Summary
construing state law to conclude that service of process was sufficient to invoke thirty-day removal deadline
Summary of this case from IN RE PHARMACEUTICAL INDUSTRY AVERAGE WHOLESALE PRICE LITOpinion
Civil Action No: SA-03-CA-184-XR
September 23, 2003
OPINION AND ORDER
Before the Court is Plaintiffs' Motion to Remand. On January 28, 2003, Plaintiffs T.E. Construction Specialties, Inc., Mathew Tillotson, and Jill Tillotson commenced suit in Texas state court against Defendants alleging causes of action for DTPA and Insurance Code violations, fraud, civil conspiracy, and negligent misrepresentation arising from the Defendants' sale of certain employee benefit plans to the Plaintiffs. On March 6, 2003, Defendant Jefferson-Pilot Life Insurance Company filed a Notice of Removal pursuant to 28 U.S.C. § 1441(b), alleging that Plaintiff s claims are related to a benefit plan within the scope of the Employee Retirement Income Security Act (ERISA). Plaintiffs filed a motion to remand, claiming that the removal was procedurally defective because not all served defendants timely consented to removal and, alternatively, that their claims are not preempted by ERISA.
After careful consideration, the Court concludes that Defendant Daniel Frishberg Financial Services was properly served but failed to timely join in the removal, rendering the removal procedurally defective. Accordingly, the Court grants Plaintiffs' motion to remand.
Facts and Procedural Background
The Court will set forth the facts as recounted in Plaintiffs' complaint. Plaintiff Mathew Tillotson owns T.E. Construction Specialties, Inc. Mathew Tillotson, a local construction contractor, met with Defendant Daniel Frishberg, an insurance agent and financial advisor who owns Daniel Frishberg Financial Services, Inc. Frishberg allegedly convinced Tillotson to participate in an employee welfare benefit plan under Section 419 of the IRS Code for Tillotson's company, emphasizing it as a legitimate retirement plan. Frishberg allegedly told Tillotson that he could fund the retirement benefits in the plan with life insurance policies and the premiums would be tax deductible. The Summary Plan Description listed Defendant Vista Trend Insurance Services, Inc. as the plan sponsor and Vista Benefits as the plan consultant. The trustee for the plan is Arrowhead Trust, and Jefferson-Pilot Life Insurance Company sold the life insurance policies. These defendants put together the plan and sold it via the Frishberg defendants.
Tillotson purchased the plan and signed the "Agreement to Participate in the Vista Benefit Plan and Trust" on December 9, 1997. Tillotson contends that he later learned that the plan is not a qualified employee welfare benefit plan under section 419, and that all Defendants knew of the problems with the plan but failed to warn Tillotson. Tillotson paid into the plan for four years, investing over $58,000. Tillotson has ceased funding the plan, and the insurance policies are on the verge of lapsing.
Tillotson, Jill Tillotson, and T.E. Construction Specialties, Inc. filed this suit in state court in January 2003 alleging the following counts: (1) DTP A/Insurance Code: Defendants' actions, advertising materials, and policy misrepresentations constitute knowing violations of sections 17.45(5), 17.46(b)(5), (b)(7), and (b)(24) of the Texas Deceptive Trade Practices-Consumer Protection Act (DTPA) and the Texas Insurance Code, Article 21.21. (2) Common Law Fraud: Plaintiffs allege that Defendants knowingly made false representations and knowingly concealed material information from Plaintiffs with the intent of inducing Plaintiffs to purchase the policies. (3) Civil Conspiracy to Defraud: Plaintiffs allege that Defendants conspired to defraud them. (4) Negligent Misrepresentation: Plaintiffs contend that Defendants negligently misrepresented Plaintiffs' rights, benefits, and detriments concerning the plans.
Defendant Jefferson-Pilot Life Insurance Company (Jefferson-Pilot) removed the case to this Court on March 6, 2003, alleging that the suit was related to a benefit plan within the scope of ERISA and it therefore is an action arising under federal law. The removal petition states that Plaintiffs served Jefferson-Pilot on February 6, 2003, Defendants Daniel Frishberg and Frishberg Financial Services on February 4, 2003, and Defendant Arrowhead Trust on February 7, 2003. The removal petition further states that "[a]ll defendants who have appeared in the State Court Action consent to the removal of this action" and includes Defendant Arrowhead Trust's notice of consent to removal. At the time of removal, only Jefferson-Pilot and Arrowhead Trust had appeared.
Plaintiffs timely filed this Motion to Remand the case to state court on April 4, 2003. Plaintiffs raise two grounds for removal. First, they contend that the removal was procedurally defective because Defendants Daniel Frishberg and Daniel Frishberg Financial Services were served on February 4, 2003 but did not timely consent to removal. Defendants Frishberg and Frishberg Financial Services filed their consent to removal in this Court on April 30, 2003. Second, Plaintiffs contend that the causes of action are not preempted by ERISA and therefore no federal jurisdiction exists. Because the Court finds that the removal was procedurally defective, the Court does not reach the ERISA preemption issue.
Analysis
Defendants removed this case under 28 U.S.C. § 1441(b), which provides that "[a]ny civil action of which the district courts have original jurisdiction founded on a claim or right arising under the Constitution, treaties or laws of the United States shall be removable without regard to the citizenship or residence of the parties." Section 1441(a) provides that, "[e]xcept as otherwise expressly provided . . . any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending." The Fifth Circuit has held that all served defendants must join in the petition for removal within thirty days from the date the first defendant is served. Doe v. Kerwood, 969 F.2d 165, 167 (5th Cir. 1992); Getty Oil Corp. v. Ins. Co. of N. Am., 841 F.2d 1254, 1262-63 (5th Cir. 1988). If consent of all defendants is not obtained, the removal is procedurally defective. Doe, 96 F.2d. at 169. Defendants who are not served however, do not need to join in the removal.
Plaintiffs contend that the removal in this case was defective because although Daniel Frishberg and Frishberg Financial were served on February 4, they did not demonstrate their consent to removal within thirty days. Defendants contend that removal was proper because the service of process on Frishberg and Frishberg Financial was defective, and thus their consent was not required. In their answers in this Court, Frishberg and Frishberg Financial admit that they received service of process, but deny that service was proper under Texas law because the return of service indicates only that it was served on the "registered agent." Thus, the Court must determine whether only formal, proper service of process can trigger the removal consent deadline, and if so, whether service on the Frishberg defendants was proper.
Until recently, courts applied a relaxed standard for determining when a defendant received notice such that the time period for removal was triggered. The Seventh and Fifth Circuits had held that receipt of a "courtesy copy" of a pleading was sufficient to trigger the removal deadline. See Roe v. O'Donohue, 38 F.3d 298 (7th Cir. 1994), Reece v. Wal-Mart Stores, Inc., 98 F.3d 839 (5th Cir. 1996); see also WRIGHT, MILLER COOPER, FEDERAL PRACTICE AND PROCEDURE § 3732 at 290 (1998) (noting that "technicalities of state law as to the completion of service of process . . . are ignored"). In Roe, the Seventh Circuit had held that the removal deadline could be triggered by "delivery of the complaint by a process server that is not effective as `service of process' because it does not comply with state law service of process requirements." Roe, 38 F.3d at 302.
However, in 1999, the Supreme Court decided Murphy Brothers, Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344 (1999), overruling Roe and Reece and emphasizing the importance of service of process as a fundamental requirement for any procedural imposition on a named defendant. In its opinion, the Court focused on the fact that service of process was necessary to subject a defendant to the court's authority. In light of Murphy Brothers, courts and commentators generally agree that "state law must now be followed for formal service of process to protect defendants' interests," and that only formal, proper service on the defendant will suffice. See, e.g., WRIGHT, MILLER COOPER, FEDERAL PRACTICE PROCEDURE § 3732 ("[G]iven the Supreme Court's rejection of the Fifth and Seventh Circuits' rules regarding the triggering mechanism for the removal period, state law must now be followed for formal service of process to protect defendants' interests.")-The Court agrees and concludes that proper service of process under state law is required to trigger a defendant's removal obligations. If, as in Murphy Brothers, an unserved defendant cannot be required to remove, neither can he be required to join in or consent to removal by another defendant. Thus, the controlling inquiry must be whether either of the Frishberg defendants was properly served such that a consent obligation was triggered.
Plaintiffs' Original Petition states that "Daniel Frishberg Financial Services, Inc. (as well as Daniel Frishberg) may be served with process via its registered agent, Mr. Daniel Frishberg, 8023 Vantage Drive, Suite 960, San Antonio, Texas." Frishberg Financial's citation was directed to "Daniel Frishberg Financial Services Inc. by serving its registered agent, Daniel Frishberg." The return of citation indicated that it was served at 8023 Vantage Dr., Suite 960 by delivering to "registered agent." The Frishberg defendants admit in their answer that "Daniel Frishberg Financial Services, Inc. may be served with process via Daniel Frishberg at 8023 Vantage Dr., Suite 960." And, in fact, they admit that they received the citation. Nevertheless, they claim that service was defective because the officer's return must show that the person who was served is in fact the person named as registered agent, and thus the return is defective because it does not name the person who was served.
As noted, Frishberg Financial did in fact receive service of process on February 4, as indicated on the return of citation and in the notice of removal. However, under Texas law, actual receipt of process is insufficient to establish jurisdiction over a defendant in the face of defective service. As the Texas Supreme Court has said, "Actual notice to a defendant, without proper service, is not sufficient to convey upon the court jurisdiction to render default judgment against him. Rather, jurisdiction is dependent upon citation issued and served in a manner provided for by law.
Absent service, waiver, or citation, mere knowledge of a pending suit does not place any duty on a defendant to act." Wilson v. Dunn, 800 S.W.2d 833, 836-37 (Tex. 1990) (citations omitted). In fact, in that same case, the Court rejected the plaintiffs argument that the defendant was "foreclosed from complaining that service was defective because he [had] admitted receipt of the suit papers." Id. at 837.
Defendants contend that, to be proper, the return of citation must actually name the person served even if it is apparent from the citation and return that the registered agent was served. However, the cases cited by Defendants do not stand for that proposition. Defendants rely on Uvalde Country Club v. Martin Linen Supply Co., 690 S.W.2d 884, 885 (Tex. 1985), in which the Texas Supreme Court found a return of citation improper because it indicated that process was served on "Henry Bunting" when the registered agent was "Henry Bunting, Jr." They also cite Verlander Enters., Inc. v. Graham, 932 S.W.2d 259, 261 (Tex.App.-El Paso 1996, no writ), which held that a return showing service on "Jim Gore" did not show service on the corporate defendant because it did not establish his status as registered agent. These cases are distinguishable. In Uvalde, the return showed that citation was possibly served on the wrong person, whereas here there is absolutely no indication that service was not had upon the correct person. In Verlander, service was improper because it failed to indicate that the person served was in fact the defendant's agent for service, nor did it establish that the actual defendant, Verlander, was served. In the court's words, the "return shows only that a person named `Jim Gore' was served with a petition in which he is not sued." Verlander, 932 S.W.2d at 261. Thus, these cases are not controlling.
Rule 107 establishes the requirements for a return of citation. It requires that the return "shall be endorsed on or attached to" the citation, that the return "shall state when the citation was served and the manner of service," and that it be "signed by the officer officially or by the authorized person." TEX. R. Civ. P. 107. The rule does not require that the person receiving service be named. The Court finds instructive the Texas Supreme Court's decision in Pleasant Homes, Inc. v. Allied Bank of Dallas, 776 S.W.2d 153 (Tex. 1989) (per curiam). In that case, the Court held that "[i]t is not necessary for either the petition or citation to designate the officer to be served by name if the face of the record affirmatively shows the person's authority." Although the facts of that case are distinguishable, the case instructs that service is proper if it is apparent from the record that the correct person was served by appropriate means.
It is apparent from the face of the record before the Court that service was proper. Taking the Plaintiffs' complaint, the citation itself, which indicates that service may be had on Frishberg Financial by serving its registered agent, Daniel Frishberg, and the return, which indicates that service was made at the correct address by serving "registered agent," the Court concludes that the record establishes proper service on Daniel Frishberg Financial Services, Inc. Nothing in the record indicates that someone other than Frishberg Financial's registered agent Daniel Frishberg was served, and the return is prima facie proof of proper service. Thus, the Court concludes that service on Frishberg Financial was proper and the thirty-day removal deadline was triggered on February 4, 2003.
Defendants alternatively contend that, even if Frishberg Financial was properly served, it did not have to join the removal because the claims asserted against it are "separate and independent" from the claims asserted against the removing defendants. In the removal context, the Fifth Circuit has held that "where there is a single wrong to [the] plaintiff, for which relief is sought, arising from an interlocked series of transactions, there is no separate and independent cause of action." Smith v. Amedisys, Inc., 298 F.3d 434, 439 (5th Cir. 2002). Thus, a case involving the violation of a single primary right or wherein a party seeks redress for one legal wrong cannot contain separate and independent claims, despite multiple theories of liability against multiple defendants. Tex. v. Walker, 142 F.3d 813, 817 (5th Cir. 1998). Applying these standards, the Court concludes that the claims against Frishberg Financial are not separate and independent such that Frishberg Financial was not required to join the removal. Plaintiffs have alleged that all the defendants conspired together to sell potentially defective employee welfare benefit plans, and the proof required for the claims will involve substantially the same facts.
Conclusion
Thus, the Court finds that Frishberg Financial Services, Inc. was properly served on February 4, 2003 but did not file its consent to removal until April 30, 2003, over 80 days after receiving service and over 50 days after Jefferson-Pilot's notice of removal. The Court further finds that the claims against Frishberg Financial Services are not separate and independent and that Frishberg Financial Services was required to join in the removal. Accordingly, the removal was procedurally defective. The Court further finds that Plaintiffs timely objected to the removal by filing a motion to remand raising the procedural defects within thirty days of the removal. The Court further finds that Defendant Jefferson-Pilot was aware that Frishberg Financial had been served on February 4, since it recited that fact in its notice of removal, and that no exceptional circumstances exist to permit removal. Accordingly, the Court concludes that, under the rule expressed in Getty Oil, this case must be remanded.
The Court does not need to address whether service on Daniel Frishberg individually was also proper.
Accordingly, the Court GRANTS Defendants' motion for leave to file surreply (docket no. 22), and further GRANTS Plaintiffs' Motion to Remand (docket no. 5). An appropriate order follows.
ORDER
In accordance with the Court's opinion and factfindings, it is hereby ORDERED that this case is REMANDED to the 288* Judicial District Court, Bexar County, Texas. Each party shall bear its own costs and attorney's fees.