NANCY F. ATLAS, District Judge.
This case is before the Court on Defendant Fidelity Investment Limited's ("Fidelity") Rule 12(b)(2), 12(b)(4), 12(b)(5) and 12(b)(6) Motion to Dismiss and Motion for Relief from a Final Judgment (the "Motion to Dismiss") [Doc. # 5] and Plaintiff Xiaodong Li's ("Plaintiff" or "Li")
The case at bar appears to be the latest stage in litigation beginning in 2007. Plaintiff Li filed his Original Petition and Requests for Disclosure in the District Court of Harris County, Texas, on June 26, 2013, in which he asserted various Texas state property law claims against Fidelity.
The subject of Li's fraudulent transfer claim is a condominium located in Harris County. Li alleges that DDX sued him in 2007, but that case was dismissed with prejudice in 2008. Amended Petition [Doc. # 1-2], at 2 (ECF page 10), ¶¶ 10-11. Li claims that DDX nevertheless obtained a default judgment against Li in early 2009 of which he was not aware until DDX sought to execute its default judgment against the condominium, which Li claims to have owned at the time. Id., at 2-3 (ECF pages 10-11), ¶ 13. Li alleges that he then filed a petition for review of the default judgment in late 2009, on which he was ultimately successful on appeal in 2013. Id., ¶¶ 14, 17-18. Li also represents that he filed a Notice of Lis Pendens in connection with the condominium in 2011. Id., ¶ 15. While Li was challenging the default judgment, the condominium was sold at a constable's sale to Yi Zhi Qun in 2010, who in turn conveyed the property to Fidelity after the filing of the Notice of Lis Pendens. Id., ¶¶ 14, 16.
Li commenced this action in Texas state court, in which he now alleges that the transfers of the condominium to Yi Zhi Qun and Fidelity were fraudulent.
Plaintiff Li has moved to remand for lack of complete diversity of citizenship. It is undisputed that Fidelity is a Hong Kong citizen,
"Federal courts are courts of limited jurisdiction." Gunn v. Minton, ___ U.S. ___, 133 S.Ct. 1059, 1064 (2013) (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)); Hotze v. Burwell, 784 F.3d. 984, 999 (5th Cir. 2015); Scarlott v. Nissan N. Am., Inc., 771 F.3d 883, 887 (5th Cir. 2014). "They possess only that power authorized by Constitution and statute, which is not to be expanded by judicial decree." Gunn, 133 S. Ct. at 1064 (quoting Kokkonen, 511 U.S. at 377). Any state court civil action over which the federal courts would have original jurisdiction may be removed by the defendant to federal court. See 28 U.S.C. § 1441(a); Barker v. Hercules Offshore, Inc., 713 F.3d 208, 228 (5th Cir. 2013).
District courts have both federal question jurisdiction and diversity jurisdiction. Federal question jurisdiction exists over "all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. A district court has diversity jurisdiction over "civil actions where the matter in controversy exceeds the sum of $75,000, exclusive of interest and costs, and is between citizens of different States." 28 U.S.C. § 1332(a)(1). For the purposes of diversity jurisdiction, a corporation is a citizen of the state in which it was incorporated and the state in which it has its principal place of business. See 28 U.S.C. § 1332(c)(1); Tewari De-Ox Sys., Inc. v. Mountain States/Rosen, LLC, 757 F.3d 481, 483 (5th Cir. 2014). A corporation's principal place of business is "the place where a corporation's officers direct, control, and coordinate the corporation's activities." Hertz Corp. v. Friend, 559 U.S. 77, 92-93 (2010); Swindol v. Aurora Flight Scis. Corp., 805 F.3d 516, 519 (5th Cir. 2015); see also MetroplexCore, L.L.C. v. Parsons Transp., Inc., 743 F.3d 964, 971 (5th Cir. 2014). The removing party bears the burden of establishing both the existence of federal subject-matter jurisdiction and that removal is otherwise proper. Vantage Drilling Co. v. Hsin-Chi Su, 741 F.3d 535, 537 (5th Cir. 2014).
Defendant Fidelity asserts that this Court has subject matter jurisdiction based on complete diversity of the parties. See 28 U.S.C. § 1332. As a Hong Kong citizen, Fidelity's citizenship is diverse from that of Li, who is a Texas citizen. Defendant DDX, however, is also a Texas citizen. To obtain federal jurisdiction over this action, Fidelity must therefore show that DDX was improperly joined. The Court concludes that Fidelity has not carried its heavy burden of showing that Li improperly joined DDX.
A non-diverse defendant may be found to be improperly joined if either there is "actual fraud in the [plaintiff's] pleading of jurisdictional facts" or if the removing defendant demonstrates that the plaintiff cannot establish a cause of action against the non-diverse defendant. Mumfrey v. CVS Pharm. Inc., 719 F.3d 392, 401 (5th Cir. 2013); Kling Realty Co., Inc. v. Chevron USA, Inc., 575 F.3d 510, 513 (5th Cir. 2009) (citing Campbell v. Stone Ins., Inc., 509 F.3d 665, 669 (5th Cir. 2007)). The party asserting improper joinder bears a heavy burden of persuasion. Id., at 514. "[A]ny doubt about the propriety of removal must be resolved in favor of remand." Gasch v. Hartford Acc. & Indem. Co., 491 F.3d 278, 281-82 (5th Cir. 2007). "In this inquiry the motive or purpose of the joinder of in-state defendants is not relevant." Smallwood v. Ill. Cent. R.R. Co., 385 F.3d. 568, 574 (5th Cir. 2004). "Any contested issues of fact and any ambiguities of state law must be resolved in [the plaintiff's] favor." Travis v. Irby, 326 F.3d 644, 649 (5th Cir. 2003) (citing Griggs, 181 F.3d at 699); accord B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir. 1981).
Fidelity does not allege actual fraud in Li's pleading of the jurisdictional facts in this case nor does it contend that Li cannot establish a cause of action against DDX. Instead, Fidelity urges the Court to adopt the theory of fraudulent misjoinder as a third ground for finding improper joinder. The Eleventh Circuit formulated the theory of fraudulent misjoinder in Tapscott v. MS Dealer Service Corp., 77 F.3d 1353 (11th Cir. 1996), abrogated on other grounds by Cohen v. Office Depot, Inc., 204 F.3d 1069 (11th Cir. 2000). In Tapscott, the plaintiffs brought a class action alleging distinct sets of claims against two different groups of defendants. While one group of defendants was completely diverse from the plaintiffs, the other group was not. Although some of the plaintiffs potentially had claims against both groups of defendants, the Eleventh Circuit held that there was "no real connection" between the two sets of claims and that the case involved two unrelated putative class actions. The Eleventh Circuit concluded that while "mere misjoinder" is not necessarily "fraudulent joinder," in this particular case, the plaintiffs' "attempt to join these parties [was] so egregious as to constitute fraudulent joinder." Id., at 1360. Unlike fraud in the pleadings and failure to establish a cause of action, fraudulent misjoinder analysis looks at the relationship between two potentially valid causes of action.
The Fifth Circuit has noted the existence of Tapscott in dicta, but it has not explicitly added fraudulent misjoinder to the recognized bases for a finding of improper joinder of a non-diverse defendant. See In re Benjamin Moore & Co., 318 F.3d 626, 630-31 (5th Cir. 2002).
"Courts in this district and others in the Fifth Circuit ask two conjunctive questions in the fraudulent misjoinder analysis: (1) has one party been misjoined with another party in violation of the applicable state's joinder rules; and (2) is any misjoinder sufficiently `egregious' to rise to the level of a fraudulent misjoinder?" Martinson v. Total Petrochems. & Ref. USA, Inc., No. H-14-555, 2014 WL 2169970, at *2 (S.D. Tex. May 23, 2014) (Miller, J.) (citing Centaurus Unity, LP v. Lexington Ins. Co., 766 F.Supp.2d 780 (S.D. Tex. 2011) (Lake, J.)). Texas district courts have generally applied Rule 40 of the Texas Rules of Civil Procedure to the first question. See id., at *2 n.1. Although there is "no generally applicable standard . . . to guide the determination of when misjoinder is so egregious as to be fraudulent," the district court in Texas Instruments outlined the three situations in which courts within the Fifth Circuit have found fraudulent misjoinder:
266 F.R.D. at 149.
Even if Fidelity could show that DDX is not a proper party under the terms of Rule 40 of the Texas Rules of Civil Procedure, it has not made a showing of egregiousness to satisfy the requirements of Tapscott and its progeny. Of the three categories of cases described by the Texas Instruments court, only the third is potentially applicable to this dispute because there is only one plaintiff, Li. Fidelity must show that the claims against it and DDX are so unrelated, both factually and legally, that misjoinder is so egregious it must be considered fraudulent.
There is a factual nexus between Li's claims against Fidelity and DDX as alleged in the Amended Petition. Li sued in Texas state court regarding transfers of ownership of the condominium, beginning with the execution of DDX's 2009 default judgment and culminating in Fidelity's ownership of the condominium. Li alleges that the "sale/transfers of the Property by all parties were fraudulent under Texas Business and Commerce Code 24.005." Amended Petition [Doc. # 1-2], at 3 (ECF page 11), ¶ 24. While the Court need not and does not determine whether this relationship satisfies the requirements of Rule 40 of the Texas Rules of Civil Procedure, the factual relationship provides sufficient basis to conclude that any misjoinder in this action was not so egregious as to permit the Court to consider it fraudulent. Tapscott is therefore inapplicable. Defendant Fidelity proffers no other basis on which the Court could disregard the citizenship of DDX in evaluating its subject matter jurisdiction.
In the alternative, even assuming the Court could disregard DDX's non-diverse citizenship, Fidelity has waived its right to remove the action. It is axiomatic that "a party may [not] experiment on his case in the state court, and, upon an adverse decision, then transfer it to the federal court." Rosenthal v. Coates, 148 U.S. 142, 147 (1893). A defendant will be deemed to have waived its right to remove a case to federal court if the removal effectively seeks appellate review of an adverse state court ruling. See, e.g., Johnston v. Tampa Sports Auth., 410 F.Supp.2d 1143, 1145 (M.D. Fla. 2005) ("A defendant may not . . . after having argued and lost an issue in state court, remove the case to federal court for what would be in effect an appeal of the state court's adverse decision.").
In this case, Fidelity has requested the same relief in this Court that it was denied by the state court. Fidelity entered a special appearance in Texas state court, challenging that court's personal jurisdiction over Fidelity and Li's service of process on Fidelity, contested whether Li had stated a claim for under the Texas Uniform Fraudulent Transfer Act, and moved for a new trial.
It is undisputed that both Plaintiff Li and Defendant DDX are Texas citizens for the purposes of diversity jurisdiction. Therefore, the requirement of complete diversity of citizenship is not met. Further, even if Fidelity had established the elements of diversity jurisdiction, it has waived its right to remove the case because, in effect, it seeks appellate review of the state court's decision. The Court lacks subject matter jurisdiction over this action. The Motion to Remand is
The Court exercises its discretion to
Based on the foregoing, the Court concludes that it lacks subject matter jurisdiction over this action. It is therefore
According to Li, DDX's "charter with the Texas Secretary of State was forfeited for failure to file franchise taxes on February 8, 2013." Motion to Remand [Doc. # 6], at 1, ¶ 3. Fidelity describes DDX as a "dissolved corporation incorporated in Texas," Notice of Removal [Doc. # 1], at 2, ¶ 2.2, but that terminology is inconsistent with DDX's status as a limited liability company. In any event, the exact status of DDX is not pertinent to the Court's subject matter jurisdiction.
Fidelity also argues that the alleged improper nature of the service on DDX is evidence that Li failed "to prosecute [its] cause in good faith" against DDX and that failure is further evidence that "joinder was a sham and fraudulent." Response [Doc. # 7], at 10. Li obtained a default judgment against both DDX and Fidelity. Notice of Removal, Exh. F, Default Judgment, Li v. Fidelity Inv. Ltd., Cause No. 2013-37945 (334th Dist. Ct., Harris County, Tex. July 31, 2015) [Doc. # 1-2], at ECF pages 20-22. Li therefore prosecuted its claim against DDX to a final judgment. Fidelity's arguments regarding service on DDX are without merit.