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RJO Investments, Inc v. Crown Financial, LCC

United States District Court, W.D. Arkansas, Fayetteville Division

May 2, 2018

RJO INVESTMENTS, INC.; RANDY ODOM, INC. PLAINTIFFS
v.
CROWN FINANCIAL, LLC DEFENDANT

          MEMORANDUM OPINION AND ORDER

          TIMOTHY L. BROOKS UNITED STATES DISTRICT JUDGE

         Currently before the Court is the Motion to Remand (Doc. 13) submitted by Plaintiffs, RJO Investments, Inc. and Randy Odom, Inc., on February 15, 2018. In their Motion to Remand, Plaintiffs argue that the Court lacks subject matter jurisdiction because Defendant, Crown Financial LLC, untimely removed the case under 28 U.S.C. § 1446(b), (c)(1).

         The Court has reviewed the parties' briefs and entertained oral arguments on the motion during a hearing on March 28, 2018. As explained below, the Motion to Remand is GRANTED.

         I. BACKGROUND

         Plaintiffs RJO Investments, Inc. and Randy Odom, Inc., both Arkansas corporations, allegedly hold certain promissory notes executed on December 2, 2011, by Jeremy Carroll, individually and as Managing Member of Beckham Creek Properties, LLC. The promissory notes are secured by certain real property in Newton County, Arkansas that is owned by Beckham Creek Properties. Plaintiffs at some point felt that Carroll and/or Beckham Creek Properties did not satisfy the obligations imposed on them by the promissory notes, so Plaintiffs filed the Original Complaint (Doc. 1-1) in the Circuit Court of Newton County, Arkansas on September 29, 2016. The Original Complaint named Carroll and Beckham Creek Properties, both Arkansas citizens and Crown Financial, LLC ("Crown Financial"), a Texas citizen, which the plaintiffs believed held a superior lien on the mortgaged property located in Newton County.

         Plaintiffs were ultimately unable to perfect service of process on both Carroll and Beckham Creek Properties. Thus, Carroll filed a motion to dismiss the claim against him for failure to perfect service, and that motion was granted without prejudice on September 11, 2017. See Doc. 16, p. 2. As for Beckham Creek Properties, Plaintiffs opted to voluntarily nonsuit their claims against it on November 7, 2017. Id. Plaintiffs thereafter filed a separate case on November 20, 2017, against both Carroll and Beckham Creek Properties in Newton County Circuit Court. (Doc. 14, p. 2). Therefore, as of the end of November of 2017, there were two cases pending in state court concerning Plaintiffs' interest in the subject property: one against Crown Financial and one against Carroll and Beckham Creek Properties.

         Sometime in late December of 2017, Plaintiffs learned through discovery that Carroll had conveyed his membership interest in Beckham Creek Properties to Crown Financial approximately four months prior to the execution of the promissory notes. See Doc. 14-2. Upon learning this information, Plaintiffs filed an Amended Complaint (Doc. 3) against Crown Financial on January 16, 2018, alleging that: (1) Carroll retained apparent authority to enter into the promissory notes on behalf of Beckham Creek Properties; (2) Plaintiffs' lien on the mortgaged property remained valid because they were entitled to rely upon Carroll's representations that he remained the company's Managing Member; (3) Crown Financial's lien on the mortgage property "merged" with its ownership of Beckham Creek Properties; and (4) this merger elevated Plaintiffs' mortgage to the primary lien status.

         On January 29, 2018, less than two weeks after Plaintiffs filed the Amended Complaint, Crown Financial filed its Notice of Removal in this Court. See Doc. 1. The basis for removal was complete diversity of citizenship between the parties to the Amended Complaint, Plaintiffs and Crown Financial, and an amount in controversy exceeding $75, 000. However, at the time the Original Complaint was filed, complete diversity did not exist because Carroll and Beckham Creek Properties-both Arkansas citizens-were named defendants. Complete diversity was created only after the two nondiverse defendants were dismissed from the Original Complaint and the Amended Complaint was filed.

         Plaintiffs believe removal under these circumstances was improper, and they filed a Motion to Remand on February 15, 2018. (Doc. 13). As grounds for remand, they argue that the Court lacks subject matter jurisdiction because Crown Financial's removal was untimely under 28 U.S.C. § 1446(b), (c)(1). Crown Financial responds that when Plaintiffs filed their Amended Complaint more than a year after the lawsuit began, they drastically changed the character of the allegations against Crown Financial, which effectively brought a new lawsuit against Crown Financial that the company sought to remove. (Doc. 16, p. 5). Alternatively, Crown Financial argues that the Plaintiffs acted in bad faith to prevent removal, and therefore, the one-year time limit to removal pursuant to diversity jurisdiction does apply. For these reasons, Crown Financial contends that removal within 30 days of service of the Amended Complaint was timely.

         II. LEGAL STANDARD

         "Defendants may remove civil actions to federal court only if the claims could have been originally filed in federal court." Cent. Iowa Power Coop. v. Midwest Indep. Transmission Sys. Operator, Inc., 561 F.3d 904, 912 (8th Cir. 2009). "The proponents of federal jurisdiction bear 'the burden to establish federal subject matter jurisdiction, ' and 'all doubts about federal jurisdiction must be resolved in favor of remand.'" Moore v. Kan. City Pub. Sen., 828 F.3d 687, 691 (8th Cir. 2016) (quoting Cent. Iowa Power Coop., 561 F.3d at 912).

         28 U.S.C. § 1446(b)(1) states that a notice of removal "shall be filed within 30 days after the receipt by the defendant... of a copy of the initial pleading setting forth the claim upon which such action or proceeding is based" If an action is not initially removable under § 1446(b)(1), "a notice of removal may be filed within thirty days after receipt by the defendant... of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable." 28 U.S.C § 1446(b)(3). However, "a case may not be removed under subsection (b)(3) on the basis of jurisdiction conferred by section 1332 more than 1 year after commencement of the action, unless the district court finds that the plaintiff has acted in bad faith in order to prevent a defendant from removing the action." 28 U.S.C. § 1446(c)(1).

         III. DISCUSSION

         In the case at bar, it is clear that the Original Complaint filed in state court was not initially removable, and the Notice of Removal was filed in this Court more than one year after the case commenced. In opposition to the Motion to Remand, Crown Financial avers that its removal motion is timely because it falls under two exceptions to the general rules of § 1446: (1) the judicially created "revival exception" to § 1446(b)(1); and (2) the bad-faith exception to § 1446(c)(1).

         A. ...


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