Allen v. Ferguson

• Decision Date: 29 May 1986
• Docket Number: No. 84-3119,84-3119
• Citation: 791 F.2d 611
• Parties: Gladys ALLEN and J. Patrick Craddock, Plaintiffs-Appellants, v. Robert FERGUSON, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 611

791 F.2d 611

Gladys ALLEN and J. Patrick Craddock, Plaintiffs-Appellants, v. Robert FERGUSON, Defendant-Appellee.

No. 84-3119.

United States Court of Appeals, Seventh Circuit.

Argued April 24, 1985.

Decided May 29, 1986.

Thomas S. Moore, McCarthy Duffy Neidhart & Snakard, Chicago, Ill., for plaintiffs-appellants.

Matthew J. Iverson, Abramson & Fox, Chicago, Ill., for defendant-appellee.

Before ESCHBACH and POSNER, Circuit Judges, and TIMBERS, Senior Circuit Judge. ^*

ESCHBACH, Circuit Judge.

The primary questions presented in this appeal are (1) whether this court has jurisdiction to review a district court's order dismissing one, but not all, of the defendants prior to remanding the action to state court pursuant to 28 U.S.C. Sec. 1447(c) and (2) whether the district court erred in dismissing that defendant. For the reasons stated below, we will deny the appellee's motion to dismiss the appeal and will reverse the district court's order.

I

Plaintiffs Gladys Allen and J. Patrick Craddock, minority shareholders of Herbco Corporation ("Herbco"), initiated this action in the Circuit Court of Cook County, Illinois, against Robert Ferguson and Herbert Stride, both officers and principal shareholders of Herbco, to recover proceeds resulting from the sale of the corporation to a third party. At the time of the commencement of this action, Allen, Craddock, and Stride were citizens of Illinois; Ferguson was a citizen of Florida. Ferguson filed a petition for removal to the United States District Court for the Northern District of Illinois, Eastern Division, under 28 U.S.C. Secs. 1332(a) and 1441(a). ¹ In support of his petition, Ferguson asserted that, when the parties were properly aligned according to their respective interests, he was the only defendant and that diversity would, therefore, be complete.

Once the action was removed to federal court, all of the parties presented jurisdictional challenges. The plaintiffs and defendant Stride contended that the case should be remanded to state court on the ground that diversity was incomplete and, thus, that the district court lacked subject- matter jurisdiction. Ferguson maintained that the service of process on him in Illinois was defective, and that he did not have the requisite minimum contacts with that state, so that the action against him should be dismissed for want of personal jurisdiction.

The district court declined to rule on the question of subject-matter jurisdiction, and instead granted Ferguson's motion to dismiss for lack of personal jurisdiction. The court found that the plaintiffs had misrepresented their intentions to settle with Ferguson and that they had thus induced him "by fraud or trickery" from Florida into Illinois in order to serve process upon him. Relying on E/M Lubricants, Inc. v. Microfral, S.A.R.L., 91 F.R.D. 235 (N.D.Ill.1981), and Sunshine Kitchens, Inc. v. Alanthus Corp., 65 F.R.D. 4 (S.D.Fla.1974), the district court concluded that the service should be quashed. In a footnote to its order, the court also stated that the plaintiffs could not obtain jurisdiction over Ferguson under the Illinois long-arm provision, Ill.Rev.Stat., ch. 110, p 2-209(a)(1).

After dismissing Ferguson, the only party not a citizen of Illinois, the district court concluded that it lacked subject-matter jurisdiction over the dispute between the remaining parties--the plaintiffs and defendant Stride--because they were all citizens of Illinois and ordered the remainder of the case remanded to state court. ² The plaintiffs now appeal. Ferguson has filed a motion to dismiss the appeal for lack of jurisdiction.

II

A. Appellate Jurisdiction

We shall first consider Ferguson's motion to dismiss this appeal. It is his contention that, because it resulted in the dismissal of only one of the two defendants, the order of the district court is interlocutory and, therefore, unreviewable, unless certified pursuant to 28 U.S.C. Sec. 1292 or Fed.R.Civ.P. 54(b). Because the court below made no findings under either Sec. 1292 or Rule 54, Ferguson argues that this court is without jurisdiction. We disagree.

The appellee misapprehends the nature of the district court's decision. It is true that, under 28 U.S.C. Sec. 1447(d), the district court's order remanding the action to state court is unreviewable. ³ See, e.g., Self v. Self, 614 F.2d 1026 (5th Cir.1980). However, its order dismissing Ferguson, which resulted in a remand to state court, is a final judgment under 28 U.S.C. Sec. 1291, and thus is reviewable even though the subsequent remand order is not. See City of Waco v. United States Fidelity & Guaranty Co., 293 U.S. 140, 55 S.Ct. 6 (1934); Gallea v. United States, 779 F.2d 1403, 1404 (9th Cir.1986); Loftin v. Rush, 767 F.2d 800, 802-03 (11th Cir.1985); Pelleport Investors, Inc. v. Budco Quality Theatres, Inc., 741 F.2d 273, 276-79 (9th Cir.1984); In re Romulus Community Schools, 729 F.2d 431, 440-41 (6th Cir.1984); Kozera v. Spirito, 723 F.2d 1003, 1005 n. 1 (1st Cir.1983); Katsaris v. United States, 684 F.2d 758, 761 (11th Cir.1982); Armstrong v. Alabama Power Co., 667 F.2d 1385, 1387 (11th Cir.1982); Briggs v. American Air Filter Co., 630 F.2d 414, 416 n. 1 (5th Cir.1980); Southeast Mortgage Co. v. Mullins, 514 F.2d 747, 749 (5th Cir.1975); see also 1A J. Moore, B. Ringle & J. Wicker, Moore's Federal Practice p 0.169[2.-2] (2d ed. 1985); 15 C.Wright, A. Miller & E. Cooper, Federal Practice and Procedure Sec. 3914 at 549 & n. 40 (1976).

In Waco, a third-party defendant removed a state action to federal district court. The federal court subsequently entered an order in which it held that removal was appropriate, but that the third-party defendant was an unnecessary and improper party and should, therefore, be dismissed. Because the dismissal left the district court without diversity jurisdiction over the remaining parties, it remanded the action to the state court. In holding that the district court's dismissal of the third-party defendant was reviewable, the Supreme Court stated:

If the District Court's order stands the cross-action will be no part of the case which is remanded to the state court. Indeed, if the District Court is right, the cause could not have been remanded except for the exclusion of [the third-party defendant] as a party. True, no appeal lies from the order of remand; but in logic and in fact the decree of dismissal preceded that of remand and was made by the District Court while it had control of the cause. Indisputably this order is the subject of an appeal; and, if not reversed or set aside, is conclusive upon the petitioner.

We are of the opinion that the petitioner was entitled to have the Circuit Court of Appeals determine whether the dismissal of its cross-action against the [third-party defendant] was proper. If the District Court erred on this point, which we do not decide, its action should be reversed. A reversal cannot affect the order of remand, but it will at least, if the dismissal of the petitioner's complaint was erroneous, remit the entire controversy, with the [third-party defendant] still a party, to the state court for such further proceedings as may be in accordance with law.

293 U.S. at 143-44, 55 S.Ct. at 7.

Following the reasoning of Waco and its progeny, we hold that we have jurisdiction to consider the propriety of the district court's order dismissing Ferguson. ⁴

B. Review of District Court's Order

This case is representative of a recurring theme in federal litigation. First, the defendant petitions for removal of a state-court action to a federal district court. In doing so, of course, he does not waive any objection he may have regarding in personam jurisdiction. Once the case is in federal court, the defendant moves for dismissal for lack of personal jurisdiction and the plaintiff moves for a remand for lack of subject-matter jurisdiction. The district court must then decide which motion to resolve first. ⁵

The district judge observed in his order that, when confronted with both a motion to remand for lack of subject-matter jurisdiction and a motion to dismiss for lack of personal jurisdiction, he was "free to dispose of the case upon whichever of the two grounds--remand or dismissal--appear[ed] to be more convenient or appropriate" and cited as authority the appellate decisions of Walker v. Savell, 335 F.2d 536, 538-39 (5th Cir.1964), and Block v. Block, 196 F.2d 930 (7th Cir.1952).

This court's decision in Block does not expressly so hold. In that case, there had been no personal service of process on the defendant prior to removal, and the district court dismissed the complaint. On appeal, this court affirmed the district court's order of dismissal without deciding the questions relating to subject-matter jurisdiction. The scope of that ruling is in doubt, however, because there was no discussion in Block of 28 U.S.C. Sec. 1448, which allows for service of process on the defendant after the action has been removed. ⁶ If the district court does not have subject-matter jurisdiction, then, of course, the action should be remanded. However, a defendant should be dismissed for lack of personal jurisdiction only if such jurisdiction cannot be obtained in either a state or federal forum. The dismissal at the federal level spares the defendant the effort of presenting the personal-jurisdiction claim again in state court. Walker, 335 F.2d at 539. If jurisdiction can be obtained over the defendant, then Sec. 1448 permits service of process to be completed or new process to be issued in the same manner as in cases originally filed in federal district court. See Beecher v. Wallace, 381 F.2d 372 (9th Cir.1967); Freight Terminals, Inc. v. Ryder Systems, Inc., 461 F.2d 1046 (5th Cir.1972).

In Walker, 335 F.2d at 539, the Fifth Circuit, quoting Garden Homes v. Mason, 238 F.2d 651, 654 (1st Cir.1956), concluded that the district court may pass on the more "convenient" motion. In Walker, however, both...