Hua v. Shen
Filing
9
Memorandum Opinion and Order 8 Motion for Injunction, filed by Chen Zhao Hua. (Ordered by Chief Judge Barbara M.G. Lynn on 9/8/2016) (ndt)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
CHEN ZHAO HUA,
Plaintiff,
Civil Action No. 3:16-CV-2399-M
v.
ERIC PO-CHI SHEN
Defendants.
MEMORANDUM OPINION AND ORDER
Before the Court is Plaintiffs’ Emergency Application for Injunctive Relief with
Incorporated Brief in Support. [Docket #8]. For the reasons stated below, the Court sua sponte
finds that it lacks subject matter jurisdiction, and this case is REMANDED to the 160th Judicial
District Court of Dallas County, Texas. Because the Court does not have subject matter
jurisdiction, it does not reach Plaintiff’s Application for Injunctive Relief.
I.
BACKGROUND
This case was initially filed in the 160th Judicial District Court of Dallas County, Texas,
and later removed by Defendant Eric Shen. The initial claim arose out of a Commission
Agreement (the “Agreement”) allegedly entered into on March 12, 2006, between REDDs, a
Delaware Limited Liability Company with its sole member domiciled in New York, and Roter
Stein Anlagen AG Ltd. (“RSA”), a foreign corporation.1 REDDs and RSA (through its sole
director, Eric Shen) entered into the Agreement for the purchase of several rare red diamonds,
with the hope that they would raise in value over time. REDDs bought and owned a 30%
1
These facts are taken from REDDs’ pleadings and Chen’s Petition in Intervention filed in the state court action,
and are assumed to be true.
interest in any sales proceeds of the diamonds. In the event that RSA chose not to sell or chose
to gift or transfer the diamonds in lieu of a market sale, REDDs would be entitled to a 10%
commission based on the original acquisition cost of each diamond. The Agreement provided
that “[a]ny action to enforce the terms of this Agreement shall take place in Dallas, Texas,” in
accordance with the laws of the State of Texas.
On March 4, 2015, REDDs filed suit in Dallas District Court, alleging that Shen, through
RSA, transferred the diamonds without authorization and in violation of the Agreement, and that
RSA and Shen are liable for conversion of REDDs’ property interest in the diamonds. On July
18, 2016, Chen Zhao Hua (“Chen”) filed an Original Petition in Intervention in the state action
against Shen, alleging that Shen had embezzled over $240 million from Chen. Chen claimed
that Shen had purchased the red diamonds with funds embezzled from Chen, and accordingly
intervened in the state court action to “assert a justiciable interest in the disposition of the red
diamonds and recover the rest of the embezzled funds from Eric Shen.” [Docket Entry #6-1 at
351]. Chen alleges he currently has possession and control of the diamonds, which he claims are
located in Hong Kong. Id.
On August 1, 2016, Shen filed a Special Appearance in state court, contesting the court’s
exercise of personal jurisdiction over him with respect to Chen’s claims. On August 17, 2016,
Shen removed the Original Petition in Intervention to federal court. Currently pending before
the Court is Chen’s Motion to Extend Time and for Expedited Jurisdictional Discovery. [Docket
Entry #7].
II.
JURISDICTION STANDARD
Subject matter jurisdiction is a threshold ground for denying audience to a case on the
merits, and courts must reach the threshold issue before reaching claims on the merits. Pervasive
Software Inc. v. Lexware GmbH & Co. KG, 688 F.3d 214, 232 (5th Cir. 2012). A defendant may
remove a state court action to federal court only if the action originally could have been brought
in federal court. 28 U.S.C. § 1441(a). The removing defendant bears the burden of establishing
federal jurisdiction. Winters v. Diamond Shamrock Chem. Co., 149 F.3d 387, 397 (5th Cir.
1998). A federal court has subject matter jurisdiction primarily over two types of cases: (1)
those “arising under the Constitution, laws, or treaties of the United States” (“federal question”
jurisdiction), 28 U.S.C. § 1331, and (2) those in which the parties are citizens of different states,
and the amount in controversy exceeds $75,000 (“diversity” jurisdiction). “Because removal
raises significant federalism concerns, the removal statute is strictly construed ‘and any doubt as
to the propriety of removal should be resolved in favor of remand.’” Gutierrez v. Flores, 5453
F.3d 248, 251 (5th Cir. 2008). A district court must remand a case if, at any time before final
judgment, it appears that the court lacks subject matter jurisdiction. 28 U.S.C. § 1447(c). The
removing party bears the burden of establishing jurisdiction. Breitling v. LNV Corp., 86 F. Supp.
3d 564, 569 (N.D. Tex. 2015).
As a general matter, diversity jurisdiction provides a federal district court with original
jurisdiction. 28 U.S.C. § 1332(a). The removal statute allows a defendant to remove a case as
follows:
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 or the defendants, to the
district court of the United States for the district and division embracing the place
where such action is pending.
28 U.S.C. § 1441(a) (emphasis added). Under a plain reading, the phrase “civil action” refers to
an entire case rather than separate causes of action within a case. Jackson v. Wal-Mart Stores
Texas, LLC, 925 F. Supp. 2d 810, 813 (N.D. Tex. 2013) (citing cases concluding the same);
Carey v. Bank of Am., N.A., 904 F. Supp. 2d 617, 619–20 (N.D. Tex. 2012); Escobedo v. Time
Warner Entm’t Advance Newhouse P’Ship, 811 F. Supp. 2d 1289, 1292 (W.D. Tex. 2011). The
Fifth Circuit has recognized that in a diversity action where all claims relate to the same
constitutional case, the removal statute does not permit individual claims to be removed, but only
entire actions. Gray ex rel. Rudd v. Beverly Enters.-Miss., 390 F.3d 400, 411 (5th Cir. 2004)
(citing United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966) (defining an entire Article III
“case” as claims deriving from a “common nucleus of operative fact.”); Arango v. Guzman
Travel Advisors Corp., 621 F.2d 1371, 1376 (5th Cir. 1980) (stating that on removal, cases are
considered in their entirety)).
III.
JURISDICTION ANALYSIS
Under the statutory framework analyzed above, Shen’s removal was improper. Although
the parties appear to be diverse and the amount in controversy exceeds the statutory requirement
of $75,000,2 removal did not conform to the requirements of 28 U.S.C. § 1441. In his Notice of
Removal, Shen indicated he was removing only the Original Petition in Intervention:
Shen hereby gives notice . . . that Intervenor's Original Petition in Intervention and
Intervenor's causes of action set forth therein have been removed to the United
States District Court for the Northern District of Texas-Dallas Division. Shen does
not seek removal of the State Action Plaintiff REDDs’ separate and
independent State Action claims, and Intervenor has not asserted any claims or
causes of action against REDDs or RSA.
Def. Notice of Removal at 3. [Docket Entry #1] (emphasis added). Section 1441(a) permits
removal of only an entire case, yet Shen has removed only the claims asserted against him by
Chen, the intervenor.
2
Chen, the intervention Plaintiff, is a citizen of China and a nonresident of the United States. Shen, the Defendant,
is a resident and citizen of California. Chen seeks damages against Shen in excess of $240 million. See Def. Notice
of Removal [Docket Entry #1].
Furthermore, there is no authority to suggest that a plea in intervention in a preexisting
case in Texas state court is a separate case or civil action, such that it could be removed
separately. Texas Rule of Civil Procedure 60 governs intervenor’s pleadings in Texas state
court, and provides that “[a]ny party may intervene by filing a pleading, subject to being stricken
out by the court for sufficient cause on the motion of any party.” Tex. R. Civ. P. 60. An
intervenor does not have to secure the court’s permission to intervene in a case or prove
standing. State v. Naylor, 466 S.W.3d 783, 788 (Tex. 2015). Absent a motion to strike the
petition in intervention, one who files a petition in intervention generally becomes a party to the
suit for all purposes. Abdullatif v. Erpile, LLC, 460 S.W.3d 685, 694 n.9 (Tex. App.—Hous.
[14th Dist.] 2015) (citing Guar. Fed. Sav. Bank v. Horseshoe Operating Co., 793 S.W.2d 652,
657 (Tex. 1990)). At the time the case was removed to federal court, no motion to strike Chen’s
petition in intervention had been filed, nor had the state court ruled on such a motion. See Notice
of Filing Supp. State Court File [Docket Entry #6]. Thus, when Chen filed his petition in
intervention, he became a party to the suit for all purposes; his claims against Shen were part of
the same civil action as REDDs’ claims against Shen. Accordingly, for removal to be proper
under § 1441(a), the entire case—including REDDs’ claims against Shen—would had to have
been removed. Because Shen only removed Chen’s intervention claims, removal was improper.
In his Notice of Removal, Shen describes Chen’s intervention claims against Shen as
“wholly separate and independent of REDDs’ State Action claims in which Intervenor has no
justiciable interest” and therefore he “does not seek removal of the State Action Plaintiff
REDDs’ separate and independent State Action claims, and Intervenor has not asserted any
claims or causes of action against REDDs or RSA.” Def. Notice of Removal at 2–3. In effect,
Shen attempts to sever Chen’s intervention claims from the preexisting state action through
removal.
Shen’s characterization of Chen’s claims as “separate and independent” from REDDs’
claims is unpersuasive.3 Although Chen asserts many claims against Shen in his Petition in
Intervention,4 the Petition in Intervention asserts opposition to “REDDs’ request for a
constructive trust or lien” on the red diamonds and Chen “intervenes to assert a justiciable
interest in the disposition of the red diamonds.” Pl. Pet. in Intervention at 2. Chen thus asserts a
claim in the same property at issue in the original state action, and he intervened accordingly to
protect his interest. REDDs’ and Chen’s claims are clearly related, and to sever REDDs’ claims
from Chen’s would hinder the execution of justice, not enable it.
For the foregoing reasons, it is determined that Defendant Shen’s removal of the Original
Petition in Intervention was improper under § 1441(a). The Court finds sua sponte that it does
not have subject matter jurisdiction.
3
Shen’s use of the phrase “separate and independent” may relate to a prior version of § 1441(c), which considered
removal of a “separate and independent claim or cause of action”; however, § 1441(c), as amended effective January
7, 2012, no longer refers to “separate and independent” claims or causes of action, but instead refers to claims not
within the original or supplemental jurisdiction of the district court, or a claim that has been made nonremoveable by
statute. See Federal Courts Jurisdiction and Venue Clarification Act of 2011, Pub. L. No. 112-63, § 103, 125 Stat.
758, 759–60.
As currently enacted, § 1441(c) controls removal of cases that involve both removable and nonremovable
claims, and permits that the entire action may be removed if the action would be removable without the inclusion of
the claim lacking original or supplemental jurisdiction. 28 U.S.C. § 1441(c)(B). Following removal, the district
court “shall sever from the action” all claims lacking original or supplemental jurisdiction, and remand them back to
the state court from which the action was removed. Id. § 1441(c)(2). However, § 1441(c) is inapplicable in this
case; the state action originally filed in Dallas County Court contained only claims within the district court’s original
diversity jurisdiction, because all the parties were diverse from one another and the amount in controversy exceeded
$75,000. Thus, it was Shen’s decision to selectively remove only some of the claims in the case that makes removal
improper under § 1441, such that the Court lacks removal jurisdiction and accordingly has no jurisdiction to hear the
case.
4
In addition to seeking a declaratory judgment that he is the owner of the red diamonds, Chen also pursues claims
related to Shen’s alleged embezzlement of $240 million and assorted luxury goods, including claims for conversion,
fraud, breach of fiduciary duty, and breach of contract. Pl. Orig. Petition in Intervention at 9–14.
IV.
CONCLUSION
For the foregoing reasons, the Court finds sua sponte that it does not have subject matter
jurisdiction. The case is REMANDED to the 160th Judicial District Court of Dallas County,
Texas.
SO ORDERED.
September 8, 2016.
_________________________________
BARBARA M. G. LYNN
CHIEF JUDGE
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