CPC Livestock, LLC v. Fifth Third Bank, Inc.

• Decision Date: 08 April 2013
• Docket Number: Civil Action No. 1:12–CV–00204–JHM.
• Citation: 495 B.R. 332
• Parties: CPC LIVESTOCK, LLC, et al., Plaintiffs v. FIFTH THIRD BANK, INC., et al., Defendants.
• Court: U.S. District Court — Western District of Kentucky

495 B.R. 332

CPC LIVESTOCK, LLC, et al., Plaintiffs

v.FIFTH THIRD BANK, INC., et al., Defendants.

Civil Action No. 1:12–CV–00204–JHM.

United States District Court,

W.D. Kentucky,

Bowling Green Division.

April 8, 2013.

Amelia Martin Adams, J. Wesley Harned, Laura Day Delcotto, Michael J. Gartland, Delcotto Law Group PLLC, Lexington, KY, W. Scott Newbern, III, W. Scott Newbern, P.L., Tallahassee, FL, for Plaintiffs.

Eric W. Richardson, Kent A. Britt, Nathan L. Colvin, Vorys, Sater, Seymour & Pease LLP, Cincinnati, OH, Michael W. McClain, Ballinger McClain, PLLC, Louisville, KY, for Defendants.

Memorandum Opinion and Order

JOSEPH H. McKINLEY, JR., Chief Judge.

This matter is before the Court on Plaintiffs' Motion for Abstention and Remand [DN 21]. Also before the Court is Plaintiffs' Motion for Enlargement of Page Limit for their Reply [DN 35]. Fully briefed, this matter is ripe for decision. For the following reasons, the motions are GRANTED.

I. Background

In August of 2004, Eastern Livestock Co., LLC (“Eastern Livestock”), a livestock brokerage company with operations in eleven states, refinanced the bulk of its indebtedness through Defendant Fifth Third Bank, Inc. (“Fifth Third”). Fifth Third and Eastern Livestock executed a credit agreement and a security agreement, under which Fifth Third extended Eastern Livestock a revolving credit line in the amount of $22.5 million. Fifth Third took Eastern Livestock's equipment, livestock, inventory, bank accounts, and accounts receivable as collateral. Between 2004 and 2010, Eastern Livestock regularly bought livestock from Plaintiffs, using checks drawn from its Fifth Third account.¹

Despite its Fifth Third credit line, Eastern Livestock was starved for cash. In an attempt to generate additional working capital, some of Eastern Livestock's officers and principals—namely, Defendants Darren Brangers, Grant Gibson, and Stephen McDonald—became involved in a check kiting scheme. Essentially, these officers and principals would issue checks to and from certain bank accounts belonging to Eastern Livestock's agents, owners, and associates, as well as to and from its accounts with Fifth Third. This effectively allowed the company to borrow additional funds while creating the appearance that it was both solvent and flourishing. According to Plaintiffs, Fifth Third became aware of this check kiting scheme as early as 2007, when its computer detection software began raising red flags concerning Eastern Livestock. But despite this awareness, Fifth Third chose to take no action regarding Eastern Livestock's accounts. Instead, it decided to collect millions of dollars in additional fees and interest under the $22.5 million revolving credit line.

Plaintiffs assert that thereafter, in 2010, the check kiting scheme became even more apparent and Fifth Third set in motion a plan to minimize its losses. According to Plaintiffs, Fifth Third knew that the peak of Eastern Livestock's annual cattle sales was in late October or early November. Thus, it knew that tens of millions of dollars worth of checks would be deposited into Eastern Livestock's account at Fifth Third—and that Eastern Livestock would have tens of millions of dollars worth of checks that were issued and outstanding. With this knowledge, Fifth Third laid in waiting. Then, on November 2, 2010, it froze Eastern Livestock's accounts and its entire cash flow, without notifying the company of its actions. After the account freeze, Eastern Livestock's business continued for days and Fifth Third continued clearing checks in Eastern Livestock's accounts. As a result, the accounts filled up with cash from the livestock transactions. Thereafter, claiming the deposits as “collateral,” Fifth Third applied them to offset its exposure on the check kiting scheme. While this was ongoing, Plaintiffs continued to relinquish possession and control of their livestock to Eastern Livestock. In exchange, Plaintiffs received checks from Eastern Livestock that Fifth Third later refused to honor.

On November 10, 2010, a receiver was appointed for Eastern Livestock. On December 6, 2010, an involuntary Chapter 11 bankruptcy petition was filed in the U.S. Bankruptcy Court for the Southern District of Indiana. All of the cattle that were part of Eastern Livestock's assets, including those sold by Plaintiffs, and the proceeds from the sale of those cattle, became part of the bankruptcy estate. Thereafter, on December 17, 2012, the trustee's Plan of Liquidation was confirmed. Under this plan, Eastern Livestock's assets are to be reduced to cash and distributed to its creditors. See In re Eastern Livestock Co., LLC, No. 10–93904 [DNs 1490, 1644] (Bankr.S.D.Ind. Dec. 17, 2012).

On November 2, 2012, Plaintiffs filed suit in the Allen Circuit Court against Fifth Third, as well as against Brangers, Gibson, and McDonald, who participated in the check kiting scheme. West Kentucky Livestock Market, LLC, which operated a stockyard known as the “Marion Facility,” was also named as a defendant. In total, the complaint asserted nine causes of action against Defendants, including: conversion, unjust enrichment, and aiding and abetting fraud against Fifth Third; theft by deception against Brangers, Gibson, and McDonald; aiding and abetting theft by deception against Fifth Third; aiding and abetting Eastern Livestock's breach of trust relationship; tortious interference with Eastern Livestock's contractual and business relationships; and equitable accounting against West Kentucky Livestock Market. However, this complaint and the summonses were not served on Defendants. ( See Aff. of Michael J. Gartland [DN 36–2] ¶¶ 4–5 (noting that summonses were issued to, and retained by, Plaintiffs' counsel).) On November 26, 2012, Plaintiffs filed a First Amended Complaint, adding two plaintiffs to the action. This amended complaint and the summonses were served on Defendants. On December 12, 2012, Fifth Third removed this action to federal court under 28 U.S.C. § 1441(a), asserting the existence of diversity, bankruptcy, and supplemental jurisdiction.

On December 28, 2012, Plaintiffs filed a Second Amended Complaint, without the Court's leave, in which they added another new plaintiff, expanded on the facts, and added Brangers, Gibson, and McDonald to Count III's aiding and abetting fraud claim. On January 9, 2013, Fifth Third filed an Amended Notice of Removal, asserting federal question jurisdiction as another basis for removal. Plaintiffs then filed a motion for remand to the Allen Circuit Court, contesting the existence of any type of federal jurisdiction. In the event the Court finds that it has bankruptcy jurisdiction, Plaintiffs request that the Court abstain from exercising such jurisdiction.

II. Discussion

On December 12, 2012, Fifth Third removed this action from state to federal court. Plaintiffs thereafter filed a motion for remand to the Allen Circuit Court. As the removing party, Fifth Third bears the burden of establishing federal jurisdiction. See Alexander v. Elec. Data Sys. Corp., 13 F.3d 940, 948–49 (6th Cir.1994). “All doubts as to the propriety of removal are resolved in favor of remand.” Coyne v. Am. Tobacco Co., 183 F.3d 488, 493 (6th Cir.1999).

As a threshold matter, the Court must determine the point at which to test federal jurisdiction. Plaintiffs argue that the Court must test federal jurisdiction against the Second Amended Complaint because Fifth Third filed its Amended Notice of Removal after that complaint was filed. According to Plaintiffs, the amended notice superseded the original, and the Court must test federal jurisdiction anew from its filing. Plaintiffs assert that this situation is analogous to courts testing jurisdiction at the filing of an amended complaint. See Rockwell Int'l Corp. v. United States, 549 U.S. 457, 473–74, 127 S.Ct. 1397, 167 L.Ed.2d 190 (2007) (noting that “when a plaintiff files a complaint in federal court and then voluntarily amends the complaint, courts look to the amended complaint to determine jurisdiction”). Fifth Third counters that the Court must instead test federal jurisdiction against the First Amended Complaint, as that complaintwas in effect on December 12, 2012 when the original notice was filed.

It is well-settled that when considering a motion to remand, a court must determine whether it has subject matter jurisdiction “by examining the complaint as it existed at the time of removal.” Harper v. AutoAlliance Int'l, Inc., 392 F.3d 195, 210 (6th Cir.2004) (emphasis added); seeCoyne, 183 F.3d at 492 (noting that when an action is removed on diversity, courts “must determine whether complete diversity exists at the time of removal”). In the present case, the First Amended Complaint was operative at the time of removal. Accordingly, the Court will consider it in determining whether subject matter jurisdiction exists.² Plaintiffs have identified no cases which suggest that once a notice of removal is amended, the Court should treat the initial notice of removal as if it were never filed.

However, even if the Court were to analyze the Second Amended Complaint in determining federal jurisdiction, its conclusions here would be the same given Magistrate Judge Brennenstuhl's order entered February 15, 2013. (Order [DN 33].) Essentially, Plaintiffs ask the Court to analyze the Second Amended Complaint to bolster their fraudulent joinder argument. As discussed below, Fifth Third argues that Defendant Brangers, a non-diverse defendant, was fraudulently joined since the claim against him in Count IV is time-barred. Plaintiffs wish to argue that regardless of the proper limitations period for Count IV, Fifth Third still cannot show fraudulent joinder since the claim against Defendant Brangers in Count III of the Second Amended Complaint is not time-barred.³ However, Magistrate Judge Brennenstuhl has held that Plaintiffs cannot assert Count III against Brangers. ( Id. at 11.) Thus, the Court's analysis of...