Cav Farms, Inc. v. Nicholas
| Decision Date | 01 April 2019 |
| Docket Number | 19-CV-6088 CJS |
| Parties | CAV FARMS, INC., Plaintiff, v. EUGENE NICHOLAS, LYNN HOTTLE, MICHAEL ROGERS and ROGERS CATTLE FARM, Defendants. |
| Court | U.S. District Court — Western District of New York |
This action asserts claims sounding in tortious interference with contract. Defendants removed the action to this Court on the basis of federal diversity jurisdiction. Now before the Court is Plaintiff's Motion to Remand (Docket No. [#5]). The application is granted.
Resolution of the subject motion requires a brief examination of the somewhat convoluted relationship between the parties that has spawned several lawsuits. At all relevant times plaintiff CAV Farms, Inc. ("CAV") was a New York corporation formed for the purpose of selling grass-fed beef to an online grocer. CAV has a principal place of business in Schuyler County, New York. CAV has a single shareholder, namely, "the Jeffrey and Valerie Snider Living Trust." ("the Trust"). Jeffrey Snider and Valerie Snider ("the Sniders") are the trustees of the Trust.
In or about January 2017, CAV became a supplier of grass-fed beef for the aforementioned online grocer. In order to obtain a supply of grass-fed beef to sell to the grocer, CAV formed a New York limited liability company know as Medio Cielo, LLC ("Medio Cielo") with Rogers Cattle Farms, LLC ("Rogers Cattle").1 Michael Rogers ("Rogers") is a member of Rogers Cattle. Rogers and Rogers Cattle are both citizens of New York. Medio Cielo was "formed for the purpose of acquiring, finishing and selling beef cattle."2 In particular, pursuant to an agreement between CAV and Medio Cielo, Medio Cielo was supposed to obtain cattle for CAV, which CAV would in turn supply to the online grocer. In that regard, Rogers was supposed to buy cattle on behalf of Medio Cielo, using his own funds (or the funds of Rogers Cattle), after which he (or Rogers Cattle) would be reimbursed by CAV.
Pursuant to this arrangement, between January 2017 and August, 2017, CAV provided grass-fed beef to the online grocer. However, in mid-August, 2017, the online grocer abruptly terminated CAV as a supplier. The lawsuits began soon thereafter.
First, on or about January 31, 2018, the Sniders, CAV and Medio Cielo sued Rogers in New York State Supreme Court, Schuyler County, alleging that between January 2017 and June, 2017, he had duped them into reimbursing him for approximately $1 million worth of cattle that he had not actually purchased.3 The plaintiffs in that action obtained judgment against Rogers in the total amount of$969,355.00.4
Next, on August 16, 2018, Eugene Nicholas ("Nicholas") and Lynn Hottle ("Hottle), who are citizens of Pennsylvania, sued the Sniders and CAV in the United States District for the Middle District of Pennsylvania, alleging that CAV had failed to pay them for cattle that they sold to Medio Cielo between December, 2016, and July, 2017. CAV filed an answer in that action, but did not assert any counterclaims. That action remains pending.
Finally, on December 24, 2018, CAV filed the subject action in New York State Supreme Court, Schuyler County, against Nicholas, Hottle, Rogers and Rogers Cattle. As already noted, Nicholas and Hottle are citizens of Pennsylvania, while Rogers and Rogers Cattle are citizens of New York. The Complaint essentially asserts a claim for tortious interference with contract under New York law.
In particular, the Complaint alleges that Rogers, Rogers Cattle, Nicholas and Hottle interfered with CAV's supplier agreement with the online grocer, which caused the online grocer to terminate CAV as a supplier of grass-fed beef.5 The alleged tortious interference took several forms: 1) Nicholas, Hottle, Rogers and Rogers Cattle conspired to supplant CAV as the supplier of grass-fed beef to the online grocer; 2) Nicholas and Hottle sold cattle to Rogers and Rogers Cattle, "for the purpose of supplying cattle to [the online grocer,] but making it appear that thecattle were supplied by [CAV]";6 3) Nicholas, Hottle, Rogers and Rogers Cattle conspired to place counterfeit ear-tags on the cattle to mislead the online grocer into believing that the cattle were provided by CAV; 4) in July 2017, Nicholas and Hottle prepared a letter, to be signed by Rogers and sent to the online grocer, requesting that Nicholas replace CAV as the supplier and that payments be made to Nicholas; 5) in August 2017, at the request of Nicholas and/or Hottle, Rogers contacted the online grocer and requested that it pay him for cattle supplied on CAV's behalf; and 6) on or about August 13, 2017, Nicholas, Hottle and/or Rogers telephoned the online grocer, claiming that CAV was not paying its suppliers for beef, and requesting that the online grocer terminate its arrangement with CAV. On August 15, 2017, the online grocer terminated CAV as a supplier of beef.
CAV served the Summons and Complaint on Nicholas and Hottle on January 22, 2019, and January 3, 2019, respectively. On February 1, 2019, prior to CAV serving Rogers or Rogers Cattle,7 Nicholas and Hottle removed the action to this Court. The purported basis for removal was federal diversity jurisdiction. In that regard, Nicholas and Hottle indicated that this Court has diversity jurisdiction even though Rogers and Rogers Cattle are citizens of New York, because CAV fraudulently joined Rogers and Rogers Cattle as defendants in order to defeat federal diversity jurisdiction. In that regard, Nicholas and Hottle contend, first, that CAV's desire to avoid litigating the tortious interference claim in federal court is evident from the fact that it commenced the separate state-court action, rather thanasserting the claim as a counterclaim in the action already pending in federal court in Pennsylvania.
Further, Nicholas and Hottle maintain that the inclusion of Rogers and Rogers Cattle in this action is fraudulent because the tortious interference claim against Rogers and Rogers Cattle is barred by the doctrines of res judicata and "claim splitting" under New York law. More specifically, they contend that the tortious interference claim arises from the same "factual grouping" as CAV's prior successful lawsuit against Rogers in New York State Supreme Court, Schuyler County, and that it involves the same "transaction or series of connected transactions" and depends on "the same evidence" as that prior lawsuit.
Alternatively, Nicholas and Hottle maintain that Rogers is not a proper defendant in this action, in which Rogers Cattle is also being sued, since New York Limited Liability Company Law § 610 generally prohibits plaintiffs from suing members of a limited liability company in lawsuits against the limited liability company itself.
Finally, Nicholas and Hottle contend that even if Rogers and Rogers Cattle are proper defendants in this action, the Court may still exercise diversity jurisdiction if it first severs Rogers and Rogers Cattle from the action, on the ground that they are not indispensable parties.
On March 5, 2019, CAV timely filed the subject motion to remand this action to New York State Supreme Court, Schuyler County. In that regard, CAV first declares that it had every right to commence the state court action in Schuyler County, rather than asserting its tortious interference claim as a counterclaim inthe pending federal action in Pennsylvania. Further, CAV contends that remand is required because diversity jurisdiction is lacking. In that regard, CAV indicates that Nicholas and Hottle have failed to meet the high burden necessary to show fraudulent joinder, and that, indeed, the tortious interference claims against Rogers and Rogers Cattle are not barred under New York law by the doctrines of res judicata or claim splitting. Additionally, CAV maintains that its claim against Rogers is not barred by New York Limited Liability Company Law § 610, since at this point (without discovery) it cannot know whether Rogers was acting on his own behalf or on behalf of Rogers Cattle. And finally, CAV contends that the Court cannot manufacture diversity jurisdiction by severing Rogers and Rogers Cattle as defendants.
On March 18, 2019, Nicholas and Hottle filed their opposition to the Motion to Remand, in which they essentially reiterate the arguments made in support of removal, although they have not repeated their arguments concerning New York Limited Liability Company Law § 610. Additionally, they also now contend that the "forum defendant rule" (28 U.S.C. § 1441(b)(2)) does not prevent removal (even though the Rogers Defendants are citizens of the forum state) because the Rogers Defendants "were not served at the time of removal."8
The federal removal statute, 28 U.S.C. § 1441, states in pertinent part that "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or thedefendants, to the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C.A. § 1441(a) (West 2019). Of course, and "[e]ach plaintiff's citizenship must be different from the citizenship of each defendant" for the district court to have diversity jurisdiction." Benihana of Tokyo, LLC v. Angelo, Gordon & Co., L.P., 712 F. App'x 85, 85-86 (2d Cir. 2018) ("Benihana of Tokyo") (citations and internal quotation marks omitted).
Further, where the basis for removal is federal diversity jurisdiction, the state-court action may not be removed if any of the "properly joined and served" defendants is a citizen of the state in which the state-court action was commenced. More specifically, "the forum defendant rule" states: "A civil action otherwise removable solely on the basis of [diversity jurisdiction] may not be removed if any...
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