Court Opinion

ID: 12059
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:10:18+00
Date Added: 2024-06-11T15:04:41.584504
License: Public Domain

UNITED STATES COURT OF APPEALS

                                   FOR THE FIFTH CIRCUIT

                                             No. 96-20376

BETTER ENTERPRISES CORPORATION, INC.,
                                                                                   Plaintiff-Appellant,

                                                 versus

QUANTUM CHEMICAL CORPORATION;
WESTLAKE INDUSTRIES, INC.; WESTLAKE
POLYMERS CORPORATION,
                                                                               Defendants-Appellees.

                          Appeal from the United States District Court
                              For the Southern District of Texas
                                       (CA-H-94-2543)

                                             May 20, 1997
Before POLITZ, Chief Judge, REAVLEY and DENNIS, Circuit Judges.

POLITZ, Chief Judge:*

        This appeal requires that we apply the doctrine of fraudulent joinder to

determine whether diversity jurisdiction exists herein. Concluding that the district

   *
     Pursuant to Local Rule 47.5, the court has determined that this opinion should not be published and is
not precedent except under the limited circumstances set forth in Local Rule 47.5.4.

                                                    1
court lacked the requisite jurisdiction we must vacate its judgment and remand.

                                BACKGROUND

      In October 1993 Better Enterprises Corporation, Inc., a Texas corporation,

began negotiations looking to the purchase of an air separation plant owned by

Quantum Chemical Corporation. Better Enterprises offered $850,000 which was

accepted by Quantum in a letter agreement signed by both parties in late December.

The letter agreement appears to be a preliminary agreement regarding price with

full terms to be incorporated into a formal contract.

      After an inspection of the plant on January 3, 1994 Better informed Quantum

of its concern that certain equipment was absent from the premises and requested

a $100,000 reduction in the price because of an apparent misunderstanding. On

January 7, 1994 Quantum responded that it did not intend to sell all of the

equipment Better wanted but it offered to “reduce the agreed sales price.”

      Unbeknownst to Better, on December 2, 1993 Quantum had informed

Westlake Industries, Inc., another Texas corporation, that the plant was for sale.

On January 15, 1994 Westlake engineers visited the plant with employees of

Louisiana Chemical Equipment Co., which was acting as a broker between

Westlake and Quantum. Despite these activities, Quantum reassured Better on

January 20 that it was not trying to sell the plant to anyone else, reminding of its

                                         2
December letter agreeing to sell the plant to Better.

      On January 26 Westlake requested a price for the plant and offered itself as

the “most preferred buyer” with the ability to close a cash deal within days.

Quantum responded on January 27 by telling Westlake that because it had a “bid”

from another party that was due to expire on January 28, Westlake would have to

submit its own bid for the plant on or after that date. On January 28, Westlake

submitted a bid for $1,250,000. Quantum promptly accepted the bid, subject to

negotiation and execution of an agreement. Even after accepting Westlake’s bid

Quantum continued to reassure Better about their agreement, but it closed the sale

of the plant with Westlake Industries on February 9, 1994.

      Better filed the instant action in Texas state court against Quantum, Westlake

Industries, and Westlake Polymers Corporation,1 asserting causes of action for

breach of contract and fraud against Quantum and alleging that the Westlake

defendants tortiously interfered with Better’s contract with Quantum. Better

further claimed that Westlake and Quantum had engaged in a civil conspiracy to

terminate Better’s contract with Quantum.2

  1
   Westlake Polymers is related to Westlake Industries, but is not a Texas
corporation and therefore is not implicated in the fraudulent joinder analysis.
  2
    On March 2, 1994 Better filed another suit against Quantum in Texas state court,
alleging breach of contract and fraud. Quantum removed the case to federal court.
                                           3
      The defendants removed the case to federal court, invoking diversity

jurisdiction, although both Better Enterprises and Westlake Industries are Texas

citizens. Better sought remand for lack of complete diversity. The defendants

alleged that Better fraudulently joined Westlake to defeat diversity jurisdiction and

moved for summary judgment as to both Westlake defendants. Quantum moved

to dismiss the suit as duplicative of pending litigation between itself and Better

Enterprises. Better also sought additional discovery. The district court granted

summary judgment and found that there were no disputed questions of material fact

in Better’s claims against the Westlake defendants. The court therefore concluded

that Westlake had been fraudulently joined. Simultaneously, the court denied

Better’s motions to remand and to extend discovery and denied Quantum’s motion

to dismiss.3 Better timely appealed.

Better sought to amend the complaint to add claims against Westlake, but ultimately
moved for dismissal of that action in favor of filing the instant suit against all
defendants. The district court denied Better’s motion to dismiss and after a full trial,
Better received a favorable jury verdict. The district court, however, rendered
judgment as a matter of law in favor of Quantum for insufficient evidence of a
contract. That judgment was appealed in a separate action and affirmed in an
unpublished opinion, No. 96-20219, on April 10, 1997. Better’s allegations in the
instant action are not limited to intentional interference with an existing contract, but
also encompass a prospective contractual relationship.
  3
   The district court later dismissed Better’s claims against Quantum as barred by
res judicata after the district court rendered judgment in the other suit between
those parties.
                                           4
                                    ANALYSIS

         The dispositive issue in this appeal is the existence vel non of federal

jurisdiction of the removed cause. A federal court must be certain of its jurisdiction

before rendering a judgment.4 “Where a federal court proceeds in a matter without

first establishing that the dispute is within the province of controversies assigned

to it . . . the federal tribunal poaches upon the territory of a coordinate judicial

system, and its decisions, opinions, and orders are of no effect.”5 We consistently

have held that a party seeking a federal forum has the burden of demonstrating the

existence of federal jurisdiction.6 When allegations of fraudulent joinder are

offered to defeat our diversity jurisdiction, the removing party has the burden to

prove the alleged fraud.7

         The party seeking to show fraudulent joinder has a heavy burden. To

establish that a defendant has been fraudulently joined, “the removing party must

show either that there is no possibility that the plaintiff would be able to establish

  4
   Caterpillar Inc. v. Lewis, 117 S. Ct. 467 (1996).
  5
   B., Inc. v. Miller Brewing Co., 663 F.2d 545, 548 (5th Cir. Unit A 1981).
  6
   Id.
  7
   Burden v. General Dynamics Corp., 60 F.3d 213 (5th Cir. 1995); Carriere v.
Sears, Roebuck & Co., 893 F.2d 98 (5th Cir.), cert. denied, 498 U.S. 817 (1990);
B., Inc.
                                          5
a cause of action against the in-state defendant in state court; or that there has been

outright fraud in the plaintiff’s pleadings of jurisdictional facts.” 8 The procedure

for determining fraudulent joinder has been likened to the analysis of a motion for

summary judgment.9 We have cautioned courts against conducting extensive

hearings that amount to pre-trying cases when analyzing jurisdiction.10 The parties

may, however, submit affidavits and deposition transcripts in support of their

positions.11

        The district court must evaluate all factual allegations in the light most

favorable to the plaintiff, including favorably resolving all contested issues of fact12

and any ambiguity regarding the controlling substantive law.13 If the court

  8
   B., Inc. at 549 (internal footnote omitted).
  9
    Sid Richardson v. Interenergy Resources, Ltd., 99 F.3d 746 (5th Cir. 1996).
In previous cases, we have stated that the determination of fraudulent joinder is
similar to the summary judgment analysis. Because the fraudulent joinder analysis
is procedural, we now conclude that it is appropriate to apply federal law. We opt
for a somewhat modified summary judgment analysis. As part of the inquiry,
however, it is necessary to evaluate whether the plaintiff can establish a cause of
action under state law against the nondiverse defendant.

   Green v. Amerada Hess Corp., 707 F.2d 201 (5th Cir. 1983), cert. denied,
  10

464 U.S. 1039 (1984).
  11
      Sid Richardson; Burden; Green; B., Inc.
  12
      B, Inc.
  13
      Burden.
                                           6
concludes that there is no possibility the plaintiff could assert a valid cause of

action against the complaining defendant, it may find that the defendant has been

fraudulently joined. If, however, there is any possibility that a state court would

find a cause of action against the defendant on the facts the plaintiff alleges, the

court must conclude that there is no fraudulent joinder and, therefore, no federal

jurisdiction for lack of complete diversity.14 Whether the plaintiff is likely to

succeed on the merits of its cause of action against the defendant is not relevant.15

       In its analysis the trial court did not first resolve, in accordance with the

foregoing procedures, whether Westlake had been fraudulently joined. Rather, the

court determined that Better Enterprises had not established a genuine issue of

material fact on its claims for tortious interference and civil conspiracy, concluding

that “Westlake Industries has shown that there is no disputed question of fact that

it knew about the purported sale of the plant to Better Industries [sic] at the time

Westlake purchased the plant. Therefore, this court finds that Westlake Industries

  14
    Sid Richardson. This aspect of the fraudulent joinder test is in contrast to the
federal summary judgment standard as articulated by the trilogy of Supreme Court
cases interpreting Rule 56: Celotex Corp. v. Catrett, 477 U.S. 317 (1986);
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986); and Matsushita Elec.
Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574 (1986). The two standards
are not fully interchangeable.

   Burden.
  15

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has been fraudulently joined to defeat diversity jurisdiction.”

       The district court did not resolve, as it must, all disputed issues of fact and

all ambiguities of law in favor of Better. Quantum and Westlake submitted

affidavits to show that Westlake lacked the requisite knowledge for liability under

either a theory of tortious interference or civil conspiracy. Better countered by

presentinged evidence suggesting that Westlake was aware that Quantum had a

prior commitment for the sale of the plant.16 The district court discounted Better’s

evidence rather than accepting it as required.

       Accepting Better’s evidence that Westlake knew Quantum had a prior

commitment for the purchase of the plant, it is certainly at least possible that Better

could establish its claims against Westlake in state court.17 Therefore, we must

  16
     Better presented evidence that could prove Westlake had knowledge of another
buyer. In response to written questions Louisiana Chemical admitted that one of its
employees, Steve O’Brien, was informed that Quantum was negotiating with or had
a prior commitment to another party. O’Brien relayed that information to Mark Lee,
a Westlake engineer, who had toured the plant in conjunction with the potential
purchase. Better also produced a letter from Westlake’s negotiator to Quantum
stating that “[w]e are quite sure that we are the most preferred buyer of this plant.”
This evidence at least suggests that Westlake knew of a pending
contract between Quantum and another party.
  17
    The elements of a cause of action for tortious interference are: (1) the existence
of a contract subject to interference, (2) an intentional act of interference, (3) the act
proximately caused the plaintiff’s injury, and (4) the plaintiff experienced actual
damage or loss. Friendswood Dev. Co. v. McDade + Co., 926 S.W.2d 280 (Tex.
1996). To establish a cause of action for civil conspiracy the plaintiff must show
                                            8
conclude that Westlake was not fraudulently joined to defeat diversity jurisdiction.

Because the district court lacked jurisdiction, we must VACATE its judgment and

REMAND with instructions to remand the case to the 157th Judicial District Court

of Harris County, Texas.

      VACATED and REMANDED.

that two or more persons agreed to accomplish an unlawful purpose or to
accomplish a lawful purpose by unlawful means. Transport Ins. Co. v. Faircloth,
898 S.W.2d 269 (Tex. 1995).
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