Kramer v. Regions Bank et al
Filing
24
ORDER GRANTING PLAINTIFF'S MOTION TO REMAND. Signed by Judge Samuel H. Mays, Jr., on March 2, 2010. (Mays, Samuel)
IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TENNESSEE WESTERN DIVISION ERNEST KRAMER, Plaintiff, v. REGIONS BANK; MORGAN ASSET MANAGEMENT, INC.; MORGAN KEEGAN & COMPANY, INC.; DELORES ANCELL, Defendants. ) ) ) ) ) ) ) ) ) ) ) )
Case No. 09-2408
ORDER GRANTING PLAINTIFF'S MOTION TO REMAND Before the Court is Plaintiff Ernest Kramer's August 7, 2009, Motion to Remand. (See Dkt. No. 16.) Defendants Regions
Bank, Morgan Asset Management, Inc.; Morgan Keegan & Company, Inc.; and Delores Ancell filed their Joint Response in
Opposition on August 27, 2009. Resp.") on
(See Dkt. No. 17.)
("Defs.'
Plaintiff filed a Reply to Defendants' Joint Response 15, 2010. only Plaintiff state-law generally causes asserts of that his
January
Complaint federal
alleges question
action,
making
jurisdiction
inappropriate.
(Plaintiff's
Memorandum in Support of Motion to Remand at 1.) ("Pl.'s Memo") Because Plaintiff's Complaint fails to raise any substantial
issues of federal law, the Court finds that it does not have federal question jurisdiction and GRANTS the Motion to Remand.
I.
BACKGROUND
Kramer is a resident of Maryville, Missouri, and is the named beneficiary of the Helga M. Kramer Revocable Trust (the "Trust"). (Compl. ¶ 1.) Helga Kramer was the Plaintiff's
mother, who died in 2003.
(Id. ¶ 9.)
Helga Kramer established
the Trust "in the late 1990's" and named Defendants1 as trustees. (Id. ¶ 7.) investment bonds. She intended that the Trust pursue a conservative strategy, and it invested primarily in tax-free
(Id. ¶ 8.)
As those bonds matured, Defendants placed
the money in a money market fund that was "a safe, conservative, income producing investment." (Id. ¶ 10.)
Defendants later approached Kramer and recommended that he invest in the Regions Morgan Keegan Select Intermediate Bond Fund-A (the "Fund"). (Id. ¶ 11.) Morgan Keegan & Company
created the Fund in 1999 and marketed it as a safe, incomeproducing investment. Nonetheless, the Fund lost between 50% (Id. ¶ 12.) Kramer alleges that
and 67% of its value in 2007.
the Fund was an unsuitable investment for his Trust and violated his directions to Defendants that they not speculate with Trust assets. (Id. ¶ 13.) as Rather than investing in conservative represented, the Fund invested in
investments, "illiquid,
1
Defendants
high-risk,
complex
structured
investment
vehicles
Plaintiff's Complaint refers to the trustees as "Defendants" without further specification. (See Compl. ¶ 7 ("Defendants at all times relevant to this complaint served as trustee of this trust . . . .").)
2
such
as
Collateralized
Debt
Obligations, (Id. ¶ 15.)
many
of
which
were
backed by subprime mortgages."
Kramer alleges that Defendants knew "of the extremely poor quality and increasing instability" of the Fund. That
instability increased because the Fund was an "open end fund." (Id. ¶¶ 17-18.) markets. Open-end funds are not traded in normal, open
Instead, when an investor decides to sell his shares,
he essentially "cashes out," and the proceeds are paid from the assets of the Fund itself. (Id. ¶ 17.) The Fund must maintain
liquefiable assets at all times to pay investors who sell their shares. As the value of the Fund's assets continued to decline, As the Fund sold
more investors sought to sell their shares.
off its "better" assets to pay those shareholders, the remaining assets became increasingly illiquid. (Id.) This deteriorating
situation forced Defendant Regions Bank to invest "over $130 million" to prevent the Fund from becoming insolvent. 18.) Plaintiff alleges that Regions Bank (Id. ¶ this
designed
injection of funds to hide the Fund's "tenuous condition" from the public. (Id. ¶ 19.) By the time Defendant Delores "Chip"
Ancell the trust officer responsible for the Trust advised Kramer to sell his shares, he had lost $60,000. 21.) Kramer filed suit in the Circuit Court for Jefferson (Id. ¶¶ 6, 20-
County, Alabama, on November 20, 2008. 3
He seeks to rely solely
on Alabama state-law for his causes of action, which include breach of fiduciary fraud, duty, negligence, or wantonness, breach of
contract,
reckless
negligent
misrepresentation,
suppression, deceit, conspiracy, and violation of the Alabama Securities Act, Ala. Code §§ 8-6-1 et seq. (Compl. ¶¶ 24-68.)
Defendants removed Kramer's suit to the United States District Court for the Middle District of Alabama on December 23, 2008. (See Notice of Removal, Dkt. No. 1.) the Judicial Panel on Multidistrict Pursuant to an order of Litigation, the Middle
District of Alabama transferred Kramer's case to this Court, where all related claims against Defendants arising from the collapse of their open and closed-in funds are pending. (See
Transfer Order at 2, Dkt. No. 14); see also In re Regions Morgan Keegan Sec., Derivative, and ERISA Litig., 598 F. Supp. 2d 1379, 1382 (J.P.M.L. 2009) (original order transferring related Morgan Keegan cases to Morgan the Western MDL). District Kramer of Tennessee the and
establishing
Keegan
filed
present
Motion to contest this Court's jurisdiction. II. STANDARD OF REVIEW
On a motion to remand, the defendant bears the burden of establishing that removal was proper. Long v. Bando Mfg. of Removal under 28
Am., Inc., 201 F.3d 754, 757 (6th Cir. 2000).
U.S.C. §§ 1441 and 1446 is appropriate when federal jurisdiction existed at the time of removal, 4 without consideration of
subsequent events. 369, 375 (6th Cir.
Williamson v. Aetna Life Ins. Co., 481 F.3d 2007). "The removal petition is to be
strictly construed, with all doubts resolved against removal." Her Majesty the Queen in Right of the Province of Ontario v. City of Detroit, 874 F.2d 332, 339 (6th Cir. 1989) (citing Removal
Wilson v. USDA, 584 F.2d 137, 142 (6th Cir. 1978)).
jurisdiction requires a defendant to show that a federal court has original jurisdiction over the action, either through: (1) diversity of citizenship under 28 U.S.C. § 1332; or (2) federal question jurisdiction under 28 U.S.C. §§ 1331, 1441. III. ANALYSIS A. When Federal Question Jurisdiction Exists A defendant's right to remove an action originally filed in state court is statutory. See 28 U.S.C. § 1441. Where, as
here, defendants seek to remove a suit to federal court based on federal question jurisdiction, they may do so only where the suit "arise[s] under the Constitution, treaties or laws of the United States."2 Id. § 1441(b); see also 28 U.S.C. § 1331. It
is well settled that the jurisdiction conferred by § 1331 is narrower than that allowed by Article III, Section 2 of the
Defendants cannot remove Kramer's suit based on this Court's diversity jurisdiction because Defendant Regions Bank is an Alabama corporation and Kramer originally filed his suit in Alabama state court. See 28 U.S.C. § 1441(b) (noting that a defendant may only remove a suit based on diversity jurisdiction where "none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought").
2
5
Constitution.
See Merrell Down Pharms., Inc. v. Thompson, 478 For a suit to arise under federal law, 1) federal law creates
U.S. 804, 807 (1986).
one of three preconditions must exist:
the plaintiff's cause of action; 2) plaintiff's right to relief under state law requires resolution of a substantial federal-law question actually in dispute; or 3) the claim is in substance one of federal law. City of Warren v. City of Detroit, 495 F.3d It is undisputed that, here, federal (See
282, 286 (6th Cir. 2007).
law does not create the causes of action Kramer asserts.3 Def.'s Resp. at 1.)
Where federal law does not expressly create a plaintiff's cause of action, a court looks to the face of a plaintiff's well-pleaded jurisdiction complaint is to determine whether Tax federal-question Bd. v. Const.
appropriate.
Franchise
Laborers Vacation Trust, 463 U.S. 1, 10 (1983).
Specifically,
the court examines "what necessarily appears in the plaintiff's statement of his own claim" in his complaint. Id. at 11
(internal quotation marks and citation omitted). is the master of his complaint.
The plaintiff
When an aggrieved party may
Defendants do not allege that Plaintiff has artfully pled his Complaint to avoid federal jurisdiction. The artful pleading doctrine applies only where federal law completely preempts a field of law. City of Warren, 495 F.3d at 288. The doctrine cannot apply here because "federal securities statutes do not provide the exclusive remedies for all securities fraud claims." Fin. and Trading, Ltd. v. Rhodia S.A., No. 04 Civ. 6083, 2004 U.S. Dist. LEXIS 24148, at *16 (S.D.N.Y. Nov. 30, 2004); see also Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367, 383 (1996) ("Congress plainly contemplated the possibility of dual litigation in state and federal courts relating to securities transactions.").
3
6
bring an action under both state and federal law, he may choose to limit his remedy to that provided by state law. Loftis v.
United Parcel Serv., Inc., 342 F.3d 509, 515 (6th Cir. 2003). However, a plaintiff runs the accompanying risk that his federal claims may later be precluded. Carpenter v. Wichita Falls
Indep. Sch. Dist., 44 F.3d 362, 366 (5th Cir. 1995). The defendant must demonstrate that the asserted federal element is "an essential one[] of the plaintiff's cause of
action" for federal jurisdiction to lie. Bank, 299 U.S. 109, 112 (1936).
Gully v. First Nat'l
A defendant may not establish
jurisdiction based on a theory not advanced by the plaintiff in his complaint. Merrell Dow, 478 U.S. at 809 n.6. Nor may a
defendant remove a case based on a federal defense, "even if the defense is anticipated in the plaintiff's complaint, and even if both parties concede that the federal defense is the only
question truly at issue."
Caterpillar, Inc. v. Williams, 482 Determining whether
U.S. 386, 393 (1987) (citation omitted).
federal question jurisdiction exists is ultimately a question of judgment where a court must "pick[] the substantial causes [of action] out of the web and lay[] the other ones aside," and then balance Congressional Franchise intent, Tax judicial 463 power, at and 20-21 federalism (internal
concerns.
Bd.,
U.S.
quotation marks and citation omitted); see also Merrell Dow, 478 U.S. at 810. 7
B. Defendants Have Failed to Establish Federal Question Jurisdiction Although Defendants admit that Plaintiff's claims are
state-law causes of action on their face, Defendants assert that Plaintiff's Complaint raises "substantial questions of federal law." federal about (Defs.' Resp. at 1.) regulations the Fund's govern lack the of Defendants argue that, because Fund, Plaintiff's and allegations
liquidity
diversification
necessarily call into question the federal standards governing those requirements. (Id. at 9-13.) Defendants also cite this
Court's earlier decision in Landers v. Morgan Asset Mgmt., No. 08-2260, 2009 U.S. Dist. LEXIS 30891, at *3 (W.D. Tenn. Mar. 31, 2009), where the Court denied a motion to remand in a case raising claims against the same Defendants. 12-13, 15-16.) (Defs.' Resp. at
Plaintiff responds that Defendants have not met
their burden to demonstrate that removal is proper because the face of his Complaint does not in any way rely on federal law. (Pl.'s Memo at 4-5.) Plaintiff's Complaint raises eleven, interrelated causes of action under Alabama statutory and common law. 68.) (Compl. ¶¶ 25-
Plaintiff does not reference any federal law or policy.
Defendants assert that their heavily-regulated status means that Plaintiff must prove that Defendants violated federal
regulations to succeed on his state-law claims, thus giving this
8
Court
federal the
question mere
jurisdiction. of an
(Defs.'
Resp.
at
9.)
However, violated
presence law
allegation create
that
Defendants question
federal
cannot
federal
jurisdiction.
See Merrill Dow, 478 U.S. at 813 ("[T]he mere
presence of a federal issue in a state cause of action does not automatically law claims confer federal-question "lose there their exists jurisdiction."). character a because of State it is
also
cannot that
common
knowledge
scheme
federal
regulation."
Pan Am. Petroleum Corp. v. Superior Court of Del., Defendants, instead, must establish
366 U.S. 656, 663 (1961).
that Plaintiff's "state-law claim[s] necessarily raise a stated federal federal issue, forum actually may disputed entertain and substantial, which a any
without
disturbing
congressionally approved balance of federal and state judicial responsibilities." Grable & Sons Metal Prods., Inc. v. Darue Comparing Plaintiff's
Eng'g & Mfg., 545 U.S. 308, 314 (2005).
Complaint with that of the plaintiffs in Landers demonstrates that federal jurisdiction is not present here. Although the plaintiffs in Landers argued that they relied solely on state law as the basis of their claims, a review of their complaint revealed that the source of the duties they cited was federal law. See, e.g., 2009 U.S. Dist. LEXIS 30891,
at *22 ("Plaintiffs have asserted no source of Defendant's duty of care other than federal securities 9 laws."); id. at *23
(complaint alleged defendants violated § 13 of the Investment Company Act of 1940); id. at *24-25 (alleging violations of SEC guidelines). defendants' (accusing dealing").) Kramer duties: the does state of allege an alternative law. rank source ¶ of 27 self
fiduciary "the most
(Compl. form of
Defendants
Rather than alleging that the Defendants violated
SEC guidelines, the Investment Company Act of 1940, or other federal securities laws, Kramer alleges that Defendants violated the duties Alabama common law creates when a trustee-beneficiary relationship exists. Compare Landers, 2009 U.S. Dist. LEXIS
30891, at *22-25, with Compl. ¶¶ 30, 50 (noting that Defendants failed to act as prudent investors with Trust assets and failed to properly advise Plaintiff of his best investment options). Defendants duties Alabama respond common that law they cannot on have violated because the they
places
trustees
followed all applicable federal regulations.
Defendants intend
to assert that their actions to protect the Fund's liquidity, their public disclosures, and their valuation of the Fund's
shares on a daily basis met the guidelines federal securities laws establish. (E.g., Defs.' Resp. at 10-11.) However,
Defendants' intended arguments are defenses. For more than a century, it has been clear that a party may not invoke federal jurisdiction on the basis of a defense even one that is certain to be asserted. 10 "[T]he right of the
plaintiff
to
sue
cannot
depend
on
the
defense
which
the
defendant may choose to set up."
Tennessee v. Union & Planters'
Bank, 152 U.S. 454, 459 (1894) (internal quotation marks and citation omitted); see also Louisville & Nashville R.R. Co. v. Mottley, 211 U.S. 149, 152 (1908) ("[A] suit arises under the Constitution and laws of the United States only when the
plaintiff's statement of his own cause of action shows that it is based upon those laws or that Constitution."). governs the relationship between Defendants as Alabama law trustee and
Kramer as beneficiary, and Kramer has not pled negligence per se. At most, federal regulations would provide evidence of
whether Defendants have met the applicable standard of care. See Jones Food Co. v. Shipman, 981 So.2d 355, 364 n.9 (Ala. 2006) ("[N]ot every violation of a statute or an ordinance is negligence Lightsey, per 925 se." So.2d (quoting 927, 931 Parker (Ala. Bldg. 2005) Servs. Co. v. in
(alteration
original))). IV. CONCLUSION
Stripped to its essential elements, Plaintiff's suit is a purely state-law action that contains claims for which federal standards might serve as evidence of whether the Defendants have violated exactly their the state-law of duties. the This Supreme suit Court is, has therefore, repeatedly
type
claim
instructed does not belong in federal court. 11
Grable & Sons, 545
U.S. at 314 (explaining that the Court has not "treated `federal issue' as a password opening federal courts to any state action embracing a point of federal law."); Merrell Dow, 478 U.S. at 813; Franchise Tax Bd., 463 U.S. at 11; Union & Planters' Bank, Because Defendants have failed to demonstrate
152 U.S. at 459.
that Kramer's claim is in substance one of federal law or that his right to relief under state law requires resolution of a substantial federal-law question actually in dispute, the Court GRANTS the Motion to Remand. This matter is REMANDED to City of Warren, 495 F.3d at 286. the Circuit Court for Jefferson
County, Alabama. So ordered this 2nd day of March, 2010.
s/ Samuel H. Mays, Jr. SAMUEL H. MAYS, JR. UNITED STATES DISTRICT JUDGE
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