Ratcliff v. Fibreboard Corp.

• Decision Date: 20 October 1992
• Docket Number: No. A-92-CA-597.,A-92-CA-597.
• Citation: 819 F. Supp. 584
• Parties: Otis RATCLIFF, et al. v. FIBREBOARD CORPORATION, et al.
• Court: U.S. District Court — Western District of Texas

819 F. Supp. 584

Otis RATCLIFF, et al. v. FIBREBOARD CORPORATION, et al.

No. A-92-CA-597.

United States District Court, W.D. Texas, Austin Division.

October 20, 1992.

Russell Wills Budd, Baron & Budd, Dallas, TX, W. Thomas Jacks, Mithoff & Jacks, Austin, TX, for plaintiffs.

Robert D. Arredondo, Butler & Binion, Houston, TX, Lyn Stevens, Weller, Wheelus & Green, Beaumont, TX, Larry D. Carlson, Baker & Botts, Dallas, TX, Peter A. Moir, Gary D. Elliston, DeHay & Blanchard, Dallas, TX, Richard L. Forman, Forman, Perry, Watkins & Krutz, Jackson, MS, Henry Wehrmann, Stadley, Schmidt & Wright, Dallas, to TX, Rick W. Thamm, Houston, TX, for defendants.

ORDER

NOWLIN, District Judge.

Before the Court is the Plaintiff's Motion to Remand, filed October 19, 1992. Having reviewed and considered this motion, the response, the arguments of counsel, and the applicable law, this Court is of the opinion that the motion should be DENIED.

BACKGROUND

This action was set for jury selection and trial yesterday in state court. At approximately 8:30 a.m. yesterday morning, on behalf of all of the Defendants, the Defendant Owens-Corning removed this case to federal court.

On the same day that this action was removed, this Court held an expedited hearing to consider the Plaintiff's motion to remand this action. All parties were noticed and represented by counsel at the hearing.

The Plaintiffs argue that they have not finally dismissed their claims against the non-diverse defendant National Gypsum. Instead, the Plaintiffs assert that they have only entered into "high-low" arrangements with the non-diverse defendants with a variable range of 70,000 dollars depending upon the jury verdicts in the five consolidated actions that are a part of this action.

At the hearing, this Court admitted into evidence five letter agreements purporting to be the settlement arrangements between the Plaintiffs and the settling Defendants. Four of these agreements demonstrate a settlement by which the six settling defendants will pay 22,500 dollars with a variable additional liability of up to a maximum additional 5000 dollars. This settlement amount appears to be shared jointly by the settling defendants. One of the agreements involves a payment of 625,000 dollars with a contingent variable payment of up to a maximum additional 50,000 dollars. In all of these agreements, the variable additional potential liability is to be borne solely by the non-diverse defendant National Gypsum.

THE PERTINENT LAW

General Removal Considerations

In their notice of removal, the Defendants have based their removal upon 28 U.S.C. §§ 1441 and 1446(b). This second paragraph of Section 1446(b) provides that:

If the case stated by the initial pleading is not removable, a notice of removal may be filed within thirty days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable, except that a case may not be removed on the basis of jurisdiction conferred by section 1332 of this title more than one year after commencement of the action.

28 U.S.C. § 1446(b). This provision, therefore, establishes a one year maximum time limit for removal based upon the diversity jurisdiction of federal courts. The Plaintiffs did not argue that this action was not removed within the one-year limit.

28 U.S.C. § 1332 is the diversity jurisdiction statute for federal courts. This provision permits original jurisdiction in federal district courts over civil actions where the dispute is between citizens of different states and the amount in controversy exceeds $50,000. 28 U.S.C. § 1332(a). For the purposes of Section 1332 and Section 1441 the general removal statute, a corporation is deemed a citizen: (1) of any State in which the corporation is incorporated; and, (2) of the State where the corporation has its principal place of business. 28 U.S.C. § 1332(c).¹ The Plaintiffs have not argued that the non-settling defendants are not diverse for the purposes of federal jurisdiction.

Although the removal and remand statutes do not expressly require such action, the Fifth Circuit holds that 28 U.S.C. § 1446(b) requires all defendants who have been properly joined and served at the time of the removal are required to join in the removal petition, otherwise the removal is defective. See Farias v. Bexar County Board of Trustees for Mental Health Mental Retardation Services, 925 F.2d 866, 871 (5th Cir.1991), cert. denied ___ U.S. ___, 112 S.Ct. 193, 116 L.Ed.2d 153 (1991), (citing to Getty Oil Corp. v. Insurance Company of North America, 841 F.2d 1254, 1262 (5th Cir.1988)). The failure of all defendants to join in the removal petition is not a jurisdictional defect. Johnson v. Helmerich & Payne, Inc., 892 F.2d 422, 423 (5th Cir.1990) (citations omitted). The Plaintiffs have not contested the joining in the removal by all of the defendants in this action.

The Voluntary-Involuntary Rule

Although 28 U.S.C. § 1446(b) permits a defendant to remove an action to federal court on the basis of diversity jurisdiction created in the action at any time up to one year after commencement of the action, the federal courts impose a significant limitation upon the removal of actions to federal court upon the basis of such a subsequent creation of diversity between the parties.

The federal courts apply a "voluntary-involuntary" rule to determine whether a cause of action is removable pursuant to 28 U.S.C. § 1446(b) once the plaintiff(s) and defendant(s) in the action become diverse within the meaning of 28 U.S.C. § 1332. See Weems v. Louis Dreyfus Corporation, 380 F.2d 545, 547 (5th Cir.1967). This rule provides that a case that is non-removable on its initial pleadings can only become removable pursuant to a voluntary act of the plaintiff. Id. In Weems, a summary judgment dismissing the Plaintiff's claims against the nondiverse defendant in this case was wholly involuntary to the plaintiff, as well as not being final in the sense that this judgment was appealable in the state courts. Id. at 546; see also Davis v. Federal Savings and Loan Insur. Corp., 879 F.2d 1288, 1289 (5th Cir.1989). Every federal court of appeals that has addressed the voluntary-involuntary rule has agreed that this rule is still applicable following the original enactment of section 1446(b). See Poulos v. Naas Foods, Inc., 959 F.2d 69, 72 (7th Cir.1992) (citations omitted).²

Under this voluntary-involuntary rule, when the change in circumstances in a case that creates diverse parties does not result from a voluntary act of the plaintiff, the action is not removable under section 1446(b) to federal district court. If the dismissal of the non-diverse defendants is the result of the state court's acting contrary to the desire of the plaintiff, the case cannot be removed. See Weems, 380 F.2d at 546 (citation omitted). In Weems, the Fifth Circuit explained:

The manner in which the resident defendant was dismissed in the instant case, by a directed verdict, is the classic situation where removal long has been denied for good reason. The dismissal, wholly involuntary to the plaintiff, is not final in the sense that it is appealable in the state courts.

Id. at 548. Unlike the plaintiff in Weems, the plaintiffs in the instant action wholly voluntarily entered into a settlement agreement with the non-diverse defendants and the settlement agreement appears to be final and in no way appealable in the state courts. A settlement between a plaintiff and the non-diverse defendant is final enough to support removal, even if the non-diverse defendant has not been severed from the case. See Chohlis v. Cessna Aircraft Co., 760 F.2d 901, 903 and n. 2 (8th Cir.1985).

The Settlement Agreements At Issue

Several district courts have addressed the effect of "high-low" settlement agreements upon removal jurisdiction. In the Northern District of Texas, Judge Sanders held that a settlement agreement that made the monetary liability of the settling non-diverse defendant contingent upon the jury verdict did not result in a final dismissal of the non-diverse defendant. See Thrapp v. Armstrong World Industries, Inc., 767 F.Supp. 822, 822-824 (N.D.Tex.1991). Consequently, on the same day upon which it was removed, Judge Sanders remanded the case to state court. Id. at 824. In Thrapp, the non-diverse defendants agreed to pay 490,000 dollars with a possible increase of 10,000 dollars depending upon the jury verdict. Id. at 823. Unlike the case before this Court, the state court trial had already commenced before the "partial" settlement was entered into and before the case was removed. Id. Judge Sanders relied upon the case of Higgins v. Pittsburgh-Des Moines Co., 635 F.Supp. 1182 (S.D.Tex.1986). Interestingly, Thrapp involved a "high-low" settlement agreement with the same non-diverse defendant, National Gypsum, as in the case before this Court, and the plaintiffs were represented by the same law firm as the plaintiffs in this case.³

In Higgins, Judge Gibson was confronted with a settlement agreement resulting in an instant payment of 125,000 dollars and a contingent payment of up to an additional 25,000 dollars depending upon the jury verdict. Higgins, 635 F.Supp. at 1183. Judge Gibson ruled that the settlement was only partial because the liability issue of the settling non-diverse defendant still had to be submitted to the jury. Id. at 1184. The judge found that such a settlement was not the equivalent of a "final" dismissal. Id.

In Thrapp, Judge Sanders found that the settlement was conditional and therefore not final. Thrapp, 767 F.Supp. at 823. Judge Sanders emphasized that a partial settlement agreement is not the equivalent of a "final" dismissal. Id. (quoting from Higgins, 635 F.Supp. at 1184).

In Rowe v. Johns-Manville Corp., 658 F.Supp. 122 (E.D.Pa.1987), the court initially held that a "high-low...