Steeby v. Discover Bank, Nco Fin. Sys., Inc.

• Decision Date: 01 November 2013
• Docket Number: No. 5:13–CV–6038–DGK.,5:13–CV–6038–DGK.
• Citation: 980 F.Supp.2d 1131
• Court: U.S. District Court — Western District of Missouri
• Parties: Thomas L. STEEBY, Plaintiff, v. DISCOVER BANK, NCO Financial Systems, Inc., Berman & Rabin, P.A., Defendant.

980 F.Supp.2d 1131

Thomas L. STEEBY, Plaintiff,

v.DISCOVER BANK, NCO Financial Systems, Inc., Berman & Rabin, P.A., Defendant.

No. 5:13–CV–6038–DGK.

United States District Court,

W.D. Missouri,

Saint Joseph Division.

Nov. 1, 2013.

Dale Kenneth Irwin, Fred L. Slough, Gina Chiala, Slough, Connealy, Irwin & Madden, LLC, Kansas City, MO, Ryan D. Knipp, Lenexa, KS, for Plaintiff.

David M. Mangian, Christopher M. Hohn, Thompson Coburn LLP, St. Louis, MO, Paul Croker, Wallace, Saunders, Austin, Brown & Enochs, Chartered, Anthony F. Rupp, Matthew D. Stromberg, Foulston Siefkin, LLP, Overland Park, KS, James K. Schultz, Sessions, Fishman, Nathan & Israel LLC, Chicago, IL, Michael D. Slodov, Sessions, Fishman, Nathan & Israel, LLC, Chagrin Falls, OH, for Defendant.

ORDER GRANTING MOTION TO REMAND

GREG KAYS, District Court.

This lawsuit arises from Defendant Discover Bank's (“Discover”) attempt to collect on a debt Plaintiff Thomas Steeby (“Steeby”) alleges he already settled. Pending before the Court is Steeby's Motion to Remand (Doc. 12). Steeby argues Discover did not have a right to remove this case from state court because the state court's decision realigning the parties did not transform Discover from a plaintiff to a defendant for purposes of the federal removal statute. Because Eighth Circuit caselaw requires the Court to look at the parties' alignment at the time the complaint is filed, not at the time of removal, and because the removal statute is strictly construed, Steeby's motion is GRANTED.

Background

On April 16, 2012, Discover sued Steeby in the associate division of the Circuit Court of Buchanan County, Missouri, seeking payment on a $1,125.22 credit card debt. On May 10, 2012, Steeby filed an answer alleging he settled this debt on December 12, 2008 with Discover's agent, collection agency NCO Financial Systems, Inc. (“NCO”).¹ Steeby brought two counterclaims against Discover for malicious prosecution (Count I) and an award of attorneys' fees under Missouri Revised Statute § 408.092 (Count II).

Because of Steeby's counterclaims the case was reassigned to a circuit court judge and given a new case number. On October 19, 2012, Discover dismissed its Petition against Steeby with prejudice, leaving Steeby's counterclaims against Discover as the only remaining claims. On November 30, 2012, Steeby moved for leave to amend his counterclaims to join as third-party defendants NCO and Berman & Rabin, P.A. (“B & R”), the law firm that prosecuted the allegedly malicious lawsuit.

On February 8, 2013, the circuit court granted Plaintiff leave to amend. The Court also sua sponte ordered the realignment of the parties, captioning Steeby as the plaintiff and Discover as the defendant.

On February 19, 2013, filed his amended petition. As in the original counterclaim, the Petition alleged malicious prosecution against Discover (Count I) and sought attorneys' fees from Discover (Count II) for Discover's instigating and pursuing the original lawsuit. It also alleged malicious prosecution against B & R (Count III), negligence against NCO (Count IV), and negligent misrepresentation against NCO (Count V).

On March 11, 2013, Discovery removed the case to federal court on the basis of diversity jurisdiction. Defendants NCO and B & R consented to removal. Plaintiff promptly moved for remand, arguing that neither Discover as counterclaim defendant nor NCO and B & R as third-party defendants had a statutory right to removal.

There is no dispute that there is complete diversity of citizenship between the parties ² and the amount in controversy is more than $75,000.

Standard

The statute governing removal provides in relevant part that “[a]ny civil action brought in a State court ... may be removed by the defendant or the defendants” if the federal court has original jurisdiction over it. 28 U.S.C. § 1441(a). Where, as here, the defendants have invoked a federal court's original diversity jurisdiction, the parties must be citizens of different states and the amount in controversy must exceed $75,000. 28 U.S.C. § 1332(a).

A plaintiff may challenge removal through a motion to remand. 28 U.S.C. § 1447(c). Once challenged, the defendant bears the burden of proving that removal is proper and all procedural prerequisites are satisfied. State Farm Fire and Cas. Co. v. Valspar Corp., Inc., 824 F.Supp.2d 923, 932 (D.S.D.2010). All doubts about removal are resolved in favor of remand. Cent. Iowa Power Co-op. v. Midwest Indep. Transmission Sys. Operator, Inc., 561 F.3d 904, 912 (8th Cir.2009).

Discussion

A. Overview.

The question in this case is whether Discover, who initially filed this lawsuit, became a defendant for purposes of the federal removal statute, 28 U.S.C. § 1441(a), by dismissing its claim against the defendant with prejudice and being recaptioned as the defendant by the state court. Discover, NCO, and R & B argue that it did. They assert that although Discovery initiated this lawsuit in state court, at the time of removal it was procedurally and substantively a defendant. They argue removal is permitted under Hickman v. Alpine Asset Management Group, LLC and other district court decisions. 919 F.Supp.2d 1038 (W.D.Mo.2013).

Steeby responds that removal violates the holding of Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 61 S.Ct. 868, 85 L.Ed. 1214 (1941), and its progeny, including another case from this district, Arrow Financial Services, LLC v. Williams, No. 10–3416–CV–S–DW, 2011 WL 9158435 (W.D.Mo. Jan. 20, 2011). Steeby argues the cases cited by the realigned defendants are distinguishable.

At the outset, the Court notes that no circuit courts have directly addressed this issue, and the handful of district courts that have discussed this question have reached different conclusions. Hrivnak v. NCO Portfolio Mgmt., Inc., 723 F.Supp.2d 1020, 1023 (N.D.Ohio 2010) (noting different outcomes). This is a difficult case because it involves the collision of two jurisdictional principals. Id. at 1022. On the one hand, Discover has attempted to remove its own lawsuit to federal court, which is clearly impermissible no matter how artful or creative the attempt. La Chemise Lacoste v. Alligator Co., Inc., 506 F.2d 339, 343 n. 4 (3d Cir.1974) (“[I]t is axiomatic that a plaintiff may not remove an action to federal court.”). Although at the time Discover filed its notice of removal it was in the state court's eyes the defendant, the claim that forms the basis for Discover's removal nonetheless “began life as a counterclaim, and a counterclaim may not form the basis for removal.” Hrivnak, 723 F.Supp.2d at 1023;see Shamrock, 313 U.S. at 107–08, 61 S.Ct. 868 (noting plaintiff/counterclaim defendant may not remove to federal court). On the other hand, the propriety of removal is arguably determined at the time of removal, Hickman, 919 F.Supp.2d at 1043–44, and when Discover filed its notice of removal it possessed several attributes of a defendant: Discover was being sued by Steeby; Discovery had no claims against Steeby; and the state court had captioned Discover as a defendant.

B. Discover is the plaintiff for purposes of the federal removal statute.1. Federal law, not state law, determines which party is the defendant for purposes of the federal removal statute.

As a threshold matter, the Court holds the fact that the state court captioned Discover as a defendant at the time of removal is of no significance. Which party is a plaintiff and which is a defendant for purposes of the federal removal statute is determined by reference to federal law, not state law or a state court's decision to realign the parties. Shamrock, 313 U.S. at 104, 61 S.Ct. 868;see also Chicago, R.I. & P.R. Co. v. Stude, 346 U.S. 574, 580, 74 S.Ct. 290, 98 L.Ed. 317 (1954) (affirming Shamrock and holding that the defendant railroad was a plaintiff for purposes of the removal statute despite state procedural rule stating it should be docketed as the defendant). This rule makes sense because a state court may decide to caption a plaintiff as the defendant for a variety of reasons, such as administrative convenience, which have nothing to do with which party is the substantive defendant. See, e.g., Stude, 346 U.S. at 579, 74 S.Ct. 290 (noting that in a land condemnation case, Iowa's procedural rules require the condemnor to be captioned as the defendant on appeal). Allowing a state court realignment decision to control which party is the defendant for purposes of the federal removal statute would effectively give a state court or state legislature the power to control the jurisdiction of the lower federal courts, a power the Constitution entrusts to Congress. U.S. Const. art III, § 1–2. It would also thwart Congress's intent in enacting the removal statute to provide uniform removability of lawsuits from state courts to the lower federal courts, irrespective of local law. Shamrock, 313 U.S. at 104, 61 S.Ct. 868. Consequently, in applying the removal statute, the Court gives no weight to the state court's decision to realign the parties.

2. Discover is still the plaintiff for purposes of the federal removal statute.

The Eighth Circuit Court of Appeals has held that for purposes of applying the federal removal statute, the parties' alignment is determined as of the time the original complaint is filed, not at the time of removal. Universal Underwriters Ins. Co. v. Wagner, 367 F.2d 866, 871 (8th Cir.1966) (holding where appellant tried to destroy diversity jurisdiction by attempting to realign the parties after the case was filed that “the question of realignment, involving jurisdiction, must be tested at the time of filing the complaint.”); Gen. Credit Acceptance, Co., LLC v. Deaver, No. 4:13CV00524 ERW, 2013 WL 2420392, at *5 (E.D.Mo. June 3, 2013) (discussing Wagner and holding that for purposes of determining the propriety of removal, the court looks at the proper alignment of the parties when the case is filed); Arrow Fin. Servs., LLC v. Williams, 2011...