Farmers & Merchants Bank v. Hamilton Hotel Partners, Civ. No. 88-5136.

Citation702 F. Supp. 1417
Decision Date16 December 1988
Docket NumberCiv. No. 88-5136.
PartiesFARMERS & MERCHANTS BANK, Trustee for Thomas C. Johnston, IRA v. HAMILTON HOTEL PARTNERS OF JACKSONVILLE LIMITED PARTNERSHIP, a Massachusetts Limited Partnership; Hamilton Hotel Realty Corp., Hamilton Hotels, Inc. John A. Hammerle, III, Herman S. Eisenberg, J. Douglas Harding, Michael E. Recca, Morgan, Olmstead, Kennedy & Gardner, Inc.
CourtUnited States District Courts. 8th Circuit. Western District of Arkansas

K.R. Lashlee, Scott, Lashlee & Watkins, P.A., Rogers, Ark., Mark W. Nichols, Yancey, Nichols & Wolff, P.A., Little Rock, Ark., for plaintiff.

Peter G. Kimpe, Wright, Lindsey & Jennings, Vincent Foster, Jr., Jess Askew, III, Vincent Foster, Jr., Rose Law Firm, Little Rock, Ark., for defendants.

MEMORANDUM OPINION

H. FRANKLIN WATERS, Chief Judge.

There are presently pending before this court a number of motions and responses thereto. The court has reviewed the pleadings and the pending motions and is now prepared to rule. Each motion will be addressed separately.

I. Motion for Remand

On August 4, 1988, plaintiff filed this cause of action in the chancery court of Benton County, Arkansas. The complaint in five counts alleged that the defendants had violated various sections of the Arkansas Securities Act and violation of the Securities Act of 1933. Plaintiff alleges these violations occurred in connection with the sale of limited partnership units in the Hamilton Hotel Partners I and Hamilton Hotel Partners II. Hamilton Hotel Partners I is a limited partnership formed to purchase a Ramada Inn Hotel in Tampa, Florida (Hamilton I). Hamilton Hotel Partners of Jacksonville Limited Partnership was formed to purchase a hotel in Jacksonville, Florida (Hamilton II). Defendants' Brief in Opposition of Remand at 1. Plaintiff alleges that defendants, Hamilton Realty, Hamilton Hotel, Inc., Hammerle, Eisenberg, Harding, Recca, and AVI control Hamilton I and II.

Plaintiff states it is the trustee for the Thomas C. Johnston IRA. Plaintiff further alleges that the Thomas C. Johnston IRA is a self-directed individual retirement account in which Johnston has the authority to direct the investments of the account. Complaint at paragraph 14-16.

Mr. Johnston, acting as a representative for the Thomas C. Johnston IRA, purchased a partnership unit in each of the above mentioned partnerships. Complaint at paragraphs 17-18, 19-20. Plaintiff contends the investments in Hamilton Hotel Partners I and II are securities and that the sales of these interests violated the securities laws. Specifically the complaint alleges, in count one, violation of the registration requirements under the Arkansas Securities Act; in count two, violation of the disclosure requirements under the Arkansas Securities Act; in count three, violations of the registration and disclosure requirements of the Securities Act of 1933, 15 U.S.C. § 77a, in regard to the security evidenced by the unit in Hamilton Hotel Partners II; in count four, common law fraud and misrepresentation; in count five, the complaint alleges negligence against defendants, Morgan, Olmstead, Kennedy & Gardner, Inc. On September 7, 1988, the defendants filed a petition for removal stating as grounds that this court has jurisdiction under 28 U.S.C. § 1331 and 28 U.S.C. § 1332. Plaintiff has moved pursuant to 28 U.S.C. § 1447 to remand this case to the state court.

Plaintiff contends removal was improper under either subsection (a) or (c) of 28 U.S.C. § 1441. In support of its contention plaintiff points out that Section 22(a) of the Securities Act of 1933, 15 U.S.C. § 77v(a), precludes removal to federal courts of any case "arising under the act" and because no "separate and independent claim or cause of action" within the meaning of 28 U.S.C. § 1441(c) is joined with the non-removable securities claim.

Section 77v provides for concurrent jurisdiction over any cause of action under the Securities Act of 1933. 15 U.S.C. § 77v(a). However, removal is expressly prohibited by that same section which provides in part:

No case arising under the Securities Act of 1933 and brought in any state court of competent jurisdiction shall be removed to any court of the United States.

15 U.S.C. § 77v(a).

Removal based upon a federal question is provided for in Section 1441(a), 28 U.S.C. § 1441(a). However, that section expressly limits this authority to cases where Congress has not "expressly provided" otherwise. This is clearly a reference to statutes such as the one involved here where Congress has granted the plaintiff not only the right to file his action in state courts, but also the right to proceed to judgment in that court. See for examples 15 U.S.C. § 77v(a) (Securities); 28 U.S.C. § 1445(c) (actions arising under state workmen's compensation laws); 28 U.S.C. § 1445(a) (certain actions against railroads); 45 U.S. C. § 51 et seq. (Federal Employers' Liability Act). In light of the incorporation of the statutory removal prohibition into Section 1441(a), there is no question that removal is not allowable under subsection (a).

Therefore, if this case is removable at all it must be under the provisions of Section 1441(c) which provides:

Whenever a separate and independent claim or cause of action, which would be removable if sued upon alone, is joined with one or more otherwise non-removable claims or causes of action, the entire case may be removed and this district court may determine all issues therein, or, in its discretion, may remand all matters not otherwise within its original jurisdiction.

28 U.S.C. § 1441(c).

This case would clearly have fallen within the removal provisions of Section 1441(a) but for the nonremovable securities claim since the complaint alleged the requisite diversity of citizenship and jurisdictional amount. As discussed above, however, this section is inapplicable because Congress has explicitly prohibited removal of claims under the Securities Act of 1933.

The question before the court then is whether Section 77v in effect overrides the general removal provision in Section 1441(c) and prevents removal of the securities claim even when joined with a "separate and independent" removable claim. See generally 14A Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction 2d §§ 3724 at 408, 3729 at 494 (1985). When a special statute bars removal it creates a conflict with Section 1441(c). "Section 1441(c) reflects the congressional judgment that plaintiff's joinder of separate and independent claims, one of which is non-removable, should not destroy a defendant's right to removal." Gonsalves v. Amoco Shipping Co., 733 F.2d 1020, 1022 (2d Cir.1984). However, Section 77v evidences Congressional intent to provide the plaintiff with a choice-of-forum privilege. The question, therefore, is, as one court phrased the inquiry, "where Congress intended the right granted a 1933 Securities Act claimant to cease and the protection granted defendants to commence." U.S. Industries, Inc. v. Gregg, 348 F.Supp. 1004, 1015 (D.Del.1972), rev'd on other grounds, 540 F.2d 142 (3d Cir.1976), cert. denied, 433 U.S. 908, 97 S.Ct. 2972, 53 L.Ed.2d 1091 (1977).

The conflict between the statutory policies evident in anti-removal statutes and the general removal statute has been explored by some courts. Most courts that have directly addressed the issue have determined that Section 1441(c) takes precedence and permits removal despite the statutory prohibition. Emrich v. Touche Ross & Co., 846 F.2d 1190, 1197 (9th Cir.1988); Gonsalves v. Amoco Shipping Co., 733 F.2d 1020, 1023-26 (2d Cir.1984); Cacioppe v. Superior Holsteins III, Ltd., 650 F.Supp. 607 (S.D.Tex.1986); Kinsey v. Nestor Exploration Ltd. — 1981A, 604 F.Supp. 1365 (E.D.Wash.1985); Abing v. Paine, Webber, Jackson & Curtis, 538 F.Supp. 1193, 1197 (D.Minn.1982); Hages v. Aliquippa & Southern R. Co., 427 F.Supp. 889 (W.D.Pa.1977); Armstrong v. Monex International, Ltd., 413 F.Supp. 567 (N.D. Ill.1976); Milton R. Barrie Co. v. Levine, 390 F.Supp. 475 (S.D.N.Y.1975); U.S. Industries, Inc. v. Gregg, 348 F.Supp. 1004 (D.Del.1972); Meinerz v. Harding Bros. Oil & Gas Company, 343 F.Supp. 681 (E.D.Wis.1972); Korber v. Lehman, 221 F.Supp. 358 (S.D.N.Y.1963).

As one court concluded:

15 U.S.C. § 77v restricts the grant of general removal jurisdiction found in Subsection (a). However, in a case where a separate and independent claim, which would be removable if sued upon alone, is joined with one or more otherwise removable claims, whether made non-removable by Section 77v or otherwise, Subsection (c) is the governing provision and authorizes removal of the entire case.

U.S. Industries, Inc. v. Gregg, 348 F.Supp. 1004, 1015-16 (D.Del.1972). Accordingly, the entire case is removable if the complaint states another cause of action that would otherwise be removable and is separate and independent within the meaning of Section 1441(c).

It is the status of plaintiff's complaint at the time that the removal petition is filed that controls in making the determination whether the claims are separate and independent. American Fire & Cas. Co. v. Finn, 341 U.S. 6, 71 S.Ct. 534, 95 L.Ed. 702 (1951); Bull v. Greenwood, 610 F.Supp. 874 (W.D.Ark.1985). In American Fire & Casualty Co. v. Finn, supra, the Supreme Court made clear "that where there is a single wrong to plaintiff, for which relief is sought, arising from an interlocked series of transactions, there is no separate and independent claim or cause of action...." American Fire & Casualty, 341 U.S. at 14, 71 S.Ct. at 540. Accordingly, claims or causes of action are not "separate and independent" under 28 U.S.C. § 1441(c) if they are based upon a single wrong and arose out of one set of operative facts. Bull v. Greenwood, 610 F.Supp. 874 (W.D.Ark. 1985); Strange v. Arkansas-Oklahoma Gas Corp., 534 F.Supp. 138 (W.D.Ark. 1981).

In this case the issues involve the sale of limited partnership units in two separate entities which were in...

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