Tune, Entrekin & White, P.C. v. Magid

• Decision Date: 09 September 2002
• Docket Number: No. 3:02-0288.,3:02-0288.
• Citation: 220 F.Supp.2d 887
• Court: U.S. District Court — Middle District of Tennessee
• Parties: TUNE, ENTREKIN & WHITE, P.C., Escrow Agent, v. Emily A. MAGID, Elise S. Small, and Shelby Land, LLC (Landowners), and PSC Metals, Inc. (Tenant).

220 F.Supp.2d 887

TUNE, ENTREKIN & WHITE, P.C., Escrow Agent, v. Emily A. MAGID, Elise S. Small, and Shelby Land, LLC (Landowners), and PSC Metals, Inc. (Tenant).

No. 3:02-0288.

United States District Court, M.D. Tennessee, Nashville Division.

September 9, 2002.

Thomas V. White, Tune, Entrekin & White, Nashville, TN, for plaintiff.

Dudley Mack West, White & Reasor, William L. Harbison, Sherrard & Roe, Nancy S. Jones, Mark W. Peters, Waller, Lansden, Dortch & Davis, Nashville, TN, for defendants.

MEMORANDUM

WISEMAN, Senior District Judge.

I. Facts

This case is an interpleader action filed by the law firm of Tune, Entrekin & White, P.C. ("Tune, Entrekin & White") against the landowners and tenants of certain property located along the Cumberland River in Nashville, Tennessee (hereinafter, the "Property"). The Tennessee Department of Transportation ("TDOT") sought to condemn a portion of the Property for the construction of a bridge spanning the Cumberland River. With this stated purpose, TDOT entered into negotiations with Emily A. Magid, Elise S. Small, and Shelby Land, LLC (collectively, the "Landowners") and PSC Metals, Inc. (the "Tenant"). Both Landowners and Tenant agreed to hire Tune, Entrekin & White to represent them in these negotiations, which eventually led to TDOT paying the parties $5,386,827.40 (the "Condemnation Award").

After the Landowners and Tenant were unable to agree as to the allocation of the Condemnation Award, they entered into an Escrow Agreement and appointed Tune, Entrekin & White escrow agent. Under the Escrow Agreement, the parties agreed that they each reserved all rights with respect to the Condemnation Award and were not bound by previous negotiations. Escrow Agreement at ¶ 3. Any allocation suggested by TDOT was not admissible. Id. The Condemnation Award was to be invested in a money-market account by the escrow agent. Id. at ¶ 4. If the parties were unable to reach an agreement within 70 days, the Condemnation Award would be deposited with the Clerk of the Circuit Court for Davidson County, Tennessee. Id. at ¶ 5(b). The Escrow Agreement specifically stated:

The parties agree that neither this Agreement nor any action by the Escrow Agent shall prejudice or constitute a waiver of any party's right to proceed in any court of competent jurisdiction including, but not limited to, pursuing any rights of removal from state court to federal court. Upon the deposit of the Condemnation Award into court, the parties agree that the Escrow Agent shall not be a necessary party to any lawsuit.

Id. The parties were unable to come to an agreement concerning allocation of the Condemnation Award, and on March 15, 2002, Tune, Entrekin & White filed this Complaint of Interpleader in the Circuit Court for Davidson County, Tennessee.

On March 25, 2002, Tenant filed a Notice of Removal pursuant to 28 U.S.C. § 1332, claiming that the amount in controversy exceeds $75,000 and there is complete diversity of citizenship between the true parties. Although all Landowners and Tune, Entrekin & White are residents of Tennessee, Tenant is an Ohio corporation with a principal place of business in Cleveland, Ohio. On May 3, 2002, Landowners filed a Motion to Remand this action to the Circuit Court for Davidson County, Tennessee. Tenants filed a Response in Opposition to Landowner's Motion to Remand on May 20, 2002, and Landowners answered with a Reply to Tenant's Response on June 4, 2002.

II. Removal and Realignment of Parties

It is undisputed that there is more than $75,000 in dispute; the issue is whether there is complete diversity. Under 28 U.S.C. § 1441, all defendants in the state court action must consent to removal to federal court. See Nixon v. James, 174 F.Supp.2d 739, 743 (M.D.Tenn.2001). There are exceptions where a defendant has not been served with process at the time or removal, where a defendant is merely nominal, or where the removed claim is a separate and independent claim. Id. None of these exceptions are applicable here. Additionally, however, misaligned parties must be realigned by the federal court in accordance with their actual interests before determining diversity and propriety of removal. Thus, the federal district court is not bound by the technical form of the state proceedings. See Sersted v. Midland-Ross Corp., 471 F.Supp. 298, 299 (E.D.Wis.1979).

The seminal case is City of Indianapolis v. Chase National Bank, where Justice Frankfurter held: "It is our duty, as it is that of the lower federal courts, to `look beyond the pleadings, and arrange the parties according to their sides in the dispute.'" 314 U.S. 63, 69, 62 S.Ct. 15, 86 L.Ed. 47 (1941) (quoting City of Dawson v. Columbia Ave. Saving Fund, Safe Deposit, Title & Trust Co., 197 U.S. 178, 180, 25 S.Ct. 420, 49 L.Ed. 713 (1905)). Thus, in determining whether there is diversity jurisdiction, the court should determine if there is the necessary "collision of interest" between the plaintiff and defendant by looking at the principal purpose and primary matter of the suit. Id. The City of Indianapolis Court also noted the basis for strictly construing grants of federal diversity jurisdiction: "The dominant note in the successive enactments of Congress relating to diversity jurisdiction is one of jealous restriction, of avoiding offense to state sensitiveness, and of relieving the federal courts of the overwhelming burden of `business that intrinsically belongs to the state courts' in order to keep them free for their distinctive federal business." Id. at 76, 62 S.Ct. 15 (quoting Friendly, The Historic Basis of Diversity Jurisdiction, 41 Harv.L.Rev. 483, 510 (1928)). Giving due regard to the independence of state courts, Justice Frankfurter continued, requires that federal courts "scrupulously confine their own jurisdiction to the precise limits which the statute has defined." Id. at 77, 62 S.Ct. 15 (quoting Healy v. Ratta, 292 U.S. 263, 270, 54 S.Ct. 700, 78 L.Ed. 1248 (1934)). The Sixth Circuit has interpreted City of Indianapolis to require the district court to align the parties "in accordance with the primary dispute in the controversy, even where a different, legitimate dispute between the parties supports the original alignment." United States Fidelity & Guaranty v. Thomas Solvent Co., 955 F.2d 1085, 1089 (6th Cir.1992).¹

It is clear in this case that Tune, Entrekin & White has no interest in the apportionment of the Condemnation Award. In an interpleader case, the nominal plaintiff is merely formal and should be disregarded for purposes of determining diversity. Alling v. C.D. Cairns Irrevocable Trusts Partnership, 889 F.Supp. 768, 770 (D.Vt.1995). The real dispute is between the two defendants, Landowners and Tenant, so they can be realigned as opposing parties for determining diversity jurisdiction.

III. Designation of Plaintiff and Defendant

It is clear that Landowners and Tenant are the opposing parties in this dispute, and that they are residents of different states. The removal issue ultimately comes down to which party will be designated as plaintiff and which party will be designated as defendant. If Tenant is plaintiff and Landowners are defendants, then the defendants will be residents of the state in which the original action was filed so there can be no removal and the case should be remanded. If Tenant is defendant and Landowners are plaintiffs, then the case was properly removed by the defendant and the case should not be remanded.

Landowners, of course, argue that they should be defendants and Tenant should be plaintiff. Tenant argues that it should be aligned as defendant because the Landowners chose to dispute the allocation of the Condemnation Award by TDOT. Landowners respond that this argument is impermissible based on the Escrow Agreement, which states that the parties agree that the award has not been allocated and TDOT's allocation would not be binding. Escrow Agreement at ¶ 3. Secondly, Tenant argues that it would be a waste of judicial resources to align it as plaintiff and remand, because Tenant will then only nonsuit the case under Tenn.R.Civ.P. 41 and refile in federal court. Landowner responds that whatever Tenant's strategic behavior in the future might be should not be considered in deciding the issue presently before the court.

Only a few other district courts have dealt with this issue. In Hidey v. Waste Systems International, Inc., an escrow agent filed an interpleader action in Maryland state court against a buyer, seller, and the seller's third-party beneficiaries. 59 F.Supp.2d 543, 544 (D.Md.1999). The buyer of the assets, a Delaware corporation with its principal place of business in Massachusetts, removed the action to federal court, and the seller, a citizen of Maryland, moved to remand. Id. at 545. The court recognized that realignment was necessary, that the interpleader was only a nominal party, and that the case would come down to how the parties were realigned. Id. at 546. The parties were diverse, but if the sellers remained defendants then removal would be improper. Id. As the court stated it, "There is a dearth of case law on the issue of determining the proper designation of realigned parties." Id. Each party argued that the other side was claiming entitlement to the funds, so that side should be plaintiff, so "any inquiry along this line ultimately is futile." Id. The court then approached the problem from a new angle: "Very simply, the realigned parties should be positioned so that their rights are the same as they would have been had they not been artificially aligned as co-defendants in the interpleader action." Id. The court designated the buyer as defendant, because it would have had the right to proceed in federal court regardless of which party first filed suit. Id. In other words, if the sellers had initiated litigation, then the buyers could have removed the action to federal court. Id. However, if the buyers had initiated the action, they...