Arkansas Securities Commission v. Nick Lynn Technologies, Inc. et al

Filing 27

ORDER REMANDING CASE TO STATE COURT. Signed by Honorable Jimm Larry Hendren on May 17, 2012. (src)

IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
FAYETTEVILLE DIVISION
A. HEATH ABSHURE, ARKANSAS
SECURITIES COMMISSIONER
v.

PLAINTIFF

Civil No. 12-5020

NICK LYNN TECHNOLOGIES, INC.;
LENDELL EARL HILLHOUSE, SR.;
and JAMES ROBIN PACE

DEFENDANTS

and
NICK LYNN TECHNOLOGIES, INC.,
and LENDELL EARL HILLHOUSE, SR.

THIRD PARTY PLAINTIFFS/
COUNTERCLAIMANTS

v.
A. HEATH ABSHURE, ARKANSAS
SECURITIES COMMISSIONER;
THEODORE HOLDER, SENIOR STAFF
ATTORNEY; JIM LUNSFORD, AGENT,
U.S. DEPARTMENT OF TREASURY; and
UNITED STATES DEPARTMENT OF
TREASURY

THIRD PARTY DEFENDANTS/
COUNTERDEFENDANTS

O R D E R
Now on this 17th day of May, 2012, comes on for consideration
plaintiff's Motion To Remand (document #8), and from said motion,
and the response thereto, the Court finds and orders as follows:
1.

Plaintiff

A.

Heath

Abshure,

Arkansas

Securities

Commissioner ("Abshure") initiated this suit by filing a Complaint
in the Circuit Court of Benton County, Arkansas, on April 17,
2008. The Complaint, brought under the authority given Abshure in
A.C.A. § 23-42-209, alleged various violations of A.C.A. § 23-42-

501 (prohibiting the sale of unregistered nonexempt securities)
and § 23-42-507 (prohibiting securities fraud). The relief sought
includes an injunction against future violations of the Arkansas
Securities Act; an accounting; disgorgement of investor monies and
any profits; and a fine.
2.
denied

Hillhouse answered the Complaint on May 30, 2008.
that

he

sold

securities

in

NLT,

conceded

He

Abshure's

authority under A.C.A. § 23-42-209, and asserted as an affirmative
defense that he had at all relevant times acted in his official
capacity as an officer of NLT.

This Answer was filed by an

attorney on behalf of Hillhouse, but not on behalf of NLT.
3.

The record does not reflect much of what transpired in

state court over the next three years, but it does show that on
February 6, 2012, Hillhouse filed an Amended Answer, Affirmative
Defense Counter Claim And Third Party Claim ("Amended Answer"), on
behalf of himself and purportedly on behalf of NLT. That document
names as additional parties Theodore Holder, Assistant Securities
Commissioner ("Holder"); Jim Lundsford, Agent, U.S. Department of
Treasury; and the U.S. Department of Treasury. The Amended Answer
was filed by Hillhouse, who is not a licensed attorney.
4.

Also on February 6, 2012, Hillhouse filed a Notice Of

Removal, on behalf of himself and purportedly on behalf of NLT.
The Notice Of Removal states that removal is made pursuant to 28
U.S.C. §§ 1441, 1442, and 1443, and asserts the following:
-2-

*

that this Court has original jurisdiction over federal

claims asserted by Hillhouse and NLT

pursuant to the Securities

Exchange Act of 1934;
*

that this Court has exclusive jurisdiction over federal

securities law defenses they are asserting;
*

that one of the third-party defendants is the U.S.

Treasury and the other was at all relevant times an employee of
the U.S. Treasury; and
*

that they filed their "Securities" (the quotation marks

are Hillhouse's) with the SEC pursuant to federal law, thereby
depriving the State of Arkansas of jurisdiction over them.
5.

The Court will treat both the Amended Answer and the

Notice Of Removal as having been filed solely by Hillhouse,
because NLT, as a corporation, can appear in federal court only
through a licensed attorney, Rowland v. California Men's Colony,
506 U.S. 194 (1993), and Hillhouse is not a licensed attorney.
6.

The Court will not, as Hillhouse requests, strike the

Motion To Remand or any of the related briefs filed by Holder.
Hillhouse contends that because Holder is named as a defendant in
the Amended Answer, he can no longer participate in the case on
behalf of Abshure, citing Arkansas Rule of Professional Conduct
3.7.

That Rule provides that a lawyer "shall not act as advocate

at a trial in which the lawyer is likely to be a necessary
witness," but does not void the pre-trial motion and briefs here
-3-

under consideration.
7.

The sine qua non of removability is that the United

States court to which a case is removed must have original
jurisdiction.1

28

U.S.C.

§

1441(a).

Even

where

original

jurisdiction exists, however, proper procedures for removal must
be followed.
Removal procedures are governed by 28 U.S.C. § 1446, which
provides, in part, that a notice of removal is timely if filed
"within 30 days after the receipt by the defendant, through
service or otherwise, of a copy of the initial pleading setting
forth the claim for relief upon which such action or proceeding is
based."

Given that Hillhouse filed his initial Answer on May 30,

2008, there is no doubt that more than 30 days have passed since
he received the Complaint, which is the initial pleading setting
forth the claim for relief upon which this action is based.

His

Notice Of Removal is, therefore, untimely.
8.

Hillhouse contends that his Amended Answer supplies a

basis for removal, but this claim is without merit.

Federal

jurisdiction cannot be predicated upon a defense or a counterclaim
-- even a compulsory counterclaim -- but only on the plaintiff's
complaint.

Vaden v. Discover Bank, 556 U.S. 49, 60 (2009).

1
Such jurisdiction can arise on the basis of diversity, or the existence of a
federal question.
In the case at bar, there is no contention that diversity of
citizenship exists, all arguments being directed at the existence vel non of a federal
question.

-4-

9.

Hillhouse also contends that the doctrine of complete

preemption allows removal. This doctrine is a narrow exception to
the well-pleaded complaint rule, which applies when a federal
statute wholly displaces, or preempts, a state-law cause of
action.
Like

Id.
his

other

arguments,

this

one

is unavailing.

As

explained in Wright & Miller, Federal Practice and Procedure,
Jurisdiction and Related Matters, § 3722.2,
if a plaintiff files suit in state court, ostensibly
upon a state law cause of action, and the defendant
removes the case on the basis of complete preemption,
the federal district court that is persuaded that
plaintiff's
claim
is
completely
preempted
will
recharacterize the plaintiff's cause of action as a
federal claim for relief, making the removal proper on
the basis of federal question jurisdiction.
Such a claim will, however, appear on the face of the wellpleaded complaint.

Thus, even if there is complete preemption of

Abshure's claims, removal on that basis is not timely.
10.

The fact that one of the third-party defendants named by

Hillhouse is the U.S. Treasury and the other was at all relevant
times an employee of the U.S. Treasury is not a basis for
Hillhouse to remove this case.

The applicable statute, 28 U.S.C.

§ 1442, provides that a civil action commenced in State court
against officers or agents of the federal government "may be
removed by them."

It does not allow the party asserting those

claims to remove.

-5-

11.

Hillhouse also contends that he has a "right of removal"

pursuant to 28 U.S.C. § 1443.

That section is not applicable,

pertaining as it does specifically to federal equal civil rights
claims. Moreover, even if it were applicable, removal based on it
would still be governed by the procedural requirements of § 1446,
including the thirty-day time limit which Hillhouse missed.
12.

As

the

party

seeking

removal

and

opposing

remand,

Hillhouse has the burden of establishing a basis for federal
jurisdiction.

Central Iowa Power Co-op v. Midwest Independent

Transmission System Operator, Inc., 561 F.3d 904, 912 (8th Cir.
2009).

He has failed to carry this burden.

Removal based on the

Complaint is untimely, and removal cannot be predicated on the
other asserted bases.

For this reason, the Court finds that it

has no jurisdiction over this matter.

The Motion To Remand will

be granted, and the Court will not address the various other
issues raised by Hillhouse.
IT IS THEREFORE ORDERED that plaintiff's Motion To Remand
(document #8) is granted, and this matter is remanded to the
Circuit Court of Benton County, Arkansas.
IT IS SO ORDERED.
/a/ Jimm Larry Hendren
JIMM LARRY HENDREN
UNITED STATES DISTRICT JUDGE

-6-