Pesch v. First City Bank of Dallas

• Decision Date: 23 June 1986
• Docket Number: Civ. A. No. CA3-86-1371-D.
• Citation: 637 F. Supp. 1530
• Parties: Leroy A. PESCH, M.D., Plaintiff, v. FIRST CITY BANK OF DALLAS, Republic Health Corporation, and Credit Des Bergues, Defendants.
• Court: U.S. District Court — Northern District of Texas

637 F. Supp. 1530

Leroy A. PESCH, M.D., Plaintiff, v. FIRST CITY BANK OF DALLAS, Republic Health Corporation, and Credit Des Bergues, Defendants.

Civ. A. No. CA3-86-1371-D.

United States District Court, N.D. Texas, Dallas Division.

June 23, 1986.

COPYRIGHT MATERIAL OMITTED

Tom Bayko & James A. Jones of Holtzman & Urquhart, Houston, Tex., and Michael W. Ford & Jonathan R. Nelson of Chapman & Cutler, Chicago, Ill., for plaintiff.

Stephen S. Maris of Passman & Jones, Dallas, Tex., for First City Bank of Dallas.

Stephen Cormac Carlin of Johnson & Swanson, Dallas, Tex., for Republic Health Corp.

Alan W. Harris of Andrews & Kurth, Dallas, Tex., and Donald F. Luke of Rogers & Wells, New York City, for defendant Credit Des Bergues.

MEMORANDUM OPINION

FITZWATER, District Judge.

Plaintiff has moved to remand this case to state court. The court must decide whether two of the defendants, who are Texas citizens, are merely nominal or formal parties, or have been fraudulently joined as defendants, so that their presence will not preclude diversity of citizenship and, in turn, this court's subject matter jurisdiction.

Plaintiff, an Illinois citizen, owns the common stock of one of the defendants, a Texas corporation. The second Texas defendant, a national bank, is the corporation's transfer agent. The third defendant, who removed the case, is a citizen of Switzerland. The Swiss defendant has presented to the corporation and its transfer agent 210,000 shares of the corporation's common stock now registered in the name of plaintiff, which the Swiss defendant requests be transferred to and re-registered in its name.

In this suit plaintiff seeks a declaratory judgment that the Swiss corporation is not entitled to transfer of the 210,000 shares. Against the Texas corporation and its Texas transfer agent plaintiff seeks only injunctive relief restraining the transfer and re-registration of the shares pending determination of his civil action and a final judgment directing the corporation and its transfer agent to surrender the stock powers and shares to the plaintiff.

Because two of the defendants are Texas citizens, 28 U.S.C. § 1441(b)¹ would generally dictate that the action is not removable. However, if the Texas corporation and Texas transfer agent are not "parties in interest," but are merely nominal or formal parties, or are not parties "properly joined," but are parties fraudulently joined, their citizenship in the forum state will not prevent removal. See Salem Trust Co. v. Manufacturers' Finance Co., 264 U.S. 182, 189-90, 44 S.Ct. 266, 267, 68 L.Ed. 628 (1924) (nominal or formal parties) and Tedder v. F.M.C. Corp., 590 F.2d 115, 117 (5th Cir.1979) (per curiam) (fraudulent joinder). Concluding that the Texas defendants are merely nominal and formal parties to the Illinois plaintiff's action against the Swiss defendant and that they have been fraudulently joined, the court concludes that the state court action was properly removed and denies the motion to remand.²

I. BACKGROUND FACTS AND PROCEDURAL HISTORY

Plaintiff, Leroy A. Pesch, M.D. ("Pesch"), is an Illinois physician and an international investor. Defendant, Credit des Bergues S.A. ("CDB"), is a Swiss financial institution located in Geneva, Switzerland. Defendant, Republic Health Corporation ("Republic"), is a Texas corporation. Defendant, First City Bank of Dallas ("First City"), is a national bank domiciled in Texas.

A. CDB's Factual Contentions³

Pesch, individually, and CDB entered into a credit agreement in 1984. In 1985, a Pesch-owned company, Pesch Health Systems S.A. ("PHS"), and CDB entered into a credit agreement. Pesch secured the two lines of credit by pledging to CDB certain of his own property. To secure his personal line of credit he pledged shares of Republic stock. To secure the PHS line of credit he pledged his CDB investment account, a fund deposited with CDB which CDB invested for Pesch. Pesch also cross-collateralized his personal line of credit by pledging the investment account, together with the Republic stock, as security for the personal line of credit. Pesch granted to CDB an option to purchase a portion or all the additional Republic shares that Pesch owned. The number of shares first covered by the option was 175,000 and was later increased to 210,000.

B. Pesch's Factual Contentions

According to the terms of the stock option Pesch was to deposit the shares with a New York banker for the account of CDB during the option period. The shares were neither pledged to CDB to secure borrowing by Pesch or PHS nor were they cross-collateralized. Instead, other shares, apart from the option shares, were pledged by Pesch as security for his borrowing. The security for the extension of credit to Pesch personally was held separately by CDB at all times.

Pesch's falling out with CDB arose out of CDB's commitment, and subsequent refusal, to finance PHS's acquisition of a health clinic located in Switzerland. Pesch deposited $2 million in his CDB investment account to secure the extension to PHS of the credit necessary to acquire the clinic. In September 1985, PHS and CDB agreed on the major terms of the health clinic financing and CDB, without prior notice, informed PHS that a broker's fee of 610,000 Swiss francs (approximately $305,000) was owed by PHS to CDB because CDB had introduced Pesch to one of the health clinic's owners. Pesch was surprised at the demand and astonished by the amount. CDB, upon being pressured by the PHS board of directors, withdrew the demand. CDB, however, remained undaunted and, in October 1985, made a second demand for a broker's fee, this time in the lesser sum of 390,000 Swiss francs (approximately $195,000). Pesch felt the fee was unwarranted but agreed to pay it if the health clinic purchase was consummated and if CDB financed it in accordance with its prior financing agreement with PHS. In December 1985, 6-12 days before the clinic transaction was to close, CDB for the first time demanded audited financial statements of PHS. It was impossible to provide any kind of audit in that time period. Further, the audit was to be "as of the closing date," which is impossible because an accounting cannot be for a future date. Pesch interpreted CDB's new demand to be a form of pressure to force Pesch to pay the $305,000 broker's fee originally demanded by CDB. Pesch nearly lost the clinic purchase and was forced to seek alternative financing from J.P. Morgan (Suisse) S.A. ("Morgan").

Pesch, dissatisfied with CDB, decided to sever all financial ties with CDB and to pay off all outstanding indebtedness to CDB. Pesch and PHS repaid all debt in December 1985. Pesch instructed CDB to transfer the collateral being held by CDB to his new lender, Morgan. There remained $2 million or so in Pesch's CDB investment account that CDB advised would not be available for withdrawal until January 1986. Pesch agreed with CDB to leave the investment to secure new CDB loans and to secure CDB's interest in the resolution of its claimed fees. At no time did CDB request or suggest that the option shares were to be used to back up any obligations other than the stock option. In December 1985, CDB unilaterally debited Pesch's and PHS's lines of credit for a number of items, including "prepayment fees" totalling approximately $381,000. Pesch never agreed to pay these fees.

CDB exercised the stock option for the Republic shares and wired $2,524,000 to Pesch's New York bank account. CDB claims it deposited the remaining $500,000, which represents the total balance due for the shares, in Pesch's investment account and will not release any part of it until Pesch provides collateral of equal value to secure CDB's debit of prepayment fees. These option shares were never pledged as collateral.

C. Events Preceding the State Lawsuit and Pesch's State Court Pleadings

On March 21, 1986, Pesch informed CDB that CDB should wire the $3,024,000 required to exercise the option to Pesch's New York bank account. On March 27, 1986, CDB wired $2,524,000 of that amount and withheld $500,000. On March 28, 1986, Pesch advised First City that Pesch had reason to believe First City would shortly receive a request to transfer the 210,000 shares of Republic stock. Pesch told First City that the transfer should not be effected because the full purchase price had not been paid. On April 30, 1986, Pesch declared a forfeiture of CDB's rights under the stock option and proffered the $2,524,000 in exchange for the shares. At about the same time, Republic's attorneys informed Pesch that the shares and stock powers had been presented to First City for transfer to CDB. Pursuant to TEX. BUS. & COMM.CODE ANN. § 8.403 (Vernon Supp.1986) (the Texas codification of Uniform Commercial Code § 8-403), Republic informed Pesch that the shares would be transferred unless Pesch obtained an injunction against the transfer or posted an indemnity bond.

On May 15, 1986, Pesch filed in Texas state court his original petition for injunctive and declaratory relief and damages naming as defendants CDB, Republic, and First City. The state court petition contains the following allegations pertinent to Republic and First City:

COUNT I

Against Republic and First City, for Temporary Restraining Order

* * * * * *

20. Pesch is entitled to a permanent injunction against transfer or re-registration of the option shares by First City and Republic, and is entitled to a declaratory judgment against all defendants declaring that the option shares belong to Pesch and that the stock option is terminated. Before notice can be served upon CDB and a hearing held on Pesch's application for temporary injunction, First City and Republic may act to transfer the option shares to CDB so as to irreparably and irretrievably damage Pesch. A temporary restraining order is immediately needed because CDB has already initiated the transfer process and Republic has informed Pesch that it intends to transfer the

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