Frontier Airlines, Inc. v. United Air Lines, Inc.

• Decision Date: 14 August 1989
• Docket Number: Civ. A. No. 89-F-645.
• Citation: 758 F. Supp. 1399
• Parties: FRONTIER AIRLINES, INC., a Nevada corporation, Plaintiff, v. UNITED AIR LINES, INC., a Delaware corporation; and Frank R. Kent, Defendants.
• Court: U.S. District Court — District of Colorado

758 F. Supp. 1399

FRONTIER AIRLINES, INC., a Nevada corporation, Plaintiff, v. UNITED AIR LINES, INC., a Delaware corporation; and Frank R. Kent, Defendants.

Civ. A. No. 89-F-645.

United States District Court, D. Colorado.

August 14, 1989.

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H. Thomas Coghill, David J. Richman, Dean S. Neuwirth, Coghill & Goodspeed, P.C., Denver, Colo., for plaintiff.

Dale R. Harris, Timothy M. Tymkovich, Lisa S. Kahn, Davis, Graham & Stubbs, Denver, Colo., Carolyn F. Corwin, Covington & Burling, Washington, D.C., for defendant United Air Lines, Inc.

MEMORANDUM OPINION AND ORDER ON MOTIONS FOR REMAND AND DISMISSAL

SHERMAN G. FINESILVER, Chief Judge.

This matter comes before the court on two motions:

(1) plaintiff's motion to remand, filed May 15, 1989, and (2) defendants' motion to dismiss claims against Frank R. Kent, filed June 1, 1989. Plaintiff commenced this action in state court March 15, 1989. Plaintiff brings claims for violation of Colorado antitrust and unfair competition statutes, for tortious interference with contracts and prospective contractual relations and for breach of contract. The litigation arises out of the operation of a computer reservation system for airline transportation owned by defendant United Airlines ("United"). Defendant Frank R. Kent is the Regional Sales Manager for United, based in Denver, Colorado. United and Kent removed the action to this court on April 14, 1989, alleging that Kent had been joined as a defendant for the sole purpose of defeating diversity jurisdiction in the federal court. We find that complete diversity of citizenship exists between plaintiff and the proper defendant in this litigation. Plaintiff has failed to state claims upon which relief could be granted against defendant Kent. Accordingly, plaintiff's motion to remand is DENIED. Defendants' motion to dismiss claims against defendant Frank R. Kent is GRANTED.

I.

The relevant portion of the removal statute provides that any civil action brought in state court, over which the district court has original jurisdiction, may be removed by the defendants to federal court in the district in which the state action is pending. 28 U.S.C. § 1441(a). Where an action is not premised upon federal law, the "action shall be removable only if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought." 28 U.S.C. § 1441(b).

United is a Delaware corporation with its principal place of business is Illinois. Frontier Airlines ("Frontier") is a Nevada corporation with its principal place of business in Colorado; plaintiff is a resident of Colorado for determining diversity of citizenship. 28 U.S.C. § 1332(c).¹ Defendant Kent is also a citizen of Colorado.

The joinder of a resident defendant against whom no cause of action is pled, or against whom there is in fact no cause of action, will not defeat removal. Roe v. General Am. Life Ins. Co., 712 F.2d 450, 452 n. * (10th Cir.1983); Dodd v. Fawcett Publications, Inc., 329 F.2d 82, 85 (10th Cir.1964). Thus, the central issue before the court is whether plaintiff has stated a cause of action against Kent, the sole non-diverse defendant in this action.

United operates a computerized reservation system ("CRS") named Apollo. Plaintiff alleges that Kent was responsible for marketing United's transportation and CRS services to travel agents in Denver, Colorado and the Rocky Mountain region during a period leading up to August, 1986. By expanding its internal reservation computer and providing telephonic terminal access, United, like other major airline companies, developed a product which could be marketed to travel agents and to other airlines. As the system developed, Frontier and other airlines executed agreements with United whereby their flights were listed on Apollo in a manner that allows travel agents to book reservations and print tickets for passengers through agency computer terminals. Travel agents executed subscription and lease contracts with United for placement of CRS terminals in their agencies. Travel agents as well as listed airlines are charged fees for their use of the system. Frontier alleges that through a variety of practices articulated in the complaint, United undertook an ongoing scheme to divert passengers from Frontier to United in relation to transportation through Denver, a "hub" for flights on both airlines.²

Plaintiff alleges that various features of Apollo and the manner in which United marketed CRS services to travel agents amounted to anticompetitive or monopolistic conduct, breached United's contracts with Frontier, and tortiously interfered with contracts between Frontier and various travel agents. Frontier brings eight claims for relief against both defendants, which it categorizes in four groups: (1) common law breach of contract, (2) violations of the Colorado Antitrust statute, Colo.Rev.Stat. § 6-4-101, et seq., (3) violations of the Colorado Unfair Practices Act, Colo.Rev.Stat. § 6-2-101, et seq., and (4) common law tortious interference with contracts and prospective contractual relations.

II.

The parties dispute the applicable standards and scope of our review applicable to a motion to remand a case removed on the grounds of fraudulent joinder.

A. Fraudulent Joinder.

Citizenship of a non-diverse defendant who is a proper party, even though not an indispensable party, must be considered when determining the existence of diversity jurisdiction. Dailey v. Elicker, 447 F.Supp. 436, 438 (D.Colo.1978). If the plaintiff fails to state a cause of action against a the resident defendant who defeats diversity, and the failure is obvious according to the settled rules of the state, the joinder of the resident defendant is fraudulent. McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir.1987); Roe v. General Am. Life Ins. Co., 712 F.2d 450, 452 n. * (10th Cir.1983); Dodd v. Fawcett Publications, Inc., 329 F.2d 82, 85 (10th Cir.1964); Dailey, 447 F.Supp. at 438. In order to prove fraudulent joinder, the removing party must show either that there is no possibility that the plaintiff would be able to establish a cause of action against the resident defendant in state court; or that there has been outright fraud in plaintiff's representations as to jurisdictional facts. Coker v. Amoco Oil Co., 709 F.2d 1433, 1440 (11th Cir.1983); B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir.1981); Monroe v. Consolidated Freightways, Inc., 654 F.Supp. 661, 662-63 (E.D.Mo.1987). If there is even a possibility that the state court would find that the complaint states a cause of action against the resident defendant, the federal court must find that the joinder was proper and remand the case to state court. Coker, 709 F.2d at 1440-41; Dailey v. Elicker, 447 F.Supp. 436, 438 (D.Colo.1978). Where a defendant does not allege fraud in the pleading of jurisdictional facts, the sole issue before the court is whether plaintiff has stated a basis for recovery against resident defendants under state law. Anderson v. Home Ins. Co., 724 F.2d 82, 84 (8th Cir.1983); Monroe, 654 F.Supp. at 662-63; Dailey, 447 F.Supp. at 438.

Defendants contend that the court may also disregard nominal resident defendants where complete relief may be afforded against non-resident defendants and disregard nominal resident defendants. See Rose v. Giamatti, 721 F.Supp. 906 (S.D. Ohio 1989). While we agree that in cases like Rose, where the relief sought is purely injunctive, this approach provides an avenue for determining whether joinder is fraudulent, the approach is not applicable to the matter at hand. Where a plaintiff seeks monetary damages against defendants alleged to be jointly and severally liable, the court may not disregard properly joined defendants simply because a non-resident defendant has the capital reserves to satisfy an entire judgment. The question before the court is whether plaintiff has a possibility of proving liability on the part of the resident defendant.

B. Scope of Review

Plaintiff correctly contends that the court may not "pre-try" claims to determine whether there is a possibility of recovery against the resident defendant. Smoot v. Chicago, Rock Island and Pacific RR. Co., 378 F.2d 879, 882 (10th Cir.1967); Dodd v. Fawcett Publications, Inc., 329 F.2d 82, 85 (10th Cir.1964) (citations omitted); Dailey v. Elicker, 447 F.Supp. 436, 438 (D.Colo.1978). The court is not precluded from reviewing the factual submissions of the parties to make findings where an issue is subject to summary determination, however. Smoot, 378 F.2d at 882.

Defendant bears the burden of proving fraudulent joinder. Getty Oil Div. of Texaco v. Ins Co. of North America, 841 F.2d 1254, 1259 (5th Cir.1988); Coker v. Amoco Oil Co., 709 F.2d 1433, 1440 (11th Cir.1983). The burden on defendant is high; its presentation must be one that "compels the conclusion that the joinder is without right and made in bad faith...." Chesapeake & Ohio Ry. Co. v. Cockrell 232 U.S. 146, 152, 34 S.Ct. 278, 280, 58 L.Ed. 544 (1914); see also Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97, 42 S.Ct. 35, 37, 66 L.Ed. 144 (1921) ("Defendant's showing must consist of a statement of facts rightly leading to the conclusion that joinder is fraudulent apart from the pleader's conclusions.")

To meet this burden, a defendant seeking removal is entitled to present facts to show fraudulent joinder. McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir.1987). While issues of liability may not ordinarily be determined on a motion to remand, it is well settled that upon allegations of fraudulent joinder designed to prevent removal, federal courts may look beyond the pleadings to determine if the joinder, although fair on its face, is a sham or fraudulent device to prevent removal. Smoot v. Chicago, Rock Island and Pacific RR. Co., 378 F.2d 879, 882 (10th Cir.1967) (citing Wilson v....