Circle Z Fabricators, Ltd. v. Hydro-X, LLC
| Decision Date | 08 August 2012 |
| Docket Number | CIVIL ACTION NO. C-12-190 |
| Parties | CIRCLE Z FABRICATORS, LTD., et al, Plaintiffs, v. HYDRO-X, LLC, et al, Defendants. |
| Court | U.S. District Court — Southern District of Texas |
Before the Court is a dispute over the removability of the instant state law-based commercial contract and tort case pursuant to this Court's diversity jurisdiction. Stonehenge Capital Company, L.L.C. (Stonehenge) filed its Notice of Removal (D.E. 1), along with a Response (D.E. 17) and Surreply (D.E. 21-1) to Plaintiffs' Motion for Remand. Plaintiffs, Circle Z Fabricators, Ltd. (Circle Z), David Croft (Croft), and Monte Guiles (Guiles) timely filed their 28 U.S.C. § 1447 Motion for Remand (D.E. 5), along with their Reply (D.E. 18) in support of the Motion for Remand. As a preliminary matter, the Court GRANTS Defendant Stonehenge's Opposed Motion for Leave to File Surreply in Opposition to Plaintiffs' Motion for Remand (D.E. 21) and has fully considered the Surreply (D.E. 21-1). For the reasons set forth below, the Court GRANTS Plaintiffs' Motion for Remand (D.E. 5).
The facts and procedural history that supply the basis for Stonehenge's removal are established, in part, in the documents accompanying the removal (D.E. 1). The factswere further explored in a telephonic hearing precipitated by an opposed motion for limited jurisdictional discovery (D.E. 8). The hearing was conducted on June 28, 2012 and was transcribed (D.E. 15).
This case was filed on March 17, 2011 in the County Court at Law No. 4, Nueces County, Texas as No. 2011-CCV-60602-4, styled Circle Z Fabricators, Ltd. v. Hydro-X, L.L.C. (Hydro-X) and Kelly Clark (Clark). D.E. 1-3, p. 2. Plaintiff, Circle Z alleged a business disparagement claim against Hydro-X and Clark with respect to an attempt by Circle Z to team up with Stonehenge to buy, recapitalize, or otherwise obtain the business of Hydro-X, which was allegedly in financial trouble. According to Circle Z's pleadings, Clark, representing Hydro-X, disparaged Circle Z's financial and litigation status, thus causing Stonehenge and other participants to terminate their involvement in the Hydro-X project.
On or about October 6, 2011, Circle Z filed its second amended petition, adding claims against Stonehenge for breach of contract and fraud. D.E. 1-3, pp. 28-34. At that time, both Plaintiff Circle Z and Defendant Clark were citizens of Texas for diversity purposes. D.E. 1, p. 4. As discovery progressed, Circle Z began to believe that its claims against Stonehenge were getting stronger, while its claims against Hydro-X and Clark were getting weaker. D.E. 15, p. 9. Counsel for Plaintiffs, Lamar Clemons, discussed his impressions with Richard Woolsey, counsel for Defendants Hydro-X and Clark. Id.
Clemons indicated to Woolsey that Plaintiffs would entertain the idea of dismissing Hydro-X and Clark if (1) Plaintiffs could get additional discovery from Hydro-X and Clark (documents that had been withheld or redacted) to strengthen the caseagainst Stonehenge; (2) Plaintiffs could maintain the September 2012 trial date; (3) Clark would be available as a witness against Stonehenge at trial; and (4) Stonehenge would agree not to seek removal or change of venue after Hydro-X and Clark were dismissed, (if, indeed, Stonehenge still had the right to do so more than one year after the case was filed). D.E. 15, pp. 9-11, 13. With Clemons' approval, Woolsey contacted Stonehenge's counsel, Jeff Horn, to inquire whether Stonehenge would agree to waive removal and change of venue. Horn responded that he had not reserved any objection to venue, but that he would not agree to waive removal. D.E. 15, p. 12.
Soon thereafter, on or about May 14, 2012, Circle Z, now joined by Croft and Guiles, filed a third amended petition, dismissing claims against Clark, but adding claims for breach of fiduciary duty against Stonehenge. D.E. 1-3, pp. 44-52. It is undisputed that, for diversity purposes, Plaintiffs Circle Z and Croft are citizens of Texas and Plaintiff Guiles is a citizen of Colorado. Affidavit of Horn, D.E. 1-6, p. 4. Defendant Hydro-X is a citizen of Colorado and Defendant Stonehenge is a citizen of Ohio and Louisiana. Id.; D.E. 1, p. 5.
Stonehenge filed its Notice of Removal on June 7, 2012 citing diversity jurisdiction despite the fact that Plaintiff Guiles and Defendant Hydro-X are both citizens of Colorado, making them non-diverse.
Stonehenge alleges that this case became removable on May 14, 2012, the date of the filing of the Third Amended Petition, because the "real parties in interest" are citizensof different states.1 D.E. 1, p. 1. Stonehenge cites "delay and manipulative pleading tactics and misrepresentations of jurisdictional facts" on the part of Plaintiffs. These allegations relate to Plaintiffs' alleged intention to abandon their claims against Hydro-X pursuant to the discussions among counsel before Plaintiffs filed their Third Amended Petition. Stonehenge asserts that Hydro-X is improperly joined and that Stonehenge should be granted an equitable exception to the one-year limitation for removal. Stonehenge further alleges that the consent to removal of Hydro-X is not necessary under these circumstances.
A party may remove an action from state court to federal court if the action is one over which the federal court possesses subject matter jurisdiction. See 28 U.S.C. § 1441(a). The removing party—as the party seeking the federal forum—bears the burden of showing that federal jurisdiction exists and that removal was proper. See Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002). Removal jurisdiction, as a purely statutory right, must be strictly construed because it "implicates important federalism concerns." Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-109, 61 S.Ct. 868, 872, 85 L.Ed. 1214 (1941); Frank v. Bear Stearns & Co., 128 F.3d 919, 922 (5th Cir. 1997); see also Willy v. Coastal Corporation, 855 F.2d 1160, 1164 (5th Cir. 1988). Therefore, in evaluating jurisdiction, "[a]ny ambiguities are construed against removal because the removal statute should be strictly construed in favor ofremand." Manguno, supra; see also Acuna v. Brown & Root, Inc., 200 F.3d 335, 339 (5th Cir. 2000).
There are two general grounds upon which a court can find that a defendant was improperly joined: (1) actual fraud in the pleading of jurisdictional facts, or (2) an inability of the plaintiff to establish a cause of action against the non-diverse party in state court. Larroquette v. Cardinal Health 200, Inc., 466 F.3d 373, 376 (5th Cir. 2006). While Stonehenge's Notice of Removal refers to "manipulative pleading tactics and misrepresentations of jurisdictional facts," Stonehenge has provided no legal or factual arguments that would support a finding of actual fraud, either in its Notice of Removal or Response to Motion for Remand. D.E. 1, 17. Thus, Stonehenge has failed to establish the actual fraud element of improper joinder and relies only upon the suggestion that Plaintiffs lack a viable cause of action against Hydro-X.
With respect to the second element—whether the plaintiff is able to establish a claim against the non-diverse party—the district court is to inquire as to "whether the defendant has demonstrated that there is no possibility of recovery by the plaintiff against an in-state defendant, which stated differently means that there is no reasonable basis for the district court to predict that the plaintiff might be able to recover against an in-state defendant." Smallwood v. Illinois Central Railroad Company, 385 F.3d 568, 573 (5th Cir.2004) (emphasis added), cert. denied, 544 U.S. 992, 125 S.Ct. 1825, 161 L.Ed.2d 755 (2005). Upon the improper joinder inquiry, the court must resolve all contested issues of fact in favor of the plaintiff. Travis v. Irby, 326 F.3d 644, 648-49 (5th Cir. 2003). "The burden of persuasion on those who claim fraudulent joinder is a heavy one." Id. at 649.
Stonehenge does not argue that, objectively, Plaintiffs' claims of business disparagement against Hydro-X and Clark are frivolous or barred as a matter of law. If that were the case, Stonehenge would have had to assert its removal within thirty days of being joined in the case, as the claims against Hydro-X and Clark have not materially changed over the course of the lawsuit. See 28 U.S.C. § 1446(b)(1).
Instead, Stonehenge argues that, by dismissing Clark as a Defendant, Plaintiffs "admitt[ed] they cannot maintain a cause of action against him." As the argument continues, that dismissal of Clark was also an admission "they cannot maintain a cause of action against Hydro-X, since any liability of Hydro-X must be based on the allegedly disparaging statements made by Clark." Notice of Removal, D.E. 1, p. 6. While this is an interesting syllogism, it is false logic.
The liability for business disparagement can be assessed against the individual speaker, against the company the speaker properly represents by vicarious liability, or against both the speaker and the company. E.g., Delta Air Lines, Inc. v. Norris, 949 S.W.2d 422, 427 (Tex. App.—Waco 1997, pet. denied); Dwyer v. Sabine Mining Co., 890 S.W.2d 140, 143-44 (Tex. App.—Texarkana 1994, writ denied). Stonehenge has not cited any authority for the proposition that voluntary dismissal of a claim against thespeaker, Clark, automatically means that the claim had no viability against Clark or Hydro-X.
Stonehenge asks this Court to take counsel's suggestion—that he assessed the claims against Clark and Hydro-X as weakening while those against Stonehenge were strengthening—as an admission that the former claims were entirely lacking in merit. There is no evidentiary or logical basis...
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