Gerbo v. Kmart Corporation et al

Filing 28

MEMORANDUM AND ORDER granting 17 Plaintiff's Motion to Remand to State Court. For the reasons discussed in the attached Memorandum and Order, the Court grants Plaintiff's motion to remand. The case is remanded to the Supreme Court of the State of New York, Queens County. Ordered by Judge Margo K. Brodie on 11/3/2015. (Reyneri, Rafael)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
--------------------------------------------------------------ROSALIA GERBO,
Plaintiff,
v.

MEMORANDUM & ORDER
14-CV-4866 (MKB) (LB)

KMART CORPORATION and NATHAN’S
FAMOUS, INC.,
Defendants.
--------------------------------------------------------------MARGO K. BRODIE, United States District Judge:
Plaintiff Rosalia Gerbo filed the above-captioned action against Defendants Kmart
Corporation (“Kmart”) and Nathan’s Famous, Inc. (“Nathan’s”) on May 13, 2014, in the
Supreme Court of the State of New York, Queens County, seeking monetary damages for
injuries suffered as the result of an accident on the premises of a Nathan’s restaurant. On August
15, 2014, Defendants filed a petition removing the action from the Supreme Court of the State of
New York to this Court on the basis of federal diversity jurisdiction, asserting that Nathan’s was
fraudulently joined as a Defendant for the sole purpose of destroying diversity jurisdiction.
(Notice of Removal ¶¶ 6–7, Docket Entry No. 1.) Plaintiff moves to remand the case back to the
Supreme Court of New York, Queens County.1 For the reasons set forth below, the Court
remands the case to the Supreme Court of New York, Queens County.

1

On October 27, 2014, Plaintiff filed a letter requesting that the Court either remand the
case, sua sponte, or permit Plaintiff to file a motion to remand. (Pl. Opp’n Ltr., Docket Entry
No. 17.) The Court treats Plaintiff’s letter as a motion to remand. As discussed below, both
sides have had the opportunity to be heard on the merits.

I.

Background
On April 12, 2012, Plaintiff suffered an accident while in a Nathan’s restaurant, located

at 66-26 Metropolitan Avenue, Middle Village, New York. (Am. Notice of Removal ¶ 11,
Docket Entry No. 9.) Plaintiff commenced this action on May 13, 2014, in the Supreme Court of
the State of New York, Queens County, alleging that the accident and resulting injuries were
caused by Defendants’ negligence. (Compl. ¶¶ 18, 31, annexed to Notice of Removal as Ex. A.)
On June 25, 2014, Kmart submitted an Answer in New York Supreme Court, disputing all
claims, alleging, among other defenses, contributory negligence and assumption of risk on the
part of Plaintiff, and asserting crossclaims against Nathan’s for contribution and indemnification.
(Kmart Answer ¶¶ 39–40, 46–49, annexed to Notice of Removal as Ex. B.)
On August 15, 2014, Kmart filed a Notice of Removal removing the case from the
Supreme Court of the State of New York, Queens County, to the United States District Court for
the Eastern District of New York. (Notice of Removal.) On August 20, 2014, Kmart filed an
amended Answer, withdrawing its crossclaims against Nathan’s.2 (Kmart Am. Answer, Docket
Entry No. 4.) Nathan’s filed an Answer disputing all claims against it. (Nathan’s Answer,
Docket Entry No. 6.) By letter dated October 27, 2014, Plaintiff opposed Defendants’ Amended
Notice of Removal and requested that the case be remanded to the New York Supreme Court.
(Pl. Opp’n Ltr.) On November 7, 2014, Magistrate Judge Lois Bloom heard oral argument on
the issue of removal. (Minute Entry for November 7, 2014, Status Conference.)

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Defendants also filed an Amended Notice of Removal, substituting Kmart’s original
Answer with crossclaims with an Amended Answer without crossclaims. (Am. Notice of
Removal 2.)
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II. Discussion
a.

Standard of review

A defendant may remove a civil action brought in state court to a federal court of original
jurisdiction. 28 U.S.C. § 1441(a). Federal courts are to construe the statute narrowly, resolving
any doubts against removability, “[i]n light of the congressional intent to restrict federal court
jurisdiction, as well as the importance of preserving the independence of state governments.”
Lupo v. Human Affairs Int’l, Inc., 28 F.3d 269, 274 (2d Cir. 1994); Balram v. Cohen &
Slamowitz, LLP, No. 13-CV-07213, 2014 WL 527899, at *1 (E.D.N.Y. Feb. 7, 2014). The party
asserting jurisdiction bears the burden of proving that jurisdiction and procedural requirements
are met. Mehlenbacher v. Akzo Nobel Salt, Inc., 216 F.3d 291, 296 (2d Cir. 2000); Balram, 2014
WL 527899, at *1. A notice of removal must allege a proper basis for removal under 28 U.S.C.
§§ 1441–1445. Bankhead v. New York, No. 13-CV-3377, 2013 WL 6145776, at *1 (E.D.N.Y.
Nov. 21, 2013) (“An effective petition for the removal of a state action to federal court must
allege a proper basis for the removal under sections 1441 through 1445 of Title 28.” (quoting
Negron v. New York, No. 02-CV-1688, 2002 WL 1268001, at *1 (E.D.N.Y. Apr. 1, 2002))); see
also In re Methyl Tertiary Butyl Ether Prods. Liab. Litig., 488 F.3d 112, 124 (2d Cir. 2007) (“In
determining whether jurisdiction is proper, we look only to the jurisdictional facts alleged in the
Notices of Removal.”). A district court must remand an action to state court “[i]f at any time
before final judgment it appears that the district court lacks subject matter jurisdiction.” 28
U.S.C. § 1447(c); see also Kenmore Assocs., L.P. v. Burke, 367 F. App’x 168, 169 (2d Cir.
2010).

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b.

The Court lacks subject matter jurisdiction

The Court has no jurisdiction over this action because the parties are not diverse.
Although Kmart is a citizen of Illinois and Michigan, (Am. Notice of Removal ¶ 16), Plaintiff
and Defendant Nathan’s are citizens of New York, (Compl. ¶¶ 1, 5). Defendants contend that
Nathan’s was fraudulently joined as a Defendant in this action solely for the purpose of
destroying diversity, and thus Nathan’s presence does not deny this Court subject matter
jurisdiction. (Id. ¶ 15.) Defendants further contend that although Plaintiff’s accident occurred in
a Nathan’s restaurant, the restaurant was staffed and operated by Kmart pursuant to a Branded
Menu Program Agreement (“Licensing Agreement”), therefore, Nathan’s is an out-of-possession
licensor and cannot be liable for the injuries suffered by Plaintiff. (Id. ¶ 12.)
The doctrine of fraudulent joinder prohibits a plaintiff from defeating diversity
jurisdiction by improperly joining a non-diverse defendant “with no real connection to the
controversy.” Bounds v. Pine Belt Mental Health Care Res., 593 F.3d 209, 215 (2d Cir. 2010).
Courts will “overlook the presence of a non-diverse defendant if from the pleadings there is no
possibility that the claims against that defendant could be asserted in state court.” Briarpatch
Ltd., L.P v. Phoenix Pictures, Inc., 373 F.3d 296, 302 (2d Cir. 2004) (citation omitted). To
succeed, the party alleging fraudulent joinder must prove “either that there has been outright
fraud committed in the plaintiff’s pleadings, or that there is no possibility, based on the
pleadings, that a plaintiff can state a cause of action against the non-diverse defendant in state
court.” Pampillonia v. RJR Nabisco, Inc., 138 F.3d 459, 461 (2d Cir. 1998); see also Bounds,
593 F.3d at 215; Briarpatch, 373 F.3d at 302; B.N. ex rel. Novick v. Bnei Levi, Inc.,
No. 12-CV-5057, 2013 WL 168698, at *2 (E.D.N.Y. Jan. 15, 2013). The party alleging
fraudulent joinder “bears the heavy burden of proving this circumstance by clear and convincing

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evidence, with all factual and legal ambiguities resolved in favor of plaintiff.” Briarpatch, 373
F.3d at 302 (citing Pampillonia, 138 F.3d at 461). In assessing whether there is fraudulent
joinder the Court “is permitted to look beyond the face of the complaint to all affidavits filed by
the plaintiffs and defendants in support of their motions.” Bnei Levi, 2013 WL 168698, at *3
(collecting cases).
i.

Defendants have not shown outright fraud in Plaintiff’s pleadings

A defendant must establish by clear and convincing evidence that a plaintiff’s pleadings
contain some false set of facts in order to prove fraud in the pleadings. See Bnei Levi, 2013 WL
168698, at *3 (finding that defendant’s assertion that plaintiff’s complaint contained a false
allegation did not “meet [its] heavy burden of establishing fraudulent joinder by clear and
convincing evidence”).
Defendants argue that Plaintiff committed outright fraud either when she named Nathan’s
as a Defendant in her Complaint or by refusing to discontinue her action against Nathan’s after
Defendants informed Plaintiff of the Licensing Agreement. (Defs. Ltr. in Reply to Pl. Opp’n
4--5, Docket Entry No. 18.) Specifically, Defendants contend that because Plaintiff suffered her
accident in a Nathan’s restaurant that was independent of the Kmart store located in the same
building, but sued both Kmart and Nathan’s, Plaintiff must have been aware of the licensing
relationship between Kmart and Nathan’s at the time she filed her Complaint. (Id. at 4.)
Defendants further contend that on July 17, 2014, prior to their removal of the action from state
court, Defendants forwarded the Licensing Agreement to Plaintiff, making Plaintiff aware that
Nathan’s is an out-of-possession licensor. (Email dated July 17, 2014, annexed to Am. Notice of
Removal as Ex. F.) Defendants argue that they have provided Plaintiff with sufficient evidence
to prove that Nathan’s is not a proper party and that Plaintiff’s refusal to discontinue her claims

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against Nathan’s demonstrates that she has committed fraud. (Defs. Ltr. in Reply to Pl. Opp’n
at 5.)
The Court is not persuaded by Defendants’ argument. As an initial matter, the Complaint
filed against both Defendants included allegations sufficient to state a claim as to both
Defendants. Defendants have not shown that any of these allegations were fraudulent, especially
where Defendants concede that they sent Plaintiff the Licensing Agreement after the Complaint
was filed. Similarly, Defendants’ argument that by not discontinuing the action against Nathan’s
after receiving a copy of the Licensing Agreement Plaintiff’s pleading is fraudulent also fails
because, as discussed below in Part II(b)(ii), the Licensing Agreement, on its face, does not
establish that Plaintiff cannot state a cause of action against Nathan’s in state court.
Defendants’ reliance on Whitaker v. Am. Telecasting, Inc., 261 F.3d 196 (2d Cir. 2001),
(Defs. Ltr. in Reply to Pl. Opp’n 5–6), is misplaced as Whitaker is inapposite. In Whitaker, the
plaintiff committed fraudulent joinder because the complaint did “not state a cause of action
against [the non-diverse defendant] or seek any relief against this entity under state law.”
Whitaker, 261 F.3d at 207. That is not the case here. Plaintiff has sufficiently alleged that her
injuries were caused by Nathan’s negligence and seeks monetary damages from Nathan’s.3

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To the extent that Defendants argue that Plaintiff’s subjective motivation is relevant
because it demonstrates an effort to avoid federal jurisdiction, “proof of this subjective motive is
insufficient to establish fraudulent joinder.” B.N. ex rel. Novick v. Bnei Levi, Inc.,
No. 12-CV-5057, 2013 WL 168698, at *3 n.4 (E.D.N.Y. Jan. 15, 2013) (citing Mecom v.
Fitzsimmons Drilling Co., 284 U.S. 183, 189 (1931) (“[T]he motive of a plaintiff in joining
defendants is immaterial, provided there is in good faith a cause of action against those
joined.”)); see also In re Zyprexa Products Liab. Litig., No. 04-MD-01596, 2008 WL 4561628,
at *3 (E.D.N.Y. Oct. 10, 2008) (“Even if non-diverse defendants are joined solely to prevent
removal to federal court, fraudulent joinder is not shown if the plaintiff does in fact have a valid
claim against the non-diverse defendants.” (citations omitted)).
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ii.

Defendants have not shown that Plaintiff cannot state a claim against
Nathan’s in state court

In addition to failing to show that Plaintiff committed fraud in her pleadings, Defendants
have also failed to show that she cannot state a claim against Nathan’s in state court. Defendants
argue that because Nathan’s is an out-of-possession licensor, Plaintiff cannot state a cause of
action against Nathan’s in state court. (Defs. Ltr. in Reply to Pl. Opp’n 6 (citing Callanan v.
Crabhouse of Douglaston, Inc., 712 N.Y.S.2d 127 (App. Div. 2000)).) Defendants’ argument is
without merit.
1.

An out-of-possession licensor can be sued

Under New York law, an out-of-possession owner or lessor can be liable for injuries that
occur on the premises if they “retain[] control over the premises or [are] contractually obligated
to repair or maintain the premises.” Dalzell v. McDonald’s Corp., 632 N.Y.S.2d 635, 639 (App.
Div. 1995) (citations omitted); see also Valenti v. 400 Carlls Path Realty Corp., 861 N.Y.S.2d
357, 358 (App. Div. 2008) (“An out-of-possession owner or lessor is not liable for injuries that
occur on the premises unless the owner or lessor has retained control over the premises or is
contractually obligated to repair unsafe conditions.” (citing Lindquist v. C & C Landscape
Contrs., Inc., 831 N.Y.S.2d 523 (App. Div. 2007))). Thus, to sustain their burden of
demonstrating that Nathan’s was improperly joined, Defendants must prove by clear and
convincing evidence that Nathan’s did not retain control over the premises and was not
contractually obligated to repair unsafe conditions. As discussed below, Defendants have not
met their burden.
2.

Defendants have not met their burden

Defendants argue that Kmart is solely responsible “for the day-to-day management and
operation” of the premises. (Defs. Ltr. in Reply to Pl. Opp’n 6–7 (citing Licensing Agreement

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§ 11(d), annexed to Defs. Ltr. in Support of Notice of Removal as Ex. 1, Docket Entry No. 16).)
According to the affidavit of Randy Watts, an employee of Nathan’s whose duties include
“negotiating, drafting, and implementing licensing agreements” and who claims to be the
“primary person responsible for managing the [Licensing Agreement] between Nathan’s Famous
and Sears Holdings Management Corporation,”4 Nathan’s “does not currently, and never has,
owned, operated, controlled, managed, maintained, or staffed the subject dining facility.” (Aff.
of Randy Watts 1–2, annexed to Defs. Ltr. in Reply to Pl. Opp’n as Ex. B.)
Plaintiff contends that Nathan’s retained a sufficient degree of control over the premises
according to various sections of the Licensing Agreement. (Pl. Opp’n Ltr. 8.) For example,
Plaintiff notes that the Licensing Agreement required Kmart to “adhere to [Nathan’s] operating
standards, as established by [Nathan’s] from time to time including . . . such operating standards
as relate to . . . [the] condition . . . of the [premises] . . . and specifications, standards, and
procedures for operations.” (Licensing Agreement § 2(b).) Kmart was additionally required to
“upgrade the premises . . . in accordance with the written requirements, standards, and
instructions issued by [Nathan’s.]” (Id. § 2(d).)
While the Watts Affidavit suggests that Nathan’s did not have sufficient control over the
premises, it simply contradicts Plaintiff’s assertion and creates a fact issue which is insufficient
to satisfy Defendants’ burden of establishing fraudulent joinder by clear and convincing
evidence. See Bnei Levi, 2013 WL 168698, at *4 (remanding case because “defendants’
assertions contradicting the allegations in the complaint merely create a question of fact and do

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The affidavit does not state the relationship between Sears Holding Management
Corporation and Kmart, only that this Licensing Agreement permits Kmart to operate the
Nathan’s restaurant at issue here. (Aff. of Randy Watts 1–2, annexed to Defs. Ltr. in Reply to Pl.
Opp’n as Ex. B.)
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not rise to the level of clear and convincing evidence of fraudulent joinder”). Moreover, the
Watts Affidavit fails to address a number of key issues. The affidavit does not state the affiant’s
title. Nor does it specify whether the affiant has any personal knowledge of Nathan’s operating
or system standards that Kmart is required to follow, or whether those standards were followed
by Kmart. Furthermore, in its response to Plaintiff’s request to admit, Kmart either denied or
refused to admit that it owned, maintained, controlled, or “was a party to a contract for cleaning,
maintenance and/or management” of the premises.5 (Resp. to Pl.’s Req. to Admit, annexed to
Defs. Ltr. in Support of Notice of Removal as Ex. 2.) Thus, while the evidence offered by
Defendants provides support for their position, it does not contradict the evidence presented by
Plaintiff in support of her allegations in the Complaint.
The cases relied on by Defendants are distinguishable as they were decided at summary
judgment after the parties had an opportunity to develop the factual record through discovery.
See Valenti, 861 N.Y.S.2d at 358–59 (affirming summary judgment); Callanan, 712 N.Y.S.2d
at 128 (same); Dalzell, 632 N.Y.S.2d at 638 (same). Thus, the record was clear in each of those
cases that the out-of-possession licensor had no responsibility for the accident. See Valenti, 861
N.Y.S.2d at 358 (affirming summary judgment where there was no triable issue of fact as to
whether out-of-possession licensor violated duty); Callanan, 712 N.Y.S.2d at128 (affirming
summary judgment where out-of-possession licensor was not negligent because it was

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At oral argument, defense counsel argued that these denials and equivocations were
necessary because “Kmart may not be responsible for the ceiling of the dining facility or the
doors of the dining facility. However, it is responsible for cleaning the area in which plaintiff’s
accident occurred . . . .” (Tr. of Nov. 7, 2014, Status Conference 7, Docket Entry No. 23.) These
assertions were never included in Defendants’ submissions to the Court and would require the
Court to accept Counsel’s oral statements, while ignoring Defendants’ written responses to
Plaintiff’s requests to admit.

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“undisputed” that licensee installed the hazardous condition that caused the accident); Dalzell,
632 N.Y.S.2d at 639 (affirming summary judgment where there was no evidence out-ofpossession licensor retained sufficient control over the premises).6
Even accepting Defendants’ evidence, the Watts Affidavit and section 11(d) of the
Licensing Agreement, the Court is unable to conclude that Plaintiff cannot bring a claim against
Nathan’s in state court in view of Plaintiff’s contrary evidence, sections 2(b) and 2(d) of the
License Agreement. The Licensing Agreement demonstrates that Nathan’s did retain some
contractual control over the premises. The issue before the Court is not whether Plaintiff will
successfully assert a claim against Nathan’s in state court, but whether “there is no possibility”
that she can state a claim against Nathan’s in state court. See Briarpatch, 373 F.3d at 302. The
evidence suggests that there is such a possibility. Defendants have failed to establish by clear
and convincing evidence that Nathan’s did not exercise any control over the premises at the time
of Plaintiff’s accident. Consequently, the Court lacks subject matter jurisdiction and, pursuant to
28 U.S.C. § 1447(c), remands this case to state court.

6

The cases relied on by Plaintiff, imposing liability on out-of-possession licensors or
franchisors, similarly were decided at summary judgment. See Toppel v. Marriott Int’l, Inc.,
No. 03-CV-3042, 2006 WL 2466247, at *7 (S.D.N.Y. Aug. 24, 2006) (collecting cases and
noting that defendants failed “to cite any relevant decisions dismissing a case prior to discovery”
and that all of the cases cited in the survey “dismissed plaintiffs’ claims on a summary judgment
motion, not, as here, on a motion to dismiss”); Hilton v. Holiday Inns, Inc., No. 87-CV-1958,
1990 WL 113133, at *3 (S.D.N.Y. Aug. 1, 1990) (denying summary judgment because licensing
agreement required licensee to follow established rules of operations); Repeti v. McDonald’s
Corp., 855 N.Y.S.2d 281, 283 (App. Div. 2008) (affirming denial of summary judgment because
defendant “tendered insufficient evidence to establish, as a matter of law, that it lacked control
over the [premises]”).
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III. Conclusion
For the reasons discussed above, the case is remanded to the Supreme Court of the State
of New York, Queens County.
SO ORDERED:
s/ MKB
MARGO K. BRODIE
United States District Judge
Dated: November 3, 2015
Brooklyn, New York

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