Opinion
Civil No. 06-839 WJ/CEG.
December 7, 2006
ORDER GRANTING PLAINTIFFS' MOTION TO REMAND
THIS MATTER comes before the Court pursuant to Plaintiffs' Second Motion to Remand (Doc. 3). Having reviewed the submissions of the parties and being fully advised on the law, I conclude the motion is well taken and will be granted to the extent it requests this action be remanded to state court. It will denied, however, to the extent it prays for attorneys' fees and sanctions.
BACKGROUND
Plaintiffs filed their initial Complaint in state court on September 14, 2005. Plaintiffs are residents of the State of New Mexico. Named as one of the Defendants in the initial Complaint was Foxworth-Galbraith Lumber Company ("Foxworth"), a corporation that Plaintiffs alleged was a New Mexico corporation or a foreign corporation authorized to do business in New Mexico. Also named as a Defendant in the original Complaint was Rudy Chanez, a New Mexico resident. The original Complaint alleged that Plaintiff William Heath was working as a construction worker who put his weight on a truss while several feet in the air. The truss came apart causing Mr. Heath to fall and sustain permanent injury. This also caused Kristi Heath a loss of consortium. The original Complaint alleged that Defendants supplied the trusses to the construction project, that the trusses were defective, and that Defendants were negligent.
Defendants originally removed the state court action to this Court on October 4, 2005. It was docketed as civil case number CIV-05-1061 and was ultimately assigned to the Honorable M. Christina Armijo, United States District Judge. Defendants contended in the notice of removal for CIV-05-1061 that Defendant Foxworth was a Delaware corporation rather than a New Mexico corporation such that its citizenship was diverse from both Plaintiffs. The Notice of removal further urged that Defendant Rudy Chanez was fraudulently joined because no cause of action was stated against him in the Complaint.
Plaintiffs filed a motion to remand in CIV-05-1061 arguing that they intended to file an amended Complaint in the state court action to clarify their claims against each of the Defendants. By Memorandum Opinion and Order filed February 24, 2006 (Doc. 27 in CIV-05-1061), Judge Armijo granted Plaintiffs' motion to remand. In doing so, Judge Armijo noted that the court could not consider Plaintiffs' proposed amended complaint in determining whether it had jurisdiction over the removed Complaint and must rely on the allegations in the original complaint. Because Defendants alleged removal based on fraudulent joinder, Judge Armijo also relied on the entire record but concluded that Defendants had failed to meet their burden of showing fraudulent joinder. The Court acknowledged in its statement of undisputed facts that the primary cause of action Plaintiffs intended to allege against Defendant Chanez was based on his alleged offer of settlement after Mr. Heath was injured. However, the Court could not conclude, based on any evidence offered by Defendants, that Plaintiff could not prove a claim of negligence against Mr. Chanez. Specifically, Judge Armijo noted that there was nothing in the evidence that clearly showed that Mr. Chanez had nothing to do with providing the allegedly defective trusses to the construction site. Because the Court concluded that Defendants had failed to meet their burden of showing fraudulent joinder, the Court did not examine any other procedural or jurisdictional defects in the Notice of Removal.
On March 9, 2006, after CIV-05-1061 was remanded to state court, Plaintiffs filed an Amended Complaint in which they continue to allege that Defendant Foxworth is a New Mexico corporation or, alternatively, a foreign corporation authorized to do business in New Mexico. In the Amended Complaint, Plaintiffs continue to allege that Defendants supplied the trusses which were allegedly defective and allegedly caused Plaintiffs' injuries. However, the Amended Complaint further alleges that Defendant Chanez misrepresented that he was authorized to offer Mr. Heath a settlement for his injuries, Mr. Heath relied on this offer in settling his worker's compensation claims, and Mr. Chanez' offer was not honored because Mr. Chanez had no authority to make the offer. The Amended Complaint seeks damages for the negligence of Foxworth and damages based on Mr. Chanez' representations.
At some point in time in the state court action, Defendants filed a motion for summary judgment. Defendants argued that they were entitled to summary judgment on any claim against Chanez for negligent misrepresentation because there was a lack of evidence with regard to the elements of such a claim. Defendants also argued they were entitled to summary judgment on any claim against Chanez for negligence because there was no evidence that Chanez had designed, manufactured, repaired or sold the trusses which caused Mr. Heath's injuries.
The copy of the motion for judgment included in the state court record transmitted to this Court on October 10, 2006, does not have a file stamp indicating the date it was filed in the state court.
In the motion, Defendants provided Mr. Heath's deposition testimony regarding conversations he had with Defendant Chanez. According to the testimony, Mr. Heath told Mr. Chanez he was will willing to settle with Foxworth for $250,000 worth of building materials and appliances. During a follow-up conversation, Mr. Chanez told Mr. Heath that Foxworth had agreed to the offer and that Heath would need to retain a lawyer to draw up the agreement. Mr. Heath consulted with an attorney who advised him not to settle with Foxworth until he had disposed of his worker's compensation claim because worker's compensation could seek settoff from any settlement proceeds between Heath and Foxworth. Mr. Heath subsequently informed Mr. Chanez that he could not settle with Foxworth until he settled his worker's compensation claim. Mr. Chanez never admitted that Foxworth was responsible for Mr. Heath's injuries.
Plaintiff's response to the motion for summary judgment was filed in state court and received by Defendants on August 8, 2006. In their response, Plaintiffs did not rebut Defendants' assertion that Chanez did not design, manufacture, repair or sell the trusses which caused Heath's injuries. With regard to evidence of misrepresentation, Plaintiffs provided Mr. Heath's affidavit in which he averred that Mr. Chanez told him that he (Chanez) was authorized to settle on behalf of Foxworth and offered $250,000 worth of building materials in exchange for a release. Mr. Chanez told Heath to see a lawyer to finalize the agreement. After speaking with a lawyer, Mr. Heath told Mr. Chanez that he could not settle with Foxworth until his worker's compensation claim was resolved. Mr. Chanez told Heath to do what he had to do with his worker's compensation and then they would work on settling the matter with Foxworth. Mr. Chanez then told Heath that at least $250,000 would be available for later settlement. Mr. Heath the settled his worker's compensation matter and discounted his interest in exchange for an agreement with the worker's compensation carrier to waive its setoff from any money Heath received from Foxworth. Subsequently, Foxworth claimed that Chanez was not authorized to make any representation to Mr. Heath regarding settlement.
Defendants electronically filed their Second Notice of Removal in this Court which was properly docketed as a new case — the present case. The Second Notice of Removal was filed on September 8, 2006 at 2:45:57 p.m. See Doc. 1, Document Verification. Defendants contend in this notice of removal that they are entitled to remove based on Plaintiff's response to the motion for summary judgment filed in state court because this response is a "paper" from which Defendants first ascertained that the case had become removable pursuant to 28 U.S.C. § 1446(b). With regard to the removability first apparent from Plaintiffs' response, Defendants contend that the response is the first sufficient evidence that Chanez was fraudulently joined in Plaintiffs' initial Complaint. Defendants also urge that Plaintiffs have fraudulently joined Chanez with regard to their misrepresentation claim in the Amended Complaint because the evidence provided by Plaintiffs in response to the motion for summary judgment is not sufficient to create an issue of fact to survive summary judgment on that claim.
Plaintiffs filed a Second Motion to Remand on September 19, 2006. Plaintiffs state that no major development has occurred in the state court action that warrants a second removal. Plaintiffs also point out that the state court has not ruled on Defendants' motion for summary judgment, and there has been no judicial conclusion that Plaintiffs have failed to show an issue of material fact in response to summary judgment. At the conclusion of Plaintiffs' motion to remand, Plaintiffs request Rule 11 sanctions and attorneys' fees pursuant to 28 U.S.C. § 1447 and 28 U.S.C. § 1927.
DISCUSSION
I. THIS CASE WAS NOT PROPERLY REMOVED TO THIS COURT AND WILL BE REMANDED TO THE STATE COURT FROM WHICH IT WAS REMOVED
A. Defendants' Removal Was Procedurally Defective Because the Notice of Removal was not Timely
Under 28 U.S.C. § 1446(b), Defendants were required to file their notice of removal within thirty days of receiving any "paper" from which it could first be ascertained that the case was removable. Assuming that Plaintiffs' August 8, 2006 response to summary judgment was such a "paper," Defendants were required to file their notice of removal within thirty days of receiving the response. Defendants assert that they received the response on August 8, 2006. See Doc. 1 ¶ 7. Thirty days from August 8, not including August 8 itself, was September 7, 2006. Defendants' Second Notice of Removal was not filed in this Court until September 8, 2006 so was not timely filed. Accordingly, the removal was procedurally defective and the case will be remanded to the state court from which it was removed.
B. Even if Defendants had Timely Filed the Notice of Removal, Defendants Have Failed to Show Removal Jurisdiction
When a civil case is filed in state court and the federal courts would have original jurisdiction over the action, defendants may remove the action to federal court pursuant to 28 U.S.C. § 1441. Section 1441 was intended to restrict rather than enlarge removal rights. Greenshields v. Warren Petroleum Corp., 248 F.2d 61 (10th Cir. 1957). Thus, all doubts are to be resolved against removal. Fajen v. Foundation Reserve Ins. Co. Inc., 683 F.2d 331, 333 (10th Cir. 1982).
Defendants assert that this Court would have original jurisdiction over Plaintiffs' state court case on the basis of diversity jurisdiction under 28 U.S.C. § 1332. "The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, . . . and is between citizens of different States." 28 U.S.C. § 1332(a). Diversity jurisdiction exists only when the citizenship of each plaintiff is diverse from the citizenship of each defendant. See Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68 (1996); Radil v. Sanborn Western Camps, Inc., 384 F.3d 1220, 1225 (10th Cir. 2004); Gadlin v. Sybron Intern. Corp., 222 F.3d 797, 799 (10th Cir. 2000). The removing party is invoking the jurisdiction of the federal court and thus bears the burden of establishing that the requirements for the exercise of jurisdiction are present. Martin v. Franklin Capital Corp., 251 F.3d 1284, 1290 (10th Cir. 2001).
1. Defendants Have Failed to Establish Diversity of Citizenship Among Defendant Foxworth and the Plaintiffs
Putting aside for the moment the issue of fraudulent joinder as to Defendant Chanez, the Court concludes that Defendants have failed to establish that Defendant Foxworth's citizenship is diverse from the citizenship of the Plaintiffs. Under Section 1332(c)(1), a corporation, for purposes of diversity jurisdiction, is deemed a citizen of any state in which it is incorporated and a citizen of the state where it has its principal place of business. Defendants' only jurisdictional allegation regarding the citizenship of Defendant Foxworth is that Foxworth is a Delaware corporation. This allegation is insufficient to show diversity because a corporation is often the citizen of more than one state, and Defendants do not indicate the state in which Foxworth is incorporated and the state in which Foxworth has its principal place of business. Defendants have thus failed to establish that this Court would have original jurisdiction over this action on the basis of diversity of citizenship, and this case will be remanded to the state court from which it was removed.
2. Defendants Have Failed to Show that Defendant Chanez was Fraudulently Joined
Defendants assert that Plaintiffs' August 8, 2006 response triggered removability under 28 U.S.C. § 1446(b) because it provided the smoking gun with regard to the fraudulent joinder of Defendant Chanez. Defendants creatively state that they actually ascertained removability for the first time from the response.See Doc. 1, ¶ 9. This is an odd assertion in light of the fact that these same Defendants previously removed this same state court case on the same grounds. A defendant may certainly remove a state court case based on fraudulent joinder within thirty days of receiving evidence that first brings to light the fraudulent joinder. See Huffman v. Saul Holdings Ltd. Partnership, 194 F.3d 1072 (10th Cir. 1999). However, Section 1446(b) does not provide defendants in state court a second or subsequent bite at the removal apple every time new evidence comes to light that further supports a previously ascertainable basis for removal. Obviously, fraudulent joinder was an ascertainable basis for removal of Plaintiffs' initial Complaint when Defendants asserted it as their basis for removal in CIV-05-1061. Plaintiffs' Amended Complaint continues to assert the negligence claim against Chanez that was asserted in the initial Complaint. The fact that new claims are asserted against Chanez, and Plaintiffs' August 8, 2006 response may be the first "paper" from which Defendants could ascertain the removability of these new claims does not render the entire case removable.
Even if Plaintiffs' Amended Complaint had asserted only the new misrepresentation claims against Chanez, and Plaintiffs' August 8, 2006 response to summary judgment had been the first notice Defendants received that the case had become removable, Defendants have failed to show that Defendant Chanez was fraudulently joined with regard to these claims. When a removing defendant alleges fraudulent joinder of a resident defendant, the removing defendant must plead fraudulent joinder with particularity and prove fraudulent joinder with certainty. Couch v. Astec Indus., Inc., 71 F.Supp.2d 1145, 1146-47 (D.N.M. 1999). When removal is based upon an allegation of fraudulent joinder, a court may pierce the pleadings and consider the entire record before it. Dodd v. Fawcett Publ'ns, Inc., 329 F.2d 82, 85 (10th Cir. 1964). The burden of showing fraudulent joinder is a heavy one. Hart v. Bayer Corp., 199 F.3d 239, 246 (5th Cir. 2000); Bd. of County Com'rs of County of Mesa v. Atlantic Fidelity, Inc., 930 F.Supp. 499, 500 (D. Colo. 1996). To prove an allegation of fraudulent joinder, the removing party must demonstrate that there is no possibility that the plaintiff would be able to establish a cause of action against the joined party in state court. Hart, 199 F.3d at 246 (emphasis added). This standard is more exacting than the standard for dismissing a claim under Fed.R.Civ.P. 12(b)(6). Batoff v. State Farm Ins. Co., 977 F.2d 848, 851-53 (3d Cir. 1992). A claim that may be dismissed only after an intricate analysis of state law is not so wholly insubstantial and frivolous that it may be disregarded for purposes of diversity jurisdiction. Id. Additionally, a plaintiff need not ultimately succeed on a claim against a resident defendant to show that the defendant is properly joined. Couch, 71 F.Supp.2d at 1147. A viable claim is stated against a resident defendant so long as there is some factual fit between the plaintiffs' allegations and the pleaded theory of recovery. Griggs v. State Farm Lloyds, 181 F.3d 694, 701 (5th Cir. 1999).
Plaintiffs' August 8, 2006 response to summary judgment is simply not a smoking gun that demonstrates that there is no possibility that plaintiff would be able to establish a cause of action against Defendant Chanez. In essence, Defendants ask this Court to conduct a collateral ruling on their motion for summary judgment and determine that Plaintiffs' evidence fails to establish an issue of fact with regard to the claims against Chanez. This is precisely the type of intricate analysis of state law that shows that Plaintiffs' claims are not so wholly insubstantial and frivolous that they may be disregarded for purposes of diversity jurisdiction. See Batoff, 977 F.2d at 851-53. Defendants characterize Mr. Heath's deposition testimony as establishing that he made no agreement with Chanez and that Chanez made no promise to him on which he relied. The deposition testimony simply does not conclusively establish this for purposes of analyzing Defendants' assertion of fraudulent joinder. Nor does the deposition testimony so thoroughly contradict Mr. Heath's affidavit that the affidavit may be conclusively determined to be a sham. See Kendrick v. Penske Transp. Serv., Inc., 220 F.3d 1220, 1223 n. 2 (10th Cir. 2000) (a court may disregard an affidavit that contradicts the affiant's own sworn deposition testimony if the court finds that such an affidavit constitutes an attempt to create a sham fact issue). I conclude that Defendants have failed to meet their burden of proving fraudulent joinder and have failed to establish the subject matter jurisdiction of this Court, and this case will be remanded to the state court from which it was removed.
In fact, the affidavit appears to supplement and clarify rather than contradict the deposition testimony in all material respects.
In concluding that Defendants have failed to show fraudulent joinder for purposes of removal, I express no opinion on the outcome of Defendants' motion for summary judgment before the state court.
II. PLAINTIFFS' REQUEST FOR SANCTIONS AND ATTORNEYS' FEES
In the final sentence of Plaintiffs' motion to remand, they request attorneys' fees pursuant to 28 U.S.C. § 1447 and 28 U.S.C. § 1927 as well as sanctions under Fed.R.Civ.P. 11. Plaintiffs do not set forth the legal standards for the award of attorneys' fees or sanctions nor provide any analysis showing why the Court should make any requested award. Through only limited research, the Court was able to discover the legal standards for awards of fees and sanctions under each theory proposed by Plaintiffs, and I will share those standards to illustrate the arguments that Plaintiffs could have made. I note that Fed.R.Civ.P. 11 has a "safe harbor" provision, and Plaintiffs have made no showing that the requirements of that provision were met. Section 1927 provides that any attorney who multiplies proceedings "unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorney's fees reasonably incurred because of such conduct." 28 U.S.C. § 1927. Plaintiffs have provided no analysis or argument showing that Defendants have engaged in sanctionable conduct as defined in Section 1927 or case law interpreting Section 1927. With regard to Section 1447, a district court need not find bad faith to award fees for improper removal, but the court must find that the removal was improper from the beginning. Plaintiffs provided no argument or analysis on this issue, and the Court will not engage in advocacy by providing the analysis in the first instance.
CONCLUSION
IT IS THEREFORE ORDERED that Plaintiffs' Second Motion to Remand (Doc. 3) is hereby GRANTED IN PART and this case shall be REMANDED to the State of New Mexico, County of Sierra, Seventh Judicial District Court from which it was removed.
IT IS FURTHER ORDERED that Plaintiffs' Second Motion to Remand (Doc. 3) is hereby DENIED IN PART to the extent Plaintiffs request attorney fees and sanctions.