Tex. Brine Co. v. Am. Arbitration Ass'n, Inc.

• Decision Date: 07 April 2020
• Docket Number: No. 18-31184,18-31184
• Citation: 955 F.3d 482
• Parties: TEXAS BRINE COMPANY, L.L.C., Plaintiff – Appellant v. AMERICAN ARBITRATION ASSOCIATION, INCORPORATED; Anthony M. DiLeo ; Charles R. Minyard, Defendants – Appellees
• Court: U.S. Court of Appeals — Fifth Circuit

955 F.3d 482

TEXAS BRINE COMPANY, L.L.C., Plaintiff – Appellant

v.AMERICAN ARBITRATION ASSOCIATION, INCORPORATED; Anthony M. DiLeo ; Charles R. Minyard, Defendants – Appellees

No. 18-31184

United States Court of Appeals, Fifth Circuit.

FILED April 7, 2020

James M. Garner, Esq., Joshua Simon Force, Peter L. Hilbert, Jr., Esq., Stuart D. Kottle, Leopold Zangwill Sher, Sher Garner Cahill Richter Klein & Hilbert, L.L.C., New Orleans, LA, for Plaintiff-Appellant.

Timothy David Scandurro, Esq., Scandurro & Layrisson, L.L.C., New Orleans, LA, for Defendant-Appellee American Arbitration Association, Incorporated.

Thomas More Flanagan, Camille Elise Gauthier, Flanagan Partners, L.L.P., Andy Joseph Dupre, Carter Dupre, L.L.P., New Orleans, LA, for Defendant-Appellee Anthony M. DiLeo.

Gustave A. Fritchie, III, Esq., Irwin Fritchie Urquhart & Moore, L.L.C., New Orleans, LA, for Defendant-Appellee Charles R. Minyard.

Before SOUTHWICK, WILLETT, and OLDHAM, Circuit Judges.

LESLIE H. SOUTHWICK, Circuit Judge:

One of the parties to an arbitration claimed that two of the arbitrators hid conflicts of interest. Those claims were the basis on which a Louisiana state court vacated the arbitral award. The aggrieved party then brought suit in Louisiana state court seeking substantial damages against one out-of-state defendant and two in-state defendants. The out-of-state defendant was served with process and immediately removed the case to federal court before the in-state defendants were served. The plaintiff moved to remand. The district court held that this removal prior to service on the nondiverse defendants was proper and refused to remand. The district court then entered a judgment on the pleadings, dismissing the plaintiff’s claims with prejudice. We AFFIRM.

FACTUAL AND PROCEDURAL BACKGROUND

In reviewing an order granting judgment on the pleadings, we accept the factual allegations in the plaintiff’s complaint as true. Great Plains Tr. Co. v. Morgan Stanley Dean Witter & Co ., 313 F.3d 305, 312–13 (5th Cir. 2002). What follows are therefore from the complaint.

In 1975, plaintiff Texas Brine Company, L.L.C., contracted with Vulcan Materials Company to supply brine. Among agreed-on amendments to the contract in 2000 was the addition of an arbitration clause. The clause provided that "[a]ny dispute, controversy or claim arising out of or relating to" the contract or its breach would be resolved by arbitration. The clause further provided that any arbitration would be conducted under the rules of the American Arbitration Association ("AAA") and would be governed by the Federal Arbitration Act. In 2005, Vulcan assigned its rights under the contract to Occidental Chemical Corporation ("Oxy").

After a dispute arose between Texas Brine and Oxy in 2012, Texas Brine invoked the arbitration clause. Texas Brine and Oxy chose Anthony DiLeo, Charles Minyard, and Denise Pilié as arbitrators in 2014. The prospective arbitrators had to disclose potential conflicts of interest. After selection, the arbitrators signed an oath that recognized a continuing duty to disclose potential conflicts.

Early in 2018, Texas Brine learned that DiLeo was representing a corporation in a dispute in which the opposing counsel was also Texas Brine’s counsel in its dispute with Oxy. Minyard, too, had become involved as DiLeo’s attorney in a related legal-malpractice action. DiLeo and Minyard had not disclosed these potential conflicts. Texas Brine moved the AAA to remove both DiLeo and Minyard, but the AAA’s Administrative Review Council summarily denied the motions. A few weeks later, though, the AAA removed Minyard from the arbitration panel due to an offensive comment he made to Texas Brine’s counsel. Texas Brine again urged the removal of DiLeo. The day after the renewed urging, both DiLeo and Pilié resigned.

Texas Brine filed a motion in Louisiana state court to vacate the panel’s awards and for reimbursement of fees, including approximately $550,000 in arbitrator fees and $17,300 in administrative expenses that Texas Brine had paid the AAA before the panel was disbanded. In June 2018, the court vacated all the arbitral panel’s rulings on contested issues pursuant to 9 U.S.C. § 10(a)(2) and LA. STAT. ANN. § 94210(B). Neither party appealed the vacatur. The AAA was not a party to the state-court proceeding, and the AAA continued the process of appointing a replacement panel.

On July 6, 2018, Texas Brine filed the current suit against the AAA, DiLeo, and Minyard in the Civil District Court of the Parish of Orleans. Texas Brine requested over $12 million in damages and equitable relief, alleging that the defendants engaged in intentional and wrongful fraudulent conduct in connection with the arbitration proceedings. On July 11, before Louisiana residents DiLeo and Minyard had been served, the AAA removed the case to the United States District Court for the Eastern District of Louisiana. The AAA, DiLeo, and Minyard each filed answers and moved to dismiss Texas Brine’s claims under Rule 12(c) of the Federal Rules of Civil Procedure.

The jargon for removal prior to service on all defendants is "snap removal." On August 9, Texas Brine moved to remand, challenging the AAA’s snap removal and disagreeing with the contention that DiLeo and Minyard were improperly joined. The district court denied the motion on October 11, holding that the plain language of the removal statute did not bar snap removal. The court did not reach the alternate ground of fraudulent joinder. On November 2, the district court granted the defendants’ motions to dismiss, then entered judgment dismissing Texas Brine’s claims with prejudice. Texas Brine appeals from the denial of remand and from the final judgment.

DISCUSSION

We review orders denying remand de novo , and the party who sought removal has the burden of proving removal was proper. Manguno v. Prudential Prop. & Cas. Ins. Co. , 276 F.3d 720, 722–23 (5th Cir. 2002). Any necessary statutory interpretation is performed de novo . Cervantez v. Bexar Cnty. Civil Serv. Comm’n , 99 F.3d 730, 732 (5th Cir. 1996). Finally, dismissals under Federal Rule of Civil Procedure 12(c) are reviewed de novo . Brittan Commc’ns Int’l Corp. v. Sw. Bell Tel. Co. , 313 F.3d 899, 904 (5th Cir. 2002). We first consider the denial of the motion to remand and then consider the judgment on the pleadings.

I. Snap Removal

A defendant may remove a civil case brought in state court to the federal district court in which the case could have been brought. 28 U.S.C. § 1441(a). In diversity cases, there is an additional limitation on removal, known as the forum-defendant rule. The rule provides that

[a] civil action otherwise removable solely on the basis of the jurisdiction under [ 28 U.S.C. § 1332(a) ] may not be removed if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.

§ 1441(b)(2). The question in this case is whether the forum-defendant rule prohibits a non-forum defendant from removing a case when a not-yet-served defendant is a citizen of the forum state. Although we have not yet had opportunity to address the "snap removal" issue, two other circuits have recently interpreted Section 1441(b)(2) as allowing snap removal. Gibbons v. Bristol-Myers Squibb Co. , 919 F.3d 699 (2d Cir. 2019) ; Encompass Ins. Co. v. Stone Mansion Rest. Inc. , 902 F.3d 147 (3d Cir. 2018). The Sixth Circuit in a footnote has also interpreted Section 1441(b)(2) to allow snap removal. McCall v. Scott , 239 F.3d 808, 813 n.2 (6th Cir. 2001).

We begin by recognizing that the forum-defendant rule is a procedural rule and not a jurisdictional one. In re 1994 Exxon Chem. Fire , 558 F.3d 378, 392–93 (5th Cir. 2009). Here, the district court had subject-matter jurisdiction because each defendant was diverse from the plaintiff. Id. at 393–94. The plaintiff is a Texas limited liability company. The defendants are a New York corporation (the AAA) and two individual citizens of Louisiana (DiLeo and Minyard). Thus, there is no jurisdictional defect under 28 U.S.C. § 1332(a).

"[W]hen the plain language of a statute is unambiguous and does not lead to an absurd result, our inquiry begins and ends with the plain meaning of that language." Dunn-McCampbell Royalty Interest, Inc. v. Nat’l Park Serv. , 630 F.3d 431, 438 (5th Cir. 2011) (quotation marks omitted). We look for both plain meaning and absurdity. By Section 1441(b)(2) ’s terms, this case would not have been removable had the forum defendants been "properly joined and served" at the time of removal. Minyard and DiLeo had not been served, though. When the AAA filed its notice of removal, the case was "otherwise removable" — as required by Section 1441(b) — because the district court has original jurisdiction of a case initially filed in Louisiana state court in which the parties are diverse. § 1441(a) ; § 1332(a). The forum-defendant rule’s procedural barrier to removal was irrelevant because the only defendant "properly joined and served," the AAA, was not a citizen of Louisiana, the forum state. See § 1441(b)(2). We agree with a comment made by the Second Circuit: "By its text, then, Section 1441(b)(2) is inapplicable until a home-state defendant has been served in accordance with state law; until then, a state court lawsuit is removable under Section 1441(a) so long as a federal district court can assume jurisdiction over the action." Gibbons , 919 F.3d at 705.

Texas Brine accepts that the statute’s plain language allows snap removal. It argues, though, that such a result is absurd and defeats Congress’s intent. See Schaeffler v. United States , 889 F.3d 238, 242 (5th Cir. 2018). Texas Brine asserts that Congress added the "properly joined and served" language to Section 1441(b)(2) to prevent plaintiffs from naming forum defendants merely for the purpose of destroying diversity. That purpose is not served here because Texas Brine intended to pursue its claims against the forum defe...