Alarcon v. Aberration, Inc.

MEMORANDUM OPINION AND ORDER TO SHOW CAUSE

Marina Garcia Marmolejo, United States District Judge

Plaintiffs Guillermo G. Alarcon and Barbara Alarcon have filed a motion to remand, to which Defendant Panasonic Corporation of North America (“Panasonic”) has filed a response and Plaintiffs have filed a reply (Dkt. Nos. 3, 6, 8). At the request of the Court, the parties submitted supplemental briefs (Dkt. Nos. 9, 10, 11). Having considered the record, arguments, and applicable authorities, the Court concludes that Plaintiffs' motion to remand (Dkt. No. 3) should be GRANTED. This action's underlying litigation is hereby REMANDED to the state court. However, because the Court is considering imposing Rule 11 sanctions, such proceedings will continue in this Court.

BACKGROUND

In December 2018, Plaintiffs hired Defendant Aberration, Inc. (“Aberration”), a Texas company, to install 57 solar panels manufactured by Panasonic (Dkt. No. 11 at 3). At the time, Plaintiffs thought the solar panels would generate at least 36,

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kWh per annum (id.). Because the solar panels did not yield the expected amount of energy in 2019 and 2020, Plaintiffs asserted state law claims against both Aberration and Panasonic in state court (id. at 2-4). Panasonic then removed the lawsuit to this Court (Dkt. No. 1).

Panasonic's notice of removal avers this Court can exercise diversity jurisdiction (id.). According to Panasonic, the amount in controversy exceeds $75, 000 and Plaintiffs, as Texas residents, are diverse from Panasonic, a Delaware corporation with its principal place of business in New Jersey (id.). Even though Aberration is a Texas corporation, Panasonic argues the “snap removal rule” allows this Court to disregard Aberration's citizenship (id. at 3-4). Panasonic focuses on the fact that Plaintiffs had not yet served process on Aberration at the time of removal, and therefore, Aberration's citizenship can be ignored for diversity jurisdiction (id.).

Plaintiffs then filed their motion to remand, which argues that Panasonic misunderstands the snap removal rule and seeks attorney's fees (Dkt. Nos. 3, 8). Having received Panasonic's response, Plaintiffs' reply, and the parties' supplemental materials, the matter is now ripe for the Court's consideration (Dkt. Nos. 6, 8, 10, 11).

LEGAL STANDARD

Because federal district courts are courts of limited jurisdiction, they may only hear those cases authorized by federal statute, the U.S. Constitution, or U.S. treaty. Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994); Howery v. Allstate Ins. Co., 243 F.3d 912, 916 (5th Cir. 2001). Under the federal removal statute, “[e]xcept as otherwise expressly provided . . . any civil action brought in a State court of which

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the district courts . . . have original jurisdiction, may be removed by defendant or defendants, to the district court . . . for the district and division embracing the place where such action is pending.” 28 U.S.C. § 1441(a); see Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987).

Original jurisdiction, also called subject matter jurisdiction, in federal court is generally conferred through either (1) federal question jurisdiction or (2) diversity jurisdiction. See 28 U.S.C. §§ 1331-32; Avitts v. Amoco Prod. Co., 53 F.3d 690, 693 (5th Cir. 1995). Relevant here, diversity jurisdiction requires that a civil action concern an amount in controversy exceeding $75, 000, exclusive of interests and costs, and that the parties be “completely diverse.” See U.S.C. § 1332(a)(1). “Complete diversity ‘requires that all persons on one side of the controversy be citizens of different states than all other persons on the other side.'” Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077, 1079 (5th Cir. 2008) (quoting McLaughlin v. Miss. Power. Co., 376 F.3d 344, 353 (5th Cir. 2004)). In other words, a federal court cannot exercise diversity jurisdiction if one plaintiff shares the same citizenship as any defendant. See Stiftung v. Plains Mktg., LP, 603 F.3d 295, 297 (5th Cir. 2010).

Where an action originally filed in state court is removed to federal court, the removing party bears the burden of establishing subject matter jurisdiction. Gasch v. Hartford Accident & Indem. Co., 491 F.3d 278, 281 (5th Cir. 2007). Because “the effect of removal is to deprive the state court of an action properly before it, removal raises significant federalism concerns.” Carpenter v. Wichita Falls Indep. Sch. Dist., 44 F.3d 362, 365-66 (5th Cir. 1995). Accordingly, a court is required to strictly construe the

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removal statute in favor of remand. In re Hot-Hed, Inc., 477 F.3d 320, 323 (5th Cir. 2007).

ANALYSIS

A. Diversity Jurisdiction, the Forum Defendant Rule, and the Snap Removal Rule

“Diversity jurisdiction and removal exist to protect out-of-state defendants from in-state prejudice.” Tex. Brine Co., LLC v. Am. Arb. Assn, Inc., 955 F.3d 482, 487 (5th Cir. 2020). “The possibility of prejudice vanishes, however, when plaintiffs seek to litigate in the defendants' home state court.” Breitweiser v. Chesapeake Energy Corp., No. 3:15-cv-2043, 2015 WL 6322625, at *5 (N.D. Tex. Oct. 20, 2015). Therefore, the “forum defendant rule, ” codified at 28 U.S.C. § 1441, provides that an action removable based on diversity jurisdiction may not be removed if a defendant is a citizen of the state in which the action is pending. Id.

The snap removal rule is an exception to the forum defendant rule, which can be summarized as follows: a non-forum defendant can remove an action to federal court if (1) diversity jurisdiction exists and (2) defendants who are residents of the forum state have not been properly joined or served. See Texas Brine, 955 F.3d at 485; Serafini v. Sw. Airlines Co., 485 F.Supp.3d 697, 699 (N.D. Tex. 2020). Whether a defendant has been served is irrelevant for jurisdictional purposes. Bingabing v. Est. of Warren, No. 3:20-cv-951, 2020 WL 3639662, at *3 (N.D. Tex. July 6, 2020) (citing N.Y. Life Ins. Co. v. Deshotel, 142 F.3d 873, 883 (5th Cir. 1998)).

For example, in Texas Brine, a Texas plaintiff sued two Louisiana defendants and a New York defendant in Louisiana state court. See 955 F.3d at 484-85. Before

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the Louisiana defendants were served, the New York defendant removed the action to the Eastern District of Louisiana, citing the snap removal rule. Id. at 483, 485. On appeal, the Fifth Circuit joined the Second, Third, and Sixth Circuits and held 28 U.S.C. § 1441(b)(2) permitted snap removal. Id. at 485, 487. However, prior to reaching that question, the Fifth Circuit first determined that the parties named in the pleadings were completely diverse. Id. at 485.

Here, two Texas plaintiffs have sued two defendants, one of which is a Texas citizen (Dkt. No. 1-1). Because the parties are not completely diverse, this Court cannot exercise diversity jurisdiction over this action and this matter should be remanded to the state court. See, e.g., Galindo v. Jackson, No. H-21-1869, 2021 WL 4295128, at *1 (S.D. Tex. Sept. 21, 2021).

B. Attorney's Fees

As for Plaintiffs' request for attorney's fees, the Court finds a fee award proper. The removal statute allows courts to award attorney's fees only where the removing party lacked an objectively reasonable basis for removal. 28 U.S.C. § 1447(c); Martin v. Franklin Cap. Grp., 546 U.S. 132, 141 (2005). The decision to award attorney's fees is discretionary, and the presence or absence of an objectively reasonable basis for seeking removal is decided without regard for the ultimate conclusion on whether removal was proper. See Griffith v. Alcon Res. Ltd., 712 Fed.Appx. 406, 409 & n.9 (5th Cir. 2017).

Here, Panasonic lacked an objectively reasonable basis for removal. First, Texas Brine, a binding 2020 case from the Fifth Circuit, placed Panasonic on notice

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that its position was incorrect. Prior to assessing whether the 28 U.S.C. § 1441(b)(2) permitted snap removal, the Fifth Circuit first determined whether it had diversity jurisdiction based on the pleadings:

We begin by recognizing that the forum-defendant rule is a procedural rule and not a jurisdictional one. Here, the district court had subjectmatter jurisdiction because each defendant was diverse from the plaintiff. The plaintiff is a Texas limited liability company. The defendants are a New York corporation (the AAA) and the two individual citizens of Louisiana (DiLeo and Minyard). Thus, there is no jurisdictional defect under 28 U.S.C. § 1332(a)

Texas Brine, 955 F.3d at 485 (internal citations omitted).

Second, after a quick search, the Court located nine cases from 2020 and 2021 rejecting Panasonic's position in light of Texas Brine.^[1] Accordingly, Texas Brine and the bevy of in-Circuit cases following it has made the law sufficiently clear: The Court does not ignore the citizenship of an unserved party when assessing whether it has diversity jurisdiction.

Third, in 1998, the Fifth Circuit decided Deshotel, which held:

Broussard's non-diverse citizenship cannot be ignored simply because he was an unserved defendant. A non-resident defendant cannot remove an action if the citizenship of any co-defendant, joined by the plaintiff in good faith, destroys complete diversity, regardless of service or nonservice upon the co-defendant. Whenever federal jurisdiction in a removal case depends upon complete diversity, the existence of diversity

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is determined from the fact of citizenship of the parties named and not from the fact of service

142 F.3d at 883. In the twenty-three years since Deshotel was decided, the case has yet to be overruled or abrogated by the Fifth Circuit or Supreme Court.

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