Opinion
Civil Action No. 3:03-CV-2875-D.
March 12, 2004
MEMORANDUM OPINION AND ORDER
Plaintiff Biju Parakkavetty ("Parakkavetty") moves to remand this suit based on the Texas citizenship of defendant John Carman ("Carman"). Defendants maintain that the case was properly removed because Parakkavetty fraudulently joined Carman as a defendant. Although the parties are diverse citizens, Carman is a Texas citizen. Accordingly, 28 U.S.C. § 1441(b) precludes removal if Carman has been properly joined. Concluding that defendants have failed to satisfy their heavy burden of establishing that Carman was fraudulently joined, the court grants the motion.
28 U.S.C. § 1441(b) provides:
Any civil action of which the district courts have original jurisdiction founded on a claim or right arising under the Constitution, treaties or laws of the United States shall be removable without regard to the citizenship or residence of the parties. Any other such action shall be 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.
(Emphasis added).
I
Parakkavetty sues Indus and Carman on theories of fraud, negligent misrepresentation, intentional infliction of emotional distress, and, alternatively, negligence arising from an arrangement under which he was to be employed by Indus in the United Kingdom. Parakkavetty contends that Indus offered him employment in the United Kingdom on various terms and conditions that Indus failed to honor. He asserts that Carman, the Southwest Regional Director and his immediate superior, specifically represented to him eleven terms and conditions on which he would be employed in the United Kingdom, and Indus promised him a written contract that incorporated the terms and conditions that Carman had represented. Parakkavetty asserts that Indus breached the promise by tendering a contract that did not correctly set forth the agreement. He maintains that he relied on Carman's representations in moving himself and his wife to the United Kingdom. He also alleges that Indus failed to perform according to the oral promises and representations, subjected him to a hostile work environment in the United Kingdom, and terminated his employment.II
Parakkavetty moves to remand the case. Defendants oppose the motion. The sole basis on which they rely to contend that Parakkavetty cannot recover from Carman for fraud is that the statute of frauds bars tort claims based on unenforceable oral agreements.
A
The jurisprudence of, and procedure for determining, fraudulent joinder are well settled.
The removing party carries a heavy burden when attempting to prove fraudulent joinder. See Cavallini v. State Farm Mut. Auto Ins. Co., 44 F.3d 256, 259 (5th Cir. 1995). "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 plaintiff's pleading of jurisdictional facts." Id. (quoting Green v. Amerada Hess Corp., 707 F.2d 201, 205 (5th Cir. 1983)). "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." Carriere v. Sears, Roebuck Co., 893 F.2d 98, 100 (5th Cir. 1990). "If there is `arguably a reasonable basis for predicting that the state law might impose liability on the facts involved,' then there is no fraudulent joinder." Badon v. RJR Nabisco Inc., 236 F.3d 282, 286 (5th Cir. 2001) (quoting Jernigan v. Ashland Oil Inc., 989 F.2d 812, 816 (5th Cir. 1993)) This possibility, however, must be reasonable, not merely theoretical. See id. at 286 n. 4.Great Plains Trust Co. v. Morgan Stanley Dean Witter Co., 313 F.3d 305, 312 (5th Cir. 2002) (Fitzwater, J.). "[T]he district court can employ a summary judgment-like procedure that allows it to pierce the pleadings and examine affidavits and deposition testimony for evidence of fraud or the possibility that the plaintiff can state a claim under state law against a nondiverse defendant." Id. at 311.
B
The court need only address Parakkavetty's fraud claim to conclude that Carman has not been fraudulently joined — i.e., that there is arguably a reasonable basis for predicting that the state law might impose liability on the facts involved. Parakkavetty alleges that Carman defrauded him by misrepresenting the terms and conditions of his employment assignment in the United Kingdom. Indus argues that the Texas statute of frauds bars this claim because the oral contract on which Parakkavetty relies could not have been performed in one year. See, e.g., Reyna v. First Nat'l Bank in Edinburg, 55 S.W.3d 58, 71 (Tex.App. 2001, no pet.) (holding that if employment contract is to extend beyond one year, it must be in writing in accordance with the statute of frauds). Citing Haase v. Glazner, 62 S.W.3d 795 (Tex. 2001), Indus maintains that Parakkavetty cannot circumvent the statute of frauds by asserting a fraud claim.
Haase teaches, however, that the statute of frauds forecloses a fraud cause of action "to the extent the plaintiff seeks to recover as damages the benefit of a bargain that cannot otherwise be enforced because it fails to comply with the Statute of Frauds." Id. at 799. It does not preclude a fraud claim when the plaintiff does not "use a fraud claim essentially to enforce a contract the Statute of Frauds makes unenforceable." Id. Thus a claim is not barred when the plaintiff seeks out-of-pocket damages incurred in relying on the representations. Id. Damages that are not part of the benefit of the bargain are not precluded by the statute of frauds. See id. at 800.
Parakkavetty sues Indus and Carman for damages that exceed those available under a theory of benefit of the bargain, including mental anguish damages. See P. App. 38. Texas courts have permitted recoveries of mental anguish damages for fraud. See Shannon v. Law-Yone, 950 S.W.2d 429, 437 n. 43 (Tex.App. 1997, writ denied) (noting that several courts have awarded mental anguish damages or allowed claims for such damages in fraud cases); Dillard's Dep't Stores, Inc. v. Strom, 869 S.W.2d 654, 659-60 (Tex.App. 1994, writ dism'd by agr.) ("Here, we find there was sufficient evidence from which the jury could conclude that Dillard's acted fraudulently towards Strom, thus supporting a mental anguish award."); Kneip v. Unitedbank-Victoria, 734 S.W.2d 130, 136 (Tex.App. 1987, no writ) (addressing mental anguish damages in case involving fraud in the inducement).
Although the court's own research has been limited to that which is necessary to decide this remand motion, it has located commentary that calls into question whether the Texas Supreme Court would hold that mental anguish damages are recoverable for common law fraud. See Rachel Giesber Richard T. Stilwell, Standards Governing Recovery of Mental Anguish Damages under Texas Law, 39 S. TEX. L. REV. 45, 76-77 (1997) (noting that "[t]he Texas Supreme Court has not addressed the recoverability of mental anguish damages in fraud claims directly[;]" that in Tilton v. Marshall, 925 S.W.2d 672 (Tex. 1996) (orig. proceeding), "[t]he court's failure to comment on the mental anguish claims . . . may suggest that, contrary to the appellate court opinions . . ., fraud claims do not automatically entitle a plaintiff to recover mental anguish damages[,]" and that, when the court denied a writ of error in Star Houston, Inc. v. Shevack, 907 S.W.2d 452 (Tex. 1995) (per curiam) (denying writ), the court expressly stated that it neither approved nor disapproved the court of appeals' discussion of mental anguish damages). Nevertheless, because "all ambiguities in the controlling state law are resolved in favor of the nonremoving party," Great Plains Trust Co., 313 F.3d at 312, the court must still grant Parakkavetty's motion to remand based on the apparent availability of mental anguish damages that would not be precluded by the statute of frauds.
Accordingly, because Parakkavetty sues Carman for damages that exceed those available under a theory of benefit of the bargain, the court is unable to say that his claim is barred by the statute of frauds and that Carman was fraudulently joined as a defendant.
III
Parakkavetty and defendant Indus are currently involved in another case pending in this court, Parakkavetty v. Indus International, Inc., No. 3:02-CV-1461-D (N.D. Tex.) (Fitzwater, J.) ( "Parakkavetty I"). Parakkavetty filed Parakkavetty I before he filed the present case. He initiated this case after the court granted in part and denied in part his motion for leave to amend. In a footnote in their brief in the instant case, defendants argue that this case should be stayed by this court or the state court until Parakkavetty I is decided. See Ds. Br. at 6 n. 6. The decision whether to stay this case is now one to be made by the state court following remand Of course, nothing prevents this court from entering a substantive decision in Parakkavetty I that may affect Parakkavetty's claims in this case by virtue of the operation of res judicata or collateral estoppel.
Considering the Anti-Injunction Act, the court assumes that this request is directed to this court only if it denies the motion to remand Having granted it, the case is now pending in state court, and this court lacks authority to stay it pending the adjudication of Parakkavetty I unless Indus can demonstrate that one of the exceptions to the Act applies. See, e.g., Newby v. Enron Corp., 302 F.3d 295, 301 (5th Cir. 2002) ("[T]he Anti-Injunction Act is an absolute bar to any federal court action that has the effect of staying a pending state court proceeding unless the action falls within a designated exception[.]").