City of Columbus, Ohio v. Sunstar Columbus, Inc. et al
Filing
13
REPORT AND RECOMMENDATIONS that 9 MOTION to Remand AND FOR ATTORNEY FEES filed by City of Columbus, Ohio be granted, in part, to the extent that it seeks remand of this case to the Franklin County Municipal Court, Environmental Division. Further, the Court recommends that the motion be denied, in part, to the extent it seeks an award of attorneys fees. Objections to R&R due within fourteen (14) days. Signed by Magistrate Judge Terence P. Kemp on 10/2/2015. (agm)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
City of Columbus, Ohio,
:
Plaintiff,
:
v.
:
Case No. 2:15-cv-1864
:
JUDGE GREGORY L. FROST
Magistrate Judge Kemp
Sunstar Columbus, Inc., et al.,
Defendants.
:
REPORT AND RECOMMENDATION
This case is before the Court to consider plaintiff City of
Columbus, Ohio’s motion for remand and attorneys’ fees.
Defendant Ridgestone Bank filed a response.
The City has not
filed a reply and the time for doing so has passed.
For the
following reasons, the Court will recommend that the motion to
remand be granted and the request for attorneys’ fees be denied.
I.
A.
BACKGROUND
The Lawsuit
On April 22, 2015, the City filed suit in Franklin County
Municipal Court, Environmental Division, against Sunstar Columbus
Inc. an Ohio corporation.
According to the complaint, Sunstar is
the owner, occupant and/or interested party of real property
located at 1289 East Dublin-Granville Road, Columbus, Ohio 43229,
by virtue of a warranty deed filed with the Franklin County
Recorder.
Sunstar has been the property owner of record since
August 20, 2013.
The suit seeks injunctive relief arising from
Sunstar’s alleged violation of the Ohio Revised Code and the
City’s zoning, building, and housing codes at the real property,
a former hotel.
The City named Ridgestone as a defendant because it has a
mortgage interest in the property and has obtained a certificate
of judgment that could be adversely affected by the action.
Ridgestone is a Wisconsin-chartered bank with a place of business
in Schaumburg, Illinois.
Additionally, the City named the
Franklin County Treasurer as a defendant because of a potential
claim for an interest in the property for unpaid and future taxes
that could be adversely affected by the action.
The action is in
rem with respect to the real property.
B.
The Notice of Removal
On May 12, 2015, Ridgestone removed the case to this Court
asserting this Court’s diversity jurisdiction.
According to the
notice of removal, the City is seeking a judgment that Ridgestone
pay for the abatement costs of the alleged nuisances and for
curing the alleged violations of the City code.
Ridgestone
contends that the costs for abating and curing result in an
amount in controversy in this case of minimally $150,400.00.
Further, Ridgestone asserts that the Treasurer and the real
property either have been fraudulently joined or are merely
nominal parties and, either way, must be disregarded for
diversity jurisdiction purposes.
Additionally, Ridgestone states
that the Treasurer should be realigned as a plaintiff because the
Treasurer’s interest and the purpose of the City’s lawsuit are
not adverse.
The focus of the notice of removal, however, is the City’s
alleged fraudulent joinder of Sunstar.
Ridgestone acknowledges
that Sunstar is the titled owner of the property.
However,
Ridgestone contends that Sunstar was fraudulently joined for the
following reasons.
Ridgestone explains that, prior to the City’s filing this
lawsuit, the City Attorney filed another nuisance suit in which
Sunstar was named as a defendant, but Ridgestone was not. In that
first nuisance suit, the City Attorney obtained a temporary
restraining order authorizing the City Attorney to forcibly
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remove all occupants from the real property and to close and
secure the premises.
late January, 2014.
The hotel on the property was closed in
Following a bench trial in the first
nuisance suit, the environmental court judge ordered that the
real property be closed for one year from the judgment date of
May 27, 2014.
Ridgestone contends that all the relief the City
is seeking in the current lawsuit has already been obtained in
the first nuisance suit.
Specifically, Ridgestone contends that, to the extent the
City is seeking injunctive relief for nuisance activity in this
suit, this precise relief has already been obtained by virtue of
the first nuisance judgment.
As a result, Ridgestone contends,
Sunstar is a fraudulently joined party and must be disregarded
for diversity purposes.
In further support of its position,
Ridgestone states that the City knows that Sunstar does not have
the funds to pay the fines or to abate any alleged nuisances.
The crux of the basis for Ridgestone’s belief that Sunstar
has been fraudulently joined has been set out in detail in the
notice of removal at paragraphs 35 through 38.
According to
Ridgestone, on March 6, 2015, it obtained its judgment against
Sunstar and foreclosure of its mortgage on the real property.
Ridgestone has requested that the property be sold at sheriff’s
sale where it intends to bid.
Ridgestone avers that the City
filed this lawsuit to prevent Ridgestone from obtaining clear
title to the property in the event Ridgestone is the successful
bidder at the sheriff’s sale.
Apparently, prior to filing the
foreclosure action, Ridgestone learned through a conversation
with counsel representing the City Attorney that the City
Attorney will “never” permit a hotel to operate on the property
regardless of ownership.
In light of this, Ridgestone claims
that the nuisance abatement/code violation issues are a cover for
the City’s intention to “extract money from Ridgestone to ‘clean-3-
up’ and rehabilitate the Real Property when the City has no
desire that the Real Property re-open for business as an opencorridor hotel.”
Ridgestone states that “all of the Emergency
Orders and Violation Notices attached to the City’s Complaint in
the Second Nuisance Lawsuit were issued to Sunstar after the City
Attorney had forcibly removed Sunstar from the Real Property and
boarded up the Real Property.”
According to Ridgestone, “the
City’s primary purpose in filing the Second Nuisance Lawsuit is
to hold Ridgestone financially responsible for Sunstar’s alleged
nuisance activity and bootstrap Sunstar’s alleged nuisance
activity and other alleged Columbus City Code violations as a
cloud to the title to the Real Property should Ridgestone
purchase the Real Property at sheriff’s sale.”
Alternatively, Ridgestone asserts that Sunstar should be
viewed as a nominal party for diversity jurisdiction purposes.
This is so, Ridgestone contends, because Sunstar has no control
over the property given that it has been locked out during the
time when the alleged nuisance and code violations occurred.
II.
THE MOTION TO REMAND
The City has moved to remand, contending that removal was
improper because Sunstar, as the property owner of record, was
properly joined as a defendant.
According to the City, the Court
is required to consider the complaint as it existed at the time
the removal petition was filed in order to determine whether
federal jurisdiction exists.
Further, the City argues that
Ridgestone, as the removing party, bears the burden of
establishing federal jurisdiction.
The City asserts that as long
as it has a colorable claim under Ohio law against Sunstar, there
is no fraudulent joinder to support removal.
The City argues, quite succinctly, that it has made
sufficient allegations against Sunstar to impose liability.
The
City explains that, as the record owner of the property, Sunstar
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is the main defendant in this action.
In the City’s view,
Ridgestone was only named as a defendant because its mortgage
interest in the property might be affected.
According to the
City, inspections were undertaken, violations were discovered,
and emergency orders and code violation notices were issued to
Sunstar.
Further, the property remained out of compliance, a
warning letter was issued to Sunstar, the property continued to
be out of compliance, and the orders have been neither appealed
nor obeyed.
Under the above scenario, the City contends that it is
reasonable to conclude that Ohio law might impose liability on
Sunstar.
In fact, the City explains, Ridgestone itself believes
that, as the property owner, it is Sunstar’s responsibility to
perform the remediation to comply with the code enforcement
orders.
In support of this position, the City has submitted an
affidavit from William Sperlazza, an Assistant City Attorney,
attesting to an email exchange with Ridgestone’s counsel
confirming its view of Sunstar’s liability.
The City also requests an award of attorneys’ fees and costs
incurred as a result of the removal.
It contends that such an
award is warranted in this case in light of the complete lack of
support for Ridgestone’s argument that Sunstar has been
fraudulently joined as a defendant.
In response, Ridgestone acknowledges that, viewing only the
City’s complaint, the City has a compelling argument in favor of
remand.
However, Ridgestone contends, looking beyond the
complaint, the City’s argument is much less so.
Ridgestone
reiterates in detail the factual allegations of its notice of
removal.
Relying on these allegations, Ridgestone makes two
primary arguments in support of its position that Sunstar’s
joinder was fraudulent because the City does not have a colorable
claim against Sunstar.
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Ridgeston’s first argument is that the judgment in the prior
nuisance suit estops the City from bringing the nuisance claims
against Sunstar in this suit.
According to Ridgestone, under
Ohio law, estoppel by judgment is part of res judicata.
As
Ridgestone sees it, the City admits that the nuisance activities
alleged in this lawsuit are violations of the judgment in the
first nuisance suit.
This is evidenced, Ridgestone argues, by
the contempt motion filed by the City in the first lawsuit.
According to Ridgestone, the City’s claim against Sunstar is not
a colorable claim because a state court’s imposition of liability
against Sunstar will not result in an award to the City greater
than it already has against Sunstar in the first suit.
Rather,
Ridgestone argues, relying on Trautwein v. Sorgenfrei, 58 Ohio
St.2d 493, 495 (Ohio 1979), that the City can seek to enforce the
nuisance judgment against Sunstar by seeking to hold Sunstar in
contempt, not by prosecuting another nuisance lawsuit seeking the
same relief.
Ridgestone’s second argument is that the doctrine of
collateral estoppel prevents the City from having a colorable
claim against Sunstar in this lawsuit.
Again, citing to
Trautwein, Ridgestone argues that the issue of Sunstar’s
liability for maintaining a public nuisance on the property is
integral both to this lawsuit and the first one, resulting in the
City’s being collaterally estopped from filing a claim against
Sunstar in this lawsuit.
Ridgestone makes additional arguments in support of its
position that the motion to remand should be denied.
For
example, Ridgestone asserts that the City’s claim against Sunstar
is brought in bad faith.
This alleged bad faith, according to
Ridgestone, is sufficient under Sixth Circuit law to demonstrate
fraudulent joinder.
Ridgestone contends that bad faith is
evident because there is no legal basis for the City’s bringing
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this suit while also pursuing a contempt motion in the first
case.
Additionally, Ridgestone asserts that the City’s bad faith
is further demonstrated by its desire to hold Ridgestone
monetarily liable and cloud the title to the property prior to
the sheriff’s sale.
Ridgestone also reiterates its view that the Treasurer and
the real property must be considered nominal or formal parties to
this action and therefore must be disregarded for purposes of
determining diversity jurisdiction.
Significantly, Ridgestone
states that there is no basis for a claim against these parties
“since they are not defined as an ‘owner’ of the Real Property.
See COLUMBUS CITY CODE 4703.01(E)(2).”
Ridgestone also suggests,
but only by way of footnote, that Sunstar could also be viewed as
a nominal party.
Finally, Ridgestone argues that it is entitled to have a
neutral forum decide the merits of the City’s claim.
In support
of this position, Ridgestone relies on Cleveland Hous. Renewal
Project v. Deutsche Bank Trust Co., 621 F.3d 554, 557 (6th Cir.
2010).
Ridgestone contends that, as in that case, the issue here
is one of “intense local concern” and should not be decided by a
“locally-elected municipal judge.”
With respect to the issue of attorneys’ fees, Ridgestone
argues that because it had an objectively reasonable basis for
removing the case, attorneys’ fees would not be appropriate, even
if remand is ordered.
III.
DISCUSSION
28 U.S.C. §1441(a) provides that “any civil action brought
in a State court which the district courts ... have original
jurisdiction may be removed by the defendant ... to the district
court of the United States for the district and division
embracing the place where such action is pending.”
Of course,
one of the most often-used bases for removing a case is that the
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district court would have jurisdiction based on diversity of
citizenship, which exists “where the matter in controversy
exceeds the sum or value of $75,000, exclusive of interest and
cost, and is between ... citizens of different states,” see 28
U.S.C. §1332(a)(1), and that is the provision which the
defendants relied on when they removed the case.
The City does not dispute Ridgestone’s characterization of
the amount in controversy here.
Consequently, the amount in
controversy requirement is not the focus of the parties’ filings.
Rather, the primary focus of the parties’ filings is whether
complete diversity can be found to exist.
More specifically, the
issue before the Court is whether Sunstar has been fraudulently
joined for purposes of defeating diversity jurisdiction.
There
is no challenge to Ridgestone’s characterization of the Treasurer
and the property as nominal parties to be disregarded for
purposes of determining diversity jurisdiction.
A.
Fraudulent Joinder
When deciding a motion to remand involving fraudulent
joinder, the Court may “‘pierce[] the pleadings’ to consider
summary-judgment-type evidence . . .,” but “the proper standard
for evaluating that evidence remains akin to that of a Rule
12(b)(6) motion to
deferential.”
dismiss, and is arguably even more
Walker v. Philip Morris USA, Inc., 443 Fed. Appx.
946, 954 (6th Cir. 2011).
Contested issues of fact must be
construed in the plaintiff’s favor. Id.
Fraudulent joinder is “a judicially created doctrine that
provides an exception to the requirement of complete diversity.”
Coyne ex rel. Ohio v. American Tobacco Co., 183 F.3d 488, 493
(6th Cir. 1999). quoting Triggs v. John Crump Toyota, Inc., 154
F.3d 1284, 1287 (11th Cir. 1998).
A claim of “fraudulent
joinder,” while not necessarily implying actual fraudulent
conduct on the plaintiff’s part, does involve an assertion that
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the resident defendant was joined solely, and without any legal
basis, for the purpose of defeating the other defendants’ right
to remove the case on diversity grounds.
The non-moving party’s
motive for joining the non-diverse party to the lawsuit, however,
is “immaterial” when determining fraudulent joinder.
See
Jerome-Duncan, Inc. v. Auto-By-Tel, L.L.C., 176 F.3d 904, 907
(6th Cir. 1999).
Rather, the Court must perform a type of
qualitative analysis of the claims asserted against the nondiverse defendants, and do so using an objective standard.
As one might suspect, the law relating to this aspect of
removal jurisdiction is stringent, and it requires removing
defendants to do more than simply demonstrate that the nondiverse defendants might be able to prevail on a Rule 12(b)(6)
motion to dismiss.
A standard that loose would result in the
removal of large numbers of cases where the parties are not
completely diverse, and require a federal court to determine the
merits of claims that are not really within its jurisdiction.
In
a case where a defendant claims fraudulent joinder, the question
is whether there is “arguably a reasonable basis for predicting
that the state law might impose liability on the facts involved.”
Alexander v. Electronic Data Sys. Corp., 13 F.3d 940, 949 (6th
Cir. 1994), quoting Bobby Jones Garden Apartments, Inc. v.
Suleski, 391 F.2d 172, 176 (5th Cir. 1968).
In other words,
“[f]raudulent joinder occurs when the non-removing party joins a
party against whom there is no colorable cause of action”
Saginaw Hous. Comm’n v. Bannum, Inc., 576 F.3d 620, 624 (6th Cir.
2009).
Thus, in deciding whether diversity jurisdiction exists
here, the Court’s task is limited to determining whether the
complaint states any claim against Sunstar that is even arguably
permitted under state law.
As explained by the City in its motion to remand, the
complaint states a claim against Sunstar arguably permitted under
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Ohio law.
According to the complaint, various inspections of the
property revealed violations of the Columbus Housing and Nuisance
Abatement Codes, Titles 7, 33, and 47.
As a result, the
complaint alleges the property constitutes a public nuisance
under R.C. §3767.41(A)92)(a) and Columbus City Code
§4703.01(F)(1).
These Columbus City Code chapters outline the obligations of
various persons, including the owner of a property, relating to
Health, Sanitation and Safety (Title 7), Zoning (Title 33), and
Nuisance Abatement (Title 47).
These chapters define “owner” to
include “the owner of record as shown on the current tax lists of
the county auditor...” see §703.16, “any person ... who is the
owner of record as shown on the current tax list of the county
auditor” see §3303.15, and “the owner of record as shown on the
current tax list of the auditor of Franklin, Delaware, Pickaway,
Licking, or Fairfield County, Ohio” see §4703.01.
The sections of Title 7 relevant here, §705.03, §707.03, and
§709.03, all are directed, minimally, to the responsibilities of
the property owner.
Section 3305.08 provides that “[t]he owner
of premises ... shall be responsible for compliance with the
standards ... and for the elimination of any violation found on
the premises regardless of whether certain responsibilities may
also be placed on operator or agents and regardless of any
agreement between the owner and anyone else.”
Section 4701.09
provides that a notice of violation may issue to the owner and
advise the owner that conditions must be corrected.
Certainly, given the language of the Columbus City Code
chapters outlined above, it is reasonable to conclude that
Sunstar may be held liable for the violations alleged in the
complaint.
In fact, Ridgestone concedes as much in its response.
Ridgestone seeks to distract from this reality, however, by
focusing on the issues of res judicata and collateral estoppel.
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This tactic is to no avail.
Res judicata and collateral estoppel
are affirmative defenses directed to the merits of the City’s
claims.
As explained above, considering Ridgestone’s arguments
on these issues would fall squarely within the realm of matters
the Court is not to address when considering an allegation of
fraudulent joinder.
Ridgestone also asserts that, because the City is seeking to
hold Sunstar in contempt in the other case, it acted in bad faith
in bringing this action.
According to Ridgestone, under Sixth
Circuit precedent, this alleged bad faith is sufficient to
establish that Sunstar was fraudulently joined as a defendant.
In support of this position, Ridgestone relies on Brady v.
Indemnity Ins. Co., 68 F.2d 302, 303 (6th Cir. 1933).
The Court notes that several of the Code violations and
emergency orders which are the subject of the City’s complaint in
this action occurred or were issued after the Municipal Court
issued its opinion in the first case.
While it may be, as
Ridgestone contends, that the language of the order in the first
case is broad enough to cover these later alleged violations, the
Columbus City Code does provide the option of filing a civil
action as an enforcement mechanism for these later violations.
See §701.19(F), §3305.07, §4701.09(A)(7).
Under this
circumstance, and without any affirmative evidence to support
Ridgestone’s position, the Court cannot find that there is “no
purpose to prosecute the action against [Sunstar] in good faith.”
Rose v. Giamatti, 721 F.Supp. 906, 914 (S.D. Ohio 1989).
Consequently, the Court will not recommend the denial of the
motion to remand on grounds that Sunstar has been fraudulently
joined as a defendant.
B. Remaining Issues
Ridgestone raises two additional issues in support of its
position that remand should be denied.
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First, it contends that
remand is not warranted because this case should not be
adjudicated by a “locally-elected municipal judge.”
To the
extent that Ridgestone relies on Cleveland Hous. Renewal Project,
supra, to support this position, that case is easily
distinguishable.
In that case, the district court had realigned
the parties to establish complete diversity but had remanded the
case based on abstention under Burford v. Sun Oil Co., 319 U.S.
315 (1943).
The Court of Appeals upheld the realignment of the
parties, but reversed the order of remand, finding that Burford
absention was not warranted.
The Court of Appeals noted that,
while abstention under Burford is appropriate to avoid disruption
of coherent state policy, there was minimal evidence of such
policy in the case before it.
Here, as discussed above, there is
not complete diversity between the parties.
Consequently, there
is no basis on which the Court could consider Ridgestone’s
request for adjudication in a neutral forum.
The second issue suggested by Ridgestone is that Sunstar
could be viewed as a nominal party for purposes of diversity
jurisdiction because it has not had control over the property
since it was locked out.
However, Ridgestone appears to have
abandoned this argument.
This assertion, while raised in the
removal petition, has been relegated to footnote 13 on page 10 of
Ridgestone’s response to the motion to remand.
Given
Ridgestone’s decision to back away from seriously asserting this
argument, the Court will not consider it.
Having found none of Ridgestone’s arguments in support of
finding diversity jurisdiction to exist in this case persuasive,
the Court will recommend that the motion to remand be granted to
the extent it seeks remand of this case to the Franklin County
Municipal Court, Environmental Division.
C.
Attorneys’ Fees
The Court now turns to the City’s request for attorneys’
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fees under 28 U.S.C. §1447(c).
A remand of the case “may require
the payment of just costs and any actual expenses, including
attorney fees, incurred as a result of removal.” 28 U.S.C.
§1447(c).
The decision to award such fees “turn[s] on the
reasonableness of the removal.”
Martin v. Franklin Capital
Corp., 546 U.S. 132, 141 (2005).
That is, “[a]bsent unusual
circumstances, courts may award attorneys’ fees under §1447(c)
only where the removing party lacked an objectively reasonable
basis for seeking removal.”
Id.
Considering the arguments
advanced by Ridgestone, the Court cannot conclude that Ridgestone
had no objectively reasonable basis for removing the case to
federal court.
Consequently, the Court will recommend that the
City’s motion be denied to the extent that it seeks an award of
attorneys’ fees.
IV.
RECOMMENDATION
For the reasons stated above, the Court recommends that the
motion to remand (Doc. 9) be granted, in part, to the extent that
it seeks remand of this case to the Franklin County Municipal
Court, Environmental Division.
Further, the Court recommends
that the motion be denied, in part, to the extent it seeks an
award of attorneys’ fees.
PROCEDURE ON OBJECTIONS
If any party objects to this Report and Recommendation, that
party may, within fourteen days of the date of this Report, file
and serve on all parties written objections to those specific
proposed findings or recommendations to which objection is made,
together with supporting authority for the objection(s).
A judge
of this Court shall make a de novo determination of those
portions of the report or specified proposed findings or
recommendations to which objection is made.
Upon proper
objections, a judge of this Court may accept, reject, or modify,
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in whole or in part, the findings or recommendations made herein,
may receive further evidence or may recommit this matter to the
magistrate judge with instructions.
28 U.S.C. §636(b)(1).
The parties are specifically advised that failure to object
to the Report and Recommendation will result in a waiver of the
right to have the district judge review the Report and
Recommendation de novo, and also operates as a waiver of the
right to appeal the decision of the District Court adopting the
Report and Recommendation.
See Thomas v. Arn, 474 U.S. 140
(1985); United States v. Walters, 638 F.2d 947 (6th Cir.1981).
/s/ Terence P. Kemp
United States Magistrate Judge
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