PUBLISH

UNITED STATES COURT OF APPEALS

Filed 11/18/96

TENTH CIRCUIT

E. GERALD SMITH, personally and as

president of B&G ENTERTAINMENT,

INC.,

Plaintiffs-Appellants,

v.

BLOCKBUSTER ENTERTAINMENT

CORPORATION, BLOCKBUSTER

VIDEOS, INC., MAJOR VIDEO SUPERSTORES, INC., f/k/a MAJOR VIDEO, 

INC., dba MAJOR VIDEO,

Defendants-Appellees.

No. 95-2232

APPEAL FROM THE UNITED STATES DISTRICT COURT

 FOR THE DISTRICT OF NEW MEXICO

(D.C. No. Civ. 94-1395-M)

Robert L. Pidcock, Albuquerque, New Mexico, for the Plaintiffs-Appellants.

John F. Verhey, Rudnick & Wolfe, Chicago, Illinois, (William M. McErlean, Rudnick &

Wolfe, Chicago, Illinois, and R. E. Thompson and Angelo J. Artuso, Modrall, Sperling,

Roehl, Harris & Sisk, P.A., Albuquerque, New Mexico, with him on the brief) for

Defendants-Appellees.
*Honorable Albert J. Engel, Senior Circuit Judge, United States Court of Appeals

for the Sixth Circuit, sitting by designation.

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Before ANDERSON, Circuit Judge, MCWILLIAMS, Senior Circuit Judge, and

ENGEL*, Senior Circuit Judge.

McWILLIAMS, Senior Circuit Judge.

On October 17, 1994, E. Gerald Smith, (“Smith”), personally and as president of

B&G Entertainment, Inc., (“B&G”), filed an action in the Second Judicial District,

County of Bernalillo, State of New Mexico, naming as defendants the following: (1)

Blockbuster Entertainment Corporation (“Blockbuster Entertainment”); (2) Blockbuster

Videos, Inc., (“Blockbuster Videos”); and (3) Major Video Superstores, Inc., (“Major

Video”), formerly known as Major Video, Inc., doing business as Major Video.

In the complaint Smith alleged that he was a resident of Texas but was formerly a

resident of New Mexico, and that he was the president of B&G at the time of the acts

alleged in the complaint. It was further alleged in the complaint that B&G was a New

Mexico corporation doing business in New Mexico.

As concerns the three defendants, it was alleged in the complaint that Blockbuster

Entertainment was a Delaware corporation with its principal place of business in Fort

Lauderdale, Florida, and that it was doing business at all times relevant to the complaint

in New Mexico through Blockbuster Videos. It was further alleged in the complaint that

Blockbuster Videos is a Texas corporation with its principal place of business in Fort
1

In paragraph 4 of the complaint it is alleged that the “two entities [i.e.,

Blockbuster Entertainment and Blockbuster Videos] share officers, directors and

addresses in such a way as to not have separate identities for purposes of the actions

alleged in this complaint.”

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Lauderdale, Florida, and that it was licensed to do business and was, in fact, doing

business in New Mexico at all times material to the complaint. It was also alleged in the 

complaint that Blockbuster Videos was the alter ego of Blockbuster Entertainment1. As

concerns Major Video, it was alleged in the complaint that it was a Nevada corporation

and was doing business in New Mexico through franchise stores at all times relevant to

the complaint. 

The plaintiffs went on to allege in their complaint that as of 1989, and prior

thereto, they were the owners and operators of four video rental stores in Albuquerque,

New Mexico, and were in the process of developing a rental store in Santa Fe, New

Mexico. These stores, according to the complaint, were owned and operated as “Major

Video” stores under a franchise agreement the plaintiffs had with Major Video. The 

agreement also granted plaintiffs a territorial franchise right for the State of New Mexico,

excluding Las Cruces. In this regard it was alleged that in January, 1989, Blockbuster

Entertainment purchased Major Video.

It was alleged in the complaint that in the late summer of 1989 the plaintiffs

entered into negotiations to sell their rental stores and franchise rights to one Roger Ellis

of El Paso, Texas, who was himself a franchisee of Major Video in El Paso, Texas. We
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are advised by the complaint that the negotiations between the plaintiffs and Ellis had

proceeded to the point that drafts of a sale agreement had been exchanged and that the

parties had agreed upon a purchase price of $3,500,000.00. It was further alleged in the

complaint that the franchise agreement between plaintiffs and Major Video allowed the

franchisee to sell his rental stores, conditioned on the approval of Major Video. In this

regard plaintiffs also allege that they sought approval for the proposed sale, and that

Major Video consented thereto. 

Paragraphs 12, 13 and 14 in the complaint are perhaps the heart of the complaint,

and read as follows:

12. Blockbuster and its agents and employees, with no legal 

or contractual right to do so, refused to approve the

transaction between Plaintiffs and Mr. Ellis, without the

addition of Blockbuster’s improper requirement that Mr. Ellis

convert all of the Major Video stores to Blockbuster stores. 

The cost of such a conversion was estimated to be

approximately $150,000.00 per store.

13. Douglas M. Kinney, the Vice President for Franchise

Development for Blockbuster, wrote a letter dated August 23,

1989 to Roger Ellis in which Mr. Kinney approved the

acquisition by Mr. Ellis of Plaintiffs’ stores., but the approval

was “subject to them being converted to BLOCKBUSTER

within the next twelve (12) months.” Such a conversion

would add approximately $600,000.00 in expenses to the

transaction for Mr. Ellis. This letter was not disclosed to

Plaintiffs.

14. Blockbuster intentionally and fraudulently concealed its

actions from Plaintiffs. Plaintiffs did not learn of the deceit

and improper conditions placed on the sale by Blockbuster

until on or after October 18, 1991.
2

In response to plaintiffs’ motion to remand the defendants stated that Blockbuster

Entertainment and Blockbuster Videos were served with a copy of the complaint on

November 8, 1994, and that Major Video was served on November 28, 1994.

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The plaintiffs then went on to allege that the sale to Ellis was not consummated

because of the improper conditions imposed by Blockbuster Entertainment, and that they

eventually sold the rental stores and franchise rights to another party at a figure much less

than the $3,500,000.00 agreed to by plaintiffs and Ellis.

Based on these allegations, the plaintiffs asserted six claims: (l) a claim based on

tortious interference with a prospective contractual relationship apparently seeking

judgment only against Blockbuster Entertainment; (2) a claim based on breach of contract

seeking judgment against all defendants; (3) a claim based on prima facie tort seeking

judgment against Blockbuster Entertainment and Major Videos; (4) a claim based on

breach of fiduciary duty seeking judgment against Blockbuster Entertainment and Major

Videos; (5) a claim based on fraud seeking judgment against Blockbuster Entertainment

and Major Videos; and (6) a claim based on constructive fraud seeking judgment against

all defendants.

It would appear that all three defendants were served some time in November,

1994 with a copy of the complaint and a summons to respond thereto within 30 days

thereafter.2 Within 30 days thereafter, a Notice of Removal was filed on December 7,

1994, with the United States District Court for the District of New Mexico. In the

opening paragraph of the notice it was alleged that “Viacom, Inc. as successor in interest
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by merger to Blockbuster Entertainment Corporation, Blockbuster Videos, Inc., and

Major Video Superstores, Inc., by their attorneys, respectfully petition this Court pursuant

to 28 U.S.C. §§ 1441 and 1446. . . .” In the notice it was also alleged that Viacom,

Inc. was a corporation organized and existing under the laws of the State of Delaware

with its principal place of business in New York, New York.

As grounds for removal, it was alleged in the Notice of Removal that the amount

in controversary exceeded the sum of $50,000.00 and that the plaintiffs had “fraudulently

joined” Blockbuster Videos as a defendant for the “purpose of destroying diversity,” and

that, in reality, there was “complete diversity of citizenship among the parties properly

named in this action . . . .” In this connection, it was also alleged in the notice that the

“Plaintiffs do not make any substantive allegations of wrong doing against Blockbuster

Videos, Inc. which, in any event, is a wholly-owned subsidiary of another entity not a

party to this action and which had no contact with either Plaintiff.” The notice was

signed by an attorney in a local Albuquerque, New Mexico law firm, as “Attorneys for

Blockbuster Entertainment Corporation.”

On December 23, 1994, the defendants filed in the United States District Court for

the District of New Mexico a motion to dismiss the complaint pursuant to Fed. R. Civ. P.

12(b)(6) for failure to state claims upon which relief could be granted, alleging, inter alia,

that all tort claims were barred by New Mexico’s four year statute of limitations and that

none of the defendants had breached any contract with the plaintiffs. On January 5, 1995,
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the plaintiffs filed a response to the defendants’ motion to dismiss, alleging, inter alia,

that “[i]t is impossible to separate one alleged entity from the other” and noting that in the

instant case the defendants “claim to be one entity.”

The following day, January 6, 1995, plaintiffs filed a motion asking the federal

district court to remand the case to the Second Judicial District Court, County of

Bernalillo, State of New Mexico. As grounds for a remand, the plaintiffs asserted the

following: (1) all of the defendants did not join in the Notice of Removal; and (2) there

was not complete diversity of citizenship among the plaintiffs and defendants. As

concerns the first ground, plaintiffs, in their supporting brief, pointed out that the Notice

of Remand was signed by an attorney for “Blockbuster Entertainment Corporation,” and

not for either “Blockbuster Videos” or “Major Video.” As concerns the second ground,

the plaintiffs observe that, having alleged “fraudulent joinder,” the burden is on the

defendants to demonstrate “fraudulent joinder” by clear and convincing evidence, citing

Grynberg Production Corp. v. British Gas, P.L.C., 817 F. Supp. 1338, 1346 (E.D.Tex.

1993), and suggesting that the defendants had not met that burden.

On January 23, 1995, the defendants filed a memorandum of law in response to

plaintiffs’ motion to remand. In the memorandum the defendants assert that all three

defendants did join in the Notice of Removal despite the “signature line” at the end of the

Notice of Removal. As concerns “complete diversity,” the defendants in their response

argue that based on the complaint there is no way plaintiffs could obtain a judgment
3Attached to the memorandum was an affidavit of Michael R. Daigle wherein

Daigle described the relationship between Blockbuster Entertainment and Blockbuster 

Videos, which, according to counsel, established that Blockbuster Videos was not the

alter ego of Blockbuster Entertainment.

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against Blockbuster Videos since the complaint sets forth no claim of misconduct by

Blockbuster Videos and that plaintiffs’ claim that Blockbuster Video is the “alter ego” of

Blockbuster is legally insufficient.3

On July 10, 1995, the district court entered an order in connection with the

plaintiffs’ motion to remand. In that order the district judge stated that there were

“insufficient facts” in the record to allow him to rule on the matter, and ordered the

parties to “immediately provide evidence as to the date plaintiff E. Gerald Smith moved

from New Mexico to Texas.” The order concluded with a statement that if the plaintiffs 

failed to provide such evidence within ten days, such failure would be construed as

consent to deny the motion to remand.

On July 19, 1995, the plaintiffs filed a response to the district court’s order of July

10, 1995, attaching thereto the affidavit of E. Gerald Smith wherein he stated that he

permanently moved from New Mexico to Texas on May 15, 1990, and has resided in

Texas since that date.

 On August 17, 1995, the district court entered another order in connection with the

plaintiffs’ motion to remand. The district court in that order stated at the outset that there

were “insufficient facts in the record concerning the nondiverse defendant, Blockbuster
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Videos, Inc.” Accordingly, the judge ordered that plaintiffs, not Blockbuster

Entertainment or either of the other defendants, “immediately provide the Court with a

brief containing specific factual allegations, as well as, applicable law pertaining to the

joinder of Blockbuster Video, Inc.” Again, the judge stated in his order that if plaintiffs

did not file such a brief within fifteen days, such failure would be construed as “consent

to deny the motion to remand.”

On September 1, 1995, the plaintiffs filed with the district court a motion for an

extension of time to file a brief concerning the status of Blockbuster Videos, stating, inter

alia, the difficulty in determining the exact relationship between Blockbuster

Entertainment and Blockbuster Videos and the need for discovery. On September 15,

1995, the defendants filed a brief in opposition to any such extension of time.

On September 27, 1995, the district court filed a memorandum opinion and order

wherein it first found that the plaintiffs’ motion for remand was not “well taken” and was

therefore denied. The district court next held that the motion for an extension of time “is

no longer an issue and is hereby dismissed.” The district court then went on to conclude

that the defendants’ “motion to dismiss is well taken” and therefore granted it. In

granting the motion to dismiss, the district court did give its reasons therefor, holding that

the tort claims were barred by the New Mexico four year statute of limitations and that the

breach of contract claims against Blockbuster Entertainment and Major Videos were not

properly pleaded. On that same date the district court entered a formal judgment granting
4We reject defendants’ suggestion that since plaintiffs did not specifically mention

in their notice of appeal the district court’s denial of their motion to remand, they are

somehow foreclosed from raising the matter on appeal. The notice of appeal was directed

to the district court’s judgment of September 27, 1995, which dismissed all of plaintiffs’

claims against the defendants with prejudice, and made no mention of plaintiffs’ motion

to remand. Be that as it may, if the district court improperly denied plaintiffs’ motion to

remand, the district court thereafter had no jurisdiction to enter its subsequent order and

judgment dismissing plaintiffs’ claims with prejudice. Such, under that scenario, would

be up to the New Mexico state courts. Lack of jurisdiction can, of course, be raised at

any time. 28 U.S.C. § 1447(c) (1994). 

5Plaintiffs cite Matter of Amoco Petroleum Additives Co., 964 F.2d 706, 711 (7th

Cir. 1992) for the proposition that the general rule is that all defendants must join in a

Notice of Removal of a state court action to federal court.

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defendants’ motion to dismiss and dismissing all of plaintiffs’ claims with prejudice. 

Plaintiffs appeal. We reverse.

The first question to be answered is whether the district court’s order denying

plaintiffs’ motion to remand on the grounds that it was not “well taken” can be affirmed. 

If it cannot be upheld, then the subsequent order of the district court granting the

defendants’ motion to dismiss and dismissing all of plaintiffs’ claims with prejudice are,

in hindsight, at least, premature.4 

As indicated, in denying the plaintiffs’ motion to remand, the district court, insofar

as we can tell from the record before us, simply stated that the motion was not “well

taken.” Nothing more. As we read the record before us, the plaintiffs advanced basically

two grounds for their motion to remand: (l) the Notice for Removal was signed by an

attorney who stated that he represented Blockbusters Entertainment, but did not state that

he represented the other defendants, Blockbuster Videos and Major Video5; and (2) there
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was not complete diversity of citizenship since Smith and Blockbuster Video were both

residents and citizens of Texas. In this regard, we should note, additionally, that by its

order of July 10, 1995, the district court, apparently sua sponte, wanted some evidence

that Smith was, in fact, a resident and citizen of Texas, and not a citizen and resident of

New Mexico. Evidently the district court had some concern about this question.

As indicated, the district court denied plaintiffs’ motion to remand on the ground

that the motion was not “well taken.” That, so far as we can tell from the record before

us, is the only reason given for denying the motion to remand. Such is insufficient to

permit us to make a meaningful review of the district court’s order denying plaintiffs’

motion to remand.

The district court did not address plaintiffs’ argument that the “signature line” at

the end of the Notice of Removal was insufficient to show that all three defendants joined

in the notice. Further, though the district court did not address the matter, it apparently, at

one time at least, had some doubt that Smith was a resident and citizen of Texas, which

would mean that if Smith was in fact a citizen and resident of New Mexico, rather than

Texas, then there would be complete diversity. Finally, we do not know whether the

district court was of the view that Blockbuster Videos had been “fraudulently joined” as a

party in an effort to defeat a complete diversity of citizenship.

In sum, from the record before us we do not know the reasoning of the district

court when it denied plaintiffs’ motion for remand on the grounds that it was not “well
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taken,” without explanation. Such being the case, that order cannot be affirmed. We are

not herein indicating that the motion to remand should be granted. We are holding that

the motion for remand should be given further consideration, and that the district court,

after allowing reasonable discovery, should explain the basis for its action, whatever that

action may be. Needless to say, we regard the relationship between state and federal

courts to be a most important one.

Judgement reversed and case remanded for further consideration consistent with

the views herein expressed.