Kinsey v. NESTOR EXPLORATION LTD.-1981A

• Decision Date: 14 February 1985
• Docket Number: No. C-84-308,C-84-382.,C-84-308
• Citation: 604 F. Supp. 1365
• Court: U.S. District Court — District of Washington
• Parties: Stephen L. KINSEY and Dawn G. Kinsey, husband and wife, Plaintiffs, v. NESTOR EXPLORATION LTD.—1981A, a Texas limited partnership; Nestor Petroleum Company, a Texas corporation; Nestor D. Phillips and Geraldine A. Phillips, husband and wife; Al E. McClellan and Betty McClellan, husband and wife; Reid E. Renken and Cleo Renken, husband and wife; Tommy E. Morris and Jimmie Claudine Morris, husband and wife; Darrell D. Patrick and Alpha J. Patrick, husband and wife; Frank V. Bradley and Mary Beth Bradley, husband and wife; and Shearson American Express, formerly Shearson Loeb Rhoades, Inc., a foreign corporation; Warren Styner and Norma A. Styner, husband and wife, Defendants.

604 F. Supp. 1365

Stephen L. KINSEY and Dawn G. Kinsey, husband and wife, Plaintiffs, v. NESTOR EXPLORATION LTD.—1981A, a Texas limited partnership; Nestor Petroleum Company, a Texas corporation; Nestor D. Phillips and Geraldine A. Phillips, husband and wife; Al E. McClellan and Betty McClellan, husband and wife; Reid E. Renken and Cleo Renken, husband and wife; Tommy E. Morris and Jimmie Claudine Morris, husband and wife; Darrell D. Patrick and Alpha J. Patrick, husband and wife; Frank V. Bradley and Mary Beth Bradley, husband and wife; and Shearson American Express, formerly Shearson Loeb Rhoades, Inc., a foreign corporation; Warren Styner and Norma A. Styner, husband and wife, Defendants.

Nos. C-84-308, C-84-382.

United States District Court, E.D. Washington.

February 14, 1985.

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Robert J. Reynolds, Powers & Therrien, P.S., Yakima, Wash., for plaintiffs.

David A. Thompson, Halvorson, Appelgate & McDonald, Yakima, Wash., for defendants.

ORDER

ROBERT J. McNICHOLS, Chief Judge.

On April 30, 1984, C-84-308 was commenced in this Court. On May 3, 1984, presumably in an attempt to cover all the bases in recognition of the jurisdictional quagmire which tends to ensnare litigants in the federal system, a virtually identical suit was brought in Yakima County Superior Court. That action was thereafter removed and assigned cause number C-84-382. For present purposes, these suits need not be described in any great detail. Suffice it to say that these actions each allege securities fraud involving two distinct sets of defendants who will be characterized here as "the Washington defendants," and "the Texas defendants." All defendants have moved for consolidation and for dismissal of various claims and parties.

It should be noted at the outset that none of the jurisdictional issues addressed below have been raised by the parties. It is well-settled, however, that "a federal court is duty-bound to determine its proper jurisdiction on its own motion." In re Martinez, 721 F.2d 262, 264 (9th Cir.1983).

I. C-84-382

Notwithstanding the virtually complete identity of these two suits in terms of factual allegations and complement of parties, this removed action presents its own unique problems and will be dealt with first. In characterizing a cause of action for jurisdictional purposes, it is the gravamen of the underlying transaction which must be considered, and not the remedy asserted. As noted in Guinasso v. Pacific First Fed. Sav. & Loan Ass'n, 656 F.2d 1364 (9th Cir.1981), cert. denied, 455 U.S. 1020, 102 S.Ct. 1716, 72 L.Ed.2d 138 (1982):

A suit may arise under federal law, even though a federal remedy is not sought, if the plaintiff's claim relies substantially on propositions that define federal rights, duties, or relationships.

Thus, even though plaintiff in the instant case seeks remedies provided under state law, the Court is required to go further, and to ask what the alleged wrong is, what duty was breached, and from what source that duty arose. Fortunately, this is not a difficult task, given the fact that plaintiff relies expressly and explicitly upon predicate violations of federal securities law in framing a number of the asserted causes of actions.¹

Counts I, II and VIII allege violations of various statutes, and regulations promulgated thereunder, found in the Securities Exchange Act of 1934 hereinafter the "1934 Act". So viewed, any issue over subject-matter jurisdiction must be resolved with reference to 15 U.S.C. § 78aa which provides:

The district courts of the United States ... shall have exclusive jurisdiction of violations of this chapter or the rules and regulations thereunder, and of all suits in equity or actions at law brought to enforce any liability or duty created by this chapter or the rules and regulations thereunder. Emphasis added.

It is well-settled in the Ninth Circuit that the language quoted above means just what it purports to. Federal jurisdiction is exclusive. See, e.g., Clark v. Watchie, 513 F.2d 994, 997 (9th Cir.), cert. denied, 423 U.S. 841, 96 S.Ct. 72, 46 L.Ed.2d 60 (1975). Since removal jurisdiction is derivative in nature; i.e., a federal court to which an action is removed acquires no greater jurisdiction than was initially vested in the state court, then it necessarily follows that those counts of the complaint falling within this category must be dismissed for lack of subject-matter jurisdiction. Salveson v. Western States Bankcard Ass'n, 731 F.2d 1423, 1431 (9th Cir.1984).

Counts III, IV, V and VI allege violations of the Securities Exchange Act of 1933 hereinafter the "1933 Act". The jurisdictional statute governing these claims is 15 U.S.C. § 77v, which provides:

The district courts of the United States ... shall have jurisdiction of offenses and violations under this subchapter and under the rules and regulations promulgated by the Commission in respect thereto, and, concurrent with State and Territorial courts, of all suits in equity and actions at law brought to enforce any liability or duty created under this subchapter.... No case arising under this subchapter and brought in any State court of competent jurisdiction shall be removed to any court of the United States. Emphasis added.

The Court is aware of no published decision which has deviated from the plain, literal meaning of the non-removability clause. Clearly, the above-referenced counts are not subject to removal under 28 U.S.C. § 1441(a). That observation, however, does not answer the question of whether an alternative basis for removal exists under 28 U.S.C. § 1441(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 jurisdiction.

The Ninth Circuit does not appear to have spoken to the precise question raised. The Court finds persuasive, however, the analysis employed in Abing v. Paine, Webber, Jackson & Curtis, 538 F.Supp. 1193 (D.Minn.1982). In Abing, the plaintiff had filed the type of shotgun complaint which seems endemic to securities litigation, stating seven causes of action, one of which was based on an alleged violation of the 1933 Act. Defendant removed, and plaintiff thereafter brought a motion to remand. In a brief but thoughtful analysis, the Court concluded that "there must be more than separable controversies to permit removal under section 1441(c)." Id. at 1196. Relying on American Fire & Casualty Co. v. Finn, 341 U.S. 6, 71 S.Ct. 534, 95 L.Ed. 702 (1951), the Abing court held that:

Like Finn, the plaintiffs here have suffered but one loss. Despite the presence of at least six theories upon which the plaintiffs may have a right to recover, they may recover their loss only once. The single primary right the plaintiffs assert is the right to be dealt with in an open, fair, and professional manner in their business transactions. The claims predicated on the Investment Advisors Act of 1940 and the Investment Company Act of 1940 are not separate and independent from the remainder of the claims. Therefore, removal under 28 U.S.C. § 1441(c) is improper.

Id. at 1197.

So finding, the Court remanded the entire action, including those claims predicated on the 1940 Acts referenced above. For a parallel decision in a non-securities context, which exhaustively analyzes identical issues and comes to a similar conclusion, see Gonsalves v. Amoco Shipping Co., 733 F.2d 1020 (2nd Cir.1984).

Having accepted the analysis and conclusions of Abing and Gonsalves, supra, as persuasive, the next task is to determine whether the instant complaint contains a "separate and independent claim." Clearly, Counts I, II and VIII cannot be considered, for these have been dismissed. Nor can Counts IX, X, XI, XIII or XIV meet the requisites of § 1441(c), for these are all based solely upon state law, and thus "would not be removable if sued upon alone." Nor can Count VII be viewed as a viable basis, consisting as it does of a mixed bag of 1933 and 1934 claims. That leaves only Count XII, the RICO claim, which alleges violations under 18 U.S.C. § 1961 et seq.

One might validly raise a threshold contention as to whether the states have concurrent jurisdiction over federal RICO claims. If jurisdiction is exclusively federal, then Count XII must suffer the same fate of dismissal as did those counts predicated upon the 1934 Act. If concurrent, and the claim would therefore be amenable to removal, then it would at that point be necessary to proceed to an inquiry of whether the RICO count is a "separate and independent" claim within the meaning of § 1441(c).

Such limited authority as exists is badly split on the question of concurrent versus exclusive jurisdiction. Thus far, it would appear that only one state has asserted such authority, at least in a published opinion. Greenview Trading Co. v. Hershman & Leicher P.C., 123 Misc.2d 152, 473 N.Y. S.2d 722 (N.Y.Sup.Ct.1984). Federal decisions are equally sparse, and the two which have been reported have come to diametrically opposed conclusions. Compare, County of Cook v. Midcon Corp., 574 F.Supp. 902, 911-12 (N.D.Ill.1983) (exclusive), with, Luebke v. Marine Nat'l Bank of Neenah, 567 F.Supp. 1460, 1462 (E.D. Wisc.1983) (concurrent). Research does not disclose any appellate precedent on point.

It is a fairly safe wager that Washington does not believe its courts have concurrent jurisdiction. Otherwise, the legislature would not have deemed it necessary to enact the State's own "Little RICO," codified at R.C.W. ch. 9A.82 (eff. July 1, 1985). Be that as it may, the test for ascertaining whether concurrent or exclusive jurisdiction is the rule where Congress has been silent on the question is a matter of federal law.

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