Dixon v. First Family Financial Services

• Citation: 276 B.R. 173
• Decision Date: 15 March 2002
• Docket Number: Civ.A. No. 3:01-CV-137BN.
• Parties: Rosa DIXON, et al., Plaintiffs, v. FIRST FAMILY FINANCIAL SERVICES, et al., Defendants.
• Court: U.S. District Court — Southern District of Mississippi

276 B.R. 173

Rosa DIXON, et al., Plaintiffs, v. FIRST FAMILY FINANCIAL SERVICES, et al., Defendants.

Civ.A. No. 3:01-CV-137BN.

United States District Court, S.D. Mississippi, Jackson Division.

March 15, 2002.

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Charles E. Gibson, III, John L. Davidson, Thomas R. Frazer, II, Frazer & Davidson, P.A., Jackson, MS, for plaintiffs.

Robert H. Walker, Fred Krutz, III, Daniel J. Mulholland, Forman, Perry, Watkins, Krutz & Tardy, Jackson, MS, Randy L. Dean, Walter D. Willson, Wells, Marble & Hurst, Jackson, MS, Fountain D. Dawson, Greenville, MS, for defendants.

OPINION AND ORDER

BARBOUR, District Judge.

This cause is before the Court on the related Motions of Plaintiffs to Remand, Strike, and Dismiss. Having considered the Motions, Responses, attachments to each, and supporting and opposing authority, the Court finds that the Motions are not well taken and should be denied.

I. Background and Procedural History

On January 16, 2001, Plaintiffs filed a complaint in the Circuit Court of Holmes County, Mississippi against First Family Financial Services, Inc. ("First Family"), American Security Insurance Company, American Security Group, Union Security Life Insurance Company, and Associations Financial Life Insurance Company. In that lawsuit, the Plaintiffs assert that the Defendants overcharged them and failed to disclose to them pertinent information in regard to life and property insurance that was allegedly required as a condition of loans made by First Family. On February 16, 2001, Plaintiffs Justina Bober ("Bober"), Jessie Mae Haley, and Sarah Haley served notice of their voluntary dismissal pursuant to Rule 41(a)(1)(i) of the Mississippi Rules of Civil Procedure.¹

The Defendants, without answering Plaintiffs' Complaint, removed the case to federal court on February 26, 2001, on the basis that seven plaintiffs were allegedly involved in bankruptcy proceedings. Pursuant to Fed. R. Civ. P. 41(a), Plaintiffs voluntarily dismissed the seven Plaintiffs upon whom Defendants based the removal on February 27, 2001. Defendants filed their answer on March 1, 2001, along with a supplement to their Notice of Removal in which Defendants named three additional plaintiffs allegedly involved in bankruptcy proceedings. On March 28, 2001, Plaintiffs filed the instant motions to strike supplement, to voluntarily dismiss Plaintiffs Calvin Young ("Young") and Annie Lee Carey ("Carey") or alternatively to dismiss all Plaintiffs, and to remand.

II. Analysis

A. Motion of Plaintiffs to Strike Supplements of Defendants to Notice of Removal

With their supplement of March 1, 2001, Defendants submitted evidence that Plaintiffs Young, Carey, and Bober had filed voluntary petitions for relief with the United States Bankruptcy Court for the Southern District of Mississippi.² On December 4, 2001, Defendants again supplemented their Notice of Removal, this time to submit evidence that Plaintiffs Hosie E. Williams ("Williams"), Gloria Funchess ("Funchess"), and Mary Joe Stanley ("Stanley") had filed voluntary petitions for relief with the United States Bankruptcy Court for the Southern District of Mississippi. Plaintiffs argue that the supplements should be stricken as defective because the Defendants did not obtain leave of Court to supplement their Notice of Removal. For the reasons that follow, the Court finds that the Motion of Plaintiffs to Strike is not well taken and should be denied.

Defendants removed this action pursuant to 28 U.S.C. §§ 1331, 1334, and 1452, on ground that certain Plaintiffs were bankrupt. A defendant may freely amend the Notice of Removal within the thirty-day period prescribed by § 1446(b), but

a defendant's ability to amend the removal petition after the thirty-day time limit ... extends only to amendments to correct technical defects in the jurisdictional allegations in the notice of removal, and ... amendments to remedy a "substantive defect in the removal petition, i.e., to add a new basis for federal jurisdiction, are not permitted."

Blakeley v. United Cable Sys., 105 F.Supp.2d 574, 579 (S.D.Miss.2000) (Lee, C.J.) (citation omitted) (alteration in original). Other federal district courts in Mississippi have adopted this approach. See Wright v. Combined Ins. Co. of America, 959 F.Supp. 356, 359 (N.D.Miss.1997) (holding that "[i]f a defendant seeks to amend the notice of removal [after the expiration of the thirty-day period], he may only do so to clarify the jurisdictional grounds for removal, which were unartfully stated in the original notice. He may not allege new jurisdictional grounds for removal."); Spillers v. Tillman, 959 F.Supp. 364, 372 (S.D.Miss.1997) (Bramlette, J.) (holding that "[a]lthough a defendant is free to amend a notice of removal within the 30-day period set forth in 28 U.S.C. § 1446(b), once the 30-day period has expired, amendment is not available to cure a substantive defect in removal proceedings.").

Although the supplements of Defendants were filed after the 30-day period for removal under section 1446(b) had expired, this Court has previously found that, until a motion to remand is decided by the Court, a defendant is free to supplement its notice of removal in order to clarify the jurisdictional grounds for removal. See Ross v. CitiFinancial, Inc., Civil Action No. 5:01-cv-185BN (S.D.Miss. Dec. 4, 2001). Where, as here, defendants timely alleged bankruptcy as a jurisdictional ground for removal, the Court finds that supplementation of the Notice of Removal to add the names of Plaintiffs allegedly involved in bankruptcy proceedings is not a prohibited addition of a new jurisdictional ground, but rather a permissible clarification of an existing jurisdictional ground for which leave of Court is not required. The Court therefore finds that the Motion of Plaintiffs to Strike Supplements is not well taken and should be denied.

B. Motion of Plaintiffs to Dismiss

Plaintiffs have moved the Court to dismiss without prejudice the claims of Young and Carey based on their statuses as bankrupts. See Motion. Rule 41(a)(2) of the Federal Rules of Civil Procedure provides in part that "an action shall not be dismissed at the plaintiff's instance save upon order of the court and upon such terms and conditions as the court deems proper." Fed. R. Civ. P. 41(a)(2). Generally, "[t]he basic purpose of Rule 41(a)(2) is to freely permit the plaintiff, with court approval, to voluntarily dismiss an action so long as no other party will be prejudiced." LeCompte v. Mr. Chip, Inc., 528 F.2d 601, 604 (5th Cir.1976). However, the "right to voluntary dismissal without prejudice is not absolute. Rather, dismissal on Motion under Rule 41(a)(2) is within the sound discretion of the court...." Id. (citing Diamond v. United States, 267 F.2d 23 (5th Cir.1959)).

The United States Court of Appeals for the Fifth Circuit has held that "motions for voluntarily dismissal should be freely granted unless the non-moving party will suffer some plain legal prejudice other than the mere prospect of a second lawsuit." Elbaor v. Tripath Imaging, Inc., 279 F.3d 314, 317 (5th Cir.2002) (citing Manshack v. Southwestern Elec. Power Co., 915 F.2d 172, 174 (5th Cir.1990)). When considering whether to grant a motion to voluntarily dismiss a complaint under Rule 41(a)(2),

the district court should first ask whether an unconditional dismissal will cause the non-movant to suffer plain legal prejudice. If not, it should generally, absent some evidence of abuse by the movant, grant the motion. If the district court concludes that granting the motion unconditionally will cause plain legal prejudice, it has two options, it can deny the motion outright or it can craft conditions that will cure the prejudice.

Id.

Under Fifth Circuit precedent, "plain legal prejudice" has been found in cases in which dismissal of the action stripped the defendant of a viable affirmative defense. See e.g. Elbaor, 279 F.3d at 318 (holding that "the absolute loss of a statute of limitations defense constitutes the type of clear legal prejudice that precludes the granting of an unconditional dismissal."); Ikospentakis v. Thalassic S.S. Agency, 915 F.2d 176 (5th Cir.1990) (finding that loss of a forum non conveniens defense constituted plain legal prejudice therefore warranting denial of a voluntary motion to dismiss). Plain legal prejudice, however, is not shown merely because a defendant has expended time in conducting discovery, or faces the prospect of a subsequent trial either in state court or before a jury. See Templeton v. Nedlloyd Lines, 901 F.2d 1273, 1276 (5th Cir.1990). Cf. Costa Lines Cargo, 903 F.2d at 360 (citing Kramer v. Butler, 845 F.2d 1291, 1294-95 (5th Cir.1988)) (holding, "Where the plaintiff does not seek dismissal until a late stage and the defendants have exerted significant time and effort, the district court may, in its discretion, refuse to grant a voluntary dismissal").

Plaintiffs argue that, as "no discovery has taken place in the instant case," and as the "case is in its infancy," neither party will be prejudiced by dismissal of Young and Carey. See Memorandum of Plaintiffs in Support of Motion. In the alternative, Plaintiffs urge the Court to dismiss all Plaintiffs if it finds that the Motion to Dismiss Young and Carey should be denied. See id.

Defendants argue that, as a matter of equity, Plaintiffs should not be allowed to voluntarily dismiss their claims. See Response. Specifically, Defendants argue that, because Plaintiffs failed to disclose to the Bankruptcy Court their cause of actions against the Defendants, Plaintiffs are equitably and judicially estopped from pursuing their claims outside the context of bankruptcy. See id. (citing Smith-Lyon v. Trustmark Nat'l Bank, 271 B.R. 487 (2000), in which the court found that "[a] debtor in bankruptcy must disclose any litigation likely to arise in a non-bankruptcy context, and failure to do so will trigger application...