City of Port Gibson v. FNBS Investments, Incorporated et al

Filing 34

ORDER granting 11 Motion to Remand Signed by Honorable David C. Bramlette, III on 3/6/2014 (ECW)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
WESTERN DIVISION
CITY OF PORT GIBSON, BY AND
THROUGH ITS MAYOR, FRED REEVES,
AND THE BOARD OF ALDERMEN
VS.

PLAINTIFF

CIVIL ACTION NO. 5:13-cv-121(DCB)(MTP)

FNBS INVESTMENTS, INCORPORATED
A/K/A FNBS INVESTMENT, INC.;
CREWS AND ASSOCIATES, INCORPORATED;
MALACHI FINANCIAL PRODUCTS, INC.;
ELTEKON CAPITAL, LLC; DEMARCO J.
BELL; GUYDON LOVE, LLP; EDSEL GUYDON;
JWON NATHANIEL; AMELDA ARNOLD;
THOMAS RUSSUM; EDDIE WALLS, JR.;
MICHAEL WHITE; VERA JOHNSON; KENNETH
DAVIS; ELVIN PARKER; PAUL WINFIELD;
AND JOHN DOES 1-10

DEFENDANTS

MEMORANDUM OPINION AND ORDER
This cause is before the Court on the plaintiff City of Port
Gibson, by and through its Mayor, Fred Reeves, and the Board of
Alderpersons (“City of Port Gibson” or “City”)’s Motion to Remand
(docket entry 11).

Having carefully considered the motion and

response, the memoranda and the applicable law, and being fully
advised in the premises, the Court finds as follows:
The Complaint in this action was originally filed in the
Circuit Court of Claiborne County, Mississippi, and subsequently
removed to this Court by defendant Crews and Associates, Inc.
(“Crews”).

The

removal has been joined in by defendant FNBS

Investments, Incorporated (“FNBS”).

In the notice of removal,

these defendants allege that “Plaintiff has no possible basis for

recovery against in-state defendants Amelda Arnold, Thomas Russum,
Eddie Walls, Jr., Michael White, Vera Johnson, Kenneth Davis, Elvin
Parker, Paul Winfield, and Jwon Nathaniel, and all have been
fraudulently joined in this action solely to defeat diversity of
citizenship jurisdiction.”

Notice of Removal, ¶ 5.

“When a plaintiff files in state court a civil action over
which the federal district courts would have original jurisdiction
based on diversity of citizenship, the defendant or defendants may
remove the action to federal court.”

Caterpillar Inc. v. Lewis,

519 U.S. 61, 68 (1996)( citing 28 U.S.C. § 1441(a)).

“To remove a

case based on diversity, the diverse defendant must demonstrate
that all of the prerequisites of diversity jurisdiction contained
in 28 U.S.C. § 1332 are satisfied.”

Smallwood v. Ill. Cent. R.R.

Co., 385 F.3d 568, 572 (5th Cir.2004).
“The

doctrine

of

improper

joinder

[formerly

known

as

fraudulent joinder] rests on these statutory underpinnings, which
entitle a defendant to remove to a federal forum unless an in-state
defendant has been properly joined.”

Id. at 573.

The Fifth

Circuit recognizes two ways to establish improper joinder: “(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.”
Irby, 326 F.3d 644, 646–47 (5th

Id. (quoting Travis v.

Cir. 2003)).

In this case, the second method applies because the defendants

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do not dispute the in-state defendants’ citizenship.

See Travis,

326 F.3d at 647. “[T]he test for fraudulent joinder is whether the
defendant has demonstrated that there is no possibility of recovery
by the plaintiff against an in-state defendant, which stated
differently means that there is no reasonable basis for the
district court to predict that the plaintiff might be able to
Smallwood, 385 F.3d at

recover against an in-state defendant.”
573.

This test is to be employed “[a]fter all disputed

questions

of fact and all ambiguities in the controlling state law are
resolved in favor of the nonremoving party.”

Great Plains Trust

Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 312 (5th Cir.
2002).

The Fifth Circuit has rejected the contention that “any

mere theoretical possibility of recovery ... suffices to preclude
removal,”

instead

requiring

“arguably

a

reasonable

predicting that state law would allow recovery.”
Nabisco,

Inc.,

defendants

bear

236

F.3d

a

282,

heavy

286

burden

of

n.4

(5th

proving

Cir.

basis

for

Badon v. RJR
2000).

improper

The

joinder.

Smallwood, 385 F.3d at 576.
Courts in this circuit resolve issues of alleged improper
joinder in one of two ways.

First, the court “may conduct a Rule

12(b)(6)-type analysis, looking initially at the allegations of the
complaint to determine whether the complaint states a claim under
state law against the in-state defendant.”
573.

Smallwood, 385 F.3d at

Ordinarily, this analysis will be determinative.

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Id.

However, the court may, in its discretion, pierce the pleadings and
conduct a summary inquiry.”

Id.

The Fifth Circuit has cautioned

that:
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. In this inquiry the motive or purpose of the
joinder of in-state defendants is not relevant ....
Attempting to proceed beyond this summary process carries
a heavy risk of moving the court beyond jurisdiction and
into a resolution of the merits, as distinguished from an
analysis of the court’s diversity jurisdiction by a
simple and quick exposure of the chances of the claim
against the in-state defendant alleged to be improperly
joined.
Indeed, the inability to make the requisite
decision in a summary manner itself points to an
inability of the removing party to carry its burden.
Id. at 573-74.
The presence of any one properly joined Mississippi defendant
will defeat diversity jurisdiction.

The Court also notes that the

fact that a particular defendant has not yet been served does not
mean

he

or

she

has

been

improperly

joined.

See

Jones

v.

Lumberman’s Mutual Cas. Co., 2002 WL 31012606, at *2 (E.D. La.,
Sept.

9,

2002)(“The

existence

vel

non

of

subject

matter

jurisdiction simply cannot, as a practical matter, fade in and out
depending upon the temporal situation of a party’s inability to
serve a particular defendant.”); Jamison v. Kerr-McGee Corp., 151
F.Supp.2d 742, 746 (S.D. Miss. 2001)(“Whenever federal jurisdiction
in a removal case depends upon complete diversity, the existence of
diversity is determined from the fact of citizenship of the parties
named and not from the fact of service.”).
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The City of Port Gibson’s Motion to Remand asserts that its
Complaint seeks compensatory damages from the former Alderpersons
and Mayor of Port Gibson, individually, and from two attorneys
hired by the Board of Alderpersons, Jwon Nathaniel and Paul
Winfield, all of whom are resident citizens of Mississippi.

The

Complaint alleges that the former Alderpersons and Mayor entered
into a lease purchase agreement with defendant Eltekon Capital, LLC
(“Eltekon”) in contravention of statutory law.
The Mississippi Supreme Court has held that “[i]t takes an
affirmative act of the board within the scope of its authority,
evidenced by an entry on its minutes, to bind the county [or city]
by a contract ....”
817, 820 (1881).

Bridges & Hill v. Bd. of Supervisors, 58 Miss.

A municipal board “can only act as a body, and

its act must be evidenced by an entry on its minutes.”

Thompson v.

Jones County Cmty. Hosp., 352 So.2d 795, 796 (Miss. 1977). A mayor
and board of alderpersons of a city may not bind a subsequent
administration to contracts without express statutory authority.
See Whitworth College v. City of Brookhaven, 161 F.Supp. 775 (S.D.
Miss. 1958).
The state supreme court has also held that
[r]emedially, our statute law provides that any
supervisor [or alderperson] who causes a contract to be
let in violation of state law may be liable individually
and on his official bond for compensatory damages “in
such sum equal to the full amount of such unlawful
contract, purchase, expenditure or payment” and “for
penal damages” not in excess of $5,000.00. Miss. Code
Ann. §§ 19-13-37 and 31-7-57(2) and (3)(Supp. 1986).
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Canton Farm Equipment, Inc. v. Richardson, 501 So.2d 1098, 1104
(Miss. 1987).

Since Richardson was decided in 1987, the relevant

statutes have been amended. In 1988, section 19-13-37 was repealed
by the legislature and section 31-7-57 was amended.

Section 31-7-

57 was amended again in 1997. The current relevant sections of 317-57 provide:
(3) The individual members, officers, employees or
agents of any agency or governing authority as defined in
Section 31-7-1 [which includes “governing authorities of
all municipalities”] causing any public funds to be
expended, any contract made or let, any payment made on
any contract or any purchase made, or any payment made,
in any manner whatsoever, contrary to or without
complying with any statute of the State of Mississippi,
regulating or prescribing the manner in which such
contracts shall be let, payment on any contract made,
purchase made, or any other payment or expenditure made,
shall be liable, individually, and upon their official
bond, for compensatory damages, in such sum up to the
full amount of such contract, purchase, expenditure or
payment as will fully and completely compensate and repay
such public funds for any actual loss caused by such
unlawful expenditure.
(4) In addition to the foregoing provision, for any
violation of any statute of the State of Mississippi
prescribing the manner in which contracts shall be let,
purchases made, expenditure or payment made, any
individual member, officer, employee or agent of any
agency or governing authority who shall substantially
depart from the statutory method of letting contracts,
making payments thereon, making purchases or expending
public funds shall be liable, individually and on his
official bond, for penal damages in such amount as may be
assessed by any court of competent jurisdiction, up to
three (3) times the amount of the contract, purchase,
expenditure or payment. The person so charged may offer
mitigating circumstances to be considered by the court in
the assessment of any penal damages.
Miss. Code Ann. § 31-7-57(3) and (4)(Supp. 2013).

6

The

City’s

Complaint

alleges

that

the

former

mayor

and

alderpersons entered into the lease purchase agreement with Eltekon
without a formal resolution, without holding a meeting, and without
minutes.

Complaint, p 7.

The City further alleges that the

agreement was made without statutory authority.

Complaint, p. 8.

In addition to a declaratory judgment and injunctive relief finding
the former administration’s actions ultra vires, the City seeks
damages from the former mayor and alderpersons who entered into the
agreement.

Complaint, p. 10.

As for the in-state attorney defendants, the City alleges the
existence of attorney-client relationships, and seeks damages from
the attorneys for malpractice and/or breach of fiduciary duty based
on the attorneys’ advice that the mayor and alderpersons were
authorized to enter into the lease purchase agreement, and/or that
the procedure followed was lawful.
The

Court

finds

that

there

Complaint, pp. 3, 5, 8, 10.
is

a

reasonable

basis

for

predicting that Mississippi law might impose liability against one
or more of the in-state defendants in this case.

Because the

defendants have not shown that the City would not be entitled to
any relief against an in-state defendant under any set of facts or
any possible theory that it could prove consistent with the
allegations in its Complaint, the plaintiff’s motion to remand
shall be granted.
Accordingly,

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IT IS HEREBY ORDERED that the City of Port Gibson’s motion to
remand (docket entry 11) is GRANTED, and a separate order remanding
this case to the Circuit Court of Claiborne County shall follow.
SO ORDERED, this the 6th day of March, 2014.

/s/ David Bramlette
UNITED STATES DISTRICT JUDGE

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