Boone v. Citigroup, Inc.

Decision Date07 July 2005
Docket NumberNo. 04-60766.,04-60766.
PartiesPatricia BOONE, et al., Plaintiffs, Patricia Boone; Mandolyn Boyd; Mary Jordan; Mary McBride; Arthaway McCullough; Constance McFarland; Eugene Paine; Bernice Paine; Mary Spratt; Peggy Washington, Plaintiffs-Appellants, v. CITIGROUP, INC.; Citifinancial Inc.; Associates First Capital Corporation; Associates Corporation of North America; Paul Spears; D. Lavender; Michelle Easter; John Does 1-50; Citifinancial Corporation, Defendants-Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

James Michael Priest, Jr. (argued), Elizabeth Ann Santangini, Eaves Law Office, Jackson, MS, for Plaintiffs-Appellants.

Harry Mitchell Cowan (argued), Laura Limerick Gibbes, Watkins, Ludlam, Winter & Stennis, Jackson, MS, for Defendants-Appellees.

Appeal from the United States District Court for the Northern District of Mississippi.

Before GARWOOD, GARZA and BENAVIDES, Circuit Judges.

GARWOOD, Circuit Judge:

Appellants, all of whom are residents of Mississippi, brought suit in Mississippi state court alleging only state law claims against five out-of-state corporations and three individual Mississippi residents. One of the corporate appellees removed the case to federal court on the ground that the three in-state residents had been improperly joined in order to defeat diversity jurisdiction. The district court denied appellants' motion to remand and granted summary judgment to appellees on the merits. Appellants appeal this disposition principally on the ground that our recent decision in Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568 (5th Cir.2004) (en banc) cert. denied ___ U.S. ___, 125 S.Ct. 1825, 161 L.Ed.2d 755 (2005) (Smallwood II), establishes that the doctrine of improper joinder does not apply under the facts of this case and, accordingly, the district court lacked subject matter jurisdiction under 28 U.S.C. § 1332. We affirm.

I.

The nine appellants are residents of Mississippi.1 Each appellant obtained at least one consumer loan from First Family Services, Inc. (First Family) at First Family's offices in Aberdeen, Amory, or Tupelo, Mississippi. The most recent of these loans originated on May 12, 1998. Appellants also purchased credit insurance from First Family to insure against the possibility of default in the event of, for example, death or serious illness.

In October 2001, appellants, later joined by several since-dismissed co-plaintiffs, filed a complaint in the circuit court of Monroe County, Mississippi. They generally alleged that First Family engaged in a pattern of unlawful misrepresentation and non-disclosure in connection with the loans and credit insurance. Appellants contend that First Family exploited their lack of sophistication in inducing them to buy credit and insurance products they did not need, did not want, or did not know they had purchased. Appellants do not allege that the relevant terms of the transactions were not disclosed in the written instruments themselves. Rather, they contend that First Family and its employees orally misrepresented what was in the written instruments, which, appellants maintain, they could not understand because they lacked the sophistication to do so.2 Appellants sought to recover on state law claims for common law fraud, fraud in factum, constructive fraud, civil conspiracy, unconscionability, economic duress, fraudulent deceit, continuing fraudulent misrepresentation, fraudulent concealment, and the intentional infliction of emotional distress. The removed state court complaint expressly limits the claims asserted to those arising under Mississippi law and affirmatively excludes any federal claims.

Appellants named eight defendants, five of which were corporations which were citizens of states other than Mississippi and three of whom were individual Mississippi residents.3 Significantly, appellants did not sue First Family. Appellants did, however, sue two related entities, Associates First Capital Corporation and Associates Corporation of North America, both of which are Delaware corporations. Associates First Capital Corporation is the parent corporation of Associates Corporation of North America and First Family is a subsidiary of one or the other. Appellants also sued Citigroup, Inc., a Delaware corporation, because on August 30, 2000 Citigroup, Inc. acquired, and became the successor in interest to, Associates First Capital Corporation. Citifinancial Corporation and Citifinancial, Inc., each likewise a Delaware corporation owned by Citigroup, Inc., were also named defendants because First Family was apparently merged into (or sold all its assets to) the Citifinancial entities. It is undisputed that each of the five corporate defendants is and was at all relevant times a citizen of a state other than Mississippi under 28 U.S.C. § 1332(c)(1) and that the amount in controversy exceeded $75,000.

Finally, appellants also named three individual Mississippi residents. The individual defendants had been at all relevant times employees of First Family and were alleged to have been directly or indirectly involved in the loan and credit insurance process for at least some of the appellants. Defendant Paul Spears supervised several First Family branches. Defendant Durlynn Lavender managed the First Family branch in Aberdeen, Mississippi. Defendant Michelle Easter was a loan officer at the same branch.

On November 16, 2001, Citigroup, Inc. removed the suit to the Northern District of Mississippi, contending that the three individual defendants had been improperly joined to destroy diversity jurisdiction under 28 U.S.C. § 1332 in that there was no reasonable possibility of recovery against them because, inter alia, the claims against them were barred by the Mississippi statute of limitations. Shortly thereafter, appellants moved to remand on the apparent ground that joinder was proper because there was a reasonable possibility that they could recover against the non-diverse appellees.4 After allowing remand-related discovery, the district court5 determined: (1) recovery against the three individual defendants was indisputably precluded by Mississippi's three-year residual statute of limitations, Miss.Code. Ann. § 15-1-49; (2) appellants failed to read the loan and insurance contracts at issue and were therefore not entitled to assert that there were discrepancies between the contracts and oral representations allegedly made by the non-diverse appellees; and (3) none of the five appellants who were deposed as part of the remand-related discovery could identify a single misrepresentation made by any of the three non-diverse appellees.6 Based on these conclusions, the district court denied the motion to remand, reasoning that the impossibility of recovery against the non-diverse appellees meant that joinder of the non-diverse appellees had been improper and thus subject matter jurisdiction existed under 28 U.S.C. § 1332.

On December 29, 2003, following the close of discovery, appellees, including the three non-diverse individual defendants, moved for summary judgment. On January 21, 2004, before they filed their memorandum in opposition to the pending motion for summary judgment, appellants filed a second motion for remand, arguing that two intervening appellate decisions, Smallwood v. Ill. Cent. R.R. Co., 342 F.3d 400 (5th Cir.2003) (Smallwood I), and Collins v. Am. Home Prod. Corp., 343 F.3d 765 (5th Cir.2003), established that the district court had erroneously denied remand. On February 23, 2004, the district court entered an order "withholding" any ruling on the motion to remand until May 1, 2004, or the en banc decision in Smallwood, whichever came first.7

In the meantime, however, appellants filed a response in opposition to summary judgment in which they apparently claimed that the statute of limitations was tolled on the grounds of fraudulent concealment and a related 1997 class action in Arizona.8 The district court, without waiting for the May 1, 2004 deadline to expire, issued an order on April 8, 2004, granting summary judgment to all defendants. The basis of the district court's summary judgment order was that appellants' claims were untimely as to all defendants under the Mississippi three-year residual statute of limitations.

Appellants timely filed a Rule 59(e) motion to alter or amend the judgment, arguing that the district court erred by ruling on the merits of their claims without first addressing the threshold issue of subject matter jurisdiction raised by their second motion to remand. They also maintained that the district court erred in concluding that a class action in Arizona, and a related global settlement, did not toll the statute of limitations as to all or at least some of the diverse corporate defendants. On August 6, 2004, the district court denied the motion on the ground that, whatever the outcome of the Smallwood case, the statute of limitations had run on all of appellants' claims as to all defendants.

Appellants then filed a timely notice of appeal. While their appeal was pending and before briefs were due, this court issued its en banc decision Smallwood II, and it is upon this case that appellants primarily rely in challenging subject matter jurisdiction.

II.

Appellants contend on appeal that this case should be remanded for want of subject matter jurisdiction under section 1332 because defendants interposed a "common defense" of the statute of limitations that disposed equally of all claims against all defendants and, under Smallwood II, such a "common defense" precludes a finding of improper joinder.9

A.

The denial of a motion to remand for want of subject matter jurisdiction is reviewed de novo. Miller v. Diamond Shamrock Co., 275 F.3d 414, 417 (5th Cir.2001). Appellees, as the removing parties below, bear the burden of establishing jurisdiction. Frank v. Bear Stearns & Co., 128 F.3d 919, 921-22 (5th Cir.1997).

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