Vermillion Area Chamber of Commerce and Development Company v. Eagle Creek Software Services, Inc. et al
Filing
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MEMORANDUM OPINION AND ORDER denying 6 Motion to Remand; denying as moot 9 Motion to Stay; denying 17 Motion to Strike. Signed by U.S. District Judge Karen E. Schreier on 5/13/16. (DJP)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
VERMILLION AREA CHAMBER OF
COMMERCE AND DEVELOPMENT
COMPANY,
Plaintiff,
4:15-CV-04158-KES
MEMORANDUM OPINION
AND ORDER
vs.
EAGLE CREEK SOFTWARE SERVICES,
INC., a Minnesota Corporation, KEN
BEHRENDT, KEVIN BURKHART, BOB
DILLON, and LAURA BEHRENDT,
Defendants.
Plaintiff, Vermillion Area Chamber of Commerce and Development
Company (VCDC), moves for an order remanding the case to Clay County
Circuit Court, in the First Judicial District. Docket 6. VCDC also moves to
strike portions of an affidavit filed by one of defendants’ attorneys, Michael E.
Obermueller. Docket 17. Defendants resist the motions. For the following
reasons, the motions are denied.
BACKGROUND
VCDC is a non-profit corporation that operates in Vermillion, South
Dakota. Eagle Creek is a technology company, and its principal place of
business is located in Eden Prairie, Minnesota. Ken Behrendt, Laura Behrendt,
Kevin Burkhart, and Bob Dillon are Minnesota residents and shareholders of
Eagle Creek.
The dispute stems from negotiations among VCDC, Eagle Creek, and the
State of South Dakota through the Governor’s Office of Economic Development
(GOED). While specific details are not before the court, the negotiations
considered an arrangement where Eagle Creek would expand its South Dakota
business operations into Vermillion, South Dakota, in exchange for certain
monetary benefits to aid in the expansion. The parties also agreed that VCDC
would construct a building that it would lease to Eagle Creek. On June 13,
2013, VCDC and Eagle Creek signed a written agreement memorializing the
terms of the lease.
VCDC initiated this action against Eagle Creek in state court on
October 27, 2014, by serving the summons and complaint on CT Corporation
System in Pierre, South Dakota. CT Corporation was the registered agent for
Eagle Creek at the time. The complaint alleged claims for breach of contract
and detrimental reliance. Due to communication errors between Eagle Creek
and CT Corporation, Eagle Creek did not receive actual notice of the lawsuit
from CT Corporation. Instead, an Eagle Creek employee noticed a newspaper
article that was published on December 8, 2014, that indicated VCDC had
moved for default judgment against Eagle Creek.
After Eagle Creek successfully obtained additional time to respond to the
complaint from the state court, the parties conducted discovery. Both parties
submitted and responded to requests for admissions, production of documents,
and interrogatories. The parties also deposed multiple people. VCDC deposed
three Eagle Creek representatives: Kurt Egertson, Ken Behrendt, and Jeff
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Brusseau. Eagle Creek deposed four VCDC representatives: Nate Welch, Paul
Preister, Sheila Gestring, and Steve Howe. Eagle Creek also deposed five GOED
representatives.
Both parties also sought final adjudication of the lawsuit through
motions for summary judgment. VCDC filed a motion for summary judgment
on May 11, 2015. Eagle Creek filed a motion for summary judgment on
September 14, 2015. Approximately one week prior to the hearing scheduled to
address both motions for summary judgment, the parties entered into a
stipulation that allowed VCDC to amend its complaint. VCDC filed its amended
complaint on October 5, 2015.
The amended complaint added as named defendants the four
shareholders of Eagle Creek: Ken Behrendt, Laura Behrendt, Kevin Burkhart,
and Bob Dillon. In addition to the original causes of action, the amended
complaint alleged claims of fraud and deceit and sought to pierce the corporate
veil to subject the shareholders to personal liability. On October 13, 2015, the
individual shareholders, with written consent from Eagle Creek, filed notice of
removal of the action to this court pursuant to 28 U.S.C. §§ 1441(a) and 1446.
Defendants relied upon diversity of citizenship as the basis for this court’s
jurisdiction under 28 U.S.C. § 1332. VCDC moves to remand the case to Clay
County Circuit Court in the First Judicial District of South Dakota.
STANDARD OF REVIEW
The party invoking federal jurisdiction bears the burden of establishing
that all the prerequisites for jurisdiction are satisfied. Hatridge v. Aetna Cas. &
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Sur. Co., 415 F.2d 809, 814 (8th Cir. 1969). “Federal courts are to ‘resolve all
doubts about federal jurisdiction in favor of remand’ ” because removal
statutes are construed strictly. Dahl v. R.J. Reynolds Tobacco Co., 478 F.3d
965, 968 (8th Cir. 2007).
DISCUSSION
I.
Motion to Strike.
VCDC moves to strike portions of an affidavit that Attorney Obermueller
filed in support of defendants’ opposition to the motion to remand. VCDC
asserts that the affidavit is “replete with inadmissible hearsay, legal
conclusions, speculation, conjecture, and statements lacking personal
knowledge of which the affiant is not qualified to testify.” Docket 17 at 2. VCDC
relies upon Federal Rule of Civil Procedure 56(e) and McSpadden v. Mullins,
456 F.2d 428, 430 (8th Cir. 1972), to support its motion. Id.
The court finds that VCDC cites insufficient grounds for granting the
motion to strike. Rule 56 and McSpadden consider the propriety of affidavits
filed in connection with a motion for summary judgment. VCDC offers no
argument detailing how the standard for a motion for summary judgment
applies to a motion to remand. 1 Thus, the motion is denied.
VCDC expands significantly upon its arguments in its reply brief. The court
declines to consider the new arguments offered in the reply brief because the
defendants do not have an opportunity to respond. See Barham v. Reliance
Standard Life Ins. Co., 441 F.3d 581, 584 (8th Cir. 2006) (“As a general rule, we
will not consider arguments raised for the first time in a reply brief.”). The court
notes, however, that it resolves the motion to remand based upon generally
undisputed facts cited in the briefs for both plaintiff and defendants.
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II.
Motion to Remand.
A defendant’s right of removal is governed by 28 U.S.C. §§ 1441 and
1446. “Except as otherwise expressly provided by Act of Congress, any civil
action brought in a State court of which the district courts of the United States
have original jurisdiction, may be removed by the defendant[.]”
28 U.S.C. § 1441(a). Removal is accomplished by “fil[ing] in the district court of
the United States for the district and division within which such action is
pending a notice of removal[.]” 28 U.S.C. § 1446(a). “The notice of removal of a
civil action or proceeding shall be filed within 30 days after the receipt by the
defendant, through service or otherwise, of a copy of the initial pleading setting
forth the claim for relief[.]” 28 U.S.C. § 1446(b)(1). “If defendants are served at
different times, and a later-served defendant files a notice of removal, any
earlier-served defendant may consent to the removal even though that earlierserved defendant did not previously initiate or consent to removal.”
28 U.S.C. § 1446(b)(2)(C). Pursuant to the rule of unanimity, all co-defendants
must consent to a notice of removal. See Marano Enters. of Kan. v. Z-Teca Rest.,
L.P, 254 F.3d 753, 757 (8th Cir. 2001). If the defendants cannot satisfy the rule
of unanimity, remand is appropriate. See Push Pedal Pull, Inc. v. Casperson,
971 F. Supp. 2d 918, 928 (D.S.D. 2013).
A defendant can waive its right of removal to federal court: “A defendant
waives the right to remove by taking some substantial offensive or defensive
action in the state court action indicating a willingness to litigate in that
tribunal before filing a notice of removal with the federal court.” PR Grp., LLC v.
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Windmill Int’l, Ltd., 792 F.3d 1025, 1026 (8th Cir. 2015) (citations omitted).
“Such waiver must be clear and unequivocal.” Id. “The right of removal is not
lost by participating in state court proceedings short of seeking an adjudication
on the merits.” Shannon v. Church Mut. Ins. Co., 2015 WL 5444790, at *2 (E.D.
Mo. Sept. 15, 2015) (quoting PR Grp., 792 F.3d at 1026).
It does not appear that the Eighth Circuit has addressed a scenario
where a newly-added defendant, who was served with an amended complaint
after approximately one year of litigation, files a notice of removal. The Eighth
Circuit has stated, however, that “later-served defendants in this case had
thirty days from the date of service on them to file a notice of removal with the
unanimous consent of their co-defendants, even though the first-served codefendants did not file a notice of removal within thirty days of service on
them.” Marano, 254 F.3d at 757. In making such a holding, the Eighth Circuit
recognized a co-defendant’s ability to consent to removal despite waiving its
own right of removal. Id. A district court in Minnesota also recognized this
distinction: “A first-served defendant can waive its right to removal by not
removing a case within 30 days of being served, but it nevertheless retains the
right to consent to a later-served defendant’s notice of removal.” Medtronic, Inc.
v. Endologix, Inc., 530 F. Supp. 2d 1054, 1058 (D. Minn. 2008).
VCDC argues that the court should remand the case because the
defendants cannot satisfy the unanimous consent requirement for proper
removal. VCDC asserts that Eagle Creek’s decision to file a counter claim and a
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motion for summary judgment in state court constitutes not only a waiver of its
right to remove but also a waiver of its right to consent to removal.
VCDC first relies upon the South Dakota District Court decision in
Casperson, 971 F. Supp. 2d at 928-29, to support its position. In Casperson,
the named defendants were 2nd Wind Exercise Equipment, Inc., and
Casperson, who was a former employee of the plaintiff. Id. at 921. Casperson
had signed a non-compete agreement with the plaintiff, Push Pedal Pull, Inc.,
that included a forum selection clause mandating that any dispute stemming
from the agreement would be litigated in state court. Id. Push Pedal Pull argued
that Casperson could not consent to the co-defendant’s notice of removal
because Casperson waived the right to remove through the forum selection
clause in his employment agreement. Id. at 928. In holding that the forum
selection clause precluded Casperson’s ability to consent to removal, the court
stated the following: “If one defendant in a multi-defendant action contractually
waives his right to removal, that defendant has waived his ability to consent to
a co-defendant’s removal; the defendants then cannot satisfy the unanimity
requirement, and the case is subject to remand.” Id. at 928 (citing Medtronic,
530 F. Supp. 2d at 1057). In the present case, however, there is no evidence
that a forum selection clause precludes Eagle Creek’s ability to consent to
removal.
Second, VCDC asserts that one defendant’s offensive or defensive trial
actions can preclude a later-served co-defendant’s ability to remove a case to
federal court. Docket 8 at 6 (citing Onders v. Ky. State Univ., 2011 WL
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6009643, at *3 (E.D. Ky. Dec 1, 2011)). In Onders, the plaintiff sued a
university on an age discrimination claim. Onders, 2011 WL 6009643, at *1.
After approximately two years of litigation, the plaintiff obtained leave to amend
his complaint to assert the same claims against additional defendants. Id. With
the university’s consent, the later-served defendants filed a notice of removal.
Id. But when the plaintiff filed a second-amended complaint, the later-served
defendants were dismissed from the case. Id. In its opinion remanding the case
to state court, the United States District Court in the Eastern District of
Kentucky found that the university’s prior litigation conduct not only waived its
right of removal but also its ability to consent to removal. Id. at *3. The court
noted specifically that the case had been “actively litigated” through extensive
discovery and through the university’s motion for summary judgment. Id. at *1.
Here, the later-served defendants have not been dismissed from the case, and
they maintain their statutory right of removal. So the issue before this court is
whether Eagle Creek’s actions in state court constitute a waiver of its right to
consent to removal, which renders the case subject to remand.
There are competing interests pertaining to the determination of whether
Eagle Creek has waived its right to consent to removal. On one hand, laterserved defendants have a statutory right of removal. 28 U.S.C. § 1446(b)
establishes that each defendant shall have 30 days after service of process to
file a notice of removal. 28 U.S.C. § 1446(b)(2)(B). Additionally, “[i]f defendants
are served at different times, and a later-served defendant files a notice of
removal, any earlier-served defendant may consent to the removal even though
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that earlier-served defendant did not previously initiate or consent to removal.”
Id. at (b)(2)(C) (emphasis added). Because “any earlier-served defendant may
consent to removal[,]” id., the statute appears to support Eagle Creek’s ability
to consent to removal.
On the other hand, Eagle Creek filed a counter claim, a cross-motion for
summary judgment, and conducted significant discovery in state court before
the later-served defendants filed their notice of removal. And a broad range of
precedent establishes that a defendant can waive its right of removal based on
actions it takes before filing a notice of removal. See PR Grp., LLC, 792 F.3d at
1026; Resolution Trust Corp. v. Bayside Developers, 43 F.3d 1230, 1240 (9th
Cir. 1994); Grubb v. Donegal Mut. Ins. Co., 935 F.2d 57, 58 (4th Cir. 1991); May
v. Bd. of Cty. Comm’rs for Cibola Cty., 945 F. Supp. 2d 1277, 1297 (D.N.M.
2013). Sound reasoning could support a holding that extensive litigation
conduct also waives the ability to consent to removal. See Onders, 2011 WL
6009643, at *1.
After weighing the competing interests, the court finds that because
VCDC decided to amend its complaint and assert independent causes of action
against new defendants, the interests weigh in favor of upholding the laterserved defendants’ statutory right of removal. Even though VCDC has cited a
valid exception pertaining to a forum-selection clause, it cites no binding
precedent establishing that Eagle Creek’s litigation conduct can preclude a
later-served defendant from exercising a statutory right of removal. “The Court
should be especially reluctant to take away one defendant's Congressionally9
bestowed right to remove because of another defendant's actions.” May, 945 F.
Supp. 2d at 1300. As such, the court finds that Eagle Creek’s litigation conduct
does not constitute a waiver of its right to consent to the later-served
defendants’ notice of removal. Thus, defendants have satisfied the unanimous
consent requirement, and VCDC’s motion to remand is denied.
CONCLUSION
28 U.S.C. § 1446 establishes that a defendant has thirty days to file a
notice of removal in a United States District Court after it has been served with
a summons and complaint. 28 U.S.C. § 1446 also establishes that a laterserved defendant has the right to file a notice of removal despite an earlierserved defendant’s waiver of the right to do so. Because VCDC elected to file an
amended complaint that asserts new causes of action against additional
defendants, the court finds that the later-served defendants’ statutory right of
removal outweighs any competing interests associated with Eagle Creek’s
waiver of its right of removal. Thus, it is
ORDERED that the motion to remand (Docket 6) is DENIED.
IT IS FURTHER ORDERED that the motion to stay proceedings
(Docket 9) is DENIED as moot.
IT IS FURTHER ORDERED that the motion to strike (Docket 17) is
DENIED.
Dated May 13, 2016.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
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