Opinion
Civil Action No: SA-04-CA-0303-XR.
November 3, 2004
ORDER
Before the Court are (1) Plaintiff's motion to file his First Amended Complaint, (2) Defendant Excel Telecommunications, Inc.'s ("Excel") motion for judgment on the pleadings, and (3) Defendants BCE Inc.'s and BCE Ventures Inc.'s ("BCE") motion to dismiss. The Court will GRANT in part Plaintiff's motion insofar as it seeks to amend the complaint to meet the requirements of FED.R.CIV.P. 9. The Court will, however, DENY in part Plaintiff's motion (docket no. 28) insofar as it seeks to amend the complaint to add any claim against Excel. Further, the Court will GRANT Excel's motion (docket no. 24) and DISMISS Excel from the case. The Court will reserve judgment on BCE's motion (docket no. 19) until Plaintiff has submitted an amended complaint consistent with this Order.
I. Factual and Procedural Background
According to Plaintiff's First Amended Complaint, Plaintiff first entered into an agreement with Excel in 1989 at which time Excel agreed to pay Plaintiff commissions based on long-distance telephone revenue generated by Plaintiff's marketing system. This agreement was amended in 1996 and 1997. Plaintiff was a co-founder and stockholder of Excel. In 1998, the stockholders of Excel exchanged their interests in Excel stock for stock of Teleglobe. As a result, Excel became a wholly owned subsidiary of Teleglobe. BCE and Teleglobe reached an agreement in 2000 in which BCE would acquire Teleglobe. Plaintiff then exchanged his Teleglobe stock for BCE stock. BCE was then owner of Excel.
In August 2001, a third amendment to the agreement was entered into between Plaintiff and Excel. Plaintiff alleges that Bill Anderson, a BCE officer and the president of a BCE subsidiary, telephoned Plaintiff and asked to meet with him. According to Plaintiff, Anderson informed him that BCE intended to sell Excel to an undisclosed purchaser and that as a condition to the sale, BCE need to secure a release of Excel from the 1989 agreement. After some negotiation, Plaintiff asserts that it was agreed that he would be paid a large sum in cash over a five year period in return for releasing Excel from the contract. Plaintiff alleges that he suggested BCE supply a guaranty for the payment. Plaintiff asserts that Anderson replied that BCS could not directly guarantee the deferrals, but that it would have Teleglobe supply the guaranty. According to Plaintiff, he was assured that BCE was committed to supporting Teleglobe, that BCE had made the decision that it was not going to walk away from its investment in Teleglobe, and that it was going to continue to support Teleglobe beyond the term of the existing financial support arrangements. Plaintiff states that he relied on these assurances, as well as public disclosure by BCE and Teleglobe that Teleglobe's 2001 capital expenditures would exceed $1B and that BCE had pledged to support Teleglobe to at least the $900 billion level. In addition, BCE's chief executive officer, Jean Monty, stated that BCE was prepared to put resources behind Teleglobe. Plaintiff asserts that he relied upon these statements in coming to the conclusion that Teleglobe would be a stable entity able to guaranty payment.
Paragraph 6 of the Third Amendment states, in part, ". . . Smith hereby expressly consents to the assignment of the Agreement, as amended by this Third Amendment, by Excel to Teleglobe Holdings (U.S.) Corporation, a Delaware corporation, or to BCE Inc., a Canadian corporation, and, upon such assignment, that Excel be released from all of its obligations under the Agreement, as amended by this Third Amendment." After the signing of the Third Amendment, Plaintiff was told that BCE was trying to sell Excel to a third-party (VarTec), and that Plaintiff's agreement was an impediment to that sale. Plaintiff asserts that he once again met with Anderson and was again reassured of BCE's commitment to Teleglobe.
Plaintiff further alleges that Excel made one payment under the Third Amendment in August of 2001 and then assigned the 1989 agreement to Teleglobe on April 5, 2002. According to Plaintiff, within a matter of days of this assignment, BCE announced it was withdrawing financial support from Teleglobe and placed Teleglobe in bankruptcy.
Plaintiff filed suit against BCE Inc., BCE Ventures Inc., and Excel in the 216th Judicial District Court of Kerr County, Texas. BCE removed the case to this Court on April 12, 2004. BCE alleged that Excel had been fraudulently joined in an effort to avoid federal diversity jurisdiction. In an Order dated September 14, 2004, the Court denied Plaintiff's motion to remand, finding that there was no possibility of recovery against Excel for breach of contract, the lone substantive claim against Excel, the in-state defendant. Following this Order, the remaining causes of action were against BCE for fraud, deceit, misrepresentations and omissions (fraud), negligent misrepresentation, and promissory estoppel. Plaintiff now seeks to amend his complaint to reassert a breach of contract claim, as well as a fraud claims, against Excel. Excel does not oppose the amendment as to the breach of contract claim, but does oppose the amendment as to the fraud claim. BCE opposes any amendment adding Excel as a defendant. BCE argues that Plaintiff is attempting to amend his complaint in an attempt to defeat diversity jurisdiction. BCE and Excel have both filed motions to dismiss.
II. Plaintiff's Motion to File his First Amended Complaint
As to Plaintiff's motion to file his First Amended Complaint, Plaintiff argues that he may amend his original complaint as a matter of right under FED. R. CIV. P. 15(a). As no defendant has filed a responsive pleading, Plaintiff is correct that he may amend his pleading as a matter of right. Plaintiff is also correct that he may amend his pleading to correct pleading deficiencies that arise due to the fact that the currently operative pleading is his original state court Petition. However, Plaintiff may not amend his pleading as of right where his amendment is for the purpose of attempting to defeat diversity jurisdiction. Plaintiff's motion attempts to add an entirely new claim, that of fraud, against an in-state defendant which has already been deemed to have been fraudulently joined. In addition, prior to this motion, Plaintiff had consistently stated to this Court that he had no intention of pursuing a fraud cause of action against Excel in this case. Because Plaintiff's motion seeks to add an in-state defendant, the motion is a matter of discretion for this Court. Hensgens v. Deere Co., 833 F.2d 1179, 1182 (5th Cir. 1987).
In Plaintiff's Motion for Remand, Plaintiff stated that BCE "erroneously assumes that [Plaintiff] is attempting to litigate fraud issues against Excel. He is not . . . Excel is not alleged to have participated in the fraud." In Plaintiff's Reply to BCE's Response to Plaintiff's Motion to Remand, Plaintiff stated that "[c]ontrary to BCE's argument, [Plaintiff] neither alleges, nor is required to prove, that Excel is guilty of fraud in order to rescind the agreement." And in response to the Court's questioning during a status conference held August 5, 2004, Plaintiff's counsel stated that they did not allege a fraud claim against Excel, instead alleging only breach of contract.
Plaintiff has attached alternate versions of his proposed First Amended Complaint, one asserting fraud and breach of contract claims against Excel (Exhibit A), and one asserting only breach of contract against Excel (Exhibit B). On September 15, 2004, the Court denied Plaintiff's motion to remand, finding that there was no possibility of recovery against Excel for breach of contract. The Court will not abide Plaintiff now attempting to assert breach of contract claims against Excel under the same set of facts underlying the Court's previous decision. Therefore, the amended complaint marked as Exhibit B is completely unacceptable, as it attempts to assert only breach of contract claims against Excel. The amended complaint marked as Exhibit A is similarly unacceptable, as it contains a breach of contract claim against Excel.
As to the fraud claim against Excel contained in the amended complaint marked as Exhibit A, the Court finds that Plaintiff should not be allowed to amend his complaint to add this claim. In determining whether to allow amendment that would destroy diversity, the court should look to a number of factors, including whether the defendant would be joined solely to defeat federal jurisdiction, the plaintiff's diligence in requesting the amendment, the prejudice to the plaintiff if the amendment were denied, and any other factors bearing on equity. Ehrhadt v. Elec Instrumentation Unlimited, 137 F.Supp.2d 765, 766 (E.D. Tex. 2001). If the Court allows the amendment so as to allow Plaintiff to bring suit against the in-state defendant, it must remand the case to the state court. 28 U.S.C. § 1447(e); Cobb v. Delta Exports Inc., 186 F.3d 675, 677 (5th Cir. 1999); Hensgens, 833 F.2d at 1182.
Plaintiff's amendment can be meant for nothing more than to defeat diversity jurisdiction. Throughout this case, Plaintiff had been adamant that he did not intend to sue Excel for fraud in this case. Only after the Court denied his motion to remand did Plaintiff switch course and decide to bring his fraud claim against Excel. Plaintiff has offered no real justification for his change in position. This is unlike cases in which the plaintiff has amended the complaint in order to clarify ambiguous or uncertain jurisdictional prerequisites, see Virgil v. Reorganized M.W. Co., 156 F. Supp.2d 624, 627 (S.D. Miss. 2001), where the party to be added is a necessary party under FED. R. CIV. P. 19, cf. Boon v. Allstate Ins. Co., 229 F.Supp.2d 1016, 1020 (C.D. Cal. 2002), or where there is discovery of new facts or theories, see Perez v. Arcobaleno Past Machs., Inc., 261 F.Supp.2d 997, 1001 (N.D. Ill. 2003). Here, Plaintiff had an opportunity to assert this claim against Excel long before now, but had consistently asserted that he did not intend to assert the fraud claim, relying solely on the breach of contract claim. Now that Plaintiff has been defeated in his attempt to remand based on the breach of contract claim, the Court will not allow Plaintiff to retry the remand decision on a fraud claim that he had insisted he would not assert. See Hall v. GE Plastic Pac. Ltd., 327 F.3d 391, 396 (5th Cir. 2003) (noting that a party is estopped from asserting a position contrary to a position taken previously in the litigation where (1) the new position is "clearly inconsistent" with the previous one and (2) the district court has previously accepted that previous position). The Court finds that Excel would be joined solely to defeat federal jurisdiction. Ehrhardt, 137 F.Supp.2d at 767-68.
The other factors also counsel against allowing the amendment. As described above, Plaintiff has not been diligent in bringing forward this claim. In fact, he has consistently asserted that he had no intention to assert the fraud claim against Excel. In addition, Plaintiff's motion comes over six months after this case was removed and also comes after motions to dismiss by each defendant have been filed. There would also be little prejudice to Plaintiff if the amendment were denied. Plaintiff currently has a pending suit against Excel in the 216th Judicial District of Kerr County, Texas. In this state court suit, Plaintiff alleges exactly that which he wishes to allege here, causes of action for fraud, negligent misrepresentation, and unjust enrichment. This suit was filed on September 21, 2004. Plaintiff will not prejudiced by the existence of two civil proceedings based on the same events where any prejudice is of his own making. Cf. Siedlik v. Stanley Works, Inc., 205 F.Supp.2d 762, 764 (E.D. Mich. 2002) (permitting amendment and remanding action in part because denial would require plaintiff to litigate two parallel suits). While judicial economy may weigh in favor of consolidating this case with the case currently pending in the state court, the Court finds that this factor does not outweigh the factors in favor of denying the amendment. Accordingly, the Court finds that Plaintiff should not be allowed to amend his complaint to add a fraud claim against Excel.
In addition, allowing remand in a situation such as this, in which the plaintiff files a claim in state court and simultaneously attempts to assert the very same claim against the same defendant in what appears to be an attempt to force a remand would set a dangerous precedent. The Court will not allow plaintiffs to play "fast and loose" with the jurisdiction of the courts. See U.S. v. McCaskey, 9 F.3d 368, 378 (5th Cir. 1993).
The Court GRANTS Plaintiff's motion to file his First Amended Complaint (docket no. 28) insofar as he attempts to meet the requirements of FED. R. CIV. P. 9. The proposed versions of Plaintiff's First Amended Complaint, however, are not sufficient to act as his operative complaint, as they assert claims against Excel. Therefore, the Court ORDERS Plaintiff to submit to the Court his First Amended Complaint, consistent with this Order, within ten (10) days from the date of this Order.
III. Excel's Motion to Dismiss
Excel has filed what it refers to as a Motion for Judgment on the Pleadings. As an initial matter, while Excel makes reference to FED. R. CIV. P. 12(b)(6), the title of its motion suggests it is pursuant to FED. R. CIV. P. 12(c). However, as Excel has not yet filed an answer or any other responsive pleading in this case, the motion is properly a motion to dismiss for failure to state a claim under Rule 12(b)(6). See FED R. CIV. P. 12(b) ("A motion making any of these defenses shall be made before pleading if a further pleading is permitted."); FED. R. CIV. P. 12(c) ("After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings."). Pursuant to Rule 12(h)(2), the Court will treat the motion as a proper motion to dismiss for failure to state a claim. Puckett v. United States, 82 F. Supp. 2d 660, 663 (S.D. Tex. 1999); CHARLES ALAN WRIGHT ARTHURR. MILLER, 5C FEDERAL PRACTICE AND PROCEDURE § 1361 (2004). The legal standards for granting or denying Rule 12(c) and Rule 12(b)(6) motions are identical. GEOFFREY C. HAZARD, JR., COLIN C. TAIT, WILLIAM A. FLETCHER, PLEADING AND PROCEDURE 1001 (1999). For the sake of convenience, however, the motion will be referred to as a "motion to dismiss."
In its September 15, 2004 Order denying remand, the Court found that there was no possibility of recovery against Excel for the initial breach of contract claim. As noted above, the Court also now finds that Plaintiff should not be allowed to bring a claim for fraud against Excel at this point in the litigation. The Court notes "the similarity of the test for fraudulent joinder and the test for a Rule 12(b)(6) motion alleging failure to state a claim." Travis v. Irby, 326 F.3d 644, 648 (5th Cir. 2003). As Plaintiff has no claim against Excel, the Court finds that Excel's motion to dismiss should be GRANTED (docket no. 24) and Excel should be DISMISSED from this case with prejudice. Each party shall bear their own fees and costs in conjunction with this motion.
IV. BCE's Motion to Dismiss
BCE has moved pursuant to Rule 12(b)(6) for dismissal for failure to state a claim. Plaintiff has sued BCE for fraud, negligent misrepresentation, and unjust enrichment. BCE asserts that Plaintiff's claims are barred under Texas's Statute of Frauds and that Plaintiff cannot assert a valid claim under Texas law. As the operative pleading at this point is Plaintiff's state court Petition, and as the Court has ordered Plaintiff to submit an amended complaint consistent with this Order within ten (10) days, the Court will reserve judgment on the motion to dismiss until it has received Plaintiff's complaint. In addition, while Plaintiff has submitted a response to BCE's motion to dismiss that seems to fully address the issues, the Court will grant Plaintiff leave to file an amended response that incorporates his amended complaint to be filed. Plaintiff should notify the Court in writing if he does not wish to amend his response. Plaintiff should attempt to file any such amended response with the Court simultaneously with the filing of his amended complaint, but in no event later than eleven (11) days from the date of this Order.
V. Conclusion
Plaintiff seeks to amend his complaint to add breach of contract and fraud claims against Excel Telecommunications Inc. The Court has previously held that Plaintiff has no possibility of recovery against Excel for breach of contract. In addition, the Court finds that Plaintiff should not be allowed to amend his complaint to allege a claim of fraud against Excel. The Court has discretion to allow an amendment that would destroy complete diversity. The factors weigh against allowing the amendment, as Plaintiff's amendment is for no reason other than to destroy diversity, Plaintiff has not been diligent in asserting his claim, and Plaintiff would not be prejudiced by denial. Therefore, the Court GRANTS in part Plaintiff's motion insofar as he seeks to amend his complaint to meet the requirements of Rule 9. The Court DENIES in part Plaintiff's motion insofar as he seeks to add a cause of action against Excel. (Docket no. 28). The Court also ORDERS Plaintiff to submit an amended complaint consistent with this Order within ten (10) days from the date of this Order. As to Excel's motion to dismiss, the Court GRANTS the motion (docket no. 24) and DISMISSES Excel from the case with prejudice. The Court will reserve judgment on the motion to dismiss filed by BCE Inc. and BCE Ventures Inc. until after Plaintiff has submitted his amended complaint. In addition, the Court grants leave to Plaintiff to file an amended response to the motion to dismiss no later than eleven (11) days from the date of this Order.