OPNAD Fund, Inc. v. Watson

• Decision Date: 12 July 1994
• Docket Number: Civ. A. No. 3:93-cv-130WS.
• Citation: 863 F. Supp. 328
• Parties: OPNAD FUND, INC., Plaintiff/Counterclaim Defendant, McDonald's Corporation, Counterclaim Defendant, v. Joseph L. WATSON, Defendant/Counterclaim Plaintiff.
• Court: U.S. District Court — Southern District of Mississippi

863 F. Supp. 328

OPNAD FUND, INC., Plaintiff/Counterclaim Defendant McDonald's Corporation, Counterclaim Defendant, v. Joseph L. WATSON, Defendant/Counterclaim Plaintiff.

Civ. A. No. 3:93-cv-130WS.

United States District Court, S.D. Mississippi, Jackson Division.

July 12, 1994.

Tylvester O. Goss, Davis, Goss & Williams, Jackson, MS, for plaintiff.

Frank M. Holbrook, Dalton McBee, Jr., Thompson, Alexander & Crews, Lewis W. Bell, Paul H. Stephenson, III, Watkins & Eager, Jackson, MS, for defendant.

MEMORANDUM OPINION AND ORDER

WINGATE, District Judge.

Before the court is McDonald's Corporation's Application For Review of the Magistrate Judge's Order, which remands this case to the state court in which it was instituted. The issue is whether McDonald's Corporation (hereinafter "McDonald's"), a counterclaim defendant here, is a proper party to effect removal of this lawsuit from state court to this federal court under 28 U.S.C. §§ 1441(a), 1446(a). Having examined the Magistrate Judge's Order of Remand and the submissions of the parties, this court finds that the counterclaim defendant here was not the proper party to remove. Accordingly, for the reasons which follow, this court finds that since the Magistrate Judge's Order was not clearly erroneous or contrary to law, this lawsuit must be remanded to state court.

I. FACTUAL BACKDROP

The initial parties to this dispute were OPNAD Fund, Inc. ("OPNAD") and one Joseph L. Watson ("Watson"). Watson wholly owns Lashon Enterprises, Inc. ("Lashon"). Watson owned two McDonald's franchises, one located in the township of Carthage, Leake County, Mississippi, and the other situated in the township of Canton, Madison County, Mississippi. Watson and Lashon operated together the Carthage franchise from 1989 to 1993, and the Canton franchise from 1987 to 1993. Both Watson and Lashon are citizens of Mississippi.

OPNAD is a not-for-profit corporation organized under the laws of Illinois and developed by McDonald's, a Delaware corporation, to fund McDonald's national advertising efforts. OPNAD collects money from participating franchises to support these efforts. Although OPNAD collects money on behalf of McDonald's, OPNAD claims to be organized as a corporate entity distinct and separate from McDonald's.

In July of 1992, Watson notified OPNAD that he wanted to resign as a participating franchisee from OPNAD because his franchise in Carthage was not doing well financially. Afterwards, Watson was contacted by a representative of McDonald's and informed that he could not resign. Shortly thereafter, Watson received a letter from an attorney which stated that his firm's services had been "retained by the McDonald's Corporation via the OPNAD Fund to pursue delinquent contributions ... owed by Watson as a former operator of two McDonald's franchises...." While Watson was engaged in discussions with McDonald's regarding McDonald's possible purchase of Watson's franchises, Watson discovered that OPNAD had filed actions against him in both the Circuit Courts of Madison and Leake Counties to collect delinquent contributions. The Leake County action was subsequently dismissed. The Madison County lawsuit, filed February 17, 1993, remained at issue.

On February 22, 1993, in this Madison County action, Watson, joined by the previously unnamed party, Lashon, filed counterclaims against OPNAD and McDonald's.¹ Prior to the filing of these counterclaims, McDonald's, like Lashon, had not been a party to this lawsuit. The Watson/Lashon counterclaims against McDonald's and OPNAD set forth eight counts. Count 1 alleges that OPNAD and McDonald's engaged in a conspiracy to drive Watson from the McDonald's system. Watson and Lashon allege that OPNAD is a sham instrumentality of McDonald's based, in part, on the contents of the demand letter sent to Watson by an attorney "retained by McDonald's corporation via the OPNAD Fund...." (emphasis added). In the alternative, Watson and Lashon argue that if the two entities be deemed separate, then the two entities conspired against Watson and Lashon. Count 2 alleges a breach of fiduciary duty by McDonald's with respect to counter-plaintiffs. Count 3 alleges that McDonald's and OPNAD breached their covenants of good faith and fair dealing with Watson and Lashon. In the alternative, Watson and Lashon claim that McDonald's alone breached the covenants. Count 4 alleges that McDonald's negligently selected the sites for the Carthage franchise. Count 5 alleges fraudulent misrepresentations against McDonald's regarding the selection of the Carthage franchise site. Count 6 alleges fraud in the Business Franchise License ("BFL") against McDonald's alone. Count 7 alleges intentional infliction of emotional distress solely against McDonald's. Count 8 alleges a pattern or practice of harassment by McDonald's and OPNAD against Watson and Lashon.

Counts 1, 3, and 8 of the complaint allege facts which involve both OPNAD and McDonald's, our counter-defendants. The remaining counts involve only McDonald's.

After the above counterclaims were filed, McDonald's served its notice of removal upon the other parties. As its basis for removal, McDonald's cited diversity of citizenship under 28 U.S.C. § 1332(a)(1).² On that same date, OPNAD served upon Watson its joinder in removal. Watson filed a timely motion to remand this case to state court. After having heard the respective arguments of the parties, the Magistrate Judge determined that this case should be remanded to state court. McDonald's takes exception to that ruling.

II. JURIDICAL DISPUTE OF THE PARTIES

Although McDonald's is deemed a counter-defendant under the Mississippi Rules of Civil Procedure,³ McDonald's claims that under federal law it is, in fact, a defendant for the purpose of removal.

Counter-plaintiffs Watson and Lashon assert that the Magistrate Judge's Order should be affirmed because under 28 U.S.C. § 1441(a) neither a plaintiff nor a counterclaim defendant is a proper party to remove an action. Counter-plaintiffs argue that to accept McDonald's argument that it is a true defendant would render meaningless the words of the removal statute which state that removal may be effected by "the defendant or the defendants ..." 28 U.S.C. § 1441(a). In short, counter-plaintiffs assert that under either a functional test, which examines the substance of the pleadings, or a test of strict statutory construction, McDonald's is not a "defendant" under § 1441(a) and, thus, is not the proper party to remove.

III. DISCUSSION AND ANALYSIS

Pursuant to Rule 72(a) of the Federal Rules of Civil Procedure, this court is required to modify or set aside any portion of the Magistrate Judge's order found to be clearly erroneous or contrary to law. Having examined this dispute under this standard, this court is persuaded to affirm the remand of this case to state court.

As a preliminary matter, the court observes that McDonald's bears the burden of establishing that removal was proper. See Jernigan v. Ashland Oil Inc., 989 F.2d 812, 815 (5th Cir.), cert. denied, ___ U.S. ___, 114 S.Ct. 192, 126 L.Ed.2d 150 (1993). The burden of establishing federal jurisdiction falls upon the party which asserts it. McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 785, 80 L.Ed. 1135 (1936); Jernigan, 989 F.2d at 815. Generally, where there are close questions whether to remand an action, the court will resolve the issue in favor of remand. See Laughlin v. Prudential Ins. Co., 882 F.2d 187, 190 (5th Cir.1989).

Statutory Construction

Our analysis begins with an examination of that portion of the removal statute pertaining to parties eligible to remove actions from state to federal court. The bare text of section 1441(a) mentions only defendants, not counter-defendants, as parties eligible to remove. The statute reads in pertinent part:

Except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.

28 U.S.C. § 1441(a) (emphasis supplied). This language referencing "the defendant or the defendants" likewise appears in 28 U.S.C. § 1446(a):

(a) A defendant or defendants desiring to remove any civil action ... from a State court shall file in the district court of the United States for the district and division within which such action is pending a notice of removal signed pursuant to Rule 11 of the Federal Rules of Civil Procedure and containing a short and plain statement of the grounds for removal, together with a copy of all process, pleadings, and orders served upon such defendant or defendants in such action.

Id.; Ballard's Serv. Ctr., Inc. v. Transue, 865 F.2d 447, 449 (1st Cir.1989) (holding that 28 U.S.C. § 1446 authorizes removal only by defendants and only on the basis of claims brought against them and not on the basis of counterclaims asserted by them). Thus, on the statute's face, the rule that only the defendant may remove is unambiguous.

There is also persuasive case law supporting the proposition that only a defendant may remove an action. The remand order of the Magistrate Judge cites to the instructive case of Tindle v. Ledbetter, 627 F.Supp. 406 (M.D.La.1986), which involves facts similar to the case at bar. Ledbetter was the distributor under contract for a major distributing company in Louisiana. When the contract between Ledbetter and the distributing company expired, the company hired Tindle instead of renewing its contract with Ledbetter. However, Ledbetter allegedly continued to hold himself out to the public as the distributor for the company, and Tindle sued Ledbetter in state court for interference with business. Ledbetter counterclaimed and joined two officers of the distributing company and the...