Mayes v. Rapaport

• Decision Date: 23 September 1999
• Docket Number: CA-98-561-CCB,No. 98-2695,98-2695
• Citation: 198 F.3d 457
• Parties: (4th Cir. 1999) PATRICIA J. MAYES, Plaintiff-Appellant, v. STANLEY RAPOPORT; JUDITH RAPOPORT; DAVID KEY, d/b/a Key Coffee Roasters, Incorporated, Defendants-Appellees. () Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 457

198 F.3d 457 (4th Cir. 1999)

PATRICIA J. MAYES, Plaintiff-Appellant, v. STANLEY RAPOPORT; JUDITH RAPOPORT; DAVID KEY, d/b/a Key Coffee Roasters, Incorporated, Defendants-Appellees.

No. 98-2695 (CA-98-561-CCB)

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

Argued: September 23, 1999

Decided: December 2, 1999

Appeal from the United States District Court for the District of Maryland, at Baltimore. Catherine C. Blake, District Judge.

COUNSEL ARGUED: Janis Ruth Harvey, LAW OFFICE OF JANIS R. HARVEY, P.A., Baltimore, Maryland, for Appellant. Charles Scott Hirsch, Robert A. Scott, BALLARD, SPAHR, ANDREWS & INGERSOLL, L.L.P., Baltimore, Maryland, for Appellees. ON BRIEF: Matthew S. Sturtz, MILES & STOCKBRIDGE, P.C., Baltimore, Maryland, for Appellee Key.

Before WILKINSON, Chief Judge, KING, Circuit Judge, and BUTZNER, Senior Circuit Judge.

Vacated in part, reversed in part, and remanded by published opinion. Judge King wrote the opinion, in which Chief Judge Wilkinson and Senior Judge Butzner joined.

OPINION

KING, Circuit Judge:

Patricia J. Mayes appeals from the district court's dismissal of her case pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. Mayes initially filed suit in Maryland state court, but the original defendants, Stanley and Judith Rapoport (collectively, "the Rapoports"), removed the case to the District of Maryland. Mayes subsequently filed an amended complaint naming David Key, a nondiverse party, as a defendant. The district court dismissed Key from the case, relying upon decisions applying the doctrine of fraudulent joinder, then dismissed the case against the Rapoports.

Mayes claims that the district court erred both in holding that it possessed jurisdiction and in dismissing the Rapoports under Rule 12(b)(6). We agree with Mayes that the Rapoports did not establish that Mayes fraudulently joined Key as a defendant and that the district court erred in its dismissal of Key. We therefore vacate the district court's judgment, reverse its holding that it possessed jurisdiction, and remand for further remand to state court.

I.

A.

Mayes filed this suit in Maryland state court to enforce her "right of first refusal to match an offer to purchase" commercial property at 1720 and 1722 Thames Street in Baltimore, Maryland ("property"). Mayes had been leasing that property from the Rapoports, and a provision of the lease had guaranteed her a right-of-first-refusal. The lease also provided that, "Should the tenant exercise her option to purchase said property she will be credited with $400 per month of occupancy toward the purchase price. This $400 rebate will be limited to only the first year of tenancy."

In April 1997, the Rapoports received an offer to purchase the property from Key. Key submitted a proposed contract to the Rapoports that offered $400,000 for the property, with an $80,000 down payment, and the $320,000 balance financed by the Rapoports at 9% interest. Key's offer also provided for a "balloon payment" at the end of 6 years and stipulated that Key would deposit $5,000 at the time of the offer and an additional $10,000 within 5 days of acceptance of the contract.

On June 13, 1997, before presenting it to Mayes under the right-offirst-refusal, the Rapoports accepted Key's offer. However, the Rapoports' signed contract with Key (the "Key contract") did not explicitly condition the Rapoports' acceptance upon Mayes's right-of-firstrefusal.¹

Fifteen days later, on June 28, 1997, Mayes received a copy of the Key contract from the Rapoports. On July 1, 1997, Mayes finished her first year of tenancy, thus completing her deposit of $4,800 toward purchase of the property. She then carried-over as a tenant, which meant, under the lease, that Mayes was leasing the property from the Rapoports month-to-month under the same terms and conditions as in the original lease, including the right-of-first-refusal. Also on July 1, 1997, Mayes submitted an offer to the Rapoports attempting to exercise her right-of-first-refusal.² The Rapoports responded on July 11, 1997, rejecting Mayes's offer on the basis that it did not match the Key contract of June 13, 1997. Despite the rejection, the Rapoports continued to negotiate with Mayes for the next two months.³

On August 22, 1997, Mayes notified the Rapoports that Mayes was "prepared to go to settlement under the same terms and conditions as those offered to [Key]." The Rapoports replied that Mayes would have to obtain financing on her own for the full purchase price and would have to be prepared to close the sale of the property on August 25, 1997. Mayes did not agree, and on November 18, 1997, the Rapoports closed their sale of the property to Key.

B.

Shortly after Mayes sued in state court, the Rapoports removed the case to the District of Maryland on the basis of diversity.⁴ Thereafter, but before the Rapoports filed their answer to Mayes's complaint, Mayes amended her complaint to add Key as a defendant -a significant addition because Key is a resident of Maryland and his addition as a defendant seemingly defeats diversity jurisdiction.

On June 3, 1998, a few months after Mayes filed her amended complaint, the district court identified this issue and requested that the parties brief the question of continued federal jurisdiction.⁵ Following briefing, by its ruling of October 13, 1998, the district court retained jurisdiction over the case:

The court is aware that both plaintiff Mayes and defendant Key are residents of Maryland, seemingly eliminating jurisdiction in this court on the basis of diversity of citizenship. However, where the defendant demonstrates that the plaintiff "cannot establish a claim against the nondiverse defendant even after resolving all issues of fact and law in the plaintiff's favor," the joinder of such a party is deemed fraudulent and does not defeat diversity for federal jurisdictional purposes.

As the analysis in this Memorandum indicates, Mayes has failed to establish a claim against Key. As a result, consideration of the merits of the Rapoports' motion to dismiss is appropriate.

J.A. 199-200 (citations omitted). The district court went on to hold that Mayes could not state a claim against the Rapoports, and it dismissed the case against each of the defendants.

Mayes has appealed the dismissal of her case, and we possess jurisdiction pursuant to 28 U.S.C. § 1291.

II.

We review de novo questions of subject matter jurisdiction, including those relating to the propriety of removal and"fraudulent joinder." See Mansfield, Coldwater & Lake Michigan Ry. Co. v. Swan, 111 U.S. 379, 384 (1884). Similarly, we review de novo a district court's Rule 12(b)(6) dismissal. Estate Constr. Co. v. Miller & Smith Holding Co., Inc., 14 F.3d 213, 217 (4th Cir. 1994). In reviewing a 12(b)(6) dismissal, we construe factual allegations in the nonmoving party's favor, treating them as true, and "we will affirm a dismissal for failure to state a claim only if it appears that `the plaintiffs would not be entitled to relief under any facts which could be proved in support of their claim.'" Id. at 218 (quoting Shatz v. Rosenberg, 943 F.2d 485, 489 (4th Cir. 1991)).

III.

A.

We begin, as we must in a diversity case, by examining the basis for jurisdiction. The district court relied upon decisions applying the doctrine of fraudulent joinder in order to retain jurisdiction in this diversity case. J.A. 200 (citing Marshall v. Manville Sales Corp., 6 F.3d 229, 232-33 (4th Cir. 1993), and Kimmons v. IMC Fertilizer, Inc., 844 F. Supp. 738, 739 (M.D. Fla. 1994)). However, there is authority that, after a case has been removed, federal courts may not rely upon that doctrine to justify jurisdiction. See Cobb v. Delta Exports, Inc., 186 F.3d 675, 677 (5th Cir. 1999) ("The fraudulent joinder doctrine does not apply to joinders that occur after an action is removed.") (emphasis in original); see also Gum v. General Electric Co., 5 F. Supp. 2d 412, 415 n.8 (S.D. W. Va. 1998) (noting that fraudulent joinder doctrine applies to defendants named before removal); Harrell v. Pineland Plantation, Ltd. , 914 F. Supp. 119, 120 n.4 (D.S.C. 1996) (same). We therefore find it necessary, as a preliminary matter, to determine whether the fraudulent joinder doctrine is applicable to post-removal joinder. To make this determination, we analyze the legal framework relating to joinder of parties in removed cases, beginning our review with pre-removal joinder and then analyzing the procedures applicable after the case has been properly removed.

1.

Before a case has been removed to federal court, there are several rules that govern the ability of defendants to consummate removal. For example, the "complete diversity" rule clarifies that the statute authorizing diversity jurisdiction over civil actions between a citizen of a state where the suit is brought and a citizen of another state permits jurisdiction only when no party shares common citizenship with any party on the other side. Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806). This "complete diversity" rule, when coupled with other rules,⁶ makes it difficult for a defendant to remove a case if a nondiverse⁷ defendant has been party to the suit prior to removal.

The "fraudulent joinder" doctrine⁸ permits removal when a nondiverse party is (or has been) a defendant in the case. See Poulos v. Naas Foods, Inc., 959 F.2d 69 (7th Cir. 1992) (cited in Marshall, 6 F.3d at 233); Triggs v. John Crump Toyota, Inc. , 154 F.3d 1284, 1287 (11th Cir. 1998) (noting that "[f]raudulent joinder is a judicially created doctrine that provides an exception to the requirement of complete diversity"). Under this doctrine, a district court can assume jurisdiction over a case even if, inter alia,⁹ there are nondiverse named defendants at the time the case is removed. Marshall, 6 F.3d at 232-33; Cobb, 186 F.3d at 677. This doctrine effectively...