Opinion
CAUSE NO. IP 96-1824-C H/G.
April 30, 1997
ENTRY ON PLAINTIFFS' MOTION TO REMAND
Plaintiffs filed this action in the Marion Superior Court in Marion County, Indiana. Defendants removed the case to federal court, asserting that it falls within this court's federal question and diversity jurisdiction. 28 U.S.C. §§ 1331, 1332. Plaintiffs have moved to remand the case to state court. Whether plaintiffs' claims arise under federal law must be determined from the complaint. In considering other issues affecting subject matter jurisdiction, including defendants' assertion of fraudulent joinder of a non-diverse defendant, the court is not limited to the complaint. Accordingly, the court has permitted discovery limited to jurisdictional issues, and the parties have submitted a substantial volume of evidence concerning the web of contracts and corporate relationships that are central to the fraudulent joinder issue. No party has asked for an evidentiary hearing on the motion to remand. In view of the thorough documentation of the relevant relationships and transactions, the court sees no need for one. For the reasons explained below, the court concludes that plaintiffs' claims in this case do not arise under federal law, the parties are not completely diverse, and the non-diverse defendant was not fraudulently joined in this action. Accordingly, the court must remand the case to the state court.
The Parties
Plaintiff Guidant Corporation ("Guidant") is an Indiana corporation with its principal place of business in Indianapolis, Indiana. Cplt. ¶ 2. Plaintiff Cardiac Pacemakers, Inc. ("CPI") is a Minnesota corporation with its principal place of business in St. Paul, Minnesota. Until 1994, CPI was a wholly owned subsidiary of plaintiff Eli Lilly and Company ("Lilly"). It is now a wholly owned subsidiary of Guidant. Id. ¶ 3. Both Guidant and CPI manufacture, develop, design, and market products for use in cardiac rhythm management, including cardiac stimulation devices. Id. ¶¶ 2-3. Plaintiff Guidant Sales Corporation ("GSC") is an Indiana corporation with its principal place of business in Indianapolis. GSC is a wholly owned subsidiary of CPI, and was established for the purpose of selling products manufactured by CPI and other Guidant subsidiaries. Id. ¶ 4. Plaintiff Lilly is Indiana corporation with its principal place of business in Indianapolis. Until 1994 Lilly was the parent company of CPI. Id. ¶ 5.
Defendant St. Jude Medical, Inc. ("St. Jude") is a Minnesota corporation with its principal place of business in St. Paul, Minnesota. Id. ¶ 6; Notice of Removal ¶ 7. St. Jude competes against CPI and GSC in designing, developing, manufacturing, and marketing cardiac stimulation devices. Cplt. ¶ 7. Defendant Pacesetter, Inc. ("Pacesetter") is a Delaware corporation with its principal place of business in Sylmar, California. Id. ¶ 7; Notice of Removal ¶ 7. Pacesetter is a wholly owned subsidiary of St. Jude and also competes with CPI and GSC. Ventritex, Inc. ("Ventritex") is a Delaware corporation with its principal place of business in Sunnyvale, California. Cplt. ¶ 16. Ventritex also competes with CPI and GSC in the medical device business. Id. The remaining named defendants are known collectively as "the Telectronics parties" or "the Telectronics Group" and are all wholly owned subsidiaries of Pacific Dunlop, Ltd. ("Pacific Dunlop"), an Australian corporation headquartered in Melbourne, Australia. Each individual corporation in the Telectronics Group is diverse from each plaintiff — their various citizenships include Delaware, Australia, the Netherlands, the Netherlands Antilles, Colorado, Florida, and France. Id. ¶¶ 8-14; Notice of Removal ¶ 7. Two defendant corporations in the Telectronics Group should be noted specifically because of their roles in the relevant transactions. According to the complaint, defendant Telectronics Pacing Systems, Inc. ("TPSI") is a Delaware corporation with its principal place of business in Englewood, Colorado, and defendant TPLC, Inc. ("TPLC") is a Delaware corporation with its principal place of business in Hialeah, Florida. Cplt. ¶¶ 8, 13.
One issue that appears central to plaintiffs' claims in this action is whether the term "the Telectronics Group" as defined in the March 8, 1994, agreement ("the Telectronics Licensing Agreement") includes corporations other than those specifically named in plaintiffs' complaint. See Pl. App. 3, § 1.08 ("Telectronics Group" defined as "TELECTRONICS and Affiliates, including but not limited to" the individual corporations listed in the Telectronics Licensing Agreement). For purposes of plaintiffs' motion to remand, however, the issue is not important.
In their notice of removal, defendants assert that TPSI is a "non-operating holding company." Notice of Removal ¶ 7 n. 4. For purposes of plaintiffs' motion to remand, the pleadings indicate, and the parties agree, that defendant St. Jude is the only non-diverse defendant that has been properly named and served, and that neither TPSI nor any other corporation in the Telectronics Group is a non-diverse party for purposes of this court's diversity jurisdiction.
Facts
Plaintiffs' claims involve a fairly complex set of contracts and corporate relationships. A relatively brief summary of the relevant facts should suffice to introduce the jurisdictional issues, and more details will be set forth as needed. Plaintiffs' claims revolve around two separate licensing agreements with competitors concerning patent rights relating to cardiac stimulation devices and other devices used to regulate heart rhythms. Plaintiffs CPI and Lilly were parties to both agreements. One licensing agreement was with the Telectronics Group, and the transactions incident to that agreement are summarized under the section entitled "The Telectronics Transactions." The other licensing agreement was with Ventritex, and the transactions incident to that agreement are summarized below as "The Ventritex Transactions." The Ventritex Transactions are the subject of a separate action before this court in which several of these same plaintiffs seek a declaratory judgment that defendants' intended actions will infringe plaintiffs' patents. See Cardiac Pacemakers, Inc., et al. v. St. Jude Medical, Inc., et al., Cause No. 96-1718-C. Although the parties hotly dispute the precise role of defendant St. Jude, it is plain that the Telectronics Transactions and the Ventritex Transactions are closely related, and that through those transactions, subsidiaries of St. Jude have sought or are seeking to acquire rights to use the patent license rights granted by Lilly and CPI to the Telectronics Group and Ventritex, as well as the ongoing business of Ventritex that manufactures and sells pacemakers and other devices to control cardiac rhythm, all for use in competition with plaintiffs.I. The Telectronics Transactions
Effective March 8, 1994, Lilly and CPI entered into a cross-licensing agreement with the Telectronics Group ("the Telectronics Licensing Agreement"). Section 12.03 of the Telectronics Licensing Agreement provided in relevant part that "the Agreement can be transferred with the sale of all of the voting stock of the TELECTRONICS GROUP or with the sale of substantially all of the assets of the TELECTRONICS GROUP. . . ." Pl. App. 3, § 12.03.
In citing exhibit numbers in the appendix to plaintiffs' supplemental brief, the court refers to the numbers as marked and tabbed in the appendix, not to the "deposition exhibit" numbers.
On September 24, 1996, a newly formed subsidiary of St. Jude called O Acquisition, Inc. entered into an asset purchase agreement ("Asset Purchase Agreement") with TPSI and TPLC, two corporations that are part of the Telectronics Group. Pursuant to the Asset Purchase Agreement, O Acquisition agreed to purchase substantially all the assets of TPSI and TPLC. Pl. App. 8, § 1.1. Included in the purchased assets were all of TPSI's and TPLC's "Proprietary Rights," including the right to use the name "Telectronics." Id. § 1.1(e). The term "Proprietary Rights" was defined in the Asset Purchase Agreement to include all United States and foreign patents and other intellectual property owned by either TPSI and TPLC, as well as licenses and other agreements by which TPSI and TPLC had acquired such rights. Id. § 4.15(a). Of particular relevance here, the Asset Purchase Agreement specifically referred to the patent licenses that had been granted by CPI and Lilly to TPSI and TPLC in 1994. As part of the Asset Purchase Agreement, the sellers warranted that O Acquisition would acquire the rights, upon consummation of the transaction contemplated by the agreement and subject to the obligations of the Telectronics Group, "to make, have made, use, sell and have sold `Cardiac Stimulation Devices'" under the Telectronics Licensing Agreement between CPI and Lilly and the Telectronics Group. Id. § 4.15(d). The Asset Purchase Agreement also provided that O Acquisition could assign its rights under the Asset Purchase Agreement "to one or more of its Affiliates prior to the Closing." Id. § 12.4.
O Acquisition had essentially no assets; it was described by one St. Jude officer as a "bookmark" to make the transaction easier to accomplish. Pl. App. 1 at 77. Thus, the Asset Purchase Agreement provided that St. Jude would guarantee O Acquisition's performance of all obligations under the Asset Purchase Agreement. Pl. App. 8, § 10.7 Ex. E ("Guarantees") at TEL 000100. By the same token, Pacific Dunlop Limited, the parent corporation of the two Telectronics parties to the Asset Purchase Agreement, was required to guarantee certain obligations of the sellers. Pacific Dunlop specifically agreed in that guarantee that its obligations were in favor of both O Acquisition and St. Jude. Id. at TEL 000090.
On November 29, 1996, O Acquisition entered into an "Assignment Agreement" with Pacesetter, another affiliate of St. Jude. The Assignment Agreement assigned to Pacesetter all the rights that O Acquisition acquired from TPSI and TPLC under the Asset Purchase Agreement. Pl. App. 17. Also on November 29, 1996, the Asset Purchase Agreement closed. Pacesetter has not since assigned the rights.
II. The Ventritex Transactions
In 1993, CPI and Lilly entered into a separate cross-licensing agreement with Ventritex ("the Ventritex Licensing Agreement"). Cplt. ¶¶ 26-28. Under the Ventritex Licensing Agreement, Lilly and CPI granted to Ventritex a license under patents owned by Lilly and/or CPI. Id. ¶ 28. While the rights granted by Lilly and CPI to Ventritex were irrevocable and would survive the termination of the Ventritex Licensing Agreement, that agreement provides that the licenses terminate immediately upon a change in control of Ventritex. Id.
On October 23, 1996, St. Jude and Pacesetter entered into an agreement with Ventritex providing for the merger of Ventritex with and into Pacesetter, with Pacesetter surviving the merger ("the Ventritex merger"). Id. ¶ 30. Under the terms of the Ventritex Licensing Agreement, the licenses granted to Ventritex by CPI and Lilly will, according to plaintiffs, automatically terminate upon the closing of the Ventritex merger. Id. ¶ 32. In Cause No. 96-1718, three of these same plaintiffs are seeking from this court a declaratory judgment that any effort by Pacesetter or St. Jude to continue Ventritex's business of producing and selling the products that are subject to the licenses in the Ventritex Licensing Agreement would amount to an infringement of plaintiffs' patents. To date, the Ventritex merger has not closed.
Under the Ventritex merger agreement, St. Jude will issue its own stock in exchange for Ventritex stock. Pl. App. 28, § 1.8(a). The Ventritex merger agreement also specifically links the Ventritex merger with the Telectronics transactions. The closing of the Asset Purchase Agreement between O Acquisition and TPSI and TPLC was actually an express condition to the parties' obligations to close the Ventritex merger. Id. § 5.1(g). That condition has been satisfied, but there are other conditions and the Ventritex merger has not closed yet. Also illustrating the linkage, as part of the Ventritex merger agreement, St. Jude provided copies of "all Telectronics Agreements in effect as of the date of this Agreement and any written documents, instruments or other arrangements executed by the parties thereto in connection therewith." Id. § 3.16.
III. Plaintiffs' Complaint and Defendants' Notice of Removal
On November 26, 1996, three days before the Asset Purchase Agreement closed, plaintiffs filed suit in the Marion Superior Court in Marion County, Indiana. Count I of plaintiffs' three-count complaint seeks principally a declaratory judgment that the Asset Purchase Agreement was ineffective to transfer the Telectronics Licensing Agreement under Section 12.03 of that agreement because the transaction did not constitute the sale of substantially all of the assets of the "TELECTRONICS GROUP under the Agreement" Cplt. at 11. Count I also seeks an injunction prohibiting defendants from further attempts to assign the licenses except as provided under the terms of the Telectronics Licensing Agreement. Count II seeks a declaration that the licenses granted in the Telectronics Licensing Agreement may not be transferred or assigned and then used or applied to the manufacture or sale of cardiac stimulation devices, and that any attempt to so transfer or assign the licenses is null and void. Id. ¶ 45. Count III seeks a declaratory judgment that the arbitration clause of the Telectronics Licensing Agreement does not apply to this case. (That issue is the subject of separate litigation filed in the District of Minnesota and currently pending in the Eighth Circuit. Telectronics Pacing Sys., Inc. v. Guidant Corp., Civil No. 4-96-1255, appeal no. 97-1785MN.)
Discussion
Defendants removed this action to federal court, asserting that the case falls within this court's federal question jurisdiction and its diversity jurisdiction. Defendants assert that Count II of plaintiffs' complaint establishes federal question jurisdiction because it is essentially a claim for patent infringement and/or necessarily "implicates" federal patent law questions. On the diversity question, defendants argue that St. Jude, the only non-diverse defendant, was fraudulently joined to defeat diversity and that all other requirements for diversity jurisdiction have been met. Plaintiffs have moved to remand. They contend that they have exercised their privilege as "masters of their complaint" to plead only contract claims arising under state law. They also contend they have pleaded viable state law claims against St. Jude, the non-diverse defendant, so that its joinder as a defendant was not fraudulent.
I. Federal Question Jurisdiction
The removal statute provides in relevant part that any "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." 28 U.S.C. § 1441(b). Defendants assert that 28 U.S.C. § 1338 provides this court with original jurisdiction: "The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents. . . ." 28 U.S.C. § 1338. Plaintiffs' complaint makes no reference to federal patent law, but defendants contend the action is within this court's original jurisdiction because the complaint "necessarily implicates federal patent law questions." The question here is whether plaintiffs have alleged a cause of action that "arises under" federal patent law.
A court determines whether a cause of action "arises under" federal patent law (or any federal law) by examining the plaintiff's "well-pleaded complaint." A district court's jurisdiction under § 1338(a) extends "only to those cases in which a well-pleaded complaint establishes either that federal patent law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal patent law, in that federal patent law is a necessary element of one of the well-pleaded claims." Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 808-09 (1988) (applying well-pleaded complaint principles to § 1338(a), following Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U.S. 1, 27-28 (1983)). Plaintiffs are asserting claims in this case that arise from a contract — the Telectronics Licensing Agreement. Patent law did not create the causes of action that plaintiffs have chosen to assert in this action. Thus, under Christianson, the remaining question is whether patent law "is a necessary element" of any of plaintiffs' claims.
Plaintiffs have mentioned "patent rights" within the factual allegations of the complaint. Cplt. ¶ 19. However, the fact that a patent or a patent right is the subject of a contract does not mean that claims on the contract arise under federal law. Nor is plaintiffs' assertion that they are the owners of patent rights sufficient to confer jurisdiction on this court. See, e.g., Imperial Appliance Corp. v. Hamilton Mfg. Co., 430 F.2d 185, 188 (7th Cir. 1970) (federal jurisdiction is created neither by "a plea in the defendant's answer challenging plaintiff's title to the patent in suit, [nor] even by the anticipation of such a defense in plaintiff's complaint") (citations omitted). Similarly, plaintiffs' claims in Count II do not arise under federal patent law. Plaintiffs seek only a declaration that the licenses granted by CPI and Lilly to the Telectronics Group may not be assigned to St. Jude, Pacesetter, or any affiliated entities for use in making cardiac stimulation devices. That claim also arises under contract law. The dispute in Count II is over the application of the contract for patent licenses, not the scope or validity of the underlying patents. The fact that the licenses and the Telectronics Licensing Agreement concern patents is insufficient to confer jurisdiction on this court. As Chief Justice Taft wrote for the Supreme Court:
where a patentee complainant makes his suit one for recovery of royalties under a contract of license or assignment, or for damages for a breach of its covenants, or for a specific performance thereof, or asks the aid of the Court in declaring a forfeiture of the license or in restoring an unclouded title to the patent, he does not give the federal district court jurisdiction of the cause as one arising under the patent laws. Nor may he confer it in such a case by adding to his bill an averment that after the forfeiture shall be declared, or the title to the patent shall be restored, he fears the defendant will infringe and therefore asks an injunction to prevent it.Luckett v. Delpark, Inc., 270 U.S. 496, 510-511 (1926) (emphasis added). Accord, Milprint, Inc. v. Curwood, Inc., 562 F.2d 418, 420 (7th Cir. 1977); see also Saturday Evening Post Co. v. Rumbleseat Press, Inc., 816 F.2d 1191, 1198 (7th Cir. 1987) (federal courts can acquire jurisdiction over a dispute about compliance with a copyright licensing agreement only by virtue of diversity or supplemental jurisdiction). Defendants have not addressed Christianson v. Colt Industries, nor have they offered any relevant authority in support of their argument that this action arises under federal patent law. Plaintiffs have chosen to plead their complaint in terms of contract law. Under the well-pleaded complaint doctrine, a plaintiff has the right to make such a choice, and this action sounds entirely in contract and does not arise under federal law. This court does not have jurisdiction under 28 U.S.C. §§ 1331 or 1338, and removal on that basis was not proper.
II. Diversity Jurisdiction
Defendants press more vigorously their argument that removal was proper because this case is within the court's diversity jurisdiction, and that argument presents a closer question. At the time this action was filed, the diversity jurisdiction statute provided that the "district courts shall have original jurisdiction of all civil actions where the amount in controversy exceeds the sum or value of $50,000 . . . and is between . . . citizens of different States and in which citizens or subjects of a foreign state are additional parties. . . ." 28 U.S.C. § 1332(a)(3). This statute has consistently been held to require "complete diversity," so diversity jurisdiction is not available where any plaintiff is a citizen of the same state as any defendant. Owen Equip. Erection Co. v. Kroger, 437 U.S. 365, 373-74 (1978); Howell v. Tribute Entertainment Co., 106 F.3d 215, 217 (7th Cir. 1997). As the parties seeking to invoke federal diversity jurisdiction, defendants have the burden of proving that the complete diversity requirement is met. Chase v. Stop `N Save Warehouse Foods, Inc., ___ F.3d ___, 1997 WL 149536, at *3 (7th Cir. Mar. 27, 1997).
Effective January 17, 1997, the statute was amended to raise the jurisdictional amount in controversy requirement to $75,000. There is no doubt that the requirement is satisfied in this action.
The parties agree that St. Jude is the only non-diverse defendant named and served in this action. Like plaintiff CPI, defendant St Jude is a corporation that is organized and headquartered in Minnesota. If St. Jude is a proper party to this action, its presence defeats diversity. However, defendants argue that St. Jude was fraudulently joined to defeat diversity, and that its presence must be disregarded for purposes of 28 U.S.C. § 1332(a). "Fraudulent joinder occurs either when there is no possibility that a plaintiff can state a cause of action against nondiverse defendants in state court, or where there has been an outright fraud in plaintiff's pleading of jurisdictional facts." Hoosier Energy Rural Elec. Co-op. v. Amoco Tax Leasing IV Corp., 34 F.3d 1310, 1315 (7th Cir. 1994), quoting Gottlieb v. Westin Hotel Co., 990 F.2d 323, 327 (7th Cir. 1993). There is no allegation of "outright fraud" here. Instead, defendants contend that plaintiffs have not pleaded a viable cause of action against St. Jude. The standard for showing fraudulent joinder is a high one. Defendants must show that, "after resolving issues of fact and law in favor of the plaintiff, the plaintiff cannot establish a cause of action against the in-state defendant." Poulos v. Naas Foods, Inc., 959 F.2d 69, 73 (7th Cir. 1992) (emphasis in original). The test for determining whether a non-diverse defendant has been "fraudulently" joined is whether there is any reasonable possibility that plaintiffs could establish a cause of action against the non-diverse defendant in state court. Faucett v. Ingersoll-Rand Min. Mach. Co., 960 F.2d 653, 654-55 (7th Cir. 1992). Federal courts "must engage in an act of prediction: is there any reasonable possibility that a state court would rule against the non-diverse defendant?" Poulos, 959 F.2d at 73.
Defendants contend that St. Jude is not a proper party because plaintiffs' claims are based on contracts (collectively summarized above as "the Telectronics Transactions") involving St. Jude's subsidiaries, but to which St. Jude itself was not a party. See Notice of Removal ¶ 11. O Acquisition was the party to the Asset Purchase Agreement, and O Acquisition then assigned its rights to Pacesetter. Defendants point out that the parent company's role as shareholder — even as sole shareholder — of a subsidiary is not sufficient to give the parent a legally cognizable interest in lawsuits or contracts to which its subsidiary is a proper party. See generally, e.g., Aronson v. Price, 644 N.E.2d 864, 867 (Ind. 1994) (discussing Indiana law concerning disregard of corporate entities); Winkler v. V.G. Reed Sons, Inc., 638 N.E.2d 1228, 1231-32 (Ind. 1994) (same).
Plaintiffs respond with several related arguments. First, plaintiffs contend that St. Jude is an appropriate defendant because St. Jude has publicly and repeatedly held itself out as the party that acquired the licenses originally granted to the Telectronics Group in the Telectronics Licensing Agreement. Pl. Supp. Br. at 2, 16. St. Jude has done so in numerous public announcements, letters, and regulatory filings. These public statements and regulatory filings do provide a sufficient basis for including St. Jude as a defendant in this action. Federal securities laws are designed to require issuers of securities to make disclosures about their businesses and related entities so as to allow investors to, as it were, "look through" corporate veils between related entities. Such disclosures are intended to enable investors to make better informed decisions about investments. In the absence of fraud or unfairness to innocent third parties, however, public statements and filings that comply with those obligations or essentially serve the same purpose should not enable opposing parties in litigation to "pierce" those same corporate veils and to hold a reporting parent liable for actions of its subsidiaries.
The complaint also named as defendants John Does 1-10, who were described in the complaint as "corporations and entities, the identity of which is currently not ascertained by plaintiffs, . . . that have been or are created to assist, facilitate, and/or effectuate the acquisitions referred to in paragraphs 29 and 30 of this Complaint." Cplt. ¶ 17. The materials submitted by the parties show that O Acquisition, Inc. was the St. Jude subsidiary that actually contracted with the Telectronics parties to acquire the patent licenses at issue here, and that O Acquisition is a citizen of both Delaware and Minnesota, so that its presence as a defendant would also defeat diversity. The removal statute provides in part: "For purposes of removal . . ., the citizenship of defendants sued under fictitious names shall be disregarded," 28 U.S.C. § 1441(a), but after removal a plaintiff may seek to join additional defendants whose joinder would destroy diversity, 28 U.S.C. § 1447(e). Plaintiffs have not sought to join O Acquisition as a named party. Cf. Casas Office Machines, Inc. v. Mita Copystar America, Inc., 42 F.3d 668, 673-75 (1st Cir. 1994) (diversity jurisdiction defeated and remand required where, after removal, fictitious defendants are replaced with non-diverse named defendants).
Second, plaintiffs argue that St. Jude's role in these related transactions was sufficient to render it an entity having "any interest which would be affected" by this case's outcome, so that St. Jude is a proper party under the Indiana Uniform Declaratory Judgments Act, Ind. Code. § 34-4-10-11. That statute provides in pertinent part that when "declaratory relief is sought, all persons shall be made parties who have or claim any interest which would be affected by the declaration. . . ." Plaintiffs have alleged several facts that they argue are sufficient (if proved) to establish that St. Jude has "an interest which would be affected" by the relief plaintiffs seek. In light of the stringent standard for fraudulent joinder — all reasonably disputed issues of fact and law must be resolved in favor of plaintiffs — the court cannot conclude that St. Jude was fraudulently joined.
For example, plaintiffs have pointed to the Asset Purchase Agreement, where St. Jude guaranteed the obligations (including payment) of O Acquisition, the nominal purchaser of the assets of TPSI and TPLC. See Pl. App. 8 at TEL 000100-09. St. Jude was also a named beneficiary of a reciprocal guarantee by Pacific Dunlop Limited, the parent corporation of TPSI and TPLC. Id. at TEL 000090-99. Since, according to plaintiffs, O Acquisition did not have the capital to truly "purchase" the assets of TPSI and TPLC, and since St. Jude ultimately was liable for any obligations of O Acquisition, St. Jude has "an interest" in making sure that it got what it is obligated to pay for (namely, the license to use the patents owned by Lilly and CPI).
Most persuasive are the explicit links between the Telectronics transactions and the Ventritex merger. Those links tend to show that St. Jude is a party with an interest that may be affected by the declaration sought by plaintiffs. As noted earlier, St. Jude is itself a party to the Ventritex merger. Upon closing, St. Jude will issue additional shares of its stock as part of that transaction. One condition for closing the Ventritex merger was the closing of the Asset Purchase Agreement that is part of the Telectronics transactions. That closing had not occurred when plaintiffs filed this action.
It requires no great speculative leap to conclude that the linkage was necessary because of significant questions about Ventritex's ability to assign to Pacesetter the patent license rights it acquired from Lilly and CPI. One key term of the Asset Purchase Agreement in the Telectronics transactions was the sellers' warranty that the buyer would obtain the right to use the patent licenses previously granted by Lilly and CPI. Without those patent rights, the Ventritex merger would be in jeopardy. Defendants have argued in Cause No. 96-1718 that the acquisition of license rights through the Telectronics transactions provides Pacesetter with an independent source of the same license rights, so that whether Ventritex can validly assign its rights does not matter. Since St. Jude is a party to the Ventritex merger that is so closely intertwined with the contracts at issue here, it would not be beyond the bounds of reason for the Indiana courts to treat St. Jude as a proper party to this declaratory judgment action.
Plaintiffs also note that St. Jude was a named party to contracts relevant to the license rights at issue in the Telectronics transactions. The Telectronics Licensing Agreement provided for assignment of the Agreement with the "the sale of all the voting stock of the TELECTRONICS GROUP or with the sale of substantially all of the assets of the TELECTRONICS GROUP." Pl. App. 3, § 12.03. The Asset Purchase Agreement alone did not constitute a sale of all the assets of the entire Telectronics Group — only two members of that Group were involved. According to plaintiffs, defendants "have failed to present any cogent explanation of what, if anything, purportedly happened to the interests of the other five Telectronics Parties to the [Telectronics Licensing Agreement]." Pl. Supp. Br. at 26-27. Plaintiffs have presented evidence of transactions involving other members of the Telectronics Group. See Pl. App. 21 (summary of "asset purchase agreements" and "share purchase agreements" dated as of November 29, 1996). In at least two of these agreements, St. Jude is listed as the "buyer" and a member of the Telectronics Group is listed as the "selling shareholder." See Pl. App. 14 ("Share purchase agreement (Netherlands Antilles)" between St. Jude and Medical Telectronics Holdings Finance Co. B.V.); Pl. App. 15 ("Share purchase agreement (Hong Kong)" between St. Jude and Telectronics Pty. Ltd.). Plaintiffs argue that one must look at the entire web of simultaneously executed agreements involving individual members of the Telectronics Group to determine whether the sum of those agreements constituted a "sale of substantially all" of the Telectronics Group's assets or voting stock. Under this theory, all of the contracts — not just the Asset Purchase Agreement — are relevant, and St. Jude is a named party to at least two of the contracts. This argument provides at least some modest additional support for the conclusion that St. Jude may have an "interest" in the litigation.
The controlling question here is whether the Indiana courts would certainly conclude that St. Jude does not have "an interest" in the litigation within the meaning of Ind. Code § 34-4-10-11. The answer is no. Indiana courts have not had occasion to define clearly the scope of § 34-4-10-11. Section 34-4-10-11 of the Indiana Code is part of the Uniform Declaratory Judgment Act. In re Estate of Wilson, 610 N.E.2d 851, 856 (Ind.App. 1993). The Uniform Declaratory Judgment Act is, in turn, "based on the Federal Declaratory Judgment Act." Samuel v. Frohnmayer, 779 P.2d 1028, 1030 (Or. 1989). Other states, in interpreting their own enactments of the Uniform Declaratory Judgment Act, have come to varying conclusions as to the scope of the relevant language. Compare, e.g., Guenther v. Fariss, 833 P.2d 417, 421 (Wash.App. 1992) (partnership is not a proper party to a dispute among partners as to the interest of individual partners, despite plaintiffs' argument that decision would have an "effect on the operation" of the partnership), with, e.g., Eyler v. Eyler, 609 A.2d 376, 379 (Md.App. 1992) (wife of one of three parties in suit involving division of real estate had an "interest which would be affected" by outcome of the suit), and Krohn v. Gardner, 471 N.W.2d 391, 394 (Neb. 1991) (accident victim is necessary party to action in suit between insurance company and insured over whether insurance policy covered insured's accident with the victim).
The federal Declaratory Judgment Act presents similar issues, for that act applies to declarations concerning "the rights and other legal relations of any interested party," 28 U.S.C. § 2201. A number of cases address when persons have such interests in declaratory judgment actions that the cases should not proceed in their absence, applying Fed.R.Civ.P. 19. See, e.g., State Farm Mut. Auto. Ins. Co. v. Mid-Continent Cas. Co., 518 F.2d 292, 294-95 (10th Cir. 1975) (applying Rule 19 standard and holding that insured was not an "indispensable" party to declaratory judgment action to resolve conflicting "other insurance" clauses in two policies); Federal Kemper Ins. Co. v. Rauscher, 807 F.2d 345, 352-54 (3d Cir. 1986) (injured person was indispensable party in declaratory judgment action between insurer and insured who was allegedly liable for injuries); North Shore Gas Co. v. Salomon, Inc., 896 F. Supp. 786, 790 (N.D. Ill. 1995) (defendant's subsidiary was not indispensable party where defendant had essentially identical interests and the motive and ability to defend subsidiary's interests). For present purposes, however, the more pertinent question is merely whether St. Jude might be a "proper" party who could be joined under the permissive joinder standards of Rule 20. The federal cases show joinder of defendants in declaratory judgment actions in a wide variety of circumstances, including for example, a suit by the holder of a note against both the maker and a guarantor, Congress Fin. Corp. v. J-K Coin Op Equip. Co., 353 F.2d 683, 686 (7th Cir. 1965); see generally 7 Wright Miller, Federal Practice Procedure § 1657 at 402-09 (1986). Professors Wright and Miller have commented that in declaratory judgment actions, courts "should attempt to join absentees whose joinder is feasible whenever their interests may be affected by the outcome. . . ." Id., § 1616 at 240.
For present purposes, this court need not try to mark out the precise boundaries of "interest" for purposes of either the federal act or the Indiana act. To decide plaintiffs' motion to remand, the court must decide only whether there is "any reasonable possibility" that the Indiana courts could treat St. Jude as a proper party to this declaratory judgment action. In the absence of controlling authority or clearly applicable general principles of law that would show St. Jude is not a proper party on this record, its joinder as a defendant in this action cannot be considered fraudulent. St. Jude itself is a party to contracts that are part of a web of interrelated contracts that could be affected (and even effectively nullified) by the relief plaintiffs seek here. This court cannot say that there is no reasonable possibility that an Indiana court would interpret Ind. Code § 34-4-10-11 broadly enough to treat St. Jude's involvement in the Asset Purchase Agreement and/or the Telectronics Transactions generally as an "interest" that may be affected by the relief sought. Accordingly, St. Jude was not fraudulently joined and plaintiffs' motion to remand must be granted.
Because this court concludes that St. Jude was not fraudulently joined on these grounds, it need not address plaintiffs' other arguments in favor of joining St. Jude, including their attempt to "pierce the corporate veil" on the theory that O Acquisition and/or Pacesetter are so controlled by St. Jude that they are merely alter egos or instrumentalities of St. Jude. See generally Aronson v. Price, 644 N.E.2d at 867 (discussing relevant factors).
Conclusion
Plaintiffs' complaint pleads claims that arise only under contract law, so this case does not arise under federal law. Also, the complaint does not come within this court's diversity jurisdiction because plaintiff CPI and defendant St. Jude are citizens of the same State for purposes of 28 U.S.C. § 1332, and because the court cannot conclude that St. Jude was fraudulently joined in this action. Accordingly, plaintiffs' motion to remand is GRANTED, and the case must be remanded to the Marion Superior Court. The fraudulent joinder issue is sufficiently close that the court finds that an award of fees and costs under 28 U.S.C. § 1447(c) is not warranted in this case. See Macri v. M M Contractors, Inc., 897 F. Supp. 381, 385 (N.D. Ind. 1995) (fee award not appropriate where defendant has raised legitimate and substantial grounds for removal and asserted them in good faith, citing Lang v. American Elec. Power Co., 785 F. Supp. 1331, 1335 (N.D. Ind. 1992)).So ordered.