Waste Systems, Inc. v. Clean Land Air Water Corp., 81-3388

• Decision Date: 25 August 1982
• Docket Number: No. 81-3388,81-3388
• Citation: 683 F.2d 927
• Parties: WASTE SYSTEMS, INC., Plaintiff, v. CLEAN LAND AIR WATER CORPORATION, Defendant-Appellee, v. ROLLINS ENVIRONMENTAL SERVICES, INC. and Rollins Environmental Services of Louisiana, Inc., Defendants-Appellants, v. Cyril HINDS, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 927

683 F.2d 927

WASTE SYSTEMS, INC., Plaintiff, v. CLEAN LAND AIR WATER CORPORATION, Defendant-Appellee, v. ROLLINS ENVIRONMENTAL SERVICES, INC. and Rollins

Environmental Services of Louisiana, Inc., Defendants-Appellants, v. Cyril HINDS, et al., Defendants-Appellees.

No. 81-3388.

United States Court of Appeals, Fifth Circuit.

Aug. 25, 1982.

Wallace A. Hunter, Baton Rouge, La., for defendants-appellants.

Lawrence R. Anderson, Jr., Lemuel E. Hawsey, III, Baton Rouge, La., for defendants-appellees.

Appeal from the United States District Court for the Middle District of Louisiana.

Before GEE, RUBIN and GARZA, Circuit Judges.

ALVIN B. RUBIN, Circuit Judge:

Jurisdiction in this case was based solely on diversity, now no longer existing because the action involving the diverse party has been settled. There remain only cross-claims originally asserted through ancillary jurisdiction between non-diverse parties. We conclude that, under the circumstances of this case, even if dismissal of the action for lack of subject matter jurisdiction, for the reasons cited in the appellants' brief, is not mandatory, there are no compelling reasons of judicial efficiency and economy justifying the district court's retention of jurisdiction. The action has not been tried. The issues involve complex problems of Louisiana law best suited for decision by a Louisiana court. Despite the age of the case, little litigation progress has been made. Whatever discovery has been accomplished can be preserved for use in state court. Under these circumstances, even if jurisdiction is discretionary, it would be an abuse of that discretion for a federal court to exercise it.

Therefore, we remand to the district court for entry of an order of dismissal for want of jurisdiction. The district court, of course, has jurisdiction to and shall enter an order affecting the funds in the registry of the court, and directing their disposition. We do not attempt to determine the correct disposition of those funds, but note only that, at the time the previous order was entered, the district court was of the opinion that it had subject matter jurisdiction over the action and that, whether or not the order was interlocutory in the technical sense, it was simply entered in the course of a continuing case. In the light of this opinion, the order should be directed to a final disposition of all funds in the court's registry.

I.

Waste Systems, Inc. ("WSI"), a Texas corporation in the business of disposing of industrial and commercial waste, brought a diversity suit in federal district court in Texas against Clean Land Air Water Corporation ("CLAW"), a Louisiana corporation engaged in industrial and commercial waste disposal, alleging that CLAW had breached a contract with WSI for the disposal of industrial wastes ¹ by selling a deep injection well to Rollins Environmental Services of Louisiana, Inc. ("RES of LA"). RES of LA is also engaged in the business of waste disposal. In addition to CLAW, WSI sued RES of LA, and Rollins Environmental Services, Inc. ("RES"), a Delaware corporation and the parent of RES of LA (hereafter RES and RES of LA are referred to jointly as RES) ². WSI claimed that RES had tortiously interfered with WSI's contractual rights under the WSI-CLAW contract. ³

On the sale of the well, RES had paid CLAW $800,000 in cash and had given CLAW eight installment promissory notes equalling $2,100,000 in principal with interest to be paid at 73/4%. RES filed a cross-claim against CLAW claiming damages as a result of alleged misrepresentations made by CLAW in connection with the sale of the well. RES also asserted that CLAW was in liquidation, and that the liquidator intended to assign the promissory notes to the individual CLAW shareholders. RES was, therefore, concerned that the notes, as assets of CLAW, be preserved to satisfy any claim that RES might have against CLAW.

The Texas district court granted a temporary restraining order restraining CLAW from transferring the promissory notes to its shareholders or any third parties, and from accelerating the maturity of the promissory notes, and restraining RES from paying the first installment on the notes to CLAW on the condition that RES deposit the funds into the registry of the court. The district court relied on the representations of RES and WSI that there was an immediate danger that CLAW and CLAW's shareholders would attempt to cut off the claims of RES by assigning the promissory notes to holders in due course. The judge also ordered that the individual shareholders of CLAW be made parties to the action.

The parties subsequently gave their written consent to the entry of a preliminary injunction enjoining CLAW from transferring to any stockholder or third person the promissory notes, and from accelerating the maturity of those notes. In turn, RES was restrained and enjoined from making any principal or interest payments on the notes to CLAW on the condition that it pay the amounts owing into the registry of the court. Later RES asserted that it did not have the funds to make the note payments and could borrow such funds only at interest rates greater than 10%. It asked leave of court to substitute a letter of credit arrangement as a less expensive method to satisfy its obligation. The preliminary injunction was then extended and modified to provide that RES could deposit a letter of credit securing the principal and interest in lieu of making the actual payments.

WSI's claims against the defendants were eventually settled, and its suit was dismissed. After dismissal of WSI, the only remaining litigation was between CLAW, a Louisiana corporation, RES of LA, a Louisiana corporation, and the latter's parent, RES, a Delaware corporation. Venue was, therefore, changed to the Middle District of Louisiana, which is also the site of the injection well, and the letter of credit on deposit was transferred to the registry of that court.

After transfer to Louisiana, CLAW filed a motion to dissolve the preliminary injunction and the district judge granted the motion. RES filed a motion for reconsideration of the court's order and CLAW countered with a motion to require the clerk of court to obtain payment on the letter of credit and disburse the funds to CLAW. RES also filed a motion for leave to file an amended cross-claim, alleging a claim for redhibition and for a writ of sequestration of the "funds" in the registry of the court.

The district judge denied the motion of RES of LA to file an amended cross claim for redhibition because the claim had prescribed ⁴ and because RES had previously claimed a reduction in purchase price. ⁵ He denied the motion for a writ of sequestration because that motion depended on the amended claim for rescission entitling RES to become the owner of the purchase price. Because the claim for redhibition was denied, RES's interest in the funds to be applied toward the purchase price was not sufficient to allow a writ of sequestration. Further, the court granted CLAW's motion to obtain the proceeds of the letter of credit because

it is very clear that (RES) made these payments as payments on the notes, as payments became due, first of interest, and later of principal. (RES) paid either cash or letter of credit as a payment on the note. Now, a payment on the note can go nowhere except to the holder of the note, in this court's reasoning. The holder of the note is C.L.A.W., its individual shareholders, or perhaps technically at this stage its liquidator."

RES complains on this appeal of only two aspects of the district court's order: the denial of the motion for a writ of sequestration and the grant of CLAW's motion to obtain the proceeds of the letter of credit.

II.

After oral argument, we requested supplemental briefs from the parties addressed to the question whether the federal district court had subject matter jurisdiction over the case after the dismissal of WSI, a Texas corporation. Jurisdiction over the subject matter of the original action by WSI against CLAW and RES was based on diversity of citizenship. 28 U.S.C. § 1332. WSI, the plaintiff, was incorporated in and had its principal place of business in Texas. None of the defendants were citizens of Texas and complete diversity was present as is...