Visker et al v. Ferrante et al

Filing 14

MEMORANDUM OPINION AND ORDER signed by Judge William O. Bertelsman on 8/6/18.IT IS ORDERED that Plaintiffs' 11 Motion to Remand be, and is hereby, GRANTED, and Plaintiffs' request for attorney's fees and costs DENIED. The 7 Motion to Stay be, and is hereby, DENIED AS MOOT. This matter is hereby REMANDED to the Hamilton County Court of Common Pleas. (eh)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
CINCINNATI DIVISION

CIVIL ACTION NO. 1:18-cv-00244 (WOB)
JAMES VISKER, et al.,
PLAINTIFFS

VS.

MEMORANDUM OPINION AND ORDER

DOMINIC FERRANTE, et al.,
DEFENDANTS

This matter is before the Court on Plaintiffs' Motion to
Remand to state court. (Doc. 11).
Concluding that oral argument is unnecessary, the Court
issues the following Memorandum Opinion and Order.
Factual and Procedural Background
This is a securities action based on allegations that the
defendants violated Delaware statute and common law, breached an
Operating Agreement between the parties, and violated 15 U.S.C.
§ 77 et seq. of federal securities laws. (Doc. 4, Complaint, ¶
1). James Visker and other minority investors have brought suit
against TFG Wheels executive, Winona PVD Coatings Board member,
and majority owner, Dominic Ferrante and others. (Id. ¶ 1).
Plaintiffs allege that the defendants, who were executives and
Board members of Winona, grossly mismanaged Winona and failed to

fulfill their fiduciary duties to the plaintiffs, Winona's
investors. (See id. at ¶¶ 101d, 120). Plaintiffs seek equitable
relief, including, inter alia, a court ordered accounting of
Winona's business and financial information, declaratory
judgment that Defendants' owe fiduciary duties to Plaintiffs,
and an injunction against Winona's sale. (Id. ¶¶ 90, 108, 141).
Plaintiffs filed their initial Complaint in Ohio state
court. The defendants removed to federal court pursuant to 28
U.S.C. §§ 1441 and 1446. Plaintiffs responded with a Motion to
Remand to Ohio state court pursuant to 28 U.S.C. § 1447(c) for
lack of federal question jurisdiction.
On the first page of the initial Complaint, there is a
reference to "violations of 15 U.S.C. § 78(j) and 15 U.S.C. §
77(q)(a)" by the defendants. (Doc. 4, Complaint, ¶ 1). The
defendants argue that there are further allegations of similar
substance made later in the Complaint.
Defendants removed to federal court on this basis, arguing
that this Court has federal question jurisdiction over alleged
violations of federal securities law, especially when alleged so
explicitly at the start of the Complaint. However, Plaintiffs
moved to remand to Ohio state court. Plaintiffs take the
position that, despite their passing allegation of federal law
violations, state law is the sole source of relief and that
there are no actual federal issues for the Court to decide. This

Court, the plaintiffs conclude, lacks federal question
jurisdiction, removal was improper, and remand to state court is
now appropriate.
Analysis
Generally, removal of a case to federal court is proper
only if the federal district court would have original
jurisdiction over the suit under 28 U.S.C. § 1331. See
28 U.S.C. § 1441(a). If a claim "arises under" federal law,
Section 1331 grants original jurisdiction to the district courts
of the United States. See 28 U.S.C. § 1331.
A complaint arises under federal law if it: (1) states a
federal cause of action; (2) includes state-law claims that
necessarily turn on a substantial and disputed federal issue;
(3) raises state-law claims that are completely preempted by
federal law; or (4) artfully pleads state-law claims that amount
to federal-law claims in disguise. Mikulski v. Centerior Energy
Corp., 501 F.3d 555, 560 (6th Cir. 2007) (en banc).
The primary disagreement between the parties arises from
conflicting understandings of the well-pleaded complaint rule
and the embedded federal question doctrine.
A. The Well-Pleaded Complaint Rule
The presence or absence of federal question jurisdiction is
generally determined by the "well-pleaded complaint rule," which
provides that federal jurisdiction exists when a federal

question is presented on the face of the plaintiff's properly
pleaded complaint. Caterpillar Inc. v. Williams, 482 U.S. 386,
392 (1987). The plaintiff is the master of the claim; he or she
may avoid federal jurisdiction by exclusive reliance on state
law. Id. The well-pleaded complaint rule stands for the
proposition that the court, in determining whether the case
arises under federal law, will look only to the claim itself and
ignore any extraneous material. 13D Charles Alan Wright & Arthur
R. Miller, Federal Practice and Procedure § 3566 (3d ed. 2018).
In Merrill Lynch, Pierce, Fenner & Smith Inc., et al., v.
Manning, the plaintiff brought suit alleging Merrill Lynch had
engaged in naked short sales of Escala stock in violation of New
Jersey law. 136 S.Ct. 1562, 1566 (2016).

Similar to the instant

case, the plaintiff alleged violations of state law, but his
complaint also included an explicit allegation that Merrill
Lynch had violated federal SEC Regulation SHO. Id. Section 27
provides that the federal district courts will have exclusive
jurisdiction over Exchange Act violations under 15 U.S.C. §
78aa(a). In his complaint, the plaintiff even described the
purpose of Regulation SHO and catalogued past incidents where
Merrill Lynch flouted the requirements of that federal law. Id.
Still, the Supreme Court found this insufficient to create a
federal question. Id. at 1575.

The Court looked to the natural reading of the language in
Section 27 of the Exchange Act, "brought to enforce," also found
in 15 U.S.C. §78aa(a). Id. The Court interpreted those words to
mean that federal question jurisdiction exists "when an action
is commenced in order to give effect to a [statutory]
requirement." Id. at 1568. Justice Kagan gave an example,
stating that when a plaintiff brings a simple state law action
for breach of contract but also alleges for "atmospheric
reasons" that the defendant's conduct violates federal statute,
there is still no federal question jurisdiction without more.
See id. at 1568-69 ("But that hypothetical suit is 'brought to
enforce' state contract law, not the Exchange Act—because the
plaintiff can get all the relief he seeks just by showing the
breach of an agreement, without proving any violation of federal
securities law."). Though the plaintiff in that case cited a
federal law that could have potentially given rise to a cause of
action, the plaintiff's allegations concerning federal law were
of no consequence to the plaintiff's state law claims. See id.
The plaintiff did not raise federal law "in order to give
effect" to it, but rather to cast the defendants in a negative
light with superfluous detail, as is common in litigation. Id.
at 1569. Thus, there was no federal question jurisdiction. Id.
at 1575.

Here, Plaintiffs' isolated allegation that Defendants
violated federal law, with nothing else to flesh-out or
substantiate that allegation, is insufficient to "give effect"
to federal law. The Supreme Court was clear that the mere
allegation of a federal law violation, though made on the face
of the complaint, does not confer federal question jurisdiction
without something more. Instead, this suit was brought to
enforce or, in Justice Kagan's words, to "give effect to,"
Delaware law. It is Delaware law, not federal law, which is the
body of law invoked by the plaintiff. Under the well-pleaded
complaint analysis, Plaintiffs' allegations do not create a
federal question for this Court to address.
B. The Embedded Federal Question Doctrine
Even if the plaintiff does not assert a federal cause of
action, federal question jurisdiction may exist over state
claims if: (1) the resolution of a federal question is a
necessary element of a state claim raised by the plaintiff, (2)
the interpretation or application of the federal law is actually
disputed, (3) the question is of substantial federal interest,
and (4) exercising jurisdiction would not disturb the federalstate division of labor intended by Congress when it passed 28
U.S.C. § 1331. See Grable & Sons Metal Products, Inc. v. Darue
Engineering & Mfg., 545 U.S. 308, 314 (2005).

The Grable

framework is applied to show the existence of federal question

jurisdiction where the determination or application of federal
law is an essential component of a state law claim, i.e., the
federal law is "embedded" within the state claim, but where no
federal cause of action is independently invoked. The Grable
framework thus acts as a possible window for removal based on
federal question jurisdiction.
In Grable, the Internal Revenue Service seized real
property owned by Grable (petitioner) and gave Grable notice by
mail before selling the property to satisfy a federal tax
delinquency. Id. at 310-11. Grable brought suit to quiet title
under state law. Id. Grable based his claim to superior title on
a theory of insufficient notice under federal tax law. Id.
Defendant removed on the basis that an element of the state law
claim required the interpretation and application of federal law
and thus presented a federal question. Id. The Supreme Court
ultimately agreed, concluding that there was a necessary and
substantial federal question, that the federal government had a
significant interest in facilitating tax revenue collection, and
that to decide the state law claim would not upset the proper
work-balance and separation of power between the state and
federal judiciaries. Id. at 310.
Here, Defendants argue that the plaintiffs' Counts II and
III require the determination of federal law embedded within the
Delaware law invoked by the plaintiffs. Defendants argue that 15

U.S.C. §§ 78j and 77q, cited by Plaintiffs early in the
Complaint, is connected to allegations of "securities fraud
violations" made in Count II and III. (Doc. 4, Comp., ¶¶ 1, 119,
127).
The first element of Grable is not satisfied. Plaintiffs'
state law claims do not turn on a determination of federal law.
Plaintiffs do allege Title 15 violations but never again
expressly or even impliedly refer to federal law. There is good
reason to doubt the defendants' construction of the Complaint.
The defendants connect a reference to federal law in the
beginning of the Complaint with vague language in Counts II and
III, counts which either expressly rely on Delaware law or make
no reference to federal law at all. The defendants seem to have
left to the imagination which element of which Delaware state
law turns upon a determination of federal law. When this sort of
doubt is present, federal courts should construe motions for
remand in favor of the movant. See Cole v. Great Atlantic &
Pacific Tea Co., 728 F.Supp 1305 (E.D.Ky. 1990).
The second and third elements of Grable also are not met.
Defendants argue that federal law, which Plaintiffs presumably
referred to vaguely as "securities laws," is both substantial
and disputed in this case. Defendants cite two places where
Plaintiffs allege there is "[a]n actual, present, and
justiciable controversy." But while Defendants correctly argue

that federal courts have exclusive jurisdiction over claims of
Securities Exchange Act (SEA) violations, they fail to
demonstrate where the SEA is effectively invoked anywhere in the
Complaint or where federal law is embedded within one of the
state claims. The plaintiffs deny any intention to enforce
federal law but instead rely solely on Delaware securities law.
Plaintiffs simply do not dispute any federal law or issue of
federal law embedded within one of their state claims.
Finally, the fourth Grable element is not satisfied. The
defendants reiterate that the SEA and Title 15 of the United
States Code provide the federal courts with exclusive federal
question jurisdiction and that to decline federal jurisdiction
in this case would upset Congress' intended division of labor
between the state and federal judiciaries. Perhaps that would be
true if the plaintiffs were actually and actively invoking those
federal statutes. But Defendants have still failed to point to
any part of Delaware law cited by the plaintiffs which turns on
a federal issue. The Ohio courts are fully capable of applying
Delaware securities laws and affording equitable remedies when
appropriate. Here, Ohio courts are simply not tasked with
possessing the expertise or judgment of enforcing federal
securities law.

C. Attorney's Fees and Costs of Compelling Remand
The remaining issue is whether Plaintiffs are owed
attorney's fees and costs incurred while compelling remand to
state court.
The award of attorney's fees for challenging removal is
dependent on the objective reasonableness of the basis for
removal: "[T]he standard for awarding fees should turn on
reasonableness of the removal. Absent unusual circumstances,
courts may award attorney's fees under § 1447(c) only where the
removing party lacked an objectively reasonable basis for
seeking removal." Martin v. Franklin Capital Corp., 546 U.S. 132
(2005).
While there is ultimately no sufficient federal question to
sustain Defendants' removal, it was still reasonable to think
that the plaintiffs might have wished to give effect to the
federal law they cited. In the first line of the Complaint,
Plaintiffs made no meaningful differentiation between the
allegation of state law violations and alleged federal law
violations. This Court does not consider that to be a
categorically unreasonable basis for removal, even if the
defendants' bases for federal question jurisdiction were
ultimately insufficient to sustain removal. Because the grounds
for removal were objectively reasonable, Plaintiffs are not
entitled to attorney's fees or costs.

Finally, while Plaintiffs suggest that Warthman v. Genoa
Twp. Bd. of Trs., 549 F.3d 1055, 1064 (6th Cir. 2008), created
an affirmative duty to communicate with the non-moving party
before removing to federal court, that reading of Warthman is
either mistaken or a misconstrual.1 A review of that opinion
reveals permissive dicta that merely suggests the parties
communicate with one another to determine what body of law is
being invoked. The Sixth Circuit did not rule that defendants
have an affirmative duty to make such a clarification.

Therefore, having reviewed this matter, and the Court being
sufficiently advised,
IT IS ORDERED that Plaintiffs' Motion to Remand (Doc. 11)
be, and is hereby, GRANTED, and Plaintiffs' request for
attorney's fees and costs DENIED. The motion to stay (Doc. 7)
be, and is hereby, DENIED AS MOOT.

This matter is hereby

REMANDED to the Hamilton County Court of Common Pleas.
This 6th day of August, 2018.

1

The passage cited: "... there is no law that prohibits the defendant from
simply contacting the plaintiff and requesting a written confirmation that
only state-law claims are being asserted." Warthman, 549 F.3d at 1064.