Opinion
Case No. CIV-19-00799-PRW
2020-12-30
Drew NOECKER and Oksana Didyuk, Plaintiffs, v. Samuel W. ESCOBEDO, an individual; Marilyn B. Escobedo, an individual; and Yates Roofing and Construction, LLC, an Oklahoma limited liability company, Defendants.
Jennifer A. Bruner Soltani, Fulkerson & Fulkerson, Oklahoma City, OK, for Plaintiffs. Brett Agee, Garvin Agee Carlton & Mashburn, Pauls Valley, OK, Connor B. Kohlscheen, Garvin Agee Carlton PC, Norman, OK, Robert F. White, Law Office of Robert F. White PC, San Antonio, TX, for Defendants Samuel W. Escobedo, Marilyn B. Escobedo. Michael Woodson, Edmonds Cole Law Firm, Oklahoma City, OK, for Defendant Yates Roofing and Construction, LLC.
Jennifer A. Bruner Soltani, Fulkerson & Fulkerson, Oklahoma City, OK, for Plaintiffs.
Brett Agee, Garvin Agee Carlton & Mashburn, Pauls Valley, OK, Connor B. Kohlscheen, Garvin Agee Carlton PC, Norman, OK, Robert F. White, Law Office of Robert F. White PC, San Antonio, TX, for Defendants Samuel W. Escobedo, Marilyn B. Escobedo.
Michael Woodson, Edmonds Cole Law Firm, Oklahoma City, OK, for Defendant Yates Roofing and Construction, LLC.
ORDER
PATRICK R. WYRICK, UNITED STATES DISTRICT JUDGE
Plaintiffs ask this Court to remand the case to state court pursuant to 28 U.S.C. § 1447(c) because their First Amended Complaint (Dkt. 9) added a non-diverse defendant, Yates Roofing and Construction, LLC ("Yates Roofing"), which destroys the Court's diversity-based subject-matter jurisdiction.
Seeking to avoid this result, Defendants Samuel and Marilyn Escobedo argue that the amended complaint should be stricken because Plaintiffs added a non-diverse defendant without leave of court. And if the Court considers whether to grant that leave, the Escobedos argue that leave should be denied because Plaintiffs’ added Yates Roofing solely to defeat federal jurisdiction.
For the reasons discussed below, the Escobedos’ Motion to Strike Plaintiffs’ Amended Complaint (Dkt. 13) is DENIED , Plaintiffs’ Motion to Remand (Dkt. 12) is GRANTED , and the action is REMANDED to the District Court of Oklahoma County, State of Oklahoma.
Factual & Procedural Background
This lawsuit arises from the 2017 sale of a house in Oklahoma City from the Escobedos, who are citizens of Texas, to Plaintiffs, who are citizens of Oklahoma. In February of 2017, the Escobedos provided Plaintiffs with a statement pursuant to section 833 of Oklahoma's Residential Property Condition Disclosure Act. The statement disclosed a recent roof repair and a persisting roof defect. Plaintiffs hired Yates Roofing, an Oklahoma limited liability company, to inspect the roof defect and provide an estimate for the cost of repairs. Yates Roofing provided an estimate totaling $11,151.22, and Plaintiffs included the repairs in their requests to the Escobedos for Treatments, Repairs, and Replacements (TRRs). The Escobedos agreed to reduce the purchase price by $12,000 to account for the roof repairs identified by Yates Roofing. The closing occurred on or about July 12, 2017. Plaintiffs allege that after closing they encountered several problems with the house, which they contend demonstrates that the Escobedos misrepresented its condition and failed to disclose known defects.
Okla. Stat. tit. 60, § 833 (2011).
App'x A – Residential Prop. Condition Disclosure Statement (Dkt. 9-1) at 1–4.
Yates Roofing's Estimate (Dkt. 16-6) at 1.
Notice of Treatment, Repairs & Replacements (Dkt. 16-5) at 1.
See Countersigned Notice of Treatment, Repairs & Replacements (Dkt. 16-7) at 1 (striking through all repairs that the sellers rejected, including roof repairs); Addendum of May 13, 2017 (Dkt. 16-8) at 1 (dropping the purchase price).
Pls.’ Pet. (Dkt. 1-1) ¶¶ 16–17, at 3; Pls.’ 1st Am. Compl. (Dkt. 9) ¶¶ 31–34, at 6.
Pursuant to section 837 of the Residential Property Condition Disclosure Act, Plaintiffs sued the Escobedos in the District Court of Oklahoma County on July 10, 2019—two days before the expiration of the statute of limitations. In their state court Petition (Dkt. 1-1), Plaintiffs alleged several problems with the house: its HVAC system upstairs, storm water drainage that resulted in flooding in its basement, sewage backing up into the furnace room in its basement, and leaks and wood rot "throughout the front porch area, roof, soffit and/or guttering whenever there is rainfall." Under Oklahoma law, Plaintiffs had 180 days—until January 6, 2020—to serve the Escobedos. But before Plaintiffs could serve them, the Escobedos removed the action to federal court on August 29th. The Escobedos filed their Original Answer (Dkt. 4) to Plaintiffs’ Petition (Dkt. 1-1) on August 30th.
Pls.’ Pet. (Dkt. 1-1) ¶¶ 11–13, 15, at 3; see also Pls.’ 1st Am. Compl. (Dkt. 9) ¶¶ 14–15, 19–20, 22, at 4–5.
See Okla. Stat. tit. 12, § 2004(I) (Supp. 2018).
See Notice of Removal (Dkt. 1) ¶ 3, at 2; Defs.’ Resp. to Pls.’ Mot. to Remand (Dkt. 14) at 1 ("Although Defendants were never formally served with process, they received a copy of the Plaintiffs’ Original Petition via regular mail.").
On September 20th—twenty-one days later—Plaintiffs filed a First Amended Complaint (Dkt. 9) adding Yates Roofing as a defendant. Plaintiffs allege that Yates Roofing breached its roof-inspection contract, breached express and implied warranties, negligently performed its inspection of Plaintiffs’ roof, and negligently performed Plaintiffs’ roofing repairs. Plaintiffs filed a Motion to Remand (Dkt. 12) the case to state court because, like Plaintiffs, the members of Yates Roofing and Construction, LLC are citizens of Oklahoma, destroying the Court's diversity jurisdiction. The Escobedos then filed a Motion to Strike Plaintiffs’ First Amended Complaint (Dkt. 13) and a Response to Plaintiffs’ Motion to Remand (Dkt. 14), arguing that Plaintiffs did not properly seek leave of court to amend their complaint and that, in any event, Plaintiffs shouldn't be allowed to add Yates Roofing as a defendant. Both motions have been briefed and are ripe for ruling.
Pls.’ 1st Am. Compl. (Dkt. 9) ¶¶ 24–30, at 5.
See Pls.’ Mot. to Remand (Dkt. 12) at 1–2; see also Pls.’ 1st Am. Compl. (Dkt. 1-1) ¶ 1, at 1; Yates Roofing & Constr., LLC's Disclosure Statement Identifying Constituents of LLC (Dkt. 21) ¶¶ 1–2, at 1 (confirming the identity and Oklahoma citizenship of Yates Roofing's members).
Defs.’ Mot. to Strike Pls.’ Am. Compl. (Dkt. 13) at 1; Defs.’ Resp. to Pls.’ Mot. to Remand (Dkt. 14) at 1.
Analysis & Decision
The Escobedos argue first that the Court should strike Plaintiffs’ amended complaint because Yates Roofing is a non-diverse defendant, and 28 U.S.C. § 1447(e) gives the Court discretion either to permit or deny joinder of a party who would destroy the Court's subject-matter jurisdiction. In the Escobedos’ view, this requires Plaintiffs to have asked for permission prior to adding Yates Roofing. But Rule 15(a)(1) of the Federal Rules of Civil Procedure allows a party to amend its pleading within twenty-one days of service of a responsive pleading without seeking leave of court. There is no conflict between Rule 15(a)(1) and § 1447(e) : Rule 15(a)(1) governs when Plaintiffs may amend their pleading without seeking leave of court, while § 1447(e) gives the Court discretion to then allow or deny the amendment if a non-diverse defendant has been added. The question here is thus simply whether the Court ought to allow the joinder.
Defs.’ Mot. to Strike Pls.’ Am. Compl. (Dkt. 13) ¶ 6, at 2–3; 28 U.S.C. § 1447(c) (2012).
See Fed. R. Civ. P. 15(a)(1)(B) ("A party may amend its pleading once as a matter of course within ... 21 days after service of a responsive pleading.").
Mayes v. Rapoport , 198 F.3d 457, 462 n.11 (4th Cir. 1999) ("[A] district court has the authority to reject a post-removal joinder that implicates 28 U.S.C. § 1447(e), even if the joinder was without leave of court." (citing Ascension Enters., Inc. v. Allied Signal, Inc. , 969 F. Supp. 359, 360 (M.D. La. 1997) ; Whitworth v. TNT Bestway Transp. Inc. , 914 F. Supp. 1434, 1435 (E.D. Tex. 1996) )); Haynes v. Peters , 403 F. Supp. 3d 1072, 1087 (D.N.M. 2019) (quoting Mayes , 198 F.3d at 462 n.11 ); Broadnax v. GGNSC Edwardsville III LLC , No. 2:13-cv-02640-SAC, 2014 WL 1308908, at *2–3 (D. Kan. Mar. 28, 2014) (citing Boyce v. CitiMortgage, Inc. , 992 F. Supp. 2d 709, 715 (W.D. Tex. 2014) ; Baumeister v. Home Depot U.S.A., Inc. , No. 1:10-cv-02366-LTB-MJW, 2011 WL 650338, at *2 (D. Colo. Feb. 11, 2011) ; Reigel v. Canyon Sudar Partners, LLC , No. 1:07-cv-00595-MSK-MJW, 2007 WL 3274430, at *2 (D. Colo. Nov. 5, 2007) ); 14C Charles Alan Wright et al., Federal Practice & Procedure § 3739.1, at 790–91 & n.24 (2018) ("Discretion exists even when the amendment of the complaint ordinarily would be ‘as a matter of course’ under Federal Civil Rule 15(a)(1)." (citing Boon v. Allstate Ins. Co. , 229 F. Supp. 2d 1016 (C.D. Cal. 2002) ; Chinn v. Belfer , No. 3:02-cv-00131-ST, 2002 WL 31474189 (D. Or. June 19, 2002) ; In re Bridgestone/Firestone, Inc., ATX, ATX II , 129 F. Supp. 2d 1202 (S.D. Ind. 2001) ; Bevels v. Am. States Ins. Co. , 100 F. Supp. 2d 1309 (M.D. Ala. 2000) )).
The Court need not address whether the amendment is futile or subject to dismissal, because the Escobedos have not raised such arguments. See generally Jefferson Cty. Sch. Dist. v. Moody's Investor's Serv. , 175 F.3d 848, 859 (10th Cir. 1999) (authorizing a district court to "deny leave to amend where amendment would be futile ... [—i.e., where] the complaint, as amended, would be subject to dismissal" (citing Bauchman v. W. High Sch. , 132 F.3d 542, 561 (10th Cir. 1997) ; TV Commc'ns Network, Inc. v. Turner Network Television, Inc. , 964 F.2d 1022, 1028 (10th Cir. 1992) )). Indeed, if the amendment was futile, one would expect Yates Roofing to file a Rule 12(b) motion to dismiss. Yet the record in this case reveals that Yates Roofing filed an Answer (Dkt. 24) after being served with the First Amended Complaint (Dkt. 9).
Before exercising discretion under § 1447(e), however, the Court addresses first the Escobedos’ argument that Plaintiffs’ joinder of Yates Roofing is barred by Rule 20 of the Federal Rules of Civil Procedure because the claims against Yates Roofing aren't sufficiently related to the claims against them. Rule 20 permits the joinder of additional defendants if "any right to relief is asserted against them jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences" and "any question of law or fact common to all defendants will arise in the action." The words "transaction" and "occurrence" capture " ‘logically related’ events" and are meant to be read broadly when doing so will promote judicial efficiency. Here, the claims against the Escobedos and Yates Roofing stem from the same transaction or occurrence: Plaintiffs’ purchase of the house. Plaintiffs’ claims against the Escobedos are based, in part, on the Escobedos’ alleged misrepresentation of the condition of the house that Yates Roofing inspected prior to purchase. The Escobedos’ reduction of the house's purchase price due to needed roofing repairs was, moreover, based on Yates Roofing's inspection report. Plaintiffs’ claims against Yates Roofing concern, among other things, its inspection of the roof prior to their purchase of the house. Because the quality and condition of the house is germane to the claims against all Defendants, the Court determines that judicial efficiency would be served best if one fact-finder collects and examines this evidence. The Court, therefore, finds that Plaintiffs’ claims against the Escobedos and Yates Roofing are logically related, and joinder is therefore not barred by Rule 20.
Mot. to Strike Pls.’ Am. Compl. (Dkt. 9), at 6-7; see State Distrib., Inc. v. Glenmore Distilleries Co. , 738 F.2d 405, 416 (10th Cir. 1984) (explaining that, in the context of adding a non-diverse defendant, "amendments adding parties may involve consideration of [Rule] 20").
In re Prempro Prods. Liab. Litig. , 591 F.3d 613, 622 (8th Cir. 2010) (quoting 7 Charles Alan Wright et al., Federal Practice and Procedure § 1653, at 415 (3d ed. 2001) ).
The Court now addresses whether it will exercise its discretion under § 1447(e) to deny joinder or allow it and remand the case to state court. Again, while Rule 15(a)(1) allows Plaintiffs to amend their complaint without leave of court, 28 U.S.C. § 1447(e) vests the court with discretion to deny an amendment that adds a party "whose joinder would destroy subject matter jurisdiction."
28 U.S.C. § 1447(e) (2018) ; see also supra note 15.
The law is less than clear on how to conduct a proper § 1447(e) analysis. The Tenth Circuit has mentioned the issue in dicta, but it hasn't definitively resolved the issue. Some courts undergo a Rule 19(a) analysis under the belief that Rule 19 alters the broad discretion given to judges in § 1447(e) by requiring them to join any indispensable party and remand the case to state court. As the Fourth Circuit noted in Mayes v. Rapoport , however, § 1447(e) commits the decision of whether to allow joinder of a non-diverse party to the "sound discretion of the district court; thus, this decision is not controlled by a Rule 19 analysis." Moreover, Rule 19 speaks to the joinder of a "person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction. " Thus, because the joinder of Yates Roofing would deprive the court of subject-matter jurisdiction, Rule 19 does not govern.
See McPhail v. Deere & Co. , 529 F.3d 947, 951-52 (10th Cir. 2008) (opining that a § 1447(e) analysis would first determine whether the party proposed to be joined would be required under Rule 19, then whether the proposed joinder would be permitted under Rule 20, but ultimately concluding that there was "no occasion here to apply these principles").
See, e.g. , Bailey v. Bayer CropScience L.P. , 563 F.3d 302, 308-09 (8th Cir. 2009) (undergoing a Rule 19 analysis before balancing similar equitable factors); McPhail , 529 F.3d at 951 (dicta).
Mayes , 198 F.3d at 462.
Thus, in deciding whether to allow the joinder, the Court considers equitable factors that include "whether the amendment will result in undue prejudice, whether the request was unduly and inexplicably delayed, [and whether it] was offered in good faith."
McPhail , 529 F.3d at 952 (alteration in original) (internal quotation omitted) (quoting State Distrib., Inc. , 738 F.2d at 416 ); see also Schur v. L.A. Weight Loss Ctrs. , 577 F.3d 752, 759 (7th Cir. 2009) (adopting an equitable-factor framework balancing: "(1) the plaintiff's motive for seeking joinder, particularly whether the purpose is to defeat federal jurisdiction; (2) the timeliness of the request to amend; (3) whether the plaintiff will be significantly injured if joinder is not allowed; and (4) any other relevant equitable considerations").
With regard to prejudice, this case is still in the early stages of litigation, and the Escobedos do not argue that Plaintiffs’ addition of Yates Roofing will unduly affect the preparation of their defense. Plaintiffs’ amended complaint, moreover, does not raise "significant new factual issues"—it "track[s] the factual situations set forth in [their state court petition]."
See Minter v. Prime Equip. Co. , 451 F.3d 1196, 1208 (10th Cir. 2006) ("Courts typically find prejudice only when the amendment unfairly affects the defendants in terms of preparing their defense. Most often, this occurs when the amended claims arise out of a subject matter different from what was set forth in the complaint and raise significant new factual issues.")
Id. ; Gillette v. Tansy , 17 F.3d 308, 313 (10th Cir. 1994) (determining that an amendment "track[ing] the factual situations set forth in [Petitioner's original claims]" is not prejudicial).
Nor has the delay in adding Yates Roofing meaningfully delayed the case. The amendment adding Yates Roofing was made a little over two months since the lawsuit commenced and less than a month after the case was removed to federal court. The Escobedos, moreover, do not argue that this delay is prejudicial to them. The Court therefore concludes that the timeliness of the amendment weighs in favor of allowing it.
Pls.’ Pet. (Dkt 1-1) (filed in Oklahoma District Court on July 10, 2019); Notice of Removal (Dkt. 1) (filed August 29, 2019); Pls.’ 1st Am. Compl. (Dkt. 9) (filed September 20, 2019).
See Reigel , 2007 WL 3274430, at *4 (allowing joinder of a non-diverse party when Plaintiffs "sought to amend their Complaint less than one month after the case was removed [and] approximately three months after the case was commenced").
Plaintiffs also appear to have plausible claims against Yates Roofing. The Escobedos argue that Plaintiffs’ desire to add Yates Roofing to the lawsuit is "solely done in an effort to return this case to Oklahoma District Court" because, when Plaintiffs filed their original complaint, they were aware of all facts concerning Yates Roofing that were added to the amended complaint. Plaintiffs respond that they delayed adding Yates Roofing to the lawsuit in order to provide their counsel with materials and documentation to support their claims against Yates Roofing and also note that there is a longer statute of limitations for their claims against Yates, whereas their claims against the Escobedos were days from expiring when they filed their original complaint. Though the effect of adding Yates Roofing to this lawsuit is the defeat of the Court's subject-matter jurisdiction, the Court does not see any evidence to support the Escobedos’ contention that Plaintiffs added Yates Roofing solely for that reason. Plaintiffs provide a reasonable explanation for the delay in adding Yates Roofing, and Yates Roofing is part of the same factual circumstances contained in Plaintiffs’ state court petition. The Court, therefore, sees no bad faith in Plaintiffs’ joinder of Yates Roofing.
Defs.’ Mot. to Strike Pls.’ Am. Compl. (Dkt. 13) ¶ 22, at 7 (emphasis added).
Pls.’ Resp. to Mot. to Strike (Dkt. 16) at 7.
Haynes , 403 F. Supp. 3d at 1089-90 (finding no bad faith in plaintiffs’ joinder where they had valid claims against the added defendant).
Through "balanc[ing] the equities in deciding whether the plaintiff should be permitted to join a nondiverse defendant," the Court exercises its discretion under § 1447(e) to allow Plaintiffs to join Yates Roofing as a defendant.
See Mayes , 198 F.3d at 463.
Plaintiffs ask for their attorney fees and costs incurred in seeking remand. Section 1447(c) provides that "[a]n order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal." While an award of fees is within the discretion of the Court, "[a]bsent unusual circumstances, courts may award attorney's fees under § 1447(c) only where the removing party lacked an objectively reasonable basis for seeking removal." At the time this case was removed, the Escobedos had an objectively reasonable basis for doing so. Consequently, the Court concludes that an award of attorney fees and costs to Plaintiffs is not justified.
28 U.S.C. § 1447(c) (2012).
Martin v. Franklin Capital Corp. , 393 F.3d 1143, 1146 (10th Cir. 2004), aff'd , 546 U.S. 132, 126 S.Ct. 704, 163 L.Ed.2d 547 (2005).
Martin , 546 U.S. at 141, 126 S.Ct. 704.
IT IS THEREFORE ORDERED that Defendants Samuel and Marilyn Escobedo's Motion to Strike Plaintiffs’ Amended Complaint (Dkt. 13) is DENIED.
IT IS FURTHER ORDERED that Plaintiffs’ Motion to Remand (Dkt. 12) is GRANTED due to the lack of subject matter jurisdiction upon joinder of Defendant Yates Roofing and Construction, LLC. Accordingly, the Court REMANDS this case to the District Court of Oklahoma County, State of Oklahoma. The Plaintiff's request for costs and expenses under 28 U.S.C. § 1447(c) is DENIED.