Irving Trust Co. v. Century Export & Import

• Decision Date: 31 January 1979
• Docket Number: 78 Civ. 1288-CSH.
• Citation: 464 F. Supp. 1232
• Parties: IRVING TRUST COMPANY, Plaintiff, v. CENTURY EXPORT & IMPORT, S.A., Century Commodities, Inc., and Harry Steinfeld, Defendants. Banco de Colombia, Intervenor, and Eduardo Ospina Fernandez, Individually and on behalf of Century Export & Import, S.A., Intervenor.
• Court: U.S. District Court — Southern District of New York

464 F. Supp. 1232

IRVING TRUST COMPANY, Plaintiff, v. CENTURY EXPORT & IMPORT, S.A., Century Commodities, Inc., and Harry Steinfeld, Defendants Banco de Colombia, Intervenor and Eduardo Ospina Fernandez, Individually and on behalf of Century Export & Import, S.A., Intervenor.

78 Civ. 1288-CSH.

United States District Court, S. D. New York.

January 31, 1979.

COPYRIGHT MATERIAL OMITTED

Krause, Hirsch & Gross, New York City, for plaintiff.

Coudert Brothers, New York City, for intervenor Banco de Colombia.

Olwine, Connelly, Chase, O'Donnell & Weyher, New York City, for defendant Century Export & Import S. A. and Intervenor Eduardo Ospina Fernandez.

MEMORANDUM OPINION AND ORDER

HAIGHT, District Judge:

This litigation, started in state court and removed pursuant to 28 U.S.C. § 1441, raises substantial questions concerning this Court's jurisdiction under the removal statute and the removing party's compliance with statutory conditions precedent to removal. The right of removal is a matter of legislative grace, Great No. Ry. Co. v. Alexander, 246 U.S. 276, 38 S.Ct. 237, 62 L.Ed. 713 (1914); Martin v. Hunter's Lessee, 1 Wheat. 304, 14 U.S. 304, 4 L.Ed. 97 (1816), and Congress has directed that:

"If at any time before final judgment it appears that the case was removed improvidently and without jurisdiction, the district court shall remand the case . . .." 28 U.S.C. § 1447(c) (emphasis added).

Accordingly, although none of the parties to this litigation has moved for a remand¹ (indeed they urge that removal was proper here), I must, on my own motion, inquire into the questions of subject matter jurisdiction and the propriety of the removal. Nixon v. O'Callaghan, 392 F.Supp. 1081 (S.D.N.Y.1975); see 1A Moore, Federal Practice, ¶ 0.15711 at p. 136 (2d ed. 1974). While resolution of these issues is not altogether free of doubt, I have concluded that the case should be remanded. My analysis begins with a summary of the proceedings to date.

I.

Plaintiff Irving Trust Company, a New York corporation with its principal place of business in New York, brought suit in New York State court against three defendants: (1) Century Export & Import, S.A. (CEI), a Panamanian corporation whose principal place of business is Colombia; (2) Century Commodities Inc. (CCC), a New York corporation with its principal place of business in New York; and (3) Harry Steinfeld, a citizen and resident of New York. Irving Trust's complaint sought damages for breach of contract: counts 1 through 16 alleged claims against CEI as the "maker" of a series of unpaid demand notes² executed "to the order of Irving Trust" and held by Irving Trust; counts 17 and 18 alleged claims against CCC, as guarantor of the CEI debts referred to above, pursuant to a contract of guaranty between CCC and Irving Trust; counts 19 and 20 alleged claims against Harry Steinfeld, as guarantor, similar to those asserted against CCC.³

The opening gambit in the state court litigation was Irving Trust's request for an order to show cause for a temporary restraining order. Irving sought to "restrain itself" from honoring a certificate of deposit (the Certificate) in the amount of $1 million issued by Irving to CEI, and further requested an order of attachment, see N.Y. C.P.L.R. §§ 6201, 6212(a), with respect to the Certificate proceeds, i. e. the $1 million which CEI had deposited in return for the Certificate. Irving hoped to freeze these proceeds pending the outcome of the litigation so that it could eventually apply them in satisfaction of CEI's debt.

In response to Irving's complaint, Steinfeld filed an answer, ostensibly on behalf of all three defendants, admitting liability for the debts but contesting the fee claims. Steinfeld also joined in Irving's request for the TRO.⁴ At this point, Banco de Colombia (Banco), a foreign corporation which allegedly had become holder of the Certificate immediately after its issuance, moved to intervene as a defendant, asserting that it was entitled to the proceeds.⁵ This motion was ultimately granted and Banco counterclaimed against Irving for $1 million, representing the Certificate proceeds.

A second motion to intervene, individually and on behalf of CEI, was made by one Eduardo Ospina Fernandez (Ospina), president, chairman and co-owner (with Harry Steinfeld) of CEI. Ospina sought to strike or amend the answer filed by Steinfeld insofar as it related to CEI.

Shortly before Ospina moved to intervene, Irving moved for partial summary judgment⁶ on its claims against CEI, CCC, and Steinfeld, on the basis of the admissions in Steinfeld's answer. Banco also moved for summary judgment dismissing Irving's and Steinfeld's "claims" to the Certificate proceeds and sought an order directing Irving to honor the Certificate. Steinfeld opposed Ospina's motions and supported Irving's motions for partial summary judgment.

In response to this battle of motions the state court rendered an opinion and order: (1) granting Irving's motion for partial summary judgment against Steinfeld;⁷ (2) denying Irving's motion for partial summary judgment against CEI and CCC; (3) denying Banco's motion for summary judgment; and (4) granting Ospina's motion to intervene and amend CEI's answer.

Ospina received notice of the state court order on March 8, 1978; on March 22, 1978 he filed the petition for removal on his own and CEI's behalf. Pursuant to a stipulation and order of this Court dated April 25, 1978, the attorneys for Steinfeld and CCC were permitted to withdraw as counsel; there has been no substitution of counsel to date. The parties represent that Steinfeld has disappeared and that CCC is for all practical purposes defunct.

II.

In determining the propriety of a removal several principles must be borne in mind. Because removal ousts a state court of jurisdiction, "Due regard for the rightful independence of state governments, which should actuate federal courts, requires that they scrupulously confine their own jurisdiction to the precise limits which the removal statute has defined." Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09, 61 S.Ct. 868, 872, 85 L.Ed. 1214 (1941) (quoting Healy v. Ratta, 292 U.S. 263, 270, 54 S.Ct. 700, 78 L.Ed. 1248 (1934)). The trend of both congressional enactment and judicial decision has been to restrict and limit removal jurisdiction. See generally Wright, Miller, Cooper, Federal Practice and Procedure: Jurisdiction § 3721 (hereinafter Wright Treatise). The burden of establishing that a case is within the federal court's removal jurisdiction is on the removing defendant (see cases cited in Wright Treatise, supra, at note 65) and the removal statutes are to be strictly construed, Shamrock Oil & Gas Corp., supra, 313 U.S. at 108-09, 61 S.Ct. 868. With the caveat that doubts as to federal jurisdiction will be resolved against removal,⁸ Lowe v. T. W. A., 396 F.Supp. 9 (S.D.N.Y.1975); Maybruck v. Haim, 290 F.Supp. 721 (S.D.N.Y.1968) (per Mansfield, D.J.); Lance Internat'l, Inc. v. Aetna Cas. & Sur. Co., 264 F.Supp. 349 (S.D.N.Y.1967), I turn to an examination of the jurisdictional basis in this case.

III.

Initially, the parties contend that removal jurisdiction attached by virtue of 28 U.S.C. § 1441(c). That section provides:

"(c) Whenever a separate and independent claim or cause of action, which would be removable if sued upon alone, is joined with one or more otherwise non-removable claims or causes of action, the entire case may be removed and the district court may determine all issues therein, or, in its discretion, may remand all matters not otherwise within its original jurisdiction." 28 U.S.C. § 1441(c).

Irving Trust's claims against CEI would have been removable if sued upon alone, on the basis of diversity jurisdiction. But plaintiff, whose pleadings control, American Fire & Cas. Co. v. Finn, supra, 341 U.S. at 13-14, 71 S.Ct. 534, joined its claims against CEI with claims against Steinfeld and CCC. These latter defendants' status as New Yorkers, as is plaintiff's, rendered Irving Trust's claims against them non-removable. Thus, removal jurisdiction attaches under § 1441(c) only if Irving's claims against CEI are "separate and independent" from its claims against the New York defendants within the meaning of the statute.⁹

The parties advance three alternative arguments in support of jurisdiction under § 1441(c): first, that the claims against CEI as maker of the promissory notes are "separate and independent" from the claims against Steinfeld and CCC as guarantors; second, that the claims against the New York defendants are in reality based on their admissions in the state court suit, and not on their guarantee contracts, and for this reason, are "separate and independent"; and third, that plaintiff's claims really relate to the Certificate proceeds, a "separate and independent" controversy from that concerning CEI's debt. For the reasons that follow, these arguments must be rejected.

The definitive test for "separate and independent claims" under § 1441(c) was articulated by the Supreme Court in the American Fire & Cas. Co. v. Finn case, supra:

"Where there is a single wrong to plaintiff, for which relief is sought, arising from an interlocked series of transactions, there is no separate and independent claim or cause of action under § 1441(c)." 341 U.S. at 14, 71 S.Ct. at 540.

The "wrong" asserted by Irving in its complaint is the failure of CEI to meet the loan obligations evidenced by its promissory notes. The claims against Steinfeld and CCC arise from their guaranties of that very same debt. It is immaterial, under the Finn decision, that the claims are based on separate written instruments, or that Irving pled its claims as separate causes of action against the maker and the guarantors. What is relevant under Finn is that Irving could have but one repayment of the debt—be it from the maker or the guarantors —and that the guarantee contracts reveal on their face that they were given...