McAdam Properties LLC v. Dunkin Donuts Franchising LLC et al
Filing
29
MEMORANDUM OPINION. Signed by Judge Virginia Emerson Hopkins on 2/21/2018. (JLC)
FILED
2018 Feb-21 PM 04:03
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
MCADAM PROPERTIES, LLC,
Plaintiff,
v.
DUNKIN’ DONUTS
FRANCHISING, LLC; DUNKIN'
BRANDS GROUP, INC.,
Defendant.
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) Case No.: 2:17-CV-2088-VEH
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MEMORANDUM OPINION
The case comes before the Court on the Motion To Remand filed by the Plaintiff
(the “Motion”). (Doc. 16). Oral argument was held on the motion on February 15,
2018. For the reasons stated herein and at oral argument, the Motion will be
GRANTED and this case will be REMANDED to the Circuit Court of Jefferson
County, Alabama.
I.
INTRODUCTION AND PROCEDURAL HISTORY
A.
Initiation of the Lawsuit in State Court
This civil action was filed on May 25, 2016, in the Circuit Court of Jefferson
County, Alabama by the Plaintiff, McAdam Properties, LLC, against the following
Defendants: Barista Food Service, LLC (“Barista”); Dunkin’ Donuts; and Dunkin’
Brands Group, Inc. (“Dunkin Brands”) (Doc. 1-1)(Doc. 1-1). The case arises out of a
lease agreement between the Plaintiff and Barista, a potential franchisee of a “Dunkin’
Donuts” franchise, which prompted the Plaintiff to construct part of its shopping center
to the particular specifications required of a Dunkin’ Donuts store. In October of 2014,
after construction had begun, but before construction was completed, “Barista . . .
informed McAdam Properties that Barista . . . would not be taking possession of the
premises and that Dunkin' Donuts would take assignment of the lease agreement.”
(Doc. 1-1 at 3, ¶8). The Plaintiff claims it was injured when, in May of 2015, after it
completed construction, “Dunkin' Donuts informed McAdam Properties that it would
not take assignment of the lease unless it could obtain a franchisee to become a
substitute for Barista.” (Doc. 1-1 at 4, ¶11). The Complaint sets out a claim for fraud
(Count One) against all Defendants, and a claim for suppression (Count Two) against
only Dunkin’ Donuts and Dunkin’s Brands.
B.
The Removal
The Defendants allege that on November 21, 2017, complete diversity of
citizenship pursuant to 28 U.S.C. § 1332 was created when the state court dismissed
Barista on the Plaintiff’s motion. (Doc. 1-9 at 284). The remaining Defendants removed
the case to this Court on December 13, 2017. (Doc. 1).
2
C.
Substitution of Defendants
On January 5, 2018, based on the representation by the Defendant that “Dunkin’
Donuts Franchising LLC is the franchisor of the Dunkin’ Donuts system. “Dunkin’
Donuts” is a trade name, not a business entity” (doc. 1 at 1), this Court Ordered that
“Dunkin' Donuts Franchising LLC” be substituted as a Defendant in place of the
Defendant named “Dunkin' Donuts.” (Doc. 9 at 2). The current Defendants are now
Dunkin' Donuts Franchising, LLC and Dunkin' Brands Group, Inc.
D.
This Court’s Order Regarding Jurisdiction
In the Order substituting parties, this Court also wrote:
With that change, the Notice of Removal, as currently written, does not
satisfactorily establish the Court's jurisdiction over the action.
Accordingly, no later than January 19, 2018, the removing parties are
ORDERED to file with this court a Notice establishing this Court's
jurisdiction according to the standard enunciated by the Eleventh Circuit
in Rolling Greens MHP, L.P. v. Comcast SCH Holdings LLC, 374 F.3d
1020 (11th Cir. 2004). Specifically, that case held that, in order to
establish diversity, if a limited liability company is a party, the names and
states of domicile of each member of the limited liability company must
be listed.
(Doc. 9 at 2-3). Thereafter, on January 11, 2018, the Defendants filed document 11
which states, in pertinent part:
1. Plaintiff McAdam Properties, LLC is an Alabama limited liability
company with its principal place of business in Alabama. The sole
member of Plaintiff McAdam Properties, LLC is Kerry McAdam, a
resident and citizen of Alabama.
3
2. Defendant Dunkin’ Brands Group, Inc. is a Delaware corporation with
its principal place of business in Canton, Massachusetts.
3. Defendant Dunkin’ Donuts Franchising LLC is a Delaware limited
liability company with its principal place of business in Canton,
Massachusetts. The sole member of Defendant Dunkin’ Donuts
Franchising LLC is DB Franchising Holding Company LLC, which is a
Delaware limited liability company with its principal place of business in
Canton, Massachusetts. In turn the sole member of DB Franchising
Holding Company LLC is DB Master Finance LLC. DB Master Finance
LLC is a Delaware limited liability company with its principal place of
business in Canton, Massachusetts. The sole member of DB Master
Finance LLC is Baskin-Robbins International LLC, a Delaware limited
liability company with its principal place of business in Canton,
Massachusetts. The sole member of Baskin-Robbins International LLC
is Baskin-Robbins Flavors LLC, a Delaware limited liability company
with its principal place of business in Canton, Massachusetts. The sole
member of Baskin-Robbins Flavors LLC is Baskin-Robbins USA LLC,
a California limited liability company with its principal place of business
in Canton, Massachusetts. The sole member of Baskin-Robbins USA
LLC is Baskin-Robbins LLC, a Delaware limited liability company with
its principal place of business in Canton, Massachusetts. The sole member
of Baskin-Robbins LLC is Mister Donut of America LLC, a Delaware
limited liability company with its principal place of business in Canton,
Massachusetts. The sole member of Mister Donut of America LLC is
Dunkin’ Donuts USA LLC, a Delaware limited liability company with its
principal place of business in Canton, Massachusetts. The sole member
of Dunkin’ Donuts USA LLC is Dunkin’ Donuts LLC, a Delaware limited
liability company with its principal place of business in Canton,
Massachusetts. The sole member of Dunkin’ Donuts LLC is Dunkin’
Brands, Inc., a Delaware corporation with its principal place of business
in Canton, Massachusetts. Dunkin’ Brands, Inc. is a wholly owned
subsidiary of Dunkin’ Brands Holdings, Inc., a Delaware corporation with
its principal place of business in Canton, Massachusetts.
(Doc. 11 at 1-2 at ¶¶1-3).
4
Put more simply, the Plaintiff, as an LLC, is a citizen of Alabama, the only state
in which its only member is a citizen. Defendant Dunkin' Brands Group, Inc. is a
Delaware corporation with its principal place of business in Massachusetts. Therefore,
it is a citizen of the states of Delaware and Massachusetts. See, Life of the S. Ins. Co.
v. Carzell, 851 F.3d 1341, 1344 (11th Cir. 2017) (citing 28 U.S.C. § 1332(c)(1))
(corporation is a citizen of the state of its incorporation and its principal place of
business).
Dunkin' Donuts Franchising LLC is the last in a long chain of LLCs each of
which is the sole member of the next. However, the sole member of the first LLC in the
chain, Dunkin' Donuts LLC, is Dunkin' Brands Holdings, Inc., which is a citizen of both
Delaware and Massachusetts. Because this citizenship is then imputed to each LLC up
the chain, Dunkin’ Donuts Franchising LLC is also a citizen of both Delaware and
Massachusetts.
II.
STANDARD FOR REMAND
“Federal courts are courts of limited jurisdiction. They possess only that power
authorized by Constitution and statute.” Kokkonen v. Guardian Life Ins. Co. of
America, 511 U.S. 375, 377 (1994). For removal to be proper, the court must have
subject-matter jurisdiction in the case. “Only state-court actions that originally could
have been filed in federal court may be removed to federal court by the Defendant.”
5
Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987). In addition, the removal statute
must be strictly construed against removal, and any doubts should be resolved in favor
of remand. See, City of Vestavia Hills v. Gen. Fid. Ins. Co., 676 F.3d 1310, 1313 (11th
Cir. 2012) (“[b]ecause removal jurisdiction raises significant federalism concerns,
federal courts are directed to construe removal statutes strictly. Indeed, all doubts about
jurisdiction should be resolved in favor of remand to state court.”) (citation omitted).
“In removal cases, the burden is on the party who sought removal to demonstrate
that federal jurisdiction exists.” Friedman v. New York Life Ins. Co., 410 F.3d 1350,
1353 (11th Cir. 2005) (citation omitted); Williams v. Best Buy Co., 269 F.3d 1316,
1319 (11th Cir.2001).
That burden goes not only to the issue of federal jurisdiction, but also to
questions of compliance with statutes governing the exercise of the right
of removal. Albonetti v. GAF Corporation-Chemical Group, 520 F.Supp.
825, 827 (S.D. Texas 1981); Jennings Clothiers of Ft. Dodge, Inc. v.
U.S. Fidelity & Guaranty Co., 496 F.Supp. 1254, 1255 (D.Iowa 1980);
Fort v. Ralston Purina Company, 452 F.Supp. 241, 242
(E.D.Tenn.1978).
Parker v. Brown, 570 F.Supp. 640, 642 (D.C. Ohio, 1983).
While it is undoubtedly best to include all relevant evidence in the petition
for removal and motion to remand, there is no good reason to keep a
district court from eliciting or reviewing evidence outside the removal
petition. We align ourselves with our sister circuits in adopting a more
flexible approach, allowing the district court when necessary to consider
post-removal evidence in assessing removal jurisdiction. We emphasize,
as did the court in Allen, that “under any manner of proof, the
6
jurisdictional facts that support removal must be judged at the time of the
removal, and any post-petition affidavits are allowable only if relevant to
that period of time.” Allen, 63 F.3d at 1335.
Sierminski v. Transouth Financial Corp., 216 F.3d 945, 949 (11th Cir. 2000).
III.
ANALYSIS
As noted above, the Defendants removed this case alleging that complete
diversity of citizenship exists pursuant to 28 U.S.C. § 1332.1 However, “[a] case may
not be removed . . . on the basis of jurisdiction conferred by section 1332 more than 1
year after commencement of the action, unless the district court finds that the plaintiff
has acted in bad faith in order to prevent a defendant from removing the action.” 28
U.S.C.A. § 1446(c). The Complaint in this case was filed in state court on May 25,
2016, and the case was not removed until December 13, 2017–1 year, 6 months, and
19 days (counting the date of removal) after the case was filed.
The Defendants argue that there is bad faith here because the Plaintiff knew that
there was no basis for a fraud claim against Barista at the time it filed this case.2 In
support of this argument, in their notice of removal they cited the following testimony
from the March 24, 2017, deposition of Kerry McAdams, the sole member of the
1
The parties agree that the amount in controversy requirement of 28 U.S.C. §1332 is
satisfied. After reviewing the allegations in this case, the Court HOLDS that it is.
2
Recall that the only claim against Barista was Count One, alleging fraud.
7
Plaintiff:
Q. But the bottom line is, the shell of the building was not constructed
until August or September –
A. Correct.
Q. -- of 2015? And that was after those discussions in May of 2015 with
Dunkin’, right?
A. Correct.
Q. So there were not any things that Ramon Arias [the sole member of
Barista] said that caused you to go do anything from October -- anytime
after October of 2014, right?
A. Correct.
Q. In fact, you didn’t have any substantive discussions with Ramon about
the project during that time after -- certainly after October of 2014, right?
A. Everything was dictated by Dunkin’ Brands.
Q. And no discussions with Ramon Arias or anyone else at Barista?
A. I think I may have copied him maybe on an e-mail, too, but that would
have been it.
Q. But nothing you relied on?
A. No.
Q. And by “no, sir,” you mean that’s correct?
A. That’s correct.
(Doc. 1 at 6-7) (quoting doc. 1-9 (Deposition of Kerry McAdams) at 203(286-287)).
8
According to the Defendants, this testimony demonstrates that the Plaintiff knew, at the
time the lawsuit was filed, that it had not relied upon any representation from Barista.3
At oral argument, the Defendants argued that Alabama’s statute of frauds prevents the
Plaintiff from reasonably relying on any representations from Barista.
A.
The One Year Time Limit for Removing Diversity Cases (28 U.S.C.
§ 1446(c))
Section 1446(c) was added to the removal statute pursuant to the Federal Courts
Jurisdiction and Venue Clarification Act of 2011, Pub. L. No. 112-63, 125 Stat. 758
(2011) (“An Act to amend title 28, United States Code, to clarify the jurisdiction of the
Federal courts, and for other purposes.”). See, H.R. REP. 112-10, 15, 2011
U.S.C.C.A.N. 576, 580 (“Section paragraph 1446(c)(1) grants district court judges
discretion to allow removal after the 1-year limit if they find that the plaintiff has acted
in bad faith in order to prevent a defendant from removing the action.”). However, there
3
In Alabama,
[t]he essential elements of a fraud claim are: (1) misrepresentation of a material
fact; (2) made willfully to deceive, or recklessly without knowledge; (3) which was
justifiably relied upon by the plaintiff under the circumstances; and (4) which
caused damage as a proximate consequence.
McCullough v. Allstate Prop. & Cas. Ins. Co., No. 2160497, 2018 WL 387844, at *6 (Ala. Civ.
App. Jan. 12, 2018) (emphasis added) (internal quotations and citations omitted); see also, Patten
v. Alfa Mut. Ins. Co., 670 So. 2d 854, 856 (Ala. 1995) (same). To the extent that Count One can
be interpreted as a promissory fraud claim, “two additional elements must be satisfied: (5) proof
that at the time of the misrepresentation, the defendant had the intention not to perform the act
promised, and (6) proof that the defendant had an intent to deceive.” Southland Bank v. A & A
Drywall Supply Co., 21 So. 3d 1196, 1210 (Ala. 2008).
9
is very little authority on what “bad faith” means in the context of the statute.
B.
The History of the Equitable Exception to the One Year Limit
Acknowledging the “dearth” of case law on this issue, in its opposition to the
Motion To Remand, the Defendants argue that “a review of the history of the evolution
of [the] bad faith exception shows that it is fully applicable here.” (Doc. 21 at 7). The
Court agrees that such a review is helpful, but does not agree that it is helpful to the
Defendants’ argument.
Section 1446 was first amended “to establish a one-year limit on removal based
on diversity jurisdiction as a means of reducing the opportunity for removal after
substantial progress has been made in state court.” H.R. REP. 100-889, 72, 1988
U.S.C.C.A.N. 5982, 6032. In Tedford v. Warner-Lambert Co., 327 F.3d 423, 427 (5th
Cir. 2003), the Fifth Circuit became the first circuit court to recognize an equitable
exception to the one year limitation. That case is widely regarded as the common law
origination of the current statutory exception. See, Nathan A. Lennon, Note, Two Steps
Forward, One Step Back: Congress Has Codified the Tedford Exception, but Will
Inconsistent Applications of "Bad Faith" Swallow the Rule?, 40 N. Ky. L. Rev. 233,
241–43 (2013); Emily L. Buchanan, A Comity of Errors: Treading on State Court
Jurisdiction in the Name of Federalism, 55 S. Tex. L. Rev. 1, 18 (2013) (“In 2011,
Congress enacted the Federal Courts Jurisdiction and Venue Clarification Act. Among
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other amendments, the Act codified the equitable exception to the one-year bar.”).
Accordingly, a review of that case is appropriate.
In Tedford, hours after learning that the defendant intended to remove the case,
the plaintiff amended her complaint to add a non-diverse defendant. Then, prior to the
expiration of the one year period, the plaintiff signed and post-dated a “Notice of
Nonsuit” of that defendant, but did not file it with the court or notify the other
defendant until the one-year period had expired. The Fifth Circuit held that “[w]here
a plaintiff has attempted to manipulate4 the statutory rules for determining federal
removal jurisdiction, thereby preventing the defendant from exercising its rights, equity
may require that the one-year limit in § 1446(b) be extended.” Tedford, 327 F.3d at
428-29. Under the circumstances, the Fifth Circuit determined that “[e]quity demands
[the plaintiff] be estopped from seeking to remand the case on the basis of the one-year
limit.” Id. at 428.5
4
Notably, the Fifth Circuit used the word “manipulate,” not the phrase “bad faith.”
5
The Plaintiff argues that Tedford is in direct contradiction to Eleventh Circuit precedent,
quoting the following footnote from that case:
“But see Burns v. Windsor Ins. Co., 31 F.3d 1092, 1097 n. 12 (11th Cir.1994)
(“[C]ongress knew when it passed the one year bar on removal that some plaintiffs
would attempt to defeat diversity by fraudulently (and temporarily) joining a
non-diverse party. In that case, as long as there is some possibility that a
non-diverse joined party could be liable in the action, there is no federal
jurisdiction.... [A] plaintiff could defeat jurisdiction by joining a non-diverse party
and dismissing him after the deadline. Congress has recognized and accepted that,
in some circumstances, plaintiff can and will intentionally avoid federal
11
C.
The Defendants Have Not Shown Bad Faith
Recall that “[i]n removal cases, the burden is on the party who sought removal
to demonstrate that federal jurisdiction exists.” Friedman v. New York Life Ins. Co.,
410 F.3d 1350, 1353 (11th Cir. 2005) (citation omitted). In the instant case, that means
that the Defendants must show that the Plaintiff “has acted in bad faith in order to
prevent a defendant from removing the action.” 28 U.S.C.A. § 1446(c). The
Defendants have not carried their burden.
The Defendants cite only Tedford in their Notice of Removal. However, in their
opposition to the Motion To Remand, the Defendants cite one other case, without
discussion, in support of their position--Noyes v. Universal Underwriters Ins. Co., 3
F. Supp. 3d 1356 (M.D. Fla. 2014) (Moody, J.), on reconsideration in part, No.
8:13-CV-3077-T-30TGW, 2014 WL 2111695 (M.D. Fla. Apr. 30, 2014).6 Noyes
jurisdiction.”) (dictum). After examining the legislative history, we must
respectfully disagree with the Burns court. See infra note 9.”
(Doc. 16 at 3) (quoting Tedford, 327 F.3d at 426, n. 3.). The Plaintiff then notes that “[t]his
Court, of course, is bound by the decisions of the 11th Circuit.” (Doc. 16 at 3). First, the Burns
decision is distinguishable on its facts as Burns dealt not with fraudulently joined defendants, but
instead with a complaint which, on its face, alleged damages below the jurisdictional amount.
Accordingly, the quoted section of Burns is dicta. Second, the law of the land is now codified in
28 U.S.C. § 1446(c). To the extent that Burns says anything to the contrary, it has been
statutorily superceded.
6
The Defendants write:
Counsel for Dunkin’, despite extensive research on the issue, has only been able to
find one case, Noyes, supra, applying the bad faith exception to a situation where a
12
involved a claim by James Noyes against Universal Underwriter’s Insurance Company
(“Universal”) for the alleged bad faith failure to settle an underlying tort case within
policy limits. In the underlying tort case, Tampa Auto Service (“Tampa Auto”), where
Noyes worked as a service manager, repaired a flat tire on a vehicle owned by Roy
Chattelle. Three months after the repair, Chattelle’s wife was severely injured when the
tire lost its tread, causing an accident. Chattelle sued Tampa Auto, but did not sue
Noyes. David LoNigro, the insurer’s in-house counsel, was assigned to the case. Seven
months after getting the case, LoNigro sent Chattelle a policy limits settlement offer of
$1.3 million, which was rejected. Afterwards, Universal transferred the case to outside
counsel. On November 4, 2009, the state court entered an order substituting another
attorney for LoNigro. On January 24, 2011, Chattelle amended his complaint to add
Noyes as a defendant. After trial, the Chattelles won a judgment of $7 million against
Tampa Auto and $6 million against Noyes.
On September 27, 2012, Noyes sued Universal and LoNigro in Florida state
plaintiff pursues a facially invalid claim from the onset, as is the case here.
(Doc. 21 at 9, n. 1). The Defendants also quoted, without discussion, the following language from
Lawson v. Parker Hannifin Corp., No. 4:13-CV-923-O, 2014 WL 1158880, at *6 (N.D. Tex.
Mar. 20, 2014) (O’Connor, J.): “Sufficient evidence of forum manipulation exists to warrant
application of the bad faith exception to the one-year removal period.” (Doc. 1 at 9; doc. 21 at
17). Such evidence is not present here.
13
court for bad faith failure to settle. The opinion then sets out the following procedural
history:
Universal initially removed the case to federal court on the basis
that Noyes fraudulently joined LoNigro to destroy diversity since LoNigro
is a citizen of Florida. Universal alleged that Noyes could not state a legal
malpractice claim against LoNigro because Noyes was not a party in the
underlying claim until after LoNigro was removed as counsel from the
case. Noyes filed a motion to remand on the basis that the notice of
removal was untimely. The district court remanded the case based on the
removal being late by one day, but did not address the issue of fraudulent
joinder.
In the state court, LoNigro filed a motion to dismiss on the basis
that Noyes failed to state a cause of action against him for legal
malpractice. Noyes argued that LoNigro represented Noyes regarding the
Chattelles' “claims,” and not the underlying lawsuit specifically. The
theory is that the “claims” were not limited to the causes of action brought
in the underlying case but included the potential claims against the
employees of Tampa Auto, including Noyes. The state court entered an
order dismissing the count against LoNigro without prejudice, and
allowed Noyes to file an amended complaint. The amended complaint
alleged that an attorney-client privilege existed between Noyes and
LoNigro and in the alternative that LoNigro was a third party beneficiary
to the attorney client relationship between Tampa Auto and LoNigro.
LoNigro then filed a second motion to dismiss along with a motion
for sanctions pursuant to Fla. Stat. § 57.105. The state court granted
LoNigro's motion to dismiss the amended complaint, without prejudice
and with leave to amend the complaint within twenty days. Noyes and
LoNigro entered into a settlement agreement whereby Noyes would
stipulate to LoNigro's dismissal with prejudice in exchange for LoNigro
dropping his claim for attorney's fees. The state court entered the
stipulated order dismissing LoNigro with prejudice on November 6, 2013.
Universal then filed the Notice of Removal on December 6, 2013, which
is the subject of this Motion to Remand.
14
Noyes, 3 F. Supp. 3d at 1359. Universal argued that the act of fraudulently joining
LoNigro in order to destroy diversity amounted to bad faith. “As proof of the fraudulent
joinder, Universal point[ed] to the two state court dismissals of the claims against
LoNigro which support that Noyes could not have possibly stated a cause of action
against LoNigro for legal malpractice.” Id. at 1360.
The district court first determined, after significant analysis, that Universal had
met its burden of establishing that LoNigro was fraudulently joined for the purpose of
destroying diversity. Id. at 1362. Thereafter, the court concluded, with little to no
analysis, “that Noyes' fraudulent joinder was meant to manipulate the state court's
jurisdiction and constitutes bad faith.” Id. at 1363.
With their citation of Noyes, the Defendants seem to be arguing that fraudulent
joinder, alone, without bad conduct by the Plaintiff, can be “bad faith” under the
statute. That is the position they took at oral argument.
1.
The Defendants Have Not Shown Fraudulent Joinder
First, assuming that fraudulent joinder alone is sufficient to qualify as “bad faith”
under the statute7, the Defendants make no real attempt, other than in an
underdeveloped footnote, to show that there was fraudulent joinder. (See doc. 21 at
9, n. 1). Furthermore, the facts seem to suggest both that there was a valid claim
7
The Court holds infra that it is not.
15
against Barista, and that it was vigorously prosecuted–the Plaintiff survived summary
judgment on its claims against Barista after the Defendants made the same arguments
they are making now. (See doc. 16 at 5). That alone makes this case factually
distinguishable from Noyes.8 The Court also notes that the case against Barista was not
settled as a “walk away” as stated by the Defendants. (See doc. 1 at 8). As part of the
settlement, Barista agreed to allow the Plaintiff to keep the $69,000 in first month’s
rent–the very thing Barista had sued for. (See doc. 16 at 4). The Defendants have not
satisfied their burden in this regard.9
2.
The Defendants Have Not Shown that Fraudulent Joinder Alone
Is Equivalent to Statutory “Bad Faith”
The Defendants cite no support for the proposition that “bad faith” under the
statute is present when a defendant is fraudulently joined but without some other
misconduct by the plaintiff. Indeed, there is significant authority, based on the Tedford
8
The Court is aware that Defendants moved to reconsider that order, which was drafted
by the Plaintiff, arguing that it “is riddled with misstatements of the law and mischaracterizations
of the record evidence.” (Doc. 21 at 15; see also doc. 21 at 15-17). However, as the court noted
during oral argument, the instant motion is not the proper forum to re-litigate that order.
9
At oral argument, the Court requested that the Defendants produce a case citation,
which they have done in document 28. The case cited by the Defendants is Wilma Corp. v.
Fleming Foods of Alabama, Inc., 613 So. 2d 359, 366 (Ala. 1993), overruled by Bruce v. Cole,
854 So. 2d 47 (Ala. 2003), which they contend stands for the proposition that the statute of
frauds prevented the Plaintiff from reasonably relying on the representations of Barista that the
lease had been assigned to Defendants. However, the writing which they contend prevents the
Plaintiff’s reliance is the assignment contract between these Defendants and Barista. The
Defendants have cited no authority for the proposition that any deficiency in the assignment
contract, to which the Plaintiff was not a party, bars the Plaintiff’s fraud claim.
16
exception, to the contrary. For example, in Lafazia v. Ecolab, Inc., No. C.A.NO.
06-491ML, 2006 WL 3613771, at *1 (D.R.I. Dec. 11, 2006) (Almond, M.J.), the
plaintiff “was allegedly injured in a workplace accident by electrocution while
operating a garbage disposal and dishwasher.” Lafazia, 2006 WL 3613771, at *1. As
noted by the court:
Plaintiff filed suit in Superior Court on February 16, 2005 against his
employer, Cedar Crest; Cedar Crest's workers' compensation insurer,
Beacon Mutual Insurance Co. (“Beacon”); and Johnson Diversity, Inc.,
apparently a vendor of kitchen cleaning equipment and/or systems to
Cedar Crest. Since Cedar Crest and Beacon are Rhode Island
corporations, there was not complete diversity, and the case was not
initially removable.
Id. The plaintiff settled with the employer and the insurer, and then amended his
complaint to add another diverse defendant, Ecolab, Inc., who was also a vendor of
kitchen cleaning equipment and/or systems to Cedar Crest. The court noted:
Plaintiff, however, did not remove Cedar Crest from the caption of the
First Amended Complaint. In addition, both Plaintiff's Complaint and First
Amended Complaint lump all of the Defendants together for pleading
purposes, and the First Amended Complaint contains a premises liability
claim in Count IV which one would reasonably assume is directed at
Cedar Crest since the injury allegedly occurred in its facility.
Id. The state court granted summary judgment against the Plaintiff on his claims against
Johnson Diversity, Inc., which would have made the only remaining claims those
against Ecolab, Inc. However, the court noted that because of the inclusion of Cedar
17
Crest in the caption of the amended complaint, and the presence of the premises
liability claim, “it was far from clear at that point if Cedar Crest was or was not still a
party to this case and if there were proper grounds for removal.” Id. The court held that
Cedar Crest and Beacon were fraudulently joined parties and wrote:
The bottom line is that this case would have been removable from its
commencement but for the presence of two fraudulently joined parties,
i.e., Cedar Crest and Beacon, who are immune from suit in Superior
Court due to workers' compensation exclusivity. By continuing to identify
Cedar Crest, after its dismissal in Superior Court, as an active Defendant
in his First Amended Complaint, Plaintiff falsely led Ecolab to believe
that this was not a diversity case because Cedar Crest is a Rhode Island
corporation operating a nursing home in Rhode Island. It is unclear
whether this is a case of procedural gamesmanship to prevent removal or
if Plaintiff has received an unintended benefit from sloppy pleading.
Either way, this Court concludes that it would be inequitable to deprive
Ecolab of its right to remove this case on diversity grounds on these
unique facts.
Id. at *3 (footnote omitted).
Similarly, in Arrighi v. Celebration Station Properties, Inc., No. CIV.A.
10-105-BAJ, 2010 WL 4386066, at *6–7 (M.D. La. Sept. 14, 2010) (Riedlinger, J.),
report and recommendation adopted, No. CIV.A. 10-105-BAJ-SC, 2010 WL 4366060
(M.D. La. Oct. 27, 2010), the court applied the Tedford exception, writing:
Plaintiff had information indicating that there was no basis for a claim
against Corporate Green, but did not conduct discovery or respond to
Corporate Green's discovery, and did not voluntarily dismiss the claim.
Instead, the plaintiff waited for Corporate Green to file a Motion for
Summary Judgment which he did not oppose.
18
Considering this conduct as a whole, the only reasonable
conclusion is that the plaintiff knew he lacked a factual basis for the claim
against Corporate Green, but maintained this defendant in the case to get
beyond the one year time limit for removal. When it became apparent that
the plaintiff could no longer keep Corporate Green as a party, the plaintiff
immediately named another nondiverse defendant based on an
unsupported officer/employee liability claim to prevent a second removal.
Plaintiff's unexplained actions and delay establish that the actual motive
was not to assert viable claims against potentially liable defendants, but
rather to keep a Louisiana citizen as a defendant and thereby keep the
case in state court.
Outside the fraudulent joinder context, other cases applying the Tedford
exception also require some sort of misconduct by the plaintiffs to manipulate
jurisdiction.10 For example, in Rauch v. Rauch, 446 F. Supp. 2d 432 (D.S.C. 2006), the
case was removed two years and five months after it was filed when the plaintiff
voluntarily dismissed the non-diverse defendant. The court wrote:
Defendants have clearly shown that this is a case warranting an exception.
In this case, Defendants removed to federal court claiming fraudulent
joinder twice within the one-year limit, and both times the federal court
remanded, holding that there was some possibility that the non-diverse
party could be liable in the action. Now, more than one year after the
commencement of the action, Plaintiff dismissed the non-diverse party
and Defendants finally have the evidence that proves Plaintiff intended to
make this dismissal all along.11 The actions of Plaintiff constitute a
10
This Court has not undertaken to conduct an exhaustive survey of all such decisions.
11
Elsewhere in the opinion, the court wrote:
This new proof is a tape recording made by Davis of a conversation between
19
shameless and egregious manipulation of this court's jurisdiction. Further,
the legislative history of the statute reveals that the specific purpose of the
statute is to disallow removal after significant action in state court. . . .
Defendants have shown that, due to Plaintiff's failure to pursue discovery,
substantial progress in this case has not been made in state court. . . .
Accordingly, the central purpose of the one-year limitation would not be
violated by recognizing an equitable exception in this instance. If ever an
equitable exception should be recognized to relieve the inequities caused
by a strict interpretation of the one-year limit on removal, it is in this very
case.
Rauch, 446 F. Supp. 2d at 435–36.
In Brooks v. Am. Bankers Ins. Co. of Fla., No. CIV.A. 401CV00008-PB, 2003
WL 22037730, at *1 (N.D. Miss. Aug. 20, 2003) (Pepper, J.), the court wrote:
For almost three years, the plaintiffs failed to propound discovery upon
Ms. Jones [(the non-diverse defendant)]. The Court is also suspicious as
to why Plaintiffs never sought a default judgment against Ms. Jones after
they realized that she never filed an answer to their complaint or amended
complaint. Plaintiffs' lack of intent to pursue claims against Ms. Jones in
good faith is further evinced by their July 9, 2003 voluntary dismissal of
the Millers-the only plaintiffs who ever had possible claims against Ms.
Jones.
Brooks, 2003 WL 22037730, at *1. Similarly, in In re Rezulin Prod. Liab. Litig. (MDL
No. 1348), No. 00 CIV. 2843 (LAK), 2003 WL 21355201, at *2 (S.D.N.Y. June 4,
2003) (Kaplan, J.), the court wrote:
Plaintiff, their children, and herself. In this taped conversation, recorded some time
before the dismissal of Davis, Plaintiff states that even though he had sued Davis,
he would did not intend to actually seek recovery against her.
Rauch, 446 F. Supp. 2d at 436 n. 1.
20
the Court is inclined to the view that an equitable exception to the
one-year time limit. . . is warranted where, as here, the circumstances
suggest that the plaintiff acted tactically to avoid removal and the interests
of justice favor removal.
Specifically, the Court finds that the timing of plaintiffs' non-suiting
of Dr. Rugama [(the non-diverse defendant)], five days following the one
year anniversary of the action's commencement, suggests strategic
behavior was at play, notwithstanding plaintiffs' contention that they
non-suited the physician to avoid application of a six-month stay that
would result because of the impaired status of Dr. Rugama's insurer. After
all, prior to learning of the insured's impaired status, plaintiffs took no
discovery from the physician. . . . Furthermore, plaintiffs' counsel has
named non-diverse physician defendants in other Rezulin cases.
In re Rezulin Prod. Liab. Litig., 2003 WL 21355201, at *2; see also, Arrighi, 2010
WL 4386066, at *6–7.
Finally, some courts found the exception applicable where the plaintiff purposely
concealed the true amount-in-controversy to prevent removal. Jones v. Chavez, No.
CIV.A. 11-2039, 2012 WL 441251, at *1 (E.D. La. Feb. 10, 2012) (“Despite receiving
MRI results showing that the jurisdictional threshold had been met, Plaintiff did not
provide the Defendants with this information until seven months after the test was
taken, which was approximately a month after the one-year bar on removal had
passed.”).
The Court has found no solid footing in cases decided since the enactment of the
statute. Some cases, including the lone case cited by the Defendants, have held that
21
fraudulent joinder alone can meet the “bad faith” standard. See, Bank of Am., N.A. v.
Lebreton, No. CIV 14-0319 JB/KBM, 2015 WL 2226266, at *23 (D.N.M. Apr. 20,
2015) (Browning, J.) (holding that “the addition of the bad-faith exception to the
one-year limitation clarifies that the one-year limitation is procedural, rather than
jurisdictional, and, thus, extends the applicability of fraudulent-joinder doctrine past the
one-year mark.”); Aguayo v. AMCO Ins. Co., 59 F. Supp. 3d 1225, 1256 (D.N.M.
2014) (Browning, J.) (same). Others require something more akin to bad conduct by
the plaintiff. See, In re Zoloft (Sertraline Hydrochloride) Prod. Liab. Litig., No.
12-MD-2342, 2014 WL 2445799, at *3 (E.D. Pa. May 29, 2014) (Rufe, J.) (finding in
dicta that defendant’s argument that plaintiff lacked a valid claim against defendant was
insufficient alone to establish bad faith).
Based on Congress’s use of the phrase “bad faith,” and the history of the
exception prior to its enactment as part of section 1446, and in particular the
application of the exception when “manipulation” had occurred, the Court concludes
that statutory bad faith requires some sort of intentional misconduct by the plaintiff, not
just fraudulent joinder. All of the common law equitable tolling cases cited above have
that in common.12 See also, A.S. ex rel. Miller v. SmithKline Beecham Corp., 769 F.3d
12
While it is possible that there is an equal or greater number of cases saying the
opposite, the Defendants, whose burden it is to establish jurisdiction, has not produced them.
22
204, 211 (3d Cir. 2014) (noting that “[c]ases involving equitable tolling of the one-year
time limit often focus on intentional misconduct by the plaintiff”); Barnett v. Sylacauga
Autoplex, 973 F.Supp. 1358, 1367 (N.D.Ala. 1997) (Propst, J.) (“[T]he plaintiff's
claims are in bad faith if, by [his] actions, [he] attempted to disguise the existence of
the removability of the case until the one-year limitation had run.”). The Defendants
have made no showing of bad faith.
The Court notes that the purpose behind the one-year limitation is to prevent the
disruptive removal of cases after substantial progress in the state court had been made.
However, if fraudulent joinder alone made a case removable at any time, even after one
year from the date the case was filed, the purpose of the limitation would be defeated.
A calculating defendant could, itself, “manipulate” jurisdiction by waiting to see how
the case progressed in state court before ultimately removing it based on fraudulent
joinder. Indeed, in the instant case, discovery has already been completed in the state
court, and summary judgment motions have been filed, and, at least as to Barista, ruled
upon.
In their briefs, the Defendants argued that they could not have known that the
Plaintiff had no claim against Barista until discovery had occurred and the above
23
deposition testimony had been taken.13 However, that alone does not demand the
conclusion that the one-year period should be extended. Indeed, that is a regular
occurrence in litigation.
At oral argument the Defendants differed form their briefs and argued that it was
clear from the date the Complaint was filed that there was no claim against Barista due
to the Alabama statute of frauds.14 If that is so, then the case should have been
removed within 30 days after service of the Complaint upon these Defendants. 28
U.S.C. § 1446(b)(1). It is unclear exactly when the removing Defendants were served,
but it was certainly before June 27, 2016, the day they filed their answer. Giving them
the benefit of the doubt, under this argument the latest that they could have removed
based upon fraudulent joinder would have been July 27, 2016. This case was not
removed until December 13, 2017. (Doc. 1).15
13
The Court agrees that the existence of Barista’s Counterclaim would have prevented
removal at the time of the deposition. See Bristol-Myers Squibb Co. v. Safety Nat. Cas. Corp.,
43 F. Supp. 2d 734, 744 (E.D. Tex. 1999) (Heartfield, J.).
14
They make no argument that discovery was necessary to determine this. Indeed, they
could not, as the contract which they cite as the basis for this defense is a contract to which they
were parties.
15
The Defendants argue in their briefs that they could not have removed after the
McAdams deposition because of Barista’s Counterclaim. However, Barista did not file its
Counterclaim until August 8, 2016. Therefore, there was no impediment to removal prior to the
deadline for doing so, if, on the face of the Complaint, the case was removable initially.
24
IV.
CONCLUSION
Based on the foregoing, the Court finds that the Defendants have not shown bad
faith, and their notice of removal was therefore untimely. This matter will be
REMANDED.
DONE this 21st day of February, 2018.
VIRGINIA EMERSON HOPKINS
United States District Judge
25
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