U.S. Satellite & Cable, Inc. v. Legacy Healthcare Fin. Servs.

USA Satellite & Cable, Inc., Plaintiff, v. Legacy Healthcare Financial Services, et al., Defendants, v. Casco Bay Holdings, LLC, Third-Party Defendant.

No. 14 C 10259

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

March 11, 2015

MEMORANDUM OPINION AND ORDER

Plaintiff USA Satellite & Cable, Inc. ("USA Satellite") filed a complaint against a group of nursing home facilities (collectively,"the Legacy Defendants") in the Circuit Court of Cook County, Illinois seeking to recover money owed for the provision of satellite television services. On December 22, 2014, third-party defendant Casco Bay Holdings, LLC ("Casco Bay") filed a notice of removal (Dkt. No. 1) asserting that this court has jurisdiction pursuant to 28 U.S.C. §§ 1332, 1335, 1441(a) and 1446. On January 26, 2015, USA Satellite filed a motion to remand and for attorneys' fees and costs (Dkt. No. 13). For the reasons set forth below, USA Satellite's motion to remand is granted and its motion for attorneys' fees and costs is denied.

BACKGROUND

As mentioned above, USA Satellite sued the Legacy Defendants in the Circuit Court of Cook County seeking to recover money owed for the provision of satellite television services. On December 4, 2014, the parties agreed to settle the case for the promise of payment of $34,000by the Legacy Defendants to USA Satellite. (Dkt. No. 1, Ex. 1 at 8). The Circuit Court of Cook County subsequently entered an order setting forth the terms of the settlement and reserving for itself jurisdiction to enforce the settlement agreement. Id.

On November 8, 2014, attorney W. James Mac Naughton sent the attorneys representing USA Satellite and the Legacy Defendants a letter asserting that Casco Bay had the right to receive funds directly from the Legacy Defendants to satisfy the secured obligations of USA Satellite to Casco Bay. (Dkt. No 1, Ex. 1 at 10). The letter referenced a UCC Financing Statement, which Casco Bay provided to the Legacy Defendants along with supporting documents. Id. The purported lien interest is based on a settlement agreement between USA Satellite and Russia Media Group, LLC ("RMG"). Casco Bay asserts that RMG has assigned to Casco Bay the right to enforce the settlement against USA Satellite.

In December 2014, the Legacy Defendants filed an interpleader in their underlying case in the Circuit Court of Cook County pursuant to 735 ILCS 5/2-409 and joined Casco Bay as a third-party defendant. The interpleader requested that the Circuit Court of Cook County "determine the relative merits of the competing claims of USA and Casco to the settlement funds agreed to be paid by the Legacy Defendants herein and to render judgment accordingly before the Legacy Defendants are required to pay said settlement funds to the party to whom this Court determines is entitled to same." (Dkt. No. 1, Ex. 1 at 6).

On December 22, 2014, Casco Bay filed a notice of removal, asserting that this court has jurisdiction pursuant to 28 U.S.C. §§ 1332, 1335, 1441(a) and 1446. (Dkt. No. 1).¹ On January 26, 2015, USA Satellite filed a motion to remand and for sanctions. (Dkt. No. 13).

LEGAL STANDARD

Removal of actions to federal court is governed by 28 U.S.C. § 1441, which provides that a defendant may remove a case to federal court only if the federal district court would have original subject matter jurisdiction over the action. Disher v. Citigroup Global Mkt., Inc., 419 F.3d 649, 653 (7th Cir. 2005). The party seeking to remove an action and invoking federal jurisdiction "bears the burden of demonstrating that removal is proper." Boyd v. Phoenix Funding Corp., 366 F.3d 524, 529-32 (7th Cir. 2004). The Seventh Circuit has cautioned that "[c]ourts should interpret the removal statute narrowly and presume that the plaintiff may choose his or her forum" and that "[a]ny doubt regarding jurisdiction should be resolved in favor of the states." Doe v. Allied-Signal, Inc., 985 F.2d 908, 911 (7th Cir. 1993). An order remanding a case to state court for lack of subject-matter jurisdiction "is not reviewable on appeal or otherwise." 28 U.S.C. § 1447(d).

ANALYIS

A. Third-Party Defendant Removal Under Section 1441(a)

In determining the validity of Casco Bay's removal, the court will first address a question that neither party explicitly discussed in their respective briefs: Did Casco Bay have the right to remove this action under the federal removal statute? The court finds that Casco Bay, a third-party defendant, improperly removed this action.

Casco Bay argues that it properly removed this action pursuant to 28 U.S.C. § 1441(a). Section 1441(a) permits removal only by "the defendant or the defendants." Although there is a split of authority on this question, the Seventh Circuit has long held that third-party defendants are not "defendants" for purposes of the removal statute. See, e.g., Thomas v. Shelton, 740 F.2d 478, 486-87 (7th Cir. 1984). In Thomas, the Seventh Circuit reasoned that "[t]o allow removal of an entire suit on the basis of a third-party claim is to bring into the federal court an action the main part of which is not within that court's original jurisdiction, and is thus to enlarge federal [jurisdiction] at the expense of state jurisdiction in rather a dramatic way." Id. Although the Thomas court considered removal pursuant to § 1441(c), the "reasoning applies equally well to [§] 1441(a)." Univ. of Chicago Hosp. & Med. Ctr. v. Rivers, 701 F.Supp. 647, 648 (N.D.Ill. 1988). The view that § 1441(a) does not permit removal by third-party defendants conforms to requirement that the removal statute be narrowly construed and also serves the practical purpose of limiting a third-party from undermining the forum choices of both the plaintiff and defendant. See Sabo v. Dennis Technologies, LLC, No. 07-cv-283-DRH, 2007 WL 1958591, at *5 (S.D.Ill. July 2, 2007).

In light of these considerations, "it has long been settled that third-party defendants ... cannot remove actions on their own" under § 1441(a). Loyola Med. Practice Plan v. Tromiczak, 10 F.Supp.2d 943, 944 (N.D.Ill. 1998); see also Phillips v. Kladis, No. 97 C 2346, 1997 WL 428506, at *1 n. 1 (N.D .Ill. July 25, 1997) ("As to section 1441(a), in short, a third-party defendant is not a 'defendant' within the meaning of that section, and is not entitled to remove."); Easton Fin. Corp. v. Allen, 846 F.Supp. 652, 653 (N.D.Ill. 1994) ("[T]he substantial majority of the many judicial opinions that have dealt with the subject have consistently held that a third-party defendant cannot invoke removal jurisdiction at all—a view that is uniformly supported by the leading treatises on the subject.").

USA Satellite chose to file its complaint against the Legacy Defendants in Illinois state court. The Legacy Defendants chose to file their interpleader in that existing state court case pursuant to 735 ILCS 5/2-409. The subsequent removal by Casco Bay, a third-party defendant, was improper under § 1441(a). However, this defect in removal may be considered procedural, rather than jurisdictional. Procedural defects are waived a party does not bring a timely motion to remand the case to state court. 28 U.S.C. § 1447(c) (requiring that a motion to remand "be made within 30 days after the filing of the notice of removal under section 1446(a)"). According to the Seventh Circuit, "after the 30 days have expired a district judge may not remand on its own motion for non-jurisdictional problems." In re Continental Cas. Co., 29 F.3d 292, 295 (7th Cir. 1994).

USA Satellite filed its motion to remand 35 days after Casco Bay filed its notice of removal. As a result, even if the "defect in the removal process could have justified a remand ... because 30 days passed without protest-and the problem does not imperil subject-matter jurisdiction-the case is in federal court to stay." Doe v. GTE Corp., 347 F.3d 655, 657 (7th Cir.2003); see also Pettitt v. Boeing Co, 606 F.3d 340 (7th Cir. 2010) (vacating a district court's remand order because the district court lacked power to remand the case on the basis of a procedural defect). Because USA Satellite waived any procedural defect to removal, this court cannot remand the case on the basis that Casco Bay lacked the right to remove this action as a third-party defendant.

B. Jurisdiction Under 28 U.S.C. § 1332

Casco Bay argues that the court has jurisdiction pursuant to 28 U.S.C. § 1332. A litigant may invoke diversity jurisdiction in federal court when there is complete diversity between the parties and the amount in controversy exceeds $75,000. 28 U.S.C. § 1332.

Here, there is not complete diversity between parties. Plaintiff USA Satellite is a citizen of Illinois and each of the Legacy Defendants are also Illinois citizens. (Dkt. No. 1 at 2-3). Some courts consider the stakeholder in an interpleader action to be nominal party and therefore disregarded for diversity purposes. See e.g., Alling v. C.D. Cairns Irrevocable Trusts P'ship, 889 F.Supp. 768, 770 (D.Vt. 1995) ("In this interpleader, it is clear that the true collision of interests lies between Cairns and Mobil, the two potential purchasers of Alling's property. Alling is merely the formal plaintiff in this matter and, as such, may be disregarded for purposes of determining diversity."); Tune, Entrekin & White v. Magid, 220 F.Supp.2d 887, 889 (M.D.Tenn. 2002) ("In an interpleader case, the nominal plaintiff is merely formal and should be disregarded for purposes of determining diversity."); but see O'Keefe, Ashenden, Lyons & Ward v. Nat'l Telecomms. Consultants, Inc., No. 91 C 2688, 1991 WL 140130, at *1 (N.D.Ill. July 22, 1991) (declining to realign the parties for purpose of diversity and granting motion to remand "[b]ecause there is no reason [to realign parties]...other than a deliberate choice by this court made solely to retain jurisdiction.").

Even if the court were to disregard the Illinois citizenship of the Legacy Defendants in order to create complete diversity, Casco Bay, a New...