Opinion
98-Civ.-5033 (WGB)
December 9, 1998
Joseph B. Fiorenzo, Esq., Steven Siegel, Esq., SOKOL, BEHOT FIORENZO, for Plaintiff Tower Associates
Dean Gaver, Esq., Sanford J. Hodes, Esq., Jennifer L. Stefanick, Esq., HANNOCH WEISMAN, A PROFESSIONAL CORPORATION, for Defendant Home Depot, U.S.A., Inc.
O P I N I O N
Plaintiff Towers Associates ("Towers") moves for remand of this action to the Superior Court, Chancery Division, Hudson County. Defendant Home Depot, U.S.A., Inc. ("Home Depot") filed a notice of removal with this Court on November 5, 1998, and opposes the motion. For the reasons discussed below, the Court grants Plaintiff's motion.
I. BACKGROUND
On October 15, 1998, Towers filed a complaint in the State Superior Court of New Jersey. This complaint sought injunctive relief against Home Depot to prevent the violation of a restriction in a lease between Towers and Home Depot. The restriction essentially provided that Home Depot would not operate a store within five miles from the store that it operated on the site leased from Towers. The lease also provided that part of the rent for the space leased by Home Depot would be based on the revenue produced by the store at that location. The five-mile restriction was intended to protect Towers's revenue share, and Towers has argued it was also intended to protect the value of its property. The impetus for the complaint were Home Depot's plans to sign a lease with a third, unrelated party to lease property for a store within five miles of the store on Towers's property. At the time the complaint was filed, Towers also applied for the entry of an Order to Show Cause with temporary restraints.
Oral argument was held by the state court on that same day. Both parties participated in this oral argument; Home Depot, however, had less than a day's notice before its appearance. The state court entered an Order to Show Cause against Home Depot containing temporary restraints against violating the lease or entering into the new lease, fixed a return date on the preliminary injunction application, and gave defendant the right to dissolve the restraints on two days notice. As Home Depot's counsel informed this Court, Home Depot felt the restraints would be more swiftly dissolved in state court, and elected not to remove at that time.
Home Depot moved to dissolve the temporary restraints and filed papers on October 22, 1998 in support of this motion and in opposition to the preliminary injunctive relief. These papers included a substantial "Brief in Support of Motion to Dissolve the Temporary Restraints and in Opposition to Plaintiff's Request for Preliminary Relief," and a certification in support of this motion. After oral argument on the motion, the state court on October 28, 1998 denied Home Depot's application and again found the temporary restraints appropriate.
Also on October 28, Home Depot made a motion for leave to file an interlocutory appeal of the state court's entry of temporary restraints and denial of the motion to dissolve the restraints. Towers opposed the motion. Oral argument was heard by telephone conference on October 29, 1998, and the Appellate Court denied the motion. On November 5, 1998, Home Depot filed a notice of removal to this Court. In a hearing before this Court, counsel for Home Depot informed the Court that Home Depot's urgent need to be freed from the temporary restraints imposed by the state court arose as a result of Home Depot being at the point of signing the lease with the third party. Home Depot plans to open a new store on that site. Time is of the essence in this transaction, as the party will sign a lease with one of Home Depot's competitors if Home Depot does not sign a lease for the property soon. In its state papers, Home Depot estimated that it would take a year before they would be able to operate a store on the new site.
II. DISCUSSION
The central issue in this motion is whether, through its actions in the state court, Home Depot has waived its right to pursue this action under the removal statute, 28 U.S.C. § 1441. The doctrine of state action waiver is well established in the law of removal. See Rosenthal v. Coates, 148 U.S. 142 (1893); Foster v. Chesapeake Ins. Co., Ltd., 933 F.2d 1207, 1216 (3d Cir. 1991). The doctrine is based on the sound principle that the federal courts should not be used as a forum for appealing an adverse state court determination. Vendetti v. Schuster, 242 F. Supp. 746, 752 (E.D.Pa. 1965); Kiddie Rides U.S.A., Inc. v. Elektro-Mobiltechnik GMBH, 579 F. Supp. 1476, 1480 (C.D.Ill. 1984). The defendant should not be allowed to experiment with his action in state court before removing to federal court. Rosenthal, 148 U.S. at 147. Where a defendant takes substantial defensive action in state court before petitioning for removal, he waives his right to remove. The intent to waive removal must be clear and unequivocal. Bryfogle v. Carvel Corp., 666 F. Supp. 730, 733 (E.D.Pa. 1987); Haun v. Retail Credit Co., 420 F. Supp. 859, 863 (W.D.Pa. 1976); Vendetti, 242 F. Supp. at 754.
The Third Circuit has not addressed the issue of whether opposition to temporary restraining orders suffices to waive the right to removal; this Court must therefore rule in the absence of controlling law. Existing case law reveals some factors that guide the determination of whether the right to remove has been waived by action in state court. Where the defendant voluntarily participates in state court proceedings, takes affirmative action to submit issues for determination, or actively seeks a determination on the merits by the state court before removing the action, he can be held to have waived his right to remove. Pyle v. Meritor Sav. Bank, 821 F. Supp. 1072, 1077 (E.D.Pa. 1993) (citing Heafitz v. Interfirst Bank of Dallas, 711 F. Supp. 92, 96-97 (S.D.N.Y. 1989)). It follows that opposition to a temporary restraining order can be sufficient participation in the state court action to waive the right to remove if some combination of these factors are fulfilled. This determination should be based on scrutiny of the particular facts of each case. Home Depot cites cases from other circuits in support of the proposition that any action taken in state court in opposition to a temporary restraining order cannot serve to waive a defendant's right to remove. It is not true, however, that no cases exist where a defendant's opposition to a temporary restraining order has served to waive his right to remove. See Schell v. Food Machinery Corp, 87 F.2d 385 (5th Cir. 1937) (finding pattern of preliminary activity including moving to dissolve a temporary injunction waived defendant's right to remove state action to federal court); Chicago, I N.P.R. Co. v. Minnesota N.W.R. Co., 29 F.2d 337 (C.C.N.D. Ia. 1886) (defendant who appeared in a state court proceeding opposing temporary injunction and appealed from order granting temporary injunction had waived its right to remove to state court);Southwest Truck Body Co. v. Collins, 291 F. Supp. 658 (W.D.Mo. 1968) (defendant who sought to dissolve preliminary injunction and, when the state court refused to dissolve the injunction, sought a writ of prohibition, had waived its right to remove to federal court).
Home Depot argues that a temporary restraining order is the result of a preliminary proceeding, and the doctrine of waiver in removal actions should not apply to actions taken in opposition to a preliminary proceeding. Mere opposition of a temporary restraining order, no matter what such opposition involves, should therefore not preclude removal of the action to federal court. Home Depot cites a number of cases in support of this proposition, most of which involve initial opposition to a temporary restraining order, and either an appeal or a motion to dissolve or vacate the restraint.
The most recent case cited by Home Depot is Rothman v. City of Chicago, 879 F.2d 1042 (7th Cir. 1989), in which the Seventh Circuit held that the defendant's opposition to a temporary restraining order in state court did not waive its right to remove the action to federal court. InRothman, the defendant sought to enjoin the enforcement of a state statute, claiming it violated his constitutional rights. The statute made it unlawful to permit any person under the age of seventeen to operate an "automatic amusement device" between the hours of 8:00 a.m. and 3:00 p.m., except at city airports. As in this action, the defendant participated in oral argument on the temporary restraints on a few hours' notice. The Rothman defendants then removed the action to federal court. Unlike this action, the defendants did not then proceed to move in state court for the dissolution of the restraints, and then attempt to appeal the state district court's refusal of the dissolution to the state appellate court. The present action may therefore be distinguished fromRothman by the level of activity engaged in by the defendant in the state court. In this action the Home Depot continued to submit itself to the jurisdiction of the state court long after the Rothman defendant had removed.
In Rothman, the Seventh Circuit also suggested that the doctrine of state waiver may no longer apply, given the 1948 and 1949 amendments to the removal statute. Prior to these amendments, courts had difficulty determining the correct time period in which to remove state actions to federal courts. finding them "ambiguous and indefinite." The Rothman court found that one of the criteria used to make the determination was the extent to which the action had progressed in the state court before being removed. The Seventh Circuit reasoned that the doctrine of waiver developed as a result of the indeterminate time limits on removal, and with the clear time limits set forth in the 1948 and 1949 amendments, found that the doctrine of waiver might no longer be necessary. Id. at 1413-1414. Although courts continued to use the state waiver doctrine after 1949, the Seventh Circuit explained this was because "the rules had . . . become so entrenched in the lower courts that post-1948 decisions continued to use them." Id. at 1414. The Seventh Circuit did conclude, however, that the amendments had not entirely abolished the state action waiver doctrine. Instead, the amendments had raised the standard for waiver such that it would only apply in "extreme situations." Id. at 1415. Since this argument has not been adopted by the Third Circuit, this Court is unwilling to base its holding in this action on it. Further, despite the Seventh Circuit's thorough analysis of the history of the removal statute, this Court is not convinced by its reasoning. The doctrine of state action waiver has been established and practiced in the law of removal since the nineteenth century. Although one of the reasons for its practice may have been to provide guidance for the time limits on removal, the Supreme Court did state in Rosenthal that the purpose of the state waiver doctrine was to discourage experimentation of an action in the state court. If Congress wished to prevent the practice of the doctrine through the amendments of 1948 and 1949, it could have simply made that clear; indeed, given the age and entrenched nature of the doctrine, one would expect its explicit repudiation.
Furthermore, the Seventh Circuit does not seem entirely convinced of its own reasoning. If the sole purpose of state action waiver was to provide guidance for the pre-1948 removal statute time limits, there is no post-1949 need for state action waiver — "extreme situation" or not. Although the Rothman court's argument provides a rationale for abolishing state action waiver, it does not logically follow that the 1948-49 amendments set a higher standard for the application of the state action waiver by removing the uncertainty from the time limits of removal. Rather than using the 1948-49 amendments as doubtful justification for raising the bar on which actions warrant the application of state action waiver, this Court prefers to apply the state action waiver as it has been practiced in the Third Circuit, giving close attention to the individual facts of the present action.
Home Depot also cites Atlanta, K. N. Railway Company v. Southern Railway Company, 131 F. 357 (6th Cir. 1904). In Atlanta, two railway companies claimed a right of way over the same strip of property. Both railways filed for temporary injunctions from the state court to prevent the other from beginning construction on the land, and the state court granted both injunctions. The two railways then filed motions to dissolve the injunctions, with supporting affidavits. The state court granted the motion to dissolve filed by Atlanta, K. N. Railway, and denied the motion of Southern Railway, who removed the case to federal court. Atlanta K. N. Railway moved for remand based on the doctrine of state waiver. One of the issues addressed by the Sixth Circuit was whether or not Southern Railway had waived its right to remove to federal court by its actions in making the motion to dissolve the preliminary restraint in state court. The Sixth Circuit held that Southern Railway had not waived its right, since no determination had been made on the merits of the action. The court grounded its decision in its analysis of the temporary injunction process as conducted by the chancery courts of Tennessee. The temporary injunction hearing had been held in chambers, and the court found that under Tennessee law "the chancellor has at chambers no power to decide any cause upon its merits, unless it be a hearing by consent of some of the matters provided for by the Tennessee act of 1903." Id. at 662 (emphasis added). Since the temporary injunction hearing did not fall under the exception, it did not reach the merits, and the actions taken by Southern Railway in support of its motion to dissolve did not waive its right to remove. Id. at 662-63. See also Beasley v. Union Pacific Railroad Company, 497 F. Supp. 213 (D.Neb. 1980) (where defendant sought to remove an action to federal court in which the plaintiff had obtained an ex parte preliminary injunction to prevent the defendant from suspending the plaintiff and the defendants filed a motion to vacate this injunction, the district court found that any determination by the state court on the defendant's motion to vacate would not preclude a final determination by the court on those issues, and therefore the defendants had not waived their right to remove). In this action, an analogous situation does not occur. Even if the Tennessee rules applies, neither party has indicated that the New Jersey state court heard the matter in chambers; the parties had the chance to make their views known in open court. In addition, as discussed below, the state court's actions did, as a practical matter, affect the merits of this action.
Home Depot also cites Baker v. National Boulevard Bank of Chicago, 399 F. Supp. 1021 (N.D.Ill. 1975), in which the plaintiff obtained a "preliminary injunction" in state court to prevent any monies from being paid from the defendant to a third party. Although the court referred to it as a "preliminary injunction, it was obtained on the same day as the complaint and seems more analogous to a temporary restraint. The third party intervened in the action and filed a motion to vacate the injunction. It then filed a motion to continue its motion to vacate pending the removal of the action, and removed the action to federal court. The plaintiff moved to remand. The district court stated that the opposition of the "preliminary" injunction was "preliminary action" that should not waive a parties' right to remove to federal court. Since the third party had voluntarily continued its motion, however, the federal court did not have to face the issue of whether the third party sought an impermissible appeal from a state court action. The court noted that the fact that the third party had continued its motion to vacate pending the outcome of the removal and remand motion established that the third party only sought to preserve its rights in the action. Given that Home Depot has received three adverse determinations from the state court, this Court is in a very different position. Given that the record does not reflect, nor does Home Depot argue, that the state court displayed improper bias against an out of state defendant, and given the emphasis of Home Depot on the removal of the temporary restraints, the Court must conclude that Home Depot's motive in removing this action is to ensure the removal of the temporary restraints.
All of the above cases can be distinguished from the present action by the degree to which the defendant engaged the resources of the state court; Home Depot contested the temporary restraint, filed a motion to dissolve the restraint, and attempted to appeal the denial of that motion. The only case cited by Home Depot in which the removing party appeared at a hearing for a temporary restraining order, filed a motion to dissolve or vacate that order, and appealed the denial of that order to a higher state court is Rose v. Giamatti, 721 F. Supp. 906 (S.D.Ohio 1989). In Rose, the district court reiterated the doctrine that defensive action in the state court in any proceedings short of an adjudication on an action's merits will not constitute a waiver of the statutory right of removal. It further adopted a "bright line" between submitting a case for decision on its merits, and engaging in preliminary proceedings relating to temporary restraining orders. Id. at 923. Using this bright line, the court found that the action taken by the defendant did not constitute waiver of its right to remove.
This Court rejects the bright line. The objective of the state action waiver doctrine is to prevent a party from seeking relief from state courts and then removing the action to federal court after receiving an unfavorable state court result. Removal is not an instrument for a party to appeal an adverse state court ruling to a federal district court. Adhering to a bright line that characterizes all actions in opposition to a temporary restraint "preliminary," and therefore insufficient to waive the right to removal, fails to recognize that a party can take substantial and important action in opposition to a temporary restraining order. This opposition may not only engage the resources and capacities of the state courts, but may also have far-reaching effects on the merits of the action.
In this case, Home Depot participated substantially in the state court action. After the temporary restraints were imposed, Home Depot chose to move beyond their initial oral opposition to Towers's motion and to file their own motion to dissolve the restraints in state court instead of removing the action. When this motion was denied, they chose to continue in state court, seeking interlocutory appeal from the Appellate Court. Only when this relief was denied them did they attempt to remove the action to federal court. Home Depot's counsel admitted frankly that Home Depot chose to act in state court because it felt it would have a better chance getting the temporary restraint lifted quickly in state court. Home Depot's removal papers almost entirely concerned the speedy removal of the state-imposed temporary restraining order. While the Court is not unsympathetic to Home Depot's position, given the circumstances it is clear that Home Depot is using the federal courts to undo an adverse state court determination.
In addition, in all the cases cited by Home Depot, none of the removing parties submitted any issue for the state court's determination save their opposition to the temporary restraining order. Home Depot, however, chose to submit for the state court's determination the appropriateness of preliminary injunctive relief as well as its opposition to the temporary restraining order. Under New Jersey law, the award of a preliminary injunction is subject to a much higher standard of proof, and is a type of relief more closely associated with the merits of an action than a motion for a temporary restraining order. The plaintiff must establish the threat of immediate and irreparable harm, minimal inconvenience or loss to the opposing party if relief is granted, and the plaintiff's probability of eventual success on the merits. Zoning Board of Adj. of Sparta Township v. Service Elec. Cable T.V., 198 N.J. Super. 370, 379 (App.Div. 1985). In their brief, among other issues, Home Depot argued that any harm suffered by Home Depot would be compensable through money damages. Towers seeks a permanent injunction as well as a preliminary injunction; if Towers can be made whole simply through money damages, the court would not award Towers either preliminary or permanent injunctive relief. By submitting that issue for determination by the state court, therefore, Home Depot sought a decision on at least one of the merits of the action.
Scrutiny of the facts of the case, however, leads the Court to the conclusion that, as a practical matter, the state courts' actions had a great deal of impact on the merits of the action. Home Depot argued, both to the state court and to this Court, that time is of the essence in terminating the state court-imposed temporary restraints. The third party with whom Home Depot would like to contract in order to open the new store has imposed time limits on the transaction; if Home Depot is not able to sign the lease soon, the third party will most likely contract with a competitor. Since this action is based on Home Depot's desire to sign a lease for that particular location, if the third party contracts with another for the same location, this action will almost certainly be dismissed. Therefore the state court's imposition of temporary restraints on entering the new lease has greatly affected the merits of this action.
The merits of the action are also engaged if the injunction is removed. If the state court had lifted its temporary restraints, Home Depot would have presumably signed the new lease immediately, and begun construction of the new store. Home Depot argued that simply signing the lease will not violate their current lease with Tower; only the operation of the new store will violate the Tower lease. Home Depot also estimated in their state court papers that it will take a year to prepare the site. Even accepting for the purposes of this motion both the argument and the estimate, if the action is not litigated to a close within a year, any injunction to prevent the violation of the lease will become moot. A permanent injunction may possibly be obtained to prevent the further operation of the store, but by that time Tower might well have suffered damage to their income percentage rent and/or value of property. This damage, despite Home Depot's confident prediction, may be difficult or impossible to measure. Therefore, if the state court had dissolved the temporary restraint it is highly probable that the injunctive relief sought by Tower would have become moot. This result would affect the merits of the action.
For the foregoing reasons, the Court grants Plaintiff's motion for remand.