Garner et al v. BankPlus
Memorandum Opinion and Order finding as moot 53 MOTION for Leave to File Sur-Rebuttal to Motion for Reconsideration, denying 44 MOTION for Reconsideration of 42 Memorandum Opinion and Order. Signed by District Judge Tom S. Lee on 5/30/13 (LWE)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF MISSISSIPPI
ALBERT R. GARNER, SIGRID GARNER,
THOMAS I. GARNER, R&S DEVELOPERS,
LLC, RTC PROPERTIES, LLC, MGR
CONSTRUCTION, LLC, PAVILION
PROPERTIES, LLC, STORAGE ZONE OF
JACKSON, LLC, AND STORAGE ZONE OF
CIVIL ACTION NO. 3:12CV451TSL-JMR
MEMORANDUM OPINION AND ORDER
This cause is before the court on the motion of defendant
BankPlus (the Bank) to reconsider that part of the court’s
December 20, 2012 order granting plaintiffs’1 cross-motion to
compel arbitration of the claims brought against them by BankPlus
in BankPlus v. Albert R. Garner and Sigrid Garner, and BankPlus v.
Thomas I. Garner, presently pending in the Circuit Court of
Madison County, Mississippi (the Madison County suits).2
court, having considered the Bank’s motion to reconsider and
Plaintiffs are Albert R. Garner, Sigrid Garner, Thomas
I. Garner, and a number of Garner-owned businesses, as follows:
R&S Developers, LLC; RTC Properties, LLC; MGR Construction, LLC;
Pavilion Properties, LLC; Storage Zone of Jackson, LLC; and
Storage Zone of Florence, LLC. Plaintiffs will be referred to
collectively herein as “the Garners.”
BankPlus v. Albert Garner and Sigrid Garner, Cause No.
CI-2011-174-JC (Cir. Ct. Mad. Cty.); BankPlus v. Thomas I. Garner,
Cause No. CI-2011-175-JC (Cir. Ct. Mad. Cty.).
plaintiffs’ response thereto, concludes that the motion should be
Briefly, the facts and procedural background of this case and
of the Bank’s lawsuits against plaintiffs now pending in the
Madison County Circuit Court are as follows.4
Alfred and Sigrid
Garner, Thomas I. Garner and certain Garner-owned businesses
obtained a number of loans from BankPlus, which were guaranteed by
one or more Garner family members.
On May 9, 2011, the Bank filed
collection actions in the Circuit Court of Madison County,
Mississippi against Albert and Sigrid Garner, and against Thomas
I. Garner, Case Nos. CI-2011-174 and 17 (Cir. Ct. Mad. Cty.),
respectively (the Madison County suits), alleging that the loans
were in default and seeking to enforce the terms of the loans and
The Garner defendants removed the cases to this court
on the basis of bankruptcy jurisdiction pursuant to 28 U.S.C. §§
157 and 1334 after Alfred and Sigrid Garner, Thomas Garner and R&S
Developers, LLC, filed for bankruptcy protection.
BankPlus does not seek reconsideration of that part of
the court’s order compelling arbitration of plaintiffs’ claims
against the Bank and dismisses this action. It only seeks
reconsideration of the decision to compel arbitration of the
Bank’s claims against plaintiffs in the Madison County suits.
These matters are set forth in more detail in the
court’s December 20, 2012 opinion, Garner v. BankPlus, 484 B.R.
134 (S.D. Miss. 2012), and in the remand orders entered by Judge
Carlton Reeves in BankPlus v. Albert R. Garner and Sigrid Garner,
No. 3:12-cv-449-CWR-FKB (S.D. Miss. Nov. 8, 2012), and BankPlus v.
Thomas I. Garner, No. 3:12-cv-450-CWR-FKB (S.D. Miss. Nov. 19,
removal, BankPlus moved to abstain and remand pursuant to 28
U.S.C. §§ 157, 1334, 1452, and 1447(c).
By orders entered
November 8, 2012, Judge Carlton Reeves, to whom both cases were
assigned, ordered the case remanded upon finding that mandatory
See BankPlus v. Albert R. Garner and Sigrid
Garner, No. 3:12-cv-449-CWR-FKB (S.D. Miss. Nov. 8, 2012);
BankPlus v. Thomas I. Garner, No. 3:12-cv-450-CWR-FKB (S.D. Miss.
Nov. 19, 2012).
He ruled alternatively that even if mandatory
abstention did not apply, the court would abstain and remand based
on discretionary abstention/equitable remand principles.
Meanwhile, on July 26, 2011, shortly after BankPlus filed the
collection actions in Madison County Circuit Court, the Garners
filed suit against BankPlus in the Circuit Court of Hinds County,
Mississippi, alleging claims for breach of contract, estoppel,
misrepresentation, and injunctive relief under Mississippi law
based on allegations that BankPlus had reneged on a loan
restructuring agreement entered into with the Garners.
Garner, et al. v. BankPlus, Cause No. 251-11-664CIV (Cir. Ct.
On August 15, 2011, BankPlus removed the case to
this court on the basis of bankruptcy jurisdiction pursuant to 28
U.S.C. §§ 157, 1334, 1452, and 1447(c) after RTC Properties, LLC
filed for bankruptcy protection.
Following removal, the Garners
moved for remand, and by memorandum opinion and order dated
February 29, 2012, the undersigned held that mandatory abstention
applied and remanded the case.
See Albert R. Garner, et al. v.
BankPlus, Civ. Action No. 3:11cv515TSL-MTP (S.D. Miss. Feb. 29,
Thereafter, on June 29, 2012, after R&S Developers, LLC,
Alfred and Sigrid Garner and Thomas Garner filed for bankruptcy
protection, the Garners removed the case on the basis of
Following removal, neither party moved
the court to abstain or remand, and on July 19, 2012, BankPlus
filed a motion to compel arbitration.
The Garners responded and
filed a cross-motion to compel arbitration.
The court granted
both motions by memorandum opinion and order dated December 20,
See Garner v. BankPlus, 484 B.R. 134 (S.D. Miss. 2012).
BankPlus seeks reconsideration of that part of the court’s order
compelling arbitration of its claims against the Garners in the
Madison County suits.
BankPlus offers the following arguments in
support of its motion for reconsideration, which the court will
address in turn:
(1) Plaintiffs’ cross-motion to compel arbitration filed in
this cause was not a proper § 4 petition to compel arbitration of
the Bank’s claims against them in the Madison County suits, and in
the absence of a proper § 4 petition, this court lacked authority
to compel arbitration of the Bank’s claims in the Madison County
(2) Even if plaintiffs’ cross-motion did constitute a proper
§ 4 petition to compel arbitration, this court erred in compelling
arbitration of the Bank’s claims in the Madison County suits
because the court was barred from exercising jurisdiction over the
Madison County suits;
(3) The court’s order compelling arbitration is a de facto
order consolidating this suit and the Madison County suits, which
the court lacked authority to do; and
(4) Plaintiffs waived their right to compel arbitration of
the Bank’s claims in the Madison County suits.
Section 4 of the Federal Arbitration Act, 9 U.S.C. § 4,
A party aggrieved by the alleged failure, neglect, or
refusal of another to arbitrate under a written
agreement for arbitration may petition any United States
district court which, save for such agreement, would
have jurisdiction under Title 28, in a civil action or
in admiralty of the subject matter of a suit arising out
of the controversy between the parties, for an order
directing that such arbitration proceed in the manner
provided for in such agreement.
BankPlus first argues that this statute appears to
contemplate that a party seeking to compel arbitration of pending
proceedings will either file a motion to compel arbitration in the
proceeding sought to be arbitrated or file a § 4 petition to
initiate a separate cause of action.
It concludes that a motion
in one action to compel arbitration of claims pending against it
in a separate action, as was filed by plaintiffs herein, is not a
proper petition to compel arbitration under § 4.
Bank has offered no authority in support of its proposed
interpretation of the statute and the court, for its part, is
aware of nothing that would prevent plaintiffs from asserting
their request for arbitration of the Bank’s claims in the Madison
County suits in the form of a motion filed in this cause.
The Bank further argues that plaintiffs’ cross-motion to
compel arbitration failed to state a claim under § 4 as it does
not even reference § 4 or any of the § 4 requirements.
Somerset Consulting, LLC v. United Capital Lenders, LLC, 832 F.
Supp. 2d 474, 482 (E.D. Pa. 2011) (motion to compel arbitration
should be considered under a Rule 12(b)(6) standard).
plaintiffs’ cross-motion to compel arbitration was based on the
same arbitration agreement that the Bank sought to enforce by its
own motion to compel arbitration, the court is persuaded that
plaintiffs adequately stated their claim under § 4.
The Bank next submits that the court’s opinion granting
plaintiffs’ cross-motion to compel arbitration misconstrued the
Bank’s position regarding the court’s jurisdiction to compel
Specifically, according to the Bank, the court
erroneously interpreted the Bank’s position to be that the court
lacked jurisdiction over the plaintiffs’ motion to compel
arbitration because there was no basis for federal subject matter
jurisdiction over the underlying lawsuits.
The Bank explains that
it does not dispute that this court has jurisdiction over
plaintiffs’ cross-motion itself (assuming that it is in fact an
effective § 4 petition); rather, its position is that, although
this court has subject matter jurisdiction over plaintiffs’ crossmotion, this court nevertheless lacks authority to compel the
Bank’s claims in the Madison County suits to arbitration because
the court lacks an independent basis for exercising federal
jurisdiction over the Madison County suits.
In rejecting the Bank’s challenge to the court’s jurisdiction
to compel arbitration of the Bank’s claims against the Garners in
the Madison County suits, the court found that the “look through”
approach adopted by the Supreme Court in Vaden v. Discover Bank,
556 U.S. 49, 129 S. Ct. 1262, 173 L. Ed. 2d 206 (2009), is limited
to § 4 petitions based on federal question jurisdiction.
v. BankPlus, 484 B.R. 134, 140 (S.D. Miss. 2012).
further concluded that since the “look through” approach was
inapplicable, “the determination of whether the court has
jurisdiction to compel arbitration of the claims in the Bank's
underlying lawsuit is to be made based on the face of the
complaint herein, and does not depend on whether the court would
have jurisdiction over the underlying lawsuits.”
contends that the court erred in this regard, arguing that federal
jurisdiction over a petition to compel arbitration is a separate
issue from federal jurisdiction over the substantive controversy
between the parties, and that both must exist for a federal court
to compel a state-court lawsuit to arbitration.
The Bank is
correct that “Section 4 provides for an order compelling
arbitration only when the federal district court would have
jurisdiction over a suit on the underlying dispute; hence, there
must be diversity of citizenship or some other independent basis
for federal jurisdiction before the order can issue.”
Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26 n.32,
103 S. Ct. 927, 942 n.32, 74 L. Ed. 2d 765 (1983).
Shirley v. Maxicare Tex., Inc., 921 F.2d 565, 568 (5th Cir. 1991)
(“[T]his court [has] stated unequivocally that ‘unless a dispute
falls within the confines of the jurisdiction conferred by
Congress, such courts do not have the authority to issue orders
regarding its resolution.’”) (quoting Giannakos v. M/V Bravo
Trader, 762 F.2d 1295, 1297 (5th Cir. 1985)).
Outside the context
of federal question jurisdiction, however, that does not mean that
where the underlying controversy between the parties is the
subject of a separate pending action, the court may compel
arbitration only if the federal court would have subject matter
jurisdiction over the underlying lawsuit.
See, e.g., Snap-On
Tools Corp. v. Mason, 18 F.3d 1261 (5th Cir. 1994) (finding
jurisdiction to compel arbitration where underlying dispute
between federal plaintiff and federal defendant was within court’s
diversity jurisdiction even though underlying lawsuit included
non-diverse defendant and hence was not within confines of federal
court’s diversity jurisdiction).5
Instead, what is required
before the court may compel arbitration is that there exist an
independent basis for federal jurisdiction over the underlying
dispute or substantive controversy between the parties to the
federal petition to compel arbitration.
Cf. First Franklin
Financial Corp. v. McCollum, 144 F.3d 1362, 1363–64 (11th Cir.
1998) (explaining that in federal diversity action to compel
arbitration where underlying state court action includes diverse
and non-diverse parties, there are two "underlying civil
the plaintiff v. non-diverse defendant and the
plaintiff v. the diverse defendant, even though both may arise
from the same transaction, and holding that there is diversity
As BankPlus notes, the Fifth Circuit stated in Rio
Grande Underwriters, Inc. v. Pitts Farms, Inc., 276 F.3d 683, 685
(5th Cir. 2001), that “[a] party may obtain relief in federal
court under the FAA only when the underlying civil action would
otherwise be subject to the court's federal question or diversity
jurisdiction.” However, the court agrees with Judge Davidson’s
opinion in Conseco Finance Servicing Corp. v. Kolb, 2002 WL
1013116, 4-5 (N.D. Miss. 2002), that it is a mistake to focus on
this one sentence in Rio Grande rather than the opinion as a
whole. As Judge Davidson noted, in Rio Grande, the federal
plaintiff asserted jurisdiction based on complete federal
preemption of the Federal Crop Insurance Act, i.e., federal
question jurisdiction. Id. The case did not involve diversity
jurisdiction or acknowledge cases such as Snap-On Tools Corp. v.
Mason, 18 F.3d 1261 (5th Cir. 1994), in which the Fifth Circuit
found jurisdiction to compel arbitration where the underlying
dispute between the federal plaintiff and defendant was within the
court’s diversity jurisdiction even though there was no basis for
federal jurisdiction over the underlying lawsuit between those
jurisdiction over the "underlying dispute" when the federal
plaintiff and federal defendant are diverse).
Turning to the case at bar, there is an independent basis for
federal jurisdiction over the underlying dispute between BankPlus
and the Garners, namely, “related to” bankruptcy jurisdiction.
Not only that, but the court’s “related to” bankruptcy
jurisdiction also provides an independent basis for federal
jurisdiction over the underlying lawsuits by BankPlus against the
As the undersigned noted in the opinion compelling
arbitration, Judge Reeves did not remand the Madison County suits
based on a lack of subject matter jurisdiction.
Judge Reeves did not conclude that this court lacked
jurisdiction over the Bank’s lawsuits against the Garner
parties. On the contrary, he clearly found that the
court had “related to” bankruptcy jurisdiction.
However, he found that the criteria for mandatory
abstention were met (including a timely motion by the
Bank) so that the court was precluded from exercising
Garner v. BankPlus, 484 B.R. at 140 n.4.6
Thus, as the court noted previously, even if a “look
through” were applicable here, the court would have jurisdiction
to compel arbitration since there is an independent basis for
federal jurisdiction over the underlying lawsuit. Moreover, in
the court’s opinion, the court would not be without jurisdiction
to compel arbitration merely the underlying lawsuit was not
removable for some reason unrelated to jurisdiction. See Credit
Acceptance Corp. v. Davisson, 644 F. Supp. 2d 948, 953 (N.D. Ohio
2009) (finding jurisdiction over § 4 petition to compel
arbitration where underlying dispute was within court’s diversity
jurisdiction, notwithstanding that court had previously remanded
underlying dispute based on procedural impropriety).
Notwithstanding this, the Bank contends that once Judge
Reeves abstained from exercising federal jurisdiction over the
Madison County suits, the federal court no longer had jurisdiction
to compel arbitration of the dispute between the parties to that
The court is not persuaded.
However, “abstention, by
definition, assumes the existence of subject matter jurisdiction
in the abstaining court—after all, one must have (or, at least,
presume the presence of) subject matter jurisdiction in order to
decline the exercise of it.”
Doughty v. Underwriters at Lloyd's,
London, 6 F.3d 856, 860 (1st Cir. 1993), abrogated on other
grounds, Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 116 S.
Ct. 1712, 135 L. Ed. 2d 1 (1996); see also Stoe v. Flaherty, 436
F.3d 209, 219 n.4 (3d Cir. 2006) (stating that “[m]andatory
abstention applies only ‘[u]pon timely motion of a party’ and does
not implicate the Court's subject matter jurisdiction”); In re V&M
Mgmt., Inc., 321 F.3d 6, 8 (1st Cir. 2003) (“[T]he abstention
provision, which is waiveable by the parties, does not detract
from the district court's subject matter jurisdiction.”).
BankPlus makes a number of additional arguments – some new,
some reiterations of its earlier arguments – regarding the court’s
authority to compel arbitration of its claims against the Garners
in the Madison County suits.
these arguments has merit.
In the court’s opinion, none of
BankPlus argues that Judge Reeves’
remand orders operate as res judicata as to the forum for
determining arbitrability of the Madison County suits.
Judge Reeves merely observed, in the context of weighing the
fourteen discretionary abstention/equitable remand factors, that
“the state court is no less able than this Court to consider
regarding a motion regarding arbitration.”
BankPlus v. Albert R.
Garner and Sigrid Garner, No. 3:12-cv-449-CWR-FKB, at 9; BankPlus
v. Thomas I. Garner, No. 3:12-cv-450-CWR-FKB, at 10.
He did not
purport to decide that the state court was the only proper forum
for deciding whether to compel arbitration but rather concluded
only that the state court’s ability to decide a motion to compel
arbitration weighed in favor of discretionary abstention.
The Bank next argues that the court’s order on the Garners’
cross-motion to compel arbitration constituted both a de facto
order of consolidation, which the court lacked authority to order
given that Judge Parker had previously denied motions to
consolidate in all three cases (and his rulings were not
appealed), and a de facto order compelling a consolidated
arbitration under Rule 42(a), which this court lacked authority to
As the court has implicitly concluded supra, there was
nothing to prevent the Garners from asserting their motion to
compel arbitration in this case and thus, the court need not have
consolidated the cases in order to rule on the motion to compel
It follows that the court’s order compelling
arbitration was not a de facto order of consolidation.
the court did not order a consolidated arbitration.
how the arbitrations between the parties should proceed should be
left for determination by the arbitrators in accordance with the
See Pedcor Mgmt. Co., Inc. Welfare Benefit
Plan v. Nations Pers. of Texas, Inc., 343 F.3d 355, 363 (5th Cir.
2003) (whether consolidation should occur is for arbitrators to
BankPlus lastly seeks reconsideration, arguing that the court
failed to consider its contention that the Garners waived their
right to seek arbitration by the Garners by substantially invoking
the judicial process through, among other things, participating in
extensive pre-trial activity, discovery and briefing in connection
with a pending motion for summary judgment in the Madison County
suits, and further in failing to timely assert any right to
arbitration of the claims therein, so that arbitration of the
Madison County Suits would be prejudicial to BankPlus.
“‘Waiver will be found when the party seeking arbitration
substantially invokes the judicial process to the detriment or
prejudice of the other party.’”
In re Mirant Corp., 613 F.3d 584,
588-589 (5th Cir. 2010) (quoting Walker v. J.C. Bradford & Co., 938
F.2d 575, 577 (5th Cir. 1991) (internal quotation marks and
“‘There is a strong presumption against
finding a waiver of arbitration, and the party claiming that the
right to arbitrate has been waived bears a heavy burden.’” Id.
(quoting Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d
341, 344 (5th Cir. 2004)).
In response, the Garners argue that
BankPlus had the opportunity to try to demonstrate a waiver by the
Garners in response to the Garners’ cross-motion to compel
arbitration and by conscious choice, passed on that opportunity
and thereby waived the right to have the court consider its waiver
They note that on the issue of waiver, the Bank, in
response to their cross-motion, merely stated: “[B]ased on the
well-established doctrine of waiver, the defendants in the Madison
County Suits have waived any right to arbitrate those Suits, which
BankPlus will demonstrate in its response in the event the
defendants ever file motions to arbitrate those Suits in the
The court agrees that BankPlus, having failed to
timely avail itself of the opportunity to sustain its burden to
demonstrative waiver, ought not be permitted to do so now.7
any event, the court is not persuaded that the Bank, even now, has
established waiver by the Garners of the right to compel
Although the Bank contends that it “repeatedly raised
this [waiver] argument,” the only references it cites in support
of this assertion are (1) the text cited by the Garners in their
response by which it represented that it would demonstrate waiver
when the Garners moved to compel arbitration in “the proper
forum”; and (2) a waiver argument made by the Bank to the American
Arbitration Association (AAA) in its answer to the Garners’ demand
for arbitration. It avails the Bank nothing in this court that it
presented its full waiver argument to the AAA. The Bank
affirmatively chose not to demonstrate waiver to this court.
arbitration as it has failed to demonstrate prejudice such as
would support a finding of waiver.8
Based on all of the foregoing, the court concludes that the
motion of BankPlus to reconsider should be denied, and therefore,
it is ordered that the motion is denied.
SO ORDERED this 30th day of May, 2013.
/s/ Tom S. Lee
UNITED STATES DISTRICT JUDGE
Plaintiffs and BankPlus have moved for leave to file
surrebuttal submissions on the issue of waiver. These motions are
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