Snyder V. Vail, Response To Order To Show Cause

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No.: 09-cv-02170 CMA-KMT ANTHONY SNYDER, CATHERINE SNYDER, CASEY SNYDER, on behalf of himself and OLYVIA SNYDER and ELLA SNYDER, BRETT SNYDER, CLAIRE BASSLER, JOCELYN DOERFER WHITNEY, ALEXIS HAWKINS, MITZE HAWKINS, SCOTT HAWKINS, SONJA E. RODLI, on behalf of SALLY E. RODLI and ANNA E. RODLI, LESLIE STERNLICHT, THOMAS O’BRIEN, ELLEN O’BRIEN NEILEY, COLIN O’BRIEN, JUSTIN O’BRIEN, ELIOT ROBERTSON, ROBERT ST. JOHN, BARBARA SCHNEEMAN, ELIZABETH WALTER AS COUNTERCLAIM DEFENDANT, and KOERT VOORHEES Plaintiffs, v. VAIL RESORTS, INC., THE VAIL CORPORATION, and VAIL SUMMIT RESORTS, INC., Defendants.

DEFENDANTS’ RESPONSE TO ORDER TO SHOW CAUSE WHY SANCTIONS SHOULD NOT BE IMPOSED

Defendants should not be sanctioned for removing this case because it was removed only after a thorough review of applicable law and was based on a genuine and objectively reasonable belief that the case was properly removable. It was removed because it seemed evident – at least to Defendants – that the Plaintiffs’ claim relied on federal law. For reasons that will be explained below, the Plaintiffs’ reliance on federal law was obscured until shortly before trial. Defendants believe that the case was removable under the second paragraph of 28 U.S.C. § 1446(b),”which is designed

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to allow a defendant to remove a state action when it was not originally removable as stated by the Plaintiffs’ original complaint in the state court, but has become removable due to the filing in state court of ‘an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable.’” W.H. Pat O’Bryan v. Chandler, 496 F.2d 403, 409 (10th Cir. 1994), quoting 28 U.S.C. § 1446(b); see also Huffman v. Saul Holdings Ltd., 194 F.3d 1072, 1078 (10th Cir. 1999). The Court’s remand order says Defendants’ “stretch credulity” by claiming that the case had become removable based on “Plaintiffs’ written response to a jury instruction.” Order of Remand at 1. But federal courts have applied the second paragraph of 28 U.S.C. 1446(b) to find cases removable based on a variety of “other papers”, including, “letters from opposing counsel, correspondence between parties, affidavits, proposed jury instructions, answers to interrogatories, motions for summary judgment, and documents produced in discovery deposition testimony” See, Wilson v. Padilla-Morales v. The Shell Company, 2005 U.S. Dist LEXIS 43267 *15 (collecting cases), attached as Exhibit B. The Tenth Circuit has applied the “other paper” provision of the statute to find a case removable under the second paragraph of § 1446(b) based on “information elicited in a deposition.” See, Huffman v. Saul Holdings Ltd., 194 F.3d 1072, 1078 (10th Cir. 1999). Similarly, in Hubbard v. Union Oil Company of California, 601 F.Supp 790, 794 (S.D. Vir. 1985) the court applied the “other paper” provision of 28 U.S.C. § 1446(b) to a

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memorandum in support of a request for injunctive relief, which made the case removable even though it clearly was not removable based on the original complaint. In this case, Plaintiffs’ “other paper” asserted, for the first time, an irrevocable interest in land. That newly claimed interest necessarily raised federal issues because the land is federal land, owned by the federal government. Before then, this case had been nothing more than a state law breach of contract claim, which necessarily asserted nothing more than a mere license to enter upon land, not an actual ownership interest in federal land. Revealing that a claim relies on a question of federal law -- even if not done through a formal amendment – makes the case removable if done in “other papers” which for the first time raises a federal claim or make it known that the original complaint actually relies on federal law. See Lovern v. General Motors, 121 F.3d 160, 162 (4th Cir. 1997) (where the federal issue is “obscured or omitted” from the complaint but becomes apparent later “in an amended pleading, motion, order, or other paper,” the case becomes removable). Finally, Defendants sought removal not to delay the trial, but only because Plaintiffs revealed the true nature of their claim seventeen days before trial. Indeed, as will be shown below, there was no reason to delay the trial because the parties were advised by the trial court – on the very day before the removal notice was filed - that the Court considered it very unlikely that the trial would proceed as planned because the Plaintiffs had improperly tainted the jury pool with prejudicial pretrial publicity and not enough jurors were available to obviate that publicity.

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BACKGROUND To understand why Defendants genuinely believe the case was properly removable, it is necessary to put the Plaintiffs’ claims into the context of the case as it unfolded. When the case was filed and until just recently, the Plaintiffs’ case was basically an ordinary breach of contract claim. Plaintiffs also asserted a claim for intentional interference with prospective business advantage. See Fourth Amended Complaint at 9-10, Exhibit C to Notice of Removal. These claims centered on an alleged ordinary contract right to access Defendants’ premises without charge to use ski lifts and ski trails. While these lifts and trails are mainly on federal land – the White River National Forest – this was not an issue in the case except by way of defense. A.

The Contract

The contract at issue in the case was entered into almost 40 years ago between a company that no longer exists and certain incorporators or founders of that company. It is governed by Iowa law and grants the incorporators or founders certain privileges to ski at the company’s resort. The assets of that company were then acquired by another company, and the assets of that company were acquired several years ago, in 1998, by the present Defendants. As the years passed, Plaintiffs actually set up businesses, which used brokers to rent ski privileges or passes to anyone who wanted to buy them. B.

The Dispute

In 2005, Defendants learned that Plaintiffs were renting their passes on a daily basis, which it concluded was an abuse of the free ski privileges granted to the individual founders years ago. Defendants accordingly ended Plaintiffs’ practice of

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transferring ski privileges for commercial purposes. This was set forth in a letter sent to each of the Plaintiffs in this case. It was this act that lies at the very heart of the dispute in the case. C.

The Parties Dispute the Nature of the Right Created by the Contract

Plaintiffs sued Defendants for breach of contract and tortious interference based on the 2005 letter. Thus the suit presents a very key legal issue. That is, what exactly is the nature of the contract right claimed by the Plaintiffs? The contract gives them the “privilege” to use the ski lifts and trails of the original company. What is nature of this “privilege”? Is it a license to enter Defendants’ premises and use the ski lifts and trials? If it is, licenses are revocable under the governing state law and Plaintiffs have no case. But if it is not a license, what is it? This key legal issue assumed increasing prominence as the case approached trial. This legal issue was briefed in various contexts, including whether Defendants, as a licensee of the federal government with a privilege to use federal land, could transfer rights to Plaintiffs via contract that they actually did not have as a matter of federal law. If Defendants have no more than a license from the federal government to use the land, how can they transfer anything more a license? Moreover, as a matter of federal law, the original corporation’s license to use federal law expired when that corporation expired. It therefore appeared that the original “privilege” granted in the contract was indeed a license to enter and use land. This is, of course, quite different from an actual ownership interest in land.

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The fact that the Plaintiffs’ contract claim is a license became increasingly clear as the case approached trial. This presented Plaintiffs with an apparently intractable legal problem. Specifically, if the contract right being asserted is a license to enter and use the ski lifts and trails, such a license is revocable. This is a controlling – and potentially dispositive – issue of law. It is potentially dispositive because the ultimate issue in the case is whether Defendants had the legal right to stop the rental practice in 2005. ARGUMENT A.

Defendants Had an Objectively Reasonable Basis for Removal

An award of fees under 28 U.S.C. § 1447(c) must be denied where the removing party had an “objectively reasonable basis” for removal. Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005). This is because in enacting the removal statute, Congress intended to grant state court litigants the right to remove to a federal forum. Id. at 140. The fee-shifting provisions of § 1447 were not intended to discourage litigants from exercising their right to remove “in all but obvious cases.” Id. In this case, Defendants had an objectively reasonable basis that Plaintiffs’ claim depended upon a question of federal law. Federal courts have jurisdiction over a case if “the plaintiff’s right to relief necessarily depends on resolution of a substantial question of federal law.” Morris v. City of Hobart, 39 F.3d 1105, 1111 (10th Cir. 1994). Plaintiffs argued that the “wellpleaded complaint” rule means that this Court should only look to the name of their claims, and not to the nature of their claims. However, even where a Plaintiff asserts

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only claims under state law, “federal-question jurisdiction may be appropriate if the state-law claims implicate significant federal issues.” Nicodemus v. Union Pac. Corp., 440 F.3d 1227, 1232 (10th Cir. 2006). Moreover, “a plaintiff may not circumvent federal jurisdiction by omitting federal issues that are essential to his or her claim.” Id. Thus the relevant question for courts is not whether, on the face of the complaint, the Plaintiffs have asserted a federal law claim, but whether the “state-law claim necessarily raises a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities." Grable & Sons Metal Prods. v. Darue Eng'g & Mfg., 125 S. Ct. 2363, 2368 (2005). The central and most hotly disputed issue in this case is what kind of right was created by the contract granting early investors the ski passes. The relevant contract describes the right to use ski lifts and trails as a “privilege.” See Agreement to Organize a Corporation at 5, Sec. 14, attached to Notice of Removal as Exhibit A. (“The organizers will be entitled to the following free skiing and lift privileges[.]”) Under Iowa law, a “license” is “a privilege to use land in the possession of another” for a “particular act or series of acts.” Robert’s River Rides, Inc. v. Steamboat Dev. Corp., 520 N.W.2d 294, 300 - 301 (Iowa 1994). The Agreement at issue in this case therefore created a “license” to use Defendants’ ski lifts and ski trails. A license or privilege to use or enter upon land is not an interest in land, and does not run with the land. Jones v. Stover, 108 N.W. 112, 113 (Iowa 1906); Webb v. Arterburn, 67 N.W.2d, 504, 515 (Iowa 1954) See also Marrone v. Washington Jockey

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Club, 227 U.S. 633, 637 (1913) (Holmes, J.) (“[W]hen the contract stands by itself it must be either a conveyance or a license subject to be revoked.”). Plaintiffs’ complaint, as originally pled, therefore did not raise any federal law issues. Although Defendants’ ski lifts and trails are on federal land and subject to federal law and regulations, these issues were raised by way of defense and did not make the case removable. Significantly, however, under both Colorado and Iowa law, a license may be revoked. Jones v. Stover, supra; American Coin-Meter of Colorado Springs, Inc. v. Poole, 503 P.2d 626, 628 (Colo. App. 1972). Accordingly, if the interest being claimed by Plaintiffs is this case is license to use or enter upon land, Defendants had the right to revoke or modify the license as a matter of law and the case is over. This is how the case apparently looked to both sides shortly before trial. Indeed, in the context of arguing jury instructions on this issues, Plaintiffs suggested to the trial court that, if Defendants are right that the interest being claimed by Plaintiffs is a license, it should just dismiss the case and send everyone home: If the transferable ski passes are merely revocable licenses, no different than movie tickets, then the Court should so find, and send us all home. Plaintiffs’ Objections to Jury Instructions, Exh. F to Plaintiffs’ Forthwith Motion for Remand and Motion for Sanctions. It was in this context that Plaintiffs attempted to create a new interest that was more than just a license. The interest asserted by Plaintiffs was, or at least certainly appeared to be, an actual interest in the land itself. This apparent transformation

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occurred in the context of the same page of the same jury instruction documents which contained Plaintiffs’ suggestion that the court should send everyone home. Id. This newly created interest was raised in response to Defendants’ proposed jury instructions. Specifically, when the Defendants’ proposed instructions stated that the jury should be instructed that the “privileges” were licenses to use the lifts and trails which did not run with the land, the Plaintiffs responded – for the first time – that in addition to an undefined contract right, the jury should be told “the interest created was an irrevocable transferable interest akin to an easement or a lease.” See Plaintiffs’ Supplemental Objections to Defendants’ Proposed Jury Instructions, filed September 4, 2009, p. 11 (Exh. D to Notice of Removal). The Plaintiffs further argued that the “attributes [of the privileges] are ordinarily connected with easements or irrevocable licenses.” Id., p. 11 (emphasis in original). The Plaintiffs accordingly objected to the Defendants’ proposed instruction on license revocation – which would have told the jury that a license is revoked when land is conveyed – on the grounds that “[t]he owner of the land has been and remains the U.S. government[.]” Id., p. 14 (emphasis added). The nature of the Plaintiffs’ alleged interests therefore evolved from just an undefined contractual right to “use” the lifts and ski trails, to an alleged interest “akin to an easement or lease” or an “easement or irrevocable license” in land owned by the U.S. government. Id., p. 11. As Defendants saw it, what started as a garden-variety contract claim had just been transformed into some kind of undefined but irrevocable interest in federal land.

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Because Plaintiffs’ case is essentially over if they have a revocable license, they apparently had to claim an “irrevocable, transferable interest akin to an easement or lease.” Justice Holmes, applying federal common law, observed that a contract creating a right to use someone else's property "is either a conveyance or a license subject to be revoked.” Marrone, 227 U.S. at 637. This was the fix the Plaintiffs were in. If they say it's a license, then it can be revoked and they lose. But if they call it a conveyance, then the case is removable to federal court because now they are claiming an interest in federal land. As Justice Holmes noted, there are only two options. The Plaintiffs, finding themselves boxed in, attempted to chose the conveyance option, but quickly backed off with much outrage at Defendants when it landed them in federal court. See Marrone v. Washington Jockey Club, 227 U.S. 633, 637 (1913) (Holmes, J.) (“[W]hen the contract stands by itself it must be either a conveyance or a license subject to be revoked.”). In summary, until September 4, 2009, this was a non-removable state-law case. But the only way Plaintiffs could avoid having the court sending everyone home was to change the nature of their claim from a contract right to an interest in land, which they did for the first time on September 4, 2009. It certainly appeared to Defendants that Plaintiffs had essentially changed the nature of the legal interest being asserted. This seemed evident from the fact that Plaintiffs were asking the trial court to instruct the jury that the legal interest being claimed amounted to an interest in land. That land, however, just happens to be federal land. Defendants therefore concluded that, by

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expanding and changing the nature of their claim, the Plaintiffs made this case removable. Specifically, the Plaintiffs in this case claim that a jury should give them money because the Defendants have refused to honor, and have interfered with, their alleged “irrevocable, transferable interest akin to an easement or lease” in the White River National Forest. This claim, however, does not appear in Plaintiffs’ complaints. The first time Plaintiffs ever claimed this interest in federal land was, as explained in Defendants’ Notice of Removal, in the context of settling jury instructions. The Plaintiffs, in their motion to remand, did not deny that a claimed interest in federal land raise substantial federal issues that should be tried in federal court. Nor could any such argument be successful. See, U.S. Const. Art. IV, § 3; 28 U.S.C. § 1331; Kleppe v. New Mexico, 426 U.S. 529, 539 (1976); Nicodemus v. Union Pacific Corp., 440 F.3d 1227, 1234 - 1237 (10th Cir. 2006); N. Pac. Ry. Co. v. Townsend, 190 U.S. 267, 270 – 271 (1903) (whether federal government has parted with an interest in land is a federal question). Federal law controls the creation of interests in federal land. McFarland v. Kempthorne, 545 F.3d 1106, 1110 - 1111 (9th Cir. 2008) (“Federal law governs a claim of easement over lands owned by the United States.”); Superior Oil Co. v. United States, 353 F.2d 34, 37 n. 4 (9th Cir. 1965); United States v. Oklahoma Gas & Electric Co., 127 F.3d 349, 352 (10th Cir. 1942); Southern Utah Wilderness Alliance v. Bureau of Land Management, 425 F.3d 735, 762 - 763 (10th Cir. 2005). The federal interest in its own lands, in interests allegedly held by others in those lands, and in the management of those lands is substantial.

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The Plaintiffs do not deny that a claim to “an irrevocable transferable interest akin to an easement or lease” in National Forest System lands raises a substantial federal question. Plaintiffs instead quickly convinced this Court that the case is not removable because their original complaint does not raise any claim amounting to an actual interest in federal land. The recently claimed interest in federal land is not, as Plaintiffs claim, a “defense to a defense.” It is a restatement of their claim, designed to avoid the defense that they hold a mere license revocable at will, not an irrevocable interest that runs with the land, and a basis on which the Plaintiffs said they would ask the jury to hold the Defendants liable. It should be noted that, before September 4, the Plaintiffs had never precisely defined the exact nature of the claimed “contract right.” It was only in the crucible of litigation that it became evident – shortly before trial – that the Plaintiffs were on the horns of a legal dilemma. If their claimed contract right is a license, Defendants could revoke it and the court should “send everyone home.” But if the claimed right runs with the land, it is not revocable but the case becomes removable under 28 U.S.C. § 1446. Basically, Plaintiffs took a stab at creating an interest in federal land which the Defendants could not revoke or modify, but emphatically denied to this Court that any such interest was intended or created as an essential component of Plaintiffs’ claim. As is hopefully apparent from the foregoing facts and law, Defendants carefully reviewed the relevant law in the context of the facts of this case. Defendants may be wrong, but they were not reckless or improperly motivated.

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B.

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Defendants Did Not Seek Removal for Purposes of Delay

Defendants’ notice of removal was brought in good faith and within three business days of learning of Plaintiffs’ claim to a irrevocable interest in land. The close proximity to the trial date was a result of this late disclosure of the interest claimed in federal land, and not Defendants’ desire to delay trial. Plaintiffs have not argued that Defendants’ notice was untimely or that Defendants unreasonably delayed filing the notice of removal. First, Defendants are ready to try this case and have no reason to delay it. The Notice of Removal asked for a prompt trial in this Court. Notice of Removal at 6 (“This case can be ready for trial in this Court in short order”). Second, Defendants filed their notice well within the 30-day period for seeking removal set by 28 U.S.C. § 1446. The removal statute provides that a case not removable may become removal by virtue of an “amended pleading, motion, order, or other paper from which it may first be ascertained that the case is one which is or has become removable.” 28 U.S.C. § 1446(b) (emphasis added). In this regard, the 30-day period for removing a case from state to federal court does not begin to run until the “amended pleading” or “other paper” shows that Plaintiffs’ claim actually presents a question of federal law. See Huffman v. Saul Houldings Ltd. Partnership, 194 F.3d 1072, 1078 (10th Cir. 1999). As the Tenth circuit has explained, "[t]he plain purpose of the [removal statute, 28 USC 1446(b)] is, then, to permit the removal period to start only after the defendant is able to ascertain intelligently that the requisites of removability are present." De Bry v. Transamerica Corp., 601 F.2d 480, 489 (10th Cir. 1979) (emphasis

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added). Thus a Defendant may remove a case at any time, so long as it is within the 30-day period set in Section 1446(b). See Decubas v. Norfolk S. Corp., 683 F. Supp. 259 (M.D. Ga. 1988) (case was removable in the middle of a bifurcated state court trial because the resolution of the first stage made the case removable); Heniford v. Am. Motors Sales Corp., 471 F. Supp. 328 (D.S.C. 1979) (where plaintiff revealed in closing arguments to jury that it did not want the jury to return a verdict against the sole resident defendant, resident defendant was deemed dismissed and nonresident defendants could remove on basis of diversity jurisdiction). In this case, Defendants were only able to ascertain intelligently that the requisites of removability were present seventeen days before trial, on September 4, 2009. Where Plaintiffs, and not Defendants, "controlled when the 30-day time limit of § 1446(b) would begin running," they cannot claim that removal on the eve of trial is "unfair." Preaseau v. Prudential Ins. Co., 591 F.2d 74, 79 (9th Cir. Cal. 1979). Third, if Defendants had genuinely desired a delay of the trial date, a much simpler solution would have been to request a continuance based upon Plaintiffs’ prejudicial statements to the media that, as the state court recognized, substantially limited – and probably foreclosed – the ability to draw an unbiased jury on the scheduled trial date. The day before the case was removed, the state court held a telephone hearing to inform the parties that it seemed unlikely that an unbiased jury could be impaneled on the scheduled trial date because of recent pretrial publicity. Here is what the state court trial judge told the parties the very day before the removal petition was filed:

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THE COURT: I did read the article in the paper . . .the Summit Daily News that hit on September 4th and I have serious, serious concerns with that article. I will remind the parties of their duties and their ethical obligations under the professional rules of conduct 3.6 and as a Court it is very difficult to balance the limitations on freedom of expression and what’s good for, you know, the trial and potential jurors. But I have some serious concerns that Mr. Neureiter – the comments in the paper have put this trial in serious jeopardy. I feel the article was way more than the claims, the nature of defenses. It was very slanted. And my primary concern is that now everyone in this community is aware that there is a two week trial starting on September 22nd (sic). I will be very surprised if we have even the bare minimum needed to start the trial. Transcript of telephone hearing of September 7, 2009 at p. 5, attached as Exhibit A (emphasis added). Although this occurred the very day before the Notice of Removal was filed, Plaintiffs did not see fit to inform this Court that a jury would probably not be empaneled on the scheduled trial date. Instead, Plaintiffs dramatically declared that the case was removed to delay the trial, a trial that at that point already seemed unlikely to proceed in any event. Finally, this Court’s order remanding the case forcefully expresses this Court’s opinion that removal was both frivolous and improperly motivated, and while Defendants have no appeal from this pronouncement, it is a serious matter and is taken seriously by Defendants and their counsel. The Court’s perception of the purpose and intent of the removal is deeply regretted. Defendants submit, however, that it was within the bounds of proper and well-considered advocacy. Respectfully submitted this 18th day of September, 2009.

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s/ Michael J. Hofmann Holme Roberts & Owen LLP BOBBEE J. MUSGRAVE, #12440 MICHAEL J. HOFMANN, #30207 1700 Lincoln Street, Suite 4100 Denver, CO 80203 Phone: 303-861-7000 Fax: 303-866-0200 Email: [email protected] [email protected] Attorneys for Defendants Filed electronically. See C.R.C.P. 121, §§ 1 – 26. Original in file.

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CERTIFICATE OF SERVICE The undersigned hereby certifies that on this 18th day of September, 2009, a true and correct copy of the foregoing DEFENDANTS’ RESPONSE TO ORDER TO SHOW CAUSE WHY SANCTIONS SHOULD NOT BE IMPOSED was filed with the Clerk of the Court via LexisNexis File & Serve, which will send notification of such filing to the following:

Reid Neureiter, Esq. Kathryn A. Reilly, Esq. Jacobs Chase Frick Kleinkopf & Kelley LLC 1050 – 17th Street, Suite 1500 Denver, CO 80265

s/ Anita Langdon Anita Langdon

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