Sutton Woodworking Mach. v. Mereen-Johnson Mach.

• Citation: 328 F.Supp.2d 601
• Decision Date: 29 July 2004
• Docket Number: No. CIV. 1:03CV01133.,CIV. 1:03CV01133.
• Parties: SUTTON WOODWORKING MACHINE COMPANY, INC.; and Nova Technologies, Inc., Plaintiffs, v. MEREEN-JOHNSON MACHINE COMPANY; and Group Seven Systems, Inc., Defendants.
• Court: U.S. District Court — Middle District of North Carolina

Page 601

328 F.Supp.2d 601

SUTTON WOODWORKING MACHINE COMPANY, INC.; and Nova Technologies, Inc., Plaintiffs, v. MEREEN-JOHNSON MACHINE COMPANY; and Group Seven Systems, Inc., Defendants.

No. CIV. 1:03CV01133.

United States District Court, M.D. North Carolina.

July 29, 2004.

Charles F. Marshall, III, Robert James King, III, Brooks Pierce Mclendon Humphrey & Leonard, Greensboro, NC, for Plaintiffs and Counter-Defendants.

J. David James, Smith James Rowlett & Cohen, Greensboro, NC, John Edward Connelly, Robert W. Vaccaro, Faegre & Benson, Minneapolis, MN, for Defendants and Counter-Claimants.

MEMORANDUM OPINION

BULLOCK, District Judge.

Before the court is Plaintiffs' motion to remand this civil action to the General Court of Justice, Superior Court Division, Guilford County, North Carolina, pursuant to 28 U.S.C. § 1447(c). Plaintiffs, in addition to their contention that there is an absence of diversity jurisdiction under 28 U.S.C. § 1332(a)(1), also ask the court to abstain from hearing this case for lack of jurisdiction pursuant to 28 U.S.C. § 1334(c)(2). Plaintiffs have also requested an award of costs and attorney fees upon remand pursuant to 28 U.S.C. § 1447(c). For the following reasons, Plaintiffs' motion to remand will be granted, and Plaintiffs' request for an award of costs and attorney fees upon remand will be denied.

FACTS

Sutton Woodworking Machine Company, Inc. ("Sutton"), is a North Carolina corporation with its principal place of business in Guilford County, North Carolina. Nova Technologies, Inc. ("Nova"), is a North Carolina corporation with its principal place of business in Mecklenburg County, North Carolina. Sutton represents several manufacturers of woodworking equipment, and Nova manufactures and assembles different types of electronic components for woodworking equipment.

Mereen-Johnson Machine Company ("Mereen-Johnson") is a Minnesota corporation with its principal place of business in Minnesota. Group Seven Systems, Inc. ("Group Seven"), is a North Carolina corporation with its principal place of business in Hudson, North Carolina. Mereen-Johnson and Group Seven (collectively "Defendants") manufacture and sell woodworking equipment. Sutton and Nova (collectively "Plaintiffs") have maintained a commercial relationship with Defendants for several years.

On January 28, 2003, Plaintiffs filed this civil action against Defendants in the General Court of Justice, Superior Court Division, Guilford County, North Carolina. Plaintiffs' initial complaint stated two claims against Defendants for breach of contract on the following bases: (1) Defendants' failure to pay Sutton over $240,000 in sales commissions that Defendants allegedly owed to Sutton under the terms and conditions of an exclusive representation agreement; and (2) Defendants' alleged cancellation of a purchase order placed with Nova for certain products and services valued at approximately $727,340. Plaintiffs' initial complaint also stated a separate claim against Defendants for declaratory relief pursuant to North Carolina General Statute § 1-253.

On March 31, 2003, Defendants filed a joint answer to Plaintiffs' complaint in which Defendants denied the material allegations contained in Plaintiffs' complaint and asserted several affirmative defenses to the allegations contained in Plaintiffs' complaint. Defendants also stated four separate counterclaims for relief against Sutton and Nova on the bases of breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. On April 30, 2003, Plaintiffs filed a reply to Defendants' counterclaims in which Plaintiffs asserted several affirmative defenses to Defendants' counterclaims.

On July 31, 2003, Plaintiffs filed an amended complaint that stated another claim against Defendants for breach of contract on the basis of Defendants' failure to pay Nova over $75,000 that Defendants allegedly owed to Nova under the terms and conditions of a series of contracts for goods and services. Plaintiffs' amended complaint also contained the same material allegations and the same claims for relief as Plaintiffs' initial complaint, including the following allegation regarding Mereen-Johnson's liability for Group Seven's purported acts and omissions:

5. Upon information and belief, Mereen-Johnson owns most or all of the stock of Group Seven, and Mereen-Johnson actively directs and controls the day-to-day operations and activities of Group Seven. Upon information and belief, there is such an identity of interest and lack of corporate distinctiveness between Mereen-Johnson and Group Seven that Mereen-Johnson is responsible and liable for the acts and omissions of Group Seven, as set forth herein.

(Compl. ¶ 5; Am. Compl. ¶ 5.) On August 18, 2003, Defendants filed a joint answer to Plaintiffs' amended complaint in which Defendants denied the material allegations contained in Plaintiffs' complaint and asserted several affirmative defenses to the allegations contained in Plaintiffs' amended complaint, including the defense of failure to state a claim upon which relief can be granted. Defendants specifically answered the allegations contained in paragraph five of Plaintiffs' amended complaint with the following denial:

5. Answering Paragraph 5 of the Amended Complaint, defendants deny the allegations contained therein. Further answering, defendants state that [Mereen-Johnson] owns a majority interest in [Group Seven], but that [Mereen-Johnson] is not responsible for, and does not supervise or control, the day-to-day operations of [Group Seven].

(Joint Ans. to Am. Compl. ¶ 5.)

Between January 2003 and October 2003, Plaintiffs and Defendants engaged in pretrial discovery. On October 29, 2003, Group Seven filed a Chapter 7 petition for bankruptcy in the United States Bankruptcy Court for the Western District of North Carolina. (See id., Ex. A.)

On November 26, 2003, Mereen-Johnson filed a notice of removal to this court pursuant to 28 U.S.C. §§ 1441(a), 1446, and 1452(a), and cited 28 U.S.C. §§ 1332(a)(1) and 1334 as bases for federal jurisdiction of the subject matter of this civil action. On December 23, 2003, Plaintiffs filed a motion to remand this civil action to the General Court of Justice, Superior Court Division, Guilford County, North Carolina. According to Plaintiffs' motion to remand, "this [c]ourt lacks subject matter jurisdiction over this action because there is a lack of diversity of citizenship between [Plaintiffs] and [Group Seven]." (Pls.' Mot. Remand at 1.)

DISCUSSION

"Section 1441(a) of Title 28 permits a defendant to remove from state to federal court `any civil action brought in a State court of which the district courts of the United States have original jurisdiction.'" Triad Motorsports, LLC v. Pharbco Marketing Group, Inc., 104 F.Supp.2d 590, 593 (M.D.N.C.2000)(quoting 28 U.S.C. § 1441(a)). Federal courts have original jurisdiction of cases where the matter in controversy exceeds $75,000 and is between "`Citizens of different States' by virtue of 28 U.S.C. § 1332(a)(1) and U.S. Const., Art. III, § 2." Roche v. Lincoln Prop. Co., 373 F.3d 610, 613 (4th Cir.2004)(citing Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 460, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980)). "Courts have consistently interpreted § 1332 and its predecessors to require complete diversity such that the state of citizenship of each plaintiff must be different from that of each defendant." Athena Auto., Inc. v. DiGregorio, 166 F.3d 288, 290 (4th Cir.1999)(citing Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 373, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978); Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806), overruled on other grounds, 43 U.S. (2 How.) 497, 11 L.Ed. 353 (1844); and United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 492 (4th Cir.1998)). Section 1441(b) of Title 28 further proscribes removal of civil actions unless "none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought." 28 U.S.C. § 1441(b).¹

"Because removal jurisdiction raises significant federalism concerns, [courts] must strictly construe removal jurisdiction." Mulcahey v. Columbia Organic Chemicals, Co., Inc., 29 F.3d 148, 151 (4th Cir.1994)(citing Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 61 S.Ct. 868, 85 L.Ed. 1214 (1941)). "The existence of subject matter jurisdiction is a threshold issue, and absent a proper basis for subject matter jurisdiction, a removed case must be remanded to state court." Keith v. Clarke Am. Checks, Inc., 261 F.Supp.2d 419, 421 (W.D.N.C.2003)(citing Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 96, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998); Jones v. Am. Postal Workers Union, 192 F.3d 417, 422 (4th Cir.1999); and Evans v. B.F. Perkins Co., a Div. of Standex Int'l. Corp., 166 F.3d 642, 647 (4th Cir.1999)). On a motion to remand, the burden of establishing federal subject matter jurisdiction rests on the party or parties seeking to preserve removal. Morales v. Showell Farms, Inc., 910 F.Supp. 244, 246 (M.D.N.C.1995)(citing Mulcahey, 29 F.3d at 151). "If federal jurisdiction is doubtful, a remand is necessary." Mulcahey, 29 F.3d at 151 (citing In re Bus. Men's Assurance Co. of Am., 992 F.2d 181, 183 (8th Cir.1993); and Cheshire v. Coca-Cola Bottling Affiliated, Inc., 758 F.Supp. 1098, 1102 (D.S.C.1990)).

In the instant case, Mereen-Johnson does not dispute that Plaintiffs and Group Seven qualify as citizens of North Carolina for jurisdictional purposes. See 28 U.S.C. § 1332(c). Instead, Mereen-Johnson contends that "there is diversity of citizenship among the real and substantial parties to this action ... because the record demonstrates that [Group Seven] is a nominal and formal party that the plaintiffs have improvidently joined and maintained in this action in order to defeat the exercise of federal jurisdiction." (Def. Mereen-Johnson Machine Company's Mem. Opp'n Mot....