United States District Court, E.D. Arkansas, Western Division
ROBERT A. HALL REVOCABLE TRUST; ROBERT A. HALL, JR., individually and as Trustee; DOLORES A. HALL REVOCABLE TRUST; and SUSANNE CAMPBELL HALL PLAINTIFFS
U.S. SPECIALTY INSURANCE COMPANY; and CMM MECHANICAL, LLC DEFENDANTS
OPINION AND ORDER
LEON HOLMES UNITED STATES DISTRICT JUDGE
action arises out of an indemnity agreement. Robert A. Hall
Revocable Trust; Robert A. Hall, Jr., individually and as
Trustee; Dolores A. Hall Revocable Trust; and Susan Campbell
Hall commenced this declaratory judgment action against U.S.
Specialty Insurance Company and CMM Mechanical, LLC, on
October 25, 2017, in the Circuit Court of Pulaski County,
Arkansas, seeking a declaration of the rights of the parties
bound by the agreement. U.S. Specialty removed the action to
this Court on December 17, 2017, based on 28 U.S.C. §
1332(a). The plaintiffs have filed a motion to remand for
lack of federal jurisdiction. For the following reasons, the
motion is granted.
1441(a) provides that “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” to federal court. See Arnold Crossroads,
LLC v. Gander Mtn. Co., 751 F.3d 935, 938 (8th Cir.
2014). Once an action is removed, a plaintiff may move to
remand the action to state court and the action must be
remanded if the district court lacks jurisdiction. 28 U.S.C.
§ 1447(c). The burden is on the defendant to establish
the district court's jurisdiction by a preponderance of
the evidence. In re Prempro Produ. Liab. Litig., 591
F.3d 613, 620 (8th Cir. 2010). “Federal courts are to
resolve all doubts about federal jurisdiction in favor of
remand and are strictly to construe legislation permitting
removal.” Dahl v. R.J. Reynolds Tobacco Co.,
478 F.3d 965, 968 (8th Cir. 2007) (internal quotation
omitted). Federal district courts have original jurisdiction
of all actions where the amount in controversy exceeds $75,
000 and the controversy is between citizens of different
states. 28 U.S.C. § 1332(a)(1). “Such
‘[d]iversity jurisdiction requires complete diversity,
that is where no defendant holds citizenship in the same
state where any plaintiff holds citizenship.'”
Eckerberg v. Inter-State Studio & Publ'g Co.,
860 F.3d 1079, 1086 (8th Cir. 2017) (quoting Hubbard v.
Federated Mut. Ins. Co., 799 F.3d 1224, 1227 (8th Cir.
2015) (internal quotation omitted)).
Specialty, a citizen of California and Texas, admits that the
plaintiffs and CMM are citizens of Arkansas but maintains
that CMM has been fraudulently joined to defeat diversity
jurisdiction. Document #1 at 3, ¶ 6.
“Fraudulent joinder occurs when a plaintiff files a
frivolous or illegitimate claim against a non-diverse
defendant solely to prevent removal.” In re
Prempro, 591 F.3d at 620 (citing Filla v. Norfolk S.
Ry. Co., 336 F.3d 806, 809 (8th Cir. 2003)). To
establish that CMM was fraudulently joined and that diversity
jurisdiction exists, U.S. Specialty must show by a
preponderance of the evidence that the plaintiffs'
inclusion of CMM as a defendant in this action has “no
reasonable basis in fact and law.” See Filla,
336 F.3d at 810.
October 19, 2000, Robert A. Hall, Sr. formed two trusts-the
Robert A. Hall Revocable Trust and the Dolores A. Hall
Revocable Trust. Document #2 at 1, ¶ 1. Hall, Sr. named
himself the trustee of both trusts and remained trustee until
his death in on April 16, 2017, when his son, Robert A. Hall,
Jr., succeeded him as trustee. Id. at 5-6
¶¶ 16, 20, 24. Hall, Jr. and the wife of Hall, Sr.
at the time of his death, Susanne Campbell, are beneficiaries
of the Robert A. Hall Revocable Trust and Hall, Jr. is the
sole beneficiary of the Dolores A. Hall Revocable Trust.
Id. at 5-6, ¶ 21, 29.
indemnity agreement at issue in this case was executed on
April 4, 2014. Document #6-1 at 1. Hall, Sr., trustee at the
time, amended the trusts on that same day. Id. The
amendments added a subparagraph authorizing the trustee to
provide indemnification to third parties on behalf of the
trusts with respect to guaranty and bonding for performance
obligations by CMM. Document#6-1 at 17-20. The indemnity
agreement lists CMM as the principal and the trusts as the
indemnitors and obligates the principal and the indemnitors
to jointly and severally indemnify the surety, U.S.
Specialty, from all demands, liabilities, losses, costs,
damages, etc. arising by reason of the execution or
procurement by the surety of a bond. Document #6-1 at 1, 4.
U.S. Specialty has alleged in a separate action that the
indemnitors have failed to fulfill this obligation and the
plaintiffs allege in this action that U.S. Specialty has
demanded that the trusts post collateral in the amount of
$450, 000 to secure its surety bond. Document #9 at 2, ¶
3; Document #2 at 9, ¶ 40.
plaintiffs seek a declaratory judgment pursuant to Ark. Code
Ann. § 16-111-101, which provides that courts shall have
the power to declare rights, status, and other legal
relations whether or not further relief can be claimed, that
(1) the amendments to the trusts executed by Hall, Sr. on
April 4 are invalid and (2) that because the amendments are
invalid and Hall, Sr. did not have the authority to provide
indemnification on behalf of the trusts, the indemnity
agreement may not be enforced against the trusts. Document #2
at 11-17, ¶¶ 43-72. Ark. Code Ann. §
16-111-111(a) provides that “[w]hen declaratory relief
is sought, all persons shall be made parties who have or
claim any interest which would be affected by the
declaration, and no declaration shall prejudice the rights of
persons not parties to the proceeding.” The Secretary
of State of Arkansas revoked by proclamation CMM's
corporate charter on January 1, 2018. Document #10-1. U.S.
Specialty argues that CMM has legally ceased to exist, has no
ability to protect any interest allegedly affected by the
declaratory judgment action, and therefore the
plaintiffs' inclusion of CMM as a defendant has no
reasonable basis in fact and law. In other words, CMM has
been fraudulently joined. It relies on HRR Ark., Inc. v.
River City Contractors, Inc., in which the Arkansas
Supreme Court held that a company whose corporate charter was
revoked and therefore ceased to exist legally could not
initiate a lawsuit. 350 Ark. 420, 427-28, 87 S.W.3d 232, 237
(2002). Here, CMM is not seeking to initiate a lawsuit; it is
the defendant in a lawsuit. Furthermore, U.S. Specialty
ignores one caveat: The Arkansas Supreme Court noted there
was nothing in the record to indicate that the company had
ever attempted to reinstate its corporate charter. 350 Ark.
at 427-28, 87 S.W.3d at 237. Ark. Code Ann. § 26-54-112
provides that any corporation whose charter has been revoked
by the Secretary of State may be reinstated to all its
rights, powers, and property if it pays delinquent taxes and
penalties within seven years from the revocation.
Reinstatement is retroactive to the time of the revocation.
Ark. Code Ann. § 26-54-112(a)(ii). Therefore, CMM could
upon reinstatement initiate a lawsuit or otherwise protect
its rights as a principal jointly and severally liable for
the indemnification of U.S. Specialty under the indemnity
agreement. It has an interest which would be affected by the
sought after declaration; it was not fraudulently joined.
Because CMM, an Arkansas corporation, was not fraudulently
joined, diversity jurisdiction is lacking. This action must
be remanded to state court.
foregoing reasons, the motion to remand is GRANTED. Document
#6. This action is remanded to the Circuit Court of Pulaski
 U.S. Speciality submits two other
arguments against remand but neither has any bearing on the