Fromhart v. Tucker et al
Filing
24
MEMORANDUM OPINION AND ORDER denying 7 Plaintiff's Motion to Remand to State Court and DENYING 8 Third-Party's Motion to Remand. Signed by Senior Judge Frederick P. Stamp, Jr on 10/31/11. (cc)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
JAMES BRADLEY FROMHART,
Plaintiff,
v.
Civil Action No. 5:11CV97
(STAMP)
FRANCIS C. TUCKER,
GERALD JACOVETTY
and RANDY GOSSETT,
Defendants,
and
FRANCIS C. TUCKER,
Third-Party Plaintiff,
v.
STEVEN L. THOMAS,
Third-Party Defendant.
MEMORANDUM OPINION AND ORDER
DENYING PLAINTIFF’S MOTION FOR REMAND
AND DENYING THIRD-PARTY PLAINTIFF’S
MOTION FOR REMAND
I.
Procedural History
This civil action was filed in the Circuit Court of Marshall
County, West Virginia.
The original complaint, filed by plaintiff
James Fromhart (“Fromhart”), sought damages through common-law
causes of action against Francis L. Tucker (“Tucker”), Jacob
Jacovetty and Randy Gossett arising from a series loans totaling
$700,000.00 that were given by the plaintiff to Francis Tucker, who
was then the president of Ohio Valley Amusement Company (“OVA”) in
Moundsville, West Virginia.
On June 15, 2011,1 defendant Francis Tucker served his thirdparty
complaint
(“Thomas”).
on
This
third-party
complaint
defendant
seeks
Steven
L.
indemnification
Thomas
from
any
liability to plaintiff Fromhart based upon allegedly erroneous and
negligent legal advice and representation rendered by third-party
defendant Thomas to third-party plaintiff Tucker.
Third-party
defendant Thomas subsequently removed the case to this Court on
July
15,
2011
pursuant
to
28
U.S.C.
§
1452,
claiming
that
jurisdiction in this Court exists under 28 U.S.C. § 1334.
Both
the
plaintiff
and
the
third-party
plaintiff
filed
separate motions to remand, each claiming that both the “unanimity
rule” and the “well-pleaded complaint rule” prevent the third-party
defendant from removing this action.
The third-party defendant
filed a single response to both motions, advancing the argument
that the well-pleaded complaint rule does not apply to removal
based upon § 1334 “related to” jurisdiction, nor is the “unanimity
rule” applicable to removal procedure pursuant to § 1952.
Neither
the plaintiff nor the third-party plaintiff filed replies.
Both motions for remand are fully briefed and are ripe for
disposition.
For the reasons stated herein, this Court finds that
removal was procedurally proper in this case and that the thirdparty defendant has satisfied his burden of demonstrating that this
1
This is the date of service given by the third-party
defendant. No challenge to this date has been made by any other
party, and the Court was not able to ascertain from the record any
independent verification of this date. Thus, this date of service
is taken by this Court to be correct.
2
Court possesses jurisdiction to preside over this action.
Thus,
both motions for remand are denied.
II.
Facts
During the Spring of 2006, defendant Francis Tucker, then
president of OVA, requested a loan from the plaintiff.
Following
the request, Mr. Fromhart granted OVA and/or Mr. Tucker a series of
loans totaling $700,000.00.
As assurance for these loans, Mr.
Tucker gave personal guarantees and defendant Gossett, “in house
counsel” for OVA, prepared promissory notes in favor of the
plaintiff and executed by defendant Tucker.
However, defendant
Tucker allegedly failed to inform Mr. Fromhart that OVA was in
bankruptcy at the time and that all loans made to the company were
required to be approved by the bankruptcy court.
Following the granting of the loans, the plaintiff avers that
defendant
Tucker
advised
the
plaintiff
that
OVA
was
being
purchased, and that Mr. Fromhart would need to file written claims
in order to have his loans repaid.
Defendant Gossett prepared the
claims and defendant Tucker hired defendant Jacovetty to handle the
claims on behalf of the plaintiff.
In defendant Jacovetty’s
representation of the plaintiff in the handling of the written
claims, he allegedly never informed Mr. Fromhart of the ongoing
bankruptcy of OVA despite the fact that Mr. Jacovetty was allegedly
added to the bankruptcy court’s mailing list as a result of the
filing of the claims and continuously received copies of notices
and orders in the OVA’s bankruptcy case. Eventually, the plaintiff
3
says that Mr. Jacovetty withdrew the claims that were filed on the
plaintiff’s behalf and received notification of the bankruptcy
court’s approval of the withdrawal, but again allegedly did not
inform the plaintiff of the withdrawal or the bankruptcy case.
Subsequently, the plaintiff argues that OVA filed a Disclosure
Statement and Plan of Reorganization which was mailed to defendant
Jacovetty, but Mr. Jacovetty failed to object to it, the bankruptcy
court’s order approving the plan, or the bankruptcy court’s order
confirming OVA’s Chapter 11 plan, which discharged the company from
any liability to the plaintiff.
Mr.
Jacovetty
not
only
The plaintiff also maintains that
failed
to
object
to
any
of
these
determinations, but that he did not even inform Mr. Fromhart of
them nor did he inform him of the bankruptcy proceeding.
On April 27, 2009, an involuntary bankruptcy petition was
filed in the United States Bankruptcy Court for the Northern
District
of
5:09-bk-914).
West
Virginia
for
defendant
Tucker
(BK
No.
On April 15, 2010, the plaintiff in this action
filed a “Motion for Order Granting Relief from Automatic Stay”
requesting authorization to proceed with his claims against Tucker
on the basis that Tucker engaged in fraudulent conduct in inducing
the plaintiff to make the loans when the bankruptcy court had not
authorized it.
Following
The motion was granted on May 12, 2010.
the
plaintiff’s
filing
of
this
civil
action,
defendant Tucker filed a third-party complaint against third-party
defendant Thomas, who was Mr. Tucker’s attorney at the time that
4
the Mr. Fromhart granted Mr. Tucker the loans in question.
The
third-party plaintiff alleges that Mr. Thomas rendered advice which
was erroneous and negligent with regard to the loans, and that the
third-party plaintiff reasonably and detrimentally relied upon that
advice.
As a result, among other demands for relief, the third-
party plaintiff alleges that any liability that he may have to the
plaintiff in this action must be indemnified by Mr. Thomas.
III.
Applicable Law
When a defendant seeks to remove a case from state court to a
federal district court, the federal court must be able to exercise
original
jurisdiction
over
the
matter.
Williams, 484 U.S. 386, 392 (1987).
Caterpillar
Inc.
v.
A federal district court has
original jurisdiction over cases “arising in or related to cases
under title 11 [bankruptcy cases or proceedings].”
28 U.S.C.
§ 1334. Generally, the statute which provides removal jurisdiction
to the federal district courts is 28 U.S.C. § 1441, which provides
that “[e]xcept as otherwise expressly provided by an Act of
Congress, any civil action brought State court of which the
district courts of the United States have original jurisdiction,
may be removed by the defendant or defendants.”
However, removal based upon § 1334 jurisdiction is governed by
28
U.S.C.
§
1452
bankruptcy case.”
entitled,
“Removal
of
claims
related
to
a
Section 1452 permits removal by any “party” to
a district court “for the district where such civil action is
5
pending, if such district court has jurisdiction of such a claim or
cause of action under section 1334 of this title.”
Title 28, United States Code, Section 1446, which governs
procedure for removal under both removal statutes, requires that
notice of removal of a civil action be “filed within thirty days
after the receipt of the defendant.” While the removal statutes do
not explicitly require all defendants to join in the removal, it is
well established that in a multi-defendant case removed under
§ 1441, effective removal requires that all defendants consent to
removal.
See Martin Oil Co. v. Philadelphia Life Ins. Co., 827 F.
Supp. 1236, 1237 (N.D. W. Va. 1993).
See Chicago, R.I. & P.R. Co.
v. Martin, 178 U.S. 245 (1900), and Tri-Cities Newspapers, Inc. v.
Tri-Cities Printing Local 349, 427 F.2d 325, 326-327 (5th Cir.
1970).
It is also generally accepted that, under what is commonly
known as the “first-served defendant rule,” if the defendant that
is served first in a case allows his 30-day removal window to lapse
before any defendant has removed, he does not consent to removal,
and no later-served defendant may remove, by operation of the
unanimity rule.
Barbour v. Intern. Union, 640 F.3d 599 (4th Cir.
2011).
However, based upon the differences in language between § 1441
and § 1452, which allows any “party” to remove a claim over which
jurisdiction exists under § 1334, the United States Court of
Appeals for the Fourth Circuit has found that, under § 1452, “any
one party has the right to remove the state court action without
6
the consent of the other parties.”
Creasy v. Coleman Furniture
Corp., 763 F.2d 656, 660 (4th Cir. 1985).
As such, because the
unanimity rule does not operate to bar removal by later served
parties,
the
Fourth
Circuit
has
also
determined
that,
if
jurisdiction is based on § 1452, “so long as one defendant meets
the thirty-day requirement, the bankruptcy removal petition [is]
timely.”
Id. at 661.
“The burden of establishing federal jurisdiction is placed
upon the party seeking removal.”
Mulcahey v. Columbia Organic
Chems. Co., Inc., 29 F.3d 148, 151 (4th Cir. 1994).
Removal
jurisdiction must be strictly construed and if federal jurisdiction
is doubtful, a remand is necessary.
IV.
Id.
Discussion
In his notice of removal, the third-party defendant states
that this Court has subject matter jurisdiction because this civil
action is “related to” a bankruptcy proceeding. Both the plaintiff
and the third-party plaintiff/defendant filed motions to remand.
Both motions to remand argue that the unanimity rule and the firstserved defendant rule both bar removal in this case, and that a
third-party defendant is not entitled to remove.
Further, both
also argue that § 1334 jurisdiction does not exist based upon the
“well-pleaded complaint rule.”
A.
Alleged Procedural Defects
The plaintiff and third-party plaintiff initially seek remand
on the basis that not all defendants consented to removal of this
7
action.
As discussed in detail below, this Court finds that the
unanimity rule does not apply to the removal of this action because
jurisdiction is based upon 28 U.S.C. § 1452, as the action is
“related to” a bankruptcy proceeding. See Creasy, 763 F.2d at 660.
Likewise, the arguments that removal was untimely in this case
based upon the “first-served defendant rule” are without merit. In
the Fourth Circuit, if jurisdiction is based on § 1452, “so long as
one defendant meets the thirty-day requirement, the bankruptcy
removal petition [is] timely.” Id. at 661. The contentions raised
by both motions that third-party defendants may not remove a suit
are also grounded in § 1441 and do not apply to jurisdiction based
upon § 1452.
The plain language of § 1452 when compared with the
plain language of § 1441 prove to be abundantly clear in the
differing removal requirements set down in each section.
Section
1452 allows a “party” to remove an action when jurisdiction is
based upon § 1334, while § 1441 allows a “defendant or defendants”
to
remove
a
jurisdiction.
case
based
upon
all
other
types
of
federal
Accordingly, this Court finds that there are no
procedural defects in the defendants’ motion to remove.
B.
“Related to” Jurisdiction
Title 28, United States Code, Section 1452(a) states that “[a]
party may remove any claim or cause of action in a civil action
. . . to the district court for the district where such civil
action is pending, if such district court has jurisdiction of such
claim or cause of action under [28 U.S.C. § 1334].”
8
Title 28,
United States Code, Section 1334(b) provides that “the district
court shall have original but not exclusive jurisdiction of all
civil proceedings arising under Title 11, or arising in or related
to cases under Title 11.”
“Congress intended to grant comprehensive jurisdiction to the
bankruptcy
courts
so
that
they
might
deal
efficiently
and
expeditiously with all matters connected to the bankruptcy estate.”
Celotex Corp. v. Edwards, 514 U.S. 300, 308 (1995) (internal
citations omitted).
“The ‘related to’ language of § 1334(b) must
be read to give district courts . . . jurisdiction over more than
simple proceedings involving the property of the debtor of the
estate.”
Id.
The Supreme Court did find, however, that “related
to” jurisdiction does have limits.
Id.
“Shared facts between the
third-party action and a debtor-creditor conflict do not in and of
themselves suffice to make the third-party action ‘related to’ the
bankruptcy.”
Wise v. Travelers Indem. Co., 192 F. Supp. 2d 506,
516 (N.D. W. Va. 2002).
Similarly, judicial economy by itself
cannot justify “related to” jurisdiction.
Id.
The Fourth Circuit
has adopted the following definition of § 1334 “related to”
jurisdiction: “[A]n action is related to bankruptcy if the outcome
could alter the debtor’s rights, liabilities, options or freedom of
action (either positively or negatively) and which in any way
impacts upon the handling and administration of the bankrupt
estate.”
A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 1002,
n.11 (4th Cir. 1986), cert. denied, 479 U.S. 876 (1986) (adopting
9
the definition set forth in Pacor, Inc. v. Higgins, 743 F.2d 984,
994 (3d Cir. 1984)).
Both the plaintiff and the third-party plaintiff argue that
this
instant
case
is
bankruptcy proceedings.
not
sufficiently
“related
to”
the
OVA
However, rather than focusing on whether
this action falls within the Fourth Circuit’s test of whether the
outcome of the litigation could alter the bankruptcy estate’s
rights and/or liabilities, both motions focus at length on the
argument that no federal question relating to the bankruptcy action
appears on the face of the plaintiff’s complaint.
misplaced.
This focus is
Federal jurisdiction based upon 28 U.S.C. § 1331, or
federal question jurisdiction, requires that the plaintiff’s wellpleaded
complaint
contain
a
“question
arising
Constitutions, laws, or treaties of the United States”
under
the
upon which
the plaintiff’s right to relief necessarily depends. Franchise Tax
Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 27-28.
This
rule, the “well-pleaded complaint rule,” does not apply to § 1334
jurisdiction.
Under § 1334, a claim need only be “related to” a
bankruptcy case or proceeding, unlike jurisdiction based upon
§ 1331, which requires that the action “arise under” federal law.
Thus, the plaintiff and third-party plaintiff’s reliance upon the
well-pleaded complaint rule does not inform the Court’s decision
regarding § 1334 jurisdiction exists in this action.
Rather,
the
more
applicable
consideration
is
whether
a
judgment against Francis Tucker in this case would affect the
10
rights and/or liabilities of his bankruptcy estate.
Robins Co., 788 F.2d at 1002.
See A.H.
After considering the applicable
law, this Court is convinced that a judgment against the defendant
Tucker could conceivably do just that.
The bankruptcy court, in
its opinion of November 24, 2010, found that Francis Tucker has
been “engaged in a game of hide and seek” with his creditors, one
of whom is alleged by this case to be plaintiff Fromhart, and that
Tucker conducted his financial affairs in a way that was “evasive
and detrimental in regard to his creditors.”
In re: Francis
Tucker, No. 5:09-bk-914 (Bankr. N.D. W. Va. Nov. 24, 2010).
In
fact, these are almost exactly the claims made against Mr. Tucker
in this action.
Further, this case is so entwined with Mr.
Tucker’s bankruptcy action, that plaintiff Fromhart was required to
request leave to continue this action from the bankruptcy court by
way of a relief from the automatic stay. Should plaintiff Fromhart
succeed in this action and money damages are awarded against Mr.
Tucker, Mr. Fromhart will hold a money judgment that will become a
further liability of Mr. Tucker’s bankruptcy estate and will thus
have an impact on the handling and administration of the estate.
Accordingly, this Court finds that this action is “related to” the
bankruptcy case In re Francis Tucker and that its result could
alter the debtors’ rights and liabilities and impact upon the
handling and administration of Francis Tucker’s bankruptcy estate.
Accordingly,
this
Court
finds
11
that
it
has
subject
matter
jurisdiction
over
this
action
pursuant
to
the
“related
to”
provisions of 28 U.S.C. § 1334(b).
V.
Conclusion
For the reasons stated above, the plaintiff’s motion for
remand (ECF No. 7) is DENIED and the third-party plaintiff’s motion
for remand (ECF No. 8) is DENIED.
IT IS SO ORDERED.
The Clerk is DIRECTED to transmit copies of this order to
counsel of record herein.
DATED:
October 31, 2011
/s/ Frederick P. Stamp, Jr.
FREDERICK P. STAMP, JR.
UNITED STATES DISTRICT JUDGE
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