Warren Bros. Co. v. Community Bldg. C. of Atl., Inc.

• Decision Date: 06 December 1974
• Docket Number: No. C-74-253-WS.,C-74-253-WS.
• Court: U.S. District Court — Middle District of North Carolina
• Parties: WARREN BROTHERS COMPANY, Plaintiff, v. COMMUNITY BUILDING CORPORATION OF ATLANTA, INC., Defendant.

386 F. Supp. 656

WARREN BROTHERS COMPANY, Plaintiff, v. COMMUNITY BUILDING CORPORATION OF ATLANTA, INC., Defendant.

No. C-74-253-WS.

United States District Court, M. D. North Carolina, Winston-Salem Division.

December 6, 1974.

C. Thomas Ross, Winston-Salem, N. C., for plaintiff.

John L. Sarratt, Greensboro, N. C., for defendant.

MEMORANDUM ORDER

WARD, District Judge.

This action is presently before the Court on the motion of the defendant, Community Building Corporation of Atlanta, Inc. (CBC), for a stay pending arbitration pursuant to Section 3 of the United States Arbitration Act, 9 U.S.C. § 1 et seq., and the plaintiff's motion to remand to state court for lack of federal jurisdiction. After due consideration on the basis of the entire file in this case, the Court grants the defendant's motion for a stay of proceedings pending arbitration and directs the parties to proceed to arbitration in accordance with the terms of their contract.

Plaintiff, Warren Brothers Company, is a division of Ashland Oil, Inc., a Kentucky corporation, and is authorized to do business in North Carolina. Defendant is a Georgia corporation and is also authorized to do business in North Carolina. Plaintiff, a subcontractor, originally filed its complaint on April 16, 1974, in the North Carolina Superior Court in Forsyth County alleging that CBC, a contractor, owed it $49,387.16 for stone base and asphalt paving work completed on British Woods Apartments, an apartment project located in Forsyth County, North Carolina. Plaintiff at that time also named Lambe-Young-Jones, Inc., a North Carolina real estate corporation for whom CBC was constructing the apartments, as defendant. As the action was originally brought, it was not removable to the federal courts since actions, other than those involving a federal question, are removable "only if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought." 28 U.S.C. § 1441(b). Since Lambe-Young-Jones, a North Carolina corporation, was named as defendant, the action was not removable. On July 18, 1974, plaintiff filed its notice of dismissal with prejudice as to Lambe-Young-Jones because of the latter's posting of a 125% corporate surety bond to discharge the plaintiff's record lien, pursuant to N.C.G.S. § 44A-16(6). With the dismissal of Lambe-Young-Jones, there remained an action between a Kentucky corporation (Warren Brothers) and a Georgia corporation (CBC). CBC filed its petition for removal on August 15, 1974,¹ asserting jurisdictional amount and diversity of citizenship under 28 U.S.C. § 1332, removability "to the district court of the United States for the district and division embracing the place where such action is pending . . ." under 28 U.S.C. § 1441(a), and authority for the delayed petition for removal under 28 U.S.C. § 1446(b).

Defendant filed a motion to stay judicial proceedings and for an order compelling arbitration on September 12, 1974, and this was followed on September 18, 1974, by plaintiff's motion to remand. It appears to the Court that there are three basic issues to be determined: (1) Whether the action is properly removable from the state court to the federal court on the plaintiff's dismissal with prejudice of Lambe-Young-Jones; (2) If so, whether the Middle District of North Carolina is the proper federal district in which to bring the action; and (3) If so, whether the proceedings should be stayed pending arbitration.

I. Removability

Defendant asserts that this matter is arbitrable under the Federal Arbitration Act since the contract between it and the plaintiff contained a general arbitration clause. However, before this Court can decide that question it must first determine whether the action is removable from the state to the federal court. The Federal Arbitration Act does not provide an independent basis for federal jurisdiction since it does not confer federal question jurisdiction upon federal courts. Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402 (2d Cir. 1969), cert. granted, 362 U.S. 909, 80 S.Ct. 682, 4 L.Ed.2d 618, cert. dismissed, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37 (1959); C. P. Robinson Construction Co. v. National Corp. for Housing Partnerships, 375 F.Supp. 446 (M.D.N.C.1974); McDevitt & Street Co. v. Georgia Building Authority, 343 F. Supp. 1238 (N.D.Ga.1972); Joseph Muller Corp. Zurich v. Commonwealth Petrochemicals, Inc., 334 F.Supp. 1013 (S.D.N.Y.1971). Therefore, before a federal court can apply the Act, it must already have jurisdiction over the subject matter through another source such as diversity of citizenship or federal question. Here, there is the requisite $10,000 jurisdictional amount and diversity of citizenship between all the parties involved. However, a special rule obtains when a case which is once begun in the state court is sought to be removed to the federal court. Title 28, United States Code, Section 1441(b), requires that, in such a case, none of the defendants in the case can be a resident of the state in which the action is brought. Since Lambe-Young-Jones was originally named as a defendant, the action was definitely not removable until the plaintiff filed a notice of dismissal with prejudice as to Lambe-Young-Jones. Whether the action became removable after the dismissal with prejudice is the question which the Court now determines.

Prior to 1949, 28 U.S.C. § 1446(b), simply outlined the time limit (20 days) in which a defendant had to file his petition for removal from state to federal court after receipt of the initial pleading or service of summons. The law as to removability at that time was that a case was removable if the resident defendant was dismissed from the action by the voluntary act of the plaintiff but that it was not removable if the resident defendant was dismissed by the act of the court or the resident defendant himself and thus not representing the voluntary act of the plaintiff. American Car & Foundry Co. v. Kettelhake, 236 U.S. 311, 35 S.Ct. 355, 59 L. Ed. 594 (1915). The statute was amended in 1949 to cover situations in which an action not initially removable, later became removable and the following paragraph was added:

If the case stated by the initial pleading is not removable, a petition for removal may be filed within thirty days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable.²

There has been some speculation that the addition of the foregoing paragraph may have changed the voluntary-involuntary rule of removability such that a case could be removed even if the plaintiff's dismissal of the resident defendant was involuntary. Viles v. Sharp, 248 F. Supp. 1019 (W.D.Mo.1965). The United States District Court for the Southern District of Mississippi in Lyon v. Illinois Central Ry. Co., 228 F.Supp. 810, 811 (S.D.Miss.1964), in ruling that an action was removable on the basis of the state court's dismissal of the resident defendant, held that "there is nothing in this statute 28 U.S.C. § 1441(b) from which it can be properly inferred that Congress intended that a removal could be effected only in the event the plaintiff voluntarily did something which removed the local defendant from the case."

However, the overwhelming majority of decisions have held otherwise. Weems v. Louis Dreyfus Corp., 380 F.2d 545 (5th Cir. 1967); Ennis v. Queen Insurance Co. of America, 364 F.Supp. 964 (W.D.Tenn.1973); Continental Oil Co. v. PPG Industries, Inc., 355 F.Supp. 1183 (S.D.Tex.1973); Oklahoma State Union of Farmers' Educational and Cooperative Union of America v. Hartford Fire Insurance Co., 307 F.Supp. 415 (W.D.Okla.1970); McAfee v. Phillips Petroleum Co., 300 F.Supp. 651 (D.Montana 1969); Hum v. Missouri Pacific R. Co., 292 F.Supp. 65 (E.D.Ark.1968); Lauf v. Nelson, 246 F.Supp. 307 (D. Montana 1965); Putterman v. Daveler, 169 F.Supp. 125 (D.Delaware 1958); Stone v. Foster, 163 F.Supp. 298 (W.D. Ark.1958). Most federal courts have endorsed the rule that the 1949 amendment to 28 U.S.C. § 1446(b) did not abolish the voluntary-involuntary rule and that "if . . . plaintiff states a non-removable case in his initial complaint, involuntary changes will not make the case removable; they must have been brought about by the voluntary act of the plaintiff." 1A Moore's Federal Practice ¶ 0.168 3.-5, at 487 (2d ed. 1974). The court in Weems v. Louis Dreyfus Corp., supra, 380 F.2d at 548, pointed out that the Lyon view was erroneous for two reasons:

. . . first, it fails to take account of legislative history which we believe is highly significant to the determination of the extent which the amendment changed the existing law; and second, it fails to read the amendment in light of the previously developed case law.

The legislative history is contained in an explanatory note of the House Report:

"The second paragraph of the amendment to subsection (b) is intended to make clear that the right of removal may be exercised at a later stage of the case if the initial pleading does not state a removable case but its removability is subsequently disclosed. This is declaratory of the existing rule laid down by the decisions. (See for example, Powers v. Chesapeake etc., Ry. Co., 169 U.S. 92 , 18 S.Ct. 264, 42 L.Ed. 673.)"

2 U.S.Code Cong.Serv. p. 1268, 81 Cong., 1st Sess. (1949). In light of this language, we must reject the Lyon reasoning, . . . that the amendment did bring about a change in the existing case law. . . .

It would seem that the voluntary-involuntary rule was not affected by the amendment, and therefore remains part of today's applicable case law.

See also Squibb-Mathieson International Corp. v. St. Paul Mercury Insurance Co., 238 F.Supp. 598 (S.D.N.Y.1965).

All of the cases cited above applying the voluntary-involuntary rule after the ...