Taco Bell Corp. v. Dairy Farmers of Am., Inc.

• Citation: 727 F.Supp.2d 604
• Decision Date: 13 July 2010
• Docket Number: Civil Action No. 3:10-CV-213-H
• Court: United States District Courts. 6th Circuit. United States District Court of Western District of Kentucky
• Parties: TACO BELL CORP., et al., Plaintiffs v. DAIRY FARMERS OF AMERICA, INC., et al., Defendants.

727 F.Supp.2d 604

TACO BELL CORP., et al., Plaintiffs

v.DAIRY FARMERS OF AMERICA, INC., et al., Defendants.

Civil Action No. 3:10-CV-213-H.

United States District Court,

W.D. Kentucky,

at Louisville.

July 13, 2010.

John Kendrick Wells, IV, Theresa A. Canaday, Frost Brown Todd LLC, Louisville, KY, for Plaintiffs.

Amanda J. Metts, Will & Emery, Joel G. Chefitz, McDermott, Will & Emery LLP, Lalania Gilkey-Johnson, William M. Hannay, Schiff Hardin LLP, Chicago, IL, James W. Herr, Mark S. Riddle, Greenebaum Doll & McDonald PLLC, John S. Reed, II, Trevor L. Earl, Reed Weitkamp Schell & Vice PLLC, Louisville, KY, for Defendants.

MEMORANDUM OPINION AND ORDER

JOHN G. HEYBURN, II, District Judge.

Plaintiffs, twenty-seven (27) Taco Bell restaurant operators, originally filed this lawsuit in Jefferson Circuit Court. Their principal places of business are in seven different states, including Kentucky, Kansas and Missouri. Defendants are the Dairy Farmers of America ("Dairy Farmers") and two of its officers, collectively residents of Kansas and Missouri. Plaintiffs allege that the Dairy Farmers breached their contract with Unified Foodservice Purchasing Co-op, LLC ("UFPC"), the purchasing arm of Taco Bell's parent company, Yum! Brands, and that Plaintiffs have the right to enforce that contract as third-party beneficiaries. Citing diversity jurisdiction, Defendants removed to federal court, arguing that the twenty-five (25) non-diverse Plaintiffs had been fraudulently joined. Plaintiffs now move to remand.¹

This motion presents several complicated and interesting issues of first impression for courts within the Sixth Circuit. With that in mind, the Court held a conference with the parties, where both sides were ably represented with excellent arguments. Ultimately, however, the Court finds that the pending motions turn on basic principles of removal jurisdiction andthe concept of fraudulent joinder. For the reasons that follow, the Court remands.

I.

Few facts are directly relevant to the pending motions. UFPC entered a contract with the Dairy Farmers providing that they would supply Yum! Brands' restaurants, including Taco Bells, with cheese ("the Contract"). The Contract designated all Taco Bell operators as "designated affiliates" of UFPC and third-party beneficiaries to the Contract. Plaintiffs, some of those "designated affiliates," claim that the Dairy Farmers ran up the price of cheese in violation of the Contract and, as a result, Plaintiffs were overcharged for their purchases.

The Contract contains the following forum selection clause:

30. Applicable Law and Venue. This Agreement shall be construed and enforced in accordance with the internal laws of the Commonwealth of Kentucky. The exclusive venue for any proceeding between the Co-op [UFPC] and Supplier [Dairy Farmers] relating to the provisions hereof shall be in Jefferson County, Kentucky, subject to the provisions of Section 40. The exclusive venue for any proceeding between Supplier [Dairy Farmers] and any Designated Affiliate [Plaintiffs] shall be the locality of the Designated Affiliate's principal place of business.

This clause is at the heart of the pending motions. Its last sentence would appear to require that any legal action by Plaintiffs to enforce their contractual rights as "designated affiliates" be brought in the jurisdiction of their own principal place of business.

Defendants assert that twenty-five (25) of the Plaintiffs, operators of Taco Bells that have their principal place of business in states other than Kentucky, were "fraudulently joined" here because, under the forum selection clause, their actions can only be maintained in a jurisdiction other than Kentucky, that is, one which encompasses their specific principal place of business. Excluding those Plaintiffs from the lawsuit creates diversity, ² allowing this Court to maintain jurisdiction. Otherwise, complete diversity is lacking because several Plaintiffs and Defendants are citizens of the same states, Kansas and Missouri.

II.

"[A] party 'seeking to bring a case into federal court carries the burden of establishing diversity jurisdiction.' " Coyne v. Am. Tobacco Co., 183 F.3d 488, 493 (6th Cir.1999) (quoting Certain Interested Underwriters at Lloyd's, London, England v. Layne, 26 F.3d 39, 41 (6th Cir.1994)). Where non-diverse parties are present, a removing party must show that those parties were fraudulently joined to the lawsuit. Id.

To prove fraudulent joinder, the removing party must present sufficient evidence that a plaintiff could not have established a cause of action against non-diverse defendants under state law. However, if there is a colorable basis for predicting that a plaintiff may recover against non-diverse defendants, this Court must remand the action to state court. The district court must resolve all disputed questions of fact and ambiguities in the controlling ... state law in favor of the non removing party. All doubts as to the propriety of removal are resolved in favor of remand.

Id. (quotations omitted) (emphasis added). This standard creates a very high burdenfor the removing party. It is essential to remember that the Court must examine this issue exclusively within the framework of removal jurisprudence. But first the Court must resolve three preliminary issues.

A.

The parties debate at great length whether the fraudulent joinder doctrine can ever apply to the joinder of plaintiffs. Certainly, the doctrine is generally applied to joinder of defendants. The Sixth Circuit has never affirmatively addressed this issue and only a few district courts from other circuits have done so. The majority of those courts have held, without much discussion, that fraudulent joinder can apply to both defendants and plaintiffs. See, e.g., Miller v. Home Depot, U.S.A., Inc., 199 F.Supp.2d 502, 508 (W.D.La.2001) ("The fraudulent joinder doctrine can be applied to the alleged fraudulent joinder of a plaintiff."); Sims v. Shell Oil Co., 130 F.Supp.2d 788, 798 (S.D.Miss.1999) ("The principles of the doctrine of fraudulent joinder ... apply to fraudulently joined defendants as well as fraudulently joined plaintiffs."). At least one court, however, has discussed the issue in depth and held that fraudulent joinder only applies to defendants. Johnston Industries, Inc. v. Milliken & Co., 45 F.Supp.2d 1308, 1312 (M.D.Ala.1999). For the following reasons, this Court sides with the majority view.

There is no significant difference between fraudulent joinder of plaintiffs and fraudulent joinder of defendants.³ The primary purpose of fraudulent joinder is to ensure that plaintiffs do not avoid diversity jurisdiction by pleading illegitimate claims involving non-diverse parties. See, e.g., Saginaw Housing Comm'n v. Bannum, Inc., 576 F.3d 620, 624 (6th Cir.2009) ("Fraudulent joinder occurs when the non-removing party joins a party against whom there is no colorable cause of action."). That purpose is fulfilled both where the plaintiff improperly sues non-diverse defendants against whom it has no viable claim and where the plaintiff joins additional non-diverse plaintiffs who have no viable claims.

B.

Next, the parties debate the proper application of the fraudulent joinder doctrine in our circumstances. As explained, the Sixth Circuit standard is clear: "[I]f there is a colorable basis for predicting that a plaintiff may recover against non-diverse defendants, [the district] Court must remand the action to state court." Coyne, 183 F.3d at 493. Citing this language, the non-diverse plaintiffs argue that they need only have a viable claim in some court, not necessarily Jefferson Circuit Court, to destroy diversity jurisdiction.⁴ Defendants counter that the non-diverse plaintiffs must have viable claims in the state court to which the case would be remanded to avoid fraudulent joinder. This debate, too, raises interesting and difficult legal questions.⁵ Nevertheless, the Court need notresolve it. Rather, the Court will assume, for purposes of this discussion, that Defendants' view is correct: a plaintiff is fraudulently joined when he cannot assert a viable claim against non-diverse defendants in the state court in which the action was originally filed.

C.

Finally, the parties debate whether Kentucky or federal law should be used to determine the viability of the non-diverse Plaintiffs' claims.⁶ Both parties agree that the key issue is the enforceability of the forum selection clause. As explained, if enforced, the non-diverse plaintiffs should be dismissed and the action may proceed under diversity jurisdiction. If unenforced, complete diversity is lacking and remand is required.

Remand, and more specifically fraudulent joinder, requires consideration of whether there is "a colorable basis for predicting that a plaintiff may recover against [a] non-diverse defendant [in state court]." Coyne, 183 F.3d at 493. To do so, it necessarily requires the Court to view this case from the perspective of the Jefferson Circuit Court. If that court would allow the action to proceed, then remand is appropriate. In such circumstances, the Jefferson Circuit Court would, without doubt, apply Kentucky law, not federal law, to determine the enforceability of the forum selection clause.

At the conference, Defendants relied heavily on Wong v. PartyGaming Ltd., 589 F.3d 821 (6th Cir.2009), which holds that "in [a] diversity suit, the enforceability of the forum selection clause is governed by federal law." Id. at 828. For the reasons that follow, however, the rule in Wong does not govern the question which confronts this Court. In Wong, the circuit held that in a diversity case the court must apply federal procedural law to determine the applicability of the forum selection clause. That result makes sense where diversity jurisdiction is certain and procedural issues are in dispute.⁷ However, in the context of the Court's current remand/fraudulent joinder analysis, the choice of law is quite different. The Court must...