Hydrokinetics, LLC v. French

Filing 9

MEMORANDUM OPINION AND ORDER granting 3 MOTION to Remand. This action is remanded to the 55th Judicial District Court of Harris County, Texas. (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)

United States District Court
Southern District of Texas

ENTERED

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
HYDROKINETICS, LLC,
Plaintiff,
v.

JAMES FRENCH and HYDROCHEM,
LLC,
Defendants.

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§
§
§

February 17, 2017
David J. Bradley, Clerk

CIVIL ACTION NO. H-17-0318

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§
§
§
§

MEMORANDUM OPINION AND ORDER

Pending before the court is Plaintiff Hydrokinetics,
("Hydrokinetics")
Entry No.

3) .

Motion to Remand

("Motion to Remand")

LLC's
(Docket

Hydrokinetics argues that its joinder of a non-

diverse party subsequent to removal deprives this court of subjectmatter jurisdiction.

Defendants James French and Hydrochem, LLC

( "Hydrochem") (collectively, "Defendants") argue that Hydrochem was
fraudulently joined.

For the reasons stated below, the Motion to

Remand will be granted.
I.

Factual and Procedural Background

Hydrokinetics alleges that French worked as a Hydroblasting
Division

Manager

November 28, 2016. 1

for

the

company

from

December

7,

2015,

to

As part of the hiring process, French signed

a Confidentiality and Non-Disclosure Agreement ("the Agreement").

1

The following facts are presented as alleged in Plaintiff
Hydrokinetics, LLC' s Verified First Amended Complaint ("Plaintiff's
Amended Complaint") (Docket Entry No. 2) unless otherwise stated.

French

agreed

otherwise

not

engage

to

communicate

Hydrokinetics'

with,

do

customers

business

for

terminating his employment with the company.

one

with,

year

or

after

Hydrokinetics is a

Texas-based company that does business in Texas and elsewhere in
the southern region of the United States.

French was a Texas

resident when he was hired by Hydrokinetics. 2
After

leaving

Hydrokinetics,

competitor, Hydrochem.

French

went

to

work

for

a

Hydrochem is a limited liability company

organized under Delaware law with its principal place of business
in Texas.

In early January of 2017 Hydrokinetics discovered that

French had been in contact with one of its customers.

Believing

that French was in violation of the Agreement, Hydrokinetics sued
French in the 55th Judicial District Court of Harris County, Texas,
("the State Court") on January 25, 2017. 3

The State Court granted

Hydrokinetics a temporary restraining order

(TRO)

set to expire

after a temporary injunction hearing on February 6. 4
On February 1 French, now a resident of Oklahoma, removed the
action to this court, asserting the court's diversity jurisdiction.

2

Plaintiff Hydrokinetics, LLC's Reply Brief in Support of Its
Motion to Remand ("Plaintiff's Reply"), Docket Entry No. 8, p. 8.
3

See Plaintiff Hydrokinetics, LLC's Verified Original Petition
and Application for Temporary Restraining Order and Temporary
Injunction ("Original Petition"), Exhibit B to Defendant James
French's Notice of Removal ("Notice of Removal"), Docket Entry
No. 1-3.
4

See Temporary Restraining Order, Exhibit E to Defendant James
French's Notice of Removal, Docket Entry No. 1-6.
-2-

On

February

Hydrochem

2

Hydrokinetics

intended

to

have

deposed
French

French

and

continue

learned

to

do

customers once the TRO expired. 5

Hydrokinetics'

work

that
for

On February 6

Hydrokinetics filed its Amended Complaint, adding Hydrochem as a
defendant.

Also on February 6 Hydrokinetics moved to remand the

action to State Court, citing a lack of complete diversity.
The court held a hearing on February 15 to discuss the issue of
subject-matter jurisdiction.

At that hearing the court adopted the

State Court TRO and extended it until February 22.
ordered

further

briefing

on

the

issue

of

The court also

remand,

specifically

instructing the parties to brief the court on the factors set forth
by the Fifth Circuit in Hensgens v. Deere & Co., 833 F.2d 1179 (5th
Cir. 1987), concerning joinder of non-diverse parties after removal.
II.

Legal Standard

An amendment that would add a "new nondiverse defendant in a
removed case" should be scrutinized "more closely than an ordinary
amendment."
provides

Hensgens,

that

"[i] f

833

28

F. 2d at 1182.

after removal

u.s.c.

§

the plaintiff seeks

1447 (e)
to

join

additional defendants whose joinder would destroy subject matter
jurisdiction,
remand

the

decision

the court may deny joinder,

action

will

to

the

determine

State

the

continuance

increased scrutiny is appropriate.

5

court."

or permit joinder and
Because
of

its

"the

jurisdiction,"

Hensgens, 833 F.2d at 1182.

Plaintiff's Reply, Docket Entry No. 8, pp. 4-5.
-3-

court's

The Fifth Circuit has provided district courts determining the
propriety of joinder and remand a nonexhaustive list of factors to
consider:
federal

(1) whether the primary purpose of joinder is to defeat

jurisdiction;

(2)

whether the plaintiff has diligently

requested the addition of a party;
be prejudiced if

the

amendment

(3) whether the plaintiff will

is

factors bearing on the equities."

denied;
Id.

and

(4)

"any other

The Fifth Circuit recog-

nized the competing interests of preventing parallel state and
federal litigation and of allowing diverse defendants to retain the
federal forum.

Id.

Taking into account the relevant factors,

"[t]he district court, with input from the defendant, should then
balance

the

permitted."

equities
Id.

and

decide

whether

amendment

should

be

If so, it then must remand to the state court.

Id.
Beyond the Hensgens
joinder.

"Fraudulent
fraud

in

factors

is

the

concern of

fraudulent

joinder can be established in two ways:

(1)

actual

the pleading of

jurisdictional

( 2)

inability of the plaintiff to establish a

against the non-diverse party in state court."
F.3d 644, 647 (5th Cir. 2003)

facts,

or

cause of action

Travis v. Irby, 326

(citing Griggs v. State Farm Lloyds,

181 F.3d 694, 698 (5th Cir. 1999)).

To show fraudulent joinder, a

defendant must show "that there is no possibility of recovery by
the

plaintiff

differently

against

means

that

an

in-state

there

is

no

defendant,
reasonable

which
basis

stated
for

the

district court to predict that the plaintiff might be able to
-4-

recover against an in- state defendant."
Central Railroad Co., 385 F.3d 568, 573

Smallwood v.

Illinois

(5th Cir. 2004)

Simply

pointing to the plaintiff's lack of evidence while discovery is
ongoing is insufficient.
Because

the Hens gens

Irby, 326 F.3d at 650-51 (5th Cir. 2003).

factor of

the primary purpose of

joinder

encompasses the issue of the validity of claims against nondiverse
defendants

joined

after

removal,

the

court

will

conduct

the

relevant analyses in logical order below.
III.

Analysis

Hydrokinetics argues that

it was not aware of Hydrochem's

involvement in French's alleged breach of the Agreement at the time
Hydrokinetics filed its Original Petition.
Hydrochem was fraudulently joined.
each

of

the

four

Hensgens

Defendants argue that

The court will first consider

factors

in

turn

and

then

address

Defendants' fraudulent joinder argument.
A.

The Hensqens Factors

Hydrokinetics argues in its Reply that the Hensgens factors
favor joinder and remand.

Because Defendants declined to address

these factors, the court considers Hydrokinetics' arguments without
the benefit of input from Defendants.
1.

Determining the Purpose of Hydrokinetics' Joinder

In determining the purpose of a plaintiff's proposed amendment
to

join a

nondiverse

defendant,
-5-

district

courts

in

the

Fifth

Circuit consider whether prior to removal the plaintiff knew or
should

have

known

of

the

nondiverse

defendant's

identity

and

activities, Martinez v. Holzknecht, 701 F. Supp. 2d 886, 889 (S.D.
Tex. 2010), and whether the plaintiff has a viable cause of action
against the nondiverse defendant, see Holstine v. DaimlerChrysler
Corp., Civil Action No. L-06-53, 2007 WL 4611914, at *2 (S.D. Tex.
Dec. 12, 2007)

(citing Tillman v. CSX Transp., Inc., 929 F.2d 1023,

1029 (5th Cir. 1991)).
Although Hydrokinetics concedes that it knew of Hydrochem's
employment of French, it argues that it did not know of Hydrochem's
involvement
violations

in,
of

and planned

continuation of,

Agreement. 6

the

French's

Hydrokinetics'

alleged

discovery

of

Hydrochem' s activities during the post-removal deposition of French
supports Hydrokinetics'

position that joinder was not solely to

defeat diversity.
The court next

turns

Hydrokinetics' claims.

to the question of the viability of

Because Hydrokinetics needs only one viable

claim, the court looks first to whether the facts alleged support
a claim of tortious interference with an existing contract against
Hydrochem.

The elements of this claim are:

a valid contract;

( 2)

interfered with the

(1) the existence of

the defendant willfully and intentionally
contract;

( 3)

the

interference proximately

caused the plaintiff injury; and (4) the plaintiff incurred actual

6

Plaintiff's Reply, Docket Entry No. 8, p. 6.
-6-

damage or loss.
(Tex. 2002).

Butnaru v.

Ford Motor Co.,

84 S.W.3d 198,

207

Hydrokinetics alleges in its Amended Complaint that

the Agreement between Hydrokinetics and French is an existing,
valid contract. 7

Hydrokinetics also alleges

French to solicit work,

provide services

to,

that by "allowing
and/or engage in

business discussions with Hydrokinetics customers in violation of
the

Agreement,"

Hydrochem

interfered with the contract. 8
Hydrochem,

by

its

actions,

has

willfully

and

intentionally

Finally, Hydrokinetics alleges that
has

caused

French

to

breach

the

agreement. 9
At

this

early

stage

of

the

required to prove its entire case.

action,

Hydrokinetics

is

not

Hydrokinetics need only plead

facts that, if true, would provide a reasonable basis for the court
to predict that Hydrokinetics might be able to recover against
Hydrochem.

The court concludes that Hydrokinetics has done so and

that Hydrochem was not joined solely for the purpose of defeating
diversity.
2.

Hydrokinetics' Diligence in Filing an Amendment

The

court

dilatory

in

next

considers

whether

seeking amendment.

Hydrokinetics

A plaintiff

is

has

been

generally not

dilatory in seeking to amend a complaint when no scheduling order

7

Plaintiff's Amended Complaint, Docket Entry No. 2, p. 9.

8

Id.

9

Id.

at 7-8.
-7-

has been entered and no significant activity beyond the pleading
stage has occurred.
No.

3:09-cv-1154-M,

2009).

Akbani v. TRC Engineers,
2009 WL 2614473,

at *3

Inc.,
(N.D.

Civil Action
Tex. Aug.

25,

That general rule applies in this case, where no scheduling

order has been entered and little activity has occurred beyond the
pleading stage.

Moreover, from the time the action was filed in

State Court to the time Hydrokinetics joined Hydrochem was less
than

two

weeks.

Hydrokinetics

business day after removal.

joined Hydrochem on

the

third

Hydrokinetics diligently filed its

Amended Complaint.
3.

Hydrokinetics' Injury if the Amendment is Not Allowed

If Hydrochem were not allowed to be joined,

Hydrokinetics

would be forced to pursue its claims in a parallel proceeding in
state court.

"[T]he danger of parallel federal/state proceedings

with the inherent dangers of inconsistent results and the waste of
judicial resources"
Hensgens.

is a primary concern cited by the court in

833 F.2d at 1182 (5th Cir. 1987).

Hydrokinetics would

be exposed to significant actual and potential injury if forced to
litigate parallel

actions.

And absent

any argument

regarding

Hydrochem's competing interest in retaining the federal forum, the
court concludes that this factor weighs in Hydrokinetics' favor.
4.

Other Equitable Factors

Hydrokinetics' arguments regarding this factor largely repeat
the arguments from the third factor.

But the court notes that

French's quick removal of this action before Hydrokinetics could
-8-

even depose

him

Hydrokinetics'

further

interest

shifts

equities

in

favor

of

joinder.

in halting French's alleged violations

combined with the rapid sequence of events following the initiation
of this action weigh in favor of permitting Hydrokinetics to join
parties against which it may not have initially made any claims.
B.

Fraudulent Joinder

Defendants

declined

to

follow

the

court's

guidance

by

discussing the Hensgens factors and instead framed their response
to Hydrokinetics' motion to remand as an argument for fraudulent
joinder. 10

Defendants do not argue actual fraud, instead focusing

their arguments against the validity of Hydrokinetics'

claims. 11

The court has already explained that Hydrokinetics has at least one
potentially valid claim.

But the court will briefly respond to

Hydrochem's three main arguments for fraudulent joinder.

First,

Hydrochem argues that Hydrokinetics has no evidence that French
breached the Agreement. 12
pointing to a

plaintiff's

As stated above in Section II,

simply

lack of evidence while discovery is

ongoing is insufficient to establish fraudulent joinder.

Next,

Hydrochem argues that Oklahoma law should be applied and that the
Agreement is invalid under Oklahoma law. 13

The court is neither

10 See Defendants' Response to Plaintiff's Motion to Remand
("Defendants' Response"), Docket Entry No. 7, p. 1.
11

Id. at 3.

12Id. at 5 .
13

Id. at 6-9.
-9-

convinced that taking up the issue of choice of law is appropriate
under the circumstances nor that Oklahoma law would be controlling.
Finally, Hydrochem argues that the Agreement is unenforceable as
written even under Texas law. 14

That issue is beyond the scope of

the present analysis regarding joinder and remand and will be left
for the State Court to address once the parties have fully briefed
the relevant issues.
IV.

Conclusion and Order

For the reasons explained above,

the court concludes that

Hydrokinetics has established that it is entitled to join a new,
nondiverse defendant to this action.
done so in its Amended Complaint,
jurisdiction
Hydrokinetics,
GRANTED.

over
LLC' s

this

Because Hydrokinetics has

the court lacks subject-matter
Accordingly,

action.

Motion to Remand

Plaintiff

(Docket Entry No.

3)

is

This action is REMANDED to the 55th Judicial District

Court of Harris County, Texas.

The Clerk will promptly provide a

copy of

to

this

Order of Remand

the District Clerk of

Harris

County, Texas.
SIGNED at Houston, Texas, on this 17th day of February, 2017.

SIM LAKE
UNITED STATES DISTRICT JUDGE
14

Id. at 10-11.
-10-