Saginaw Housing Com'n v. Bannum, Inc.

• Decision Date: 17 August 2009
• Docket Number: No. 08-2079.,No. 08-2082.,No. 08-2069.,No. 08-2068.,08-2068.,08-2069.,08-2079.,08-2082.
• Citation: 576 F.3d 620
• Parties: SAGINAW HOUSING COMMISSION; Does 1-300, Plaintiffs-Appellees, v. BANNUM, INCORPORATED, Defendant-Appellant. Saginaw School District, Plaintiff-Appellee, v. Bannum, Incorporated, Defendant-Appellant, City of Saginaw, Defendant.
• Court: U.S. Court of Appeals — Sixth Circuit

576 F.3d 620

SAGINAW HOUSING COMMISSION; Does 1-300, Plaintiffs-Appellees, v. BANNUM, INCORPORATED, Defendant-Appellant.

Saginaw School District, Plaintiff-Appellee, v. Bannum, Incorporated, Defendant-Appellant, City of Saginaw, Defendant.

No. 08-2068.

No. 08-2069.

No. 08-2079.

No. 08-2082.

United States Court of Appeals, Sixth Circuit.

Argued: April 23, 2009.

Decided and Filed: August 17, 2009.

ARGUED: Russell C. Babcock, The Mastromarco Firm, Saginaw, Michigan, for Appellant. Robert A. Jarema, Smith Bovill, P.C., Saginaw, Michigan, R. Drummond Black, Currie Kendall, PLC, Midland, Michigan, for Appellees. ON BRIEF: Russell C. Babcock, Victor J. Mastromarco, Jr., The Mastromarco Firm, Saginaw, Michigan, for Appellant. Robert A. Jarema, Smith Bovill, P.C., Saginaw, Michigan, R. Drummond Black, Peter A. Poznak, Currie Kendall, PLC, Midland, Michigan, for Appellees.

Before: MOORE and McKEAGUE, Circuit Judges; FORESTER, Senior District Judge.^*

OPINION

McKEAGUE, Circuit Judge.

Bannum, Inc. obtained a permit from the City of Saginaw to build a halfway house in Saginaw. After Bannum received its permit, the Saginaw Housing Commission and the School District of the City of Saginaw both filed complaints in Saginaw circuit court seeking injunctions against Bannum's construction of the halfway house. Bannum removed both actions to the United States District Court for the Eastern District of Michigan. The district court then remanded the School District action back to state court because, as the City of Saginaw was also a defendant, complete diversity was not satisfied. The district court also dismissed the Housing Commission's action based on Burford abstention. For the reasons set forth below, we dismiss Bannum's appeal with regard to the School District action (Nos. 08-2069, 08-2082) and reverse and remand the action involving the Housing Commission (Nos. 08-2068, 08-2079).

I.

Bannum, Inc. is a private corporation that regularly contracts with the Federal Bureau of Prisons ("BOP") to operate Residential Re-entry Centers ("RRCs"). Bannum is incorporated in Kentucky and has its principal place of business in Florida. Bannum runs RRCs in Alabama, Florida, Georgia, Mississippi, Nevada, North Carolina, and Texas.

RRCs are halfway houses to which the BOP transfers prisoners approaching their release dates and probationers under supervised release. The BOP provides extensive regulations for RRCs. The RRC allows those staying there to transition into the community, finding places to live and work, while remaining subject to supervision by the RRC. Bannum employees monitor and supervise those staying at the RRC, but Bannum employees do not have weapons or uniforms. They also do not have the authority to stop those staying at the RRC from leaving the facility. Unauthorized excursions are instead reported to federal authorities.

The BOP published notice that it would seek bids for a new RRC in Saginaw, Michigan. Intending to submit a bid, Bannum contacted Saginaw city authorities to determine how best to comply with local zoning ordinances. Bannum sent a letter to John Stemple, the Zoning Development Coordinator for Saginaw. In the letter, Bannum requested information on where in Saginaw it could locate an RRC. Stemple informed Bannum that "[t]hese types of facilities are permitted as a special land use after approval by the Planning commission in an M-1 Light Industrial Zoning District and they are permitted by right in the M-2 General Industrial Zoning District."

Bannum purchased 2.2 acres of property at 2209 Norman Street in Saginaw in order to construct the RRC. Bannum submitted a site plan review form to the Saginaw Planning Commission on October 11, 2007. On October 23, 2007, the Planning Commission held a public meeting and unanimously approved Bannum's site plan.¹ Bannum received its building permit on April 24, 2008. It then began construction on its RRC in Saginaw. Id.

On May 8, 2008, the Saginaw Housing Commission (the "Commission") and three hundred unnamed plaintiffs filed a complaint against Bannum in the Saginaw Circuit Court and sought a temporary restraining order and an injunction. SHC is a Michigan non-profit municipal commission that "exists to develop and rehabilitate affordable housing in Saginaw." The complaint alleged that Bannum's RRC violated Saginaw zoning ordinances and that SHC would suffer irreparable harm if the RRC operated at that location. The Saginaw Circuit Court granted the TRO on May 7, 2008. On May 12, the circuit court held a hearing on the TRO. After the hearing, the circuit court lifted the TRO.

On May 15, 2008, the School District of the City of Saginaw (the "School District") filed a complaint in Saginaw Circuit Court. The complaint named Bannum and the City of Saginaw ("City") as defendants. It alleged that the RRC was a penal institution and, as such, required a special use permit. The complaint alleged that Bannum had not received a special use permit and that any construction or operation without a special use permit was a nuisance per se. Based on these facts, the School District alleged that the RRC would be a nuisance per se and a nuisance in fact. The nearest school is about 750 feet away from Bannum's property.²

The School District also moved to consolidate its complaint against Bannum with the Commission's complaint against Bannum. Before the circuit court could act on the motion to consolidate, Bannum filed a notice of removal in both the action brought by the Commission and the action brought by the School District.

Bannum's notices of removal relied on diversity to establish the district court's subject matter jurisdiction. There was no issue regarding Bannum's diversity from both the Commission and the School District. However, in the School District complaint, the School District had also named the City as a defendant. Bannum's notice of removal contended that the School District had fraudulently joined the City, and therefore the City's presence did not defeat diversity jurisdiction.

Once the matter was before the district court, both the Commission and the School District filed motions to return the matter to state court. The Commission's motion contended the district court should abstain, while the School District's motion sought a remand because the City's presence in the action prevented the district court from exercising subject matter jurisdiction. The Commission later sought to add the City as a defendant in its complaint, alleging a due process violation. Bannum, meanwhile, filed a motion to dismiss both claims.

After a consolidated hearing, the district court found that the City was properly joined in the School District's complaint, defeating diversity jurisdiction, and that abstention was appropriate with regard to the Commission's action. Accordingly, the district court remanded both cases to state court. In addition, it denied without prejudice both the Commission's motion to amend and Bannum's motion to dismiss.

Bannum filed a motion for reconsideration, which the district court denied. Bannum then filed a notice of appeal.

II.

A district court lacks subject matter jurisdiction in a diversity action where the parties are not completely diverse. Jerome-Duncan, Inc. v. Auto-By-Tel, L.L.C., 176 F.3d 904, 907 (6th Cir. 1999). However, "fraudulent joinder of non-diverse defendants will not defeat removal on diversity grounds." Coyne v. Am. Tobacco Co., 183 F.3d 488, 493 (6th Cir.1999). Fraudulent joinder occurs when the non-removing party joins a party against whom there is no colorable cause of action. Jerome-Duncan, 176 F.3d at 907. If the removing party does not demonstrate fraudulent joinder, the district court must remand back to state court based on the lack of subject matter jurisdiction. Id. Because a remand based on the absence of fraudulent joinder is based on a lack of subject matter jurisdiction, such a remand is generally immune from appellate review. Hernandez v. Seminole County, Fla., 334 F.3d 1233, 1237 (11th Cir.2003); Garbie v. DaimlerChrysler Corp., 211 F.3d 407, 409-10 (7th Cir.2000); Am. Home Assurance Co. v. Insular Underwriters Corp., 494 F.2d 317, 319 (1st Cir.1974). Remands based on a lack of subject matter jurisdiction are unreviewable even where the district court erred in its assessment of its jurisdiction. Volvo Corp. of Am. v. Schwarzer, 429 U.S. 1331, 1333, 97 S.Ct. 284, 50 L.Ed.2d 273 (1976); Ohio v. Wright, 992 F.2d 616, 617 (6th Cir.1993) (en banc).

There are, however, several limited exceptions to the unreviewability of remands to state court. See 28 U.S.C. § 1447(d). The only exception at issue in this appeal is whether the district court made "a substantive decision on the merits of a collateral issue." See, e.g., Regis Assoc. v. Rank Hotels (Mgmt.) Ltd., 894 F.2d 193, 194 (6th Cir.1990). Collateral issues under this exception include decisions such as abstention-based remands and remands based on the interpretation of a forum selection clause. DaWalt v. Purdue Pharma, L.P., 397 F.3d 392, 399 (6th Cir.2005).

Both the School District and the City are citizens of Michigan for purposes of diversity. Bannum thus based its assertion of diversity on an allegation that the School District had fraudulently joined the City as a defendant. The district court found that there was no fraudulent joinder and remanded the School District's claim to Saginaw Circuit Court. As the remand order was based on the district court's assessment of its own jurisdiction, it is generally unreviewable regardless of whether it reached the correct result.

Bannum argues that one of the exceptions to the bar on reviewing remand orders applies because the district court made substantive decisions on the merits of collateral issues. Specifically, Bannum alleges "the District Court found that the School District had a colorable case against the City of Saginaw" and that the Court addressed the issue of standing. These arguments were...