Akshar 6 L L C et al v. Travelers Casualty & Surety Co of America et al

Filing 60

MEMORANDUM RULING granting 24 Motion to Remand subject to the stay set for in accompanying order; denying 2 Motion to Sever. Signed by Magistrate Judge Mark L Hornsby on 6/10/2010. (crt,Reasor, M)

UNITED STATES DISTRICT COURT W E S T ER N DISTRICT OF LOUISIANA S H R E V EP O R T DIVISION

A K S H A R 6, LLC, ET AL VERSUS T R A V E L E R S CASUALTY & SUREY C O . OF AMERICA, ET AL

C I V I L ACTION NO. 09-cv-1942 J U D G E HICKS M A G I S T R A T E JUDGE HORNSBY

M E M O R A N D U M RULING T h r e e Arkansas limited liability companies ("Plaintiffs") filed suit in state court a g a i n s t the general contractor, several subcontractors, architect, engineer, and their various i n s u r er s (the "contractor defendants") who were involved in the construction of Plaintiffs' Hil ton Garden Inn hotel in Shreveport, Louisiana. Plaintiffs allege that the sheetrock installed in the hotel was stored outside and s u b j e c te d to inclement weather, the sheetrock was not properly coated with a required sealer, a n d a related vinyl wall covering was not installed with the required glue. Plaintiffs further a l l eg e that a subcontractor responsible for installation of the HVAC system became involved in a contractual dispute and, in an attempt at a self-help remedy, refused to connect the e l e c tr i c a l system to the HVAC for the interior corridors of the hotel. Plaintiffs allege that their unknowing operation of the system in that partially functioning manner caused an acc um ulati on of moisture in guest rooms and other rooms of the hotel. Plaintiffs allege that the sheetrock in the hotel must be removed because it has been c o m p r o m i s e d by moisture and was improperly installed. Plaintiffs also allege that the

s h e e t r o c k is covered in mold and/or mildew. They allege that more than 80 rooms in the hot el had to be closed to rental because of these problems, causing a loss of revenue. Plaintiffs set forth in their petition claims against the contractor defendants as well as T r a v e l e r s , their own insurer, which they sued for the losses caused by the contractor d e f en d a n t s . Plaintiffs pray for an award of damages as well as attorney fees based on T r av e le r' s allegedly arbitrary and capricious denial of their claim. T rav elers removed the case based on an assertion of diversity of citizenship between t h e Arkansas Plaintiffs and Travelers, a citizen of Connecticut. Travelers alleges that the citizens hip of the several contractor defendants (who are not all diverse from Plaintiffs) shou ld be ignored because the claims against the contractor defendants and Travelers are wh olly distinct and not properly joined in one civil action. Travelers, immediately upon remo val, also filed a motion to sever (Doc. 2) the claims against it from the rest of the suit. P l a i n t i f f s filed a timely motion to remand (Doc. 24) that challenged the improper j o i n d e r plea and prayed for remand because (1) Plaintiffs are not diverse from at least one o f the contractor defendants, (2) the statutory bar against removal in diversity cases by in-state defendants is applicable because some of the contractor defendants are Louisiana c i t i z e n s , and (3) the rule of unanimity was violated because at least one of the contractor defe ndan ts was served prior to the removal but did not join in or consent to it. T rav elers does not dispute that those three grounds would require remand if the c o n t r a ct o r defendants were properly joined. Travelers' response to these arguments is that

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t h e citizenship, forum residency, and lack of joinder of the contractor defendants may be ign ore d because none of them were properly joined in the action against Travelers. The traditional test for improper joinder is to ask whether the removing defendant has d e m o n s t r a te d that there is no reasonable basis for the court to predict the plaintiff might be a b l e to recover against the non-diverse, in-state, or non-consenting defendant. Smallwood v . Illinois Central RR Co., 385 F.3d 568, 573 (5th Cir. 2004) (en banc). That test is inapp licable here because Travelers admits in a memorandum that it "does not contend that there is no reasonable basis of recovery against the other defendants." Rather, Travelers s a y s , the improper joinder plea in this case is based on the argument that the claims against T ravelers and the claims against the contractor defendants are not properly joined under the p r o c e d u r a l rules regarding joinder of defendants. D efen dants rely on a theory known as "fraudulent misjoinder" or "procedural misjoinder" that finds its roots in Tapscott v. MS Dealer Serv. Corp., 77 F.3d 1353, 1360 (11th Cir. 1996). One form of procedural misjoinder has been described as occurring when a plaintiff sues a diverse defendant in state court and joins a viable claim involving a n o n - d i v e rs e party, or a resident defendant, even though the plaintiff has no reasonable p r o c e d u r a l basis to join them in one action because the claims bear no relation to each other. S o m e courts have concluded that diversity or removal is not defeated where the claim that de str oys diversity or prevents removal has "no real connection with the controversy"

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i n v o l v in g the claims that would qualify for diversity jurisdiction and removal. See In re P r e m p r o Products Liability Litigation, 591 F.3d 613, 620 (8th Cir. 2010). The Eleventh Circuit is the only federal appellate court to adopt procedural misjoinder, but the Fifth and Ninth Circuits have acknowledged it without expressly adopting it, and the Fifth Circuit has suggested that the doctrine is viable. See In re Prempro, 591 F.3d a t 620, n.4 (collecting cases). Several district courts within the Fifth Circuit have discussed a n d even adopted the doctrine. An exhaustive review of such district court decisions can be f o u n d in Texas Instruments, Inc. v. City Group Global Markets, Inc., 266 F.R.D. 143 (N.D. Te x. 2010). The Texas Instruments decision notes that courts have divided over whether the p r o p riety of joinder should be determined by state or federal law. Louisiana law provides t h a t two or more parties may be joined in the same suit as defendants if there is a "com mu nity of interest between the parties joined," each of the actions is within the j u r is d i c ti o n of the court and in a proper venue, and all of the actions are mutually consistent a n d employ the same form of procedure. La.C.C.P. art. 463. Comment (c) of the article s t a te s that the "community of interest" concept refers to actions arising out of the same facts, or presenting the same factual and legal issues. Joinder of defendants in a federal case is governed by Fed. R. Civ. Pro. 20, which p r o v i d e s that persons may be joined in one action as defendants if:

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( A ) Any right to relief is asserted against them jointly, severally, or in the alterna tive with respect to or arising out of the same transaction, occurrence, o r series of transactions or occurrences; and (B) Any question of law or fact common to all defendants will arise in the a c t io n . In the traditional improper joinder analysis, the court asks whether there is any reaso nable possibility that the non-diverse defendant could be liable under state law. There is a similarly heavy burden in a procedural misjoinder case. Some courts have said that the allege dly misjoined parties must be "wholly distinct" and have "no real connection" to each other, such that their joinder is bordering on a sham. Other courts have said the misjoinder is sufficiently egregious to permit removal if it is grossly improper, totally unsupported, and l a c k s any colorable basis or if the relationship between the claims is so tenuous that they lack any palpable connection. Texas Instruments, 266 F.R.D. at 149 (reviewing cases). T h e Texas Instruments decision described three types of cases in which procedural m i s j o in d e r has been claimed. The third type of case is, like this one, where a single plaintiff o r a group of plaintiffs has joined multiple defendants in the same action and asserted claims a g a i n s t those defendants that are allegedly factually and legally unrelated. 266 F.R.D. at 1 4 9 - 5 0 . Removal has been permitted in some such cases, but the overwhelming majority of t h o s e cases have been remanded "because even if the parties have been misjoined the m i s j o in d e r was not so egregious as to be improper or fraudulent." Texas Instruments, 266 F .R .D . at 152. That is because the finding of improper joinder is "reserved for a very small h a n d f u l of the most extreme cases." Id. Page 5 of 8

O n e can make reasonable arguments that a state court judge might consider severing t h e claims against Travelers from those against the contractor defendants, but the u n d e r s ig n e d does not believe that the joinder of the related claims in one action is so proc edur ally egregious to permit Travelers to remove itself from the state court litigation desp ite a facial lack of diversity of citizenship and two procedural defects in the removal. J u s t as there may be reasonable arguments for severance, it was also reasonable for Plaintiffs a n d their attorneys to decide to pursue all of their claims related to the hotel damage in one suit. Travelers argues that the claim against it will be focused on issues of coverage, but there will also be issues regarding the extent of the damage and the amount of Plaintiffs' financial l o s s e s related to the damage. The claims against the contractor, subcontractor, architect, and their insurers will each have distinct issues, but all of the claims in the lawsuit arise from the s a m e factual circumstances, and there will be significant factual and legal overlap in all of t h e claims. Accordingly, whether state or federal law governs the joinder issue, the propriety of the joinder in this case was not so wrongful or egregious as to permit removal. The undersigned finds persuasive the decision of Magistrate Judge Hill in Lundquist v . J&J Exterminating, Inc., 2008 WL 1968339 (W.D. La. 2008). The plaintiff homeowners in that case sued a contractor for damaging, during a home repair job, belongings in the h o m e . In the midst of the repairs, Hurricane Rita came ashore, causing additional damage to t h e home. The homeowners sued both the contractor and their homeowner's insurer who allege dly failed to properly adjust the claims resulting from the hurricane damage. Judge Hill

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o b s e r v e d that there was an overall injury, for which each defendant may have some degree o f liability, so it made perfect sense that the allocation be made in a single lawsuit in a single f o ru m . If there were any misjoinder, it was "mere misjoinder" and not the egregious brand o f misjoinder required to trigger the doctrine. The same is true in this case. T rav elers cites Berthelot v. Boh Brothers Construction Co., LLC, 2006 WL 1984661 ( E. D. La. 2006), Defourneaux v. Metropolitan Property & Casualty, 2006 WL 2524165 (E.D. L a . 2006), and Savoie v. Safeco Ins. Co., 2007 WL 675304 (E.D. La. 2007) to support its p o s i ti o n . All three cases arose in the wake of Hurricane Katrina. Savoie held that it was i m p r o p e r to join the homeowner's insurer who was sued for hurricane damages with a claim a g a i n s t a contractor who was accused of making negligent repairs after the storm. D e f o u r n e a u x and Berthelot involved claims against homeowner's insurers joined with claims a g a i n s t government bodies responsible for maintaining flood control systems in the city. T h o s e decisions are factually distinct from this setting. In any event, they are not controlling a n d , like Lundquist, serve only as persuasive authority. The undersigned is persuaded that Lundquist, Texas Instruments, and In re Prempro s u g g e s t the better course of applying a demanding standard to the removing defendant who i n v o k e s this doctrine. Since Tapscott, defendants have often invoked the improper joinder d o c t r in e and aggressively removed cases in which there is no diversity jurisdiction. The j o i n d e r rules are general and broad, intended to promote judicial economy by trying all reaso nably related claims in one case before one court. A federal court should be hesitant

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to wade into a multi-defendant case filed in a state court, decide that the joinder of a diverse d e f e n d a n t was incorrect under state or federal rules, and split the case into two proceedings t h a t will then burden two court systems with related claims that may even give rise to i n c o n s is t e n t decisions. A diverse defendant in such a state case should, rather than imm ediate ly remove the case and ask the federal court to assess the propriety of joinder, file in the state court a motion to sever. If the joinder is as wrong as the diverse defendant asserts, t h e state court will sever that defendant into its own case, which he may then remove if he acts within the one-year limit on removal of diversity cases. For the reasons stated above, the Motion to Remand (Doc. 24) will be granted, s u b j e c t to a stay set forth in the accompanying order. Travelers filed a related Motion to S e v e r (Doc. 2) that rests on the same improper joinder issues addressed in the Motion to R e m a n d . The court has considered all of the briefs related to the Motion to Sever in c o n n e c t io n with its assessment of the Motion to Remand. For the same reasons stated above, t h e Motion to Sever (Doc. 2) is denied. T H U S DONE AND SIGNED in Shreveport, Louisiana, this 10th day of June, 2010.

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