Texas First Nat. Bank v. Wu

• Decision Date: 09 December 2004
• Docket Number: No. CIV.A. H-04-4129.,CIV.A. H-04-4129.
• Parties: TEXAS FIRST NATIONAL BANK and Henry Wu, Plaintiffs, v. Kenneth WU, et al., Defendants.
• Court: U.S. District Court — Southern District of Texas

347 F.Supp.2d 389

TEXAS FIRST NATIONAL BANK and Henry Wu, Plaintiffs, v. Kenneth WU, et al., Defendants.

No. CIV.A. H-04-4129.

United States District Court, S.D. Texas, Houston Division.

December 9, 2004.

COPYRIGHT MATERIAL OMITTED

Lynne Liberato, Kent Rutter, Haynes and Boone LLP, Houston, for Plaintiff — Texas First National Bank.

Kenneth R. Wynne, Christopher J. Fernelius, David E. Wynne, The Wynne Law Firm, Houston, for Defendants — Kenneth Wu, May Wu, May and Kenneth Family Partnership, Ltd., May and Kenneth Wu 2002 Family Partnership, Ltd., Milton Ming-Ng Yang, Evergreen General Agency, Inc. Evergreen Insurance Premium Finance Co., and Chieh-Li Kang Shen.

Matthew B. Henneman, Watt Beckworth, Houston, for Defendant — Richard Tseng.

ORDER

HITTNER, District Judge.

Pending before the Court are Defendants' Application for Injunctive Relief, Supplemental Application for Injunctive Relief, Second Supplement to Application for Injunctive Relief, Plaintiffs' Motion for Remand, and Plaintiffs' Motion for Leave to Amend. Having considered the argument of the parties at a preliminary injunction hearing on December 1, 2004 as well as the motions, submissions, and applicable law, the Court determines Defendants' application and supplemental filings for injunctive relief, Plaintiffs' motion to remand, and Plaintiffs' motion for leave to amend should be denied.

BACKGROUND

The instant action arises from three lawsuits filed by Plaintiffs Texas First National Bank and Henry Wu ("Plaintiffs") in state court against Defendants Kenneth Wu, May Wu, May and Kenneth Family Partnership, Ltd., May and Kenneth Wu 2002 Family Partnership, Ltd., Milton Ming-Ng Yang, Evergreen General Agency, Inc., Evergreen Insurance Premium Finance Co., Chieh-Li Kang Shen, and Richard Tseng (collectively "Defendants"), which were removed and consolidated in this Court. Generally, the combined allegations in the three lawsuits allege that one or more of the Defendants in their capacities as shareholders or directors of Texas First National Bank ("TFNB") violated various state law causes of action as well as federal banking law.

The first lawsuit, known as Civil Action 04-4129, was filed in the 234th District Court of Harris County, Texas. In this first action, Plaintiffs sought a declaratory judgment under state law that Defendants violated 12 U.S.C. § 1817(j), the Change in Bank Control Act ("CBCA"). Plaintiffs also alleged Defendant Kenneth Wu committed fraud and breach of fiduciary duty while a director of TFNB. Based on the allegations made under the CBCA, Defendants removed this suit on October 25, 2004 pursuant to 28 U.S.C. § 1441(a).¹

The second lawsuit, known as Civil Action 04-4436, was filed in the 61st District Court of Harris County, Texas. In this suit, Plaintiffs did not allege any federal statutes or regulations, but claimed Defendants, in their positions as directors or shareholders of Texas First National Bank, violated various state law causes of action, including: (1) specific performance/rescission, (2) breach of contract, (3) declaratory judgment that the sale of certain shares are null and void and may not be voted, (4) fraud in a stock transaction in violation of the Texas and Business Commerce Code, (5) common law fraud, (6) tortious interference with existing and prospective contracts and business relations, and (7) civil conspiracy. Defendants removed this suit on November 19, 2004 based on federal question jurisdiction and allegations of artful pleading by Plaintiffs.

At the same time Defendants removed the second suit, Defendants also filed an application for injunctive relief in this Court to stop Plaintiffs from filing additional lawsuits based on the same or similar facts in any court other than this Court. Because of the multiplicity of suits being filed in state court, this Court entered a Temporary Restraining Order on November 19, 2004, enjoining Plaintiffs from filing any further lawsuits similar to the instant action in any other court.

Meanwhile, Plaintiffs filed their third lawsuit, known as Civil Action 04-4480, in the 129th District Court of Harris County, Texas on November 19, 2004. In the third lawsuit, Plaintiffs basically alleged the same state law causes of action as in the second lawsuit. Because of the proceedings already pending in federal court, Defendants removed the third action on November 24, 2004, asserting federal question jurisdiction and artful pleading by Plaintiffs.

On November 22, 2004, Plaintiffs filed a motion to remand, asserting two reasons that Defendants' removal was improper.² First, Plaintiffs contend the Court lacks subject matter jurisdiction because there is no federal question. Second, Plaintiffs allege Defendants waived the right to remove the action from state court by experimenting in state court prior to removal. Defendants respond that federal question jurisdiction exists under the well-pleaded complaint rule and deny any assertions of waiver of the right to remove.³

The Court held a preliminary injunction hearing on December 1, 2004.⁴ At the hearing, the parties addressed the propriety of Defendants' removal, including jurisdiction and waiver, and the elements of a preliminary injunction. At the close of the hearing, the Court extended the current Temporary Restraining Order until December 9, 2004 at 4:00 p.m., pending the ruling of the Court on the outstanding issues.

LAW AND ANALYSIS

A. Was Removal Proper?

Plaintiffs contend this case was improvidently removed from state court for two reasons, lack of subject matter jurisdiction and waiver. Because of its import, the Court will address the jurisdictional issue first and then review waiver.

1. Jurisdiction

Plaintiffs allege this Court lacks subject matter jurisdiction because it did not invoke a federal question. Plaintiffs contend this case could not be originally brought in federal court because their state court petition asserts claims for a declaratory judgment under state law that Defendants did not comply with the CBCA, 12 U.S.C. § 1817(j), and fraud and breach of fiduciary duty. However, because 12 U.S.C. § 1817(j) does not confer a private cause of action, Plaintiffs rely on Merrell Dow and its progeny to show Defendants have not established federal question jurisdiction. Merrell Dow Pharms. Inc. v. Thompson, 478 U.S. 804, 817, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986) (concluding "that a complaint alleging a violation of a federal statute as an element of a state cause of action, when Congress has determined that there should be no private, federal cause of action for the violation, does not state a claim `arising under the Constitution, laws, or treaties of the United States.'"). After examining Plaintiffs' claims regarding improvident removal, the Court determines Plaintiffs' argument regarding jurisdiction is flawed.

Removal of any civil action brought in state court is allowed if the federal district court would have had original jurisdiction over that action. See 28 U.S.C. § 1441(a). Original jurisdiction is found either in diversity or federal question cases. See 28 U.S.C. §§ 1331, 1332. Thus, a defendant may remove a case only if the claim could have been brought in federal court. Merrell Dow Pharms. Inc., 478 U.S. at 808, 106 S.Ct. 3229.

Here, diversity jurisdiction is not alleged. Thus, Defendants must demonstrate that one of the laws in question "aris[es] under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. The party seeking removal has the burden of establishing subject matter jurisdiction. Rodriguez v. Sabatino, 120 F.3d 589, 591 (5th Cir.1997); Brock v. Provident Am. Ins. Co., 144 F.Supp.2d 652, 656 (N.D.Tex.2001). Because it implicates important federalism concerns, removal jurisdiction must be strictly construed, and any doubts concerning removal must be resolved in favor of remand. See id.; see also Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108, 61 S.Ct. 868, 85 L.Ed. 1214 (1941) (supporting same); Acuna v. Brown & Root Inc., 200 F.3d 335, 339 (5th Cir.2000) (same).

Not every allegation of federal law is proof that federal question jurisdiction exists. Gully v. First Nat'l Bank in Meridian, 299 U.S. 109, 115, 57 S.Ct. 96, 81 L.Ed. 70 (1936). Therefore, to determine whether a claim "arises under" federal law, courts turn to the "well-pleaded complaint" rule, which requires that a federal question appear on the face of the pleading before a federal district court can invoke its jurisdiction. Rivet v. Regions Bank of Louisiana, 522 U.S. 470, 475, 118 S.Ct. 921, 139 L.Ed.2d 912 (1998); Caterpillar Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987); Brock, 144 F.Supp.2d at 656 (citations omitted). Moreover, the plaintiff is the master of its suit and can avoid federal jurisdiction by relying exclusively on state law. Rivet, 522 U.S. at 475, 118 S.Ct. 921; Caterpillar Inc., 482 U.S. at 392, 107 S.Ct. 2425. If the plaintiff draws its pleading to seek recovery under the laws of the United States, the federal court, but for two possible exceptions, must entertain the suit.⁵ Bell v. Hood, 327 U.S. 678, 681-82, 66 S.Ct. 773, 90 L.Ed. 939 (1946).

In the instant case, Plaintiffs' first cause of action in the first state court case is entitled "Declaration that Shares are Invalid Pending Approval by OCC." Under that heading, Plaintiffs plainly allege a violation of a federal statute, namely section 1817(j) of the CBCA. For example, Plaintiffs' state court petition states: "TFNB petitions the Court for a declaration canceling all shares acquired by [Kenneth] Wu or any person acting in concert with [Kenneth] Wu in violation of 12 U.S.C. § 1817(j) of the Change in Bank Control Act and 12 C.F.R. § 5.50, and the Articles of Association and the Bylaws of TFNB." Plaintiffs then cite the language of 12 U.S.C. § 1817(j) and its statutory purpose.⁶ Plaintiffs further allege "[Kenneth] Wu has intentionally disregarded banking and...