Summary
holding that a plaintiff was dilatory in waiting two months after filing the complaint and nearly thirty days after removal before filing a motion for leave to amend
Summary of this case from Multi-Shot, LLC v. B T Rentals, Inc.Opinion
CIVIL ACTION NO. 03-0613, SECTION "C" (5).
July 30, 2003.
Order and Reasons
John S. Goehring, a third year law student at Tulane Law School, assisted in the research and preparation of this decision.
This matter comes before the Court on motion by Plaintiff to remand, and motions by Defendant to deny joinder, to compel arbitration, and to stay proceedings pending arbitration. Having considered the record, the memoranda, and the law, the motion to remand is DENIED, the motion to deny joinder is GRANTED, and the motions to compel arbitration and to stay pending arbitration are GRANTED.
Treated as a motion to strike first amended complaint. ( See Rec. Doc. 6, First Amended Complaint).
Background
This breach of contract action arises from a contract dispute that brings into question the enforceability of an arbitration clause. Plaintiff, Ellsworth, LeBlanc Ellsworth, Inc. ("Ellsworth") allegedly entered into a written agreement with Defendant, Strategic Outsourcing, Inc. ("SOI") providing that SOI would provide Ellsworth with certain payroll-related services. Ellsworth alleges SOI represented that use of their services would save Ellsworth money. When this large savings failed to materialize, Ellsworth sued SOI in the 24th Judicial District Court in Jefferson Parish, Louisiana, for breach of contract. Subsequently, SOI removed the proceedings to this Court based on diversity jurisdiction.
Ellsworth moves to remand the case for two reasons. First, Ellsworth claims that SOI is a Delaware corporation with its principal place of business in Louisiana, and not North Carolina as alleged by SOT. Thus, Ellsworth contends that SOI is not diverse from Ellsworth. Second, on March 21, 2003, Ellsworth amended its complaint to include as a defendant, Victor Howell ("Howell"), an SOI employee. (Rec. Doc. 6). Because Howell is a citizen of Louisiana, his joinder destroys complete diversity.
Ellsworth is a Louisiana corporation with its principal place of business in Louisiana.
SOI opposes removal and moves to deny joinder of Howell. SOT argues that its principal place of business is indeed North Carolina, and that joining Howell is fraudulent because Ellsworth's sole purpose for doing so is to defeat diversity.
Also, SOI moves to compel arbitration and to stay these proceedings pending arbitration. SOI contends that its contract with Ellsworth contains a valid arbitration clause that requires this dispute to be resolved by arbitration rather than in suit. Ellsworth argues that the arbitration clause is not enforceable, because (1) the contract is not signed by both parties, and thus not binding under Louisiana law; and (2) the arbitration clause contains a suspensive condition that renders the clause null under the Louisiana Civil Code.
Motion to Remand — Diversity of SOI
Ellsworth is a Louisiana corporation with its principal place of business in Louisiana. Ellsworth argues that SOI is a Delaware corporation with its principal place of business in Louisiana, which, if true, defeats complete diversity as required by 28 U.S.C. § 1332 (a)(1) for federal subject matter jurisdiction. As evidence, Ellsworth provides the "Unofficial Detail Record" of SOI from the Louisiana Secretary of State's webpage. (Rec. Doc. 7, Exhibit A). The webpage indicates that the SOI's "type entity" is "Business Corporation (Non-Louisiana), " that SOI's "Principal Office" is located in Charlotte, North Carolina, and its "Principal Business Establishment in Louisiana" is in Baton Rouge." (Id.) Apparently, Ellsworth would have the Court interpret "Principal Business Establishment in Louisiana" to mean that the principal place of business is in Louisiana. Indeed, Ellsworth argues that the application of the Fifth Circuit's "total activity" test supports this creative interpretation. The Court disagrees.
The amount in controversy required by the same statute is met and thus not at issue. 28 U.S.C. § 1332 (a)(1).
To apply the total activity test, a district court must look at the nature, location, importance, purpose of the corporation's activities, and the degree to which those activities bring the corporation into contact with the local community. Nauru Phosphate Poyalites v. Drago Daic Interests, 138 F.3d 160, 164 (5th Cir. 1998) (citing J.A.Olson Co. v. City of Winona, Miss., 81 F.2d 401, 411-12 (5th Cir. 1987)). Three principles guide this inquiry:
(1) when considering a corporation whose operations are far flung, the sole nerve center of that corporation is more significant in determining principal place of business; (2) when a corporation has its sole operation in one state and executive offices in another, the place of activity is regarded as more significant; but (3) when the activity of a corporation is passive and the "brain" of the corporation is in another state, the situs of the corporation's brain is given greater significance.
Id. (citing Wright, Federal Courts § 27, at 167-68 (5th ed. 1994)). SOI has provided an affidavit in support of its position that its principal place of business is in North Carolina. The sworn affidavit of Joseph F. Woodruff, III, Treasurer for SOI, states that SOI's corporate headquarters is located in Charlotte, North Carolina, and that most executive officers work in the Charlotte headquarters, including the President and CEO. (Rec. Doc. 14, Exhibit A). Further, Woodruff states that no executive offices are located in Louisiana nor do any of SOI's corporate governance activities occur in Louisiana. (Id.). Woodruff characterizes SOI as a far flung entity, with its principal place of business in Charlotte, North Carolina. (Id.). Based upon the evidence presented, the Court finds that the "nerve center" analysis within the total activity test is appropriate, and that SOI's nerve center is in North Carolina. The mere fact that SOI does business in Louisiana does not satisfy the total activity test, nor does it defeat diversity in this case. Accordingly, the Court finds that Ellsworth and SOI are diverse for jurisdictional purposes.
Motion to Remand — Fraudulent Joinder
SOI moves to deny the joinder of Howell as fraudulent and contends that Ellsworth's sole reason for amending the complaint to join Howell is to defeat diversity jurisdiction. The Fifth Circuit advises district courts, when faced with an amended pleading naming a new non-diverse defendant in a removed case, to scrutinize the amended complaint more closely than an ordinary amendment. Hensgens v. Deere Co., 833 F.3d 1179, 1182 (5th Cir. 1987), appeal after remand, 869 F.2d 879 (5th Cir. 1989), cert. denied, 493 U.S. 851 (1989). In Hensgens, the Fifth Circuit provided a four-part test to determine whether to allow joinder of a non-diverse party after removal. Id. The court must consider: (1) the extent to which the purpose of the amendment is to defeat federal jurisdiction; (2) whether plaintiff has been dilatory in asking for amendment; (3) whether plaintiff will be significantly injured if an amendment is not allowed; and (4) any other factors bearing on the equities. Id. The Court finds that each factor weighs in favor of denying joinder.
Ellsworth's First Amended Complaint makes no substantive changes to the original complaint, except with respect to the joinder of Howell.
With regard to the first factor, the extent to which the purpose of the amendment is to defeat federal jurisdiction, SOI notes that Ellsworth mentions Howell in its original complaint no less than 18 times, and yet does not name him as a defendant until after removal. (See Rec. Doc. 4, Petition for Breach of Contract). Ellsworth claims that though the effect of joinder would destroy diversity, the "reason for adding Mr. Howell is because he is liable to plaintiffs for damages." (Rec. Doc. 7 at 10). The Court is skeptical and finds that the apparent purpose of the amendment is to defeat federal jurisdiction.
In deciding the second Hens gens factor, whether Ellsworth has been dilatory in seeking an amendment, the Court considers the amount of time that has passed between the filing of the original complaint and the amendment, and between the removal and the amendment. Phillips v. Delta Airlines, Inc., 192 F. Supp.2d 727, 729 (E.D.Tex. 2001). In Phillips, the district court applied this Hens gens factor and found that a plaintiff was dilatory when she waited over two months after filing the original complaint, and "almost" thirty days after removal, before seeking to amend the complaint, despite being aware of the existence of the defendants that she sought to join. The Court finds the facts in Phillips indistinguishable and the rationale persuasive. Ellsworth knew of Howell's involvement from the outset, and yet waited over two months after filing the complaint and nearly thirty days after removal before filing the amendment to the complaint.
Ellsworth filed the original complaint on January 14, 2003 (Rec. Doc. 4, Exhibit A), SOI removed on February 27, 2003 (Rec. Doc. 1), and Ellsworth amended the complaint on March 21, 2003 (Rec. Doc. 6).
The third Hens gens factor is whether Ellsworth will be significantly injured if it is not permitted to add Howell as a defendant. To determine whether Ellsworth would be significantly injured, the Court must consider whether Howell is an indispensable party to the litigation under Rule 19 of the Federal Rules of Civil Procedure. Howell was an employee of SOI, and therefore under Louisiana law, SOI would be vicariously liable for his actions within the scope of his employment under the theory of respondent superior. Thus, Ellsworth has nothing to gain by joining Howell, so long as Howell was acting within the scope of his employment. As Ellsworth does not claim that Howell acted beyond the scope of his employment, either in the amended complaint or in its memorandum opposing the motion to deny joinder, the Court finds that Howell is not indispensable to the litigation.
La.C.C. art. 2320 (West 2002) ("employers are answerable for the damage occasioned by their servants . . . in the exercise of the functions in which they are employed").
Nowhere does Ellsworth allege that Howell acted outside of his authority. In its memorandum, Ellsworth notes that "if it is shown that Mr. Howell acted beyond the scope of the authority given him by SOI, then Mr. Howell may be liable independently, " and "Mr. Howell may likewise be liable individually if he exceeded the scope of his employment." (Rec. Doc. 17 at 2) (emphasis added). However, the Court regards this as a mere statement of the law, not meant as an allegation that Ellsworth would or even could support.
Finally, with regard to the fourth Hens gens factor, Ellsworth has raised no equitable considerations to support its case for allowing the amendment, and the Court is unaware that any exist. Thus, upon consideration of the Hensgens factors, the Court finds that Ellsworth's primary motivation for the joinder is to defeat the Court's diversity jurisdiction. Accordingly, joinder must be denied and the First Amended Complaint stricken from the record. Thus, complete diversity exists and the minimum jurisdictional amount is satisfied, hence, Ellsworth's motion to remand is properly denied.
Breach of Contract
Having addressed the jurisdictional issues, the Court now considers the merits of the contract dispute. Ellsworth argues two reasons why the arbitration clause is not enforceable under Louisiana law. First, Ellsworth argues that the terms of the written contract are not binding because SOI did not sign the contract. Ellsworth cites Louisiana Civil Code Article 1947, which reads:
The Court notes that the contract in question contains a choice of law provision electing to interpret the agreement under North Carolina law. The provision states, "This Agreement is made in Charlotte, North Carolina and will be interpreted under North Carolina law without regard to its choice of law provisions. Rec. Doc. 3, Exhibit A at 6 ¶ 10(f). Were the Court to pursue a conflict of laws analysis, it may find that North Carolina law, and not Louisiana law, would be the more appropriate basis for its decision. However, neither party makes a single reference or allusion either to the choice of law clause or the existence of any conflict, and therefore the Court finds it appropriate to resolve the dispute under Louisiana law. See Wood v. Mill-Valley Inc., 942 F.2d 425, 426 (Posner, 7th Cir. 1991) ("When neither party raises a conflict of law issue in a diversity case, the federal court simply applies the law of the state in which the federal court sits"). Having settled on Louisiana law, the Court addresses both of Ellsworth's arguments in turn.
When, in the absence of a legal requirement, the parties have contemplated a certain form, it is presumed that they do not intend to be bound until a contract is executed in that form.
La.C.C. art. 1947. The Court is not persuaded by Ellsworth's argument that, on the basis of this statute, a written contract is necessarily invalid when only signed by one party. The Court instead looks to the basic contract notion of offer and acceptance. Article 1927 of the Louisiana Civil Code provides the criteria for formation of a contract under Louisiana law:
A contract is formed by the consent of the parties established through offer and acceptance. Unless the law prescribes a certain formality for the intended contract, offer and acceptance may be made orally, in writing, or by action or inaction that under the circumstances is clearly indicative of consent. Unless otherwise specified in the offer, there need not be conformity between the manner in which the offer is made and the manner in which acceptance is made.
La.C.C. art. 1927. The Louisiana Civil Code also contains a specific provision that contemplates acceptance through performance. Article 1927 provides:
When an offeror invites an offeree to accept by performance and, according to usage or nature of the terms of the contract, it is contemplated that the performance will be completed if commenced, a contract is formed when the offeree begins the requested performance.
La.C.C. art. 1939. In this case, it is undisputed that SOI drafted the contract, Ellsworth signed the contract, and SOI proceeded to perform under the contract. These facts are more than sufficient to establish that both parties consented to form a binding contract governed by the written terms. Thus, the Court finds that the agreement is valid and its terms are enforceable.
Ellsworth also argues that the arbitration clause itself is invalid because it is a suspensive condition that depends upon the whim of the seller. The arbitration clause reads:
All disputes arising in connect with this agreement shall be submitted to arbitration in Charlotte, NC under the commercial arbitration rules of the American Arbitration Association or other commercially reasonably neutral arbitrator.
However, SOI may at its option bring a civil action in the state or federal court sitting for Charlotte, NC to obtain equitable relief.., or to enforce a monetary obligation, and the parties consent to such jurisdiction and venue.
Rec. Doc., Exhibit A, ¶ 7(e). The fact that SOI can chose either arbitration or litigation, Ellsworth alleges, makes the clause a suspensive condition in violation of Louisiana Civil Code article 1770. Article 1767 provides, "[i]f the obligation may not be enforced until the uncertain event occurs, the condition is suspensive." La.C.C. art. 1767. Article 1770 provides, "a suspensive condition that depends solely on the whim of the obliger makes the obligation null." La.C.C. art. 1770. Comment (d) reads:
An event which is left to the obligor's whim is one whose occurrence depends entirely on his will, such as wishing or not wishing something. An event is not left to an obligor's whim when it is one that he may or may not bring about after a considered weighing of interests.
Id. (citations omitted). The Court is not persuaded that the arbitration clause is a suspensive condition depending solely on the whim of SOI. First, the principal obligation under the contract is to provide payroll services. SOI's ability to elect arbitration or litigation is not a condition able to affect this principal obligation. Thus, with respect to the principal obligation to provide payroll services it has no bearing.
Second, with respect to the secondary obligation to arbitrate, SOI's decision either to arbitrate or to bring a civil action is first dependant on the existence of a contract dispute. Because the issue of arbitration can only arise in the event of a contract dispute, it is the occurrence of a dispute that gives rise to the obligation to arbitrate. Thus, under a plain reading of Article 1767, a contract dispute is the "uncertain event, " or suspensive condition upon which the obligation to arbitrate depends.
The Court does not consider whether a contract dispute can rationally be labeled an "uncertain event, " however, the Court takes judicial notice of the substantial number of cases on its docket grounded on breach of contract to support the inference that in business the eventuality of a contract dispute is an arguable certainty.
The rights and obligations of both parties under the contract, including the arbitration clause, have been bargained for, assented to, and defined. Both Ellsworth and SOI are sophisticated entities and as such it is presumed that the express contract, including the arbitration clause with its differential options reflects the parties' bargained for exchange. Thus, SOI's choice to either arbitrate or litigate, more closely resembles a bargained-for option rather than a suspensive condition. However, even if SOI's option were a suspensive condition, it does not depend on the "whim" of either party. Foremost, a contract dispute is not a "whim, " which is defined in Comment (e) as an "expression of mere unbridled discretion or arbitrariness." Id. Rather, a contract dispute, as well as, an option to arbitrate or litigate, is a rational and considered weighing of interests as described in Comment (d) Thus the Court finds that SOI's option to arbitrate or litigate is not a suspensive condition that depends upon the whim of SOI, and the arbitration clause is not void on that ground.
Arbitration
Having found that the contract and its arbitration clause are valid and enforceable, the Court further finds that this matter is properly compelled to arbitration. The Federal Arbitration Act ("FAA") expresses a strong national policy favoring arbitration of disputes. Primerica Life Insurance Co. v. Brown, 304 F.3d 469, 471 (5th Cir. 2002): see also 9 U.S.C. § 1-16. The Court's decision to compel this matter to arbitration is based on a two-pronged inquiry: (1) whether the parties agreed to arbitrate the dispute; and (2) whether any federal statute or policy renders the claims nonarbitrable. Id. The Court has found that SOI and Ellsworth have agreed to a valid arbitration clause, and Ellsworth does not argue that the dispute is nonarbitrable for any federal statutory or policy reason.
With regard to SOI's motion to stay these proceedings pending arbitration, the FAA requires the Court to grant the motion.
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.9 U.S.C. § 3. Thus, the Court stays these proceedings pending arbitration.
Conclusion
The Court has federal diversity jurisdiction over this contract dispute because SOI is a far-flung entity incorporated in Delaware with its principal place of business in North Carolina, and Ellsworth is a Louisiana corporation doing business principally in Louisiana. Ellsworth's attempt to amend the complaint to join Howell as a co-defendant is a transparent attempt to defeat federal diversity jurisdiction and will not be allowed. The Court finds that the written terms of the contract, including the arbitration agreement are enforceable and valid under Louisiana law. Accordingly, it is appropriate to compel arbitration and stay these proceedings pending arbitration.
Accordingly,
IT IS ORDERED that Ellsworth, LeBlanc Ellsworth'5 Motion to Remand is hereby DENIED.
IT IS FURTHER ORDERED that Strategic Outsourcing Inc.'s Motion to Deny Joinder of Howell is hereby GRANTED, and IT IS ORDERED that Plaintiffs' First Amended Complaint (Rec. Doc. 6) is hereby STRICKEN from the record.
IT IS FURTHER ORDERED that Strategic Outsourcing Inc.'s Motion to Compel Arbitration and Motion to Stay Pending Arbitration are hereby GRANTED.
New Orleans, Louisiana, this 30th day of July, 2003.