Kansas Public Employees Retirement System v. Reimer & Koger Associates, Inc.

• Decision Date: 12 October 1993
• Docket Number: No. 93-1794,93-1794
• Citation: 4 F.3d 614
• Parties: KANSAS PUBLIC EMPLOYEES RETIREMENT SYSTEM, Plaintiff-Appellant, v. REIMER & KOGER ASSOCIATES, INC., a Kansas Corporation; Ronald Reimer, an individual; Kenneth H. Koger, an individual; Clifford W. Shinski, an individual; Brent Messick, an individual; Robert Crew, an individual; Frank Morgan, an individual; Sherman Dreiseszun, an individual; Leland Gerhart, an individual; I.I. Ozar, an individual; Raymond Gifford, an individual; Harry S. Jonas, an individual; Ralph E. Kiene, an individual; Randall M. Nay, an individual; Frank Sebree, an individual; Tony Salazar, an individual; Philip Pistilli, an individual; Michael K. Russell, an individual; Gage & Tucker, a law partnership; Peat, Marwick, Mitchell & Co., an accountancy firm; KPMG Peat Marwick, an accountancy firm; Robert Spence, an individual; Defendants-Appellees . Frank MORGAN; Sherman Dreiseszun; Leland Gerhart; I.I. Ozar; Raymond Gifford; Ralph E. Kiene; Randall M. Nay; Tony Salazar; Philip Pistilli, Third-Party Plaintiff-Appellees, v. RESOLUTION TRUST CORPORATION, Third-Party Defendant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 614

4 F.3d 614

KANSAS PUBLIC EMPLOYEES RETIREMENT SYSTEM, Plaintiff-Appellant, v. REIMER & KOGER ASSOCIATES, INC., a Kansas Corporation;

Ronald Reimer, an individual; Kenneth H. Koger, an

individual; Clifford W. Shinski, an individual; Brent

Messick, an individual; Robert Crew, an individual; Frank

Morgan, an individual; Sherman Dreiseszun, an individual;

Leland Gerhart, an individual; I.I. Ozar, an individual;

Raymond Gifford, an individual; Harry S. Jonas, an

individual; Ralph E. Kiene, an individual; Randall M. Nay,

an individual; Frank Sebree, an individual; Tony Salazar,

an individual; Philip Pistilli, an individual; Michael K.

Russell, an individual; Gage & Tucker, a law partnership;

Peat, Marwick, Mitchell & Co., an accountancy firm; KPMG

Peat Marwick, an accountancy firm; Robert Spence, an

individual; Defendants-Appellees .

Frank MORGAN; Sherman Dreiseszun; Leland Gerhart; I.I.

Ozar; Raymond Gifford; Ralph E. Kiene; Randall

M. Nay; Tony Salazar; Philip Pistilli, Third-Party Plaintiff-Appellees, v. RESOLUTION TRUST CORPORATION, Third-Party Defendant-Appellee.

No. 93-1794.

United States Court of Appeals Eighth Circuit.

Submitted June 14, 1993.

Decided Sept. 2, 1993.

Rehearing and Suggestion for Rehearing En Banc Denied Oct. 12, 1993.

Thomas E. Deacy, Jr., Kansas City, MO and Leonard M. Ring, Chicago, IL, argued (Debra A. Thomas and Robin LaFollette, Chicago, IL, John Terry Moore and Brian McLeod, Wichita, KS, on the brief), for appellant.

Timothy P. Collins, Detroit, MI, argued (Richard C. Sanders and Elizabeth Joliffe Basten, Detroit, MI, David A. Vorbeck, Overland Park, KS, James W. Tippin and Carmen F. Moody, Kansas City, MO, on the brief), for Resolution Trust.

Charles W. German, Kansas City, MO, argued (Brant M. Laue, Robert J. Campbell and James E. Kelley, Jr., on the brief), for Morgan, Dreiseszun, Gerhart, Ozar, Gifford, Kiene, Nay, Salazar, and Pistilli.

Dan K. Webb, Chicago, IL, argued (Kurt L. Schultz, Jerome W. Pope and Thomas C. Cronin, on the brief), for Gage and Tucker.

Richard F. Adams and Rodney J. Hoffman, Kansas City, MO, argued, for Ronald Reimer.

Kathleen A. Hardee of Kansas City, MO, argued, for Kenneth Koger.

Gregory F. Maher and Alice G. Amick, Overland Park, KS, argued, for Reimer & Koger Associates, Inc., Clifford W. Shinski, Brent Messick and Robert Crew.

Before McMILLIAN, JOHN R. GIBSON, and HANSEN, Circuit Judges.

JOHN R. GIBSON, Circuit Judge.

The Kansas Public Employees Retirement System appeals from a district court ¹ order denying its motion to remand this action to a Shawnee County, Kansas, district court. KPERS argues that because the state court severed the original claims from the third-party claims before the third-party defendant, the Resolution Trust Corporation, removed the case to federal court, only the third-party claims could be removed. KPERS also argues that the district court erred in holding that the third-party plaintiffs' claim for indemnification against the RTC was not frivolous under 12 C.F.R. Sec. 545.121 (1992). We affirm.

On June 5, 1991, KPERS filed suit in the District Court of Shawnee County, Kansas, to recover damages resulting from the purchase of Home Savings Association debentures for the Kansas Employees' Retirement Fund. KPERS named Michael K. Russell (its former board chairman), Reimer & Koger Associates (its former investment advisor), Peat, Marwick, & Mitchell Company (its former accounting firm), Gage & Tucker (its former law firm), and the Home Savings Association's officers and directors ² as defendants. Along with various allegations of fraud, breach of fiduciary duty, professional negligence, and gross negligence, KPERS claimed that the Home Savings directors violated the Kansas Securities Act, Kan.Stat.Ann. Sec. 17-1268 (1983). In response, the Home Savings directors moved to dismiss KPERS' claims as derivative of claims that belonged solely to the RTC, and argued that the RTC was a necessary party.

Shortly thereafter, the RTC moved for leave to intervene in order to remove the action to federal court, where the RTC would attempt to have the case dismissed. On August 21, 1992, the Kansas district court denied the Home Savings directors' motion to dismiss and held that KPERS' claims were nonderivative. The Kansas court never ruled on the RTC's motion requesting leave to intervene.

On October 2, 1992, the Home Savings directors filed a third-party petition against the RTC, claiming negligent mismanagement of Home Savings, which caused a loss of funds that could have been used to repay part of the KPERS investments, and seeking indemnification under 12 C.F.R. Sec. 545.121. On October 8, 1992, at approximately 4:00 p.m., KPERS' counsel contacted the Shawnee County district court clerk to discuss the filing of a motion to strike the third-party claims or sever them from the original claims. The clerk advised the lawyers that the office would remain open after the normal 5:00 p.m. closing to permit the filing of pleadings. KPERS' counsel also contacted the chambers of the district judge handling the case, stating that KPERS "desired to present [a] severance motion to the ... court for ex parte consideration that day." Opposing counsel were not notified.

At 5:26 p.m., KPERS' counsel appeared ex parte before the Kansas district judge to present its motion to strike the third-party petition or, alternatively, sever the third-party claims from the original lawsuit. The Kansas district judge stated:

The Court is familiar with the history of this case, [and] feels that under the circumstances the addition of the Resolution Trust Corporation ... by the third-party petition would subject this case to removal under the federal statutes.... [T]he Court [does] not feel that ... to maintain [the third-party claims] in the same case [as the principal claims] and subjecting [the entire] case to removal would be in the best interests of the advancement of the princip[al] case.... I ... sign ex parte the order to sever and direct ... that the third party claim be severed and filed ... as a separate case entirely from the previous [case].... [T]he Court considers this matter on an emergency basis.

The judge also provided that any aggrieved party could file a motion for reconsideration and the court would consider such motions along with KPERS' motion to dismiss the third-party claims.

None of the parties filed a motion for reconsideration. Instead, five days after the Kansas court entered the severance order, the RTC filed a notice of removal for the entire case--both the original and third-party claims. In response, KPERS asked the federal district court to remand the "original case" to the Kansas court because the RTC was no longer a party to that action. The district court held a hearing on KPERS' motion for remand, and asked KPERS' counsel about the motivation behind the severance and whether the defendants' counsel had been called before the ex parte proceeding occurred:

THE COURT: [T]here was time to call the clerk's office and make this arrangement, but there was not time to call any other lawyer and suggest, "Hey, you might want to get over here because we're going to present this to the judge."

MR. DEACY: That's so, as I understand it, Your Honor.

THE COURT: And there was an emergency.

MR. DEACY: It was an emergency.

THE COURT: What was the emergency?

MR. DEACY: The emergency was that so long as the cases were one case, the RTC could remove it all.

THE COURT: And they could--had that right under federal law to do so.

MR. DEACY: They had the right under federal law so long as they were a party to the case.

THE COURT: Right. And so the emergency was to do something quickly to prevent the RTC from removing the case?

MR. DEACY: That's right, Your Honor.

KPERS' counsel also assured the district court that the Kansas judge severed the case specifically to prevent removal:

THE COURT: And it stated that the reason the judge is doing this is to, in essence, to prevent the RTC from removing the case.

MR. DEACY: No question about it.

. . . . .

THE COURT: ... [T]he only reason the judge gave for entering the severance order on an emergency basis was to prevent the RTC from removing the case, which everybody believed the RTC had the right to do at the instant before the judge signed this order.

MR. DEACY: Before the severance, yes, Your Honor. That's right....

. . . . .

THE COURT: ... KPERS' position, as I understand it, is that but for the order that the judge entered, the case would have been removed by the RTC, KPERS and the judge did not want it removed by the RTC, and so this order was entered, ... not severing the third party petition or complaint for a separate trial, but severing it into another case.

MR. DEACY: That's true, Your Honor.

Ruling from the bench, the district court emphasized that the Kansas court's only stated reason for severing the action into two separate cases was to defeat the RTC's ability to exercise its right to remove the entire action to federal court. The district court determined that granting severance for the sole purpose of defeating a congressionally conferred right violated the Supremacy Clause, U.S. Const. art. VI, cl. 2. Thus, the court held that the severance order was void and the entire case could be removed to federal court. In addition, the court stated that it was not bound by state procedural maneuverings in determining whether it had subject matter jurisdiction. The court held that the RTC had the right to remove the entire case, even though it was a third-party defendant, and that a state court could not defeat that right by using a mere procedural maneuver--arbitrarily dividing one case into two separate cases. Finally, the court rejected KPERS' argument that the third-party claims were frivolous and thus not within the district court's subject matter jurisdiction. The court reasoned that because the RTC, as receiver, was a successor of Home Savings, it...