Spillers et al v. Chevron U S A Inc et al
Filing
40
MEMORANDUM RULING GRANTING 19 MOTION to Remand filed by Union Oil Co of California, Chevron U S A Inc and DENYING 25 MOTION to Strike Exhibit 6, Affidavit of Greg Miller re 19 MOTION to Remand filed by Lindsay Mari e Spillers, Nicholas Wade Spillers, Carney W Potter, Teresa Delaine Woodard Spiller, Lyle Thomas Lewis, P D S Lands L L C, Charles M Spillers L L C, Bobbie June Staples, Janet Sue Lewis, Charles Milton Spillers. Signed by Magistrate Judge Karen L Hayes on 8/2/12. (crt,Crawford, A)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
MONROE DIVISION
NICHOLAS WADE SPILLERS, ET
AL.
*
CIVIL ACTION NO. 11-2163
VERSUS
*
JUDGE ROBERT G. JAMES
CHEVRON U.S.A. INC., ET AL.
*
MAG. JUDGE KAREN L. HAYES
MEMORANDUM RULING
Before the undersigned magistrate judge, on reference from the district court, is a motion
to remand [doc. # 19] filed by plaintiffs Nicholas Wade Spillers, et al.1 Removing defendants
Chevron U.S.A., Inc., et al., oppose the motion. The defendants have also filed a motion to strike
an affidavit attached to the plaintiff’s motion to remand. Doc. # 25. Plaintiffs oppose this
motion. For reasons stated below, the motion to strike is DENIED, and the motion to remand is
GRANTED.
BACKGROUND
Plaintiffs filed the instant suit on August 22, 2011, in the Fourth Judicial District Court,
Ouachita Parish. See Petition, Doc. # 1-1. The petition alleges that several tracts of land in
which the plaintiffs have various property interests have been contaminated or otherwise
damaged by defendants’ oil and gas exploration. See id. They seek compensatory damages,
punitive damages, remediation of the affected lands, and, alternatively, unjust enrichment
1
As this motion is not one of the motions excepted in 28 U.S.C. § 636(b)(1)(A), nor
dispositive of any claim on the merits within the meaning of Rule 72 of the Federal Rules of
Civil Procedure, this ruling is issued under the authority thereof, and in accordance with the
standing order of this court. Any appeal must be made to the district judge in accordance with
Rule 72(a) and LR 74.1(W).
damages. Id. pp. 24-25.
On December 16, 2011, defendants removed this matter to federal court on the sole basis
of diversity jurisdiction. Doc. # 1. Of the ten (10) plaintiffs joined in the action, nine (9) are
Louisiana citizens. Id. at p. 5. The remaining plaintiff is PDS Lands, LLC (“PDS Lands”), a
Louisiana limited liability company comprised of three members, two of whom are citizens of
Louisiana and one of whom, Ryan Spillers, is a citizen of the State of California. Doc. # 19-1, p.
5. Plaintiffs’ petition identifies eleven (11) defendants, including Chevron U.S.A., Inc., and
Union Oil Company of California, a subsidiary of Chevron Corporation (collectively
“Chevron”), both of whom are citizens of California. Id. Another defendant is River Bend
Energy Corporation (“River Bend”), a citizen of Louisiana. Id. Thus, there is not complete
diversity between the parties. However, defendants argued that both PDS Lands and River Bend
were improperly joined because plaintiffs cannot establish a cause of action either on behalf of
PDS Lands or against River Bend. Doc. # 1, p. 5-9, 12-13. Plaintiffs disagreed with defendants’
assessment of their claims on behalf of PDS Lands and against River Bend, and on January 13,
2012, filed the instant motion to remand on the basis of lack of subject-matter jurisdiction.2 Doc.
# 19.
On February 3, 2012, the defendants filed oppositions to the motion to remand, arguing
that PDS Lands and River Bend were joined in the suit for the sole purpose of defeating
diversity. See Docs. # 24, 26, 27.
Also on February 3, 2012, the defendants filed a motion to strike an affidavit attached to
2
Plaintiffs do not contest that the amount in controversy exceeds the requisite
jurisdictional minimum. See 28 U.S.C. § 1332. Furthermore, it is facially apparent that the
amount in controversy does exceed the requisite jurisdictional minimum. See Doc. # 1, p. 14;
Gebbia v. Wal-Mart Stores, Inc., 223 F.3d 880, 883 (5th Cir. 2000).
2
the plaintiff’s motion to remand. Doc. # 25. The motion to strike argues that the affidavit is
inadmissible because it is not based on personal knowledge, and because it constitutes summaryjudgment-type evidence which may not be considered in a motion to remand. Doc. # 25-1. The
plaintiffs oppose the motion.
The matter is now before the court.
LAW AND ANALYSIS
I. Improper Joinder
A. Standard of Review
The diversity jurisdiction statute presupposes a civil action between “citizens of different
states,” where all plaintiffs are diverse from all defendants. 28 U.S.C. § 1332; Farrell Const. Co.
v. Jefferson Parish, La., 896 F.2d 136, 139-40 (5th Cir. 1990). To circumvent the patent lack of
diversity between plaintiff PDS Lands and the California defendants, and between the Louisiana
plaintiffs and River Bend, defendants invoke the improper joinder doctrine. The improper
joinder doctrine affords a “‘narrow exception’ to the rule of complete diversity, and the burden of
persuasion on a party claiming improper joinder is a ‘heavy one.’” Campbell v. Stone Ins., Inc.,
509 F.3d 665, 669 (5th Cir. 2007) (citing McDonal v. Abbott Laboratories, 408 F.3d 177, 183
(5th Cir. 2005)). To establish improper joinder, the removing party must demonstrate “(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.”3 McDonal, 408 F.3d at 183 (citing Travis v.
3
The vast majority of the cases discussing the improper joinder doctrine concern the
improper joinder of a defendant. However, the Fifth Circuit has expressly recognized that the
joinder of a non-diverse plaintiff should not be allowed to defeat diversity jurisdiction. See In re
Benjamin Moore & Co., 309 F.3d 296, 298 (5th Cir. 2002); infra Sec. I(B). For present
purposes, any reference to an improperly joined defendant should be read to include the
possibility of an improperly joined plaintiff.
3
Irby, 326 F.3d 644, 647 (5th Cir. 2003)).
In the case sub judice, there are no allegations of actual fraud. See Def’s Opp. to Mot. to
Remand, Doc. # 24, p. 8. Accordingly, the court must determine whether the removing
defendants have demonstrated that plaintiffs have “no possibility of recovery” against the nondiverse defendant, i.e. that there is “no reasonable basis” for the district court to predict that the
plaintiff might recover against him. Smallwood v. Illinois Cent. R.R. Co., 385 F.3d 568, 571 (5th
Cir. 2004) (en banc). In order to determine whether a plaintiff has demonstrated a reasonable
possibility of recovery, the district court may either conduct an analysis under Rule 12(b)(6) of
the Federal Rules of Civil Procedure — inquiring whether the complaint states a claim against
the non-diverse defendant upon which relief can be granted — or the district court may, in its
discretion, pierce the pleadings and conduct a summary inquiry. Menendez v. Wal-Mart Stores,
Inc., 364 Fed. App’x 62, 69 (5th Cir. 2010) (quoting Smallwood, 385 F.3d at 573). However,
when a court chooses to conduct a summary inquiry, the court must consider “all unchallenged
factual allegations” in the light most favorable to the plaintiff. Travis, 326 F.3d at 649.
Furthermore, “any ambiguities in state law” must be resolved in favor of the plaintiff.” Id.
Finally, “the focus of the inquiry must be on the joinder, not the merits of the plaintiff’s case.”
Smallwood, 385 F.3d at 573.
B. Improper Joinder of River Bend
1. Motion to Strike
In the defendants’ motion to strike, they ask that the court strike the affidavit of plaintiffs’
expert, Greg Miller. This affidavit, which was attached to the plaintiffs’ motion to remand,
testifies that several large, open, and unlined pits are in existence on the subject property, and
4
that the existence of these pits violates Louisiana Statewide Order 29-B, which required the
closure and clean-up of such pits by January 21, 1989. Doc. # 19-6. It also asserts his opinion
that a pit complex on the property is likely causing contamination of the property. Id. In
preparing the affidavit, Miller reviewed the aerial photographs and operator history attached to
the petition, as well as ground level photographs of the property in question. Id. A subsequent
affidavit, attached to plaintiffs’ reply to defendant’s opposition to the motion to remand, shows
that Miller personally visited the property on March 12, 2012, and inspected the pits and facilities
thereon. See Doc. # 34-1, pp. 1-4. Miller testifies in this second affidavit that the information set
forth in the first affidavit was verified by his first-hand observations. Id. Further, he testifies that
the pit complex in question is in violation of Statewide Order 29-B because it 1) was never
registered with the Louisiana Department of Natural Resources (LDNR); 2) was not closed by
January 21, 1989, in compliance with the cleanup standards imposed by Order 29-B; and 3) to
this day contains drilling mud residues and abandoned oilfield debris. Id. Photographs depicting
the pit complex are attached to the affidavit. Id. pp. 5-11.
The defendants’ motion to strike, as well as their reply to plaintiffs’ opposition to the
motion, argue that the affidavits provide summary evidence which is inadmissible under
Smallwood, supra. They further argue that the affidavits are not based on personal knowledge
and offer inadmissible legal conclusions.
In Smallwood, the Fifth Circuit explained the two methods by which a federal court can
analyze the improper joinder issue:
There has been some uncertainty over the proper means for predicting whether a
plaintiff has a reasonable basis of recovery under state law. A court may resolve the
issue in one of two ways. The court may conduct a Rule 12(b)(6)-type analysis,
5
looking initially at the allegations of the complaint to determine whether the
complaint states a claim under state law against the in-state defendant. Ordinarily, if
a plaintiff can survive a Rule 12(b)(6)-type challenge, there is no improper joinder.
That said, there are cases, hopefully few in number, in which a plaintiff has stated a
claim, but has misstated or omitted discrete facts that would determine the propriety
of joinder. In such cases, the district court may, in its discretion, pierce the pleadings
and conduct a summary inquiry.
Smallwood v. Illinois Cent. R.R. Co., 385 F.3d 568, 573 (5th Cir.2004) (en banc). Therefore, “a
summary inquiry is appropriate only to identify the presence of discrete and undisputed facts that
would preclude plaintiff’s recovery against the in-state defendant.”4 Id. at 573-74. The court is
not permitted to “mov[e] beyond jurisdiction and into a resolution of the merits.” Id. at 574.
Nevertheless, “[Smallwood] and its progeny have explicitly allowed limited discovery in
determining improper joinder . . . .” Ameen v. Merck & Co., Inc., 226 Fed. App’x 363 (5th Cir.
2007) (approving the introduction of deposition testimony where “the district court would have
been unable to appreciate fully the basis for its possible jurisdiction without [it].”). During this
summary inquiry, “[t]he party seeking removal bears a heavy burden of proving that the joinder
of the in-state party was improper.” Id. at 574.
Here, the defendants argue that the affidavits presented by the plaintiffs do not offer such
“discrete and undisputed facts,” but rather are a belated attempt to fashion a claim against River
Bend. The undersigned disagrees and finds that the factual assertions in the affidavit and
attached photographs — in particular that open pits and oilfield debris exist on the property —
represent discrete and undisputed facts which bear directly on the plaintiffs’ chance of recovery
4
The court provided several examples of the type of inquiry appropriate under a
pierce-the-pleadings inquiry: “For example, the in-state doctor defendant did not treat the
plaintiff, the in-state pharmacist defendant did not fill a prescription for the plaintiff patient, a
party’s residence was not as alleged, or any other fact that can easily be disproved if not true.” Id.
at 574 n. 12 (citing Travis v. Irby, 326 F.3d 644, 648-49 (5th Cir. 2003)).
6
against the non-diverse defendant. The Fifth Circuit has stated that “[Smallwood] sharply limits,
but does not eliminate, discovery. To do so would deny all substance to the pierce-the-pleading
option that we have repeatedly sanctioned.” Guillory v. PPG Industries, Inc., 434 F.3d 303, 311
(5th Cir, 2005) (upholding the district court’s piercing of the pleadings when the parties had
conducted ten months of post-removal discovery). Therefore, the limited facts presented in the
affidavits will be considered in the undersigned’s analysis of the motion to remand.
It is true, as the defendants point out, that the affidavits contain several legal conclusions,
including the proposition that state environmental regulations have been violated. However, the
undersigned will only rely on the factual assertions in the affidavit. Thus, the pleadings will be
pierced for the limited purpose of considering the affidavits as evidence that there existed oilfield
debris as well as open, unlined, and unregistered pits on the property in question. To this extent,
the motion to strike the affidavits is DENIED.5
2. Plaintiffs’ Claim Against River Bend
Plaintiffs’ claim against defendant River Bend arises under a 1991 assignment of three
mineral releases to River Bend. The petition, motion to remand, and attached exhibits establish
that River Bend was assigned an interest in leases encumbering the property plaintiff-lessors
contend has been contaminated. See Docs. # 1-1; # 19-1, # 19-7. The filings essentially allege
that by way of the assignment, River Bend assumed “several onerous remediation obligations”
associated with the property, in addition to the obligations imposed by the Louisiana Mineral
5
The defendants’ claim that the affidavits are not based on personal knowledge also fails.
The first affidavit shows Mr. Miller reviewed photographs and the operator history of the
property, and in the second affidavit, Miller affirms that he visited the property and verifies that
the facts in the original affidavit were true and accurate based on his personal observations. See
Doc. # 19-6. Doc. # 34-1. Thus, the documents contain “enough factual support to show that the
affiant possesses [personal] knowledge.” Amie v. El Paso Independent School Dist., 253 Fed.
App’x 447, 451 (5th Cir. 2007).
7
Code. See Doc. # 19-1, p. 6. The defendants counter that plaintiffs have pointed to only one
well on or near the acreage subject to the assigned leases, and that this well was plugged and
abandoned nine years before River Bend acquired its interest. Doc. # 24, p. 11. The defendants
also argue that the plaintiffs have failed to plead any other theory of liability with the required
specificity. See id. pp. 12-14.
The Louisiana Mineral Code and the Louisiana Civil Code govern a lessee’s obligations
under a mineral lease. Marin v. Exxon Mobil Corp., No. 2009–C–2368 (La. 10/19/10); 48 So.3d
234, 255 (citing La. Rev. Stat. § 31:2). Louisiana Mineral Code article 122 provides:
A mineral lessee is not under a fiduciary obligation to his lessor, but he is bound to
perform the contract in good faith and to develop and operate the property leased as
a reasonably prudent operator for the mutual benefit of himself and his lessor. Parties
may stipulate what shall constitute reasonably prudent conduct on the part of the
lessee.
La. Rev. Stat. § 31:127. Further, a mineral lease may be assigned or subleased in whole or part.
§ 31:127. Mineral Code article 128 provides that “to the extent of the interest acquired, an
assignee or sublessee acquires the rights and powers of the lessee and becomes responsible
directly to the original lessor for performance of the lessee’s obligations.” § 31:128.
In addition, the Louisiana Civil Code defines the lessee’s principal obligations as follows:
The lessee is bound:
(1) To pay the rent in accordance with the agreed terms;
(2) To use the thing as a prudent administrator and in accordance with the purpose
for which it was leased; and
(3) To return the thing at the end of the lease in a condition that is the same as it
was when the thing was delivered to him, except for normal wear and tear or as
otherwise provided hereafter.
La. Civ. Code art. 2683. Furthermore, Civil Code article 2686 provides “[i]f the lessee uses the
thing for a purpose other than that for which it was leased or in a manner that may cause damage
8
to the thing, the lessor may obtain injunctive relief, dissolution of the lease, and any damages he
may have sustained.” Civil Code article 2687 directs that “[t]he lessee is liable for damage to the
thing caused by his fault or that of a person who, with his consent, is on the premises or uses the
thing.” Finally, Civil Code article 2692 provides “[t]he lessee is bound to repair damage to the
thing caused by his fault . . . and to repair any deterioration resulting from his . . . use to the
extent it exceeds the normal or agreed use of the thing.”
In this case, Unocal Exploration assigned to River Bend all of its rights, title, and interest
in five oil and gas leases, three of which are at issue in this suit:
1) 8/18/60 Sampson Tedeton Lease
2) 8/18/60 Mary Lou Petty Lease
3) 8/18/60 N.S. Spillers Lease
See 1991 Assignment, Doc. # 19-7. The lease interest assigned to River Bend for the Petty and
Spillers leases encompassed only “that acreage lying within the geographic confines of the Purdy
SU B, created by the Officer of Conservation Order 746-C.” Id.
Despite the defendants’ objections, the plaintiffs have indeed alleged that an open pit or
pit complex exists on the property in which River Bend acquired a leasehold interest by way of
the 1991 assignment. Doc. # 19-1, p. 9. But a preliminary question exists as to whether River
Bend owes any obligations to the plaintiffs under the assigned leases at issue. The petition states
that “Defendants who are assignees or sublessees of the mineral leases at issue are liable to
plaintiffs under the provisions of article 128 and 129 of the Mineral Code[,]” and that
“defendants have violated the express and implied obligations of surface leases.” See Doc. # 1-1,
¶¶ 24, 27. But the plaintiffs have not identified any specific lease provision that has supposedly
been breached; indeed, the defendants contend that none of the assigned leases contain any
9
provisions requiring restoration.6 See Doc. # 24, p. 13.
Not only have the plaintiffs not pointed to any provision of the lease requiring restoration,
they have not even shown that they are the lessors as to the property on which the allegedly
contaminating pit complex is situated. This pit complex is purportedly on the border between the
Tedeton property, in which no plaintiffs herein have an interest, and the Charles Spillers
property, owned by plaintiffs Charles and Teresa Spillers. See Doc. # 19-1, p. 9; Petition, Doc.
#1-1, pp. 4-6, 31. However, it appears that the portion of the Charles Spillers property on which
the pit complex supposedly lies is not covered by the leasehold interest conveyed to River Bend
in the 1991 assignment, since it is located outside of the “geographic confines of the Purdy SU
B.”7 And although this limitation did not apply to the Tedeton lease, the Tedeton lessors are
again not parties to this suit. Therefore, the plaintiffs in this case have no interest as either
owners or lessors in the property at issue, and they do not argue otherwise.
The plaintiffs instead argue that River Bend’s liability arises not from the underlying
leases, but from the 1991 assignment itself. Since they were not parties to this agreement, they
claim the assignment contained a provision making them third party beneficiaries and vesting
them with a claim for restoration damages. The plaintiffs point to the following language from
paragraph 3(a) of the assignment:
As additional consideration for ASSIGNOR transferring the Assigned Interests[,]
ASSIGNEE shall . . . assume and be responsible for and comply with all duties
and obligations of ASSIGNOR, express or implied, with respect to the Assigned
Interests including, without limitation, those duties and obligations arising under
or by virtue of any lease, contract, agreement, document, permit, applicable statute
6
The three leases subject to the 1991 assignment are part of the record in this case. See
Doc. # 1-2, pp. 2-8; Docs. # 19-2, 19-3, 19-4. Unfortunately, they are almost entirely illegible.
7
This can be seen by comparing the property descriptions in the petition, see doc. # 1-1,
pp. 4-6, the aerial photograph attached to the petition, see doc. # 1-1, p. 31, and the map showing
the boundaries of the assigned leases and the relevant unit, see doc. # 24-2.
10
or rule, regulation or order of any government authority (specifically including,
without limitation, any governmental or lessor request or requirement to plug, replug
and/or abandon any well of whatsoever type, status or classification or to take any
clean-up or other action with respect to the Assigned Interest, including but not
limited [sic], the removal of all Wells and Appurtenances located thereon); and . . .
with respect to the Assigned Interests . . . defend, indemnify and hold ASSIGNOR
harmless from any and all . . . suits, claims, demands, causes of action, liabilities,
damages, penalties, settlements, and judgments of any kind or character . . . asserted
against ASSIGNEE and/or ASSIGNOR . . . . ASSIGNEE shall defendant, indemnify
and hold ASSIGNOR harmless from any and all claims in favor of any person for .
. . damage to property or to the environment, or for any other relief, arising directly
or indirectly from, or incident to, the use, occupation, operation, maintenance or
abandonment of any of the Assigned Interests, or condition of the property or
premises, whether latent or patent, and whether arising from or contributed to by the
negligence in any form of ASSIGNOR, its agents, employees, or contractors, and
asserted against ASSIGNEE and/or ASSIGNOR . . . .
Doc. # 19-7, pp. 3-4 (emphasis added).
It is true that this clause contains language similar to that which Louisiana courts have
deemed to confer benefits to third parties. See, e.g., Andrepont v. Acadia Drilling Co., 231 So.2d
347 (1969) (finding that a condition in a mineral lease stipulated an enforceable benefit in favor
of a person not a party to the lease); Hazelwood Farm, Inc. v. Liberty Oil and Gas Corp., No.
01-0345-CA (La. App. 3 Cir. 6/20/01); 790 So.2d 93 (same). Nevertheless, even if the 1991
assignment did confer such a benefit, this benefit was not in favor of the plaintiffs in the instant
action. The above-quoted clause patently limits the obligations assumed by River Bend to the
extent of the assigned leasehold interest.8 In other words, if River Bend did have any obligation
to remediate the pit complex area by way of the assignment, this obligation would effectively end
at the property line separating the Charles Spillers property from the Tedeton property. For this
reason, the undersigned finds that the plaintiffs have no reasonable possibility of recovery against
defendant River Bend. Thus, the defendants have met their burden of establishing improper
8
This limitation simply affirms the Louisiana Mineral Code’s rule that an assignee or
sublessee assumes the lessee’s obligations only “to the extent of the interest acquired[.]” La.
Rev. Stat. § 31:128.
11
joinder as to this defendant.
This result does not dispose of the plaintiffs’ motion, however, because the undersigned
must still consider whether the non-diverse plaintiff, PDS Lands, has been improperly joined in
this matter. If not, then the lack of diversity will defeat federal jurisdiction, requiring remand of
the action to state court.
C. Improper Joinder of PDS Lands
“The fraudulent joinder doctrine can be applied to the alleged fraudulent joinder of a
plaintiff.” Miller v. Home Depot, U.S.A., Inc., 199 F.Supp.2d 502, 508 (W.D. La. 2001) (citing
several sources). In such a case, “[t]he defendants have the burden of establishing that there is no
possibility that the [non-diverse] plaintiff can establish any claim against them.” Id. (citing Elk
Corporation of Texas v. Valmet Sandy–Hill, Inc., No. CIV.A. 3:99–CV–2298G, 2000 WL
303637 (N.D. Tex. Mar. 22, 2000)). In other words, “in applying the fraudulent joinder analysis
to a non-diverse plaintiff, . . . the focus of the analysis is not whether there is any possibility of
recovery against one particular defendant, but whether [the allegedly improperly joined plaintiff]
has a reasonable possibility of recovering at all.” Clear Channel Communications, Inc., v.
Citigroup Global Markets, Inc., 541 F. Supp. 2d 874, 878 (W.D. Tex. 2008).
In the notice of removal, the defendants argued that PDS Lands had no cause of action for
damage to property occurring before they acquired an interest in that property. See Doc. # 1, pp.
6-8. The defendant’s argument, however, contained the caveat that PDS Lands might have a
claim if the plaintiffs could show that PDS Lands was expressly assigned and/or subrogated to
the rights of the previous owners of the property it acquired. Id. pp. 7-8. Alternatively, the
defendants alleged that the citizenship of PDS Lands was designed for the sole purpose of
defeating diversity jurisdiction. Id. pp. 8-9. When the plaintiffs filed the motion to remand with
12
the attached assignment, showing that PDS Lands acquired the right to sue for environmental
contamination, the defendants adopted their alternative argument. See Doc. # 24, p. 3. Thus, the
defendants now do not actually argue that PDS Lands lacks any possibility of recovery against
any of them. Rather than attacking the substance of PDS Lands’ claim, they ask the court to infer
some sort of fraud on the part of the plaintiffs. They point out that PDS Lands, LLC, was
assigned an interest in the property at issue shortly before the suit was filed, and when plaintiff
Paul Spillers donated an interest in the LLC to his son Ryan, a California citizen, this donation
had the effect of destroying diversity. For this reason, the defendants’ argument takes the form of
a “collusive assignment” claim.
Unlike improper joinder, the collusive assignment doctrine allows the court to consider
the plaintiff’s motive to manipulate federal jurisdiction. See Minogue v. Modell, No.
1:06CV286, 2006 WL 1704932, *4 (N.D. Ohio Jun. 16, 2006). This doctrine arises from 28
U.S.C. § 1359, which provides that “[a] district court shall not have jurisdiction of a civil action
in which any party, by assignment or otherwise, has been improperly or collusively made or
joined to invoke the jurisdiction of such court.”
Interpreting Section 1359, the Supreme Court in Kramer v. Caribbean Mills, 394 U.S.
823 (1969), examined a plaintiff’s motive when considering whether an assignment could be
used to manufacture diversity jurisdiction. In Kramer, Caribbean Mills was a Haitian corporation
that entered into a contract with Panama and Venezuela Finance Company, a Panamanian
corporation. See id. at 824. After unsuccessfully seeking payment on the contract, the
Panamanian corporation assigned its interest to Kramer, a Texas attorney, for consideration of
$1. Id. In addition, Kramer agreed to pay 95% of any net recovery he obtained under the
contract to the Panamanian corporation “solely as a bonus.” Id. Shortly thereafter, Kramer sued
13
Caribbean Mills in federal court, and Caribbean Mills challenged the assignment under Section
1359. Kramer argued that the underlying legality of the assignment exempted it from judicial
review under Section 1359. Id. at 829.
The Supreme Court ultimately held that “to accept [Kramer’s] argument would render §
1359 largely incapable of accomplishing its purpose; this very case demonstrates the ease with
which a party may ‘manufacture’ federal jurisdiction by an assignment which meets the
requirements of state law.” Id. Thus, the Court considered Kramer’s motivation to defeat
diversity jurisdiction and disregarded the assignment. Id.
Although Section 1359, and Kramer by extension, only reference attempts to create
federal jurisdiction, subsequent cases have applied the collusive joinder doctrine to situations
where a plaintiff uses an assignment to defeat jurisdiction.9 The defendants here heavily rely on
one of these cases, Grassi v. Ciba-Geigy, 894 F.2d 181 (5th Cir. 1990). In Grassi, the plaintiffs
had obtained a default judgment against Ciba-Geigy PLC in Texas state court. Id. at 182. When
they were unable to enforce the judgment, the plaintiffs sued Ciba-Geigy PLC’s parent company,
a Swiss corporation. Id. Before doing so, however, the plaintiffs assigned a 2% interest in their
claim to a Costa Rican corporation. Id. After removal, plaintiffs filed a motion to remand,
arguing diversity jurisdiction was destroyed since foreign parties were on both sides of the
dispute. Id. Relying on Kramer, the Fifth Circuit affirmed the district court’s denial of remand,
finding that “federal district courts have both the authority and the responsibility, under 28
9
It should be noted at the outset that “[t]he Supreme Court has not yet spoken as to
whether the lower federal courts have correctly read the Kramer case as authorizing application
of its principles to attempts by plaintiffs to defeat federal diversity jurisdiction.” Louisiana v.
Sprint Communications Co., L.P., 892 F. Supp. 145, 149 n. 4 (M. D. La. 1995) (emphasis
omitted). Moreover, Congress has never enacted legislation prohibiting the use of devices to
defeat federal jurisdiction that would parallel Section 1359’s prohibition on diversity-creating
devices. See C. Wright, A. Miller, & E. Cooper, Fed. Prac. and Proc. Juris. § 3641 (3d ed.).
14
U.S.C. §§ 1332 and 1441, to examine the motives underlying a partial assignment which destroys
diversity and to disregard the assignment in determining jurisdiction if it be found to have been
made principally to defeat removal.” Id. at 185.
Here, Paul Spillers has declared in an affidavit that he created the LLC in 2000 in
connection with his purchase and operation of a farm, partly for purposes of limitation of
liability. Doc. # 19-14, ¶¶ 1-3. Another reason he created the LLC was so that he could donate
membership interests to his two children for estate planning and tax purposes. Id. ¶ 3. On
August 9, 2011, Spillers used the LLC to acquire from his sister, nephew, and nephew’s wife a
five percent interest in eight of the twenty-three tracts at issue in this suit. See id. ¶ 5; 2011
Assignment, Doc. # 19-10; Petition, Doc. # 1-1. PDS Lands paid five hundred dollars for the
assignment, Doc. # 19-10; additionally, Spillers noted in his affidavit that the assignment was “in
part, in recognition of PDS Lands, LLC, providing management advice and assistance to my
sister and nephew.” Doc. # 19-14, ¶ 5. Then on August 10, 2011, Spillers donated a five percent
membership interest to each of his two children, Ryan and Sarah Spillers, for estate planning
purposes due to his advancing age and the lengthy nature of these types of cases. See id. ¶ 3; see
Doc. # 34, p. 7. The plaintiffs filed suit on August 22, 2011. See Pet., Doc. # 1-1.
Thus, citing Grassi, the defendants point to the facts that the assignment to PDS Lands
occurred thirteen days before suit was filed, and that the assignors retained a ninety-five interest
in the lawsuit. See Doc. # 24, p. 12. The instant case, however, can be distinguished from
Grassi. First of all, the interest assigned to PDS Lands was not an interest in a claim but rather
an interest in real property. The Grassi court was clearly concerned with the implication of
misconduct when an interest in an actual claim is assigned on the eve of filing suit. See Grassi,
894 F.2d at 185 (noting that “[the right of removal] would be an illusory one indeed if a plaintiff
15
could defeat it by the simple expedient of assigning a fractional interest in the outcome of the suit
to an agent performing what is essentially litigation support on a contingent fee basis.”).
Grassi’s extension of Section 1359 and Kramer stands on much stronger ground when viewed in
this light.
The analogy to Section 1359 and Kramer also weakens when the assignment itself does
not destroy diversity. Here, when Louisiana plaintiffs Nicholas Wade Spillers, Lindsey Martin
Spillers, and Bobby Spillers Staples assigned a five percent interest in a portion of the land at
issue to PDS Lands, diversity was still intact. It was only later, albeit a day later, when Ryan
Spillers acquired an interest in PDS Lands, that diversity was destroyed between the LLC and the
California defendants.
In other words, then, it is not the assignment of the land that defendants challenge as
destroying diversity; it is plaintiff Paul Spillers’ donation to his son Ryan of the interest in the
LLC. One federal court in California has found that Grassi’s holding should not extend to such a
situation. See Plush Lounge Las Vegas, LLC v. Lalji, No. CV 08-8394-GW, 2010 WL 5094238
(C.D. Cal. Dec. 7, 2010). In Plush Lounge, the plaintiff LLC sued several defendants, two of
which were Nevada citizens. Id. at *1. After removal, the LLC filed a motion to remand and
attached information showing that its managing member, also an LLC, had a Nevada citizen as
one of its members. Id. The defendants relied on Kramer and its line of cases to argue that the
Nevada citizen had been assigned an interest in the LLC in order to defeat diversity. See id. at
*3. The court rejected this argument, finding that “[e]ven if the Court were to accept the premise
that the Court may look behind the collusive assignment of a claim in order to find diversity . . . ,
it would require a quantum leap in logic to conclude from this that it can examine the motivation
behind the assignment of an interest in an LLC (or the addition of a diversity destroying new
16
member into the LLC).” Id. at *4.
A similar result was obtained in Equant, Inc., v. Unified 2020 Realty Partners, L.P., 2012
WL 1033644 (N.D. Tex. Mar. 27, 2012). In Equant, the Texas federal court considered whether
a defendant had collusively assigned an interest in a limited partnership in order to defeat
diversity. See id. at *2. The court declined to decide whether to extend Grassi to such a
situation, but noted that the courts that have found collusive assignments have done so based on
conduct that relates to an actual claim. Id. It also noted that “[t]he assignment of a claim is more
indicative of a party’s colluding to destroy federal jurisdiction because it is more closely linked to
the litigation itself.” Id. The plaintiff in Equant presented the court with circumstantial evidence
of the defendants’ fraudulent motives, such as the timing of the transaction and the small interest
conveyed. Nevertheless, the court found that “[a]lthough the circumstantial evidence permits the
inference that the [challenged] transactions could have been motivated by [defendant’s] desire to
litigate in state court, [plaintiff] has not shown that the [transactions] were made “principally to
defeat [diversity].’” Id. (quoting Grassi, 894 F.2d at 185 (emphasis preserved)).
Considering the foregoing, the undersigned declines to extend Grassi, and thus further
extend Section 1359 and Kramer, to the types of transactions in this case. But even if the court
were to question the motives behind the transactions, the defendants would not meet their burden
to prove the transactions were made principally to defeat diversity. Again, the proffered reason
for the initial assignment to PDS Lands is that it was done in recognition of Paul Spillers’ history
of handling business and litigation matters for the family. See Doc. # 34, p. 7. It was also paid
for in the amount of five hundred dollars. Doc. # 19-14. And as for the donation to Ryan
Spillers, the plaintiffs contend that due to Paul Spillers’ advancing age and the potential length of
this case, he decided to begin transferring his interest in PDS Lands to his children. Id. pp. 7-8.
Considering the defendants’ burden of demonstrating federal jurisdiction, both of these reasons
are credible enough to survive the court’s scrutiny.
Of course, there may certainly be situations where transactions like the ones here are
more clearly intended to defeat diversity. But in this case, where plausible reasons were offered,
the transactions were between close family members, and the only real evidence offered by the
defendants is the timing of the transactions and the small interest conveyed, the undersigned is
unwilling to infer improper conduct on the part of the plaintiffs.10 For these reasons, the
defendants have not met their burden to establish that removal jurisdiction exists on the basis of
diversity, and the motion to remand is GRANTED.
CONCLUSION
Accordingly,
The motion to remand [doc. # 19] filed by plaintiffs Nicholas Spillers, et. al., is hereby
GRANTED. In addition, the defendants’ motion to strike the affidavit of Greg Miller [doc. #
25] is hereby DENIED.
THUS DONE AND SIGNED at Monroe, Louisiana, this 2nd day of August, 2012.
10
The defendants also request, in the event the court finds a lack of diversity with PDS
Lands, that they be allowed to conduct discovery on the motives behind the transactions at issue.
However, since the undersigned has determined that Grassi, supra, should not apply to the
circumstances of this case, such discovery into the plaintiffs’ motives will not be permitted.
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