U.S. Trouser v. Int'l Legwear Grp., Inc.

USA TROUSER, S.A. de C.V., Plaintiff, v. INTERNATIONAL LEGWEAR GROUP, INC., WILLIAM SHEELY,JOHN SANCHEZ, and SCOTT ANDREWS, Defendants.

CIVIL CASE NO. 1:11-cv-00244-MR-DLH

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA ASHEVILLE DIVISION

October 27, 2015

ORDER

THIS MATTER is before the Court on the "Plaintiff's Motion to Remand to North Carolina State Court or, in the Alternative, Motion to Dismiss Claims as to Andrews without Prejudice to Allow Plaintiff to Refile and Consolidate Claims in North Carolina State Court" [Doc. 136].

I. PROCEDURAL BACKGROUND

The Plaintiff USA Trouser, S.A. de C.V. ("USAT"), a Mexican sock manufacturer, filed this action in the Burke County Superior Court on September 6, 2011, against its primary distributor, International Legwear Group, Inc. ("ILG"), two of ILG's former officers, William Sheely ("Sheely") and John Sanchez ("Sanchez"), and the former chairman of ILG's board of directors, Scott Andrews ("Andrews"). The Defendants removed the action to this Court on the basis of diversity jurisdiction on September 21, 2011. [Doc. 1].

On motions for summary judgment, this Court denied USAT's motion and granted Andrews summary judgment on USAT's claims of, among others, breach of fiduciary duty and constructive trust. USAT appealed the disposition of all of its claims in favor of Andrews. On appeal, the Fourth Circuit affirmed the dismissal of USAT's claims against Andrews with the exceptions of its claims of breach of fiduciary duty and constructive fraud and remanded for further proceedings.¹ [Doc. 116].

Upon entry of the Fourth Circuit's mandate on July 27, 2015, this matter was scheduled for trial during the November 2, 2015 trial term. On October 7, 2015, less than two weeks prior to the final pretrial conference, the Plaintiff filed the present motion, seeking to remand this matter to state court or, in the alternative to dismiss its claims without prejudice. [Doc. 136]. Andrews filed a response, opposing the Plaintiff's motion. [Doc. 151]. The Court heard oral argument on the Plaintiff's motion at the final pretrial conferenceon October 20, 2015, and accepted additional exhibits from the Plaintiff in support of its motion.

Having been fully briefed and argued, this matter is now ripe for disposition.

II. DISCUSSION

The Plaintiff's motion presents multiple alternative requests for relief, including remand, consolidation, and/or dismissal of some of its claims, all with the same end result: that the Plaintiff be allowed to continue prosecuting its remaining claims against Andrews in a North Carolina state court. For the reasons that follow, the Court concludes that the Plaintiff is constrained to prosecute its remaining claims in the present action pending in this forum.

A. Motion to Remand

The Plaintiff first argues that this matter should be remanded due to a lack of subject matter jurisdiction. Specifically, the Plaintiff contends that the removal of September 21, 2011, to this Court was precluded by the "Forum Defendant Rule," 28 U.S.C. § 1441(b)(2). The Plaintiff argues that three of the original defendants - ILG, Sanchez, and Sheely - are considered residents of North Carolina for diversity purposes; therefore, the Forum Defendant Rule deprived the Court of jurisdiction over this matter at the time of removal and continues to deprive the Court of jurisdiction.

A state court action may be removed to a federal district court if the action is one over which a federal district court could exercise original jurisdiction. 28 U.S.C. § 1441(a). Federal district courts exercise original jurisdiction primarily over two types of cases: (1) those involving "federal questions," pursuant to 28 U.S.C. § 1331 and (2) those involving citizens of different or foreign states where the amount in controversy exceeds $75,000, pursuant to 28 U.S.C. § 1332(a).

Here, the requirements for the exercise of diversity jurisdiction were undisputedly met at the time of removal. First, the action as originally filed involved a dispute between a foreign corporation, and citizens of different states. See 28 U.S.C. § 1332(a)(1)(2). As is alleged in the original Complaint, USAT is a Mexican corporation; Defendants Sanchez and Sheely are residents of North Carolina; Defendant ILG is a Virginia corporation with its principal place of business in North Carolina; and Defendant Andrews is a resident of Virginia. [Doc. 1-1 at ¶¶ 1-6]. Second, the amount in controversy at the time of removal clearly was greater than $75,000; the Plaintiff's Complaint specifically claimed damages in excess of $655,000, exclusive of costs and interest. [Id. at 13]. Indeed, even with the resolution of the claims against ILG, Sanchez, and Sheely, diversity jurisdiction still exists as between USAT and Andrews, as the parties' citizenship remainsdiverse (Mexico, Virginia) and the amount in controversy still exceeds $75,000. Therefore, the basic requirements for the exercise of diversity jurisdiction have been, and continue to be, satisfied here. Had this action been filed in federal court, it is without question that the Court could have properly exercised original jurisdiction over this case pursuant to § 1332(a).

Removal of an action based on diversity jurisdiction, however, must not only satisfy the jurisdictional requirements of § 1332(a); it must also satisfy the procedural requirements of § 1441(b)(2), the so-called "Forum Defendant Rule," which provides as follows:

A civil action otherwise removable solely on the basis of the jurisdiction under section 1332(a) of this title may not be removed if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.

28 U.S.C. § 1441(b)(2). The Forum Defendant Rule serves as a limitation on removal, permitting removal based on diversity jurisdiction only where the properly joined and served defendants are not citizens of the forum state. As one court has explained:

Removal based on diversity jurisdiction is intended to protect out-of-state defendants from possible prejudices in state court. The need for such protection is absent, however, in cases where the defendant is a citizen of the state in which the case is brought. Within this contextual framework, the forum defendant rule allows the plaintiff to regain somecontrol over forum selection by requesting that the case be remanded to state court.

Lively v. Wild Oats Markets, Inc., 456 F.3d 933, 940 (9^th Cir. 2006) (internal citation omitted).

While the Forum Defendant Rule operates to limit a defendant's right of removal, it is separate and apart from the statute conferring diversity jurisdiction. Id. at 939. Subject matter jurisdiction is governed by Chapter 85 of Title 28, while removal is governed by Chapter 89. While the Fourth Circuit has yet to address the issue, the overwhelming majority of courts, including several district courts within the Fourth Circuit, have ruled that the Forum Defendant Rule is merely a procedural requirement, and thus a violation of this rule constitutes a waivable non-jurisdictional defect. See Brazell v. Waite, 525 F. App'x 878, 884 (10^th Cir. 2013); Samaan v. St. Joseph Hosp., 670 F.3d 21, 28 (1^st Cir. 2012); In re 1994 Exxon Chem. Fire, 558 F.3d 378, 393 (5^th Cir. 2009); Holmstrom v. Peterson, 492 F.3d 833, 839 (7^th Cir. 2007); Lively, 456 F.3d at 939; Blackburn v. United Parcel Serv., Inc., 179 F.3d 81, 90 n.3 (3^rd Cir. 1999); Pacheco de Perez v. AT&T Co., 139 F.3d 1368, 1372 n.4 (11th Cir. 1998); Handley-Mack Co. v. Godchaux Sugar Co., 2 F.2d 435, 437 (6^th Cir. 1924); see also Ada Liss Group v. Sara Lee Branded Apparel, No. 1:06CV610, 2007 WL 634083, at *4 (M.D.N.C. Feb. 26, 2007);Rehbein v. Biomet Orthopedics, LLC, No. WDQ-12-1247, 2012 WL 2340000, at *2 & n.11 (D. Md. June 15, 2012); Councell v. Homer Laughlin China Co., 823 F. Supp. 2d 370, 378-79 (N.D. W. Va. 2011); State Farm Mut. Auto. Ins. Co. v. Smith, 342 F. Supp. 2d 541, 542 n.1 (W.D. Va. 2004); Ravens Metal Prods., Inc. v. Wilson, 816 F. Supp. 427, 428-29 (S.D. W. Va. 1993). Only the Eighth Circuit Court of Appeals has taken a contrary position. See Horton v. Conklin, 431 F.3d 602, 605 (8^th Cir. 2005). The Court finds the reasoning of the majority of the courts cited above to be persuasive, and thus adopts the prevailing view that the Forum Defendant Rule is merely a procedural requirement and does not affect the Court's ability to exercise diversity jurisdiction.

Because the Forum Defendant Rule is a waivable non-jurisdictional requirement, a plaintiff must seek remand of an action removed in violation of § 1441(b)(2) within thirty days of removal. See 28 U.S.C. § 1447(c) (requiring motion to remand based on "any defect other than lack of subject matter jurisdiction" be made within thirty days of filing of removal). Failure to timely object to the removal of an action in violation of the Forum Defendant Rule results in a waiver of that objection. See Lively, 456 F.3d at 939; Councell, 823 F. Supp. 2d at 378. Here, the Defendants filed their Notice of Removal on September 21, 2011. The Plaintiff, however, did not file thepresent motion until October 7, 2015, nearly four years after the expiration of the 30-day window for seeking a remand. The Plaintiff therefore has waived any objection it may have had to the removal of this action in violation of the Forum Defendant Rule.²

In summary, the Forum Defendant Rule is a procedural, non-jurisdictional requirement, and the Plaintiff's time for raising an objection to the removal of this action in violation of that rule expired long ago. As such, the Court's exercise of subject matter jurisdiction over this matter is proper, and therefore, the Plaintiff's motion to remand for lack of subject jurisdiction must be denied.

B. Motion for Consolidation

After the present action was commenced, but before the Fourth Circuit reversed in part and remanded the two remaining claims against Andrews back to this Court, the...