SAM R. CUMMINGS, District Judge.
On this day, the Court considered Plaintiff Panorama Construction Co., Inc.'s (Panorama) Motion to Remand and Objections and Motion to Strike Defendant's Evidence, filed January 25, 2010, along with Defendant Farm Credit Services of Central Kansas, FCLA's (Farm Credit) Response, filed February 15, 2010. After considering the relevant argument and authorities, the Court is of the opinion that Panorama's Motion to Remand should be DENIED and its Objections and Motion to Strike Defendant's Evidence should be DENIED.
In late 2006, ANB Contractors, LLC (ANB) entered into a contract with Que and Debora Fullmer (the Fullmers) to construct a calf ranch and grow yard on certain property owned by the Fullmers in Bailey County, Texas. Thereafter, ANB, as the general contractor of the project, began to provide labor and/or material for the improvements pursuant to its agreement with the Fullmers. Meanwhile, Farm Credit agreed to finance the project, and during April of 2007, after ANB had begun providing labor and/or material to the Fullmers' property, Farm Credit filed and recorded two deeds of trust to secure a loan it made to the Fullmers for the construction of the improvements.
After a dispute arose between the Fullmers and ANB, ANB ceased working on the project. Eventually, the two parties reached separate settlement agreements and parted ways. Thereafter, the Fullmers entered into an agreement with Panorama to construct the calf ranch and grow yard. Soon after reaching the agreement, Panorama began providing labor and delivering materials as the new general contractor. Panorama later filed two separate affidavits claiming a mechanic's lien for various amounts on the Fullmers' property.
When the Fullmers became insolvent and ceased making payments, the Fullmers' largest creditor, Farm Credit, foreclosed on the real property containing the calf ranch and the grow yard. Farm Credit foreclosed on this property on June 2, 2009. Heartland Recovery Texas-F# 1, L.L.C. (Heartland), which Panorama represents is wholly owned by Farm Credit, is the current owner of the property.
On November 30, 2009, Panorama filed this suit in the 287th Judicial District Court of Bailey County, Texas, naming Farm Credit and Heartland as defendants. Panorama asserted various state law causes of action against Farm Credit, including fraud and tortious interference with a contract, and asserted a foreclosure action against Heartland. Farm Credit was served with notice of the pending lawsuit on December 2, 2009, and removed the case to this Court on December 28 with Heartland's consent.
In its notice of removal, Farm Credit claims that the removal is proper because this Court has diversity jurisdiction over this action. Farm Credit asserts that it is a citizen of Kansas, Heartland is a citizen
"Except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C. § 1441(a). "In general, defendants may remove a civil action if a federal court would have had original jurisdiction." De Aguilar v. Boeing Co., 47 F.3d 1404, 1408 (5th Cir.1995) (citing 28 U.S.C. § 1441(a)). "The federal removal statute, 28 U.S.C. § 1441 (1997), is subject to strict construction because a defendant's use of that statute deprives a state court of a case properly before it and thereby implicates important federalism concerns." Frank v. Bear Stearns & Co., 128 F.3d 919, 922 (5th Cir.1997). "The removing party bears the burden of establishing that federal jurisdiction exists." De Aguilar, 47 F.3d at 1408. "[D]oubts regarding whether removal jurisdiction is proper should be resolved against federal jurisdiction." Acuna v. Brown & Root Inc., 200 F.3d 335, 339 (5th Cir.2000) (citing Willy v. Coastal Corp., 855 F.2d 1160, 1164 (5th Cir.1988)).
Farm Credit removed this case on December 28, 2009, on the basis of diversity of citizenship. Under 28 U.S.C. § 1441, a defendant may remove a case on the basis of diversity of citizenship if none of the defendants is a citizen of the state in which the action is brought. 28 U.S.C. § 1441(b). Although the parties in this case are diverse, at first glance, removal appears to be improper because one of the defendants, Heartland, is a citizen of Texas. In its notice of removal, Farm Credit asserts that despite the presence of an in-state defendant, removal was proper under § 1441 because Heartland was improperly joined. Improper joinder is an exception to § 1441's general prohibition against removing cases with a in-state defendant. See Smallwood v. Ill. Cent. R. Co., 385 F.3d 568, 571 n. 1 (5th Cir.2004) (en banc) (favoring the term "improper joinder" over "fraudulent joinder"). An in-state defendant is considered improperly joined when the plaintiff has either incorrectly pleaded the jurisdictional facts concerning the in-state defendant or has pleaded a cause of action against the in-state defendant that the plaintiff cannot establish. Id. at 573 (quoting Travis v. Irby, 326 F.3d 644, 646-47 (5th Cir.2003)). A plaintiff is unable to establish a cause of action against an in-state defendant when "there is no possibility of recovery by the plaintiff against [the] in-state defendant," that is, when "there is no reasonable basis for the district court to predict that the plaintiff might be able to recover against [the] in-state defendant" under state law. Id.
To determine whether the plaintiff has a reasonable basis of recovery under
In Panorama's state court petition, Panorama "requests foreclosure of its constitutional and/or statutory mechanic's lien" on certain property owned by Heartland. (See Notice of Removal Appx. 6.) Farm Credit argues that Panorama cannot establish its foreclosure action against Heartland because Farm Credit's prior foreclosure sale on the same property extinguished all junior liens, including Panorama's lien. See Richard H. Sikes, Inc. v. L & N Consultants, Inc., 586 S.W.2d 950, 954 (Tex.Civ.App.-Waco 1979, writ ref'd n.r.e.) ("[A] deed of trust lien existing upon the land prior to the time of inception of the mechanic's lien does not become subordinate to the mechanic's lien . . . [and a] foreclosure sale of the senior lien extinguishes the junior lien on the land and all improvements. . . ."). Panorama contends that despite acquiring its lien after Farm Credit recorded its deed of trust, its lien was superior to Farm Credit's deed of trust because the inception of Panorama's lien related back to a time prior to the deed's recording. Hence, Panorama concludes, Farm Credit's foreclosure sale did not extinguish Panorama's lien and Panorama can potentially seek a foreclosure sale.
Under Texas law, mechanic's liens may be provided for by contract, the Texas Constitution, or statute. See Tex. Const. Art. 16 § 37; Tex. Prop. Code § 53.021 (Vernon 2007). When determining the priority of a mechanic's lien along with other claims, a court must determine when the lien attaches to the property. Once perfected, the mechanic's lien will generally relate back to and attach at the
First Fed. Sav. & Loan Ass'n of Beaumont v. Stewart Title Co., 732 S.W.2d 98, 111 (Tex.App.-Beaumont 1987, writ denied); see also Tex. Prop. Code § 53.124(a). The mechanic's lien will take priority over any transfer of interest occurring after the date of the lien's inception. Valdez v. Diamond Shamrock Ref., 842 S.W.2d 273, 276 (Tex.1992).
Panorama argues that its lien should relate back to the lien created by ANB's contract with the Fullmers in 2006. In support, Panorama cites Oriental Hotel Company v. Griffiths, in which the Texas Supreme Court first discussed the relation-back doctrine. In Oriental, Griffiths, a general contractor, entered into a contract with Oriental Hotel Company to build a hotel on property owned by Oriental Hotel Company. See 88 Tex. 574, 33 S.W. 652, 659 (1895). After Griffiths perfected its lien and commenced construction of the hotel, Oriental Hotel Company conveyed an interest in the property to the project's underwriter, the St. Louis Trust Company, which promptly recorded its deed of trust. Id. After the trust company recorded its deed of trust, the plaintiffs, under separate contracts, began furnishing materials and performing labor for the hotel's construction in accordance with the plans outlined in Griffiths' contract. Id. Each plaintiff subsequently perfected liens under the applicable law. In determining the issue of priority, the Texas Supreme Court held that the plaintiffs' liens, although arising out of contracts created after the trust company had recorded its deed of trust, took priority over the deed of trust because the plaintiffs' liens had their inception at the same time that Griffiths' lien had its inception. Id. at 663. The court reasoned that
Id. at 662. Thus, the Court concluded, the plaintiffs' liens related back to the general contractor's lien and inception took place prior to the recording of the deed of trust. Id. at 662-63. Panorama argues that the relation-back doctrine as announced in Oriental would have Panorama's lien relate back to ANB's 2006 contract because the ANB contract established a continuing project—the construction of a calf ranch and grow yard—which Panorama sought to complete. See also Finger Furniture Co. v. Chase Manhattan Bank, 413 S.W.2d 131, 137 (Tex.Civ.App.-San Antonio 1967, writ ref'd n.r.e.) ("[A] general construction contract was executed . . . and work was performed thereunder prior to the execution and recording of the deed of trust. . . . The constitutional liens . . . arose in performance of work and furnishing of materials clearly contemplated by the plans and specifications of this general contract. Therefore, under the `relation back' rule of
If the Court were restricted to the facts alleged in Panorama's state court petition, the Court might be inclined to agree with Panorama; nothing appears to foreclose the possibility that Panorama's lien could relate back to ANB's lien. Under Panorama's facts, ANB, as the original general contractor, entered a contract for construction of a calf ranch and grow yard. Like the hotel in Oriental, the calf ranch was a continuing project established by a contract that existed both prior to and after Farm Credit's recording of the deed of trust. That Panorama commenced its work under a contract subsequent to the ANB contract would be of no consequence because it appears that Panorama's work would simply be part of the same continuing project and that such work would be necessary to the project's completion and called for by the ANB contract. Hence, Panorama's lien could relate back to ANB's lien and be found superior to Farm Credit's deed of trust, thus surviving Farm Credit's foreclosure. If such were the case, the Court would be inclined to remand this action.
However, the Court is not bound by Panorama's allegations. As previously noted, in improper joinder cases, a district court may, in its discretion, pierce a plaintiff's pleadings when a plaintiff omits certain undisputed facts that would determine the propriety of the in-state defendant's joinder. Here, Farm Credit presents such undisputed facts.
The termination of the 2006 ANB contract is of significance. The relation-back doctrine in Oriental was premised upon the presence of a contract that was in effect both prior to the deed's recording and at the time the subsequent laborers entered into their contracts for work. See Oriental, 33 S.W. at 662 ("When the building has been projected, and construction of it entered upon,—that is, contracted for,— the circumstances exist out of which all future contracts for labor and material necessary to its completion may arise. . . .") (emphasis added); see also Finger Furniture Co., 413 S.W.2d at 137. The court in Oriental reasoned that because the plaintiffs' contracts were necessary to complete the work called for by the general contract, these subsequent contracts should be treated not like new agreements, but rather modifications of or alterations to the general contract, as if the future laborers had been parties to the original contract and were merely filling in the details to the prior contract. See Oriental, 33 S.W. at 662. Hence, from the plaintiffs' perspective, because their contracts were contemplated by the original general contract, the plaintiffs' contracts, and their resulting liens, were treated as if they were part of the original general contract. Id.
Although not specifically discussed in Oriental, the inverse of this reasoning
This conclusion is only strengthened when considering the relation-back doctrine in the context of the rules of conveyance, namely, that property owners cannot convey an interest in property greater than they own. See Diversified Mortg. v. Lloyd D. Blaylock, Etc., 576 S.W.2d 794, 805 (Tex.1978) (citing Irving Lumber Co. v. Alltex Mortg. Co., 468 S.W.2d 341 (Tex. 1971)). In cases like Oriental, while future laborers might be contemplated under the general contract, these future laborers are not conveyed an interest in the owner's property at that point in time. However, when the relation-back doctrine deems that these future workers' liens in the property are given the same status as the liens held by the general contractor who received an interest at a prior point in time, the relation-back doctrine might be viewed as allowing property owners to convey to these future laborers a greater interest in their property than they own at a given point in time. This apparent conflict is eased by engaging in a simple legal fiction.
While this legal fiction might work in fact scenarios like the one in Oriental, here the retroactive conveyance makes little sense. If the relation-back doctrine applied here, the Fullmers would be construed as conveying the same interest to Panorama in 2008 as they conveyed to ANB in 2006, when the Fullmers owned the property clear of Farm Credit's deed. The problem is that ANB's interest in the Fullmers' property was premised upon work contemplated under the construction contract, and it is undisputed that both ANB's contract and its interest in the Fullmers' property were terminated by the settlement agreements ANB and the Fullmers entered into in early 2008. Hence, to engage in the legal fiction here would be to deem the Fullmers as conveying an interest to Panorama that no longer exists. Again, this would counsel against applying the relation-back doctrine.
Whether the doctrine is viewed from the perspective of the property owners—as a retroactive conveyance—or from the perspective of the future laborers—as an alteration to a prior contract—applying the relation-back doctrine in this case does not make sense. Under Farm Credit's undisputed facts, to find that Panorama's lien was superior to Farm Credit's deed of trust, the Court would have to find (1) that the relation-back doctrine applies despite the absence of a continuing project, which case law does not support; (2) that the Fullmers conveyed a greater interest in their property than they owned, which Texas law does not allow; or (3) that the contract between ANB and the Fullmers was continuing, which is contrary to the undisputed facts. The Court is unaware of any legal theory that supports finding Panorama's lien superior to Farm Credit's deed of trust. Hence, absent applying the relation-back doctrine, the only interest the Fullmers could have conveyed to Panorama was an interest burdened by Farm Credit's deed of trust.
Therefore, after considering Panorama's allegations in the state court petition along with Farm Credit's undisputed facts, the Court is of the opinion that Panorama will be unable to establish its foreclosure claim against Heartland. The Court finds that Panorama's lien was junior to Farm Credit's deed of trust. When Farm Credit foreclosed on its deed of trust, it extinguished all subsequent liens, including Panorama's lien. As such, Panorama no longer has a lien on Heartland's property and Panorama's claim to foreclose on Heartland's property should be dismissed.
Panorama also moved to strike exhibits A, B, and C attached to Farm Credit's notice of removal to the extent such are offered as documentary evidence supporting removal. Farm Credit asserts that evidence supporting removal, including the documents attached to its notice of removal, have been properly authenticated and attached to its Response to Panorama's Motion to Remand. The Court so finds and will order that Panorama's motion to strike be denied.
Therefore, for the reasons stated herein, Panorama's Motion to Remand is DENIED and Panorama's Motion to Strike is DENIED.
Panorama's cause of action against Heartland is DISMISSED with prejudice.