Black Iron, LLC v. Helm-Pacific

Decision Date16 June 2017
Docket NumberCase No. 2:16-cv-00873-JNP-DBP
PartiesBLACK IRON, LLC, a Utah limited liability company, Plaintiff, v. HELM-PACIFIC a/k/a HELM-PACIFIC LEASING, a Nebraska general partnership; FIRST UNION RAIL CORPORATION d/b/a WELLS FARGO RAIL, a North Carolina corporation; CML HOLDINGS, a Delaware corporation; CML METALS CORPORATION, a Utah corporation; MICHAEL W. CONBOY, an individual; DOES 1-15; and ROES 1-15, Defendants.
CourtU.S. District Court — District of Utah

District Judge Jill N. Parrish

Before the court is Plaintiff Black Iron, LLC's Motion to Remand. (Docket No. 21). As explained below, the court grants the Motion and orders that this action be remanded to the Fifth District Court of the State of Utah, Iron County.


This action arises from a complex tangle of contractual litigation surrounding the Comstock Mountain Lion iron mine in Iron County, Utah. Until May 6, 2015, Defendants CML Metals Corporation and CML Holdings Inc. (collectively, the "CML Defendants") owned the mine and surrounding property. The CML Defendants also owned fixtures and other assets related to the mine, including railroad tracks that allowed for transportation of iron ore that was mined and processed on-site. In 2010, 2011 and 2012, the CML Defendants leased a number of railcars from Defendant Helm Pacific to facilitate the transportation of additional iron ore to port in California. From there, the ore was to be shipped to steel mills in China for refining. The CML Defendants stored the leased railcars on the railroad tracks located on the mine property.

At some point during the lease term, a significant dispute arose between the CML Defendants and Defendant Helm Pacific's successor in interest.1 The CML Defendants claimed that Defendant Helm Pacific had misrepresented the fitness of the railcars to carry the necessary shipments of iron ore, while the Wells Fargo Defendants claimed that the CML Defendants had failed to pay rent and otherwise abide by the terms of the leases. The dispute broke into open litigation on March 10, 2015, when the CML Defendants initiated a lawsuit (the "CML Lawsuit") against certain of the Wells Fargo Defendants in federal district court, alleging breach of the leases as well as other lease-related claims. (Case No. 2:15-cv-00152-JNP-DBP, Docket Nos. 2, 6). The Wells Fargo Defendants filed numerous counterclaims against the CML Defendants, seeking unpaid rent, repair costs, and return of the railcars under the terms of the lease, as well as other relief. (Case No. 2:15-cv-00152-JNP-DBP, Docket Nos. 12, 13, 33).

During the course of litigation in the CML Lawsuit, the CML Defendants negotiated an asset purchase agreement (the "APA") with Black Iron, LLC, the Plaintiff in the instant suit. Under the APA, Plaintiff agreed to purchase the mine and certain related assets from the CML Defendants, including the railroad tracks where the railcars at issue in the CML Lawsuit were stored. The CML Defendants apparently retained their interest in the railcar leases as well as their interest in the ongoing CML Lawsuit and any other claims against the Wells Fargo Defendants that might arise from the leases. The APA closed on May 6, 2015.

Once in possession of the mine, the railroad tracks, and other associated assets, Plaintiff contacted the Wells Fargo Defendants and demanded that the railcars be removed from the property. Plaintiff indicated that if the Wells Fargo Defendants failed to remove the railcars by June 1, 2015, they would be required to pay storage fees. But that deadline came and went with the railcars still on Plaintiff's tracks. The Wells Fargo Defendants did eventually send representatives to evaluate the railcars and prepare them for removal, but the railcars were never removed. Instead, the Wells Fargo Defendants subsequently filed a third-party complaint against Plaintiff in the CML Lawsuit, claiming that the APA was a fraudulent transfer and urging that it be set aside. (Case No. 2:15-cv-00152-JNP-DBP, Docket No. 38).

Approximately one year later, on July 12, 2016, Plaintiff initiated the instant action against the Wells Fargo Defendants, the CML Defendants, and Defendant Conboy in the Fifth District Court of the State of Utah, Iron County. (State Case No. 160500102). In its complaint, Plaintiff alleged several causes of action against the Wells Fargo Defendants relating to the railcars, including trespass, breach of implied contract, and unjust enrichment. (Docket No. 2, at 26-33). Plaintiff's complaint also included what appear to be two claims against the CML Defendants under Utah law—one for indemnity and one for promissory estoppel—captioned under a single heading. (See id. at 33-34). In support of these claims, Plaintiff alleged that prior to and following the closing of the APA, the CML Defendants had promised to indemnify Plaintiff "from liability, charges, costs, expenses, or losses associated with [Defendant] First Union and the railroad." (Id. at 33).

On August 11, 2016, the Wells Fargo Defendants removed the instant action to this court pursuant to 28 U.S.C. § 1441(a). (Docket No. 2). The removal was premised on diversity jurisdiction under 28 U.S.C. § 1332(a), despite the apparent lack of complete diversity among theparties.2 The Wells Fargo Defendants argued in their Notice of Removal that the only nondiverse parties, the CML Defendants, were fraudulently joined to the action to frustrate federal jurisdiction and their citizenship should therefore be ignored when evaluating complete diversity. See generally Smoot v. Chi., Rock Island & Pac. R.R. Co., 378 F.2d 879, 881-82 (10th Cir. 1967) (explaining and applying the fraudulent joinder doctrine); Dutcher v. Matheson, 733 F.3d 980, 988 (10th Cir. 2013) (same).

On September 12, 2016, Plaintiff filed the instant Motion to Remand, arguing that the CML Defendants were not fraudulently joined and requesting that the court remand the action to state court. (Docket No. 21). The Wells Fargo Defendants filed a memorandum in opposition to Plaintiff's Motion on September 29, 2016, defending their allegation of fraudulent joinder and asserting that Plaintiff simply could not state a claim against the CML Defendants in state court. (Docket No. 30). Plaintiff replied on October 17, 2016. (Docket No. 36). Oral argument was held before the court on December 16, 2016. (Docket No. 51). The court now considers the arguments of the parties pursuant to 28 U.S.C. § 1447 and, as explained below, holds that the action should be remanded to Utah state court.


"A case originally filed in state court may be removed to [this] court if, but only if, 'federal subject-matter jurisdiction would exist over the claim.'" Firstenberg v. City of Santa Fe, 696 F.3d 1018, 1023 (10th Cir. 2012) (quoting Hansen v. Harper Excavating, Inc., 641 F.3d 1216, 1220(10th Cir. 2011)); see also 28 U.S.C. § 1441(a) (allowing removal of an action if "the district courts of the United States have original jurisdiction" over the action); Sycamore Family LLC v. Earthgrains Baking Cos., Inc., No. 2:13-cv-00639-DN, 2013 WL 5883868, at *2 (D. Utah Nov. 1, 2013) (unpublished). When they removed the instant case from Utah state court, the Wells Fargo Defendants asserted that this court may validly exercise diversity jurisdiction under 28 U.S.C. § 1332(a) because the CML Defendants—the only nondiverse parties—were fraudulently joined to the action. (See Docket No. 2, at 2-7); McDonald v. CSAA Ins. Exch., No. CIV-16-336-R, 2017 WL 887108, at *1-*2 (W.D. Okla. Mar. 6, 2017) (unpublished) (evaluating a claim of complete diversity based on a theory of fraudulent joinder).

Plaintiff's Motion to Remand pursuant to 28 U.S.C. § 1447 challenges the Wells Fargo Defendants' claim of subject-matter jurisdiction. (Docket No. 21). Plaintiff urges that removal to this court was improper because diversity jurisdiction is lacking, and accordingly requests that the court remand the case to state court. See § 1447(c) ("If at any time before final judgment it appears that the district court lacks subject matter jurisdiction [over an action removed from state court], the case shall be remanded."). This court may not presume the existence of subject-matter jurisdiction "absent an adequate showing by the party invoking federal jurisdiction." See Dutcher, 733 F.3d at 985 (quoting United States ex rel. Hafter v. Spectrum Emergency Care, Inc., 190 F.3d 1156, 1160 (10th Cir. 1999)). Thus, the Wells Fargo Defendants bear the burden of demonstrating that the basis for federal jurisdiction alleged in their Notice of Removal is sound. See id.

I. Diversity Jurisdiction

As explained above, the Wells Fargo Defendants premised removal on this court's diversity jurisdiction under 28 U.S.C. § 1332(a). "In order to invoke diversity jurisdiction, 'a party mustshow that complete diversity of citizenship exists between the adverse parties and that the amount in controversy exceeds $75,000.'"3 Dutcher, 733 F.3d at 987 (quoting Symes v. Harris, 472 F.3d 754, 758 (10th Cir. 2006)); see also 28 U.S.C. § 1332(a). The parties in this action agree that the amount in controversy exceeds the statutory threshold, but differ as to the existence of complete diversity of citizenship among the parties. Viewing the face of the complaint, it is clear that the named parties are not completely diverse because Plaintiff and the CML Defendants are all citizens of Utah. See Ravenswood Inv. Co., L.P. v. Avalon Correctional Servs., 651 F.3d 1219, 1223 (10th Cir. 2011) ("When jurisdiction is premised on diversity of citizenship under 28 U.S.C. § 1332(a), . . . each plaintiff must be diverse from each defendant to have what is known as complete diversity."). Nevertheless, the Wells Fargo Defendants assert that complete diversity exists because Plaintiff's inclusion of the CML Defendants in this action constitutes a "fraudulent joinder" of non-diverse parties meant to...

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