Walton v. Tower Loan of Miss.

• Decision Date: 28 September 2004
• Docket Number: No. CIV.A. 2:03CV181.,CIV.A. 2:03CV181.
• Citation: 338 F.Supp.2d 691
• Parties: Carla WALTON, et al Plaintiffs v. TOWER LOAN OF MISSISSIPPI, et al Defendants
• Court: U.S. District Court — Northern District of Mississippi

Page 691

338 F.Supp.2d 691

Carla WALTON, et al Plaintiffs v. TOWER LOAN OF MISSISSIPPI, et al Defendants

No. CIV.A. 2:03CV181.

United States District Court, N.D. Mississippi, Delta Division.

September 28, 2004.

Robert Bradley Best, Holcomb Dunbar, Oxford, MS, for Plaintiffs.

Sheryl Bey, Baker, Donelson, Bearman & Caldwell, Henry Tobias Coleman, Watkins & Eager, Charles E. Griffin, Griffin & Associates, Randy L. Dean, Wells Marble & Hurst, PLLC, Steven H. Begley, Wells Marble & Hurst, PLLC, Jackson, MS, Thomas Julian Butler, Maynard Cooper & Gale, Birmingham, AL, for Defendants.

ORDER

ALEXANDER, District Judge.

This cause comes before the court on the motion of plaintiffs Carla Walton, et al., pursuant to 28 U.S.C. § 1447, to remand [22-1] this case to the Circuit Court of Coahoma County. The defendants in this case include corporate and individual "lending defendants," several corporate "insurance defendants," as well as defendant Friedman's Inc. of Savannah, Georgia and its agents ("Friedman's"). Each of these groups of defendants have responded in opposition to the motion to remand, and the court, having considered the memoranda and submissions of the parties, along with other pertinent authorities, concludes that the motion is well taken and should be granted.

On January 23, 2003, the twenty-one plaintiffs herein filed an amended complaint in the Circuit Court of Coahoma County, seeking recovery for fraud and other alleged wrongdoing arising out of lending transactions among the parties. Plaintiffs' claims in this case include now-familiar allegations that, in the course of loaning them money, defendants fraudulently induced them to purchase unneeded and overpriced credit life, property and disability insurance. On May 19, 2003, defendants removed the case to this court on the basis of diversity and bankruptcy jurisdiction, see 28 U.S.C. §§ 1332, 1334. Plaintiffs filed a motion to remand on December 20, 2003, asserting that neither of these jurisdictional bases is applicable.

The court considers first whether diversity jurisdiction exists in this case. Defendants' burden of proving that diversity jurisdiction exists herein is a rather difficult one, considering that all of the twenty-one plaintiffs are Mississippi residents and a large number of the individual and corporate defendants are, likewise, Mississippi residents. Defendants argue, however, that no reasonable possibility of recovery exists against any of these Mississippi defendants and that, as such, these defendants should be dismissed from this action upon a finding of fraudulent/improper joinder.¹

The removing party, which is urging jurisdiction on the court, bears the burden of demonstrating that jurisdiction is proper due to fraudulent/improper joinder. Dodson v. Spiliada Maritime Corp., 951 F.2d 40, 42 (5th Cir.1992). The Fifth Circuit has stated:

The burden of persuasion placed upon those who cry "fraudulent joinder" is indeed a heavy one. In order to establish that an in-state defendant has been fraudulently joined, the removing party must show either that there is no possibility that the plaintiff would be able to establish a cause of action against the in-state defendant in state court; or that there has been outright fraud in the plaintiff's pleadings of jurisdictional facts.

B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir.1981). The Fifth Circuit has reaffirmed that it "is insufficient that there be a mere theoretical possibility" of recovery; to the contrary, there must "at least be arguably a reasonable basis for predicting that state law would allow recovery in order to preclude a finding of fraudulent joinder." Travis v. Irby, 326 F.3d 644, 648 (5th Cir.2003)(citing Badon v. RJR Nabisco Inc., 224 F.3d 382, 386 (5th Cir.2000)).

Based upon a review of the record, it does appear that the claims against several of the resident defendants are barred by a class action certified by the U.S. District Court for the Southern District of Mississippi. See Smith v. Tower Loan of Mississippi, Inc., et al., No. 1:98cv212. Nevertheless, claims remain against several non-diverse defendants, including several resident insurance agents. In arguing that no possibility of recovery exists against any of these resident defendants, defendants rely heavily upon the Fifth Circuit's decision in Ross v. Citifinancial, Inc., 344 F.3d 458, 463 (5th Cir. Aug.29, 2003), wherein the Fifth Circuit affirmed Judge Barbour's finding of improper joinder involving consumer finance claims similar to those in the case at bar. As defendants are aware, however, the Ross panel's apparent consideration of "common defenses" such as statute of limitations defenses in the improper joinder context has been called into serious question by Fifth Circuit and U.S. Supreme Court decisions, most particularly Smallwood v. Illinois Central Railroad Co., No. 02-60782 (5th Cir. Sept. 10, 2004) ("Smallwood III") and Chesapeake & Ohio Railway Co. v. Cockrell, 232 U.S. 146, 34 S.Ct. 278, 58 L.Ed. 544 (1914).

In Smallwood III, a majority of the Fifth Circuit, citing Cockrell, held that:

when a nonresident defendant's showing that there is no reasonable basis for predicting that state law would allow recovery against an in-state defendant equally disposes of all defendants, there is no improper joinder of the in-state defendant. In such a situation, the entire suit must be remanded to state court.

Smallwood III, Slip op. at 1. Based upon Smallwood III, the court concludes that it may not consider many of the improper joinder arguments raised by defendants in this case, including their statute of limitations arguments. It is apparent that many of these defenses, if applicable, would "equally dispose of all defendants" and therefore may not be considered in the improper joinder context.

Defendants also argue that factual weaknesses exist with regard to several of the plaintiffs' claims against several of the non-diverse agents. However, recent Fifth Circuit authority makes it clear that the improper joinder standard is more akin to a 12(b)(6) standard than a summary judgment standard and that, at the improper joinder stage, a plaintiff's burden of producing proof in support of his claims is low. See McKee v. Kansas City Southern Ry. Co., 358 F.3d 329, 336 n. 2 (5th Cir.2004); Smallwood III, slip op. at 6. While the court cannot state with any confidence that each of the plaintiffs' claims against each of the Mississippi defendants has merit, the court is similarly unable to conclude, at this stage of the proceedings, that each of the plaintiffs' claims against each of the Mississippi defendants lacks merit based on the highly deferential Smallwood III/McKee standard.

Indeed, Smallwood III casts doubt upon whether this court should have even permitted defendants to conduct remand-related discovery regarding the merits of plaintiffs' claims against the nondiverse defendants. A majority of the Fifth Circuit in Smallwood III observed that:

Ordinarily, if a plaintiff can survive a Rule 12(b)(6) challenge, there is no improper joinder. That said, there are cases, hopefully few in number, in which a plaintiff has stated a claim, but has misstated or omitted discrete facts that would determine the propriety of joinder. In such cases, the district court may, in its discretion, pierce the pleadings and conduct a summary inquiry. ... Discovery by the parties should not be allowed except on a tight judicial tether, sharply tailored to the question at hand, and only after a showing of its necessity.

See slip op. at 6. This language provides few standards to assist district courts in determining whether a particular cases is one of the "hopefully few" cases in which resort to a summary inquiry is necessary.² Regardless, it is plain, in light of McKee and Smallwood, that the improper joinder standard is far more of a pleadings-based inquiry than had commonly been assumed as recently as a year ago. Indeed, it is likewise clear that the improper joinder doctrine, as a whole, is far more limited than had commonly been assumed. Accordingly, while it does appear that several of the plaintiffs herein have rather limited recollections regarding their dealings with several of the Mississippi agents, the court cannot conclude that no reasonable possibility of recovery exists against each of the Mississippi defendants in this case. Defendants' improper joinder arguments must therefore fail.

Friedman's next argues³ that, even if the court should find that some defendants were not fraudulently/improperly joined, it should nevertheless find fraudulent misjoinder of those plaintiffs asserting claims against it and to enter severances and partial remands accordingly. The court would initially note that the governing legal standards regarding the fraudulent misjoinder doctrine are far from clear. In Tapscott v. MS Dealer Service Corporation, 77 F.3d 1353, 1360 (11th Cir.1996), the Eleventh Circuit Court of Appeals held that "egregious" misjoinders of plaintiffs may give rise to a finding of fraudulent/improper joinder so as to give rise to diversity jurisdiction, and the Fifth Circuit appears to have accepted the basis premise of Tapscott. In In Re Benjamin Moore & Company, 309 F.3d 296, 297 (5th Cir.2002), the Fifth Circuit, citing Tapscott, wrote that "it might be concluded that misjoinder of plaintiffs should not be allowed to defeat diversity jurisdiction," but the court provided no guidance as to the circumstances, if any, under which this doctrine should be applied in this circuit. Indeed, the aforementioned observation from the Fifth Circuit constitutes virtually the entire body of Fifth Circuit Court of Appeals jurisprudence regarding fraudulent misjoinder.

Assuming arguendo that the Fifth Circuit would explicitly adopt the Tapscott rationale in an appropriate case, this court would only be able to accept jurisdiction based on the misjoinder of either plaintiffs or defendants if...