Ge Betz, Inc. v. Zee Co.

• Decision Date: 03 May 2013
• Docket Number: No. 12–3746.,12–3746.
• Parties: GE BETZ, INC., a Pennsylvania corporation, Plaintiff–Appellant, v. ZEE COMPANY, INC., a Tennessee corporation, Defendant–Appellee, and BMO Harris Bank, Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

718 F.3d 615

GE BETZ, INC., a Pennsylvania corporation, Plaintiff–Appellant,

v. ZEE COMPANY, INC., a Tennessee corporation, Defendant–Appellee,andBMO Harris Bank, Appellee.

No. 12–3746.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 27, 2013.

Decided May 3, 2013.

Stephen H. Pugh (argued), Attorney, Pugh, Jones & Johnson P.C., Chicago, IL, for Plaintiff–Appellant.

Stephen C. Voris (argued), Attorney, Burke, Warren, Mackay & Serritella, P.C., Chicago, IL, for Defendant–Appellee.

James Vincent Garvey (argued), Attorney, Vedder Price P.C., Chicago, IL, for Appellee.

Before FLAUM, SYKES, and TINDER, Circuit Judges.

TINDER, Circuit Judge.

After winning a multi-million dollar judgment against Zee Company in a North Carolina state court, GE Betz discovered that Zee had tied up virtually all of its assets in a credit facility agreement with BMO Harris Bank before the entry of final judgment. As a result, GE Betz registered the North Carolina final judgment in the Circuit Court of Cook County, Illinois, Harris's principal place of business, and served Harris with a citation to discover Zee's assets. Zee subsequently removed the Cook County case to federal court based on diversity jurisdiction under 28 U.S.C. § 1441(b). But GE Betz objected to Zee's removal, arguing that it ran afoul of (1) subject-matter jurisdiction, and (2) the forum-defendant rule. The district court rejected both removal arguments, and less than three months later, dismissed GE Betz's case entirely. GE Betz filed a timely appeal. Contrary to the district court, we find that GE Betz raised a timely and sound objection to Zee's removal under the forum-defendant rule, and the district court should have remanded the case back to the Cook County Circuit Court. Without any overwhelming concerns of finality, efficiency, or judicial economy standing in our way, we now vacate the district court's dismissal order and remand the case to the district court with instructions to send GE Betz's case back to the Cook County Circuit Court.

I

The complicated history of this case began in April 2006, when the CEO and sole shareholder of Zee Company, Robert Bullard, decided to expand his chemical sales business into the water treatment industry. In an effort to become competitive in water treatment, an area in which he lacked experience, Bullard hired several new employees who were currently working or had previously worked for other companies in the industry. Four of the new employees came from GE Betz, a wholly-owned subsidiary of General Electric that specializes in water treatment technology.

Unfortunately for Bullard and Zee, these four employees were still bound by non-compete agreements that they had signed while employed at GE Betz. As a result, in April 2007, GE Betz sued both Zee and its former employees in North Carolina state court for breach of contract, tortious interference with contract, and unfair trade practices. From the start, the North Carolina litigation did not go well for Zee and the former GE Betz employees. The state court issued a temporary restraining order and a preliminary injunction against Zee and the four employees within a month after the case was filed. In February 2010, the state court found all four non-compete agreements enforceable. In July 2011, the state court held Zee and the four employees jointly and severally liable for $288,297.00 in compensatory damages as a result of unfair and deceptive trade practices. Finally, in May 2012, the North Carolina court found Zee and the four employees jointly and severally liable for $5,769,903.10 in attorney fees, $864,891.00 in punitive damages, and $257,931.44 in costs. These large awards came as a result of the state court finding that Zee had “[n]ot only ... elicit[ed], encourage[d], and compensate[d] the illegal conduct of the Individual Defendants, but ... [also had] lied about its employees activities before the litigation and throughout the course of the lawsuit, including before this Court.”

Yet still the plot thickens: after the North Carolina state court had determined that Zee was liable to GE Betz and had awarded compensatory damages—but before the state court had determined punitive damages and attorney fees—Zee entered into a financial arrangement with BMO Harris Bank. On December 1, 2011, Harris agreed to extend a $22 million credit facility to Zee and its thirteen sister companies, which are also solely owned by Bullard. As part of its commitment to Harris, Zee agreed to pay a final judgment of up to $2 million in the GE Betz case, and if the final judgment exceeded $2 million,Bullard personally guaranteed the amount exceeding $2 million. In exchange for extending the credit facility, Harris placed a lien on all fourteen borrowers' “accounts, instruments, documents, chattel paper, general intangibles ..., letter-of-credit rights, investment property, deposit accounts, inventory, equipment, commercial tort claims, fixtures, and real estate.” Later in December 2011, Harris filed a UCC financing statement in Tennessee, where Zee and its co-borrowers are headquartered, in an attempt to perfect its lien.

GE Betz did not become aware of Zee's credit arrangement and Harris's ensuing lien until many months later. After the North Carolina state court entered final judgment of more than $7 million dollars in favor of GE Betz in May 2012, Zee filed a timely appeal with the North Carolina Court of Appeals. Nonetheless, even a timely appeal “does not stay the execution of the judgment” in North Carolina “unless a written undertaking ... by one or more sureties,” such as a bond, “is executed on the part of the appellant.” N.C. Gen.Stat. § 1–289(a). Despite its timely appeal, Zee never posted a bond, nor did Zee do anything else resembling a “written undertaking ... by one or more sureties” to stay the judgment.

In its brief to our court, Zee offers no explanation for its failure to stay the North Carolina judgment, stating only that “[f]or various reasons, Zee was unable to secure a bond on appeal.” Nor was Zee's explanation at oral argument any more satisfactory: despite Zee's “attempt to bond this matter,” Zee blamed GE Betz for its failure, arguing that GE Betz had repeatedly objected to the chosen surety companies. Yet instead of asking the North Carolina Court to approve the bonds over GE Betz's objection, Zee decided to do nothing, offering only this excuse: “Given the vagaries of the decisions coming out of the court in North Carolina, we felt that it would have been futile to have gone before the court to have the bonds approved.”

Whatever Zee's reasons for failing to post a bond, without a stay of the execution of the judgment, nothing stood in GE Betz's way from initiating the collection process against Zee. On July 6, 2012, GE Betz obtained two ex parte orders from a North Carolina trial court, which prohibited Zee from disposing of any North Carolina property and further required Zee to pay any proceeds from its North Carolina accounts receivable into the county clerk's office. Only then did GE Betz discover Zee's credit facility agreement with BMO Harris. As part of this agreement, Zee had transferred its financial assets, including its accounts receivable, to BMO Harris, and Harris had placed a lien on seemingly all of Zee's assets.

Concerned that it may never collect anything from Zee—and that it would lose creditor priority—GE Betz registered the North Carolina judgment in the Cook County, Illinois, Circuit Court on August 24, 2012. Although BMO Harris is a Delaware corporation, Illinois is Harris's principal place of business. Thus, Illinois was the new home of some or all of Zee's assets and a place—if not the only place—where GE Betz believed it had any chance of collecting the judgment. In addition to registering the North Carolina judgment, GE Betz served Harris with a citation to discover Zee's assets, which in Illinois has the effect of freezing all of Zee's property in Harris's possession. See735 Ill. Comp. Stat. 5/2–1402. Harris moved to quash the citation five days later in Cook County Circuit Court, and on September 12, 2012, Harris and GE Betz (without Zee's participation) set a briefing schedule and a hearing date on the citation action.

But at the same time that GE Betz and Harris were setting the briefing schedule and hearing date in Cook County Circuit Court, Zee was busy pursuing its own ends in federal court—unbeknownst to either GE Betz or Harris. Zee alone filed a notice of removal of the Cook County case to the federal district court in the Northern District of Illinois on September 12, 2012. Zee alleged that removal was proper based on diversity jurisdiction, under 28 U.S.C. § 1441(b), because GE Betz (a Pennsylvania corporation with its principal place of business in Pennsylvania) was a citizen of Pennsylvania, Zee (a Tennessee corporation with its principal place of business in Tennessee) was a citizen of Tennessee, and the amount in controversy well exceeded $75,000—$7,604,083.00 at the time of removal, to be exact. Harris neither joined in nor consented to Zee's notice of removal. On the same day that Zee filed the notice, Zee also filed an emergency motion in the federal district court for relief from the citation issued to Harris in the Cook County Circuit Court.

Two days later, on the morning of September 14, 2012, GE Betz, Zee, and Harris all appeared in federal district court, and GE Betz made an oral motion to remand the case back to the Cook County Circuit Court based on improper removal. The district court judge asked the parties to submit case law on the propriety of the removal and set a time for them to return to court that afternoon. In a matter of a few hours, GE Betz scrambled to assemble a written memorandum, which focused solely on the issue of subject-matter jurisdiction (and not the forum-defendant rule, which is a statutory problem, see Hurley v. Motor Coach Indus., Inc., 222 F.3d 377, 378–80 ...