Sterne, Agee & Leach, Inc. v. U.S. Bank, National Association et al
MEMORANDUM OPINION. Signed by Judge William M Acker, Jr on 11/30/12. (KGE, )
2012 Nov-30 AM 09:42
U.S. DISTRICT COURT
N.D. OF ALABAMA
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
STERNE, AGEE & LEACH, INC.,
U.S. BANK, NATIONAL
ASSOCIATION, et al.,
) Civil Action No. 2:11-cv-02781-WMA
This matter comes before the court on report and recommendation (doc. 20) from the
magistrate judge on the motion to remand filed by plaintiff (doc. 12). The action was originally
filed in the Circuit Court of Jefferson County, Alabama. Defendants, U.S. Bank and U.S.
Bancorp (Bancorp), removed it, claiming Bancorp was fraudulently joined. Plaintiff, Sterne,
Agee & Leach, Inc. (Sterne Agee), filed the present motion to remand, denying the fraudulent
joinder allegation. A report and recommendation was issued from the magistrate judge on
September 28, 2012, recommending the denial of the motion to remand as well as the dismissal
with prejudice of the action as against defendant Bancorp (doc. 20). Sterne Agee timely filed an
objection to the report and recommendation (doc. 21). Defendants filed a response (doc. 23), to
which Sterne Agee replied (doc. 24). The court heard oral arguments on the issue on November
STANDARD OF REVIEW
The district court reviews de novo those parts of the report and recommendation to which
a party objects. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b)(3)(“The district judge must
determine de novo any part of the magistrate judge's disposition that has been properly objected
to.”). The court may review the other parts of the report and recommendation for plain error or
manifest injustice. United States v. Slay, 714 F.2d 1093, 1095 (11th Cir.1983)(citing Nettles v.
Wainwright, 677 F.2d 404, 410 (11th Cir.1982)). “The district judge may accept, reject, or
modify the recommended disposition; receive further evidence; or return the matter to the
magistrate judge with instructions.” Fed.R.Civ.P. 72(b)(3). The review here is de novo.
STATEMENT OF PERTINENT FACTS
In 2004, U.S. Bank brought a separate lawsuit in the State of Washington. Sterne Agee
was one of many defendants against which U.S. Bank asserted Washington State Securities Act
claims. Though some of the defendants settled, the case against Sterne Agee proceeded to trial in
2006. A judgment as a matter of law was granted in favor of Sterne Agee. Though the Ninth
Circuit reversed and remanded the case for further proceedings, a judgment was again entered in
favor of Sterne Agee in 2009. The current action alleges that U.S. Bank and Bancorp (notably not
a party to the previous action) maliciously prosecuted Sterne Agee. (Complaint at ¶¶ 31-32).
Removal of the current action was based on 28 U.S.C. §§ 1332, 1441 and 1446. The
parties do not dispute that the amount in controversy exceeds $75,000. Sterne Agee, the plaintiff,
is a Delaware corporation with its principal place of business in Birmingham, Alabama.
Defendant U.S. Bank is a national banking association headquartered in Ohio. Defendant
Bancorp is a bank holding corporation incorporated in Delaware with its principal place of
business in Minnesota. Normally, Bancorp’s presence as a defendant would destroy diversity
since both Bancorp and Sterne Agee are Delaware corporations. However, the action may still be
removed if Bancorp is fraudulently joined to this action. Defendants claim that Bancorp was not
involved whatsoever in the underlying lawsuit and should be dismissed.
Sterne Agee argues Bancorp was involved and is a proper defendant. In pertinent part,
Sterne Agee alleges the following involvement by Bancorp:
3. . . . Bancorp is a holding company which owns and controls USB [U.S. Bank], and
also directly or indirectly owns and controls US Bancorp Investments, Inc. (USBI),
a Delaware corporation qualified to do business (and doing business) in Alabama,
and US Bancorp Insurance Services LLC (USBIS), a Wisconsin limited liability
company qualified to do business (and doing business) in Alabama. On information
and belief, Bancorp, directly and through its several Alabama-qualified, controlled
subsidiaries, does business in Alabama and Jefferson County. Bancorp and USB are
routinely represented by the same law firm, headquartered in Minneapolis, which was
also handling the withinmentioned USB Indemnification Suit, and Bancorp’s general
counsel, who was involved in events connected with the USB Indemnification Suit,
is a former partner of said outside law firm.
4. As further alleged below, USB, acting in concert with and ultimately for the
benefit of Bancorp, committed torts against Plaintiff directed against Plaintiff in this
State and County, and which injured and had their impact upon Plaintiff in this State
(Complaint at ¶¶ 3-4). Sterne Agee also alleges that the Washington lawsuit against it was
on information and belief through one or more senior officers of Bancorp acting in
concert and conspiracy with Bancorp (including Bancorp’s Executive Vice President
and General Counsel, Lee Mitau,) hatched a plan to shift responsibility for USB’s
own misconduct onto SAL, . . . via filing meritless litigation against SAL to obtain
full indemnity (not contribution) in violation of public policy from SAL for USB’s
(Complaint at ¶ 12).
Sterne Agee claims that Bancorp “on information and belief joined in, encouraged or
aided and abetted” U.S. Bank during the course of the Washington lawsuit. (Complaint at ¶ 20).
Sterne Agee contends that
USB, on information and belief employing the help and assistance of one or more
Bancorp officers and acting for the ultimate benefit of Bancorp, and acting in concert
and conspiracy with Bancorp, engaged in a lengthy and deliberate process to use its
influence and relations with a key witness’ employer, and/or pressure, and to use
witness coaching methods (including misrepresentations made to the witness), so as
to cause a key witness John Goetz (“Goetz”) (the Cincinnati, Ohio-based investment
adviser to Holders) to change his testimony for the second trial, from that which he
had given which was admitted in the first trial. The major Holder, Western Southern,
is and has been during the relevant time period a so-called “Product Partner” of USBI
(a major Bancorp subsidiary), and on information and belief Bancorp (directly and/or
through its various subsidiaries) has done substantial business with Western
Southern, and has a material relationship with Western Southern, as a result. As part
of such plan and project to make Goetz change his testimony, USB officials in
Minneapolis (including Scott Strodthoff) communicated with representatives of the
Holders and of Goetz, and then met with him in Cincinnati, Ohio.
(Complaint at ¶ 20(h)). Among the other actions alleged by Sterne Agee based upon its
“information and belief” is that “Bancorp, which stood ultimately to benefit financially from the
USB Indemnification Suit, acted in concert or conspiracy with USB and out of malice, in
initiating and continuing the USB Indemnification Suit.” (Complaint at ¶ 32). Sterne Agee
asserts that it was damaged in excess of $1.8 million as a proximate consequences of USB’s
bringing, with Bancorp’s aid, the Washington suit. (Complaint at ¶ 34).
A civil action brought in a state court may be removed to federal court for either diversity
or federal question jurisdiction. 28 U.S.C. § 1441(a). Diversity jurisdiction requires complete
diversity between the parties. See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 267 (1806).
Fraudulent joinder occurs when plaintiff has named a defendant that destroys the complete
diversity “‘solely in order to defeat federal diversity jurisdiction.’” Stillwell v. Allstate Ins. Co.,
663 F.3d 1329, 1332 (11th Cir. 2011) (quoting Henderson v. Washington Nat. Ins. Co., 454 F.3d
1278, 1281 (11th Cir. 2006)). Then, “‘the district court must ignore the presence of the non-
diverse defendant and deny any motion to remand the matter back to state court.’” Id.
The removing party has the burden of establishing fraudulent joinder by clear and
convincing evidence. Id; See Parks v. New York Times Co., 308 F.2d 474, 478 (5th Cir. 1962).1
They must prove either: “(1) there is no possibility the plaintiff can establish a cause of action
against the resident defendant; or (2) the plaintiff has fraudulently pled jurisdictional facts to
bring the resident defendant into state court.” Crowe v. Coleman, 113 F.3d 1536, 1538 (11th Cir.
Defendants agree that Sterne Agee has not engaged in actual fraudulent pleading. Rather,
defendants claim there is no possibility that Sterne Agee can maintain the tort of malicious
prosecution against Bancorp. This court can deny the motion to remand only if there is no
possibility that Sterne Agee could maintain its cause action against Bancorp in Alabama state
court. See Henderson, 454 F.3d at 1281-1282.
A. Choice of State Law
The first issue that a state court judge would have to decide is whether Alabama or
Washington state law applies to this claim of civil malicious prosecution. This is a critical issue
because of the highly relevant differences in the tort between the two states. In Alabama,
[in] order for a claim of malicious prosecution to be submitted to a jury, the trial
court must determine that the plaintiff has presented substantial evidence of the
following elements: (1) that the present defendant instituted a prior judicial
proceeding against the present plaintiff; (2) that in instituting the prior proceeding the
present defendant acted without probable cause and with malice; (3) that the prior
The Eleventh Circuit has adopted as binding precedent all decisions of the former Fifth
Circuit rendered prior to October 1, 1981. Bonner v. City of Prichard, 661 F.2d 1206, 1207 (11th
Cir. 1981) (en banc).
proceeding ended in favor of the present plaintiff; and (4) that the present plaintiff
was damaged as a result of the prior proceeding.
Downing v. Halcyon Oaks Homeowners Ass’n, Inc., 96 So.3d 818, 824 (Ala. Civ. App. 2012)
(quoting Wal-Mart Stores, Inc. v. Goodman, 789 So.2d 166, 174 (Ala. 2000). Alabama law does
not require such an arrest or a seizure of property to occur. Peerson v. Ashcroft Cotton Mills, 78
So. 204, 205 (Ala. 1917). Washington state law, though similar to Alabama’s elements, does
require the plaintiff to “allege and submit proof of arrest of his person or seizure of his property.”
Gem Trading Co., Inc. v. Cudahy Corp., 588 P.2d 1222, 1225 (Wash. App. 1978) (emphasis
added). Sterne Agee admits, and all parties agree, that no arrest or seizure of property occurred in
the instant case. Therefore, the court must ask if there is any possibility that an Alabama state
court judge could find that Alabama law defines the tort and controls the claim.
When analyzing a tort under choice of law principles, Alabama law follows lex loci
delecti. This means “an Alabama court will determine the substantive rights of an injured party
according to the law of the state where the injury occurred.” Lifestar Response of Alabama, Inc.
v. Admiral Ins. Co., 17 So.3d 200, 213 (citing Fitts v. Minnesota Mining & Mfg. Co., 581 So.2d
819 (Ala. 1991)) (emphasis added). A state court judge would recognize that the underlying civil
action for this alleged malicious prosecution occurred in Washington state. However, the judge
would also hear Sterne Agee’s argument that its injury consists of the attorneys’ fees and costs of
the Washington litigation, which occurred in Alabama, where its attorneys are located. There is a
distinct possibility that the state court would decide that Sterne Agee’s characterization of the
injury as an Alabama suit is accurate and accordingly apply Alabama law. For this court to
decide otherwise would be to invade the sacrosanct province of the state court under the
principles of federalism.
B. Realistic Possibility of a Maintainable Cause of Action
Because there is a possibility that a state court judge could apply Alabama law to the tort
in question, this court must next ask whether there is any realistic possibility that the state court
could find that Sterne Agee states a legitimate claim for malicious prosecution against Bancorp
under Alabama law. See Henderson, 454 F.3d at 1281-1282.
Alabama employs a notice pleading standard, which notably does not incorporate Iqbal or
Twombly pleading standards. See Thomas v. Williams, 21 So. 3d 1234, 1236 n. 1 (Ala. Civ. App.
2008) (refusing to apply Twombly to state court pleading standards). Notice pleading must
“provide defendants adequate notice of the claims against them.” Ex parte International Ref. &
Mfg. Co., 972 So. 2d 784, 789 (Ala. 2007); See also Ala. R. Civ. P. R. 8, Committee Comments
(“the prime purpose of pleadings is to give notice.”). The standard for notice pleading is
considered met “if the claim for relief gives to the opponent fair notice of the pleader’s claim and
the grounds upon which it rests. The discovery process bears the burden of filling in the factual
details.” McKelvin v. Smith, 85 So. 3d 386, 389 (Ala. Civ. App. 2010) (internal citations omitted)
(emphasis added). While federal pleading standards under Iqbal may require “sufficient factual
matter . . . [for] facial plausibility”, an Alabama complaint cannot be dismissed “if the pleading
contains even a generalized statement of facts which will support a claim for relief.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009); McKelvin, 85 So. 3d at 389 (quoting Simpson v. Jones, 460 So.
2d 1282, 1285 (Ala. 1984)).
The Alabama state law elements require the plaintiff to show: 1) that the defendant
“instituted a prior judicial proceeding” against it, 2) the defendant acted “without probable case
and with malice,” 3) “the prior proceeding ended in favor of the present plaintiff,” and 4)
damages. Downing, 96 So.3d at 824. The third and fourth elements are presumptively met, and
the parties have not argued otherwise. The first hurdle Sterne Agee would have to leap is to
prove that Bancorp was sufficiently involved in the prior Washington proceeding. Under
Alabama law, a defendant who “merely gives the district attorney's office information regarding
an alleged crime, leaving the decision to prosecute entirely to the uncontrolled discretion of the
district attorney” is not considered to have “instigated” the prosecution. Alabama Power Co. v.
Neighbors, 402 So.2d 958, 962 (Ala. 1981). However, Alabama recognizes claims where the
defendant was more involved than merely providing information about a potential crime. The
law is clear that if one “corruptly or oppressively brings about the indictment or prosecution of
another maliciously and without probable cause . . . by fraud, perjury, subordination, or by the
willful suppression of known material facts, the intentional thwarting of a fair investigation,” the
defendant is potentially liable for malicious prosecution, even if it did not personally prosecute
the prior suit. Dismukes v. Trivers Clothing Co., 127 So. 188, 190 (Ala. 1930); See also Shoney’s
Inc. v. Barnett, 773 So.2d 1015, 1023 (Ala. Civ. App. 1999). Therefore, proving a defendant,
who was not a named plaintiff in the original case, instigated or encouraged the proceeding
involves proving some sort of malice or misrepresentation, which ties with the second element of
the malicious prosecution tort.
Accompanying its motion, Sterne Agee attempts to illustrate Bancorp’s involvement in
the prior litigation by presenting a letter and handwritten notes.. (Doc. 20, at 10-11). Without this
“evidence,” Sterne Agee’s complaint specifically alleges “witness-coaching methods (including
misrepresentations made to a witness), so as to cause a key witness . . . to change his testimony.”
(Complaint at ¶ 20(h)). Furthermore, Defendants concede that U.S. Bank is a subsidiary of
Bancorp, a fact that presents an unresolved question of Alabama law. While this court will not
weigh the evidence to decide whether these elements would be ultimately met, it recognizes that
sufficient evidence exists on which a state law judge could, when construing the complaint in
favor of the plaintiff, decide the complaint supports a claim for relief and survives a motion to
Because defendants have not met their burden of proving that there is “no possibility the
plaintiff can establish a cause of action” against Bancorp under Alabama state law, fraudulent
joinder has not been proven. Crowe, 113 F.3d at 1538. Because Bancorp was properly joined,
complete diversity does not exist, and the court must reject the report and recommendation of the
magistrate judge and remand the case to the state court. A separate appropriate order will be
DONE this 30th day of November, 2012.
WILLIAM M. ACKER, JR.
UNITED STATES DISTRICT JUDGE
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