Moreno Energy, Inc. v. Marathon Oil Company et al
Filing
21
OPINION AND ORDER denying 8 Motion to Remand; denying 12 Motion to Dismiss for Failure to State a Claim. Defendant Marathon to file within 30 days an amended notice of removal and to provide evidence of the citizenship of MEGPL and MEGIL. Plain tiff's 8 Motion for Remand is currently denied, but may be reurged after Marathon'ssubmission. Defendants' 12 Motion to Dismiss is DENIED without prejudice as premature. (Signed by Judge Melinda Harmon) Parties notified.(htippen, )
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
MORENO ENERGY, INC.,
Plaintiff,
VS.
MARATHON OIL COMPANY, MARATHON
E.G. PRODUCTION LIMITED, and
MARATHON E.G. INTERNATIONAL
LIMITED,
Defendant.
§
§
§
§
§
§
§
§
§
§
§
§
CIVIL ACTION H-11-4518
OPINION AND ORDER
Pending before the Court in the above referenced declaratory
judgment action, alleging breach of contract, conversion,
unjust
enrichment/money
had
and
received,
arising
out
and
of
Defendants’ alleged efforts to deprive Plaintiff Moreno Energy,
Inc. (“Moreno”), a citizen of Texas, of substantial portions of its
overriding royalty interest in the Alba Field, a “super giant” gas
condensate field located in Equatorial Guinea, West Africa, is
Moreno’s motion to remand (instrument #8).
Relevant Law
The right to remove a case from state court depends upon the
plaintiff’s pleading at the time of the petition for removal.
Pullman Co. v. Jenkins, 305 U.S. 534, 537-38 (1939); Cavallini v.
State Farm Mutual Auto Ins., 44 F.3d 256, 264 (5th Cir. 1995); Ford
v. Property & Cas. Ins. Co. of Hartford, No. Civ. A. H-09-1731,
-1-
2009 WL 4825222, *2 (S.D. Tex. Dec. 9, 2009).
Under 28 U.S.C. § 1441(a)1 any state court action over which
federal courts would have original jurisdiction may be removed from
state to federal court.
Gasch v. Hartford Accident & Indemnity
Co., 491 F.3d 278, 282 (5th Cir. 2007; Guttierrez v. Flores, 543
F.3d
248,
251
(5th
Cir.
2008)(“A
district
court
has
removal
jurisdiction in any case where it has original jurisdiction.”).
Under 28 U.S.C. §1332, a defendant may remove a case if there
is (1) complete diversity of citizenship and (2) the amount in
controversy is greater than $75,000, exclusive of interests and
costs. When jurisdiction is based on diversity, citizenship of the
parties must be distinctly and affirmatively alleged.
Getty Oil
Corp. v. Ins. Co. of North America, 841 F.2d 1254, 1259 (5th Cir.
1988), citing McGovern v. American Airlines, Inc., 511 F.2d 653,
654 (5th Cir. 1975).
It is black letter law that diversity
jurisdiction in a case involving a limited partnership or limited
liability partnership is based on the citizenship of all members of
the partnership.
(1990)(“We
adhere
Carden v. Arkoma Assoc., 494 U.S. 185, 195
to
our
oft-repeated
1
rule
that
diversity
Title 28 U.S.C. § 1441(a) states, “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.” The removing party bears the burden of showing that subject matter
jurisdiction exists and that removal was proper. Manguno v. Prudential Prop. & Cas. Ins. Co.,
276 F.3d 720, 723 (5th Cir. 2002). Any doubts are construed against removal because the
removal statute is strictly construed in favor of remand. Id.
-2-
jurisdiction in a suit by or against [an artificial entity] depends
on the citizenship of ‘all the members,’ ‘the several persons
composing such association,’ ‘each of its members.’” [citations
omitted]); Mullins v. TextAmerica, Inc., 300 Fed. App’x 259, 259
(5th Cir. 2008)(the citizenship of a limited partnership is that of
all its partners, general and limited).
When partners or members
of a limited partnership are themselves entities or associations,
each layer of members or partners must be traced until one arrives
at an entity not a limited partnership.
98.
Mullins, 564 F.3d at 397-
“‘Failure to adequately allege the basis for diversity
jurisdiction mandates dismissal.’” Mullins, 300 Fed. App’x at 259,
quoting Stafford v. Mobil Oil Corp., 945 F.2d 803, 805 (5th Cir.
1991).
The doctrine of improper joinder, or fraudulent joinder,2
prevents
defeat
of
federal
removal
jurisdiction
premised
on
diversity by the presence of an improperly joined, non-diverse
defendant. Borden v. Allstate Ins. Co., 589 F.3d 168, 171 (5th Cir.
2009).
Citizenship of an improperly joined party is totally
disregarded in determining the court’s subject matter jurisdiction.
Smallwood v. Illinois Cent. R.R. Co., 385 F.3d 568, 572 (5th Cir.
2003).
2
The Fifth Circuit prefers the term “improper joinder” to “fraudulent joinder” because it
is more consistent with the statutory language in 28 U.S.C. §§ 1141 and 1332. Smallwood v. Ill.
Cent. R. Co., 385 F.3d 568, 571 n.1 and 572-73 (5th Cir. 2004).
-3-
“A
claim
of
fraudulent
joinder
must
be
pleaded
with
particularity and supported by clear and convincing evidence.”
Parks v. New York Times Co., 308 F.2d 474, 478 (5th Cir. 1962),
cert. denied, 376 U.S. 949 (1964).
established
by
showing
(1)
actual
Improper joinder may be
fraud
in
the
pleading
of
jurisdictional facts or (2) an inability to establish a cause of
action against the non-diverse defendant in state court.
491 F.3d at 281; Smallwood, 385 F.3d at 573.
Gasch,
Defendants claiming
improper joinder based on the second type bear a heavy burden of
showing there is no possibility of recovery by the plaintiff
against the instate defendant, i.e., in other words that there is
no reasonable basis for predicting that state law would allow
recovery against the in-state defendant.
Travis v. Irby, 326 F.3d
644, 649 (5th Cir. 2003); Smallwood, 385 F.3d at 576. A “reasonable
basis” means more than a mere a hypothetical basis.
Griggs v.
State Farm Lloyds, 181 F.3d 694, 701 (5th Cir. 1999)(“whether the
plaintiff has stated a valid state law cause of action depends upon
and is tied to the factual fit between the plaintiffs’ allegations
and the pleaded theory of recovery”).
To determine whether a plaintiff has a “reasonable basis for
recovery under state law, the court may “conduct a Rule 12(b)(6)type analysis.”
Smallwood, 385 F.3d at 573; Anderson v. Georgia
Gulf Lake Charles, 342 Fed. Appx. 911, 915 (5th Cir. 2009).
First
the court should look at the pleadings to determine whether the
-4-
allegations state a claim under state law against the in-state
defendant.
Smallwood, 385 F.3d at 573.
If the “plaintiff has
stated a claim, but has misstated or omitted discrete facts that
would determine the propriety of joinder,” the court may look
beyond the pleadings and consider summary judgment-type evidence.
Georgia Gulf, 342 Fed. Appx. at 915-16.
Discovery should be
restricted and the summary inquiry should be limited to identifying
“discrete
and
undisputed
facts
that
would
bar
a
plaintiffs’
recovery against an in-state defendant; anything more risks ‘moving
the court beyond jurisdiction and into the resolution of the merits
. . . .’”
Id. at 916, quoting Smallwood, 385 F.3d at 573-74.3
The district court must resolve all contested fact issues and
ambiguities of state law in favor of the plaintiff and remand.
Gasch, 491 F.3d at 281.
The Fifth Circuit explains, since “‘the
effect of removal is to deprive the state court of an action
properly
concerns.’
before
it,
removal
raises
significant
federalism
The removal statute is therefore to be strictly
construed, and any doubt about the propriety of removal must be
3
When a court’s determination that there is no reasonable basis for predicting that state
law would permit the plaintiff to recover against the in-state defendant “also compels the same
result for the nonresident defendant, there is no improper joinder; there is only a lawsuit lacking
in merit. In such cases, it makes little sense to single out the in-state defendants as ‘sham’
defendants and call their joinder improper.” Smallwood, 385 F.3d at 574, quoted by McDonal v.
Abbott Laboratories, 408 F.3d 177, 183 (5th Cir. 2005). Where the inquiry shows the same
result for resident and nonresident defendants, it becomes an issue on the merits, which is
beyond the bounds of the jurisdictional inquiry of an improper joinder review, and remand is
necessary. McDonal, 408 F.3d at 183-84.
-5-
resolved in favor of remand.”
Id. at 281-82, quoting Carpenter v.
Wichita Falls Indep. Sch. Dist., 44 F.3d 362, 365-66 (5th Cir.
1995).
Procedural defects may also defeat removal jurisdiction.
“A
motion to remand the case on the basis of any defect in removal
procedure needs to be made within 30 days after the filing of the
notice of removal.”
28 U.S.C. § 1447(c).4
A defect in the
procedure for removal, if timely asserted within 30 days, may be
grounds for remand to state court; if the plaintiff fails to assert
a procedural defect in a timely motion to remand, it is waived.
Caterpillar, Inc. v. Lewis, 519 U.S. 61 (1996); Moody v. Commercial
Ins. Co. of Newark, N.J., 753 F. Supp. 198, 201-02 (N.D. Tex.
1990).
“‘[M]ere
jurisdictional.’”
modal
or
procedural
James
J.
Flanagan
defects
Shipping
are
not
Corp.
v.
Mediterranean Shipping Co., S.A.,499 F. Supp. 2d 710, 711-12 &n.1
(E.D. Tex. 2007)(concluding that “the omission of a copy of the
service of process is merely a procedural error with no impact on
jurisdiction” and allowing Defendants to supplement the removal
record), quoting Covington v. Indemnity Ins. Co. of North America,
251 F.2d at 933.
See also
Johnson v. Helmerich & Payne, Inc., 892
F.2d 422, 423 (5th Cir. 1990)(The failure of all defendants to join
4
If the defect in removal is jurisdictional rather than procedural, the court must remand
the case to state court and the motion to remand my be brought any time before final judgment.
28 U.S.C. § 1447(c).
-6-
in or consent to the removal petition within thirty days of service
is not a jurisdictional defect); Getty Oil Corp. v. Ins. Co. of N.
Am., 841 F.2d 1254, 1263 (5th Cir. 1988).
Title 28 U.S.C. § 1446 governs the procedure for removal of a
case from state to federal district court.
Section 1446(a)
provides,
A defendant or defendants desiring to remove any civil
action or criminal prosecution from a State court shall
file in the district court of the United States for the
district and division within which such action is pending
a verified petition containing a short and plain
statement of the facts which entitle him or them to
removal together with a copy of all process, pleadings
and orders served upon him or them in such action.
[emphasis added by the court]
Section 1446(b) reads,
The petition for removal of a civil action or proceeding
shall be filed within thirty days after the receipt by
the defendant through service or otherwise, of a copy of
the initial pleading setting forth the claim for relief
upon which such action or proceedings is based or within
thirty days after the service of summons upon the
defendant if such initial pleading has then been filed in
court and is not required to be served on the defendant,
whichever period is shorter.
Courts have interpreted § 1446(a) to mandate that all then
served and properly joined defendants must consent to the removal
and join in the removal petition. Fontenot v. Global Marine, Inc.,
703 F.2d 867, 870 n.3 (5th Cir. 1983); Tri-Cities Newspapers, Inc.
v. Tri-Cities Printing Pressmen and Assistants’ Local 349, 427 F.2d
325, 326 (5th Cir. 1970).
In the Fifth Circuit, all served
defendants must join in the petition for removal within thirty days
-7-
of service on the first defendant, and if consent of all served
defendants is not timely obtained, the removal is procedurally
Doe v. Kerwood, 969 F. 2d 165, 167, 169 (5th Cir. 1992).
defective.
This “rule of unanimity” requires that there be “some timely filed
written indication from each served defendant, or from some person
or entity purporting to formally act on its behalf in this respect
and to have the authority to do so, that it has actually consented
to such action”; each defendant does not need to sign the notice of
removal to effect removal.
Getty Oil Corp. v. Ins. Co. of N. Am.,
841 F.2d 1254, 1262 n.11 (5th Cir. 1988).
There need only be some
timely filed written indication from each defendant or from someone
purporting to represent that defendant formally.
F.2d at 1262 n.11.
Getty Oil, 841
A defendant is free to amend a notice of
removal within the thirty-day period, but once that thirty-day
period
has
expired,
amendment
is
not
substantive defect in removal proceedings.
available
to
cure
a
Moody v. Commercial
Ins. Co. of Newark, N.J., 753 F. Supp. 198, 201-02 (N.D. Tex.
1990).
Nevertheless there are three well-recognized exceptions to the
rule that all defendants must join in the removal petitions to
effect removal:
(1) where the defendant was not yet served with
process at the time the removal petition was filed5; (2) where a
defendant
5
is
merely
a
nominal,
unnecessary
or
formal
See, e.g., Jones v. Houston ISD, 979 F.2d 1004, 1007 (5th Cir. 1992).
-8-
party-
defendant6; and (3) where the removed claim is a separate and
independent claim under 28 U.S.C. § 1441(c).
Moody v. Commercial
Ins. Co., 753 F. Supp. 198, 200 (N.D. Tex. 1990).
Defendant’s Motion to Remand
Defendant
Marathon
Oil
Company,
which
has
an
office
in
Houston, Texas, timely removed this action from the 152nd Judicial
District
Court
of
Harris
County,
Texas,
solely
on
diversity
jurisdiction and alleges that it was improperly joined to defeat
jurisdiction and therefore its citizenship should be disregarded.7
Notice of Removal, #1.
The
state
court
petition
identifies
Moreno
as
a
Texas
corporation with its principal place of business in Houston, Texas,
while stating that Marathon is an Ohio corporation with its
principal place of business in Houston, Texas.
The petition
identifies MEGPL and MEGIL as organized under the laws of Grand
Cayman and having their principal places of business in Houston,
6
See, e.g., Farias v. Bexar County Board of Trustees for Mental Health Mental
Retardation Services, 925 F.2d 866, 871 (5th Cir.), cert. denied, 502 U.S. 866 (1991). Whether a
party is “‘nominal’” for removal purposes depends on “‘whether in the absence of the
[defendant], the Court can enter a final judgment consistent with equity and good conscience
which would not be in any way unfair or inequitable to the plaintiff.’” Acosta v. Master
Maintenance and Construction, Inc., 452 F.3d 373, 379 (5th Cir. 2006), quoting Tri-Cities
Newspapers, Inc. v. Tri-Cities Printing Pressmen and Assistants’ Local 349, 427 F.2d 325, 327
(5th Cir. 1970). Another exception is where there is improper or fraudulent joinder of a
defendant. Jernigan v. Ashland Oil, Inc., 989 F.2d 812, 815 (5th Cir.), cert. denied, 510 U.S. 868
(1993).
7
Originally Marathon also argued that Defendants Marathon E.G. Production Limited
(“MEGPL”) and Marathon EG International, Limited’s (“MEGIL) were not properly served, but
that defect has been cured and MEGPL and MEGIL have appeared in this action.
-9-
Texas.
#1, Ex. B, ¶¶ 6, 7, 8, 9.
Marathon claims that MEGPL and
MEGIL actually have their principal places of business in the
Republic of Equatorial Guinea and that the amount in controversy
exceeds $75,000, so the removal was proper.
Moreno insists that remand is appropriate for several reasons.
First, Moreno argues that as a nondiverse defendant, Marathon
has no standing to remove this case on diversity.
Pate v. Adell
Compounding, Inc., 970 F. Supp. 542, 548 (M.D. La. 1997)(a nondiverse defendant has no standing to remove a case to federal
court),8 citing Jewell v. Dudley L. Moore Ins., Inc., 872 F. Supp.
1517, 1519-20 (M.D. La. 1997)(a “federal court lacks the power to
act upon any substantive motions submitted by a non-diverse party
in a diversity case or to exercise subject matter jurisdiction over
that party in any fashion”).
9
Second, Marathon’s Notice of Removal fails to allege facts
sufficient to establish jurisdiction, in particular the citizenship
of MEGPL and MEGIL.
According to Moreno, the citizenship of a
8
Marathon objects that this statement in Pate was dictum because in Pate, a non-diverse
defendant had not removed the case but only joined in an amended notice of removal to correct
an allegation that the removing defendant had made about the non-diverse defendant’s principal
place of business. #10 at p. 4.
9
Marathon responds that in Jewell the court did not opine about whether a non-diverse
party may remove, but held that a non-diverse party claiming to have been fraudulently joined
lacked standing to participate in the discovery proceedings in that action. #10 at p. 4. The Court
agrees. “If the nondiverse party has not been fraudulently joined, the court must remand the
case. If the nondiverse party has been fraudulently joined, the proper procedure is simply to
ignore his presence.” Jewell, 872 F. Supp. at 1520. citing Bankston v. BASF Corp., 827 F. Supp.
1239 (M.D. La. 1993).
-10-
limited liability company, unlike a corporation, is not determined
by where the entity was organized or has its principal place of
business under 28 U.S.C. § 1332(c)(1)(deeming a corporation a
citizen of both its state of incorporation and its principal place
of
business);
instead,
“like
limited
partnerships
and
other
unincorporated associations or entities, the citizenship of a LLC
is determined by the citizenship of all of its members.”
Harvey v.
Grey Wolf Drilling Co., 542 F.3d 1077, 1080 (5th Cir. 2008)(“This
Court
has
refused
to
treat
unincorporated
associations
as
corporations for diversity purposes.”), citing Carden, 494 U.S. at
189 (“[W]hile the rule regarding the treatment of corporations as
‘citizens’ has become firmly established, we have . . . just as
firmly resisted extending that treatment to other entities.”).
Marathon has failed to identify the citizenship of MEGPL’s and
MEGIL’s
members.
Where
a
pleading
fails
to
mention
the
organization’s members and their respective states of citizenship,
it
is
“insufficient
jurisdiction.”
to
establish
the
existence
of
diversity
Mullins v. TestAmerica Inc., 300 Fed. App’x 259,
259-60 (5th Cir. 2008). Because Marathon has failed to allege facts
to support diversity jurisdiction, Moreno argues that the Court
should remand it to state court.
Third, the Notice of Removal, itself, alleges facts that
negate this Court’ jurisdiction, specifically that Plaintiff and
Marathon are both citizens of Texas.
-11-
Last,
Marathon’s
claim
of
improper
joinder
is
meritless
because Marathon cannot carry its heavy burden to establish that
there is no possibility that Moreno could establish a cause of
action against Marathon.
Moreno has sued Marathon for conversion
and unjust enrichment, in its taking royalty proceeds and foreign
tax credits that rightfully belong to Moreno, and for money had and
received.
Moreno’s
pleadings
Moreno insists there is a close factual fit between
allegations
allege
each
and
theories10
element
of
of
the
recovery
two
causes
because
of
the
action.
Moreover the pleadings easily satisfy Texas’ “fair notice” pleading
standard.
Horizon/CMS Healthcare Corp. v. Auld, 34 S.W. 3d 887,
896 (Tex. 2000)(a pleading is adequate under the “fair notice”
standard if “an opposing attorney of reasonable competence, on
review of the
pleadings can ascertain the nature and basic issues
of the controversy and the testimony [that will] probably [be]
relevant [at trial]”); Tex. R. Civ. P. 47(a)(pleadings “shall
contain . . . a short statement of the cause of action sufficient
to give fair notice of the claim involved . . . .”).11
Although
10
Griggs v. State Farm Lloyds, 181 F.3d 694, 701 (5th Cir. 1999)(whether a plaintiff has
alleged a valid state law cause of action depends upon “the factual fit between the plaintiff’s
allegations and the pleaded theory of recovery.”
11
This Court also points out Elite Door & Trim, Inc. v. Tapia, 355 S.W. 3d 757, 766
(Tex. App.--Dallas 2011)(“The fair notice pleading standard serves to give the opposing party
information sufficient to enable him to prepare a defense. . . . However, it also relieves the
pleader of the burden of pleading evidentiary matters with meticulous particularity.”).
Furthermore, “a pleading will be liberally construed in favor of the pleader, and the court should
uphold the petition as to a cause of action that may be reasonably inferred from what is
-12-
Marathon complains that some of Moreno’s factual allegations that
are against all three Marathon Defendants and that such vague and
general allegations fail to state a claim, Moreno insists its
allegations easily satisfy Texas’ fair notice pleading standard.
Moreno also cites D’Souze v. Peerless Indem. Ins. Co. No. Civ. A.
H-10-4431, 2011 WL 285154, *3 (S.D. Tex. Jan. 25, 2011), in which
the court held that a Texas state-court petition alleging some
facts
against
defendants
individual
provided
a
defendants
reasonable
and
basis
others
to
against
predict
that
all
the
plaintiff might recover against the individual in-state defendant
and remanded the whole case.12
See also Rubin v. DaimlerChrysler
Corp., No. H-04-4021, 2005 WL 1214605, *2 (S.D. Tex. May 20,
2005)(where the petition reveals a reasonable basis for recovery on
one cause of action, the court must remand the entire suit).
Furthermore Moreno asks for an award of costs and fees under
28 U.S.C. § 1447(c) on remand.
Marathon’s Opposition (#10)
specifically stated, even if an element of the cause of action is not alleged.” Cal Dive Intern.,
Inc. v. Chartis Claims, Inc., Civ. A. No. 1:11:CV-347, 2011 WL 5372268, *6 (E.D. Tex. Nov. 7,
2011), citing Horizon/CMS, 34 S.W. 3d at 897, and Boyles v. Kerr, 855 S.W. 2d 593, 601 (Tex.
1993). In addition, Texas courts only dismiss a complaint at the pleading stage if the pleading
affirmatively demonstrates an incurable defect; otherwise they afford the plaintiff an opportunity
to replead. Westbrook v. Penley, 231 S.W. 3d 389, 395 (Tex. 2007).
12
Marathon distinguishes D’Souze and calls it inapposite because here, Moreno has not
asserted factual allegations of wrongdoing against Marathon, but instead factual allegations
generic to all “Marathon Defendants.” Marathon argues that Moreno does not allege specific
facts against Marathon, the only non-diverse defendant, who Marathon insists is fraudulently
joined.
-13-
Urging the Court to deny Moreno’s motion for remand because
there is diversity of citizenship among all parties that are
properly joined, Marathon contends that (1) under the removal
statute and case law, non-diverse defendants like Marathon may
remove a case; (2) Marathon has pleaded sufficient facts to support
diversity jurisdiction because MEGPL and MEGIL are citizens of a
foreign state under the removal statute, 28 U.S.C. § 1446(a); and
(3) Marathon was improperly joined.
Marathon highlights the fact that the removal statute, 28
U.S.C. § 1446(a), requires only that the removing party be a
defendant in the state court action and does not restrict the
ability of a non-diverse defendant that claims it was fraudulently
joined to remove a case from state court.
See Bova v. U.S. Bank,
N.A., 446 F. Supp. 2d 926, 932 (S.D. Ill. 2006)(“Plaintiffs have
not
cited,
and
the
Court’s
research
has
not
disclosed,
any
authority indicating that this case must be remanded because the
removing Defendant is also a diversity-defeating party that claims
to have been fraudulently joined.”). Marathon argues that only it,
and not MEGPL and MEGIL, removed the case because MEGPL and MEGIL
had not and still have not been properly served, while Marathon had
been.
Marathon claims that MEGPL and MEGIL, foreign citizens, were
both
formed
under
the
laws
of
the
Cayman
Islands
and
their
principal places of business are the Republic of Equatorial Guinea.
-14-
Marathon maintains that Moreno’s reliance on Harvey, Mullins, and
Eastern Airlines is misplaced because the rule that the citizenship
of limited liability companies is determined by the state(s) of
residence of all of their members applies only to the citizenship
of unincorporated associations formed in the United States.
See
Cohn v. Rosenfeld, 733 F.2d 625, 628 (9th Cir. 1984)(opining that
§ 1332(a)(2) “applies to foreign legal entities of all kinds, so
long as the entity is considered a juridical person under the law
that created it”; finding that an “anstalt” [which resembles a
limited liability company or business trust under the laws of
Liechtenstein]
was
a
juridical
person
under
the
law
of
Liechtenstein and thus a citizen of a foreign state under §
1332(a)(2),
that
diversity
existed,
and
that
the
jurisdiction), cert. denied, 469 U.S. 392 (1984).
court
The panel
explained,
Federal courts have long recognized that other nations,
particularly civil law nations, have evolved a scheme of
business entities markedly different from that found in
the United States.
[Defendant’s] attempt to compare
unincorporated
American
business
entities
with
unincorporated civil law business entities is therefore
virtually meaningless. . . . Foreign legal entities need
not have the same attributes as an American corporation
to sue in the federal courts. Foreign nations make their
own laws regarding formation of legal entities. Under
section 1332(a)(2) we ask only whether an entity is
regarded as a juridical person by the law under which it
was formed. Any further limitation on the standing of
these “citizens or subjects” of foreign states would
involve judicial encroachment on the sovereignty of the
nations that formed them. . . . If the disparate
treatment accorded American and foreign unincorporated
entities by the diversity statute appears improper, the
-15-
had
remedy lies with Congress. [citations omitted]
Id. at 630.
The
Fifth
Circuit
followed
Cohn
in
Stiftung
v.
Plains
Marketing, L.P., 603 F.3d 295, 297-99 (5th Cir. 2010)(only relevant
factor in evaluating whether the plaintiff was a foreign citizen
for purposes of the removal statute was whether the plaintiff was
a citizen of Lichenstein13 under that country’s law; holding that
a “stiftung” created under Lichenstein law was a “juridical person”
and thus a foreign citizen for purposes of diversity jurisdiction
under § 1332(a)(2)).14
Marathon argues that the Cayman Islands recognize limited
13
Alternative spelling for Liechtenstein used by the Fifth Circuit.
14
This Court would point out that other courts, including the United States Supreme
Court, have held that diversity jurisdiction can be invoked in actions between “citizens of a State
and citizens or subjects of a foreign state” pursuant to 28 U.S.C. § 1332(a)(2). In JPMorgan
Chase Bank v. Traffic Stream (BVI) Infrastructure Ltd., 536 U.S. 88 (2002), the Supreme Court
concluded that a foreign “national” is a “citizen or subject” of a foreign state under § 1332(a)(2)
even when the foreign state is not formally recognized by the United States. Specifically in that
case the Supreme Court found that a corporation formed under the laws of the British Virgin
Islands was a citizen of the United Kingdom although the United States did not recognize the
British Virgin Islands as a independent foreign state. See also Puerto Rico v. Russell & Co., 288
U.S. 476, 481-82)(holding that because a Puerto Rican business entity similar to a limited
partnership, i.e., a sociedad en comandita, was considered a juridical person under Puerto Rican
law, its citizenship was not determined by the citizenship of its members (who were not Puerto
Rican citizens), but by the domicile of the entity). Other cases that have recognized entities
considered juridical persons by the law that created them to be citizens of foreign states within
the meaning of § 1332(a)(2) include Cyprus, Autocephalous Greek-Orthodox Church of Cyprus
v. Goldberg and Feldman Fine Arts, Inc., 917 F.2d 278, 285 (7th Cir. 1990)(concluding that the
Church of Cyprus was a citizen of the Republic of Cyprus, which recognized the church as a
“distinct juridical entity”); and LG Electronics, Inc. v. Asustek Computers, 126 F. Supp. 2d 414,
418 (E.D. Va. 2000)(corporation organized under the laws of the Republic of Korea and a
juridical person under those laws had standing to sue in United States District Court).
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liability companies as having the same rights a privileges as
“natural person[s] of full capacity,” including the right to
contract, own both real and personal property, and sue and be sued.
Companies Law §§ 27, 28, 74, and 81 (2010), Cayman Islands,
available
at
http://www.caymanlandinfo.ky/
Documents/LawsRegulations/tabid/65/Default.aspx.
Even if the Court finds that Marathon should have alleged more
than just the place of formation and the principal place of
business of MEGPL and MEGIL, remand is not appropriate, and under
28 U.S.C. § 1653 defective jurisdictional allegations may be
amended.
A number of appellate courts in cases based on diversity
between domestic citizens under 28 U.S.C. § 1332(a)(1) agree that
where a notice of removal fails to identify the citizenship of the
members or partners of an unincorporated association, leave to
amend should be granted under 28 U.S.C. § 1653.
Mullins, 300 Fed.
App’x at 261 (sending case back to the district court so that a
limited partnership could amend the jurisdictional allegations in
its notice of removal under § 1653 to identify the citizenship of
its partners rather than its state of formation); McMahon v. BunnO-Matic Corp., 150 F.3d 651, 654 (7th Cir. 1998)(granting removing
defendant leave under § 1653 to amend its notice of removal to
provide sufficient jurisdictional allegations about the citizenship
of several defendants, including the citizenship of the partners of
a defendant partnership); Lindley Contours, LLC v. AABB Fitness
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Holdings, Inc., 414 Fed. App’x 62, 64-65 (9th Cir. 2011)(granting
removing defendant leave to amend its notice of removal under §
1653 to provide sufficient jurisdictional allegations about the
citizenship
of
the
members
of
co-defendant
limited
liability
companies and partnership); Penteco Corp. Ltd. Partnership-1985A v.
Union Gas System, Inc., 929 F.2d 1519, 1523 (10th Cir. 1991)(sending
case
back
to
district
court
to
conduct
an
inquiry
into
the
citizenship of the members of the plaintiff partnership, which
outlined in its complaint its state of formation and principal
place of business instead of the citizenship of its members, and
directing the court to permit amendment under § 1653 of the
jurisdictional allegations if diversity was shown to exist).
Marathon contends that Moreno’s pleading contains only one
factual allegation that does not even present actionable conduct
against Marathon (that Marathon is the purported owner of the Alba
PSC, and that it otherwise levels generic allegations against all
“Marathon Defendants” or specifically against MEGPL and MEGIL.
“‘[W]hen plaintiffs
make general allegations and fail to support
them with specific, underlying facts, they have not established a
reasonable basis for the Court to predict that relief may be
granted.’”
Cantor v. Wachovia Mortg., 641 F. Supp. 602, 612 (N.D.
Tex. 2009), quoting Staples v. Merck & Co., 270 F. Supp. 2d 833,
837 (N.D. Tex. 2003).
In Griggs v. State Farm Lloyds, 181 F.3d at
699-701,
Circuit
the
Fifth
opined
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that
vague
and
generic
allegations against all defendants and a failure to plead facts
specific to a non-diverse, fraudulently joined insurance agent
warranted dismissal of claims against the agent for failure to
state a claim.
Moreno’s Reply (#13) and Supplement (#16)
Moreno contends that (1) multiple federal courts in this
district have followed Fifth Circuit precedent in holding that the
court has no jurisdiction to consider any pleadings or requests
made by a non-diverse defendants; (2) Marathon did not allege that
its co-defendants are citizens or subjects of a foreign state and
offers no evidence to show that they are; and (3) Marathon fails to
demonstrate that it was improperly joined.
Moreno’s supplement
attaches a copy of a recent opinion issued by the Honorable Kenneth
Hoyt in a similar case remanding the action to state court on the
grounds
that
Marathon
failed
to
satisfy
its
burden
to
show
fraudulent joinder. Cowden Walter Ltimited Partnership v. Marathon
Oil Co., et al., Civil Action No. 4:11-CV-4516 (March 13, 2012).
Regarding the first argument in the Reply, the Court would
point out that Moreno cites cases standing for the proposition that
an improperly joined defendant does not need to consent to removal,
not that it cannot remove a case.
Other cases cited by Moreno hold
that the court may not consider a non-diverse party’s motion for
summary judgment or any other request by a non-diverse party.
As
noted earlier, the threshold issue of subject matter jurisdiction
-19-
must be resolved first, and until the Court determines that it has
jurisdiction, it cannot rule on the merits or substance of any
filing.
Furthermore if the non-diverse party is found to be
fraudulently joined, its citizenship does not destroy diversity but
is disregarded, that defendant is dismissed, and any motion made,
by it is moot. Moreno’s citations to authority fail to address the
real issue here, i.e., whether an improperly joined, nondiverse
defendant can remove a case by arguing improper joinder.
In
Jewell, relied upon by Moreno for the proposition that this Court
may not consider Marathon’s Notice of Removal here, the action
taken by the non-diverse removing party was not the filing of the
Notice of Removal or even a motion, but a notice to take a
deposition in the case.
Unless the request was limited to the
jurisdictional issue,15 a federal court is required to determine its
15
Regarding piercing the pleadings for a summary inquiry into the existence of diversity
jurisdiction,
[w]hile the decision regarding the procedure necessary in a given case must lie
within the discretion of the trial court, we caution that a summary inquiry is
appropriate only to identify the presence of discrete and undisputed facts that
would preclude plaintiff’s recovery against the in-state defendant. In this inquiry
the motive or purpose of the joinder of in-state defendants is not relevant. We
emphasize that any piercing of the pleadings should not entail substantial
hearings, Discovery by the parties should not be allowed except on a tight
judicial tether, sharply tailored to the question at hand, and only after a showing
of necessity. Attempting to proceed beyond this summary process carries a heavy
risk of moving the court beyond jurisdiction and into a resolution on the merits, as
distinguished from an analysis of the court’s diversity jurisdiction by a simple and
quick exposure of the chances of the claim against the in-state defendant alleged
to be improperly joined. Indeed, the inability to make the requisite decision in a
summary manner itself points to an inability of the removing party to carry its
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subject matter jurisdiction before any addressing substantive
issues, and in a diversity case, that means examining the Notice of
Removal and the controlling state-court pleading.
argument is erroneous.
Thus Moreno’s
Moreover, the Court has found no citations
to that portion of the opinion referenced in headnotes 7 and 8 in
Jewell, on which Moreno relies and where the issue was discussed.
Nevertheless, as to Moreno’s second point, the Court agrees
with Moreno that Marathon failed to assert in the Notice of Removal
that MEGPL and MEGIL are citizens of a foreign state because they
are organized in the Cayman Islands nor has it offered any evidence
of that foreign citizenship.16
The state court petition, in
contrast, alleges that MEGPL and MEGIL were organized under the
laws of Grand
Cayman and have their principal places of business
in Houston, Texas, as if they were corporations and nondiverse as
to Moreno.
#1, Ex. B, ¶¶ 8, 9.
Circuit in Stiftung
Thus, even though the Fifth
followed the Ninth Circuit’s holding in Cohn,
because Moreno’s petition alleges MEGPL and MEGIL’s citizenship
differently and because Marathon has failed to meet its heavy
burden to assert foreign citizenship upon removal and to submit to
burden.
Smallwood, 385 F.3d at 573-74, cited for that proposition, Guillory v. PPG Industries, Inc., 434
F.3d 303, 311 (5th Cir. 2005).
16
Nor does Marathon attempt to identify the citizenship of their members in an effort to
follow the usual rule regarding unincorporated associations.
-21-
this Court any evidence showing that MEGPL and MEGIL
were formed
in and viewed as juridical entities by Grand Cayman, and therefore
foreign citizens for purposes of diversity jurisdiction under §
1332(a)(2), the Court presently has no basis upon which to find
that MEGPL and MEGIL are diverse foreign citizens of Grand Cayman.
“‘A failure to allege facts establishing jurisdiction need not
prove fatal to a complaint.’”
Whitmire v. Victus Ltd., 212 F.3d
885, 887 (5th Cir. 2000), quoting Canedy v. Liberty Mutual Ins. Co.,
126 F.3d
100, 103 (2d Cir. 1997).
Title 28 U.S.C. § 1563
provides, “Defective allegations of jurisdiction may be amended,
upon terms, in the trial or appellate courts.” This statute, which
grants courts the authority and discretion to allow parties to cure
defective
allegations
of
jurisdiction,
“should
be
liberally
construed to allow a party to cure technical defects, including the
failure
to
specifically
allege
the
citizenship
of
parties.”
Menendez v. Wal-Mart Stores, Inc., 364 Fed. App’x 62, 66 (5th Cir.
Feb. 1, 2010), citing Getty Oil Corp. v. Ins. Co. of North America,
841 F.2d 1254, 1258 n.5 (5th Cir. 1988), and Victus Ltd., 212 F.3d
at 887-88.
“‘Unless the record clearly indicates that complaint
could not be saved by any truthful amendment, we generally afford
opportunity for amendment.’”
Victus Ltd., 212 F.3d at 888, citing
Canedy, 126 F.3d at 103, and Scattergood v. Perelman, 945 F.2d 618,
626 (3d Cir. 1991)(§ 1653 “‘permits amendments broadly so as to
avoid dismissal of diversity suits on technical grounds’”).
-22-
Here
both sides agree that MEGPL and MEGIL are entities formed under the
laws of the Cayman Islands.
Accordingly, the Court
ORDERS Marathon to file within thirty days of entry of this
Opinion and Order an amended notice of removal and to provide
evidence of the citizenship of MEGPL and MEGIL.
The Court further
ORDERS that Moreno’s motion for remand (#8) is currently
DENIED,
but
may
be
reurged
after
Marathon’s
submission,
if
appropriate.
Defendants MEGPL and MEGIL’s partial motion to dismiss for
failure to state a claim (instrument #12), filed on February 9,
2012, is also pending.
On February 29, 2012 the Court
granted
Moreno’s unopposed motion for an extension of time for Moreno to
respond to the motion to dismiss until twenty-one days after the
Court ruled on the motion to remand. After considering the matter,
the Court
ORDERS that the motion to dismiss (#12) is DENIED without
prejudice as premature, but grants leave to MEGPL and MEGIL to
summarily move to reinstate it if the Court finds that it has
jurisdiction over them.
Such a motion will relate back to the
first to satisfy Rule 12(b)’s requirement that a motion raising a
Rule 12(b)6) defense be made “before pleading.”
-23-
SIGNED at Houston, Texas, this 3rd day of August, 2012.
________________________________
MELINDA HARMON
UNITED STATES DISTRICT JUDGE
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