Nichols v. Citigroup Global Markets, Inc.

• Decision Date: 10 November 2004
• Docket Number: No. CIV.A. 04-PWG2424S.,CIV.A. 04-PWG2424S.
• Citation: 364 F.Supp.2d 1330
• Parties: William and Melba NICHOLS, Plaintiffs, v. CITIGROUP GLOBAL MARKETS, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Alabama

Page 1330

364 F.Supp.2d 1330

William and Melba NICHOLS, Plaintiffs, v. CITIGROUP GLOBAL MARKETS, INC., et al., Defendants.

No. CIV.A. 04-PWG2424S.

United States District Court, N.D. Alabama, Southern Division.

November 10, 2004.

W. Stancil Starnes, Jay M. Ezelle, Robin H. Jones, Starnes & Atchison LLP, Birmingham, AL, for Defendants.

ORDER PURSUANT TO PARAGRAPH 5, GENERAL ORDER OF REFERENCE

GREENE, United States Chief Magistrate Judge.

This matter is before the undersigned magistrate judge pursuant to the provisions of 28 U.S.C. § 636(b), Rule 72(b) of the Federal Rules of Civil Procedure, and the General Orders of Reference dated July 25, 1996, May 8, 1998, as amended July 27, 2000 for consideration of plaintiff's motion to remand this action to the Circuit Court of Jefferson County, Alabama. (Doc. # 2).¹

THE UNDERLYING ACTION

On June 24, 2004 William and Melba Nichols initiated this civil action with a complaint filed in the Circuit Court of Jefferson County, Alabama [CV 04-03870]. The complaint identified CitiGroup Global Markets, Inc. and Travelers. [Life & Annuity Company], both foreign corporations, as defendants. The complaint also averred that Fred Judd and Mike Scruggs were agents and employees of the defendant CitiGroup and its predecessor, Salomon Smith Barney, Inc. Both Judd and Scruggs are alleged to be citizens of the State of Alabama. (Doc. # 1, Exhibit 1, at p. 2).²

The complaint avers that Scruggs and Judd "solicited to sell the funds, securities and contracts to fund William Nichols IRA account." The complaint alleges, inter alia, that Judd sold Mr. Nichols a "variable annuity policy to fund [his] IRA account." The complaint also avers that Scruggs, as the current broker of record for plaintiff's account, has maintained contact with plaintiffs on behalf of CitiGroup. The IRA roll over account was funded through a 1035 exchange of Mr. Nichols' retirement savings. The complaint alleges that based upon the representation and assurances and omissions of the defendants, Mr. Nichols purchased a variable annuity. The annuity was apparently a product offered by Travelers Life & Annuity. Mr. Nichols alleges that the variable annuity product purchased from Traveler's upon the representations of CitiGroup was not consistent with meet the goals of his IRA. Mr. Nichols complains that the annuity "contained worthless mortality fees and tax deferral fees" and prohibited "endlessly and continuously accumulat[ing] money in her retirement account."³ The Nichols contend that Judd was improperly trained by the defendant and, because of his improper training, sold annuity plans to individuals without a need for them. The complaint also averred that "the commissions and fees paid to agents in connection with deferred annuities are generally much higher than other investments,...."

The complaint alleged that CitiGroup had a duty to "sale [sic] suitable investments to the plaintiffs" (Complaint at p. 6, ¶ 17) but that CitiGroup, Judd and Scruggs recommended and/or sold shares "...of mutual funds invested heavily in technology stocks, emerging stock market stocks and international stocks for the plaintiffs for the IRA retirement account and their non-qualified accounts." (Id. at ¶ 18). The complaint alleges that CitiGroup, Judd and Scruggs knew or should have known that such mutual funds were not suitable for plaintiffs' retirement investment objectives and capital preservation. (Id. at ¶ 19). Finally, as an apparent subset of the numerous representations made by Judd, Scruggs and CitiGroup, the Nichols contend that "..., defendant CitiGroup issued fraudulent and misleading financial reports and recommendations for the holding of WorldCom, Inc. common stock" (Id. at ¶ 21) and that "defendant CitiGroup asserted undue influence on its investment banking interest or research analyst in the CitiGroup brokerage department." (Id. at ¶ 22). Finally, that "defendants recommended and sold shares of WorldCom to the plaintiffs for the IRA accounts and their non-qualified accounts." (Id. at ¶ 24).

The complaint (1) does not name WorldCom, Inc. as a defendant in this action and (2) asserts legal claims which sound exclusively in state law. Count one of the complaint alleges a fraudulent misrepresentation and suppression, count two alleges a violation of Alabama Code § 8-6-19(a) and § 8-6-19(c) of the Alabama Securities Act, count three asserts an unjust enrichment claim, count four asserts a claim for "money had and received," count five asserts a conversion claim, count six contends that the defendant "negligently and/or wantonly trained its employees, count seven asserts a claim of negligent and/or wanton supervision, and count eight alleges a breach of a fiduciary duty."

The Notice of Removal

On August 6, 2004 CitiGroup Global Markets, Inc. and the individual defendants together with Traveler's Life & Annuity Company removed this action to the United States District Court for the Northern District of Alabama. (Doc. # 1). The removing defendants "... based removal on 28 U.S.C. § 1452(a),..." (Doc. # 1 at p. 2). The defendants aver that "this court has jurisdiction over this action under 28 U.S.C. § 1334(b) because, ... [the Nichols'] claims are related to a case under Chapter 11 under Title 11 of the United States Code. That case was filed on July 21, 2002 by WorldCom, Inc .... and is pending in the United States District Court for the Southern District of New York." (Id. at pp. 2-unnumbered p. 3). An exhibit to the Notice of Removal is a paper identified as "attachment to proof of claim of CitiGroup, Inc." which appears to be a proof of claim filed by CitiGroup in some bankruptcy action which averred that

"WorldCom [WorldCom] [is] indebted and/ liable to [CitiGroup] for amounts yet to be liquidated, paid or incurred and based upon contingent claims arising from certain pending and threatened litigation and other proceedings,..., against [CitiGroup] that are related to [WorldCom's] financial condition and commercial relations with [CitiGroup]."

3. [CitiGroup's] claims are for common law right of indemnity, contribution, set-off and liability against the defendants arising, among other things, [WorldCom's] fraudulent and negligent misrepresentation to [CitiGroup] about matters — including,..., the [WorldCom's] financial condition and account practice....

(Doc. # 1, unnumbered exhibit 2).

The Notice of Removal asserts that the Nichols' Jefferson County Circuit Court action is "related to" the bankruptcy action of non-defendant WorldCom because the Alabama law suit "affects the bankruptcy estate [of WorldCom]." (Notice of Removal, unnumbered p. 6 at ¶ 15) citing In Re Gypsum, Inc., 910 F.2d 784, 789 (11th Cir.1990).

APPLICABLE LAW

Federal Jurisdiction — General Principles

Whenever a United States District Court is called upon to assess its jurisdiction to resolve a particular dispute certain organizing principles bear repeating. The United States District Court for the Northern District of Alabama is a creation of Congress, U.S. Const, Art. III, and possesses only that portion of the constitutionally permissible field of Article III jurisdiction specifically granted to it by Congress. The contours of its jurisdiction may not, and must not, be expanded by judicial usurpation. Snyder v. Harris, 394 U.S. 332, 341, 89 S.Ct. 1053, 1059, 22 L.Ed.2d 319 (1969). "Subject matter jurisdiction is an unwaivable sine qua non for the exercise of federal judicial power. Whether raised by the litigants or not the federal courts, including appellate courts, are duty-bound to determine jurisdiction and dismiss [or remand] any case in which it is found to be wanting." Eagerton v. Valuations, Inc., 698 F.2d 1115, 1118 (11th Cir.1983). "... [J]urisdiction is not a game. As the Supreme Court [has] made abundantly clear, it is one of the fundamental tenants of our Constitution that only some cases may be brought in federal court." E.R. Squibb & Sons v. Accident and Cas. Ins. Company, 160 F.3d 925, 929 (2d Cir.1998), citing Healy v. Ratta, 292 U.S. 263, 270, 54 S.Ct. 700, 78 L.Ed. 1248 (1934).⁴ Subject-matter jurisdiction can never be waived or conferred by the consent of the parties. Insurance Corporation of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 2104, 72 L.Ed.2d 492 (1982). As the Supreme Court has explained that "`the rule, springing from the nature and limits of the judicial power of the United States is inflexible and without exception, [and] requires this court, of its own motion, to deny its jurisdiction, and,... that of all other courts of the United States, in all cases where such jurisdiction does not affirmatively appear in the record.'" Insurance Corporation of Ireland, 456 U.S. at 702, 102 S.Ct. at 2104 (quoting Mansfield, C. & L.M.R. Co. v. Swan, 111 U.S. 379, 382, 4 S.Ct. 510, 511, 28 L.Ed. 462 (1884)).

It is well-settled that the defendant, as the party removing an action to federal court, has the burden of establishing federal jurisdiction. See Diaz v. Sheppard, 85 F.3d 1502, 1505 (11th Cir.1996). Removal statutes must be strictly construed because of the significant federalism concerns raised by removal jurisdiction. See Shamrock Oil & Gas Corporation v. Sheets, 313 U.S. 100, 61 S.Ct. 868, 85 L.Ed. 1214 (1941). Placing the burden on the removing defendant and resolving all doubts in favor of plaintiff as against the defendant is consistent with, if not mandated by, the Constitution and statutory limitations on the exercise of federal judicial power. B, Inc. v. Miller Brewing Company, 663 F.2d 545 (5th Cir.1981). Allocating the burden in this fashion affirms an organizing tenant of removal jurisprudence, that is, that the statutory right of removal does not outweigh nor even equal the plaintiff's right to pursue their claims in their own manner in the chosen forum. Caterpillar, Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 2429, 96 L.Ed.2d 318 (1987).

The...