B., Inc. v. Miller Brewing Co.

• Decision Date: 10 December 1981
• Docket Number: No. 80-1871,80-1871
• Citation: 663 F.2d 545
• Parties: B., INC., Plaintiff-Appellant, v. MILLER BREWING COMPANY, et al., Defendants-Appellees. . Unit A *
• Court: U.S. Court of Appeals — Fifth Circuit

Page 545

663 F.2d 545

B., INC., Plaintiff-Appellant, v. MILLER BREWING COMPANY, et al., Defendants-Appellees.

No. 80-1871.

United States Court of Appeals, Fifth Circuit.

Unit A ^*

Dec. 10, 1981.

Seay, Gwinn, Crawford, Mebus & Blakeney, Durwood D. Crawford, Steven E. Clark, Dallas, Tex., for plaintiff-appellant.

Shank, Irwin, Conant, Williamson & Grevelle, Cecil W. Casterline, Dallas, Tex., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before BROWN, GOLDBERG, AINSWORTH, Circuit Judges.

GOLDBERG, Circuit Judge:

In this case we are confronted with a question of forum rather than substance. We are called upon to review the standards and procedures which are to be applied where it has been alleged that the plaintiff in a civil action has "fraudulently joined" a defendant for the sole purpose of defeating the federal court's diversity jurisdiction.

This is hardly a matter of first impression. Nevertheless, we shall take this opportunity to reaffirm what the cases already hold: district courts must not "pre-try" substantive factual issues in order to answer the discrete threshold question of whether the joinder of an in-state defendant is fraudulent.

I. PROCEDURAL HISTORY

This action arises from the allegedly wrongful termination of a distributorship agreement between "B, Inc.," a Texas corporation, and the Miller Brewing Company, a Wisconsin corporation (hereinafter, "Miller of Wisconsin").

The plaintiff, "B, Inc.," brought suit against Miller of Wisconsin in a Texas state court, seeking damages and injunctive relief for an array of state law claims. ¹ Mr. Gordon Hall, a Texas employee of Miller of Wisconsin, was named as a codefendant in the state court petition along with Mr. Thomas White, Mr. Barry Andrews, and their corporation, "Miller Distributing of Dallas, Inc.," (hereinafter, "Miller of Dallas"). ² There is no dispute as to the fact that the plaintiff ("B, Inc.") and defendants Hall, White, Andrews, and "Miller of Dallas" are each Texas residents; and that defendant Miller Brewing Company is a Wisconsin resident.

Upon the institution of state court proceedings, Miller of Wisconsin sought to remove this case to the U. S. District Court for the Northern District of Texas (W. M. Taylor, D. J.). Conceding that the Texas plaintiff had named several Texas residents as codefendants in their state court action, and that such joinder would ordinarily act as a bar to federal diversity jurisdiction, ³ Miller of Wisconsin alleged that the Texas defendants had been fraudulently joined for the sole purpose of defeating the federal court's subject matter jurisdiction. In response to the removal petition, the plaintiff moved that the case be remanded to the state court, arguing that the Texas defendants had not been fraudulently joined and that claims against both the out-of-state and in-state defendants had actual bases in fact.

Faced with the defendant's allegations of fraudulent joinder and the plaintiff's fervent denials, Judge Taylor resolved to hold an evidentiary hearing. Over the course of several days, the trial court heard oral testimony and deposition excerpts bearing on the substantive basis for the plaintiff's action against the four Texas defendants. At the conclusion of this arduous proceeding, Judge Taylor was moved to comment that having "spent about three days in this case ... I virtually feel like we've tried it."

Having considered all of the evidence brought before the court during the lengthy hearing, and having "virtually tried the case," the district court was of the opinion that the Texas defendants had indeed been fraudulently joined for the purpose of defeating the federal court's subject matter jurisdiction. Accordingly, the trial court proceeded to enter an order dismissing each of the Texas defendants from the action, ⁴ denying the plaintiff's motion for remand to the state court, and stating that "B, Inc.' s" action against Miller of Wisconsin would proceed in federal court. It is from this judgment and order that the plaintiff now appeals.

II. APPELLATE JURISDICTION

An appellate court must be certain that it is empowered to review the actions of the court below before proceeding to the substance of an appeal. Stewart v. Kutner, 656 F.2d 1107 (5th Cir. 1981). In deference to this principle, we must establish that the case before us is ripe for review before we proceed to opine.

It is well settled that "(t)he existence of appellate jurisdiction in a specific federal court over a given type of case is dependent upon authority expressly conferred by statute." Carroll v. United States, 354 U.S. 394, 399, 77 S.Ct. 1332, 1336, 1 L.Ed.2d 1442 (1957). The primary grant of jurisdiction to the Courts of Appeals is found at 28 U.S.C. § 1291, which gives this Court jurisdiction to review "... final decisions of the district courts." (Emphasis added). See, 15 Wright, Miller & Cooper, Federal Practice and Procedure, Jurisdiction § 3905.

Ordinarily, a district court's refusal to remand an action is not in and of itself a final order and cannot be reviewed unless and until a final judgment has been entered. Poirrier v. Nicklos Drilling Co., 648 F.2d 1063 (5th Cir. 1981); City of Naples v. Prepakt Concrete Co., 494 F.2d 511 (5th Cir. 1974), cert. den., 419 U.S. 843, 95 S.Ct. 76, 42 L.Ed.2d 71 (1974); Lewis v. E. I. Dupont DeNemours & Co., 183 F.2d 29 (5th Cir. 1950); Arthur v. Edmunds, 66 F.2d 21 (5th Cir. 1933); Dixon v. Georgia Indigent Legal Services Inc., 388 F.Supp. 1156 (S.D.Ga.1974), aff'd without op, 532 F.2d 1373 (5th Cir. 1975). ⁵ In this case however, the trial court did more than merely rule upon the plaintiff's motion for remand. The court actually proceeded to enter judgment in favor of the four Texas defendants; judgments which the trial court expressly characterized as being final and appealable for the purposes of Rule 54(b) of the Federal Rules of Civil Procedure. ⁶ Because final judgments have been entered with respect to the four Texas defendants, and because the plaintiff now appeals from one of these final orders, ⁷ we find that this case is properly before us.

III. "MY PLACE OR YOURS?": CHOOSING A FORUM FOR THE MAIN EVENT

In this case, the district court was confronted with a single threshold question: did it have jurisdiction to hear this matter on its merits? We believe that the focus of our inquiry should be this very question of jurisdiction. "(O)ur sole concern is: Who tries the case? State or Federal Court?" Bobby Jones Garden Apartments, Inc. v. Suleski, 391 F.2d 172, 175 (5th Cir. 1975).

In treating this issue, we would do well to recall certain jurisdictional fundamentals. It is axiomatic that the jurisdiction of the federal courts is limited, with its scope defined by the Constitution and by statute. American Fire & Casualty v. Finn, 341 U.S. 6, 71 S.Ct. 534, 95 L.Ed. 702 (1951); In Re Carter, 618 F.2d 1093, 1098 (5th Cir. 1980), cert. denied, 450 U.S. 949, 101 S.Ct. 1410, 67 L.Ed.2d 378 (1981); see also, Maxwell v. First National Bank of Monroeville, 638 F.2d 32 (5th Cir. 1981). Where a federal court proceeds in a matter without first establishing that the dispute is within the province of controversies assigned to it by the Constitution and statute, the federal tribunal poaches upon the territory of a coordinate judicial system, and its decisions, opinions, and orders are of no effect. American Fire & Casualty v. Finn, supra; In Re Carter, supra. Thus, the trial court must be certain of its jurisdiction before embarking upon a safari in search of a judgment on the merits.

Because the establishment of a basis for the exercise of subject matter jurisdiction is the sine qua non of federal litigation, we have consistently held that it is the party who urges jurisdiction upon the court who must always bear the burden of demonstrating that the case is one which is properly before the federal tribunal. Village Fair Shopping Co. v. Sam Broadhead Trust, 588 F.2d 431 (5th Cir. 1978); Ray v. Bird & Son & Asset Realization Co., Inc., 519 F.2d 1081 (5th Cir. 1975). Applying this well established principle to matters similar to the case at bar, we find that where an out-of-state defendant removes an action from state to federal court, the burden is upon the removing party to plead a basis for federal jurisdiction. R. G. Barry v. Mushroom Makers, Inc., 612 F.2d 651 (2nd Cir. 1979); Lincoln Associates, Inc. v. Great American Mortgage Investors, 415 F.Supp. 351 (N.D.Tex.1976). Similarly, where there have been allegations of "fraudulent joinder," it is clear that the burden is upon the removing party to prove the alleged "fraud." Yawn v. Southern Railway Co., 591 F.2d 312 (5th Cir. 1979), cert. denied, 442 U.S. 934, 99 S.Ct. 2869, 61 L.Ed.2d 304 (1979); Parks v. New York Times Company, 308 F.2d 474, 478 (5th Cir. 1962), cert. denied, 376 U.S. 949, 84 S.Ct. 964, 11 L.Ed.2d 969 (1964).

A. The procedure and standards to be applied where it is alleged that there has been fraudulent joinder

The burden of persuasion placed upon those who cry "fraudulent joinder" is indeed a heavy one. In order to establish that an in-state defendant has been fraudulently joined, the removing party must show either that there is no possibility that the plaintiff would be able to establish a cause of action against the in-state defendant in state court; or that there has been outright fraud in the plaintiff's pleadings of jurisdictional ⁸ facts. Keating v. Shell Chemical Company, 610 F.2d 328 (5th Cir. 1980); Tedder v. F.M.C. Corporation, et al., 590 F.2d 115 (5th Cir. 1979); Bobby Jones Garden Apartments v. Suleski, 391 F.2d 172, 177 (5th Cir. 1968); Parks v. New York Times Company, 308 F.2d 474, 478 (5th Cir. 1962), cert. denied, 376 U.S. 949, 84 S.Ct. 964, 11 L.Ed.2d 969 (1964).

In support of their removal petition, the defendants may submit affidavits and deposition transcripts; and in support of their motion for remand, the...