Noatex Corp. v. King Constr. of Hous., LLC, Civil Action Nos. 3:11cv00137–SAA, 3:11cv00152–SAA, 1:11cv00251–SAA.

• Decision Date: 12 April 2012
• Docket Number: Civil Action Nos. 3:11cv00137–SAA, 3:11cv00152–SAA, 1:11cv00251–SAA.
• Citation: 864 F.Supp.2d 478
• Parties: NOATEX CORPORATION, Plaintiff v. KING CONSTRUCTION OF HOUSTON, LLC, et al., Defendants Noatex Corporation, Plaintiff v. King Construction of Houston, LLC, et al., Defendants Auto Parts Manufacturing Mississippi, Plaintiff v. King Construction of Houston, LLC And Noatex Corporation, Defendants.
• Court: U.S. District Court — Northern District of Mississippi

864 F.Supp.2d 478

NOATEX CORPORATION, Plaintiff

v.KING CONSTRUCTION OF HOUSTON, LLC, et al., Defendants

Noatex Corporation, Plaintiff

v.King Construction of Houston, LLC, et al., Defendants

Auto Parts Manufacturing Mississippi, Plaintiff

v.King Construction of Houston, LLC And Noatex Corporation, Defendants.

Civil Action Nos. 3:11cv00137–SAA, 3:11cv00152–SAA, 1:11cv00251–SAA.

United States District Court,

N.D. Mississippi,

Western Division.

April 12, 2012.

Held Unconstitutional

West's A.M.C. § 85–7–181Robert E. Kohn, Kohn Law Group, Inc., Los Angeles, CA, James C. Simpson, Jr., Nicole Collins Huffman, Wise Carter Child & Caraway–Biloxi, Biloxi, MS, Jennifer H. Scott, Wise, Carter, Child & Caraway–Jackson, Jackson, MS, for Plaintiff.

Terry Dwayne Little, Catherine Ashburn Hester, Daniel, Coker, Horton & Bell–Oxford, Oxford, MS, Richard C. Bradley, III, Daniel, Coker, Horton & Bell, Jackson, MS, for Defendants.

L. Christopher Lomax, Office of the Attorney General of Mississippi, Jackson, MS, for Intervenor.

ORDER

S. ALLAN ALEXANDER, United States Magistrate Judge.

The court has before it numerous motions filed ¹ in these three related cases. The first case, Noatex Corporation v. King Construction of Houston, LLC, et al., No. 3:11cv137, filed in this court on October 18, 2011, is a declaratory judgment action by which Noatex challenges the constitutionality of a Mississippi statute, Mississippi Code Annotated § 85–7–181 (1972), which establishes Mississippi's “Stop Notice” procedure. The statute allows a subcontractor or materialman [in this case, King Construction] to bind funds owed to a contractor [Noatex] by the owner of a project [Auto Parts Manufacturing Mississippi, Inc. (APMM) ]. Docket 1 in No. 3:11cv137. In a separate action filed in this court on November 30, 2011, Noatex Corporation v. King Construction of Houston, LLC and Carl King, No. 3:11cv152, Noatex sued King Construction and owner Carl King for breach of contract claiming damages in excess of $500,000. Docket 1 in No. 3:11cv152. The third related case, Auto Parts Manufacturing Mississippi v. King Construction of Houston, LLC and Noatex Corporation, No. 1:11cv251, originated as a state court interpleader action filed on November 15, 2011 in the Chancery Court of Lee County, Mississippi and was removed to this court on December 5, 2011. Docket 1, 2 in No. 1:11cv251. APMM interpled funds owed to Noatex that APMM had withheld because of a Stop Notice issued to it by King Construction, and APMM now seeks dismissal from the interpleader action. Docket 39, 53 in No. 1:11cv251.²

Facts

APMM, a Mississippi corporation (Docket 29, p. 1), contracted with Noatex, a California corporation with its principal place of business in California (Docket 1, p. 3), to construct a factory for manufacturing automotive parts in Guntown, Mississippi. Noatex then hired King Construction, a Mississippi limited liability company, to provide labor and materials for part of the construction of the APMM facility. Docket 29, p. 1–2. It appears that King Construction and Noatex worked without issue from February 2011 through mid-June of that year ³ but in July, Noatex began questioning King Construction's invoices.⁴ Docket 29, p. 2. Although the parties present different accounts of the events that resulted in the stop notice, ⁵ it is undisputed that King Construction filed a “Laborer's and Materialman's Lien and Stop Notice” in the amount of $260,410.15 in the Lee County Chancery Court in Tupelo, Mississippi and served a copy upon APMM. Docket 1, p. 14–22 in 3:11cv137. On the date of service—September 23, 2011—APMM owed Noatex $179,707.40.⁶ Docket 11. King Construction's Stop Notice filing froze the money owed to Noatex by APMM, and these three cases subsequently arose.

Jurisdiction

This court has federal question jurisdiction over the declaratory judgment action, No. 3:11cv137, under 28 U.S.C. § 1331. Because Noatex has not sought injunctive relief to interdict the operation of the statute on a statewide basis (Docket 1, p. 1), a three-judge court is not required. “There is no requirement that a party seeking to avoid the application of an allegedly unconstitutional state statute request the convening of a three-judge court even where ... a declaration of the unconstitutionality of that statute is sought.” Mississippi Chemical Corporation v. Chemical Construction Corporation, 444 F.Supp. 925 (S.D.Miss.1977).

This court has diversity jurisdiction under 28 U.S.C. § 1332 over the breach of contract action, No. 3:11cv152: Noatex is a California corporation with its principal place of business in Torrance, California (Docket 1, p. 3); King Construction is a Mississippi corporation with its principal place of business in Houston, Mississippi (Docket 1, p. Docket 17); Carl King is a citizen of Mississippi (Docket 1, p. Docket 17); and Noatex seeks damages in excess of $500,000. Docket 1, p. 1–2. APMM is not a party to the breach of contract action.

Even though the declaratory judgment and breach of contract actions were already pending in federal court on November 15, 2011, APMM chose to seek relief from its position of being between a rock and a hard place by instituting a state law interpleader action, under Rule 22 of the Mississippi Rules of Civil Procedure, in the Chancery Court of Lee County, Mississippi. Docket 2. Noatex removed the interpleader action on December 5, 2011 under 28 U.S.C. § 1441.⁷ Noatex contends that this court has jurisdiction of the removed action under 28 U.S.C. § 1335,⁸ the federal interpleader statute which requires only “minimal diversity,” because, says Noatex, APMM is only a nominal party, and the real parties in interest—Noatex and King Construction—are completely diverse. Docket 1, p. 1–2 in 1:11cv251. Shortly after removal, Noatex filed a Rule 12(b)(6) Motion to Dismiss the interpleader action for failure to state a claim.⁹

The federal courts have original jurisdiction over two different forms of interpleader actions: the first falls under 28 U.S.C. § 1335, “statutory interpleader,” and the second under Rule 22 of the Federal Rules of Civil Procedure, known as “Rule interpleader.” The two forms of action differ in the degree of diversity of citizenship required to sustain jurisdiction in federal court. The interpleader statute, 28 U.S.C. § 1335, confers jurisdiction over cases with only “minimal diversity,” that is, diversity between two or more claimants rather than complete diversity between the stakeholder plaintiff and the defendant claimants. Ohio National Life Assurance Corporation v. Langkau, 353 Fed.Appx. 244, 249 (11th Cir.2009); Southern Farm Bureau Life Insurance Co. v. Davis, 2010 WL 1245024 (W.D.La. March 29, 2010). See also Mid–American Indemnity Co. v. McMahan, 666 F.Supp. 926, 927 & n. 4 (S.D.Miss.1987). Rule 22, on the other hand, does not provide an independent basis for jurisdiction; a rule interpleader action must be supported by some other source of jurisdiction, such as 28 U.S.C. § 1331 or 28 U.S.C. § 1332. Ohio National Life Assurance Corporation v. Langkau, 353 Fed.Appx. at 249;Southern Farm Bureau Life Insurance Co. v. Davis;Mid–American Indemnity Co. v. McMahan, at 927 & n. 4.

Noatex invokes § 1335, contending that there is sufficient diversity to support removal in this instance because Noatex and the King defendants are diverse from each other. The interpleader in this case, of course, was filed in state court as a state court form of action—not a federal one. Because stakeholder plaintiff APMM and the King defendants are both Mississippi residents for purposes of determining diversity, there is not complete diversity of citizenship between the parties as required by § 1332, the only possible jurisdictional basis for rule interpleader in this case. It is well established that “interpleader actions brought under state law in state courts and then removed to federal court must satisfy the requirements of rule interpleader, including complete diversity of citizenship.” 113F Wright, Miller & Cooper § 3636, at 351–52 (2009). Because this interpleader action was not originally filed by APMM in federal court under 28 U.S.C. § 1335, but rather was filed in Mississippi state court under Rule 22 of the Mississippi Rules of Civil Procedure (Docket 2 in 1:11cv00251), and only later removed to this court, the complete diversity requirements of Rule 22 and § 1332 apply to this case.

In addition, removal under 1441(b) may only be invoked 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.” Moreover, “the balance of authority suggests that a party may not remove a case that could have been brought originally in federal court under § 1335 where there is not complete diversity.” Federal Insurance Co. v. Tyco International Ltd., 422 F.Supp.2d 357, 395 (S.D.N.Y.2006). See also Mandalay Oil & Gas. LLC v. Energy Development Corporation, 1998 WL 850531 *2 (E.D.La. Dec. 8, 1998). This court finds itself in accord with the “balance of authority” on this issue.

King Construction seeks remand of the interpleader action; its ground for remand is that complete diversity no longer exists because Noatex has taken positions that contradict its original assertion that APMM is a nominal party. Docket 50, p. 3. Noatex, on the other hand, contends that by waiting more than 30 days to object to removal, King Construction has waived any grounds for objecting except by showing that the case falls outside of this court's original jurisdiction. Noatex also takes the position that the motion to remand is meritless because the interpleader action could have been filed originally in this court under 28 U.S.C. § 1335. Docket 52, p. 1–2.

Although APMM clearly could have chosen to file the interpleader action in this court, it did not do so. Because the undersigned has determined that Rule 22—not § 1335—governs in this action, because there is not complete diversity...