Hudson v. Smith, 78-1375

• Decision Date: 09 April 1980
• Docket Number: No. 78-1375,78-1375
• Citation: Hudson v. Smith, 618 F.2d 642 (10th Cir. 1980)
• Parties: Richard L. HUDSON, Plaintiff-Appellee, v. H. A. SMITH, Eugene P. Mitchell, Swan Engineering and Supply, Inc., and Sealco, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 642

618 F.2d 642

Richard L. HUDSON, Plaintiff-Appellee, v. H. A. SMITH, Eugene P. Mitchell, Swan Engineering and Supply, Inc., and Sealco, Inc., Defendants-Appellants.

No. 78-1375.

United States Court of Appeals Tenth Circuit.

Argued Nov. 26, 1979.

Decided March 7, 1980.

Rehearing Denied April 9, 1980.

Paul P. McBride, Tulsa, Okl. (R. Dow Bonnell, Tulsa, Okl., with him on the brief), for plaintiff-appellee.

Robert H. Bingham, Shawnee Mission, Kan. (Charles C. McCarter of McCarter & Greenley, St. Louis, Mo., on the brief), for defendants-appellants.

Before McWILLIAMS, BREITENSTEIN and DOYLE, Circuit Judges.

McWILLIAMS, Circuit Judge.

This is a breach of contract case with a tortuous history. By our disposition of the controversy, we hope to finally lay the matter to rest. Background facts in some detail may put the dispute in focus.

Parker Seal Company, a division of Parker-Hannifin Corporation, manufactures "O" rings and other industrial seals. Richard Hudson was a resident territorial manager for Parker Seal and was responsible for promoting sales of Parker products through franchises located in his assigned geographical territory, which included Tulsa, Oklahoma. Donald McDowell was Hudson's superior, and he was responsible for the sale of Parker products through franchises located in a larger geographical territory, including the Tulsa, Oklahoma area. Parker Seal at this time had a policy not to grant franchises to a territorial manager in his own territory. ¹ Notwithstanding company policy, Hudson and McDowell developed a plan whereby they could become the franchisee for Parker products in the Tulsa area. The first step was to disenfranchise the existing distributorship in Tulsa. Such was accomplished, and the existing Tulsa franchise was terminated.

Swan Engineering & Supply Company, Inc., a Kansas corporation, held a Parker franchise in the Kansas, Missouri and Nebraska area. H. A. Smith was president of Swan Engineering and a long-time friend of McDowell's. The latter initiated conversations with Smith and suggested that Smith, acting through Swan Engineering, make application for a Parker franchise for the Tulsa area. Smith approved this suggestion, and the plan later agreed on by McDowell and Smith was that Swan Engineering would form an Oklahoma corporation, to be known as Sealco, Inc., and that the latter company, Sealco, would obtain the Parker franchise for the Tulsa area. Such franchise was eventually granted Sealco.

The understanding between McDowell and Swan Engineering (Smith) was that each would own 50% of Sealco's stock, with Swan to be engaged in the actual operation of Sealco. McDowell, for the time being, would be a "silent" owner. The agreement between McDowell and Swan Engineering was reduced to writing and a written contract was entered into by McDowell and Swan on July 14, 1971. More will be said later about this contract. It is sufficient at this point to simply note that later on dispute arose between McDowell and Swan Engineering (Smith) over the terms of the contract. McDowell then assigned his interest under the contract to Richard Hudson. Negotiations between Hudson and Swan Engineering (Smith) broke down, and litigation ensued.

Hudson first brought suit in the United States District Court for the Northern District of Oklahoma against Swan Engineering and Smith, its president, for breach of contract. Hudson was a citizen of Oklahoma, and Swan Engineering and Smith were citizens of Kansas. Federal jurisdiction was based on diversity. This action was later dismissed without prejudice. Hudson next brought a suit, based on the same breach of contract, against Swan Engineering and Smith in a state court of Oklahoma. A second claim was made in the state court proceeding against Sealco, Inc., an Oklahoma corporation, seeking dissolution of Sealco under Oklahoma statutes which provide for dissolution of corporations when there is a deadlock in ownership.

By way of response to the Oklahoma state proceeding, Swan and Smith filed a petition to remove the state proceeding to the United States District Court for the Northern District of Oklahoma. The removal petition was granted. Hudson then filed a motion to remand to the state court. Swan and Smith vigorously resisted the request to remand the entire case to the state court. The United States District Court for the Northern District of Oklahoma, acting pursuant to 28 U.S.C. § 1441, remanded to the state court Hudson's claim for dissolution of Sealco, but retained in federal court Hudson's breach of contract claim against Swan and Smith. ² As previously mentioned, there was complete diversity in Hudson's breach of contract claim against Swan and Smith. Indeed, the identical claim had been filed previously in federal court, and later dismissed without prejudice, but without any challenge to federal jurisdiction.

Trial of Hudson's breach of contract claim against Swan and Smith was to a jury, and resulted in a verdict in favor of Hudson against both Swan and Smith in the amount of $200,000. Swan and Smith then filed a motion for judgment non obstante veredicto and a motion for a new trial. The motion for judgment non obstante veredicto was denied. However, the district court ordered that within ten days Hudson remit the sum of $100,000 of the jury's $200,000 verdict, or the motion for new trial would be granted. Hudson's motion for reconsideration of the remittitur order was denied. Hudson then filed notice that he would not agree to remittitur and asked that the case be reset for trial. Faced with this turn of events, the trial court reversed itself by vacating the remittitur order, reinstating the jury's verdict for $200,000, and denying the motion for new trial. Swan and Smith now appeal the $200,000 judgment entered against them.

On appeal four matters are urged as ground for reversal: (1) the United States District Court for the Northern District of Oklahoma did not have jurisdiction to try the breach of contract claim, since the matter was improperly removed from the state court, albeit the case was removed on the petition of the appellants; (2) insufficient evidence to establish a breach of contract by the defendants; (3) insufficient evidence of damages; and (4) inadequate instructions on the measure of damages.

The appellants, Swan and Smith, initially contend that the federal court lacked jurisdiction to hear the breach of contract claim and that the entire case should have been remanded to the state court. In this regard the appellants are in a rather awkward position in that they were the ones who caused the case to be removed to the federal court in the first instance, and, on motion for remand, they succeeded in keeping the breach of contract claim in federal court. In this court the appellants, having now suffered an adverse judgment, have changed their position, not to mention counsel, ³ and they now argue that the federal court had no jurisdiction over the breach of contract claim. However, any suggestion that, under the circumstances described, the appellants are estopped from now arguing that there is no federal jurisdiction would appear to be rejected by American Fire & Casualty Co. v. Finn, 341 U.S. 6, 71 S.Ct. 534, 95 L.Ed. 702 (1951). Such is certainly clear from the dissent in Finn wherein the three dissenting justices held that one who causes removal of a case from a state court to a federal court, and then loses his case in federal court, is thereafter estopped from having it remanded to state court. See also Basso v. Utah Power and Light Company, 495 F.2d 906 (10th Cir. 1974).

In refusing to remand the breach of contract claim against Swan and Smith to the state court, and at the same time remanding to the state court Hudson's action against Sealco, the district court relied on...