Nfc Acquisition, LLC v. Comerica Bank, Case No. 3:08CV2450.
| Decision Date | 06 August 2009 |
| Docket Number | Case No. 3:08CV2450. |
| Parties | NFC ACQUISITION, LLC, Plaintiff v. COMERICA BANK, et al, Defendants. |
| Court | U.S. District Court — Northern District of Ohio |
Robert R. Kracht, McCarthy, Lebit, Crystal & Liffman, Cleveland, OH, for Plaintiff.
Robert J. Hanna, Justin E. Rice, Karl A. Bekeny, Tucker Ellis & West, Cleveland, OH, Robert G. Brower, Thomas P. Bruetsch, Bodman, Detroit, MI, for Defendants.
H. Buswell Roberts, Jr., David J. Coyle, Shumaker, Loop & Kendrick, Toledo, OH, for Trustee.
This is a declaratory judgment action. Plaintiff NFC Acquisition, LLC [NFC] sued defendants Comerica Bank [Comerica], Norwalk Furniture Corporation [Norwalk Furniture] and its wholly owned subsidiaries—Hickory Hill Furniture Corporation [Hickory Hill], Norwalk Furniture Corporation of Tennessee, Norwalk International Wood Products, LLC, Tennessee Wood Resources, LLC and Alliance Trade Partners, LLC [Alliance] [collectively, "Norwalk Defendants"]. After plaintiff filed suit in state court, Comerica removed the case to federal court.
Pending is plaintiff's motion to remand [Doc. 7]. For the reasons discussed below, I grant plaintiff's motion.
Defendant Norwalk Furniture is an Ohio corporation in the business of furniture upholstery. Since 1997, its financing has come, primarily, through loans from defendant Comerica. Comerica is a Texas banking association with its principal place of business in Texas. As of July, 2008, Norwalk Furniture owed Comerica approximately $10 million.
In an effort to remain viable, Norwalk Furniture sought additional financing from outside sources. Plaintiff NFC entered into business negotiations to discuss acquiring Norwalk Furniture's assets. NFC is a limited liability corporation incorporated in Delaware. Its principal place of business is in Ohio.
On August 4, 2008, NFC, the Norwalk Defendants and Comerica signed a Letter of Intent, in which NFC expressed its desire to assume Norwalk Furniture's obligations to Comerica in exchange for acquiring Norwalk Furniture's assets. The parties also entered into a Subordinated Participation Agreement, in which NFC purchased a $1 million interest in Norwalk Furniture's loans, but one subordinate to Comerica's interest. NFC paid Comerica the required $1 million and acquired the subordinated debt. As part of these negotiations, the Norwalk Defendants and Comerica executed a Forbearance Agreement, dated August 4, 2008, which required Comerica to continue Norwalk Furniture's current financing until the deal with NFC closed.
After executing the Letter of Intent, NFC conducted due diligence of Norwalk Furniture's financial status. In so doing, NFC discovered, allegedly, that Norwalk Furniture insiders had engaged in a series of unlawful fund transfers. Following this discovery, faced with losing its $1 million investment, NFC requested additional time to review the situation and enter into renegotiations. According to NFC, Comerica agreed to provide additional time, but then engaged in a pattern of conduct interfering with NFC's attempt to complete the acquisition. NFC did not purchase Norwalk Furniture's assets.
On October 3, 2008, Norwalk Furniture filed for bankruptcy in the United States District Court for the Northern District of Ohio.
The same day, NFC sued Comerica in the Huron County, Ohio, Court of Common Pleas. NFC asserts that Comerica knowingly failed to disclose information about Norwalk Furniture's internal activities in an effort fraudulently to induce NFC to infuse funds into the financially distressed Norwalk Furniture, thereby improving Comerica's chances at recovering payment on Norwalk Furniture's monetary obligations. NFC sought a declaratory judgment invalidating the Subordinated Participation Agreement.
On October 10, 2008, NFC amended its complaint by adding the Norwalk Defendants and a cause of action for declaratory relief. This additional cause of action reads:
In the event this Court enters judgment against Comerica, declaring that the Subordinated Participation Agreement should be rescinded, NFC seeks a declaration from this Court declaring that any and all agreements, undertakings or obligations that exist and/or may be claimed or asserted by and between NFC, Norwalk and its Affiliates, should be null and void and of no effect.
[Doc. 1, Ex. 2] [Emphasis supplied].
On October 14, 2008, NFC issued service of process on Comerica and the Norwalk Defendants. On October 15, 2008, Comerica and Norwalk Furniture were served with process. The remaining Norwalk Defendants were not then served successfully. Comerica immediately filed its notice of removal.
On November 11, 2008, NFC moved to remand the case to state court. On December 30, 2008, I issued an order requiring NFC to "perfect service of process on unserved defendants within the requisite 120 day period," warning that failure to do so would require dismissal without prejudice on any unserved defendants. [Doc. 20]. Only two of the Norwalk Defendants—Alliance and Hickory Hill—were served within the required time period.1
Alliance, a wholly owned subsidiary of Norwalk Furniture, has been defunct and nonoperational since 2007.
Hickory Hill, a wholly owned subsidiary of Norwalk Furniture, is in the process of liquidation. On September 17, 2008, Hickory Hill entered into a Trust Mortgage with Norwalk Furniture, in which James V. McTevia of McTevia & Associates, LLC, was appointed Trustee. The Trust Agreement gave McTevia authority to collect and liquidate Hickory Hill's assets and manage its business affairs.
Hickory Hill's only asset is a real estate parcel in Fulton, Mississippi. As part of Norwalk Furniture's bankruptcy proceedings, the Bankruptcy Court approved sale of the Mississippi real estate, which Norwalk Furniture had previously pledged as collateral for its debt to Comerica. In an affidavit, McTevia states that Hickory Hill's assets are encumbered by secured liens and the Trust Mortgage, and its indebtedness to Comerica far exceeds the value of its assets.
Comerica removed this case to federal court on the basis of diversity jurisdiction. Under 28 U.S.C. § 1332, diversity of citizenship exists when no plaintiff and no defendant are citizens of the same state and the amount in controversy exceeds $75,000.
NFC correctly argues that on the face of its complaint, complete diversity does not exist because the plaintiff and Hickory Hill are both citizens of Ohio.2 Comerica contends however, that federal jurisdiction exists because Hickory Hill: 1) has not been timely or properly served; 2) was fraudulently joined; or 3) is an indispensable party.
I disagree. For the following reasons, I find Hickory Hill's presence to destroy diversity.
A defendant may remove any civil action from state to federal court "of which the district courts of the United States have original jurisdiction." 28 U.S.C. § 1441(a). After removal, a plaintiff may bring a motion to remand to state court under 28 U.S.C. § 1447(c).
Comerica, as the removing party, bears the burden of showing that federal jurisdiction exists. See Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97, 42 S.Ct. 35, 66 L.Ed. 144 (1921); Rogers v. Wal-Mart Stores, Inc., 230 F.3d 868, 871-72 (6th Cir.2000); Jindal v. D.O.C. Optics Corp., 208 F.Supp.2d 855, 856 (N.D.Ohio 2002). I must grant NFC's motion to remand if I find that complete diversity jurisdiction or federal question jurisdiction do not exist. Caterpillar Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987) ().
Because removal jurisdiction raises significant concerns about federalism, I must resolve "[a]ll doubts regarding the removal petition ... against removal." City of Cleveland v. Deutsche Bank Trust Co., 571 F.Supp.2d 807, 811 (N.D.Ohio 2008) (citing Queen ex rel. Province of Ontario v. City of Detroit, 874 F.2d 332, 339 (6th Cir. 1989)).
Under 28 U.S.C. § 1441(b), federal courts have authority to exercise diversity jurisdiction if "none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought."
Referred to as the forum defendant rule, § 1441(b) prohibits removal if the defendant is a citizen of the state in which the suit was filed. Geffen v. General Elec. Co., 575 F.Supp.2d 865, 869 (N.D.Ohio 2008). This rule reflects the belief that even if diversity exists, a forum defendant—a defendant who is a citizen of the state in which it is sued—has no reason to fear state court prejudice. Lively v. Wild Oats Markets, Inc., 456 F.3d 933, 940 (9th Cir.2006).
Because Hickory Hill is a forum defendant, NFC contends that § 1441(b) precludes removal.
Comerica, however, urges the court to look to § 1441(b)'s language requiring the forum defendant to be "properly joined and served." Because NFC did not perfect service of process on Hickory Hill until January 15, 2009, ninety days after Comerica filed its notice of removal, Comerica argues that Hickory Hill is not a forum defendant.
Comerica's interpretation of § 1441(b) suggests that the language "properly joined and served" creates an exception to the forum defendant rule. This argument is not novel; in fact, it has been the topic of much jurisprudential debate with varying success across the country.
I, however, have no need to survey such case law because the Northern District of Ohio recently rejected Comerica's argument in a case of first impression. In Ethington v. Gen. Elec. Co., 575 F.Supp.2d 855, 861 (N.D.Ohio), my colleague, District Judge Dan Aaron Polster, engaged in a thorough review of available case law. He cited a District of New Jersey decision, DeAngelo-Shuayto v. Organon USA Inc., 2007 WL 4365311, *5 (D.N.J.),...
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