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Powko Industries, LLC v. DMI Contractors, Inc.

United States District Court, M.D. Louisiana

January 12, 2018

POWKO INDUSTRIES, LLC
v.
DMI CONTRACTORS, INC., ET AL.

         NOTICE

         Please take notice that the attached Magistrate Judge's Report has been filed with the Clerk of the United States District Court.

         In accordance with 28 U.S.C. § 636(b)(1), you have fourteen (14) days after being served with the attached Report to file written objections to the proposed findings of fact, conclusions of law and recommendations therein. Failure to file written objections to the proposed findings, conclusions, and recommendations within 14 days after being served will bar you, except upon grounds of plain error, from attacking on appeal the unobjected-to proposed factual findings and legal conclusions of the Magistrate Judge which have been accepted by the District Court.

         ABSOLUTELY NO EXTENSION OF TIME SHALL BE GRANTED TO FILE WRITTEN OBJECTIONS TO THE MAGISTRATE JUDGE'S REPORT.

          MAGISTRATE JUDGE'S REPORT AND RECOMMENDATION

          RICHARD L. BOURGEOIS, JR. UNITED STATES MAGISTRATE JUDGE

         Before the Court is a Motion to Remand (R. Doc. 7) filed by Scott Folse, DMI Contractors, Inc., and DMI Pipe Fabricators, L.L.C. (collectively, “DMI”). The motion is opposed by Liberty Mutual Insurance Corporation (“LMIC”). (R. Doc. 17). LMIC also filed a Supplemental Opposition to DMI's Motion to Remand (R. Doc. 26) and a Second Supplemental Opposition to DMI's Motion to Remand (R. Doc. 34). Oral argument was held on November 6, 2017. (R. Doc. 32). LMIC filed a Post-Hearing Memorandum in Opposition to DMI's Motion to Remand (R. Doc. 40) on November 14, 2017.

         Also before the Court is a Motion to Dismiss filed by Powko Industries, LLC (“Powko”). (R. Doc. 44).

         For the following reasons, the undersigned recommends the Motion to Remand (R. Doc. 7) be DENIED and that the Motion to Dismiss (R. Doc. 44) be GRANTED.

         I. Background

         This action was initially filed in state court on March 21, 2014 (R. Doc. 1-2 at 17) by Powko Industries, LLC (“Powko”) against DMI Contractors, Inc. and DMI Pipe Fabrication, L.L.C. (“DMI Pipe”), arising out of a purported joint venture between Powko and DMI Pipe (the “State Court Action”). During the pendency of the State Court Action, Powko filed a separate suit in federal court against DMI as well as a few additional defendants on June 16, 2015, bringing RICO and Lanham Act allegations. Powko Industries, L.L.C. v. Scott Folse, et al., Civil Action No. 3:15-cv-388-BAJ-SCR (M.D. La.) (the “Federal Court Action”). Powko and DMI apparently mediated the claims in both the State Court Action and Federal Court Action on October 23, 2015. (R. Doc. 17-1 at 5). While the parties disagree as to the date the settlement was actually finalized, it appears from the record that, on December 8, 2015, counsel for DMI provided counsel for Powko with executed originals of the settlement documents as well as a draft of a Motion for Dismissal of the State Court Action, and authorized the release of the cash portion of the settlement. (R. Doc. 17-1 at 12-13). In the same correspondence, counsel for DMI confirmed, apparently per the agreement with Powko, that he would not “file the dismissal in the matter pending in the 19th JDC until the Third Party Demand filed against Liberty Mutual has been served on Liberty Mutual.” (R. Doc. 17-1 at 12). There is no evidence presented, however, that the dismissal was ever filed in the State Court Action.

         Counsel for DMI advised the federal court of settlement by way of correspondence dated November 17, 2015. (R. Doc. 17-1 at 8). On December 15, 2015, a Thirty Day Order of Dismissal was docketed in the Federal Court Action. (R. Doc. 17-1 at 9). No. further action was taken in the Federal Court Action until January 17, 2017, when Civil Action No. 17-19 was reassigned to Chief Judge Jackson on the grounds of presenting common questions of law and fact with the initial Federal Court Action.

         On November 22, 2016, over a year after the mediation, DMI filed a Third Party Demand (R. Doc. 1-2 at 227-230) against LMIC in the State Court Action. LMIC removed that action to this court on January 11, 2017. (R. Doc. 1-2 at 240; Notice of Removal, Powko Industries, L.L.C. v. DMI Contractors, Inc., et al., Civil Action No. 3:17-cv-19-BAJ-EWD, ECF No. 1). On May 26, 2017, that action was remanded back to state court because DMI had failed to request leave of the state court to file its Third Party Demand as required by law. (Ruling and Order, Powko Industries, L.L.C. v. DMI Contractors, Inc., et al., Civil Action No. 3:17-cv-19-BAJ-EWD, ECF No. 20, adopting Report and Recommendation, Powko Industries, L.L.C. v. DMI Contractors, Inc., et al., Civil Action No. 3:17-cv-19-BAJ-EWD, ECF No. 19 (Mar. 22, 2017)). DMI then requested leave of state court to file the Third Party Demand, which was granted on May 31, 2017. (R. Doc. 1-2 at 264). LMIC again removed the State Court Action to federal court on July 17, 2017. (R. Doc. 1).

         The same day that LMIC removed this action, on January 11, 2017, LMIC also filed a separate Complaint for Declaratory Judgment in LM Insurance Corporation v. Scott Folse, et al., Civil Action No. 3:17-cv-20-BAJ-RLB (the “Declaratory Judgment Action”). The Declaratory Judgment Action remains pending in this Court.

         On August 8, 2017, DMI filed the Motion to Remand.

         II. Arguments of the Parties

         LMIC removed this action on the basis of diversity jurisdiction pursuant to 28 U.S.C. § 1332. In support of its removal, LMIC alleges that it is a citizen of Illinois and Massachusetts (R. Doc. 1 at 10); Scott Folse is a citizen of Louisiana (R. Doc. 1 at 8); DMI Pipe is a citizen of Mississippi (R. Doc. 1 at 8) and/or Louisiana (R. Doc. 1 at 9); and DMI Contractors, Inc. is a citizen of Louisiana (R. Doc. 1 at 8). LMIC further alleges that the $75, 000 amount in controversy is met because the settlement amount for which DMI is seeking indemnification from LMIC is allegedly $1.5 million. (R. Doc. 1 at 11). LMIC also asserts that its removal is proper as a “new suit” because all other claims had been effectively resolved by way of settlement more than a year prior to DMI's Third Party Demand. (R. Doc. 1 at 4-5). Further, LMIC suggests that its removal was timely because it was made within 30 days of its waiver of service of the Third Party Demand, that the one-year limitation in 28 U.S.C. § 1446(c) does not apply or, alternatively, should the one-year limitation apply, it should run from the Third Party Demand or be equitably tolled based on the purported bad faith of DMI. (R. Doc. 1 at 6-7).

         In support of remand, DMI argues that LMIC, as a third party defendant to the original State Court Action, could not remove the action because 28 U.S.C. § 1446 only permits “a defendant or defendants” to do so. (R. Doc. 7-1 at 2-3). DMI also asserts that the main demand between Powko and DMI has not been dismissed, also preventing removal. (R. Doc. 7-1 at 6). In addition, DMI suggests that the one-year period in 28 U.S.C. § 1446 has expired because it runs from the March 21, 2014 commencement of the action between Powko and DMI. (R. Doc. 7-1 at 6). Lastly, DMI argues that the removal is defective because LMIC did not obtain the consent of Powko. (R. Doc. 7-1 at 7).

         In response to DMI's arguments, LMIC notes that no party disputes the existence of complete diversity. (R. Doc. 17 at 1). LMIC argues that it is a “defendant” for purposes of 28 U.S.C. § 1446 because DMI's claim against it is effectively a new lawsuit, and the parties should be aligned accordingly. (R. Doc. 17 at 4). In the alternative, LMIC asserts that a third party defendant can remove a lawsuit based upon Fifth Circuit precedent, and that such a removal does not, in this situation, threaten or defeat Powko's choice of forum because it no longer has an interest. (R. Doc. 17 at 6). Lastly, LMIC also argues that Powko's consent was not necessary because it was a plaintiff, not a defendant, and DMI's consent was not necessary because it functions as a plaintiff in regards to the Third Party Demand. (R. Doc. 17 at 8).

         DMI requests costs and attorney's fees in its Motion to Remand under 28 U.S.C. § 1447(c) on the grounds that this is LMIC's second attempt to remove. (R. Doc. 7-1 at 7). LMIC responds that DMI is not entitled to attorney's fees or costs because it had objectively reasonable grounds upon which to seek removal to federal court. (R. Doc. 17 at 9).

         After oral argument held on November 6, 2017, LMIC submitted a Post-Hearing Memorandum in Opposition to DMI's Motion to Remand. (R. Doc. 40). Therein, LMIC suggests the following three theories in which the Court could potentially deny remand: (1) disregard Powko as a nominal party; (2) drop Powko or sever and remand Powko's claims sua sponte; or (3) realign the parties with DMI as plaintiff and LMIC as defendant. (R. Doc. 40).

         III. Law and Analysis

         A. Remand

         i. Was LMIC capable of removing this action as a third party defendant?

         Defendants may remove “any civil action brought in a State court of which the district courts of the United States have original jurisdiction.” 28 U.S.C. § 1441. Nevertheless, because federal courts are courts of limited jurisdiction, it is presumed that a suit removed to federal court lies outside this limited jurisdiction. Howery v. Allstate Ins. Co.,243 F.3d 912, 916 (5th Cir. 2001). A defendant may remove “any civil action brought in a State court of which the district courts of the United States have original jurisdiction.” 28 U.S.C. § 1441(a). When original jurisdiction is based on diversity of citizenship, the cause of action must be between “citizens of different States” and the amount in controversy must exceed the “sum or value of $75, 000, exclusive of interest and costs.” 28 U.S.C. § 1332(a)-(a)(1). Subject matter jurisdiction must exist at the time of removal to federal court, based on the facts and allegations contained in the complaint. St. Paul Reinsurance Co., Ltd. v. Greenberg, 134 F.3d 1250, 1253 (5th Cir. 1998) (“jurisdictional facts must be judged as of the time the complaint is filed”). Remand is ...


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