Neill Corporation v. TSP Consulting, LLC

Filing 34

ORDER denying 11 Motion to Remand; denying 11 Motion to Realign the Parties. Signed by Judge Jay C. Zainey. (jrc)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
NEILL CORPORATION

CIVIL ACTION

VERSUS

NO: 15-964

TSP CONSULTING, LLC, ET AL.

SECTION: "A" (3)

ORDER
The following motion is before the Court: Combined Motion to Realign the
Parties and Motion to Remand (Rec. Doc. 11) with supplemental memorandum in
support (Rec. Doc. 24), filed by third-party defendant/counter-claimant Beauty Basics, Inc.
("BBI") and plaintiff/defendant-in-counterclaim Neill Corporation ("Neill Corp."). Defendant,
counter-claimant, and third-party plaintiff TSP Consulting, LLC ("TSPC") opposes the motion
(Rec. Docs. 13 & 32; Opposition & Sur-reply). The motion, submitted for consideration on May
20, 2015, is before the Court on the briefs without oral argument.
Neill Corp. and TSPC were parties to a Consulting Agreement (Rec. Doc. 1-1 Exhibit A).
Three other Neill entities also were parties to the contract: Neill Technologies, Inc., BBI, and
Vital Information Systems, Inc. (Id. Consulting Agreement at 1). Collectively referenced in the
contract as "the Neill Companies," all of these entities are Louisiana corporations. (Id.). The
parties confected the Consulting Agreement so that the Neill Companies could benefit from the
expertise and services of Thomas C. Petrillo, the principal of TSPC. (Id.). Petrillo's expertise
lies in helping others in the beauty industry to become more successful. (Rec. Doc. 2, TSPC
Answer, Counterclaim, and Third-party Demand ¶ 36). The parties do not dispute that TSPC is
a citizen of Florida, which is where Petrillo resides.
Plaintiff Neill Corp. initiated this action in state court against defendant TSPC. The
petition is one for declaratory relief only. Neill Corp. wants the Court to declare inter alia that

certain of Petrillo's actions constitute "Material Actions" under the Consulting Agreement that
are not subject to cure. (Rec. Doc. 1-1, Petition for Declaratory Judgment). According to TSPC,
Neill Corp. is trying to manufacture cause in order to prematurely terminate the Consulting
Agreement without penalty. (Rec. Doc. 2, TSPC Answer, Counterclaim, and Third-party
Demand ¶¶ 56-57).
TSPC removed the action to this Court on the basis of diversity jurisdiction. In its
Answer, TSPC asserted a counterclaim and third-party demand which included additional
parties: Neill Technologies, Inc., BBI, Vital Information Systems, Inc., and Edwin H. Neill, III.
(Id. at 8-9).
Neill Corp. now moves to remand the case to state court for lack of subject matter
jurisdiction. Neill Corp.'s arguments in support of remand are premised on the contention that
third-party defendant BBI's principal place of business is actually in Florida and not Louisiana.
Neill Corp. argues that because TSPC is a Florida citizen, TSPC destroyed subject matter
jurisdiction when it third-partied BBI into the case. Neill Corp. urges the Court to realign the
parties in a manner that would destroy diversity jurisdiction.
Diversity jurisdiction exists when the matter in controversy exceeds the sum or value of
$75,000 and is between citizens of different states. 28 U.S.C. § 1332(a)(1). Section 1332(a)(1)
requires that the parties be completely diverse in citizenship. See Getty Oil Corp. v. Ins. Co. of
N. Am., 841 F.2d 1254, 1258 (5th Cir. 1988) (citing Strawbridge v. Curtiss, 7 U.S. 267 (1806)).
In other words, all plaintiffs must have a different citizenship from all defendants. Id.
Neill Corp. is the party that initiated suit. Neill Corp. apparently did not consider the
other Neill Companies, who were also parties to the Consulting Agreement, to be necessary to
the proceedings because it did not join them in the action. Thus, the suit involved only a
Louisiana plaintiff and a Florida defendant—completely diverse parties. Pursuant to § 1332(a)

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a federal court would therefore have original subject matter jurisdiction over the action as
filed.1 The case was therefore properly removed to federal court under the general removal
statute, 28 U.S.C. § 1441(a)-(b).
Neill Corp.'s contention that TSPC destroyed diversity jurisdiction by bringing BBI into
the case is meritless regardless of BBI's citizenship. Because the Court had original subject
matter jurisdiction over the action filed by Neill Corp., the supplemental jurisdiction statute,
28 U.S.C. § 1367(a) provides an express grant of jurisdiction over TSPC's counter-claims and
third-party demands, which are part of the same case or controversy as Neill Corp.'s
declaratory action. Even more importantly, § 1367(b) of the statute expressly permits a
defendant in TSPC's position to assert those claims against a non-diverse party even though a
plaintiff in Neill Corp.'s position could not necessarily do so. Neill Corp.'s position in this case
is squarely at odds with the Fifth Circuit's decision in State National Insurance Co. v. Yates,
391 F.3d 577 (5th Cir. 2004), which recognizes that the constraints on bringing supplemental
claims against additional parties in diversity cases only apply to actual "plaintiffs," not to
defendants who act as plaintiffs by asserting counterclaims or third-party demands. Yates
irrefragably establishes that TSPC could bring BBI into the lawsuit under the aegis of the
supplemental jurisdiction statute without destroying diversity jurisdiction.2

The Court recognizes that § 1332(a) also has an amount in controversy requirement. Neill
Corp. has never suggested that the amount in controversy underlying its declaratory judgment
action does not exceed $75,000 nor could it plausibly do so in light of the ramifications attendant
upon a court granting declaratory relief in its favor. (Rec. Doc. 2, TSPC Answer, Counterclaim, and
Third-party Demand ¶¶ 56-57).
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TSPC only pleads diversity jurisdiction to support its claims against Neill Corp. and the
additional parties. (Rec. Doc. 2, TSPC Answer, Counterclaim, and Third-party Demand ¶ 33). Of
course, diversity jurisdiction is contingent upon citizenship. But § 1367(b) clearly applies to give
the Court supplemental jurisdiction over TSPC's claims against additional parties regardless of
citizenship. The Court has found no authority for the proposition that TSPC inadvertently waived
supplemental jurisdiction by failing to expressly invoke § 1367(a) in the jurisdictional section of its
responsive pleading.
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Further, this case is not appropriate for realignment of the parties. Neill Corp.'s and
BBI's interests are aligned which is why it is not surprising that both entities appear on the
receiving end of TSPC's claims for relief. But TSPC is not a "partner in litigation" with respect
to any of the parties against whom it has asserted claims.3 See City of Indianapolis Gas Co. v.
Chase Nat'l Bank, 314 U.S. 63, 75 (1974).
Simply stated, TSPC properly removed Neill Corp.'s declaratory action and the Court
continues to have jurisdiction over it. Therefore, the sole basis upon which Neill can obtain
remand to state court is if BBI is a Rule 19 required party to Neill Corp.'s claims against TSPC,
and if BBI is a citizen of Florida. Neill has devoted an inordinate amount of argument to the
citizenship issue but BBI's citizenship is only material to the analysis if BBI is a required party
with respect to Neill's action for declaratory relief. The Court is persuaded that it is not.
Rule 19 of the Federal Rules of Civil Procedure, entitled Required Joinder of Parties,
governs whether a nonparty must be joined in a suit. The principles that a court uses to
determine when persons or entities must be joined are stated in subdivision (a) of the rule.
Rule 19(a) provides:
(a) Persons Required to Be Joined if Feasible.
(1) Required Party. A person who is subject to service of process and whose joinder
will not deprive the court of subject-matter jurisdiction must be joined as a party if:
(A) in that person's absence, the court cannot accord complete relief among
existing parties; or

Perhaps Neill Corp.'s misplaced reliance on the concept of realignment was driven by
TSPC's odd choice of bringing BBI into the case as a third-party defendant rather than as an
additional defendant on the counterclaim against Neill Corp. Rule 14 allows third-party practice
against a nonparty when the defendant believes that the nonparty may be liable to the defendant
for all or part of the claim against the defendant. Fed. R. Civ. Pro. 14(a)(1). TSPC's claims against
BBI are not of this nature but regardless of the procedural device used to bring BBI into the case,
the jurisdictional analysis is not affected.
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(B) that person claims an interest relating to the subject of the action and is so
situated that disposing of the action in the person's absence may:
(I) as a practical matter impair or impede the person's ability to protect
the interest; or
(ii) leave an existing party subject to a substantial risk of incurring
double, multiple, or otherwise inconsistent obligations because of the
interest.
Fed. R. Civ. Pro 19(a). The Rule instructs that nonjoinder even of a required person does not
always result in dismissal. Republic of the Philippines v. Pimentel, 553 U.S. 851, 862 (2008). If
joinder of the nonparty is required but not feasible, then the standards laid out in subdivision
(b) of the rule apply. Id. The burden of proof under Rule 19 is on the proponent of joinder. See
In re Enron Corp. Sec., Deriv. & ERISA Litig., No.MDL-1446, 2008 WL 744823, at *6 (S.D.
Tex. Mar. 19, 2008) (citing 7 Charles Alan Wright, et al., Fed. Prac. & Pro. § 1609 (3d ed.
2001)).
Neill Corp. has not met its burden of establishing that BBI's joinder as a plaintiff is
required. First, assuming arguendo that BBI is a citizen of Florida, the only relevant joinder
question vis à vis subject matter jurisdiction and remand is whether BBI's presence as a coplaintiff to Neill Corp.'s declaratory judgment action is required. Adding BBI to the suit in any
other posture does not affect diversity jurisdiction. But Neill Corp. is the party that initiated
this litigation and it nonetheless declined to join any of the other Neill Companies as coplaintiffs even though all of the companies, including BBI, are represented by the same
attorneys. Obviously Neill Corp. believed when it filed suit in state court that it could obtain
the declaratory relief that it sought without adding any other parties. Arguments made by a
party eager to flee a federal forum are always scrutinized carefully but that is particularly true
where a party is implicitly challenging its own litigation strategy.
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Second, Neill Corp. does not address the governing Rule 19 standards instead taking
the position that they are irrelevant because of a "stipulation" by TSPC that BBI is
indispensable to this action. (Rec. Doc. 24 at 11). TSPC stated as follows in the Affirmative
Defenses section of its Answer:
The Neill Corporation has failed to join indispensable parties to its Petition for
Declaratory Judgment. Neill Corporation seeks to have the Court interpret the
Consulting Agreement and enter a declaratory judgment as to the meaning of
certain of its provisions, and yet Neill Corporation has failed to join all of the
parties to the Consulting Agreement as parties. Among the indispensable parties
that Neill Corporation has failed to join are Neill Technologies, Inc., Beauty Basics,
Inc., and Vital Information Systems, Inc. Pursuant to Section 12.13 of the
Consulting Agreement, each of these companies "shall be jointly and severally
liable to make all payments owed by any Neill Company under this Agreement . .
. ." Any declaratory judgment interpreting the Consulting Agreement will
necessarily affect their rights and interests.4
Rec. Doc. 2; Answer, Counterclaim, and Third-party Demand ¶ 16 (emphasis added).
Just as Neill Corp. ignored Rule 19, TSPC ignores this potentially troublesome statement. But
contrary to Neill Corp.'s position, the foregoing paragraph is not a "stipulation" and it does not
control the Court's analysis because it is contrary to Rule 19's governing standards. If TSPC
had made the same contentions in support of a Rule 12(b)(7) motion to dismiss, the Court
would have rejected them, at least insofar as Neill Corp.'s original action for declaratory relief
is concerned.
Turning to Rule 19's standards, the Court can afford O'Neill Corp. the complete
declaratory relief that it sought when it filed suit on its own. The declaratory relief sought is
very narrow and specific. Naturally BBI and the other Neill Companies have an interest in the
outcome of the action but those other entities are not so situated that disposing of Neill Corp.'s
request for declaratory relief as prayed for in their absence would impair or impede their

The Court notes that TSPC uses the term "indispensable" in its pleading yet takes Neill
Corp. to task for using such an "outdated designation" in its briefing. (Rec. Doc. 32; Sur-reply at
10).
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interest. This contract case does not involve a situation where the obligees (the Neill
Companies) are all unrelated to each other—to the contrary all of the Neill Companies appear
to be owned in majority by the same individuals. According to the Louisiana Secretary of
State's website, all of the Neill Companies share an address in Hammond, Louisiana, and all of
the companies were created long before TSPC was formed and entered into a consulting
arrangement with them. The outcome of Neill Corp.'s declaratory judgment action does not
affect any of the other companies' obligations with respect to the contact. In fact, the
Consulting Agreement is structured such that all of the Neill Companies are similarly situated
vis à vis TSPC and each other. Moreover, it is clear from BBI's Answer that its position with
respect to the allegations that Neill makes in its petition for declaratory relief is the same.
(Rec. Doc. 10; BBI's Answer and Affirmative Defenses to Third-Party Complaint and
Counterclaim). In short, BBI is not a required party with respect to O'Neill's petition for
declaratory relief, which is the only relevant inquiry. BBI's citizenship is therefore a moot
issue.
Accordingly, and for the foregoing reasons;
IT IS ORDERED that the Combined Motion to Realign the Parties and
Motion to Remand (Rec. Doc. 11) is DENIED.
June 22, 2015
_______________________________
JAY C. ZAINEY
UNITED STATES DISTRICT JUDGE

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