Appalachian Power Company v. Region Properties, Inc.

• Decision Date: 21 September 1973
• Docket Number: Civ. A. No. 73-C-72-R to 73-C-74-R.
• Citation: 364 F. Supp. 1273
• Parties: APPALACHIAN POWER COMPANY v. REGION PROPERTIES, INC., et al. APPALACHIAN POWER COMPANY v. STRAUSS CONSTRUCTION CO., INC., et al. APPALACHIAN POWER COMPANY v. OLD HERITAGE CORPORATION and Rockydale Quarries Corporation.
• Court: U.S. District Court — Western District of Virginia

364 F. Supp. 1273

APPALACHIAN POWER COMPANY v. REGION PROPERTIES, INC., et al.

APPALACHIAN POWER COMPANY v. STRAUSS CONSTRUCTION CO., INC., et al.

APPALACHIAN POWER COMPANY v. OLD HERITAGE CORPORATION and Rockydale Quarries Corporation.

Civ. A. Nos. 73-C-72-R to 73-C-74-R.

United States District Court, W. D. Virginia, Roanoke Division.

September 21, 1973.

James F. Johnson, Woods, Rogers, Muse, Walker & Thornton, Roanoke, Va., for plaintiff.

W. Heywood Fralin, Roanoke, Va., and Donald L. Mooers, Washington, D. C., for defendants.

OPINION AND JUDGMENT

DALTON, Chief Judge.

Plaintiff instituted these three civil actions on May 7, 1973, in the Court of Law and Chancery of the City of Roanoke, Virginia, seeking payment of the principal and interest allegedly due on promissory notes executed by the defendants.¹ Each of the actions was removed by the defendants to this court pursuant to 28 U.S.C. § 1446. The defendants assert that this court has jurisdiction according to 28 U.S.C. § 1337, and that removal was proper pursuant to the provisions of 28 U.S.C. § 1441. Plaintiff, pursuant to 28 U.S.C. § 1447(c), has filed motions to remand each of the actions to state court, alleging that they were improvidently removed. Due to the factual similarity of these actions, they have been consolidated for disposition.

The promissory notes which are the basis of plaintiff's complaints represent charges for the installation of underground electric service in residential dwellings built in Virginia during the period February, 1967, through April, 1970. In response to plaintiff's motions to remand, defendants assert removal is proper because the question of defendants' liability on the promissory notes is already before this court by virtue of a class action filed by defendants three days prior to the institution of plaintiff's action on the promissory notes.² The gravamen of this complaint is that the charge imposed by plaintiff is in violation of the Sherman Act, 15 U.S.C. § 1, and the Clayton Antitrust Act, 15 U. S.C. § 14. Among the activities complained of are the alleged excess cost represented by, and the alleged improper and illegal system of credits provided in the promissory notes upon which plaintiff seeks recovery in these actions.

A defendant in a state court action may remove the suit to federal court whenever the district court could have sustained original jurisdiction because the plaintiff's action is "founded on a claim or right arising under the Constitution, treaties or laws of the United States." 28 U.S.C. § 1441(b). If the plaintiff's complaint does not assert a federal right, removal may still be attained "if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought." Id. Since all the parties involved in this litigation are citizens of Virginia, diversity jurisdiction is not available. Hence, defendants, asserting a violation of the federal antitrust laws, must rely on the provision granting removal whenever a federal claim is presented.

The Supreme Court has consistently adhered to a circumscribed interpretation of the "federal claim" provisions of the removal statute. Removal should be granted only if the federal claim or right asserted is an essential element of the plaintiff's cause of action. The federal issue should be evident from plaintiff's complaint, unaided by defendant's answer or his removal petition. Furthermore, removal jurisdiction may only be founded upon the plaintiff's cause of action, and is not available when plaintiff asserts a federal question by anticipating a probable defense. Gully v. First Nat'l Bank, 229 U.S. 109, 112-113, 57 S.Ct. 96, 81 L.Ed. 70 (1936).

If defendants were proffering the alleged antitrust violation as a defense to plaintiff's state court action, unquestionably removal would be denied.³ Plaintiff's right to recover on the promissory notes executed by the defendants has its genesis in the law of Virginia. It is well established that a putative federal law defense does not confer removal jurisdiction, and a federal question arising by way of defense initially must be resolved by the state courts. Thompson v. Standard Oil Co., 67 F.2d 644, 649 (4th Cir. 1933).

Defendants, however, would distinguish the voluminous case law discussed in plaintiff's brief from this litigation because in none of the prior cases "was there a previously-filed Federal Court action pending between the same parties which involved the same transaction as formed the basis of the removed action."⁴ Although previous decisions may not be factually equivalent to this proceeding, nonetheless, they substantiate the view that removal is appropriate only when resolution of the federal issue may be necessary before plaintiff initially can establish his right to relief.⁵

Litigation analogous to the present controversy has occurred within our circuit. In Potter v. Carvel Stores of N. Y., Inc., 203 F.Supp. 462 (D.Md.1962), aff'd, 314 F.2d 45 (4th Cir. 1963), the plaintiff (Potter) filed a complaint in federal court alleging violations of the Sherman and Clayton Acts regarding franchise agreements whereby Potter was to become a franchised dealer in soft ice cream. Subsequently, the defendant (Chain) in the federal action instituted a suit in the Maryland state courts seeking overdue rent and costs which were allegedly due under the franchise agreement. Potter, defending in the state court action, removed the controversy to federal court and additionally sought to enjoin Chain from attempting to enforce the franchise agreement by proceeding with the Maryland state court action because it involved the same issues which were before the court in the antitrust litigation. The court, therefore, was presented not only with the question of removal, but also whether it should enjoin concurrent state court litigation. In denying injunctive relief and granting Chain's motion to remand, the court declared "no proper basis for removal ever came into existence as required by 28 U.S.C.A. § 1441." 203 F.Supp. at 466. Even if removal had been appropriate it would have been unavailable due to Potter's failure to comply with the time limitation contained in § 1446(b). Nevertheless, it is evident that the court concluded that the prior federal antitrust action did not authorize removal of the state court suit on the franchise agreement. The precedential value of this decision, however, is diminished by the Fourth Circuit's affirmance. Its per curiam opinion dealt only with denial of injunctive relief, and was less than definitive on this point.⁶ It is arguable, therefore, that the defendants in this case are not entirely foreclosed from removing the state court action.

In the face of the substantial case law in opposition to their motion, the defendants rely on the policy of the Federal Rules of Civil Procedure in asserting that remand would be inconsistent with the objectives of modern procedural improvements. Defendants contend that since plaintiff's claim in the state action arises out of the same transaction that is the subject matter of defendants' antitrust suit, under the compulsory counterclaims provision of Rule 13(a) of the Federal Rules of Civil Procedure, the plaintiff will be required to state as a counterclaim in its answer to defendants' pending federal antitrust action, the very claims which it is seeking to remand. In addition, defendants argue that the three actions plaintiff seeks to remand match the criteria required for consolidation with defendants' pending antitrust suit under Rule 42(a); a motion which defendants intend to file. In conclusion, defendants assert that to require the unnecessary cost and delay inherent in pursuing parallel actions in state and federal courts thwarts the obvious purposes of Rules 13(a) and 42(a).

Examining defendants' consolidation argument first, it appears that defendants have placed the proverbial "cart before the horse." Judicial economy certainly demands consolidation "when actions involving a common question of law or fact are pending before the court." Fed.R.Civ.P. 42(a) (emphasis supplied). However, if plaintiff's action on the promissory notes is not proper for removal it is not "pending before the court", and this court has no authority to consolidate an action of which it has jurisdiction with one of which it does not. As previously noted, precedent strongly opposes removal in this situation, and although in similar circumstances consolidation has been granted, these decisions are distinguishable from the present controversy.⁷ Since the court believes removal is improper, it necessarily has no authority to consolidate.

Assuming Appalachian's motion to dismiss in the antitrust litigation is denied, the defendants are correct in their contention that Appalachian must then assert its claim on the promissory notes as a compulsory counterclaim pursuant to Rule 13(a) in the antitrust action. The result will be concurrent state and federal litigation involving the same claim — Appalachian's right to recover on the promissory notes. Furthermore, as defendants assert, the general objective underlying Rule 13(a) of avoiding the cost and delay inherent in multiple suits will be controverted.

Nevertheless, this policy is outweighed by a higher principle, the prohibition against federal interference with state court litigation. Analogy can be made to the general prohibition against enjoining state court action contained in 28 U.S.C. § 2283.⁸ Where federal antitrust litigation has been followed by state court litigation involving the transaction which formed the basis of the antitrust action, and additionally the plaintiff in the state court suit has counterclaimed in the federal action, the courts have consistently refused to enjoin the state court proceeding. E. g., Reines Distributors, Inc. v. Admiral Corp., 182 F.Supp. 226 (S.D.N.Y.1960); cf. Nolen v. Hammet Co., 56 F.R.D. 361 (...