Summary
In Schauer the magistrate judge recommended remanding the case, finding a "possibility of recovery" against individual defendants who made alleged misrepresentations about their intent "to have long lasting business relationships."
Summary of this case from AMS STAFF LEASING, NA, LTD. v. ASSOCIATED CONTRACT TRUCKMENOpinion
CIVIL ACTION NO. SA-02-CA-0827 OG (NN)
June 12, 2003
MEMORANDUM AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
TO: Orlando L. Garcia United States District Judge
I. Introduction
This is a case arising out of contracts for the sale of turkeys and turkey breeding equipment. Plaintiffs' Original Petition seeks relief for the following causes of action: violations of the Texas Free Enterprise and Antitrust Act of 1983, TEX. BUS. AND COMM. CODE §§ 15.01, et seq.; breach of contract; common law fraud; promissory estoppel; negligent misrepresentation; conspiracy; and breach of fiduciary duty.Plaintiffs moved to remand this case to where it was originally filed, the 25th Judicial District, Gonzales County, Texas, on the grounds that the case was improvidently removed to federal court. Plaintiffs contend that the case was improvidently removed because the defendants erroneously claimed that the resident defendants, Agri-Bedding Supplies, Inc., Mida Bio Products Services, Ltd., Mida Farms, L.L.C., Heritage Dedicated Services, Inc., Mike Neal and Ira Brister, were fraudulently joined. In addition to requesting that the court remand the case, plaintiffs seek sanctions, attorneys fees, and costs. Additionally, plaintiffs move to strike certain portions of affidavits defendants submitted in response to the motion to remand.
Docket Entry 15.
Docket Entry 15. See also Docket Entry 30, Plaintiffs' reply to defendants' response on motion to remand.
Docket Entry 29.
Defendants oppose the motion to remand on the basis that the resident defendants were fraudulently joined. In support of their position that the resident defendants were fraudulently joined, defendants argue that there is no possibility that plaintiffs can recover against any of the resident defendants under any of the causes of action pled. Defendants also move to strike most of plaintiffs' supporting affidavits. Finally, the following defendants have filed motions to dismiss: (1) defendant Heritage Dedicated Services, Inc.; (2) defendants Mike Neal, Agri-Bedding Supplies, Inc., Mida Bio Products and Services, Ltd., Mida Farms, L.L.C.; and (3) defendant Ira Brister.
Docket Entry 23.
Docket Entry 21.
Docket Entry 3.
Docket Entry 4.
Docket Entry 10.
I have jurisdiction to enter this Memorandum and Recommendation under 28 U.S.C. § 636 (b) and the District Court's Order referring all pretrial matters in this proceeding to me for disposition by order, or to aid in their disposition by recommendation where my authority as a Magistrate Judge is statutorily constrained.
Docket Entry 12.
II. Federal Court Jurisdiction
This case is not within the removal jurisdiction conferred to district courts under 28 U.S.C. § 1441 et seq. For the reasons set forth below, the court lacks diversity jurisdiction as required under 28 U.S.C. § 1332 (a)(1).III. Statement of the Case
On July 19, 2002, plaintiffs, residents of Texas and Texas corporations, filed their original petition against the defendants in the 25th Judicial District Court of Gonzales County, Texas, Cause Number 21,586.
See Plaintiffs' Original Petition, provided as an attachment to defendants' notice of removal, at Docket Entry 1.
Three of the defendants against whom plaintiffs seek recovery are foreign entities. Defendant Cargill, Incorporated is a Delaware corporation authorized to do business in the state of Texas. Defendant Cargill Incorporated-Turkey Products is a subsidiary of Cargill, Incorporated, and is also, therefore, a foreign entity. Defendant Plantation Foods, Inc., which was a Texas corporation, has been acquired by Cargill, Incorporated. As such, defendant Plantation is no longer a separate entity, but rather, is part of Cargill, Incorporated. Thus, defendant Plantation is also a foreign entity for the purposes of this action. In contrast, the remaining six defendants (Agri-Bedding Supplies, Inc., f/n/a Agri-Wool Products, Inc., Mida Bio Products Services, Ltd., Mida Fanms, LLC, Heritage Dedicated Services, Inc., Mike Neal and Ira Brister) are Texas corporations or residents of Texas.
Docket Entry 1, ¶ 7.
Docket Entry 1, ¶ 8.
Docket Entry 1, ¶ 9.
Plaintiffs' Original Petition, provided as an attachment to defendants' notice of removal, ¶ 4-5, at Docket Entry 1.
Plaintiffs and defendant Plantation had various agreements regarding the sale of turkeys and turkey breeding equipment. In particular, defendant Plantation sold breeding turkeys and turkey feed to plaintiffs. The plaintiffs then raised the turkeys until they were ready for slaughter, at which time plaintiffs sold the turkeys back to defendant Plantation. Throughout the tenure of their relationship with Plantation, plaintiffs alege that they were routinely assured by individual defendants Neal and Brister that they would have long term contracts with Plantation.
Plaintiffs' Original Petition, provided as an attachment to defendants' notice of removal, ¶ 1, at Docket Entry 1.
Id.
Plaintiffs' Original Petition, provided as an attachment to defendants' notice of removal, ¶ 1, at Docket Entry 1.
On August 31, 1998, defendant Cargill, Incorporated acquired all of defendant Plantation's stock. After Cargill, Incorporated acquired all of defendant Plantation's stock, defendant Cargill either assumed defendant Plantation's contracts with plaintiffs, or entered into new contracts with the plaintiffs. Throughout the course and scope of the relationship with defendant Cargill, Incorporated, defendants Neal and Brister reassured plaintiffs that plaintiffs would enjoy a long-term business arrangement with defendant Cargill, Incorporated. As a result of defendants' assurances, plaintiffs increased their investments and expanded their farm operations. Defendant Cargill, by and through defendants Neal and Brister, allegedly assisted plaintiffs in securing additional credit in order to purchase the equipment necessary to fulfill the long-term agreements by representing the long-term nature of the agreements to plaintiffs' respective, and prospective, lenders and creditors.
Plaintiffs' Original Petition, provided as an attachment to defendants' notice of removal, ¶ 2, at Docket Entry 1.
Plaintiffs' Original Petition, provided as an attachment to defendants' notice of removal, ¶ 3, at Docket Entry 1.
Plaintifts' Original Petition, provided as an attachment to defendants' notice of removal, at Docket Entry 1.
Plaintiffs' Original Petition, provided as an attachment to defendants' notice of removal, ¶ 13, at Docket Entry 1.
Plaintiffs allege that defendants violated the various contractual agreements in a variety of ways. In particular, plaintiffs contend that defendants defrauded the plaintiffs by charging the plaintiffs for feed that was not delivered. Plaintiffs also claim that defendants falsely documented the weight of turkeys bred by plaintiffs at the time of sale, and, therefore, the amount owed for the turkeys. Finally, plaintiffs allege that defendants wrongfully terminated their agreements with plaintiffs, after inducing plaintiffs to incur additional debt with the prospects of a long-term partnership.
Plaintiffs' Original Petition, provided as an attachment to defendants' notice of removal, ¶ 10, 11, and 12, at Docket Entry 1.
Plaintiffs' Original Petition, provided as an attachment to defendants' notice of removal, ¶ 6, 7, 8, and 9, at Docket Entry 1.
Plaintiffs' Original Petition, provided as an attachment to defendants' notice of removal, ¶ 2, 14. and 15, at Docket Entry 1.
On August 23, 2002, defendants Cargill, Incorporated, Cargill-Incorporated Turkey Products, and Plantation Foods, Inc. (hereafter "Cargill Defendants") removed the case to this court asserting diversity jurisdiction pursuant to 28 U.S.C. § 1332. Cargill Defendants argued that plaintiffs have no reasonable possibility of recovery against any of the non-diverse defendants. Consequently, the Cargill Defendants contend that the resident defendants were fraudulently joined, and this court can assert jurisdiction over this case once the fraudulently joined defendants are disregarded.
Docket Entry 1.
Id.
On September 20, 2002, plaintiffs moved to remand the case. Plaintiffs insist that they have viable state action claims against the non-diverse defendants, and that those defendants were not joined solely to defeat diversity. Since it is my recommendation that the motion to remand be granted for lack of subject matter jurisdiction, defendants' various motions to dismiss should not considered by this court.
Docket Entry 15.
Id.
IV. Issue Presented
Whether the case was improvidently removed to federal court?
V. Applicable Legal Standards
Plaintiffs move to remand the case to state court on the grounds that diversity jurisdiction is lacking. Plaintiffs maintain that they have viable state claims against the non-diverse defendants. For that reason, plaintiffs contend that the resident defendants were not fraudulently joined for the sole purpose of defeating diversity jurisdiction. Since the motion to remand questions the subject matter jurisdiction of the court, it must be ruled on before the court can reach the merits of the case, and the various motions to dismiss brought by the defendants as enumerated above. Before discussing plaintiff's motion to remand, I will review the law germane to motions to remand in general, and that pertaining to the issue of fraudulent joinder.
a. Removal Standard
The overriding principle in matters of removal and remand is that federal courts have no inherent subject matter jurisdiction. Federal Courts are courts of limited jurisdiction by origin and design. As a result, there is an initial presumption that federal courts lack subject matter jurisdiction to resolve a particular suit. It is well established that the party removing the case has the burden to present facts showing that federal subject matter jurisdiction exists. Whether a case may be removed is a question of federal law to be decided by federal courts with the removal statute strictly construed, and doubts concerning the propriety of removal construed against removal. The removal jurisdiction of the courts is determined by examining the record as it stands at the time the notice of removal is filed without consideration of subsequent pleadings.
See Marathon Oil Company v. Ruhrgas, 145 F.3d 211m215 ("Federal courts, as opposed to state trial courts of general jurisdiction, are courts of limited jurisdiction marked out by Congress.") (Emphasis added), cert granted, 525 U.S. 1039 (1998), rev'd on other grounds, 526 U.S. 574 (1999); and Oliver v. Trunkline Gas Co., 789 F.2d 341, 343 (5th Cir. 1986).
Kokkonen v. Guardian Life Ins. Co., 114 S.Ct. 1673, 1675 (1994);In re Hunter, 66 F.3d 1002, 1005 (9th Cir. 1995); Celli v. Shoell, 40 F.3d 324, 327 (10th Cir. 1994).
Allen v. RH Oil Gas Co., 63 F.3d 1326, 1335 (5th Cir. 1995).
See Willy v. Coastal Corp., 855 F.2d 1160, 1164 (5th Cir. 1988); and Kansas Pub. Employees Retirement Sys. v. Reimer Kroger Assoc. Inc., 4 F.3d 614, 618 (8th Cir. 1993), cert. denied, 511 U.S. 1126 (1994).
Shamrock Oil Gas Corp. v. Sheets, 313 U.S. 100, 108-109 (1941); Healy v. Ratta, 292 U.S. 263, 270 (1934).
Owens Equip. Erection Co. v. Kroger, 437 U.S. 365, 377 (1978); Diaz v. Sheppard, 85 F.3d 1502, 1505 (11th Cir. 1996), cert denied, 520 U.S. 1162 (1997).
See FSLIC v. Griffin, 935 F.2d 691, 695-96 (5th Cir. 1991) ("The power to remove an action is evaluated at the time of removal."), cert. denied, 502 U.S. 1092 (1992).
b. Diversity Jurisdiction: Fraudulent Joinder
The Cargill Defendants removed the case to this court under 28 U.S.C. § 1441 on the grounds that diversity jurisdiction, as defined by 28 U.S.C. § 1332, exists once the court ignores the non-diverse defendants. The Cargill Defendants further argue that the non-diverse defendants were fraudulently joined for the sole purposes of avoiding this court's subject matter jurisdiction. In support of their position that the resident defendants were fraudulently joined, Cargill Defendants contend that the plaintiffs' complaint does not contain any viable causes of action against the non-diverse defendants. Unless the Cargill Defendants prevail with these arguments, defendants Agri-Bedding Supplies, Inc., Mida Bio Products Services, Ltd., Mida Farms, L.L.C., Heritage Dedicated Services, Inc., Mike Neal and Ira Brister, who, like plaintiffs, are citizens of Texas, destroy diversity.
As the party wishing to invoke the jurisdiction of this court by alleging fraudulent joinder by the plaintiffs in framing their pleadings, the Cargill Defendants bear what the Fifth Circuit has called "the heavy burden" of establishing the plaintiffs' fraudulent joinder for purposes of avoiding federal jurisdiction. In Madison v. Vintage Petroleum, Inc., the Fifth Circuit set out the requirements incumbent on a party which removes an action on the basis of fraudulent joinder. The Cargili Defendants must prove: (1) that there has been outright fraud in the plaintiffs' pleadings of jurisdictional facts; or (2) that there is no possibility that the plaintiffs would be able to establish a cause of action against the in-state defendants in the previously filed state court proceeding. Since the Cargill Defendants in this case do not assert fraud by plaintiff, they must prove that plaintiffs have not set forth any valid cause of action against the individual defendants under state law.
See Madison v. Vintage Petroleum, Inc., 114 F.3d 514, 515 (5th Cir. 1997); Willy v. Coastal Corp., 855 F.2d 1160, 1164 (5th Cir. 1988),aff'd, 503 U.S. 131 (1992).
Id.
See Delgado v, Shell Oil Co., 890 F. Supp. 1324, 1341 (S.D. Tex. 1995), aff'd, 231 F.3d 165 (5th Cir. 2000), cert. denied, 532 U.S. 972 (2001).
In deciding whether the Cargill Defendants have met their burden, the court must "evaluate all of the factual allegations in the plaintiffs' state court pleadings in the light most favorable to the plaintiff, resolving all contested issues of substantive fact in favor of the nonremoving party." Importantly, if there is doubt as to whether a plaintiff has stated a cause of action, the joinder is not fraudulent and the case should be remanded. Because the burden is on the removing party, the Fifth Circuit instructs that the removal statutes are to be construed narrowly, with all doubts resolved in favor of remand to the state court.
Green v. Amerada Hess Corp., 707 F.2d 201, 205 (5th Cir. 1983),cert denied, 464 U.S. 1039 (1984).
See Parks v. New York Times Co., 308 F.2d 474, 478 (5th Cir. 1962), cert denied, 376 U.S. 949 (1964).
See Delgado v. Shell Oil Co., 890 F. Supp. 1324, 1341 (S.D. Tex. 1995), aff'd, 231 F.3d 165 (5th Cir. 2000), cert. denied, 532 U.S. 972 (2001).
Although the case authority has always clearly maintained that the defendants bear the burden of proving the impotence of the plaintiffs' claims against the non-diverse defendants, the actual test has often been recited in two seemingly dissimilar ways — even within the same case. For example, in the Griggs v. State Farm Lloyds case, the Fifth Circuit recited the burden in the following maimer:
To establish that a non-diverse defendant has been fraudulently joined to defeat diversity, the removing party must prove . . . that there is absolutely no possibility that the plaintiff will be able to establish a cause of action against the non-diverse defeadant in state court.
Travis v. Irby, 326 F.3d 644 (5th Cir. 2003), citing Griggs v. State Farm Lloyds, 181 F.3d 694, 699 (5th Cir. 1999) (emphasis added).
As articulated above, the test appears more favorable to the plaintiff, urging that a court can only find fraudulent joinder when absolutely no evidence exists to support the claims brought against the non-diverse defendants. Yet, in a later portion of the same opinion, the Fifth Circuit restated the test in a manner which seemed to soften the requirements placed on the defendant.
Stated differently, we must determine whether there is any reasonable basis for predicting that [the plaintiff] might be able to establish [the non-diverse defendant's] liability on the pleaded claims in state court.
Id.
Although the two ways of articulating the test do not seem perfectly synonymous, the Fifth Circuit has always insisted that both versions of the test are absolutely equivalent.
Recently, the Fifth Circuit acknowledged the apparent differences and explored the parity between the two versions of the test. In Travis v. Irby, the complaint pled the allegations comprising the negligence allegations against all the defendants collectively. The Fifth Circuit held that the allegations were sufficient to establish the possibility of success in state court against the only non-diverse defendant. Consequently, the case was vacated and remanded. In so holding, the Fifth Circuit summarized the fraudulent joinder standard as follows:
Travis v. Irby, 326 F.3d 644.
Importantly, the court found that the complaint, which pled facts "attributable" to the resident defendant, was sufficient to establish the possibility of recovery. Id. at 649.
"After all disputed questions of fact and all ambiguities in the controlling state law are resolved in favor of the nonremoving party, the court determines whether that party has any possibility of recovery against the party whose joinder is questioned."
Id. citing Great Plains Trust Co. v. Morgan Stanley Dean Witter Co., 313 F.2d 305, 312 (5th Cir. 2002).
Thus, the issue before me is whether plaintiffs have "any possibility of recovery" on any of their causes of action against any of the non-diverse defendants after resolving all ambiguities in favor of the plaintiffs.
VI. Analysis: is there any possibility of recovery against any of the non-diverse defendants?
In order to determine if plaintiffs fraudulently joined the resident defendants, this court must assess whether any of the seven causes of action contain viable claims against those defendants. If there is even a possibility that a valid cause of action can be brought against any of the resident defendants in state court, then the case must be remanded.
A. The breach of contract cause of action
Plaintiffs' original petition seeks relief, inter alia, for a breach of contract cause of action. Thus, the first issue before the court is whether there is any possibility that plaintiffs could bring the breach of contract claim as pled against any of the resident defendants in state court.
Plaintiffs' Original Petition, provided as an attachment to defendants' notice of removal, ¶ 1, at Docket Entry 1.
In order to plead a viable breach of contract claim against the resident defendants, the plaintiffs must allege: (1) the existence of a valid contract between plaintiffs and each defendant against whom plaintiffs seek relief; (2) that the plaintiff performed or attempted performance according to that contract; (3) that each defendant breached the contract; and (4) that the plaintiff was damaged as a result of those breaches.
Bridgmon v. Array Systems Corp., 325 F.3d 572, 577 (5th Cir. 2003), citing Frost Nat'l Bank v. Burge, 29 S.W.3d 580, 593 (Tex.App. — Houston 2000. no pet.).
As pled in the original petition, the breach of contract claim does not state a valid basis for relief against any of the resident defendants. The breach of contract, cause of action does not allege the existence of a contract between the plaintiffs and any of the non-diverse defendants, nor that any of the non-diverse defendants breached a contract with the defendants. While the contract claim does properly plead all the requisite elements against non-resident defendant Cargill, Incorporated, said pleading is insufficient to establish a viable claim for recovery against any of the non-diverse defendants. As a result, the breach of contract claim alone does not establish the possibility that the plaintiffs will recover against the non-diverse defendants in state court.
Plaintiffs' Original Petition, provided as an attachment to defendants' notice of removal, ¶ 1, at Docket Entry 1, ¶ 18-29, at 12-16.
Plaintiffs' Original Petition, provided as an attachment to defendants' notice of removal, at Docket Entry 1. The breach of contract cause of action alleges: (1) the existence of a contract between plaintiffs and Cargill (¶ 19, 21, 23); (2) Cargill's breach of its contract with the plaintiffs (¶ 18, 20, 26); (3) the plaintiffs' full performance according to the contract (¶ 24, 28); and damages directly caused by the breach (¶ 27, 28).
B. The promissory estoppel cause of action
In support of their motion to remand, plaintiffs argue that the Cargill Defendants neglected to mention the promissory estoppel cause of action in their notice of removal. Specifically, plaintiffs contend,
Cargill's Notice of Removal does not . . . demonstrate that there is no possibility that a state court would find a cause of action for promissory estoppel stated against any one of the non-diverse defendants.
Docket Entry 15, ¶ F, at 12-13.
Yet, the promissory estoppel claim only mentions defendant Cargill, Incorporated. Section VII, the section of the petition outlining the promissory estoppel cause of action, does not even mention the non-diverse defendants. Consequently, there are no facts upon which a state court could find the resident defendants liable for promissory estoppel. As pled, therefore, there is no possibility that plaintiffs could recover on their promissory estoppel cause of action against the resident defendants.
C. The common law fraud and negligent misrepresentation causes of action
The Cargill Defendants argue that plaintiffs have no possibility of success in bringing their fraud and negligent misrepresentation claims against the non-diverse defendants, arguing: (1) the claim for misrepresentation cannot stand because the contracts contained clear termination provisions; (2) the allegedly fraudulent statements made to the plaintiffs were, in fact, true; (3) none of the defendants had a duty to disclose information to the plaintiffs; (4) the allegedly fraudulent statements were made about future events, and cannot, therefore, be a basis for fraud liability; and (5) neither defendant Neal nor defendant Brister can be liable for any alleged fraud because at all relevant times they were acting as employees of Plantation or Cargill, Incorporated, and not in their individual capacities.
Defendants' notice of removal. Docket Entry I, ¶ 23, at 9.
Although the Cargill Defendants included two arguments about the veracity of the allegedly fraudulent statements, those arguments are subject to factual dispute. Since a contention that the statements were true raises the doubt that the statements were actually false, I find those arguments unavailing as all doubts must be resolved in favor of the plaintiffs.
Similarly, the issue of whether defendants Neal and Brister owed plaintiffs a duty as a
matter of law is not dispositive for the purposes of determining whether plaintiffs have any possibility of recovery on the fraud claims. Plaintiffs' petition alleges beth that defendants had a duty to disclose material information to plaintiffs that defendants failed to disclose, and that "[d]efendants knowingly and intentionally made material misrepresentations." Since plaintiffs have pled facts sufficient to establish a claim against defendants Neal and Brister for active, material misrepresentations (as opposed to merely pleading fraudulent silence), plaintiffs have a possibility of recovery against defendants Neal and Brister even if defendants Neal and Brister did not have a duty to disclose information to the plaintiffs. For these reasons, the focus of my inquiry will be the remaining two arguments the Cargill Defendants proffered in support of the removal: (1) whether a fraud-based claim can successfully seek recovery for statements made about future events; and (2) whether individual defendants Neal and Erister can be held liable in their individual capacities.
Plaintiffs' Original Petition, provided as an attachment to defendants' notice of removal, ¶ 30, et seq., at Docket Entry 1.
See American Tobacco Co., Inc., 951 S.W.2d 420, 436 (Tex. 1997) ("In Texas, a plaintiff accomplishes actual fraud if the defendant makes a material misrepresentation, that is false, either known to be false when made or is asserted without knowledge of its truth, that is intended to be and is relied upon, and that causes injury.")
(1) Fraud liability for statements about future events
The Cargill Defendants urge that statements about future events cannot form the basis for a fraud or negligent misrepresentation claim. In particular, the Cargill Defendants contend that any alleged statements made by defendants Brister or Neal regarding the intentions of defendants Cargill or Plantation are not actionable fraud.
The Fifth Circuit has established that predictions and opinions about future events cannot form a basis for fraud liability as a general rule. However, the general limitation on fraud-based liability is a narrow one, usually reserved for predictions or opinions about profitability, productivity and the like.
In order to effect a sale, induce the making of a contract, or place a proposed investment in a favorable light, it is quite common to make representations as to future value, productiveness, efficiency, or economy, or as to expected earnings or profits. But since that which lies in the future cannot be a matter of certain knowledge, it is held that all such representations must be taken and understood as mere expressions of opinion, and therefore their nonfulfillment cannot be treated as fraud.
Zar v. Omni Industries, Inc., 813 F.2d 689, 693 (5th Cir. 1987) ("The generally accepted rule in Texas jurisprudence is that future predictions and opinions, especially those regarding the future profitability of a business, cannot form a basis for fraud as a matter of law.")
Id.
Id. , citing Lloyd v. Junkin, 75 S.W.2d 712, 714 (Tex.Civ.App. — Dallas 1934, no writ).
Yet, the statements at the center of plaintiffs' fraud claims can be construed as something other than mere puffery. The statements for which plaintiffs seek relief were not predictions that Cargill, Incorporated and Plantation, respectively, would be successful or that plaintiffs would enjoy great economic success from their liaison with the companies. Rather, the alleged misrepresentations had to do with the companies' intentions to have long lasting business relationships with plaintiffs. If those statements about defendants' intentions were made with the knowledge of their falsity and the purpose of inducing the plaintiffs to take action in reliance thereon, then the statements can constitute actionable fraud if the plaintiffs did in fact rely on those statements and suffer resulting damages.
A promise to do an act in the future is actionable fraud when made with the intention, design and purpose of deceiving, and with no intention of performing the act.
Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986). See also American Tobacco Co., Inc., 951 S.W.2d 420. 436 (Tex. 1997) ("In Texas, a plaintiff accomplishes actual fraud if the defendant makes a material misrepresentation, that is false, either known to be false when made or is asserted without knowledge of its truth, that is intended to be and is relied upon, and that causes injury")
Thus, the statements at issue are potentially actionable. If defendants Neal and/or Brister are subject to liability in their individual capacities, there is a possibility that plaintiffs could recover on their common law fraud and negligent misrepresentation causes of action.
(2) Fraud liability against defendants Neal and Brister in their individual capacities
The Cargill Defendants' other main challenge to the fraud and negligent misrepresentation claims is that defendants Neal and Brister cannot be held individually liable since they were corporate agents, acting in their corporate capacities, during their relationships with the plaintiffs. The Cargill Defendants urge that plaintiffs have no evidence which can establish that defendants Neal and Brister were acting for their own personal gain, and can, therefore, be held personally liable. In contrast, the Cargill Defendants have submitted the affidavits of defendants Neal and Brister who attest that, at all times, they were acting as corporate agents, for the benefit of the corporation alone. The Cargill Defendants have also proffered the affidavits of Dick Taylor, President and Chief Operating Officer of Plantation Foods, Ray Buckner, Vice President and General Manager of Heritage Dedicated Services, and Peter Brown, President of Cargill Turkey Products.
Docket Entry 24, Tabs 1 and 2.
Docket Entry 24, Tabs 3, 4, and 5.
Cargill Defendants' self-serving affidavits are not sufficient to preclude the possibility of plaintiffs' recovery on the fraud causes of action. In light of plaintiffs' allegations that defendants Neal and Brister received personal benefits — outside of their routine corporate compensation — for defrauding plaintiffs, the self-serving affidavits do not eliminate the doubt that defendants Neal and Brister were acting for their own personal benefit. Moreover, Cargill Defendants cannot shift the burden of persuasion by simply arguing that plaintiffs lack the evidence necessary to support their claim.
See Docket Entries 1, 15, and 30.
In this circumstance, in which the defendant has the burden of establishing fraudulent joinder and the plaintiff can clearly state a claim upon which relief can be granted as to the non-diverse defendant, the lack of substantive evidence as to the non-diverse defendant does not support a conclusion that he was fraudulently joined. In order to establish that [defendant] was fraudulently joined, the defendant must put forward evidence that would negate a possibility of liability on the part of [defendant]. As the defendants cannot do so, simply pointing to the plaintiff's lack of evidence . . . is insufficient to show that there is no possibility for [plaintiff] to establish defendant's liability at trial.
Travis v. Irby, 326 F.3d 644, 650-51.
Here, plaintiffs have adequately established the possibility that a state trier of fact could find that defendants Neal and Brister were acting in their individual capacities, for their individual benefits at the time they allegedly defrauded plaintiffs. For these reasons, there is a possibility that plaintiffs can recover against non-diverse defendants Neal and Brister in state court. As such, the motion to remand must be granted because plaintiffs have established that resident defendants Neal and Brister were not joined solely to defeat this court's diversity jurisdiction.
D. The antitrust cause of action
The Cargill Defendants contended that plaintiffs had no possibility of recovery against the resident defendants on the antitrust cause of action for four reasons: (1) plaintiffs claim was fatally defective because it pled the antitrust cause of action in conclusory terms only; (2) plaintiffs have not suffered an antitrust injury; (3) plaintiffs failed to plead the existence of a relevant product or geographic market that was affected by defendants allegedly anti-competitive behavior; and (4) plaintiffs lack standing to impose liability on the basis of the Cargill-Plantation acquisition which is the only possible basis for the antitrust claim.
Docket Entry 23, ¶ C(1-4), at 11-13.
The Texas Free Enterprise and Antitrust Act of 1983 (hereafter the Act) was passed to promote economic competition in the state of Texas. The Act prohibits persons and entities from contracting or conspiring to restrain trade; monopolizing or conspiring to monopolize any part of trade or commerce; selling, leasing or contracting for the sale of goods where the effect of the sale or lease agreement is to lessen competition in any line of trade; acquiring stock in order to lessen competition in any line of trade or commerce; or refusing employment or continued employment on the basis of their membership in a labor organization. Importantly, the opening text provides that the Act "shall be construed in harmony with federal judicial interpretations of comparable federal antitrust statutes."
To plead properly an antitrust cause of action, a plaintiff must establish that an antitrust injury occurred, which "flowed" from the offending party's anticompetitive behavior, and either caused actual, detrimental effects or increased the anticompetitive party's market power in a defined, relevant market. To define a relevant market, "a plaintiff must adequately define both a product and geographic market." All the requisite elements of an antitrust claim must be pled with particularity.
See, e.g. Davies v. Genesis Medical Center, 994 F. Supp. 1078 (S.D. Iowa 1998); Walker v. U-Haul Co. of Mississippi, 747 F.2d 1011 (5th Cir. 1985).
Walker v. U-Haul Co. of Mississippi, 747 F.2d, at 1015.
Davies v. Genesis Medical Center, 994 F. Supp, at 1097.
Id.
Id. See also Federal Parts Corp. v. Robert Bosch Corp., 604 S.W.2d 367, 369 (Tex.App.-Fort Worth 1980, writ ref'd n.r.e.).
In the instant case, the only allegations supporting the antitrust cause of action against all defendants can be found in the first two sentences of the antitrust claim. The complaint alleges
The Plaintiffs show that the Defendants conspired to violate and did violate the Texas Fee (sic) Enterprise and Antitrust Act of 1983 (the Act) (sic). The Defendants violated the Act by entering into: (1) unlawful contracts, combinations and conspiracies to restrain trade; (2) unlawful contracts, combinations and conspiricies to fix prices; (3) an unlawful monopoly and attempting and conspiring to monopolize trade; and (4) unlawful agreements not to deal with competitors.
Plaintiffs' Original Petition, provided as an attachment to defendants' notice of removal, ¶ 16, at Docket Entry 1.
While plaintiffs tracked the language of the Act in setting forth a conclusory overview of the alleged violations committed by all defendants, plaintiffs have not alleged any facts that could establish specific violations of the Act by particular resident defendants which created either concrete, antitrust injury to the plaintiffs flowing from the anticompetitive behavior or increased any of the resident defendants' market power in a defined, relevant market. Although plaintiffs have pled facts with greater particularity establishing the Cargill Defendants' alleged anticompetitive behavior, those facts alone cannot form the basis for an antitrust claim against the resident defendants. For these reasons, the cause of action for violations of the Texas Free Enterprise and Antitrust Act — as currently pled — does not establish plaintiffs' possibility of recovery against the non-diverse defendants in state court.
E. The conspiracy cause of action
The Cargill Defendants challenge the conspiracy cause of action on the following grounds: first, that the conspiracy claim is pled in an entirely conclusory manner; second, that the claim is barred by the applicable statute of limitations; third, that the claim fails as to the resident defendant corporations because they did not exist at the time the alleged conspiracy occurred; and fourth that the conspiracy claim is not viable against individual defendants Neal and Brister because they were employees of the entities with which they allegedly conspired at the time of the alleged conspiracy. Because the statute of limitations issue is potentially fatal to plaintiffs' conspiracy cause of action, I shall address that argument first.
Docket Entry 23, ¶ D.
A civil conspiracy cause of action is governed by a two year statute of limitations under Texas law. Thus, an action predicated on injury resulting from a civil conspiracy must be filed within two years of the date the conspiracy occurred. Otherwise, the conspiracy claim will be barred by the statute of limitations.
Stevenson v. Kourtzarov, 795 S.W.2d 313, 318-319 (Tex.App — Hous. 1990))
In the instant case, the complaint alleges that the object of the conspiracy was the monopolization of the turkey business in Texas through defendant Cargill, Incorporated's acquisition of defendant Plantation According to the complaint, the acquisition, and attendant conspiracy, were completed on August 31, 1998. Yet, the complaint was not filed until July 19, 2002. Since the complaint was filed nearly four years after the alleged conspiracy occurred, the conspiracy claim is barred by the applicable statute of limitations. As pled, therefore, plaintiffs have no possibility of recovery against the non-diverse defendants on the conspiracy cause of action.
Plaintilfs' Original Petitions provided as an attachment to defendants' notice of removal, ¶ 50, at Docket Entry 1.
Id. ¶ 2.
F. The breach of fiduciary duty cause of action
Cargill Defendants argue that plaintiffs' breach of fiduciary duty claim fails as a matter of law because plaintiffs and defendants did not have a relationship prior to, and apart from, the contracts at issue in the instant action.
Docket Entry 23, ¶ E.
In the recent case Great Plains Trust Company v. Morgan Stanley Dean Witter Co., the Fifth Circuit assessed the sufficiency of a breach of fiduciary duty claim in the context of a removal action predicated on fraudulent joinder. As a preamble to its analysis of the claim, the Court stressed that a "fiduciary duty is not lightly created." In holding that the resident defendants had been fraudulently joined, the Fifth Circuit found that the following allegations were insufficient to establish the possibility of recovery for breach of fiduciary duty in Texas state court:
Great Plains Trust Company v. Morgan Stanley Dean Witter Co., 313 F.3d 305 (5th Cir. 2002).
Id. , at 320
Defendants owed plaintiffs fiduciary duties because of plaintiffs' status as Debenture holders. They owed fiduciary duties because they had or should have had superior knowledge regarding Philip and the merits, advisability, and fairness of the proposed sale, and the background, integrity, experience, and qualifications of Philip's officers and directors, but they misled plaintiffs, through inaccurate statements or omissions of material facts, regarding Philip and the merits, advisability, and fairness of the proposed sale. Moreover, defendants owed plaintiffs a fiduciary duty to act for or give advice for the benefit of plaintiffs upon matters within the scope of their relation.
Id., at 321
After reviewing the aforementioned allegations, the Court held that the "plaintiffs . . . failed to allege a relationship . . . that could give rise to a fiduciary duty."
Id.
The complaint before me has pled even fewer facts which could establish the possibility of recovery on the breach of fiduciary duty claim. In the instant case, the breach of fiduciary duty cause of action is pled as the following, single paragraph:
The Defendants breached their fiduciary relationship to the Plaintiffs. The Defendants' breach of their fiduciary duty to the Plaintiffs resulted in significant injury to the Plaintiffs.
Plaintiffs' Original Petition, provided as an attachment to defendants' notice of removal, ¶ 51, at Docket Entry 1.
Plaintiffs pled no other facts supporting their fiduciary duty claim, nor have they proffered any other evidence which could establish a fiduciary relationship between plaintiffs and the resident defendants. Consequently, the complaint fails to allege sufficient facts to establish the possibility of recovery against the resident defendants on the breach of fiduciary duty claim.
G. Plaintiffs' request for costs and sanctions
Plaintiffs request that the court award them the costs and expenses of the allegedly improper removal, along with any sanctions the court deems appropriate. Plaintiffs argue that defendants wrongfully removed the case without addressing all causes of action pled in the original petition. Plaintiffs, therefore, assert that,
Docket Entry 15, ¶ IV, at 13.
[w]ithout evidence of any kind and only a partial argument as to the pleadings on file in the State court, Cargill has wrongfully removed this case and should suffer some consequence: for its actions.28 U.S.C. § 1447 authorizes a federal court to require that a removing party bear the expenses of an improper removal. In particular, the statute provides
Id.
An order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal.
Although the court need not find that the removing party acted in bad faith to award costs and expenses under 28 U.S.C. § 1447, costs are generally awarded only when the nonremovability is obvious. In other words, the court is bound to determine whether the removing party "had objectively reasonable grounds to believe the removal was legally proper" at the time of the removal.
News-Texan, Inc. v. City of Garland, Texas, 814 F.2d 216, 220 (5th Cir. 1987).
Id., fn 10.
Valdes v. Wal-Mart Stores, Inc., 199 F.3d 290, 293 (5th Cir. 2000).
In the instant case, the imposition of costs and expenses would be unjust. Although plaintiffs have been able to establish a reasonable possibility of recovery against resident defendants on one of their seven causes of action, I find that Cargill Defendants had objectively reasonable grounds to believe that the removal was proper at the time they removed the case. Moreover, the propriety or impropriety of the Cargill Defendants' motives in removing the case cannot be gleaned from their failure to address each cause of action in their notice of removal. Since several of plaintiffs' causes of action fail to mention the non-diverse defendants entirely, Cargili Defendants were not bound to address those claims in their notice of removal. For all these reasons, plaintiffs' request that this court shift the costs of the removal and award sanctions should be denied.
VII. Recommendation
Based on the foregoing, I recommend that plaintiffs motion to remand (Docket Entry 15) be GRANTED because the District Court does not have subject-matter jurisdiction over this case. Plaintiffs have a possibility of recovery against the resident defendants in state court on the fraud and negligent misrepresentation claims. Thus, the resident defendants were not fraudulently joined for the sole purpose of defeating diversity. Accordingly, this action should be removed to the 25th Judicial District Court of Gonzales County, Texas from where it was improvidently removed. Plaintiffs' request for cost and sanctions should be DENIED for the reasons stated above.
In light of this recommendation, the motions to dismiss brought by defendants Agri-Bedding Supplies, Inc., Mida Bio Products Services, Ltd., Mida Farms, L.L.C., Mike Neal (Docket Entry 4), defendant Heritage Dedicated Services, Inc. (Docket Entry 3), and, defendant Ira Brister (Docket Entry 10) are DENIED AS MOOT.