Levy Gardens Partners 2007, LP et al v. Rainwater et al
Filing
33
ORDER and REASONS - Before the Court is Plaintiffs' Motion to Remand 7 , which is opposed by Defendant Commonwealth Land Title Insurance Company.Considering all of the parties' submissions, including Plaintiffs' Reply (Rec. Doc. 13), Plaintiffs' Request for Oral Argument (Rec. Doc. 21), Commonwealth's Surreply (Rec. Doc. 25), and Defendant First NBC Bank's Memorandum in Support of Motion to Remand (Rec. Doc. 27), as well as the arguments of the parties made at oral argument on Thursday, August 2, 2012, the Court rulesas set forth within document. Plaintiffs' claims against Lewis Title, First NBC and OCD are DISMISSED. Plaintiffs' motion to remand is DENIED. Signed by Judge Kurt D. Engelhardt on 8/21/2012.(cab) Modified on 8/21/2012 to edit document type (cab).
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
LEVY GARDENS PARTNERS 2007, LP,
ET AL.
CIVIL ACTION
VERSUS
NO. 12-1340
COMMISSIONER OF ADMINISTRATION
PAUL W. RAINWATER, ET AL.
SECTION “N” (2)
ORDER AND REASONS
Before the Court is Plaintiffs’ Motion to Remand (Rec. Doc. 7), which is opposed by
Defendant Commonwealth Land Title Insurance Company (“Commonwealth”) (Rec. Doc. 14).
Considering all of the parties’ submissions, including Plaintiffs’ Reply (Rec. Doc. 13), Plaintiffs’
Request for Oral Argument (Rec. Doc. 21), Commonwealth’s Surreply (Rec. Doc. 25), and
Defendant First NBC Bank’s Memorandum in Support of Motion to Remand (Rec. Doc. 27), as well
as the arguments of the parties made at oral argument on Thursday, August 2, 2012, the Court rules
as set forth herein.
I. BACKGROUND
Plaintiffs are Levy Gardens Partners 2007, LP (“Levy Gardens”), a Louisiana partnership,
and its members. Plaintiffs claims arise out of two Commonwealth policies of title insurance sold
by Defendant Lewis Title Company, Inc. (“Lewis Title”)to Defendants First NBC and the Louisiana
Office of Community Development (“OCD”) as mortgage holders on land purchased by Levy
Gardens for development into a subdivision. For further background on the case, see Record
1
Document 86 in related case Levy Gardens Partners 2007, LP v. Lewis Title Insurance Company,
et al., No. 10-4261 (E.D. La. May 16, 2011) (order granting in part and denying in part motion for
summary judgment).
II. PROCEDURAL HISTORY
Commonwealth1 removed this case from Civil District Court for Orleans Parish on May 23,
2012 on the basis of diversity jurisdiction, arguing that defendants Lewis Title, First NBC, OCD, the
Louisiana Housing Finance Authority, Commissioner of Administration Paul W. Rainwater, and
Louisiana Insurance Commissioner James J. Donelon were improperly joined.2 (Rec. Doc. 1).
Plaintiffs filed the instant Motion to Remand, arguing that their claims against Lewis Title were valid
and not perempted because Lewis Title engaged in fraud in connection with the sale of title insurance
to Plaintiff Levy Gardens as owner and to First NBC and OCD as lenders. (Rec. Doc. 7).
Commonwealth responded reurging its contention that it is the only validly joined defendant in this
action and noting Plaintiffs’ failure to address any local defendant other than Lewis Title in its
motion. (Rec. Doc. 14). Commonwealth also requested oral argument on the motion to remand.
(Rec. Doc. 15).
The Court then issued an Order cancelling oral argument and requesting that Plaintiffs
articulate the factual basis for their fraud claim against Lewis Title and the legal basis for their claims
1
Commonwealth filed the Notice of Removal in this case, which was not joined by the
other defendants. However, Commonwealth claims that the other defendants were improperly
joined and “a removing party need not obtain the consent of a co-defendant that the removing
party contends is improperly joined.” Rico v. Flores, 481 F.3d 234, 239 (5th Cir. 2007) (citing
Jernigan v. Ashland Oil Inc., 989 F.2d 812, 815 (5th Cir. 1993)).
2
The parties discuss “fraudulent joinder” in their submissions, but the Fifth Circuit has
stated that the term “improper joinder” is preferred. Smallwood v. Illinois Cent. R. Co., 385 F.3d
568, 572 (5th Cir. 2004).
2
against First NBC and OCD, which allege that these lenders should be made to pursue claims under
the lender’s policies against Commonwealth before proceeding against Plaintiffs. (Rec. Doc. 16).
Pursuant to the Order, Plaintiffs filed a reply responding to the Court’s inquiries. (Rec. Doc. 17).
In its reply, Plaintiffs urge the Court to review the complaint filed in Henry Klein v. American Land
Title Association, 12-1061 (D.D.C. filed June 26, 2012). Plaintiffs claim that Lewis Title sold Levy
Gardens illusory insurance because the Amount of Insurance listed in the policy was reduced
pursuant to Provision 8(a). Because it was Lewis Title, not Commonwealth, that sold the illusory
insurance, Lewis Title committed fraud because it failed to inform Plaintiffs of the existence of
Provision 8(a) and of the fact that the amount of insurance could be reduced pursuant thereto.
Further, Plaintiffs argued that Commonwealth had not met is burden of showing that Plaintiffs had
no possibility of relief against lenders First NBC and OCD.
In response, Commonwealth filed a surreply wherein it stated that many of Plaintiffs’
contentions in their reply are irrelevant to the resolution of the motion to remand. (Rec. Doc. 20).
Commonwealth claims that Plaintiffs have sought to introduce new claims and new evidence in
support of their motion to remand, rather than to rely on the allegations in their state court petition,
as they must.
Plaintiffs then filed a Request for Oral Argument stating that oral argument is needed so that
Plaintiffs may address the allegation of fraud on the pleadings made against them. (Rec. Doc. 21).
Plaintiffs also filed a Motion for Leave to File Submission of Exhibits, seeking permission to file
an excerpt of Commonwealth’s appellate brief in the owner’s policy case and a copy of the
complaint in Henry Klein v. American Land Title Association, 12-1061 (D.D.C. filed June 26, 2012)
(Rec. Doc. 23); the Court granted this motion at oral argument (see Rec. Doc. 29). Finally, First
3
NBC filed a memorandum in support of Plaintiffs’ motion to remand, noting that it did not consent
to the removal of the case and arguing that Lewis Title sold it a lender’s policy with a hidden defect.
(Rec. Doc. 27).
III. DISCUSSION
1. Legal Standard
Generally, a defendant may remove a civil action from state court to federal court if the
federal court would have had original jurisdiction over the action.3 In assessing the propriety of
removal, the Court is guided by the principle, grounded in notions of comity and recognition that
federal courts are courts of limited jurisdiction, that removal statutes should be strictly construed;
any ambiguities of fact and law should be resolved in favor of remand.4 The removing party bears
the burden of showing that federal jurisdiction exists at the time of removal.5
A United States District Court has jurisdiction over suits between citizens of different states
wherein the amount in controversy exceeds $75,000.6 For the purposes of diversity jurisdiction, a
corporation is a citizen of its state of incorporation and the state in which its primary place of
business is located, while partnerships and limited liability companies take the citizenship of their
3
See 28 U.S.C. § 1441(a).
4
See, e.g., Manguno v. Prudential Property and Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir.
2002).
5
See Allen v. R & H Oil & Gas Co., 63 F.3d 1326, 1335 (5th Cir. 1995); see also De
Aguilar v. Boeing Co., 47 F.3d 1404, 1408 (5th Cir. 1995).
6
28 U.S.C. § 1332.
4
members.7
The Supreme Court has interpreted the 28 U.S.C. § 1332 to require complete diversity of
citizenship between all plaintiffs and all defendants.8 However, even if a plaintiff names non-diverse
defendants, a diverse defendant may still validly remove the case if they can demonstrate that the
non-diverse defendants were improperly joined.9 Improper joinder has two meanings: “(1) actual
fraud in the pleading of jurisdictional facts, or (2) inability of the plaintiff to establish a cause of
action against the non-diverse party in state court.”10 Here, Commonwealth claims that Lewis Title,
First NBC and OCD were improperly joined because Plaintiff cannot establish causes of action
against them.11
A defendant claiming improper joinder based on inability to establish a claim bears a heavy
burden of proof; “[t]o prove their allegation of [improper] joinder [removing parties] must
demonstrate that there is no possibility that [plaintiff] would be able to establish a cause of action
7
28 U.S.C. §1332(c)(2); Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077, 1080 (5th Cir.
8
Liberty Property Co. v. Roche, 546 U.S. 81, 89 (2005).
9
See Guillory v. PPG Industries, Inc., 434 F.3d 303, 308 (5th Cir. 2005).
2008).
10
Smallwood v. Illinois Cent. R. Co., 385 F.3d 568, 573 (5th Cir. 2004) (quoting Travis v.
Irby, 326 F.2d 644, 636-47 (5th Cir. 2003)).
11
At times, Plaintiff seems to misunderstand Commonwealth’s argument, asserting that it
did not commit fraud in joining these defendants because there was no scienter. (Rec. Doc. 21).
The Court finds that Commonwealth’s claim of improper joiner is addressed to the second form
of improper joinder, inability to establish a claim, rather than actual fraud, and will discuss the
motion according to this understanding. Further, there is no evidence of fraud in the pleading of
jurisdictional facts, so any such claim by Commonwealth is necessarily rejected.
5
in state court.”12 In order to determine if complete diversity exists, a court normally looks to the
face of the plaintiff’s state court complaint;13 in a case where improper joinder is alleged, “a court
may ‘pierce the pleadings’ and consider summary-judgment-type evidence, such as affidavits and
deposition testimony.”14 A court evaluating a claim of improper joinder must “resolve all disputed
questions of fact and all ambiguities in the controlling state law in favor of the non-removing
party.”15
2. Claims against Lewis Title
Louisiana Revised Statute 9:5606 states that
No action for damages against any insurance agent, broker, solicitor,
or other similar licensee . . . whether based upon tort, or breach of
contract, or otherwise, arising out of an engagement to provide
insurance services shall be brought unless filed in a court of
competent jurisdiction and proper venue within one year from the
date of the alleged act, omission, or neglect, or within one year from
the date that the alleged act, omission or neglect is discovered or
should have been discovered. However, even as to actions filed with
12
Ford v. Elsbury, 32 F.3d 931, 935 (5th Cir. 1994) (third and fourth alterations in
original) (quoting Dodson v. Spillada Maritime Corp., 951 F.2d 40, 42 (5th Cir. 1992)).
13
McCoy v. Bergeron, No. 92-78, 1992 WL 40828, at *2 (E.D. La. Feb. 26, 1992)
(quoting Tedder v. F.M.C., Corp., 590 F.2d 115, 116-17 (5th Cir. 1979)).
14
Howard v. Wal-Mart Stores, Inc., No. 09-164, 2009 WL 981688 (E.D. La. Apr. 13,
2009)(quoting In re 1994 Exxon Chemical Fire, 558 F.3d 378, 385 (5th Cir. 2009)).
15
Ford, 32 F.3d at 935 (quoting Dodson, 951 F.2d at 42).
6
one year from the date of such discovery, in all events such actions
shall be filed at the latest within three years from the date of the
alleged act, omission, or neglect16.
However, the statute goes on to say that “[t]he peremptive period . . . shall not apply in cases of
fraud.” Id. Louisiana Civil Code Article 1953 defines “[f]raud [a]s a misrepresentation or
suppression of the truth made with the intention either to obtain an unjust advantage for one party
or to cause a loss or inconvenience to the other.”17 Under Louisiana law, “[f]raud may . . . result
from silence or inaction.”18
Here, Commonwealth argues that Plaintiffs’ claims against Lewis Title are perempted.
Commonwealth states that Plaintiffs knew of Lewis Title’s liability on February 10, 2009, when New
Orleans enjoined Levy Gardens from further construction. Plaintiffs did not file this suit until April
2, 2012. As such, Commonwealth argues that Plaintiffs’ claims are perempted because they did not
file suit against Lewis Title within a year of when they knew or should have known of liability.
Plaintiffs respond that the peremptive period in Louisiana Revised Statute 9:5606 does not
apply to their claims because Lewis Title committed fraud. Plaintiffs argue that title insurance is
illusory insurance because Provision 8(a) reduces the amount of insurance, making the “Amount of
Insurance” listed in the policy a misleading term. Plaintiffs allege that Lewis Title committed fraud
by failing to advise Levy Gardens of the fact that the amount of insurance could be reduced pursuant
to Provision 8(a). Commonwealth responds that Plaintiffs have not plead fraud with sufficient
16
La. Rev. Stat. Ann. § 9:5606 (2012).
17
La. Civ. Code. Art. 1953 (2012).
18
Id.
7
particularity to satisfy the requirements of Federal Rule of Civil Procedure 9(b), which requires a
plaintiff asserting fraud to plead “enough facts to illustrate the who, what, when, where, and how of
the alleged fraud.”19
Plaintiffs have not shown any possible basis for recovery against Lewis Title. Lewis Title
sold the owners and lenders policies to Levy Gardens and to First NBC and OCD at the closing on
October 7, 2008. As such, any claim against Lewis Title would be perempted on October 7, 2011
pursuant to Louisiana Revised Statute 9:5606, unless Plaintiffs can demonstrate fraud on the part of
Lewis Title. Plaintiffs have presented no facts regarding Lewis Title’s intent to gain an unjust
advantage or to cause loss or inconvenience to Plaintiffs in the sale of the insurance.20 Moreover,
for better or worse, Provision 8(a) was included in the policy for all to see at the time it was issued.
Thus, even assuming the Court accepts Plaintiffs’ argument that Provision 8(a) alters the meaning
of the amount of insurance such that the insurance contract is misleading and decides that a written
contractual term can constitute fraud, Plaintiffs have still failed to meet their burden. Further,
Plaintiffs do not allege any deceptive intent on the part of Lewis Title; rather, Plaintiffs allege bad
intent on the part of Commonwealth and other title insurers. Because Plaintiffs have not shown any
possible basis for recovery against it, Lewis Title is an improperly joined party, the claims against
it must be dismissed, and its citizenship need not be considered for the purpose of determining
diversity jurisdiction.21
19
Carroll v. Fort James Corp., 470 F.3d 1171 (5th Cir. 2006) (internal quotations marks
omitted).
20
La. Civ. Code. Art. 1953 (2012).
21
Guillory, 434 F.3d at 308.
8
3. Claims against First NBC and OCD
Plaintiffs request declaratory judgment against First NBC and OCD, arguing that they should
be ordered to pursue claims against Commonwealth under the lenders’ policies before foreclosing
on Plaintiffs. Plaintiffs cite Louisiana Civil Code Article 1795, which states that “[a]n obligee, at
his choice, may demand the whole performance from any of his solidary obligors.”22
Commonwealth argues that there is no authority for the relief that Plaintiffs request against
First NBC and OCD and that these defendants were improperly joined.
Plaintiffs respond that Commonwealth has not met its burden of showing that Plaintiffs have
no possibility of recovery against First NBC and OCD. Plaintiffs emphasize the heavy burden that
Commonwealth needs to meet in order to show that Plaintiffs have no possibility of recovery against
the allegedly improperly joined defendants.
Plaintiffs have presented no authority supporting its claims against OCD and First NBC.
Plaintiffs cite Louisiana Civil Code Article 1795, which actually undermines their position;
Louisiana Civil Code Article 1795 states that an obligee may demand performance from any solidary
obligor, supporting the lenders’ rights to foreclose on Plaintiffs rather than to pursue a claim against
Commonwealth under the lenders’ policies, or vice versa. The cited Code article creates no
compulsion, either legally or otherwise, such that this Court might order OCD and First NBC to act
against one obligor but not another. Here, Plaintiffs have not presented any ambiguity in state law;
Plaintiffs have failed to present any support for their claims of possible relief against First NBC and
OCD on the grounds asserted. As Plaintiffs have no possibility of recovering from First NBC and
OCD, these defendants were improperly joined and the existing claims against them must be
22
La. Civ. Code. Art. 1795 (2012).
9
dismissed.23
IV. CONCLUSION
Plaintiffs’ claims against Lewis Title, First NBC and OCD are DISMISSED. The only
properly joined defendant remaining in this case is Commonwealth, a citizen of Nebraska and
Florida. (Rec. Doc. 1 at 5). As Plaintiffs are Louisiana citizens, there is complete diversity of
citizenship between the parties. The amount in controversy is also satisfied in this case. (See Rec.
Doc. 7-1 at 2-3). The requirements of 28 U.S.C. § 1332 are thus satisfied, and the Court may
exercise diversity jurisdiction over this case. Plaintiffs’ motion to remand is DENIED.
New Orleans, Louisiana, this 21st day of August, 2012.
_______________________________
KURT D. ENGELHARDT
United States District Judge
23
The Court has reviewed First NBC’s submission regarding the motion to remand. (Rec.
Doc. 27). While First NBC expresses its desire for remand, it does not present any legal
authority supporting the motion to remand. Specifically, First NBC states that “[b]ased on the
Levy Gardens pleadings and based on the exposure of the [title insurance] industry’s false and
deceptive practices . . . a finding of liability against Lewis Title is not a far reach,” but cites no
statutory or jurisprudential authority pursuant to which Lewis Title may be held liable. (Id. at 2).
Further, First NBC explains that it is beneficial to the bank to pursue its claim against
Commonwealth before foreclosing on Levy Gardens. (Id. at 3). However, First NBC’s election
to litigate with Commonwealth rather than foreclose upon Levy Gardens is irrelevant to this
motion. That First NBC asserted a claim against Commonwealth does not mean that Levy
Gardens had a valid claim to force First NBC to do so.
10
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