Summary
In Moran v. Continental Casualty Co., No. 01-CV-1008, 2001 WL 1717214 (N.D.N.Y. Nov. 16, 2001), a case similar to the instant action, the plaintiff filed a summons with notice in New York state court that, on its face, pled non-diverse parties.
Summary of this case from MBIA Ins. Corp. v. Royal Bank of CanadaOpinion
1:01-CV-1008
November 16, 2001
The Moran Law Firm, Richard T. Moran, Esq., of counsel, Saratoga Springs, New York, Attorneys for Plaintiffs.
DeGraff, Foy, Holt-Harris Kunz, LLP, Christopher Massaroni, Esq., of counsel, Albany, New York, Attorneys for Defendants.
MEMORANDUM-DECISION AND ORDER
INTRODUCTION
Plaintiffs move to remand this action to New York State Supreme Court on the ground that complete diversity is lacking because defendants Terrence Moylan and Richard P. Veloce are New York residents. Defendants urge that removal was proper because plaintiffs have no cause of action against defendants Moylan and Veloce, but rather fraudulently joined them for the purpose of defeating diversity jurisdiction. The Court finds that defendants have not carried their heavy burden of proving fraudulent joinder, and grants the motion for remand. Plaintiffs' request for an award of costs, attorney's fees and sanctions is denied.
BACKGROUND
On March 22, 2001, plaintiffs commenced an action, Richard T. Moran and Rita Moran v. Continental Cas. Co. and Continental Ins. Co. ("First Moran Action"), by filing a summons with notice in New York State Supreme Court (Index No. 2001-0805, Saratoga County). The summons with notice specifies plaintiffs' residence as Gansevoort, New York. On the ground of diversity, defendants Continental Casualty Company and Continental Insurance Company (neither of which are New York citizens) removed the action to District Court (Docket Number 01-CV-627). On June 26, 2001, this Court closed the First Moran Action upon plaintiffs' filing of a notice of voluntary dismissal.
On May 2, 2001, while the First Moran Action was still pending, plaintiffs brought the instant action by filing a summons with notice in New York State Supreme Court (Index No. 2001-1260, Saratoga County). The summons with notice, which is virtually identical to that in the First Moran Action, except for the joinder of additional defendants, states:
[T]his is an action for wrongful termination, breach of contract, slander, slander per se, tortious interference with contract, negligent interference with contract, tortious interference with business, negligent interference with business, fraud, coercion, false words causing special damages, negligence, intentional infliction of emotional distress, and negligent infliction of emotional distress for damages of FIFTEEN MILLION DOLLARS 00/100 ($15,000,000.00) plus punitive damages to be determined by the trier of fact.
Defendants removed the action to District Court on June 20, 2001. Defendants urge that there is complete diversity despite the presence of two New York defendants, Moylan and Veloce, because plaintiffs have no legitimate claims against these two defendants.
Plaintiffs now move to remand the instant action to state court for lack of federal jurisdiction. They request costs, counsel fees and sanctions.
APPLICABLE LAW
28 U.S.C. § 1332 provides in part:
(a) The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between —
(1) citizens of different States[.]
28 U.S.C. § 1441 provides in part:
(a) [A]ny civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States[.]
(b) [An 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 the action is brought.28 U.S.C. § 1446 provides in part:
(b) The notice of removal of a civil action or proceeding shall be filed within thirty days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based . . . .
If the case stated by the initial pleading is not removable, a notice of removal may be filed within thirty days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable, except that a case may not be removed on the basis of jurisdiction conferred by section 1332 of this title [i.e., diversity jurisdiction] more than 1 year after commencement of the action.
The Second Circuit has held that a summons with notice under New York law can be an "initial pleading" triggering the thirty-day period for removal under 28 U.S.C. § 1446(b), provided that the summons with notice provides the information necessary to enable the defendant to ascertain removability. See Whitaker v. American Telecasting, Inc., 261 F.3d 196, 204-06 (2d Cir. 2001) (summons with notice was initial pleading under § 1446(b) because diversity of citizenship of parties could be determined therefrom).
N.Y.C.P.L.R. 305(b) provides: "If the complaint is not served with the summons, the summons shall contain or have attached thereto a notice stating the nature of the action and the relief sought, and . . . the sum of money for which judgment may be taken in case of default."
Under 28 U.S.C. § 1447(c), "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." Section 1447(c) authorizes a remanding court to "require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal."
Where, as here, a plaintiff challenges removal on the ground that the presence of non-diverse parties defeats federal jurisdiction, a defendant may show that the non-diverse parties have no real connection with the controversy and were "fraudulently joined" for the sole purpose of destroying diversity. The Second Circuit explains:
In order to show that naming a non-diverse defendant is a `fraudulent joinder' effected to defeat diversity, the defendant must demonstrate, by clear and convincing evidence, either that there has been outright fraud committed in the plaintiff's pleadings, or that there is no possibility, based on the pleadings, that a plaintiff can state a cause of action against the non-diverse defendant in state court. The defendant seeking removal bears a heavy burden of proving fraudulent joiner, and all factual and legal issues must be resolved in favor of the plaintiff.
Pampillonia v. RJR Nabisco, Inc., 138 F.3d 459, 461 (2d Cir. 1998) (citations and footnotes omitted). Because such a jurisdictional inquiry is preliminary to any decision on the merits, the federal court "resolves any uncertainties in applicable state law in plaintiffs' favor and subjects the complaint to less searching scrutiny than on a motion to dismiss for failure to state a claim." Intershoe, Inc. v. Filanto S.P.A., 97 F. Supp.2d 471, 474 (S.D.N.Y. 2000). "Removal jurisdiction, moreover, is strictly construed inasmuch as it implicates significant federalism concerns and abridges the deference courts generally give to a plaintiff's choice of forum." Frontier Ins. Co. v. MTN Owner Trust, 111 F. Supp.2d 376, 378 (S.D.N.Y. 2000). "All doubts should be resolved in favor of remand." Id. at 379.
THE MOTION
Plaintiffs' motion for remand notes that Moylan and Veloce are New York residents; thus, they contend, complete diversity does not exist. In opposition, defendants urge that plaintiffs fraudulently joined these two defendants. Defendants first point out that the summons with notice herein is virtually identical to the summons with notice in the First Moran Action except for the addition of four individual defendants, two of whom, Moylan and Veloce, are non-diverse. Even assuming, however, that plaintiffs' purpose in withdrawing the first action and commencing this action was to include non-diverse defendants, this conduct would not establish fraudulent joinder absent clear and convincing evidence that there is no possibility that plaintiffs can state claims against them.
Defendants further point out that in the First Moran Action, plaintiff Richard T. Moran admitted that he lacked sufficient information to frame a complaint against Moylan, Veloce or any other individual. New York law, however, permits court-ordered preaction discovery "to aid in bringing an action." N.Y.C.P.L.R. 3102(c). Indeed, perhaps partly due to New York's requirement of particularity in pleading libel and slander, see N.Y.C.P.L.R. 3016(a), it is not uncommon for New York plaintiffs to seek preaction discovery to aid in framing a defamation complaint. See, e.g., Tauber v. Wald, 570 N.Y.S.2d 998 (2d Dep't 1991); Application of Janosik, 420 N.Y.S.2d 815, 815-16 (4th Dep't 1979). An application for preaction discovery is addressed to the court's discretion, see Wien Malkin LLP v. Wichman, 680 N.Y.S.2d 250 (1st Dep't 1998), and, resolving all factual and legal issues in plaintiffs' favor, it cannot be said that no state court would grant a motion by plaintiffs for preaction discovery. Thus, under New York law, the fact that plaintiffs cannot presently state defamation claims against Moylan and Veloce does not establish that there is no possibility that plaintiffs will be able to do so in the course of this lawsuit.
Defendants also rely on a release signed by plaintiff Richard T. Moran on August 2, 1999. Defendants have not established, however, that none of the alleged slanders occurred after this date. Indeed, in his reply affidavit, plaintiff Richard T. Moran avers that at least some of the alleged statements were made "this year." Thus, the release does not aid defendants in demonstrating by clear and convincing evidence that there is no possibility, based on the pleadings, that plaintiffs can state a cause of action against Moylan or Veloce. For the same reason, defendants' reliance on New York's one-year limitations period for libel and slander actions, N.Y.C.P.L.R. 215(3), is unavailing. Although it appears from the reply affidavit that plaintiffs may face difficulties in framing a complaint which will satisfy section 3016(a), the question of whether plaintiffs can ultimately prevail against Moylan and Veloce, or even whether plaintiffs can withstand a motion to dismiss the complaint, is not before the Court on this jurisdictional inquiry.
A fraudulent joinder inquiry typically focuses on matters concerning the identity and status of the allegedly non-diverse defendant, such as whether it is a "citizen" of New York under 28 U.S.C. § 1332(a)(1), see, e.g., Frontier Ins., 111 F. Supp.2d at 379-81, or whether it is the proper party in interest. See, e.g., Pampillonia, 138 F.3d at 461-62; Ecology Env't, Inc. v. Automated Compliance Sys., Inc., 2001 WL 1117160, *5-6 (W.D.N.Y. 2001). As noted by the court in Intershoe, "decisions considering fraudulent joinder of defendants have typically been concerned with determining which defendants are the proper targets of the claims in question, not whether any claim is stated at all." 97 F. Supp.2d at 475 n. 3 (emphasis in original) (citing Pampillonia, 138 F.3d at 461-62, and Sonnenblick-Goldman Co. v. ITT Corp., 912 F. Supp. 85, 88-90 (S.D.N.Y. 1996) (both concerning whether corporate parent was proper defendant in action against subsidiary)). Whitaker is not to the contrary; that case addressed whether on its face the complaint set forth any allegations whatsoever or any request for relief against the non-diverse defendant, not whether the allegations which were set forth stated a cognizable claim. See 261 F.3d at 206-08.
The same is generally true where movant challenges the presence of a plaintiff instead of a defendant. Matters concerning the identities and status of plaintiffs are proper subjects for fraudulent joinder inquiries, see, e.g., Application of Blakeman, 512 F. Supp. 325, 327-28 (E.D.N.Y. 1981) (corporation was not proper plaintiff in suit to protect estate assets; right could be asserted only by estate fiduciary); Saxe, Bacon Bolan, P.C. v. Martindale-Hubbell, Inc., 521 F. Supp. 1046 (S.D.N.Y. 1981) (shareholders lacked standing to bring action based on conduct which allegedly damaged corporation), whereas matters concerning the substantive merits of the claims are not. For example, in Intershoe, the court observed that the remedy for asserted deficiencies in the legal theories advanced by a diversity-destroying plaintiff was not removal but rather a dismissal motion in state court. 97 F. Supp.2d at 475.
Defendants, in removing this summons with notice, which is not on its face defective nor removable, have shouldered a heavy burden to demonstrate by clear and convincing evidence that there is no possibility that plaintiffs can state a cause of action against the non-diverse defendants in state court. Resolving all factual and legal issues in favor of plaintiffs, the Court holds that defendants have not met this burden. Accordingly, plaintiffs are entitled to remand.
COSTS
Plaintiffs have also moved to recover costs, attorney's fees and sanctions. 28 U.S.C. § 1447(c) states that an "order remanding the case may require the payment of just costs and actual expenses, including attorney fees, incurred as a result of the removal." Assessment of costs and fees against the removing defendants is within the court's discretion and does not require a finding of bad faith or frivolity. See Morgan Guar. Trust Co. v. Republic of Palau, 971 F.2d 917, 923-24 (2d Cir. 1992).
The Court in its discretion denies costs, attorney's fees and sanctions. While defendants' removal of this action imposed additional burdens on plaintiffs by necessitating the motion to remand, plaintiffs' withdrawal and repleading of their case similarly imposed additional burdens on defendants by requiring them to address two lawsuits. Moreover, the totality of plaintiffs' conduct in withdrawing the First Moran Action after removal, repleading the case, and adding diversity-destroying defendants against whom plaintiffs admittedly cannot yet frame a complaint, lends some support to defendants' view that plaintiffs joined these defendants solely for the purpose of defeating diversity. Although the Court has found that this conduct is not sufficient to establish fraudulent joinder, it is sufficient to persuade the Court that defendants could reasonably have believed that removal was justified under all of the circumstances. Moreover, defendants could not safely have waited to remove the case until receiving the complaint, because removal at that point might well have been untimely under Whitaker, 261 F.2d at 205-06.
CONCLUSION
Accordingly, it is
ORDERED that plaintiffs' motion is granted to the extent that the action is remanded to New York State Supreme Court; and it is further
ORDERED that plaintiffs' motion is otherwise denied.
IT IS SO ORDERED.