Opinion
Civil Action No. 00-3805 CC, SECTION "N"
September 20, 2001
ORDER AND REASONS
Before the Court is plaintiff Winchester Navigation Limited's Motion to Remand and for Costs and Attorney's Fees. For the following reasons, the plaintiff's motion is DENIED.
BACKGROUND
On April 5, 2001, defendant Kennedy Funding, Inc. ("Kennedy") submitted the highest bid for the M/V ENCHANTED CAPRI at a Court-ordered interlocutory sale. This sale was ordered in connection with Civil Action No. 00-3805, which is still pending before this Court. Kennedy's winning bid consisted of $4 million in cash and $4.9 million in credit from a mortgage it held against the vessel's purported owner, Norsong Shipping Limited ("Norsong"). This Court confirmed the sale on June 11, 2001. Winchester Navigation Limited ("Winchester") objected to the sale on the grounds that it, and not Norsong, was the true owner of the ENCHANTED CAPRI, that Kennedy's mortgage was invalid, and that the sale was therefore inappropriate. Without conclusively deciding the issue of who truly owned the vessel, the Court rejected Winchester's challenge to the sale because it did not have sufficient proof to support its allegations. Winchester's interlocutory appeal of the sale is currently pending before the Fifth Circuit.
On August 9, 2001, Winchester filed the instant case in state court against Kennedy, Norsong, and several other defendants. Winchester asserts the same allegations presented to this Court, claiming that (1) Norsong fabricated a bill of sale and fraudulently asserted ownership over the vessel and (2) Kennedy issued an invalid mortgage. In connection with the state court action, Winchester arrested the ENCHANTED CAPRI pursuant to Article 3501 of the Louisiana Code of Civil Procedure. On August 16, 2001, Kennedy removed the case to federal court, alleging that Norsong had been fraudulently joined for the purpose of defeating federal jurisdiction. Winchester now asks the Court to remand the case.
LAW AND ANALYSIS
28 U.S.C. § 1332 does not confer federal diversity jurisdiction over suits between citizens of foreign states. See Giannakos v. M/V BRAVO TRADER, 762 f.2d 1295. 1298 (5th Cir. 1985). In the instant case, Winchester and Norsong are both Liberian corporations, and the presence of aliens on both sides of the action destroys complete diversity. However, Kennedy has removed the case, arguing that Norsong has been fraudulently joined as a defendant and that its presence should be ignored for jurisdictional purposes. A defendant generally may remove a civil action brought in state court to a federal district court which would have had original jurisdiction. See 28 U.S.C. § 1441. "[W]hen faced with a motion to remand, it is the defendant's burden to establish the existence of federal jurisdiction over the controversy." Winters v. Diamond Shamrock Chem. Co., 149 F.3d 387, 397 (5th Cir. 1998), cert. denied, 526 U.S. 1034 (1999). Accordingly, as the removing defendant, Kennedy bears the burden of proof that Norsong has been fraudulently joined. Delgado v. Shell Oil Co., 231 F.3d 165, 178 (5th Cir. 2000).
To establish fraudulent joinder, Kennedy must show that there is no reasonable probability that Winchester can recover against Norsong or that there has been outright fraud in the pleading of jurisdictional facts. See id. at 179. The Court must view the facts in the light most favorable to Winchester and must resolve all contested issues of fact and uncertainties of state law in Winchester's favor. Rodrinuez v. Sabatino, 120 F.3d 589, 591 (5th Cir. 1997) (quoting Green v. Amerada Hess Corp., 707 F.2d 201, 205-06 (5th Cir. 1983)), cert. denied, 523 U.S. 1072 (1998).
Kennedy argues that Winchester cannot recover against Norsong for three reasons. First, it contends that Winchester has "no intention of actually proceeding against Norsong." Kennedy Mem. Opp. at 2. Second, it asserts that Norsong is not subject to personal jurisdiction in the state of Louisiana. Finally, it argues that Winchester is "well aware" that it cannot prevail against Norsong in state court. Id.
1. Winchester's Intent to Enforce Judgment Against Norsong
Kennedy first claims that Winchester "has no intention of proceeding against Norsong, " and therefore it named Norsong as a defendant for the sole purpose of frustrating diversity jurisdiction. Kennedy Mem. Opp. at 4. Kennedy bases this argument on the facts that Norsong has not yet been served and that Norsong has no assets. Although Norsong has not yet been served, Winchester is still well within the delays for service provided by both Louisiana and federal civil procedure. Moreover, Winchester avers that it is searching for Norsong's principals upon whom to effect service of process. Accordingly, the Court cannot infer that Norsong has been fraudulently joined due to the lack of service.
In addition, the allegation that Norsong is judgment proof is irrelevant to the issue of whether Winchester is entitled to proceed against it. Although a plaintiff's intent to obtain a judgment is indicative of whether a defendant has been fraudulently joined, a plaintiff's intent to collect upon that judgment is another matter. See, e.g., Nosonowitz v. Allegheny Beverage Corp., 463 F. Supp. 162, 163 (S.D.N.Y. 1978) (holding that "intent to obtain a judgment" is clearly not co-extensive with "intent to collect upon that judgment"); Parks v. New York Times Co., 308 F.2d 474, 478 (5th Cir. 1962), cert. denied, 376 U.S. 949 (1964). Furthermore, Winchester alleges that it intends to personally name Norsong's principals as defendants, and Kennedy has not established that Winchester will not be able to recover damages from these principals for Norsong's alleged fraud. See, e.g., Scott v.Chevron U.S.A., Inc., 824 F. Supp. 613, 614 (N.D.Miss. 1993) (refusing to find fraudulent joinder because removing defendant did not prove plaintiff could not obtain a recovery from insolvent debtor's principals based on an alter ego theory).
2. Louisiana's Personal Jurisdiction over Norsong
Kennedy also alleges that Winchester cannot establish a valid cause of action against Norsong because it is not subject to jurisdiction in the state of Louisiana. Section 13:3201 of the Louisiana Revised Statutes provides that a Louisiana court may exercise personal jurisdiction over a non-resident who causes injury or damage (1) "by an offense or quasi offense committed through an act or omission in this state" or (2) "by an offense or quasi offense committed through an act or omission outside of this state if he regularly does or solicits business, or engages in any other persistent course of conduct, or derives revenue from goods used or consumed or services rendered in this state." LA. REV. STAT. ANN. § 13:3201 (West 2001).
Winchester argues that Louisiana courts have personal jurisdiction over Norsong because it committed fraud in the state. Specifically, Winchester claims that, in furtherance of its fraudulent bill of sale and subsequent invalid mortgage, Norsong appeared in the arrest proceedings in Freret Marine Supply v. M/V ENCHANTED CAPRI, Civil Action No. 00-3805, and fraudulently asserted ownership over the vessel. Since Winchester has clearly alleged that Norsong committed fraud and caused injury within Louisiana, the Court does not find that the state of Louisiana lacks personal jurisdiction over Norsong. However, Winchester's assertion that Norsong committed fraud in connection with Civil Action No. 00-3805 directly bears on Kennedy's final argument that Winchester has no possibility of establishing a valid cause of action against Norsong because Louisiana courts lack subject matter jurisdiction over the controversy.
3. Winchester's Cause of Action Against Norsong
In determining whether a party has been fraudulently joined to a lawsuit, the Court must decide whether the plaintiff has any possibility of establishing a valid cause of action against the defendant in question. See Booty v. Shoney's, Inc., 872 F. Supp. 1524, 1529 (E.D.La. 1995); Laughlin v. Prudential Ins. Co., 882 F.2d 187 (5th Cir. 1989). Kennedy argues that "Winchester is well aware that under no circumstances can it succeed in any suit it brings against Norsong in state court in Louisiana." Kennedy Mem. Opp. at 2. It submits three grounds for this conclusion.
First, Kennedy challenges the validity of Winchester's cause of action for fraud. It does not submit legal authority for its position and appears to rely on the factual conclusion that Norsong was in fact the rightful owner of the ENCHANTED CAPRI. However, although the Court has previously expressed its scepticism of Winchester's claims of fraud and of its allegation that it owned the ENCHANTED CAPRI, the Court has already explained that the issue of ownership has not yet been conclusively determined. See Rec. Doc. No. 294 at 2 (stating that "it is patently clear that the issue of ownership is unresolved and remains to be litigated"). Accordingly, the Court cannot accept Kennedy's position that Winchester's cause of action itself is invalid.
Kennedy also alleges that Winchester fails to state a claim because it has not incurred damages as a result of Norsong's involvement with the ENCHANTED CAPRI. However, Winchester alleges that, as the legitimate owner of the ENCHANTED CAPRI, it is entitled to a portion of the $4 million dollars in cash proceeds from the vessel's sale. As the holder of a mortgage over the ENCHANTED CAPRI, Kennedy stands ahead of Winchester to receive whatever is left from the sale proceeds after the maritime lienholders are paid. Accordingly, Winchester can potentially recover damages if it proves that Norsong fraudulently asserted ownership over the ENCHANTED CAPRI and mortgaged it to Kennedy. In addition, Winchester alleges that it suffered damages because Norsong failed to notify it that the ENCHANTED CAPRI was under arrest. Winchester argues that this additional act of fraud allowed Kennedy to successfully bid on the vessel without Winchester's knowledge that a sale was taking place. Accordingly, Winchester claims it lost its ship because it was unable to post the $12 million bond required by this Court. Although the Court continues to find Winchester's claims of ownership suspect, it cannot find for jurisdictional purposes that Winchester has not sustained damages as a result of Norsong's allegedly fraudulent acts.
Third, Kennedy argues that Winchester has no possibility of establishing a valid cause of action against Norsong in the state court case because no Louisiana state court has subject matter jurisdiction over the controversy. Kennedy argues that "the substantive argument raised by plaintiff is identical to issues currently before this Court and on appeal within the United States Fifth Circuit Court of Appeals. As a result, removal was appropriate and the motion to remand must be denied." Kennedy Mem. Opp. at 2. Kennedy also notes that Winchester partially bases its claim against Norsong on actions taken during the proceedings pending before this Court in Civil Action No. 00-3805. Specifically, it points to Winchester's allegation in the state court action that Norsong filed pleadings in Civil Action No. 00-3805 that fraudulently claimed ownership of the ENCHANTED CAPRI. Kennedy argues that
The propriety of any pleadings [in Civil Action No. 00-3805] and any remedy as a result thereof is within the exclusive ambit of this Court. No state court has subject matter jurisdiction to collaterally attack a Federal Court proceeding. Accordingly, Louisiana State Court does not have subject matter jurisdiction over any alleged fraud or impropriety which may have arisen in the course of these proceedings before this Honorable Court.
Kennedy Mem. Resp. at 2.
Although Kennedy has not articulated the legal theory behind its argument or cited any case law supporting it, the Court agrees that no Louisiana court can assert subject matter jurisdiction over Winchester's state court case for several reasons. First, because the ENCHANTED CAPRI has been attached in both the instant case and in the case currently pending before this Court, parallel state and federal suits raise the possibility of conflicting in rem proceedings. In Penn General Cas. Co. v. Commonwealth of Pa., 294 U.S. 189, 195 (1935), the Supreme Court announced the principle that if two competing actions are in rem or quasi in rem, the court first assuming jurisdiction over the property in question exercises that jurisdiction to the exclusion of the other. The Supreme Court explained that:
Where the judgment sought is strictly in personam, for the recovery of money or for an injunction compelling or restraining action by the defendant, both a state court and a federal court having concurrent jurisdiction may proceed with the litigation, at least until judgment is obtained in one court which may be set up as res adjudicata in the other. But, if the two suits are in rem or quasi in rem, requiring that the court or its officer have possession or control of the property which is the subject of the suit in order to proceed with the cause and to grant the relief sought, the jurisdiction of one court must of necessity yield to that of the other. To avoid unseemly and disastrous conflicts in the administration of our dual judicial system, and to protect the judicial processes of the court first assuming jurisdiction, the principle, applicable to both federal and state courts, is established that the court first assuming jurisdiction over the property may maintain and exercise that jurisdiction to the exclusion of the other.Id. (citations omitted).
In the instant case, Winchester has arrested the ENCHANTED CAPRI pursuant to a quasi in rem Writ of Attachment (which Kennedy claims is improper). In Civil Action No. 00-3805, the ENCHANTED CAPRI was also attached by numerous claimants with in rem maritime liens, and the vessel was eventually sold at a judicial sale ordered by this Court. Since the previous attachment theoretically ended with the sale, in an ordinary situation this Court's in rem jurisdiction over the vessel would have been terminated, and a jurisdictional conflict with another court would not exist. However, Winchester has taken an interlocutory appeal of that sale to the Fifth Circuit asserting that the sale was improper. In fact, in its appeal Winchester asserts the same grounds it asserts in the instant suit — that Winchester was the true owner of the vessel and that Norsong and Kennedy committed fraud.
Since the Fifth Circuit has not yet addressed the propriety of the judicial sale, this Court must maintain the jurisdiction it originally asserted in Civil Action No. 00-3805, and this Court "alone can rightfully assert control over the property and proceed with litigation that affects that control, and it alone can determine how far it will permit any other court to interfere." Id. at 197 (citations omitted). See, also, O.C. Smith v. Humble Oil Refining Co., 425 F.2d 1287, 1288 (5th Cir. 1970) (holding that "[i]t has long been the rule that once a court, state or federal, has assumed jurisdiction of an in rem or quasi in rem proceeding, then that court may exercise its jurisdiction to the exclusion of any other court and the res in question is withdrawn from the jurisdiction of any other court). Allowing a state court to assert concurrent in rem jurisdiction over the ENCHANTED CAPRI could lead to numerous problems including inconsistent judgments.
Because this Court has already asserted in rem jurisdiction over the ENCHANTED CAPRI in Civil Action No. 00-3805, because that case is still pending, and because the judicial sale of the vessel is awaiting disposition on an interlocutory appeal, this Court chooses to exclude any other court from exercising jurisdiction over the vessel. See Penn General, 244 U.S. at 195. Accordingly, since no Louisiana court has jurisdiction over Winchester's claim against Norsong, the Court finds that Kennedy has carried its burden of proof that Winchester has no possibility of establishing a valid cause of action against Norsong in state court. Therefore, Norsong has been fraudulently joined as a defendant, and the case was properly removed to federal court.
In addition, the Court finds that Winchester's pursuit of its fraud claim against Norsong in state court is an attempt to evade this Court determination of the issue of ownership and offends the principal of comity between state and federal courts. In Swope v. Mary Parish School Board, 241 So.2d 238, 242 (La. 1970), the Louisiana Supreme Court stated that:
Moreover, as a matter of comity, it appears to us that the courts of this state should refrain (as the district court and the Court of Appeal did here) from upholding their jurisdiction over that of the federal courts with respect to a given subject matter already the subject of decrees of the latter courts. Our court system should not be used as an instrument to circumvent orders and decrees of a federal court in a controversy in which the latter has already asserted its jurisdiction. Any other course, if pursued regularly, will set the state and federal courts into continuous and chaotic conflict; and it will place litigants as well as the district judges of this state in an obviously untenable, if not impossible, position, such as would result in the present case if we were to order the district judge herein (and ultimately the defendants) to defy the presently existing orders of the federal court.
In Civil Action No. 00-3805. this Court clearly asserted its jurisdiction over the controversy concerning the ENCHANTED CAPRI. In the instant case, Winchester is attempting to bring the issues currently pending in this Court and the Fifth Circuit Court of Appeals before a state forum. In addition to the Penn doctrine which bars concurrent in rem jurisdiction, this Court also finds that the Louisiana Supreme Court's directive in Swope would prevent a Louisiana state court from exercising jurisdiction.
CONCLUSION
For the reasons stated above, the Court finds that defendant Norsong Shipping Limited has been fraudulently joined as a defendant. Accordingly, its presence will be ignored for jurisdictional purposes, and defendant Winchester Navigation Limited's Motion to Remand is DENIED.