Spillers et al v. Chevron U S A Inc et al

Filing 49

MEMORANDUM ORDER granting 42 Appeal of Magistrate Judge Decision; granting 44 Appeal of Magistrate Judge Decision re 40 Memorandum Ruling and 41 Judgment on Motion to Remand. This matter is hereby REMANDED to the Magistrate Judge for further proceedings consistent with the terms of the instant Memorandum Order. Signed by Judge S Maurice Hicks on 3/6/2013. (crt,Dauterive, C)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
SHREVEPORT DIVISION
NICHOLAS WADE SPILLERS, ET AL.

CIVIL ACTION NO. 11-2163

VERSUS

JUDGE S. MAURICE HICKS. JR.

CHEVRON USA INC., ET AL.

MAGISTRATE JUDGE HAYES
MEMORANDUM ORDER

Before the Court are two Magistrate Appeals (Record Documents 42 and 44). The
first appeal was filed by defendants Chevron U.S.A. Inc. (“Chevron”) and Union Oil
Company of California (“Union Oil”). See Record Document 42. The second appeal was
filed by defendants Nadel and Gussman-Jetta Operating Company and GPM, Inc. See
Record Document 44.1 Defendants appeal from Magistrate Judge Hayes’ Judgment of
Remand, which remanded the above-captioned action to the 4th Judicial District Court for
the Parish of Ouachita, State of Louisiana. See Record Document 41. The remand was
based on Magistrate Judge Hayes’ conclusion that the non-diverse plaintiff, PDS Lands,
LLC, had been properly joined as a plaintiff in this matter. See Record Document 40 at 1218.
Plaintiffs in this matter filed suit in state court, alleging that several tracts of land in
which they have various property interests have been contaminated or otherwise damaged
by defendants’ oil and gas exploration. Defendants removed the matter to federal court on
the sole basis of diversity jurisdiction. While there was not complete diversity on the face
of the petition, defendants argued that plaintiff PDS Lands, LLC (“PDS Lands”) and
1

Plaintiffs argue that the appeal of defendants Nadel and Gussman-Jetta Operating
Company and GPM, Inc. was not filed within the 14 day window set forth in Rule 72 and
LR 74.1(W). This argument appears to have merit; however, the Court will consider the
appeal, as it simply adopts the arguments set forth in the timely filed appeal of defendants
Chevron and Union Oil.

defendant River Bend Energy Corporation (“River Bend”) were improperly joined. Plaintiffs
disagreed and filed a motion to remand based on lack of subject matter jurisdiction.
In her ruling, Magistrate Judge Hayes found “that the plaintiffs have no reasonable
possibility of recovery against defendant River Bend” and concluded that defendants had
met their burden of establishing improper joinder as to defendant River Bend. Record
Document 40 at 11-12. No party has challenged Magistrate Judge Hayes’ findings and/or
rulings as to River Bend.2 Yet, the finding as to defendant River Bend was not dispositive
of the motion to remand, as Magistrate Judge Hayes still had to consider whether the nondiverse plaintiff PDS Lands had been improperly joined. See id. at 12.
Defendants argued that the citizenship of PDS Lands was designed for the sole
purpose of defeating diversity jurisdiction and asked the court to infer some sort of fraud
on the part of plaintiffs. Defendants noted that PDS Lands was assigned an interest in the
property at issue in this matter shortly before the suit was filed. Moreover, they pointed out
that the donation of an interest in PDS Lands by plaintiff Paul Spillers to his son Ryan
Spillers, a California citizen, had the effect of destroying diversity. Defendants’ argument
took the form of a collusive assignment claim. Thus, Magistrate Judge Hayes applied the
collusive assignment doctrine, which arises under 28 U.S.C. § 1359.3 See id. at 13.

2

Magistrate Judge Hayes also denied defendants’ motion to strike the affidavits of
plaintiffs’ expert Greg Miller. See Record Document 40 at 4-7. The affidavits were
attached to the plaintiffs’ motion to remand. See id. Again, no party has challenged
Magistrate Judge Hayes’ ruling as to the motion to strike.
3

The collusive assignment doctrine is based on 28 U.S.C. § 1359, which provides:

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.
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Magistrate Judge Hayes analyzed both Kramer v. Caribbean Mills, 394 U.S. 823,
89 S.Ct. 1487 (1969) and Grassi v. Ciba-Geigy PLC, 894 F.2d 181 (5th Cir. 1990), in her
ruling. See Record Document 40 at 13-18. Citing Kramer, Magistrate Judge Hayes
observed that unlike improper joinder, the collusive assignment doctrine allows the court
to consider the plaintiff’s motive to manipulate diversity jurisdiction. See id. at 13-14.
Magistrate Judge Hayes then went on to discuss Grassi:
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. The defendants here heavily rely on one of these cases, Grassi
v. Ciba-Geigy, 894 F.2d 181 (5th Cir. 1990). . . . Relying on Kramer, the
Fifth Circuit [in Grassi] affirmed the district court’s denial of remand, finding
that “federal district courts have both the authority and the responsibility,
under 28 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.
Record Document 40 at 14-15.
With these legal standards in mind, Magistrate Judge Hayes considered Paul
Spillers’ affidavit, wherein he explained the supposed reasoning behind the creation of PDS
Lands, the acquisition of a five percent interest in eight of the twenty-three tracts at issue
in this case, and the donation of a five percent membership interest to each of his two
children, Ryan and Sarah Spillers. See id. at 15. After examining the affidavit, Magistrate
Judge Hayes distinguished the instant matter from Grassi:
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. . . . Grassi’s extension of
Section 1359 and Kramer stands on much stronger ground when viewed in
this light.

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Id. at 15-16. Magistrate Judge Hayes further noted that the analogy to Section 1359 and
Kramer was also weakened in this case because the initial assignment itself did not destroy
diversity. See id. at 16. Rather, it was plaintiff Paul Spillers’ donation to his son Ryan, a
California citizen, that destroyed diversity. See id.
Based on the foregoing, Magistrate Judge Hayes declined to extend Grassi, and
thus further extend Section 1359 and Kramer, to the types of transactions in this case. See
id. at 17. Moreover, she held that even if the court were to have extended Grassi and
questioned the motives behind the transactions, the defendants, who bear the burden of
demonstrating federal jurisdiction, could not meet their burden to prove that the
transactions were made principally to defeat diversity. See id. The affidavit of plaintiff Paul
Spillers offered reasons for both the assignment and donation that were credible enough
to survive scrutiny at this stage. See id. at 17-18. Finally, Magistrate Judge Hayes limited
her ruling to the facts of the instant case, stating:
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. 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.
Id. at 18. Magistrate Judge Hayes also denied defendants’ request for discovery on the
motives underlying the transactions at issue, as she determined that Grassi should not be
extended and/or applied to the circumstances of this case. See id. at 18, n. 10.

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Magistrate Judge Hayes’ Judgment of Remand was a non-dispositive matter.4 The
action taken in the Judgment of Remand is not listed in 28 U.S.C. § 636(b)(1)(A) as one
of the dispositive motions (often referred to as the “excepted motions”) that a magistrate
judge may not decide. Magistrate Judge Hayes’ Judgment of Remand was not a
recommendation to the district court; rather, it was an order from the magistrate judge on
a non-dispositive matter than requires the district court to uphold the ruling unless it is
clearly erroneous or contrary to law. See 28 U.S.C. § 636(b)(1)(A); see also Castillo v.
Frank, 70 F.3d 382, 385 (5th Cir.1995) and Perales v. Casillas, 950 F.2d 1066, 1070 (5th
Cir.1992). This Court will review Magistrate Judge Hayes’ legal conclusions de novo, and
will review her factual findings for clear error. See Choate v. State Farm Lloyds, No.
03–2111, 2005 WL 1109432, *1 (N.D.Tex. May 5, 2005).
On appeal, defendants Chevron and Union Oil argue that Magistrate Judge Hayes
misapplied Grassi, accorded undue weight to plaintiff Paul Spillers’ affidavit, and erred in
denying defendants’ request for discovery. See Record Document 45-1 at 7-17.

This

Court will first focus on the application of Grassi. “[T]he issue of whether [an] assignment
was improperly or collusively made is to be resolved as a simple question of fact.” Grassi,
894 F.2d at 186, citing Bass v. Texas Power & Light Co., 432 F.2d 763, 766–767 (5th
Cir.1970). “Clear error exists when although there may be evidence to support it, the
reviewing court on the entire record is left with the definite and firm conviction that a mistake

4

In the Fifth Circuit, a Magistrate Judge may rule on a motion to remand as long as
review of the ruling by the district court is not foreclosed. See Escuadra v. Geovera
Specialty Ins. Co., 739 F.Supp.2d 967, 971–972 (E.D.Tex.2010). Here, the undersigned
notes that the Judgment of Remand specifically allowed an appeal to the District Judge and
further stayed the Judgment of Remand until any appeal to the District Judge was decided.
See Record Document 41.
Page 5 of 7

has been committed.” Hollinger v. Home State Mut. Ins. Co., 654 F.3d 564, 569 (5th Cir.
2011) (internal quotations omitted). While the assignment of a five percent interest in the
underlying property, as compared to the assignment of a claim, may distinguish Grassi from
the instant matter, the Court finds that it is a distinction without difference. See Picquet v.
Amoco Prod. Co., 513 F.Supp. 938, 940–41 (M.D.La. 1981) (holding that sole motivation
of assignment to nondiverse corporation of 1/108 interest in land central to claim was to
defeat diversity jurisdiction). The assignment necessarily granted not only an interest in the
land, but also plaintiffs’ environmental claims. Considering that this first assignment was
followed one day later with the donation of a fractional interest in the LLC to Ryan Spillers,
a nondiverse citizen, this Court is left with the firm belief that a mistake has been committed.
The Court finds that Grassi is applicable to the instant matter and it is proper for the court
to consider the motives underlying the challenged transactions in this case.
In her ruling, Magistrate Judge Hayes held that even if the court had extended Grassi
and questioned the motives behind the transactions, the defendants would not meet their
burden to prove that the transactions were made principally to defeat diversity. See Record
Document 40 at 17. The affidavit of plaintiff Paul Spillers offered reasons for both the
assignment and donation that were credible enough to survive the court’s scrutiny. See id.
at 17-18. However, the undersigned is once again left with the definite and firm conviction
that a mistake has been committed. Magistrate Judge Hayes’ ruling relied heavily upon the
assertions made by Paul Spillers in his affidavit. Given that Mr. Spillers has an interest in
having this case heard in state court, this Court finds that defendants should be given the
opportunity to conduct very limited discovery regarding Mr. Spillers’ affidavit, namely the
circumstances surrounding the creation of PDS Lands, PDS Lands’ acquisition of a five

Page 6 of 7

percent interest in eight of the twenty-three tracts at issue in this suit, Mr. Spillers’ motive
in assigning a five percent interest to his children, and the timing of the assignment and
donation.
Accordingly, the Court finds that Magistrate Judge Hayes’ conclusion regarding the
applicability of Grassi and her denial of defendants’ request for limited discovery was clearly
erroneous.

The Magistrate Appeals (Record Documents 42 and 44) are, therefore,

GRANTED and this matter is hereby REMANDED to the Magistrate Judge for further
proceedings consistent with the terms of the instant Memorandum Order.
THUS DONE AND SIGNED, in Shreveport, Louisiana, this the 6th day of March,
2013.

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