to the contrary. The state contract claims
there at issue were “inextricably intertwined with federal law” such that they
would “alter the terms” of the parties’ federally regulated relationship. Id. at 286–
87. Here, the parties’ attorney-client relationship is regulated by state, not federal,
law. See infra at 19–20. 10
In any event, we do not readily assume that state courts will cast aside
applicable federal precedent. As the Supreme Court recognizes, a state court “is
10We need not discuss New Life Ventures, Inc. v. Locke Lorde LLP, No. 2:19-cv- 162, 2019 WL 13212632 (E.D. Tex. Sept. 27, 2019), an unpublished, out-of-circuit district court opinion also cited by DLA Piper, except to state that we decline to follow the approach taken in that factually distinct case.
17 competent to apply federal law, to the extent it is relevant” to resolution of a state
claim. Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 701 (2006).
Thus, in declining to exercise federal jurisdiction over the state malpractice claim
in Gunn v. Minton, the Court instructed federal courts to trust their state
counterparts to “hew closely to the pertinent federal precedents” in deciding
federal issues embedded in state malpractice actions as “[i]t is those precedents,
after all, that would have applied” had counsel made the argument allegedly
omitted negligently. 568 U.S. at 262.
That conclusion applies with particular force here where the federal law
standing issue allegedly neglected by DLA Piper was eventually raised and
decided adversely to LKM in written decisions by both the magistrate judge and
district judge in the Baliga action. See supra at 7. On return of this case to the New
York Supreme Court, that court will have the benefit of these decisions, and we
have no reason to doubt that it will give them careful review and appropriate
weight in deciding LKM’s claim of legal malpractice based on DLA Piper’s alleged
failure to raise a federal law standing challenge in the Baliga action. 11
In sum, DLA Piper has not adduced the “something more” required by
Gunn v. Minton to view the federal law standing issue in LKM’s state malpractice
11 Because our decision here pertains only to federal jurisdiction, we express no view as to the merits of the district court’s decision in Baliga on the federal standing issue. We also express no view on the timeliness of LKM’s malpractice action, except to note that if the state court, like the district court here, were to conclude that the action is untimely, it might well never have to consider any question of federal securities law standing.
18 claim as anything other than backward-looking and hypothetical. 568 U.S. at 264.
The claim looks backward to ask whether the district court would have denied
Baliga’s motions for a TRO, preliminary injunction, and appointment of a receiver
if, hypothetically, DLA Piper had timely challenged Baliga’s standing under
federal securities law. Thus, because the federal issue raised by LKM’s state
malpractice claim “is not substantial in the relevant sense,” id. at 260, the district
court was without jurisdiction to hear the claim.
D. Federal-State Balance
The fourth Gunn factor requires little discussion because, as the Supreme
Court has stated, in the absence of a substantial federal issue, “[i]t follows” that
exercise of federal jurisdiction over a state claim would disrupt the “appropriate
balance of federal and state judicial responsibilities.” Id. at 264 (internal quotation
marks omitted).
The balance inquiry requires sensitivity in recognizing claims of the “sort
ordinarily resolved in state courts.” Empire Healthchoice Assurance, Inc. v. McVeigh,
547 U.S. at 683; see New York ex rel. Jacobson v. Wells Fargo Nat’l Bank, N.A., 824 F.3d
308, 316 (2d Cir. 2016) (explaining that balance analysis properly focuses on “the
nature of the claim, the traditional forum for such a claim, and the volume of cases
that would be affected,” as well as any “special state interest in a category of
litigation”). But, as the Supreme Court has repeatedly recognized, legal
malpractice actions and attorney disciplinary proceedings plainly present the sort
of claims ordinarily resolved in state courts. See Gunn v. Minton, 568 U.S. at 264
(identifying states’ “special responsibility for maintaining [professional]
standards” and emphasizing states’ “especially great” interest in regulating
19 lawyers as professionals “essential to the primary governmental function of
administering justice” (internal quotation marks omitted)); Middlesex Cnty. Ethics
Comm. v. Garden State Bar Ass’n, 457 U.S. 423, 434 (1982) (identifying state’s
“extremely important interest in maintaining and assuring the professional
conduct of the attorneys it licenses” and reversing federal court’s decision not to
abstain from deciding challenge to state disciplinary rules, concluding that such
disciplinary “proceedings are of a character to warrant federal-court deference”);
see also Leis v. Flynt, 439 U.S. 438, 442 (1979) (“Since the founding of the Republic,
the licensing and regulation of lawyers has been left exclusively to the States and
the District of Columbia within their respective jurisdictions.”). DLA Piper cites
no authority suggesting “congressional[] approv[al]” for relocating legal
malpractice claims away from their traditional state fora to federal courts. Grable
& Sons Metal Prods., Inc., v. Darue Eng’g & Mfg., 545 U.S. at 314; see Gunn v. Minton,
568 U.S. at 264 (noting absence of such authority).
Thus, because the established federal-state balance expects for legal
malpractice actions to be heard in state court, this final Gunn factor also weighs
against the exercise of federal jurisdiction in this case and in favor of the return of
LKM’s malpractice action to the New York Supreme Court.
III. Supplemental Jurisdiction
With little discussion, DLA Piper argues that the district court had
supplemental jurisdiction over LKM’s state malpractice action due to its factual
overlap with the federal Baliga action. In fact, this argument is foreclosed by the
federal removal statute, which confers federal jurisdiction only over removed civil
actions “of which the district courts of the United States have original jurisdiction.” 20 28 U.S.C. § 1441(a); see Syngenta Crop Prot., Inc. v. Henson, 537 U.S. 28, 34 (2002)
(“Ancillary jurisdiction . . . cannot provide the original jurisdiction that petitioners
must show in order to qualify for removal under § 1441.”); Fracasse v. People’s
United Bank, 747 F.3d at 143 (holding no supplemental jurisdiction over removed
state case “as the removed action was not part of the separately filed, albeit related,
federal case”). The district court had no original federal jurisdiction over LKM’s
state malpractice action. DLA Piper’s reliance on Achtman v. Kirby, McInerney &
Squire, LLP, 464 F.3d 328 (2d Cir. 2006), is misplaced as that case did not involve
the removal of an action from state court. See 28 U.S.C. § 1367(a) (distinguishing
“civil action[s] of which the district courts have original jurisdiction” from “other
claims” over which they may exercise “supplemental jurisdiction”).
CONCLUSION
For the foregoing reasons, we conclude that the district court was without
subject matter jurisdiction to consider LKM’s removed state legal malpractice
claim against DLA Piper. We therefore VACATE the district court’s judgment of
dismissal without addressing its finding that LKM’s action was untimely filed, and
we REMAND with instructions that the district court return this case to the New
York State Supreme Court for New York County.