Reid v. Walsh

• Decision Date: 20 September 1985
• Docket Number: 85-502-B and 85-503-B.,Civ. A. No. 85-355-B,85-356-B
• Parties: Charles M. REID, et al. v. Douglas WALSH. Charles M. REID, et al. v. EQUITIVEST, INC., et al. Charles M. REID, et al. v. EQUITIVEST, INC., et al. Charles M. REID, et al. v. David WALSH.
• Court: U.S. District Court — Middle District of Louisiana

620 F. Supp. 930

Charles M. REID, et al. v. Douglas WALSH.

Charles M. REID, et al. v. EQUITIVEST, INC., et al.

Charles M. REID, et al. v. EQUITIVEST, INC., et al.

Charles M. REID, et al. v. David WALSH.

Civ. A. Nos. 85-355-B, 85-356-B, 85-502-B and 85-503-B.

United States District Court, M.D. Louisiana.

September 20, 1985.

Wendell G. Lindsay, Jr., Lindsay, Marcel & Wells, Phillip W. Preis, Scott H. Crawford, Preis, Crawford, Scheffy, Mauldin & Ryan, Baton Rouge, La., for plaintiffs.

Claude F. Reynaud, Jr., and Rodolfo J. Aguilar, Jr., Breazeale, Sachse & Wilson, Baton Rouge, La., for defendants.

POLOZOLA, District Judge.

This matter is before the Court on the motions of the plaintiffs, Charles M. Reid, Cindy S. Hood, A.E. Hood Enterprises, Samuel Crockard Terry, Jr., Dr. Derris W. Ray, Dr. Steve Chatlain, Dr. R. Vincent Kidd, Dr. J. Nelson Perret, William K. Hood, Clifton N. Ourso, Dr. Kyle L. Caulfied, Dr. David E. Gaudin, Glen A. Peck, Charles K. Thibodeaux and David H. Wilcox, to remand Civil Action Numbers 85-502-B and 85-503-B to the Nineteenth Judicial District Court, Parish of East Baton Rouge, State of Louisiana. Also pending before the Court is the motion of the defendants, Douglas Walsh, David McCollister and Equitivest, Inc., to consolidate Charles M. Reid, et al. v. Douglas Walsh, Civil Action Number 85-355, Charles M. Reid, et. al. v. Equitivest, Inc. and David McCollister, Civil Action Number 85-356, Charles M. Reid, et. al. v. Equitivest, Inc. and David McCollister, Civil Action Number 85-502, and Charles M. Reid, et. al. v. David Walsh, Civil Action Number 85-503. No oral argument is required on these motions.

The plaintiffs filed the present suits which are designated on the Court's docket as 85-502-B and 85-503-B, in state court on April 11, 1985. Service was made upon the defendants on April 24, 1985. On May 23, 1985, the defendants timely filed¹ petitions for removal which alleged that the action was premised, at least in part, upon 15 U.S.C. §§ 77v² and 78aa³. Therefore, defendants contend the two cases were properly removed to federal court because each is a civil action founded upon a claim or right arising under the laws of the United States over which this Court would have original jurisdiction.⁴ Thereafter, plaintiff filed motions to remand the suits to state court. Both motions to remand are based upon the contention that the suit filed in state court is not founded upon a claim or a right arising under the laws of the United States and, therefore, would not be an action over which this Court would have original jurisdiction.⁵

In each of the present motions to remand the plaintiffs contend that the suit was removed "improvidently and without jurisdiction"⁶ because it is not an action over which the district courts have original jurisdiction.⁷ Plaintiffs also contend that since the claims presented in the state court petitions are based totally upon state law, and since there is no diversity of citizenship, the federal court does not have jurisdiction herein. The defendants contend, however, that the allegations of the removed petition, in addition to forming the basis of the state law claims, also form the basis for claims based upon federal law. This contention is supported by the fact that on April 11, 1985, the same day that the state court actions at issue were filed, the plaintiffs also filed two suits in the United States District Court for the Middle District of Louisiana.⁸ The suits filed in federal court differ from the state court suits in two aspects: (1) it asserts violations of the Securities Act of 1933 § 12(1)⁹ and § 12(2);¹⁰ and (2) it omits the state law contract claim. In all other respects the two suits are identical. The general allegations of the federal suit track verbatim those of the state court petition¹¹ as do the factual descriptions of the alleged violations.¹² The state law claims urged in the state court petitions are also alleged, verbatim, with the exception of the state law contract claim, in the federal suit.¹³ The defendants contend the state court suits were properly removed since the same factual allegations used in the state court suits were used in the federal suit to allege violations of the Securities Act of 1933 §§ 12(1) and 12(2). Thus, defendants contend that the state court petitions do allege a claim or right arising under the laws of the United States and are, therefore, removable, although such claims are not specifically referred to in the state court petition.

The rules for determining whether a controversy "arises under" the laws of the United States, thereby creating federal jurisdiction and making the action removable, are well settled. First, one must determine if federal law is an essential element of the plaintiff's cause of action. Gully v. First National Bank in Meridian, 299 U.S. 109, 112, 57 S.Ct. 96, 97, 81 L.Ed. 70 (1936). See also Keith v. La. Dept. of Education, 553 F.Supp. 295 (M.D.La.1982). Secondly, the federal question which is the basis for removal "must be disclosed upon the face of the complaint, unaided by the answer or by the petition for removal." Id. 299 U.S. at 113, 57 S.Ct. at 98. Therefore, as a general rule, the plaintiff's state court pleading would control removability. Paxton v. Weaver, 553 F.2d 936 (5th Cir.1977). Furthermore, it is clearly established that "the party who brings the suit is master to decide what law he will rely upon." The Fair v. Kohler Die & Specialty Co., 228 U.S. 22, 25, 33 S.Ct. 410, 411, 57 L.Ed. 716 (1913). Since the plaintiff is the master of his claim, his decision not to assert a federal claim, although one is available to him, would generally prevent a defendant from removing a suit to federal court on the basis of federal question jurisdiction. In Pan American Petroleum Corp. v. Superior Court of Delaware, 366 U.S. 656, 81 S.Ct. 1303, 6 L.Ed.2d 584 (1961), the United States Supreme Court stated it was "equally" immaterial ... that the plaintiff could have elected to proceed on a federal ground. (Citation omitted.) If the plaintiff decides not to invoke a federal right, his claim belongs in state court." Pan American Petroleum Corp. v. Superior Court of Delaware, 81 S.Ct. at 1307.¹⁴ According to one commentator,¹⁵ however, doubt has been cast upon this rule by Federated Department Stores, Inc. v. Moitie, 452 U.S. 394, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981), a case in which the United States Supreme Court endorsed the principle that the plaintiff could not use "artful pleading" to avoid removal jurisdiction.¹⁶ Justice Brennan, who dissented in the Federated Department Stores case, criticized this approach and specifically referred to the Fifth Circuit case of In re Carter, 618 F.2d 1093 (5th Cir.1980), cert. denied 450 U.S. 949, 101 S.Ct. 1410, 67 L.Ed.2d 378 (1981), as an example of how "some courts have not strictly observed the restrictions on removal jurisdiction.¹⁷ In the case In re Carter, the defendant removed a state court action to federal court. The plaintiff did not move to have the case remanded. Thereafter, the jury returned a verdict for the plaintiff. After the entry of final judgment, the defendant (who had originally had the case removed) moved to have the judgment vacated and the case remanded to state court for lack of subject matter jurisdiction because no federal question was presented in the complaint. The district court remanded. On appeal the Fifth Circuit found that it was able to review the remand because the order to remand was issued outside of the time frame designated in 28 U.S.C. § 1447(c).¹⁸ The Fifth Circuit further found that there was a federal question presented by the allegations of the state court petition and, therefore, reinstated the judgment. In so doing, the Court stated:

... the accepted rule in this circuit is that upon removal the removal court should inspect the complaint carefully to determine whether a federal claim is necessarily presented, even if the plaintiff has couched his pleading exclusively in terms of state law. See Romick v. Bekins Van & Storage Co., 197 F.2d 369 (5th Cir.1952).

The reviewing court looks to the substance of the complaint, not to the labels used in it. See Smith v. Local 25, Sheet Metal Workers Int'l Ass'n, 500 F.2d 741, 748-49 n. 6 (5th Cir.1984).

In re Carter, 618 F.2d at 1101. While it may appear that In re Carter could be distinguished on the basis of its unique facts, the Fifth Circuit has subsequently reiterated its support of the concept articulated in In re Carter concerning the duty of the removal court to scrutinize the complaint to see if a federal claim has been presented. See, e.g., Powers v. So. Central United Ford & Commercial Workers Union and Employers Health & Welfare Trust, 719 F.2d 760, 766 n. 6 (5th Cir.1983). Furthermore, the United States Supreme Court has, subsequent to its opinion in American Federated Stores,¹⁹ stated that

Although we have often repeated that `the party who brings the suit is master to decide what law he will rely upon,' The Fair v. Kohler Die & Specialty Co., 228 U.S. 22, 25, 33 S.Ct. 410, 411, 57 L.Ed. 716 (1913), it is an independent corollary of the well-pleaded complaint rule that a plaintiff may not defeat removal by omitting to plead necessary federal questions in a complaint, see Avco Corp. v. Aero Lodge No. 735, Int'l Assn. of Machinists, 376 F.2d 337, 339-340 (CA6 1967), aff'd., 390 U.S. 557, 88 S.Ct. 1235, 20 L.Ed.2d 126 (1968).

Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 22, 103 S.Ct. 2841, 2853, 77 L.Ed.2d 420 (1983). Recent jurisprudence indicates a predisposition of the United States Supreme Court to further endorse the Fifth Circuit's position that "upon removal the removal court should inspect the complaint carefully to determine whether a federal claim is necessarily presented, even if the plaintiff has couched his pleading exclusively in terms of state law." In re Carter, 618 F.2d at 1101. The...