Summary
holding that the plaintiff was not dilatory when she filed the motion to amend a month and a half after she filed her state court petition and less than thirty days after removal to federal court
Summary of this case from Darr v. Amerisure Ins. Co.Opinion
Civil Action No. 05-0082 Section I/3.
May 12, 2005
ORDER AND REASONS
Before the Court is a motion to deny joinder brought on behalf of defendant, Charles Schwab Co., Inc. ("Schwab") and a motion to remand brought on behalf of plaintiff, Alice Rooney Schindler. For the following reasons, defendant's motion to deny joinder is DENIED. Plaintiff's motion to remand this case is GRANTED and, pursuant to 28 U.S.C. § 1447(c), this action is hereby REMANDED to Orleans Parish Civil District Court for lack of subject matter jurisdiction.
BACKGROUND
On December 29, 2004, plaintiff filed a lawsuit in Orleans Parish Civil District Court challenging five transactions in two Schwab accounts. First, plaintiff alleges that in November, 2003, three checks written by her husband, now deceased, totaling $250,000 were wrongfully paid by Schwab out of a joint Schwab account held by plaintiff and her husband. Plaintiff alleges that at the time the checks were paid, Mr. Schindler was ill and he was being coerced into withdrawing the funds from the Schwab account by Mr. Schindler's goddaughter, Cindy F. Moore. Plaintiff alleges that Schwab should not have honored those checks because it had prior knowledge of problems with Mr. Schindler's use of the account, because the signature on the checks was questionable, and because Schwab failed to notify her, as a joint account holder, of the disbursements.
Plaintiff also challenges two transactions involving disbursements in the total amount of $512,812.50 from Mr. Schindler's individual Schwab account. Plaintiff alleges that in December, 2003, at the direction of either Mr. Schindler or Anna Schindler, his former daughter-in-law, Schwab sold a municipal bond held in Mr. Schindler's individual account. Plaintiff alleges that Schwab issued a $500,000 check representing the proceeds of the sale and, thereafter, wrongfully honored that check. According to plaintiff's complaint, the check was allegedly endorsed by Mr. Schindler and Anna Schindler and it should not have been honored by Schwab because Mr. Schindler's endorsement on the check was forged. Additionally, plaintiff alleges that in March, 2004, Schwab wrongfully issued a check to Mr. Schindler in the amount of $12,812.50 in violation of a temporary restraining order issued by the 24th Judicial District Court prohibiting Schwab from releasing funds to Mr. Schindler. Plaintiff alleges that Schwab's conduct has damaged her by depriving her of the use of community funds held by her and her husband for retirement.
On January 11, 2005, Schwab removed the case to federal court based upon diversity jurisdiction. On February 10, 2005, prior to any responsive pleadings being filed by Schwab, plaintiff filed an amended petition in this Court adding Cindy Moore and Anna Schindler, both Louisiana citizens, as defendants. In the amended petition, plaintiff alleges that both Moore and Anna Schindler are liable jointly, severally, and in solido for the amounts wrongfully disbursed by Schwab to Mr. Schindler and/or them. Also on February 10, 2005, plaintiff filed a motion to remand her lawsuit back to Orleans Parish Court for lack of subject matter jurisdiction based upon the addition of the non-diverse parties to this action.
Rec. Doc. No. 8. Plaintiff did not file a motion for leave to amend. As will be discussed below, because plaintiff's amendment would have the effect of divesting this Court of diversity jurisdiction, plaintiff is not entitled to amend the petition as a matter of course pursuant to Fed.R.Civ.P. 15(a).
Rec. Doc. No. 6. Schwab filed a motion to compel arbitration one day before plaintiff filed her amended petition and Motion to Remand. Rec. Doc. No. 5. However, this Court must first resolve the threshold issue of jurisdiction. If joinder is permitted, this Court will be without subject matter jurisdiction to adjudicate the motion to compel arbitration and this Court must remand the case to state court. See 28 U.S.C. § 1447(e); Sharp v. Kmart Corp., 991 F.Supp. 519, 527 (M.D. La. 1998).
On March 2, 2005, Schwab filed a motion to deny joinder of the individual defendants pursuant to 28 U.S.C. § 1447(e), arguing that plaintiff (1) is attempting to join the additional parties solely to defeat diversity jurisdiction; (2) was dilatory in amending her complaint; and (3) will suffer no injury if joinder is denied because she currently has a state court case pending against Moore and Anna Schindler based upon the same transactions involved in this lawsuit.
Plaintiff responds by arguing that (1) joinder is proper because Moore and Anna Schindler are indispensible parties; (2) she is not seeking the amendment to defeat diversity jurisdiction; (3) she was not dilatory in filing the amended petition; (4) she would be injured if this matter were allowed to proceed without Moore and Anna Schindler; and (5) the equities are such that this case should be litigated in Louisiana state court.
LAW AND ANALYSIS
I. Post-Removal Joinder of Non-Diverse Defendants
As an initial matter, this Court must address defendant's contention that plaintiff improperly attempted to amend her petition without first seeking leave of court to do so. Typically, amendments to pleadings are governed by Federal Rule of Civil Procedure 15(a). That rule provides, in pertinent part, that a party may amend its pleading once as a matter of course "at any time before a responsive pleading is served." Fed.R.Civ.P. 15(a). However, pursuant to 28 U.S.C. § 1447(e), a district court has discretion to either grant or deny an amendment of a complaint when subject matter jurisdiction is based on diversity and the plaintiff seeks to amend the complaint by adding a non-diverse party. § 1447(e) ("If after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the state court."); Ascension Enter., Inc. v. Allied Signal, Inc., 969 F. Supp. 359, 360 (M.D. La. 1997). Although Rule 15(a) ordinarily permits a party to amend a pleading as a matter of course prior to the filing of any responsive pleading, courts have concluded that when an amendment would deprive a federal court of subject matter jurisdiction, a party may not rely on Rule 15(a) to amend a pleading without leave of court and such an amendment must be analyzed pursuant to § 1447(e). See e.g., Mayes v. Rapoport, 198 F.3d 457, 462 n. 11 (4th Cir. 1999); Kocke ex rel. Grady v. Bancroft Rehab. Living Ctrs., 2004 WL 1432403, at *4 (E.D. La. June 24, 2004); Ascension Enter., 969 F. Supp. at 360; Whitworth v. TNT Bestway Transp., 914 F. Supp. 902, 908 (S.D. Miss. 1995). In short, those courts have concluded that "§ 1447(e) trumps Rule 15(a)." Ascension Enter., 969 F. Supp. at 360.
II. The Hensgens Factors
A district court, when faced with an amended pleading naming new non-diverse defendants in a removed case, should scrutinize that amendment more closely than an ordinary amendment. Hensgens v. Deere Co., 833 F.2d 1179, 1182 (5th Cir. 1987). In Hensgens, the Fifth Circuit noted that resolving the question of whether to permit such an amendment involves assessing the "competing interests" of (1) avoiding parallel federal/state proceedings with the inherent dangers of inconsistent results and the waste of judicial resources; and (2) a diverse defendant's statutorily granted choice of a state or federal forum. See id. The Fifth Circuit concluded that balancing those interests would not be served by a "rigid distinction of whether the proposed added party is an indispensable or permissive party" pursuant to the Federal Rules of Civil Procedure. Id.; see also Mayes, 198 F.3d at 462 ("[T]he actual decision on whether or not to permit joinder of a defendant [post-removal] is committed to the sound discretion of the district court; thus, this decision is not controlled by a Rule 19 analysis."). Instead, the Fifth Circuit set forth a number of non-exclusive factors that district courts may consider when deciding whether to allow post-removal joinder of a non-diverse defendant which include: (1) the extent to which the purpose of the amendment is to defeat diversity jurisdiction; (2) whether plaintiff has been dilatory in asking for amendment; (3) whether plaintiff will be significantly injured if amendment is not allowed; and (4) any other factors bearing on the equities. Id. If a district court permits joinder, it must remand the case pursuant to 28 U.S.C. § 1447(c). Id.
Although Hensgens was decided before Congress passed 28 U.S.C. § 1447(e), the Fifth Circuit has cited Hensgens with approval subsequent to the passage of § 1447(e). See Tillman v. CSX Transportation, Inc., 929 F.2d 1023, 1029 (5th Cir. 1991). Additionally, district courts in the Fifth Circuit have consistently held that the Hensgens approach is still good law. In re Norplant Contraceptive Prod. Liab. Litig., 898 F. Supp. 433, 435 (E.D. Tex. 1995) (citing Templeton v. Nedlloyd Lines, 901 F.2d 1273, 1275-76 (5th Cir. 1990) (per curiam)); Williams v. Holiday Inn Worldwide, 1998 WL 914258, at *1 n. 1 (E.D. La. Dec. 29, 1998) (same). One federal district court has described § 1447(e) as "essentially a codification of Hensgens." Heininger v. Wecare Distrib., Inc., 706 F. Supp. 860, 862 n. 4 (S.D. Fla. 1989).
Therefore, contrary to Schindler's assertion, the proposed joinder in this case is not governed by an analysis of whether the non-diverse defendants are indispensable parties pursuant to Fed.R.Civ.P. 19. Mayes, 198 F.3d at 462 ("Section 1447(e) gives the court more flexibility than a strict Rule 19 analysis.") (citing 14C Charles A. Wright, Arthur R. Miller, Edward H. Cooper, Federal Practice and Procedure § 3739, at 445 (3d ed. 1998)).
The first Hensgens factor is the extent to which the purpose of the amendment is to defeat federal court jurisdiction. Id. When analyzing the first Hensgens factor, district courts have considered whether the plaintiffs knew or should have known the identity of the non-diverse defendant when the state court complaint was filed. Courts have held that a plaintiff's failure to join a non-diverse defendant to an action prior to removal when such plaintiff knew of a non-diverse defendant's identity and activities suggests that the purpose of the amendment is to destroy diversity jurisdiction. See, e.g., Smith v. White Consol. Indus., Inc., 229 F. Supp. 2d 1275, 1280 (N.D. Ala. 2002); In re Norplant, 898 F. Supp. at 431; O'Connor v. Auto. Ins. Co. of Hartford, Conn., 846 F. Supp. 39, 41 (E.D. Tex. 1994). However, courts have also recognized that when a plaintiff states a valid claim against a defendant, it is unlikely that the primary purpose of bringing those defendants into a litigation is to destroy diversity jurisdiction. See McNeel v. Kemper Cas. Ins. Co., 2004 WL 1635757, at *2 (E.D.La. July 21, 2004) (citing Jade Marine, Inc. v. Detroit Diesel Corp., 2002 WL 31886726, at *2-3 (E.D.La. Dec. 20, 2002); Johnson v. Sepulveda Properties, Inc., 1999 WL 728746, at *3 (E.D.La. Sept 16, 1999)).
The timing of plaintiff's amendment suggests that, at the very least, part of plaintiff's purpose in amending her petition is to defeat federal court jurisdiction. First, it is clear that the plaintiff knew of Moore and Anna Schindler's existence at the time the state court lawsuit against Schwab was filed. When she filed this action in Orleans Parish Civil District Court, plaintiff had a state court lawsuit pending in the 24th Judicial District Court against those defendants challenging certain alleged donations made to them by Mr. Schindler. Additionally, her state court petition for damages against Schwab repeatedly mentions Moore and Anna Schindler. The sole reason plaintiff provides for amending her petition to add Moore and Anna Schindler in this action is the "complexity of the issue[s] and the parties involved in the state court proceeding." While this fact may be pertinent to other Hensgens factors, it does not directly support plaintiff's contention that her amendment was done for reasons other than to defeat this Court's diversity jurisdiction. On the other hand, Schwab does not dispute that plaintiff's claims against it and the claims pending in the 24th Judicial District Court are factually and legally related to plaintiff's claim against it. Nor does it contend that plaintiff does not have any viable claims against Moore and Anna Schindler. The fact that the claims plaintiff seeks to add in this case have an undisputed connection with the claims alleged against Schwab militates against a finding that the plaintiff's sole purpose in amending her petition is to destroy federal jurisdiction.
Rec. Doc. No. 21, Pl. Opp. to Motion to Deny Joinder, at 2.
On balance, the first factor weighs slightly in favor of denying plaintiff's proposed amendment. Plaintiff has not provided any explanation why, if she wanted her claim against Schwab litigated in conjunction with the pending state court lawsuit, she did not amend the petition in that case to add the claim against Schwab. However, the fact that one factor might weigh in favor of denying the amendment is not dispositive of this Court's inquiry because the remaining factors weigh in favor of permitting the amendment. See Jade Marine, Inc., 2002 WL 31886726, at *1-3 (E.D. La. Dec. 20, 2002) (finding that the fact that plaintiff was not dilatory in seeking amendment, plaintiff stated a valid claim against the non-diverse defendant, and denying amendment would force plaintiff to litigate related claims in both federal and state court outweighed the court's suspicion that at least part of the reason for the amendment was to defeat federal jurisdiction); Johnson v. Sepulveda Prop., 1999 WL 728746, at *3 (E.D. La. Sep. 16, 1999) (granting motion to remand despite finding that the first Hensgens factor favored denying the amendment).
The second Hensgens factor is whether the plaintiff has been dilatory in requesting the amendment. Hensgens, 833 F.2d at 1182. In analyzing whether a plaintiff has been dilatory in seeking an amendment, district courts often look to the amount of time that has passed between the filing of the original complaint and the amendment and the amount of time between the removal and the amendment. Ellsworth, LeBlanc Ellsworth, Inc. v. Strategic Outsourcing Inc., 2003 WL 21783304, at *3 (E.D. La. Jul. 30, 2003). Other courts have analyzed this factor by reference to how far the litigation has progressed. Vincent v. East Haven Ltd. P'ship, 2002 WL 31654955, at *3 (E.D. La. Nov. 20, 2002); El Chico Rest., Inc. v. Aetna Cas. and Sur. Co., 980 F. Supp. 1474, 1485 (S.D. Ga. 1997).
In this case, the second Hensgens factor weighs in favor of permitting the amendment. Plaintiff requested the amendment a month and a half after she filed her state court petition and less than 30 days after the case was removed to federal court. See Johnson, 1999 WL 728746, at *3 (amendment requested two months after state court petition is filed held not dilatory), McNeel v. Kemper Cas. Ins. Co., 2004 WL 1635757, at *3 (N.D. Tex. Jul. 21, 2004) (amendment five months after filing of state court petition and six weeks after removal held not dilatory); Vincent, 2004 WL 31654955, at *3 (amendment five months after state court filing held not dilatory), Holcomb v. Brience, Inc., 2001 WL 1480756, at *2 (N.D. Tex. Nov. 20, 2001) (amendment two months and one week after state court filing and one month and one week after removal is not dilatory). Furthermore, this litigation is still in its very early stages.
The cases on which Schwab relies in order to argue that plaintiff's proposed amendment was dilatory are distinguishable from this case. In Ellsworth, the plaintiff requested an amendment more than two months after the state court petition was filed and "nearly" a month after the case was removed. Ellsworth, 2003 WL 21783304, at *3 (citing Phillips v. Delta Airlines, Inc., 192 F. Supp. 2d 727, 729 (E.D. Tex. 2001)). The Ellsworth Court found these time periods, viewed in tandem, to be dilatory. However, in the present case, the state court petition was filed fewer than two months before the amendment was requested. Furthermore, as noted above, authority in this circuit and elsewhere supports the conclusion that when, as here, a plaintiff requests an amendment six weeks after a state court petition is filed and less than a month after removal, such a request is not dilatory. In Phillips, the Court held that a request to add non-diverse plaintiffs to a wrongful death action was dilatory when plaintiffs waited over two months from the time the original state court petition was filed and almost thirty days after removal before requesting the addition of two non-diverse plaintiffs whose interests were already represented in the litigation by the named plaintiff. 192 F. Supp.2d at 729. No such facts exist in this case.
The third Hengens factor, whether plaintiff would be significantly injured by denying the amendment, also weighs in favor of permitting plaintiff's proposed amendment. A plaintiff may be prejudiced considering the financial burden imposed by forcing such a plaintiff to maintain two parallel lawsuits arising out of the same facts in two different courts. See El Chico Rest., 980 F. Supp. at 1485. District courts have also noted that forcing a plaintiff to maintain two lawsuits in two different courts which arise out the same facts wastes judicial resources and may lead to inconsistent results. Id.; see also Jade Marine, 2002 WL 31886726, at *2; Burton v. Mentor Corp., 1996 WL 751063 at *2 (E.D. La. Oct. 29, 1996). Another consideration bearing on this factor is whether a plaintiff can be afforded complete relief without the amendment. Jerido v. Am. Gen. Life and Acc. Ins. Co., 127 F. Supp.2d 1322, 1325 (M.D. Ala. 2001).
Plaintiff contends that she will not be entitled to full relief without joining the individual defendants because one of Schwab's defenses is that Moore and Anna Schindler are liable for the conversion of the funds. Schwab maintains that plaintiff will suffer no harm because any claims against Moore and Anna Schindler and any right to recover from them are protected by the pending state court litigation.
While it is clear that the pending state court action could protect plaintiff's rights directly against Moore and Anna Schindler, it is equally clear that duplicative lawsuits arising out of the same facts in two different courts would waste the parties' resources, potentially lead to inconsistent results, and hamper plaintiffs' efforts to effectively litigate her claims. For this reason, this Court finds that the third Hensgens factor weighs in favor of the plaintiff. See Holcomb, 2001 WL 1480756, at *3 (explaining that the "danger of parallel lawsuits in federal and state court . . . may spawn inconsistent results and inefficient use of judicial resources").
Finally, the Hensgens Court stated that district courts should analyze any other factors bearing on the equities of either allowing or disallowing the proposed amendment. Hensgens, 833 F.2d at 1182. Plaintiff's claims against Schwab are intertwined with her claims against Moore and Anna Schindler and, in part, involve disbursements of funds to those individuals allegedly in violation of a temporary restraining order issued by the 24th Judicial District Court. These circumstances, along with the other factors discussed above, further tilt the balance of factors toward permitting plaintiff to amend in order to litigate these related claims in one action.
CONCLUSION
After considering the law, the arguments of the parties, and the record, this Court concludes that a balance of the Hensgens factors weigh in favor of allowing the amendment. Therefore, for the above and foregoing reasons, defendant's motion to deny joinder of Cindy Moore and Anna Schindler is DENIED. Pursuant to § 1447(e), if a district court permits post-removal joinder of a non-diverse party, the court must remand the action to state court. § 1447(e); Jade Marine, Inc., 2002 WL 31886726, at *2. Therefore, plaintiff's motion to remand this case is GRANTED and, pursuant to 28 U.S.C. § 1447(c), this action is hereby REMANDED to Orleans Parish Civil District Court for lack of subject matter jurisdiction.