Summary
concluding that equitable tolling is appropriate where motion to remand was arguably untimely because of difficulties encountered in using ECF system
Summary of this case from Federal Insurance v. Tyco International, Ltd.Opinion
No. 04 Civ. 4991 (RJH).
October 19, 2004
MEMORANDUM OPINION AND ORDER
This action arises out of the alleged failure to pay a promissory note owed by defendants Phoenix Hotel Associates, Ltd. ("PHAL"), Condor Investment Group ("Condor"), Phoenix Hotel Associates ("PHA") and Central Adams Management Co. ("Central Adams") (collectively "defendants") to Phoenix Global Ventures, LLC ("Phoenix Global"). PHAL, Condor and PHA filed a notice of removal from state court pursuant to 28 U.S.C. § 1441. Phoenix Global now moves to remand this action back to state court pursuant to 28 U.S.C. § 1447. For the reasons set forth below, the Court grants Phoenix Global's motion and remands this action to state court.
FACTS
Plaintiff Phoenix Global is a Connecticut limited liability corporation with two members who reside in New York. (Aff. of Michael Milea ¶ 3.) PHAL is a California partnership that includes three general partners — Condor, PHA, and Central Adams — and has its principal place of business located in Arizona. (Pl.'s Mem. in Supp. of Mot. to Remand at 2.) Condor is a Delaware corporation with its principal place of business in Arizona; PHA is a Nevada corporation with its principal place of business in Arizona; and Central Adams is a California corporation with its principal place of business also in California. ( Id.)
Defendants executed a note on November 17, 1999, originally promising to pay $12,000,000 to Reciprocal Capital Services. (Defs.' Notice of Removal, Ex. A at 1.) Reciprocal Capital Services then assigned the rights, title, interest and payments owed thereunder to Phoenix Global on September 24, 2003, in an agreement signed by defendants, Phoenix Global and Reciprocal Capital. ( Id., Ex. B at 2; Affirmation of John P. Gulino, Ex. 2 at 2.) Phoenix Global alleges that defendants failed to make the payments due on the promissory note, and that on February 27, 2004, plaintiff sent notice of default, as well as the acceleration of the debt, to each defendant by certified mail. (Aff. of Michael Milea ¶ 4.)
On May 11, 2004, Phoenix Global initiated a lawsuit against defendants to recover $15,600,000 owed on the note in the Supreme Court of the State of New York, County of New York in an action entitled Phoenix Global Ventures, LLC v. Phoenix Hotel Associates, Ltd., Condor Investment Group, Phoenix Hotel Associates Limited, and Central Adams Mgmt. Co., Index No. 107236/04. ( Id. at 1.) In so doing, Phoenix Global served Condor and Central Adams a Summons of Notice of Motion for Summary Judgment in Lieu of Complaint on May 21, 2004. (Affirmation of John P. Gulino ¶ 2.) The remaining defendants were served through their authorized and registered agents by June 1, 2004. ( Id.)
PHAL, Condor and PHA then filed a notice of removal on June 25, 2004, seeking to remove the action from state court to the United States District Court of the Southern District of New York pursuant to the federal removal statute, 28 U.S.C. § 1441, and the federal diversity statute, 28 U.S.C. § 1332. In response, Phoenix Global's counsel, John P. Gulino ("Gulino"), prepared a motion to remand back to state court, which he alleges was ready to serve and file on July 25, 2004 — a day before the motion was due. (Reply Affirmation of John P. Gulino ¶ 3.)
Unfortunately, Gulino had never been involved in a case using the electronic case filing ("ECF") system and was therefore "not familiar with the computer procedures involved." ( Id.) As such, he was "wholly ignorant of the process or procedures" of using the ECF system. ( Id.) Upon obtaining the passwords and programs in a timely manner, Gulino nevertheless discovered that the exhibits accompanying the prepared motion to remand were unacceptable for filing. ( Id.) In effect, Gulino alleges, the "program that scanned the exhibits and converted [them] to [PDF] format created files much too large." ( Id.)
By the end of the afternoon on July 26, 2004, Gulino was "assured that all the files had been accepted and the motion was filed" before leaving his office. ( Id.) However, although the ECF system had accepted all of the documents, it ultimately rejected the filing because an unacceptable hearing date had been entered. ( Id.) Gulino did not discover this error until the next morning, at which point he entered a valid date into the system and the documents were accepted on July 27, 2004. ( Id.)
Presently, the threshold issue is whether defendants properly removed this action from state court to federal court. The secondary issue is whether Phoenix Global waived its right to remand this action to state court by filing its motion to remand in an untimely fashion. The Court now turns to the merits of these questions.
DISCUSSION
I. Motion to Remand A. Standard of Review
A civil action initially brought in state court may be removed by the defendant to federal court, provided that the "district courts of the United States have original jurisdiction." 238 U.S.C. § 1441(a). In order for "removal to be considered proper, the removing party must demonstrate that this Court is endowed with the requisite subject matter jurisdiction." Frontier Insurance Co. v. MTN Owner Trust, 111 F. Supp. 2d 376, 378 (S.D.N.Y. 2000) (citation omitted). Indeed, it is well settled that "the party seeking to preserve the district court's removal jurisdiction, typically the defendant, not the party moving for remand to state court, typically the plaintiff," bears the burden of showing that removal is appropriate in the first instance. Charles Alan Wright, Arthur R. Miller, Edward H. Cooper, Federal Practice and Procedure, § 3739 at 424 (3d Ed. 1998); Ryan v. Dow Chemical Corp., 781 F. Supp. 934, 939 (E.D.N.Y. 1992). Moreover, removal statutes are to be "strictly construed." State of N.Y. v. Lutheran Center for Aging, Inc., 957 F. Supp. 393, 397 (E.D.N.Y. 1997) (citing cases). If there is any doubt as to whether removal is appropriate, the case should be remanded. Wilds v. United Parcel Service, Inc., 262 F. Supp. 2d 163, 176-77 (S.D.N.Y. 2003); State of N.Y., 957 F. Supp. at 397; Truglia v. KFC Corp., 692 F. Supp. 271, 275 (S.D.N.Y. 1988) (allegations must be construed in light most favorable to plaintiff in evaluating motion to remand); Lance Int'l Inc. v. Aetna Cas. Sur. Co., 264 F.Supp. 349, 356 (S.D.N.Y. 1967).
B. Propriety of Defendants' Removal
Defendants filed a notice of removal premised on the federal diversity statute which authorizes original jurisdiction over actions "where the matter in controversy exceeds the sum or value of $75,000, and is between . . . citizens of different States." 28 U.S.C. § 1332(a). As an initial matter, the Court has an independent obligation to address, sua sponte, the propriety of subject matter jurisdiction even if Phoenix Global has not challenged defendants' assertion of subject matter jurisdiction. Oscar Gruss Son, Inc. v. Hollander, 337 F.3d 186, 193 (2d Cir. 2003) ("[f]ailure of subject matter jurisdiction, of course, is not waivable and may be raised at any time by a party or by the court sua sponte"). A case "falls within the federal district court's 'original' diversity 'jurisdiction' only if diversity of citizenship among the parties is complete, i.e., only if there is no plaintiff and no defendant who are citizens of the same State." Wisconsin Dep't of Corr. v. Schact, 524 U.S. 381, 388 (1998). In this case, it is undisputed that plaintiff is a Connecticut limited liability corporation, and defendants are located in California, Delaware, Arizona and Nevada. Given that the parties are completely diverse, the Court concludes that subject matter jurisdiction is proper in this action.
A corporation's "citizenship may be dual as it is determined both by its place of incorporation and its principal place of business." Helmsley-Spear, Inc. v. Ramfis Realty Inc., No. 03 Civ. 8482, 2003 WL 22801162, at *2 (S.D.N.Y. Nov. 25, 2003) (citing 28 U.S.C. § 1332(c)). Hence, Condor may be considered a citizen of both Delaware and Arizona, and PHA may be considered a dual citizen of Nevada and Arizona.
Phoenix Global challenges two apparent defects in defendants' removal procedure, arguing that (1) the filing was untimely, and (2) all defendants did not join in the notice of removal. (Pl.'s Mem. in Supp. of Mot. to Remand at 3.) Section 1446(b) provides that the notice of removal "shall be filed within thirty days after receipt by defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based." 28 U.S.C. § 1446(b). Section 1446(b) further requires that all defendants submit to removal through unambiguous written consent within the thirty-day period. See Smith v. Kinkead, No. 03 Civ. 10283, 2004 WL 728542, at *2-3 (S.D.N.Y. April 5, 2004) (citing cases); Payne v. Overhead Door Corp., 172 F. Supp. 2d 475, 476-77 (S.D.N.Y. 2001). This "rule of unanimity" advances "the congressional purpose of giving deference to a plaintiff's choice of a state forum and resolving doubts against removal in favor of remand" Smith, 2004 WL 728542, at *2 (quotations omitted). If defendants fail to file written consent to removal before the thirty-day period expires, the notice of removal is ineffective, and remand is appropriate. See Forum Ins. Co. v. Texarkoma Crude and Gas Co., No. 92 Civ. 8602, 1993 WL 228023, at *2 (S.D.N.Y. June 22, 1993).
Phoenix Global served a Summons of Notice of Motion for Summary Judgment in Lieu of Complaint on Condor and Central Adams on May 21, 2004. This initial pleading triggered the thirty-day period, which expired on June 21, 2004. See Yang v. ELRAC, No. 03 Civ. 9224, 2004 WL 235208, at *1 (S.D.N.Y. Feb. 6, 2004) (thirty-day period runs from receipt of initial pleading by the first defendant). However, PHAL, Condor, and PHA filed a notice of removal on June 25, 2004, that in addition to being late, did not include Central Adams. It further appears from the face of the pleadings that Central Adams has never submitted written consent to removal.
The Second Circuit held that a "case is removable when the initial pleading enables the defendant to intelligently ascertain removability from the face of such pleading, so that in its petition for removal [, the] defendant can make a short and plain statement of the grounds for removal as required [by] 28 U.S.C. § 1446(a)." Whitaker v. American Telecasting, Inc., 261 F.3d 196, 205-6 (S.D.N.Y. 2001) (quotations omitted). Here, the documents filed in support of Phoenix Global's initial pleading — the notice of motion for summary judgment in lieu of complaint — sufficiently stated that Phoenix Global was a limited liability company located in Connecticut, and that the amount in dispute was $15,600,000. (Aff. of Michael Milea ¶¶ 2-3.) Accordingly, Phoenix Global's initial pleading provided defendants with the information necessary to prepare a notice of removal to the extent that its receipt triggered the thirty-day removal period set forth in Section 1446(b).
In its memorandum in support of remand, Phoenix Global asserts that "Central Adams Mgmt. Co. did not join this notice of removal, and cannot now do so." (Pl.'s Mem. in Supp. of Mot. to Remand at 4.)
Both of these errors are independently fatal to defendants' notice of removal. Allstate Ins. Co. v. Zhigun, No. 03 Civ. 10302, 2004 WL 187147, at *2 (S.D.N.Y. Jan. 30, 2004) (failure to provide written consent of other defendants warranted sua sponte remand); Yang, 2004 WL 235208, at * 1 (remanded where defendants filed a day after thirty-day period expired); Payne, 172 F. Supp. 2d at 476 (remanded where defendants failed to join notice of remand and also failed to file in timely fashion). Accordingly, the Court finds that although the basis for removing was proper, defendants' failure to comply with the statutory requirements of Section 1446 renders their motion unperfected.
C. Timeliness of Phoenix Global's Motion to Remand
Defendants nevertheless assert that Phoenix Global waived these procedural defects by filing an untimely motion to remand A motion to remand the action "on the basis of anything other than lack of subject matter jurisdiction must be made within 30 days after the filing of the notice of removal under section 1446(a)." 28 U.S.C. § 1447(c). Motions to remand based on procedural defects — such as is the case here — must "be made within 30 days after removal or they are waived." Hamilton v. Aetna Life and Cas. Co., 5 F.3d 642, 643 (2d Cir. 1993).
The circumstances surrounding Phoenix Global's ill-fated attempts to file its motion remind the Court that the legal profession is caught in an awkward phase between the old world of typewriters and hand deliveries and the new world of ECF. In recognition that computers, like humans, are not foolproof, the Southern District of New York adopted Model Rule 11, drafted by the 2001 Judicial Conference of the United States, that provides: "A Filing User whose filing is made untimely as a result of technical failure may seek appropriate relief from the court." This rule was intended to address situations where the filing user is unable to access the court's web site or the user's system itself has malfunctioned. In re Mezvinsky, No. 00 Civ. 11767, 2001 WL 1403525, at *4 (Bankr. E.D.Pa. Oct. 5, 2001). In light of this rule, a court "is not required to excuse the filing deadline but rather has the discretion to grant or deny relief in light of the circumstances." Id., 2001 WL 1403525, at *4.
The allegations here reveal that it would be unduly harsh to penalize Phoenix Global for the electronic communications that apparently broke down while processing the motion and its accompanying documents. To be considered timely, Phoenix Global should have filed its motion to remand by July 26, 2004. Apparently, a technical snafu prevented the entire motion from being properly processed although the individual files initially appeared to have been accepted. As Gulino himself admits, he had never handled a case involving ECF and was therefore "wholly ignorant of the [ECF] process or procedures." (Reply Affirmation of John P. Gulino ¶ 3.) Indeed, he felt assured that the motion had been accepted, and but for the entry of an unacceptable hearing date, that motion would have been accepted by ECF on July 26, 2004.
While plaintiff's ignorance of computers is excusable, a party pleading ignorance of law — such as unfamiliarity with the thirty-day rule in motions to remand — would not be excusable. See Soto v. Barnitt, No. 00 Civ. 3453, 2000 WL 1206603, at *2 (S.D.N.Y. 2000).
The Court further observes that had Gulino filed the motion in person at the Clerk's Office, the Clerk would have been required to accept the motion on the date of its submission regardless of that hearing date error. See Fed.R.Civ.P. 5(e) ("[t]he clerk shall not refuse to accept for filing any paper presented for that purpose solely because it is not presented in paper form as required by these rules or any local rules or practices"); see also Blanco v. Snyder's of Hanover, No. 03 Civ. 385, 2003 WL 21939707, at *3 (S.D.N.Y. Aug, 12, 2003) (excusing late filing of " formal" motion because plaintiff had expressed desire to remand before the time limit expired through other submissions.) Although it is unclear whether a "technical failure," as contemplated by Rule 11, prevented the timely submission of this motion, the Court resolves all doubts in favor of Phoenix Global, the party seeking remand Wilds, 262 F.Supp. 2d at 176-77. Accordingly, Phoenix Global's motion to remand is deemed filed on July 26, 2004, and is therefore timely for the purposes of Section 1446(a).
Even assuming, however, that Phoenix Global's motion was filed a day late, the Court has the power to equitably toll the thirty-day deadline imposed by Section 1446(a). To be sure, district courts do not have "carte blanche authority" in "revis[ing] the federal statutes governing removal by remanding cases on grounds that seem justifiable to them but which are not recognized by the controlling statute." Thermtron Products v. Hermansdorfer, 423 U.S. 336, 351 (1976) (emphasis added). This limitation, however, is aimed at preventing district courts from remanding cases for reasons not articulated in Sections 1441, et seq., by authorizing appellate review over those remand orders, which is inapplicable here since Phoenix Global identified two statutorily-recognized procedural defects in defendants' removal. Id. at 351 (district court's order remanding case because of overcrowded docket subject to appellate review); Pierpoint v. Barnes, 94 F.3d 813, 816 (2d Cir. 1996) (the "reviewability of the remand order depends on the district court's basis for granting it"). Contrary to what defendants suggest, these cases speak to the authority of the Second Circuit in exercising appellate review over remand orders, rather than to the authority of this Court in excusing or tolling the deadline to file motions to remand
Indeed, several courts have excused late filings where the party either misread the electronic docket or relied on a mistake contained in the electronic docket. Hollins v. Dep't of Corr., 191 F.3d 1324, 1328-29 (11th Cir. 1999) (excusing untimely filing of appeal where party relied on docket error in electronic case filing system); Lush v. Terri and Ruth F/V, 309 F.Supp. 2d 131, 133 (D. Me. 2004) (excusable neglect where counsel misread entries on electronic docket). Other courts have held that equitable tolling is possible where defendants delay giving formal notice of removal to plaintiffs, such that plaintiffs have too little time in preparing a motion to remand See Byfield v. Niaz, No. 00 Civ. 6572, 2001 WL 25705, at *2 (S.D.N.Y. Jan. 10, 2001) (tolling where defendant delayed giving notice of removal); Doyle v. Staples, No. 99 Civ. 6062, 2000 WL 195685, at *2 (E.D.N.Y. Feb. 18, 2000). Given that Phoenix Global's failure to file its formal motion on July 26, 2004 was due to an understandable error, the unusual facts of this case present a situation where the Court may equitably toll the deadline imposed by Section 1446(a). Accordingly, the Court deems it proper to accept Phoenix Global's motion to remand as timely filed. D. Phoenix Global's Motion to Remand Based on the Forum-selection Clause
For the same reasons, the Court also rejects defendants' assertion that Phoenix Global waived the forum-selection clause contained in an assignment agreement between all parties by filing an untimely motion to remand As defendants point out, Phoenix Global's challenge to removal based on the forum-selection clause is not a challenge to the Court's subject matter jurisdiction and therefore may be waived. See Karl Koch Erecting Co., Inc. v. New York Convention Ctr. Dev. Corp., 838 F.2d 656, 658 (2d Cir. 1988) ("[a] forum-selection clause, although it can have jurisdictional consequences, does not oust a district court of subject-matter jurisdiction"). Nevertheless, the Court has excused and/or tolled the thirty-day rule in light of the unique circumstances presented by Gulino's technical difficulties in filing the motion to remand Accordingly, Phoenix Global has not waived its motion to remand based on the forum-selection clause.
Phoenix Global further argues that the forum-selection clause contained in an assignment agreement signed by all parties justifies remanding this action to state court. In attacking the clause primarily on the basis of waiver, defendants have failed to contest its underlying substance or validity.
Generally, a forum-selection clause will not bar litigation in a federal forum in the absence of further language indicating the parties' intent to establish exclusive jurisdiction in state court. John Boutari Son, Wines and Spirits, S.A. v. Attiki Importers and Distributors Incorp., 22 F.3d 51, 52-53 (2d Cir. 1994). Here, the forum-selection clause provides that:
This agreement, and its interpretation, shall be governed exclusively by its terms and by the laws of the State of New York (other than its conflict of law rules.) In the event of litigation or any other legal proceeding arising from or in connection with this agreement the non-prevailing party shall be responsible for payment of all of its own legal fees as well as all of the reasonable attorneys' fees and expenses of the prevailing party. Any proceedings shall be initiated in the courts of the State of New York, New York County, and the undersigned parties consent to the jurisdiction of those courts and submit to the full and complete jurisdiction of those courts including but not limited to in personam jurisdiction and service of process. No party to this agreement shall raise as a defense that any party or parties to any litigation or other legal proceeding may not be or has not qualified to do business in the State of New York.
(Affirmation of John P. Gulino ¶ 7 (emphasis added).) The language, "[a]ny proceeding shall be initiated in the courts of the State of New York," clearly establishes exclusive jurisdiction in New York state courts. See Karl Koch Erecting Co., Inc. v. New York Convention Ctr. Dev. Corp., 838 F.2d 656, 659 (2d Cir. 1998) (clause stating "[n]o action or proceeding shall be commenced . . . except in the Supreme Court of the State of New York" established exclusive jurisdiction in state court); Mercury West A.G., Inc. v. R.J. Reynolds Tobacco Co., 03 Civ. 5262, 2004 WL 421793, at *2 (S.D.N.Y. March 5, 2004) (dismissing action in federal court based on clause stating "any action . . . shall be litigated only" in Superior Court); U.S. Fire Ins. Co. v. Jesco Const. Corp., 03 Civ. 2906, 2003 WL 21689654, at *3 (S.D.N.Y. July 16, 2003) (forum-selection clause stating that any action "shall be litigated" created exclusive jurisdiction in state court). Moreover, the Second Circuit has interpreted forum-selection clauses that preclude parties from "commenc[ing]" cases in federal courts as further precluding parties from removing those cases to federal courts. Karl Koch Erecting Co., Inc., 838 F.2d at 659. In so doing, the Second Circuit reasoned that such a forum-selection clause would bar the non-removing party from asserting counterclaims and therefore force that party to initiate those claims in state court. Id. at 659. In effect, "[t]hat kind of bifurcation of litigation seems plainly at odds with the obvious purpose of the forum-selection clause, as well as with the purpose of [Rule 13]." Id. at 659.
However, clauses only containing the words "consent" and "submit to the full and complete jurisdiction of those courts" are insufficient to establish exclusive jurisdiction. See John Boutari, 22 F.3d at 53 (rejecting contention that "exclusive jurisdiction is conferred by a contract term specifying which courts 'shall have jurisdiction' in the event of a dispute"); Autoridad de Energia Electrica de Puerto Rico v. Ericsson, et al., 201 F.3d 15, 18-19 (1st Cir. 2000) (language that parties "agree to submit" to jurisdiction failed to establish exclusive jurisdiction).
Accordingly, the forum-selection clause contained in the assignment agreement between plaintiff and defendants effectively bars litigating any claims arising from the underlying promissory agreement in any forum outside New York state courts. The forum-selection clause is an additional basis for remanding this action to the state courts of New York.
A forum-selection clause contained in an assignment agreement — rather than in the underlying promissory agreement — may nevertheless apply to all claims arising out of that underlying agreement. See Mendes Junior Intern. Co. v. Banco do Brasil, S.A., 15 F. Supp. 2d 332, 335-36 (S.D.N.Y. 1998) (forum-selection clause contained only in assignment agreement warranted dismissal of all claims arising out of underlying breach of contract).
A court could decline to enforce an otherwise valid forum-selection clause if defendants had demonstrated that enforcement of the clause would be "unreasonable." AGR Financial, L.L.C. v. Ready Staffing, Inc., 99 F. Supp. 2d 399, 401 (S.D.N.Y. 2000); Karl Koch Erecting Co., Inc., 838 F.2d at 659. Defendants have failed to argue that the forum-selection clause is unreasonable and as such, the clause must be enforced. Karl Koch Erecting Co., Inc., 838 F.2d at 659.
Dismissal of the action without prejudice pursuant to Fed R. Civ. 12(b)(6) is also an appropriate remedy based on the forum-selection clause. Evolution Online Systems, Inc. Koninkligke PTT Nederland N.V., 145 F.3d 505, 508 n. 6 (2d Cir. 1998) (dismissal based on forum-selection clause is properly made pursuant to Rule 12(b)(6)) (citations omitted).
II. Phoenix Global's Request for Attorneys' Fees and Costs
Phoenix Global requests $2,100 in attorneys' fees incurred in connection with its motion to remand this action to state court. Section 1447(c) provides that "[a]n order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal." 28 U.S.C. 1447(c). However, the granting of costs and fees against the removing defendants is "within the discretion of the court." Caribbean Fertilizers Group, Ltd. v. Fersan Fertilizantes Santo Domingo, No. 02 Civ. 9919, 2003 WL 21961124, at *4 (S.D.N.Y. Aug. 18, 2003) (citing Morgan Guar. Trust Co. v. Republic of Palau, 971 F.2d 917, 924 (2d Cir. 1994)). The Court exercises its discretion to decline to award attorneys' fees or costs to Phoenix Global.
III. Conclusion
The Court grants Phoenix Global's motion to remand [6] this action to state court, but denies its request for attorneys' fees and related costs.
SO ORDERED.