USA Trouser, S.A. de C.V. v. International Legwear Group, Inc. et al
Filing
163
ORDER denying 136 Motion to Remand to State Court or, in the Alternative, Motion to Dismiss Claims. Signed by District Judge Martin Reidinger on 10/27/2015. (nv) (Main Document 163 replaced on 10/27/2015) (nv).
THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
ASHEVILLE DIVISION
CIVIL CASE NO. 1:11-cv-00244-MR-DLH
USA TROUSER, S.A. de C.V.,
)
)
Plaintiff,
)
)
vs.
)
)
)
INTERNATIONAL LEGWEAR GROUP, )
INC., WILLIAM SHEELY, JOHN
)
SANCHEZ, and SCOTT ANDREWS, )
)
Defendants.
)
_______________________________ )
ORDER
THIS MATTER is before the Court on the “Plaintiff’s Motion to Remand
to North Carolina State Court or, in the Alternative, Motion to Dismiss Claims
as to Andrews without Prejudice to Allow Plaintiff to Refile and Consolidate
Claims in North Carolina State Court” [Doc. 136].
I.
PROCEDURAL BACKGROUND
The Plaintiff USA Trouser, S.A. de C.V. (“USAT”), a Mexican sock
manufacturer, filed this action in the Burke County Superior Court on
September 6, 2011, against its primary distributor, International Legwear
Group, Inc. (“ILG”), two of ILG’s former officers, William Sheely (“Sheely”)
and John Sanchez (“Sanchez”), and the former chairman of ILG’s board of
directors, Scott Andrews (“Andrews”). The Defendants removed the action
to this Court on the basis of diversity jurisdiction on September 21, 2011.
[Doc. 1].
On motions for summary judgment, this Court denied USAT’s motion
and granted Andrews summary judgment on USAT’s claims of, among
others, breach of fiduciary duty and constructive trust. USAT appealed the
disposition of all of its claims in favor of Andrews. On appeal, the Fourth
Circuit affirmed the dismissal of USAT’s claims against Andrews with the
exceptions of its claims of breach of fiduciary duty and constructive fraud and
remanded for further proceedings.1 [Doc. 116].
Upon entry of the Fourth Circuit’s mandate on July 27, 2015, this matter
was scheduled for trial during the November 2, 2015 trial term. On October
7, 2015, less than two weeks prior to the final pretrial conference, the Plaintiff
filed the present motion, seeking to remand this matter to state court or, in
the alternative to dismiss its claims without prejudice. [Doc. 136]. Andrews
filed a response, opposing the Plaintiff’s motion. [Doc. 151]. The Court
heard oral argument on the Plaintiff’s motion at the final pretrial conference
1
USAT did not appeal the partial grant of summary judgment to defendants Sanchez and
Sheely or the entry of default judgment against ILG. USAT attempted to appeal the
amount of damages awarded to the Plaintiff against ILG, but the Fourth Circuit declined
to entertain that claim as ILG was not a party to the appeal.
2
on October 20, 2015, and accepted additional exhibits from the Plaintiff in
support of its motion.
Having been fully briefed and argued, this matter is now ripe for
disposition.
II.
DISCUSSION
The Plaintiff’s motion presents multiple alternative requests for relief,
including remand, consolidation, and/or dismissal of some of its claims, all
with the same end result: that the Plaintiff be allowed to continue prosecuting
its remaining claims against Andrews in a North Carolina state court. For the
reasons that follow, the Court concludes that the Plaintiff is constrained to
prosecute its remaining claims in the present action pending in this forum.
A.
Motion to Remand
The Plaintiff first argues that this matter should be remanded due to a
lack of subject matter jurisdiction. Specifically, the Plaintiff contends that the
removal of September 21, 2011, to this Court was precluded by the “Forum
Defendant Rule,” 28 U.S.C. § 1441(b)(2). The Plaintiff argues that three of
the original defendants – ILG, Sanchez, and Sheely – are considered
residents of North Carolina for diversity purposes; therefore, the Forum
Defendant Rule deprived the Court of jurisdiction over this matter at the time
of removal and continues to deprive the Court of jurisdiction.
3
A state court action may be removed to a federal district court if the
action is one over which a federal district court could exercise original
jurisdiction. 28 U.S.C. § 1441(a). Federal district courts exercise original
jurisdiction primarily over two types of cases: (1) those involving “federal
questions,” pursuant to 28 U.S.C. § 1331 and (2) those involving citizens of
different or foreign states where the amount in controversy exceeds $75,000,
pursuant to 28 U.S.C. § 1332(a).
Here, the requirements for the exercise of diversity jurisdiction were
undisputedly met at the time of removal. First, the action as originally filed
involved a dispute between a foreign corporation, and citizens of different
states.
See 28 U.S.C. § 1332(a)(1)(2).
As is alleged in the original
Complaint, USAT is a Mexican corporation; Defendants Sanchez and Sheely
are residents of North Carolina; Defendant ILG is a Virginia corporation with
its principal place of business in North Carolina; and Defendant Andrews is
a resident of Virginia.
[Doc. 1-1 at ¶¶ 1-6].
Second, the amount in
controversy at the time of removal clearly was greater than $75,000; the
Plaintiff’s Complaint specifically claimed damages in excess of $655,000,
exclusive of costs and interest. [Id. at 13]. Indeed, even with the resolution
of the claims against ILG, Sanchez, and Sheely, diversity jurisdiction still
exists as between USAT and Andrews, as the parties’ citizenship remains
4
diverse (Mexico, Virginia) and the amount in controversy still exceeds
$75,000. Therefore, the basic requirements for the exercise of diversity
jurisdiction have been, and continue to be, satisfied here. Had this action
been filed in federal court, it is without question that the Court could have
properly exercised original jurisdiction over this case pursuant to § 1332(a).
Removal of an action based on diversity jurisdiction, however, must
not only satisfy the jurisdictional requirements of § 1332(a); it must also
satisfy the procedural requirements of § 1441(b)(2), the so-called “Forum
Defendant Rule,” which provides as follows:
A civil action otherwise removable solely on the basis
of the jurisdiction under section 1332(a) of this title
may not be removed if any of the parties in interest
properly joined and served as defendants is a citizen
of the State in which such action is brought.
28 U.S.C. § 1441(b)(2). The Forum Defendant Rule serves as a limitation
on removal, permitting removal based on diversity jurisdiction only where the
properly joined and served defendants are not citizens of the forum state.
As one court has explained:
Removal based on diversity jurisdiction is intended to
protect out-of-state defendants from possible
prejudices in state court.
The need for such
protection is absent, however, in cases where the
defendant is a citizen of the state in which the case is
brought. Within this contextual framework, the forum
defendant rule allows the plaintiff to regain some
5
control over forum selection by requesting that the
case be remanded to state court.
Lively v. Wild Oats Markets, Inc., 456 F.3d 933, 940 (9th Cir. 2006) (internal
citation omitted).
While the Forum Defendant Rule operates to limit a defendant’s right
of removal, it is separate and apart from the statute conferring diversity
jurisdiction. Id. at 939. Subject matter jurisdiction is governed by Chapter
85 of Title 28, while removal is governed by Chapter 89. While the Fourth
Circuit has yet to address the issue, the overwhelming majority of courts,
including several district courts within the Fourth Circuit, have ruled that the
Forum Defendant Rule is merely a procedural requirement, and thus a
violation of this rule constitutes a waivable non-jurisdictional defect. See
Brazell v. Waite, 525 F. App’x 878, 884 (10th Cir. 2013); Samaan v. St.
Joseph Hosp., 670 F.3d 21, 28 (1st Cir. 2012); In re 1994 Exxon Chem. Fire,
558 F.3d 378, 393 (5th Cir. 2009); Holmstrom v. Peterson, 492 F.3d 833, 839
(7th Cir. 2007); Lively, 456 F.3d at 939; Blackburn v. United Parcel Serv., Inc.,
179 F.3d 81, 90 n.3 (3rd Cir. 1999); Pacheco de Perez v. AT&T Co., 139 F.3d
1368, 1372 n.4 (11th Cir. 1998); Handley-Mack Co. v. Godchaux Sugar Co.,
2 F.2d 435, 437 (6th Cir. 1924); see also Ada Liss Group v. Sara Lee Branded
Apparel, No. 1:06CV610, 2007 WL 634083, at *4 (M.D.N.C. Feb. 26, 2007);
6
Rehbein v. Biomet Orthopedics, LLC, No. WDQ-12-1247, 2012 WL
2340000, at *2 & n.11 (D. Md. June 15, 2012); Councell v. Homer Laughlin
China Co., 823 F. Supp. 2d 370, 378-79 (N.D. W. Va. 2011); State Farm Mut.
Auto. Ins. Co. v. Smith, 342 F. Supp. 2d 541, 542 n.1 (W.D. Va. 2004);
Ravens Metal Prods., Inc. v. Wilson, 816 F. Supp. 427, 428-29 (S.D. W. Va.
1993).
Only the Eighth Circuit Court of Appeals has taken a contrary
position. See Horton v. Conklin, 431 F.3d 602, 605 (8th Cir. 2005). The Court
finds the reasoning of the majority of the courts cited above to be persuasive,
and thus adopts the prevailing view that the Forum Defendant Rule is merely
a procedural requirement and does not affect the Court’s ability to exercise
diversity jurisdiction.
Because the Forum Defendant Rule is a waivable non-jurisdictional
requirement, a plaintiff must seek remand of an action removed in violation
of § 1441(b)(2) within thirty days of removal. See 28 U.S.C. § 1447(c)
(requiring motion to remand based on “any defect other than lack of subject
matter jurisdiction” be made within thirty days of filing of removal). Failure to
timely object to the removal of an action in violation of the Forum Defendant
Rule results in a waiver of that objection. See Lively, 456 F.3d at 939;
Councell, 823 F. Supp. 2d at 378. Here, the Defendants filed their Notice of
Removal on September 21, 2011. The Plaintiff, however, did not file the
7
present motion until October 7, 2015, nearly four years after the expiration
of the 30-day window for seeking a remand. The Plaintiff therefore has
waived any objection it may have had to the removal of this action in violation
of the Forum Defendant Rule.2
In summary, the Forum Defendant Rule is a procedural, nonjurisdictional requirement, and the Plaintiff’s time for raising an objection to
the removal of this action in violation of that rule expired long ago. As such,
the Court’s exercise of subject matter jurisdiction over this matter is proper,
and therefore, the Plaintiff’s motion to remand for lack of subject jurisdiction
must be denied.
B.
Motion for Consolidation
After the present action was commenced, but before the Fourth Circuit
reversed in part and remanded the two remaining claims against Andrews
back to this Court, the Plaintiff initiated an action against ILG’s former Chief
Executive Officer, James A. Williams, in Guilford County Superior Court.
2
If the Plaintiff were correct, and the Court never had jurisdiction over this action, it would
logically follow that the judgments previously entered against ILG, Sanchez, and Sheely
would be void. The Plaintiff, however, does not agree, arguing instead that these
judgments would remain valid despite the supposed absence of jurisdiction. This is
particularly ironic, given that Plaintiff argues that this Court is without jurisdiction because
of the residence of ILG, Sheely and Sanchez, not because of the residence of Andrews.
Yet Plaintiff argues that the Court had no jurisdiction over the claim against Andrews but
DID have jurisdiction to enter judgment against ILG, Sheely and Sanchez. The Court is
unable to reconcile the Plaintiff’s positions on this point.
8
This state action is currently pending before the North Carolina Business
Court. The Plaintiff contends that the claims asserted against Williams in
this state action are substantially similar to the claims pending against
Andrews in the present action. The Plaintiff therefore alternatively seeks
consolidation of these actions pursuant to Rule 42 of the Federal Rules of
Civil Procedure.
By its terms, Rule 42 applies only to the consolidation of multiple
actions pending before a federal court, not the consolidation of an action
pending before a federal court with an action pending before a state court.
See Fed. R. Civ. P. 42(a) (permitting consolidation where “actions before the
court involve a common question of law or fact”) (emphasis added). There
is simply no procedural mechanism available by which this Court could
accomplish such a consolidation. Similarly, there is no authority by which
this Court could remand this case to allow such consolidation to occur, nor
could this Court direct any state court to consolidate such actions. Therefore,
the Plaintiff’s motion, to the extent it seeks consolidation of these two actions
either by this Court or by a state court, must be denied.
9
C.
Motion to Dismiss Pursuant to Rule 19
Alternatively, the Plaintiff moves to dismiss the present action due to
the failure -- admittedly the Plaintiff’s own failure -- to join Williams as a
necessary and indispensable party to this action.
In order to demonstrate that an individual is necessary and
indispensable to the present action, the moving party must first show either:
(1) that complete relief among the current parties before the Court cannot be
accorded in his absence, or (2) that the necessary party claims an interest in
the subject matter of the case that would be jeopardized or that would create
a risk of multiple or inconsistent obligations for the existing parties. Fed. R.
Civ. P. 19(a).
Here, it is evident that Williams is not a necessary party to the action
pending before this Court. USAT characterizes the relationship between
Andrews and Williams as that of joint tortfeasors. It is well-established,
however, that joint tortfeasors are not “necessary” or “indispensable” parties
within the meaning of Rule 19. See Temple v. Synthes Corp., 498 U.S. 5, 7
(1990) (“It has long been the rule that it is not necessary for all joint
tortfeasors to be named as defendants in a single lawsuit.”); Williford v.
Armstrong World Indus., Inc., 715 F.2d 124, 127 (4th Cir. 1983) (“joint
tortfeasors are not indispensable parties”); Fed. R. Civ. P. 19(a), advisory
10
committee notes (“a tortfeasor with the usual ‘joint-and-several’ liability is
merely a permissive party to an action against another with like liability”).
Even if Williams were a necessary party to the present action, USAT
complains of a defect entirely of its own making, and one that it has failed to
remedy for a number of years.
Despite its awareness of Williams’
involvement in ILG3, USAT made the decision to sue Andrews and Williams
in separate lawsuits years apart.4
While USAT now claims that it only
recently learned undisclosed “new facts” that make Williams a necessary
and indispensable party to the present action [Doc. 137 at 10-11], USAT fails
to inform the Court what these alleged new facts are. While the defense of
failure to join an indispensable party may be raised at any time in the
3
USAT identified Williams as the current registered agent of ILG in its original Complaint
filed on September 6, 2011 [see Doc. 1-1 at ¶ 3], and the fact that he was the Chief
Executive Officer of ILG was a matter that was readily discoverable by the Plaintiff, as
evidenced by the fact that Williams was extensively deposed about his role in ILG as part
of this litigation.
4
As noted above, it is apparent that the Plaintiff could have named Williams as a
defendant in its original Complaint when it sued ILG and the other corporate officers.
Even if the Plaintiff were correct, however, and the nature of Williams’ involvement
became apparent only recently, the Plaintiff still could have brought the action against
Williams as an original action in a federal court. The requirements for the exercise of
diversity jurisdiction would have been met, as the action would have been between a
foreign corporation and a citizen of North Carolina (such an action not being prohibited
by the forum defendant rule as it does not involve removal). At that point, the Plaintiff
could have then sought the consolidation of the two actions into one federal proceeding.
The Plaintiff, for whatever reason, chose not to do so. As such, the failure to join Williams
as a party is a problem entirely of the Plaintiff’s own making.
11
proceedings, “it may also be waived and a party with the necessary
information to make a motion for joinder of an indispensable party cannot sit
back and raise it at any point of his choosing.” Nat’l Bd. of Young Women’s
Christian Ass’n of U.S.A. v. Young Women’s Christian Ass’n of Charleston,
S.C., 335 F. Supp. 615, 627 (D.S.C. 1971). Allowing USAT to dismiss its
own case5 less than three weeks before trial and consolidate it with the state
court action against Williams where discovery has not even begun would
result in substantial additional expense and would unduly prejudice
Defendant Andrews.
For all of these reasons, the Plaintiff’s motion to
dismiss pursuant to Rule 19 is denied.
D.
Motion to Dismiss Pursuant to Rule 41
The Plaintiff’s final avenue by which it seeks relief is a motion for
dismissal without prejudice pursuant to Rule 41 of the Federal Rules of Civil
Procedure.
5
This case presents an unusual situation for the Court, as the failure to join an
indispensable party is intended to be raised as a defense to an action; it is not designed
to be a mechanism for a plaintiff to dismiss its own case when that plaintiff fails to sue all
of the appropriate parties in one action. This is where the Plaintiff’s reliance on Home
Buyers Warranty Corp. v. Hanna, 750 F.3d 427 (4th Cir. 2014), is misplaced. In Home
Buyers, the defendants in the federal action sought dismissal of the action because the
plaintiff failed to name as defendants certain indispensable parties who were not diverse.
That is a factual scenario and procedural posture that is entirely different from what is
presented here, where the Plaintiff simply failed to name his full cast of characters in one
complaint.
12
Rule 41 provides that a plaintiff, with certain enumerated exceptions,
may voluntarily dismiss an action by filing a notice of dismissal prior to the
service of an answer or a motion for summary judgment. Fed. R. Civ. P.
41(a)(1)(i). Once an answer or a motion for summary judgment has been
filed, a plaintiff may obtain a voluntary dismissal only by a stipulation of
dismissal signed by all parties who have appeared in the action, Fed. R. Civ.
P. 41(a)(1)(ii), or by court order, “on terms that the court considers proper,”
Fed. R. Civ. P. 41(a)(2). Here, Andrews has filed both an answer and a
motion for summary judgment and has not stipulated to a dismissal of this
action without prejudice. Thus, the only way that the Plaintiff may obtain a
voluntary dismissal is by an order of the Court.
In considering a motion for voluntary dismissal under Rule 41(a)(2),
the Court “must focus primarily on protecting the interests of the defendant.”
Davis v. USX Corp., 819 F.2d 1270, 1273 (4th Cir. 1987). The Fourth Circuit
has cautioned that a Rule 41(a)(2) motion for a dismissal without prejudice
“should not be denied absent substantial prejudice to the defendant.” Andes
v. Versant Corp., 788 F.2d 1033, 1036 (4th Cir. 1986).
In determining
whether a defendant will incur substantial prejudice by allowing a dismissal,
the Court may consider various factors, including: “(1) the plaintiff's diligence
in moving for a voluntary dismissal, (2) the stage of the litigation, including
13
the defendant’s effort and expense in preparing for trial, and (3) the
adequacy of the plaintiff’s explanation for the need to dismiss.” Fid. Bank
PLC v. N. Fox Shipping N.V., 242 F. App’x 84, 89 (4th Cir. 2007).
Here, all of the relevant factors weigh in favor of denying the Plaintiff’s
motion for voluntary dismissal. First, the Court notes that the Plaintiff’s
motion is extremely dilatory, having been filed only weeks before trial and
when all of the circumstances forming the basis of its motion have been in
existence and known to the Plaintiff for an extended period of time. Second,
the parties are merely days away from the commencement of the trial, and
the Defendant has undergone considerable expense and effort in preparing
for the same. Finally, for the multiple reasons set forth above, the Court finds
that the explanation offered by the Plaintiff for the need of a dismissal are
simply inadequate to justify such a dramatic remedy at such a late date.6
Even if a dismissal without prejudice were allowed, and the Plaintiff
were permitted to refile its remaining claims in a state court, such refiling
6
The Plaintiff contends that if this action were pending in state court, it would have the
right to voluntarily dismiss this action without prejudice at any time prior to submitting its
case to the jury. In fact, however, North Carolina law clearly provides that a plaintiff is not
entitled to a voluntary dismissal without prejudice as of right once it has rested its case at
the summary judgment stage. See Troy v. Tucker, 126 N.C. App. 213, 216, 484 S.E.2d
98, 99-100 (1997). Accordingly, the Plaintiff’s argument that it would have the right in
state court to a voluntary dismissal without prejudice at this stage in the proceedings is
simply erroneous.
14
would be utterly futile under the circumstances. As previously noted, the
parties are of diverse citizenship and the amount in controversy well exceeds
the jurisdictional requirement of $75,000. Upon the filing of a state action
against him, Andrews would have every right to remove this action yet again
to this Court, leaving the Plaintiff in precisely the same position as it now
stands.
For all of these reasons, in the exercise of its discretion, the Court
denies the Plaintiff’s motion for voluntary dismissal under Rule 41(a)(2).7
ORDER
IT IS, THEREFORE, ORDERED that the Plaintiff’s Motion to Remand
to North Carolina State Court or, in the Alternative, Motion to Dismiss Claims
as to Andrews without Prejudice to Allow Plaintiff to Refile and Consolidate
Claims in North Carolina State Court [Doc. 136] is DENIED.
IT IS SO ORDERED.
7
Signed: October 27, 2015
The Court expresses no opinion as to whether a state court would conclude that the
principles of res judicata bar the Plaintiff from refiling its breach of fiduciary/constructive
fraud claims when a judgment has already been entered in favor of Andrews on claims
arising out of the same facts and circumstances which form the basis of those fiduciary
claims.
15
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