Paxton v. Weaver

Decision Date10 June 1977
Docket NumberNos. 75-2459,s. 75-2459
Citation553 F.2d 936
PartiesR. C. PAXTON, Plaintiff-Appellant, v. John C. WEAVER et al., etc., Defendants-Appellees. A. C. BAGWELL, Plaintiff-Appellant, v. John C. WEAVER et al., etc., Defendants-Appellees. Irby L. VANCE, Jr., Plaintiff-Appellant, v. John C. WEAVER et al., etc., Defendants-Appellees. Robert C. SKELTON, Plaintiff-Appellant, v. John C. WEAVER et al., etc., Defendants-Appellees. James L. GREEN, Plaintiff-Appellant, v. John C. WEAVER et al., etc., Defendants-Appellees. Harold F. DORROH, Plaintiff-Appellant, v. John C. WEAVER et al., etc., Defendants-Appellees. to 75-2464.
CourtU.S. Court of Appeals — Fifth Circuit

G. Jyles Eaves, Louisville, Miss., for plaintiffs-appellants.

Grady F. Tollison, Jr., Robert C. Khayat, Oxford, Miss., for defendants-appellees.

Appeals from the United States District Court for the Northern District of Mississippi.

Before GEWIN, AINSWORTH and SIMPSON, Circuit Judges.

GEWIN, Circuit Judge:

Appellants in this consolidated action, all cotton farmers and residents of Mississippi, each filed suit in the chancery court of that state asserting claims arising from certain events that allegedly occurred in 1973. Appellees, named as defendants in each state suit, consist of three residents of Tennessee doing business as John C. Weaver and Sons ("the Tennessee partnership") and two residents of Mississippi, James J. Smith, doing business as Loper and Smith Cotton Company ("the Mississippi broker") and George D. Nolen, one of Smith's employees. Appellees sought removal of the cases to the federal district court for the Northern District of Mississippi pursuant to 28 U.S.C. § 1441(c), 1 which appellants resisted with motions to remand. The Tennessee partnership filed counterclaims based on breach of contract. The district court denied the motions for remand, and after substantial discovery granted appellees' motions for summary judgment in their favor on the claims and counterclaims. We reverse.

We need refer only to the allegations of appellants' pleadings, since a plaintiff's state court pleading controls removability. American Fire & Casualty Co. v. Finn, 341 U.S. 6, 14, 71 S.Ct. 534, 540, 95 L.Ed. 702, 709 (1951); Crosby v. Paul Hardeman, Inc., 414 F.2d 1, 3 (8th Cir. 1969). Appellants' "Bills of Complaint" were similar and alleged that the Tennessee partnership, through the Mississippi broker and its employee Nolen, agreed on or about March 14, 1973, to purchase for 33 cents per pound cotton grown on certain of appellants' acreage. The complaints further alleged that appellees sought appellants' quick agreement to the sale knowing, as appellants did not, that the price of cotton would soon increase significantly. In addition, appellees allegedly prevailed upon appellants to sign the contracts in blank, with a subsequent "redrafting" in the buyer's favor, and the Mississippi broker made sure that the sellers' signatures were witnessed while the buyer's were not, in order to give the buyer a good defense for failure to perform. Finally, the complaints alleged that appellees, and particularly the Mississippi broker and its employee, interfered with appellants' efforts in 1973 to sell their cotton crops and to obtain credit. Because of appellees' alleged misrepresentations and "high-handed" methods, appellants sought recision of the contracts, an injunction against attempted enforcement of the contracts, an injunction against further interference with appellants' business relations, and compensatory and punitive damages from the Tennessee partnership, the Mississippi broker, and employee Nolen "jointly and severally."

The district court denied the motions to remand, reasoning that a separate and independent cause of action was stated between diverse parties. The court concluded that the complaint of each appellant stated two causes of action: one for recision against the Tennessee partnership based on the agent's alleged misrepresentations, and one for damages against the Mississippi broker based on the allegations of tortious interference with appellants' businesses. Citing its previous opinion in Chipman v. Lollar, 304 F.Supp. 440, 445 (N.D.Miss.1969), the court stated that the cause of action for contract recision involved the contracting parties only, as it was the court's view that under Mississippi law where the identity of the principal is fully disclosed an agent has no liability on a contract between the principal and a third party. As to the independence of the contract recision and tortious interference claims, the court concluded:

I do not believe in Mississippi, as of this time, that you can join a suit in contract and a suit in tort in the same suit. So it is my opinion, for that reason, that they are separate, independent, and distinct causes of action.

The propriety of removal in a case such as this turns on the statute and the Finn case, supra. Prior to the 1948 revision of the Judicial Code that part of a lawsuit involving a "separable controversy between citizens of different states" could be removed from state to federal court. See generally 14 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3724 (1976). In order to reduce the number of cases removable from state courts Congress amended the Judicial Code to allow removal only when the plaintiff states against a resident of another state a claim "separate and independent" from any claim stated against a resident of the plaintiff's state. American Fire and Casualty Co. v. Finn, supra, 341 U.S. at 10, 71 S.Ct. at 538, 95 L.Ed. at 706.

In Finn a Texan sued in state court two foreign insurance companies and their Texas agent. The plaintiff sought recovery for a fire loss, alleging that the local agent had agreed to secure fire insurance on her property from one of the insurance companies. Her theory was that either one of the companies was liable for breach of an insurance contract or the agent was liable for failing to keep her property insured. The foreign insurance companies removed the case to federal court, relying on section 1441(c). After judgment was entered against one of the insurance companies, that party sought to vacate the judgment on the ground of improper removal. This court affirmed the judgment, 181 F.2d 845 (5th Cir. 1950), but the Supreme Court reversed. The Court noted that a "separable controversy" under the prior statute "was interpreted as any possible separate suit that a litigant might properly bring in a federal court." Id. at 11, 71 S.Ct. at 538, 95 L.Ed. at 707. The Court noted the significance of the word "independent" in the new statute: "The addition of the word 'independent' gives emphasis to congressional intention to require a more complete disassociation between the federally cognizable proceedings and those cognizable only in state courts before allowing removal." Id. at 12, 71 S.Ct. at 539, 95 L.Ed. at 707 (emphasis added). The Court then established the proper analysis:

. . . (W)e conclude that where there is a single wrong to plaintiff, for which relief is sought, arising from an interlocked series of transactions, there is no separate and independent claim or cause of action under § 1441(c). Id. at 14, 71 S.Ct. at 540, 95 L.Ed. at 708-09 (footnote omitted).

In applying that test in Finn, the Court concluded that there was only a single wrong the failure to pay compensation for the loss on the property.

Appellees contend that the district court was correct in concluding that the claim for contract recision is independent of the claim for tortious interference. We need not pass on that contention, because we agree with appellants that their complaints alleged claims against both the Tennessee partnership and Mississippi broker based on the contract formation. The complaints reasonably must be read to state claims against the broker and the buyer for compensatory and punitive damages based on the broker's alleged misrepresentations as well as for recision against the buyer.

Assuming that the district court was correct in concluding that a cause of action for recision exists exclusively between the sellers and buyer, that does not necessarily absolve the broker of liability for its alleged misrepresentations in the formation of contracts for its principal. The Restatement (Second) of Agency § 348 (1958) states that:

An agent who fraudulently makes representations, uses duress, or knowingly assists in the commission of tortious fraud or duress by his principal or by others is subject to liability in tort to the injured person although the fraud or duress occurs in a transaction on behalf of the principal. 2

Indeed, the few courts that have passed on the question hold that where a party has rescinded a transaction with the principal because he was induced by the agent's fraud, he still can enforce a claim for damages against the fraudulent agent. Nash v. Minnesota Title Insurance & Trust Co., 163 Mass. 574, 40 N.E. 1039, 1041 (1895); Schelske v. Smith, 55 S.D. 502, 226 N.W. 734 (1929); Restatement (Second) of Agency, Reporter's Notes § 348 at 570 (Appendix); Restatement of Restitution § 147(1), Comment (a) to subsection (1) (1937). Consequently, we conclude that appellants sought relief arising out of a series of connected transactions, though in different forms, from both the Tennessee partnership buyer and the Mississippi broker based on misrepresentations allegedly made by the latter. 3

Those claims are not separate and independent causes of action under Finn. They both are associated with a "single wrong" to each appellant inducement to execute a contract by misrepresentations. 341 U.S. at 14, 71 S.Ct. at 540, 95 L.Ed. at 708. Taking only the allegations relating to contract formation and quoting the Supreme Court, we apply the Finn test:

The facts in each portion of the complaint involve (the Mississippi broker), the damage comes from a single incident. The allegations in which (the broker) is a defendant...

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