Opinion
Civil Action No. 3:99-CV-2298-G.
March 23, 2000.
MEMORANDUM ORDER
Before the court are (1) the motion of the plaintiffs to remand and (2) the motion of the defendants to dismiss. Both motions turn on the question of whether one of the plaintiffs, Elk Corporation of Alabama ("Elk Alabama"), has a legally cognizable claim against the defendants. For the reasons discussed below, the plaintiffs' motion is granted and the defendants' motion is denied for want of jurisdiction.
I. BACKGROUND
This suit arises out of an explosion at Elk Corporation of Texas's ("Elk Texas") manufacturing facility in Ellis County, Texas. Defendants' Brief in Opposition to Plaintiffs' Motion to Remand at 7. The facility produced "roll fiberglass mat," which, in turn, is primarily used as raw material for the production of asphalt shingles. Id. On September 9, 1999, Elk Corporation of Texas ("Elk Texas") filed its original petition in the district court of Ellis County, Texas, alleging that the explosion was the result of significant design deficiencies and failed remedial efforts of the defendants, which played various roles in the design, manufacture, and sale of the equipment used in Elk Texas's facility. Id. Almost a month later, Elk Texas amended its petition, naming Elk Alabama as a second plaintiff. Id. at 8. Elk Alabama is — like defendant Valmet, Inc. — a Delaware corporation. Id. at n. 2. Thus, the addition of Elk Alabama appeared to defeat federal diversity jurisdiction, precluding removal to federal court. Id. at 8. However, believing that Elk Alabama had no cognizable claim against them and therefore had been fraudulently joined, the defendants removed the case to this court and filed a motion to dismiss Elk Alabama's claims. Id. at 9. The plaintiffs responded to that motion and filed their own motion to remand.
II. ANALYSIS A. Fraudulent Joinder Standard
The removing party carries a heavy burden when attempting to prove fraudulent joinder. See Cavallini v. State Farm Mutual Auto Insurance Company, 44 F.3d 256, 259 (5th Cir. 1995); Ford v. Elsbury, 32 F.3d 931, 935 (5th Cir. 1994) (quoting B., Inc. v. Miller Brewing Company, 663 F.2d 545, 549 (5th Cir. 1981)). "The removing party must prove that there is absolutely no possibility that the plaintiff will 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 plaintiffs pleading of jurisdictional facts." Cavallini, 44 F.3d at 259 (quoting Green v. Amerada Hess Corporation, 707 F.2d 201, 205 (5th Cir. 1983), cert. denied, 464 U.S. 1039 (1984)).
Although this circuit has cautioned against "pretrying a case to determine removal jurisdiction," it has also endorsed "piercing the pleadings" in a summary judgment-like procedure to determine state law questions in an effort to resolve allegations of fraudulent joinder. See Carriere v. Sears, Roebuck and Company, 893 F.2d 98, 100 (5th Cir.), cert. denied, 498 U.S. 817 (1990). "After all disputed questions of fact and all ambiguities in the controlling state law are resolved in favor of the nonremoving party, the court determines whether that party has any possibility of recovery against the party whose joinder is questioned." Id.
B. Does the Fraudulent Joinder Doctrine Apply to Joined Plaintiffs?
Elk Texas first contends — as a threshold matter — that the doctrine of fraudulent joinder applies only to the joinder of nondiverse defendants and thus is inapplicable where, as here, a plaintiff has joined another nondiverse plaintiff. The court, however, is unpersuaded by this argument.
The Fifth Circuit has not confined its application of the fraudulent joinder doctrine to fraudulently joined defendants but has extended the doctrine to fraudulently joined claims. See Lackey v. Atlantic Richfield Company, 990 F.2d 202, 207 (5th Cir. 1993). In Lackey, the court applied the fraudulent joinder standard to determine whether a plaintiff fraudulently joined a "sham" Jones Act claim to an otherwise removable action solely to defeat removal jurisdiction. See id. It concluded that "defendants are permitted to demonstrate that parties — or claims — are baseless in law and in fact" and "serve only to frustrate federal jurisdiction." Id. (emphasis added) (quoting Dodd v. Fawcett Publications, Inc., 329 F.2d 82, 85 (10th Cir. 1964)). In essence, that is what the defendants have alleged here. That the defendants challenge all of Elk Alabama's claims is incidental.
From the Fifth Circuit precedent above, the court concludes that the fraudulent joinder doctrine may be applied where a defendant claims that a plaintiff has been fraudulently joined. Other district courts in this circuit agree. For example, in Nelson v. St. Paul Fire Marine Insurance Company, 897 F. Supp. 328, 331 (S.D. Tex. 1995), the district court for the Southern District of Texas held that "a federal district court ought to inquire into improper or fraudulent joinder of plaintiffs as well as improper or fraudulent joinder of defendants where the motive is to defeat federal jurisdiction" (quoting Picquet v. Amoco Production Company, 513 F. Supp. 938, 943 (M.D. La. 1981)); see also Nationalcare Corporation, Inc. v. St. Paul Property and Casualty Insurance Company, 22 F. Supp.2d 558, 561-62 (S.D. Miss. 1998). Therefore, the fraudulent joinder doctrine may apply in this case if Elk Alabama's claims are baseless in law and in fact.
C. Was Elk Alabama Fraudulently Joined?
To avoid remand, the defendants must show that there is no possibility that Elk Alabama can establish any claim against them. See Burden v. General Dynamics Corporation, 60 F.3d 213, 216 (5th Cir. 1995). Therefore, if there is even a possibility that the state court would find a cause of action stated against any one of the defendants, then the court must find that Elk Alabama was properly joined and must remand the case. See B. Inc., 663 F.2d at 550. Although the plaintiffs' amended petition does not indicate which plaintiff brings which claims, a liberal reading of it leads this court to conclude that Elk Alabama has brought claims based on negligence and strict products liability. The defendants, however, contend that these claims are barred by either the economic loss doctrine or the rule of Robins Dry Dock. The court will thus consider each argument in turn.
1. Economic Loss Doctrine
Texas law does not recognize a negligence claim for purely economic loss. See Hininger v. Case Corporation, 23 F.3d 124, 126 (5th Cir. 1994), cert. denied, 513 U.S. 1079 (1995); American Eagle Insurance Company v. United Technologies Corporation, 48 F.3d 142, 144 (5th Cir.), reh'g granted in part on other grounds, 51 F.3d 468 (1995); Arkwright-Boston Manufacturers Mutual Insurance Company v. Westinghouse Electric Corporation, 844 F.2d 1174, 1177-78 (5th Cir. 1988); Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986). In other words, unintentional conduct that causes economic harm unaccompanied by physical injury — to person or property — does not serve as a basis for a recovery in tort. Similarly, plaintiffs cannot recover for strict liability claims that do not allege an injury to a person or property. See Nobility Homes of Texas, Inc. v. Shivers, 557 S.W.2d 77, 79-80 (Tex. 1977). Here, Elk Alabama has failed to allege any physical injury to its property and instead articulates its injury as being caused by "the inability of Elk Texas to supply the type, quality, and quantity of mat required for [Elk Alabama's] production." Motion to Remand and Brief in Support at 8. The defendants conclude that because Elk Alabama's claims do not include an allegation of physical injury, they are precisely the type of claims prohibited by the economic loss doctrine.
Texas courts, however, have never applied the economic loss doctrine to a plaintiff's claims in the absence of contractual privity between the plaintiff and a defendant. See William Powers, Jr. Margaret Niver, Negligence, Breach of Contract, and the "Economic Loss Rule," 23 Tex. Tech. L. Rev. 477, 489 (1992) ("Texas courts have not spoken to situations involving contractual strangers. . . ."). Other federal district courts of this state have also remanded cases on this basis. In Juarez v. Chevon USA, Inc., 911 F. Supp. 257, 259 (S.D. Tex. 1995), several lessors brought a state suit against a lessee defendant and two of the defendant's employees. The defendants removed the action, alleging that the only claims against the employees were tort claims that were barred by the economic loss doctrine. From this, the defendants concluded that the employees were fraudulently joined. The district court remanded the case, however, declining to apply the economic loss doctrine in the absence of contractual privity between the employees and the plaintiffs:
Unlike the defendants in Southwestern Bell, Jim Walter Homes, and Grace Petroleum Co., however, [the employees] were not parties to a contract with Plaintiffs. The existence of a contractual relationship between the plaintiff and the defendant tortfeasor appears to have been pivotal in the decision of those cases. It is problematical to say that Plaintiffs' injury is only "economic loss to the subject of the contract" or that Plaintiffs' damages are entirely contractual in nature when the alleged tortfeasors were not parties to the [contract].Id. at 260 (emphasis added); see also Jackson v. Dole Fresh Fruit Company, 921 F. Supp. 454, 458-59 (S.D. Tex. 1996) (holding that the economic loss doctrine was inapplicable where no contract between any of the defendants and the plaintiffs existed). Resolving all doubts in favor of the plaintiffs, this court — like the court in Juarez and Jackson — cannot conclude that Elk Alabama's claims are clearly barred by the economic loss doctrine. Accordingly, that doctrine cannot serve as a basis to establish fraudulent joinder.
2. Rule of Robins Dry Dock
Next, the defendants maintain that any possible claims Elk Alabama might have against them are barred by the rule established in Robins Dry Dock Repair Company v. Flint, 275 U.S. 303 (1927). There, the charterers of a steamship sued for lost profits when the defendant dry dock negligently damaged the ship's propeller. The charterers did not own the ship but sued on two theories: (1) that the plaintiffs were third party beneficiaries of a dry docking contract and (2) negligence. The Court rejected both theories saying:
[A]s a general rule, at least, a tort to the person or property of one man does not make the tort-feasor liable to another merely because the injured person was under a contract with that other unknown to the doer of the wrong.Id. at 309 (internal citations omitted). Thus, the Court endorsed a common law proposition that liability is not legally recognized for indirect economic damages. Although the Texas Supreme Court has never explicitly adopted or rejected the rule of Robins Dry Dock, a majority of courts, including the Fifth Circuit, have adopted the rule. In Louisiana v. M/V Testebank, 752 F.2d 1019 (5th Cir. 1985) (en banc), cert. denied, 477 U.S. 903 (1986), our circuit addressed the rule of Robins Dry Dock. But the relevance of Testebank to this case is questionable, since that case analyzed the rule only in the context of maritime law. In fact, since that decision, the Fifth Circuit has applied Robins Dry Dock only to maritime cases.
While the rule of Robins Dry Dock has remained the majority rule, it has not enjoyed universal acceptance. For example, the New Jersey Supreme Court has decided not to apply the rule, concluding that the doctrines of foreseeability and proximate cause serve to appropriately limit the scope of recovery in tort. See People Express Airlines, Inc. v. Consolidated Rail Corporation, 495 A.2d 107, 110 (N.J. 1985). Likewise, the Alaska Supreme Court refused to apply the strict Robins Dry Dock standard in Mattingly v. Sheldon Jackson College, 743 P.2d 356 (Alaska 1987). There, Sheldon Jackson College employees had negligently excavated and braced a trench, which collapsed, burying several of the plaintiff's employees. The plaintiff contractor alleged that the college's negligence caused him to lose his employees' services and, consequently, to lose income and profits. The Alaska Supreme Court, liberally citing People's Express, allowed a recovery for the plaintiff's purely economic loss. See id. at 359-60.
At this stage of the case, the court's role is not to make an Erie guess as to whether the Texas Supreme Court would adopt the rule of Robins Dry Dock; rather, it must resolve all doubts of both fact and law in the favor of Elk Alabama as the nonremoving party. Carriere, 893 F.2d at 100. With that in mind, and considering both the split in authority discussed above and the Texas Supreme Court's silence on the issue, the court cannot say with confidence that the rule of Robins Dry Dock would prevent Elk Alabama from establishing a cause of action against the defendants.
In sum, because the defendants have not met their heavy burden of proving that "there is absolutely no possibility that [Elk Alabama would] be able to establish a cause of action against the [defendants] in state court," this case must be remanded. Cavallini, 44 F.3d at 259.
III. CONCLUSION
After resolving all doubts in the law and facts in the favor of Elk Alabama, the court concludes that Elk Alabama may be able to establish a cause of action against the defendants in state court and therefore that it was not fraudulently joined solely to defeat jurisdiction. Accordingly, Elk Alabama's motion to remand is GRANTED, and the defendants' motion to dismiss is DENIED for want of jurisdiction.
SO ORDERED.
March 21, 2000.