Travelers Indem. Co. v. Sarkisian

• Decision Date: 19 June 1986
• Docket Number: Nos. 777,D,796 and 818,s. 777
• Citation: 794 F.2d 754
• Parties: RICO Bus.Disp.Guide 6287 The TRAVELERS INDEMNITY COMPANY, Plaintiff-Appellant, v. George K. SARKISIAN, John Sarkisian, Norman Preskitt, Ivy Mechanical & Electrical Associates, Inc., Sarkisian Brothers, Inc., Sarco Industries, Inc., Sarbro Equipment Corp., and John Doe and Richard Roe, said names being fictitious but meant to designate the officers, employees and/or agents of the aforesaid defendants, presently unknown to the Plaintiff, who participated in the acts set forth herein, Defendants-Appellees. The TRAVELERS INDEMNITY COMPANY, as Assignee of Judgments Against Midstate Constructors, Inc., to Enforce Certain Judgments, Petitioner-Appellant, v. George SARKISIAN, John Sarkisian, Norman Preskitt, Sarco Industries, Inc., Charlotte Street Builders, Inc., and Sarkisian Brothers, Inc., Respondents- Appellees. ocket 85-7935, 85-7937 and 85-7939.
• Court: U.S. Court of Appeals — Second Circuit

Page 754

794 F.2d 754

RICO Bus.Disp.Guide 6287

The TRAVELERS INDEMNITY COMPANY, Plaintiff-Appellant, v. George K. SARKISIAN, John Sarkisian, Norman Preskitt, Ivy

Mechanical & Electrical Associates, Inc., Sarkisian

Brothers, Inc., Sarco Industries, Inc., Sarbro Equipment

Corp., and John Doe and Richard Roe, said names being

fictitious but meant to designate the officers, employees

and/or agents of the aforesaid defendants, presently unknown

to the Plaintiff, who participated in the acts set forth

herein, Defendants-Appellees.

The TRAVELERS INDEMNITY COMPANY, as Assignee of Judgments

Against Midstate Constructors, Inc., to Enforce

Certain Judgments, Petitioner-Appellant, v. George SARKISIAN, John Sarkisian, Norman Preskitt, Sarco

Industries, Inc., Charlotte Street Builders, Inc.,

and Sarkisian Brothers, Inc.,

Respondents- Appellees.

Nos. 777, 796 and 818, Docket 85-7935, 85-7937 and 85-7939.

United States Court of Appeals Second Circuit.

Argued Jan. 29, 1986.

Decided June 19, 1986.

Leslie Couch, Albany, N.Y. (Sharon Counch DeBonis, Couch and Howard, Albany, N.Y., on brief), for plaintiff-petitioner-appellant.

Alan J. Pope, Binghamton, N.Y. (Thomas M. Christina, Ball & McDonough, Binghamton, N.Y., on brief), for defendants-respondents-appellees.

Before NEWMAN, KEARSE and MINER, Circuit Judges.

JON O. NEWMAN, Circuit Judge:

These related but unconsolidated appeals primarily concern the esoteric doctrine of "artful pleading." Specifically, we consider whether the circumstances permit a state court defendant to remove a case to federal court on the theory that a complaint purporting to rely solely on state law in reality contains federal claims artfully pled. In No. 85-7935, Travelers Indemnity Company ("Travelers") appeals from an order of the District Court for the Northern District of New York (Howard G. Munson, Chief Judge) denying its Rule 60(b)(6) motion for relief from a 1984 judgment that dismissed a civil RICO suit. ¹ In No. 85-7937, Travelers appeals from a 1985 judgment of the Northern District that dismissed on res judicata grounds a suit, removed from state court, that contains claims related to the claim in the dismissed RICO suit. ² For reasons that follow, the order in No. 85-7935 is affirmed, and the judgment in No. 85-7937 is reversed and remanded with instructions to remand the case to state court.

I. Background

Travelers was the surety on certain payment and performance bonds issued on behalf of Midstate Constructors, Inc. ("Midstate"), a Texas corporation that performed construction work in the Southwest. Midstate defaulted on obligations to owners and contractors. The Texas state courts rendered three judgments against Midstate totalling $3,236,588.20. Travelers satisfied these judgments as surety, and the prevailing plaintiffs assigned their claims against Midstate to Travelers. Because Midstate was the subject of a Chapter VII bankruptcy proceeding, Travelers sought others it could hold liable for Midstate's debts.

On August 4, 1981, certain parties who had agreed to indemnify Travelers against liabilities arising from the Midstate payment and performance bonds commenced an action in the New York courts to have the indemnity agreement declared void. On August 18, 1981, Travelers responded by commencing a diversity action in the Northern District of New York for breach of the indemnity agreement. Travelers subsequently removed the state declaratory judgment action to the Northern District of New York, and the actions were consolidated (the "consolidated actions").

On August 15, 1983, Travelers filed a complaint in the Northern District, seeking relief under the Racketeer Influenced Corrupt Organizations Act ("RICO"), 18 U.S.C. Sec. 1961 et seq. (1982), against some but not all of the defendants it had sued in the consolidated actions. Travelers sought damages resulting from bankruptcy fraud and mail fraud. The first, third, fourth, and fifth causes of action alleged that defendants had fraudulently diverted assets from two insolvent corporations, Midstate and Ivy Mechanical & Electrical Associates, Inc. ("Ivy"), for whom Travelers was surety. The second cause of action alleged mail fraud based on false representations made by Midstate to obtain payments from owners. The sixth cause of action alleged fraud in connection with the filing of Ivy's bankruptcy petition. The District Court dismissed the RICO complaint on the authority of Sedima, S.P.R.L. v. Imrex Co., 741 F.2d 482 (2d Cir.1984), and this Court affirmed by order on April 12, 1985. Travelers did not petition for certiorari. After the Supreme Court reversed Sedima, --- U.S. ---, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985), Travelers moved in the District Court, pursuant to Fed.R.Civ.P. 60(b)(6), for relief from the judgment. The District Court denied the motion. No. 85-7935 is Travelers' appeal from this denial.

In August 1983, Travelers filed a complaint ("petition" in New York practice) in a special proceeding in New York Supreme Court against some but not all of the defendants in the civil RICO action. Travelers sought to hold defendants liable for Midstate's debts to it on state law theories of fraudulent conveyance, piercing the corporate veil, unlawful payment of dividends, and unlawful salary payments. Travelers also sought attorney's fees. Defendants removed this action to federal court on federal question grounds on the theory that the state law claims were in substance a RICO claim, artfully pled. Travelers moved for a remand to state court, and defendants moved for summary judgment on the ground that the dismissal of the prior RICO action was res judicata. The District Court denied Travelers' motion to remand and granted defendants' summary judgment motion. In No. 85-7937 Travelers seeks review of both rulings of the District Court. ³

II. Rule 60(b)(6)

A district court may grant relief from an otherwise final judgment for any of five enumerated reasons or for "any other reason justifying relief from the operation of the judgment." Fed.R.Civ.P. 60(b)(6). Travelers argues that it is entitled to relief from the RICO judgment based on the Supreme Court's reversal of Sedima. However, it is well settled that a change in decisional law is not grounds for relief under Rule 60(b)(6). Ackermann v. United States, 340 U.S. 193, 71 S.Ct. 209, 95 L.Ed. 207 (1950); Loucke v. United States, 21 F.R.D. 305 (S.D.N.Y.1957). ⁴ Ackermann affirmed the denial of Rule 60(b)(6) relief to a party who failed to appeal an adverse judgment and then relied on the reversal of a similar judgment in a related case. Since Ackermann squarely governs the instant controversy, the order in No. 85-7935 is affirmed.

III. Removal

A. Artful Pleading

In No. 85-7937, Travelers argues that its state court suit relies solely on state law for relief and therefore does not "aris[e] under the Constitution, laws, or treaties of the United States," 28 U.S.C. Sec. 1331 (1982), and is not removable under 28 U.S.C. Sec. 1441(a) (1982). ⁵ Normally, removal based on federal question jurisdiction is improper unless a federal claim appears on the face of a well-pleaded complaint. Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983); Gully v. First National Bank, 299 U.S. 109, 57 S.Ct. 96, 81 L.Ed. 70 (1936); Louisville & Nashville Railroad Co. v. Mottley, 211 U.S. 149, 29 S.Ct. 42, 53 L.Ed. 126 (1908). It has been the law for decades that "the party who brings a suit is master to decide what law he will rely upon...." The Fair v. Kohler Die & Specialty Co., 228 U.S. 22, 25, 33 S.Ct. 410, 411, 57 L.Ed. 716 (1913). "[W]here plaintiff's claim involves both a federal ground and a state ground, the plaintiff is free to ignore the federal question and pitch his claim on the state ground" to defeat removal. 1A J. Moore & B. Ringle, Moore's Federal Practice p 0.160, at 185 (2d ed. 1979); see Vitarroz Corp. v. Borden, Inc., 644 F.2d 960, 964 (2d Cir.1981).

However, in certain limited circumstances a plaintiff may not defeat removal by clothing a federal claim in state garb, or, as it is said, by use of "artful pleading." In the words of a leading treatise,

[O]ccasionally the removal court will seek to determine whether the real nature of the claim is federal, regardless of plaintiff's characterization. For instance, in many contexts plaintiff's claim may be one that is exclusively governed by federal law, so that the plaintiff necessarily is stating a federal cause of action, whether he chooses to articulate it that way or not. If the only remedy available to plaintiff is federal, because of preemption or otherwise, and the state court necessarily must look to federal law in passing on the claim, the case is removable regardless of what is in the pleading.

14A C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure Sec. 3722, at 268-75 (2d ed. 1985) (citations omitted). The classic application of the artful pleading doctrine occurs in the context of federal preemption of state law. In that circumstance a plaintiff purporting to plead a claim based on state law is necessarily relying on federal law for relief. See Avco Corp. v. Aero Lodge, 390 U.S. 557, 88 S.Ct. 1235, 20 L.Ed.2d 126 (1968) (claim for breach of collective bargaining agreement cognizable only under federal Labor-Management Relations Act); American Synthetic Rubber Corp. v. Louisville & Nashville Railroad Co., 422 F.2d 462 (6th Cir.1970) (claim for negligent delivery of goods cognizable only under Carmack Amendment to Interstate Commerce Act). In its pristine form, the artful pleading doctrine is not a departure from the rule that the plaintiff is master of his complaint. If a plaintiff has pled what must necessarily be a federal claim, he has no state law available to choose as the basis for his suit. A similar but procedurally distinguishable instance of artful pleading occurs when a defendant argues not only that federal law preempts the state...