390 F. Supp. 475, *; 1975 U.S. Dist. LEXIS 13794, **

MILTON R. BARRIE CO., INC., Plaintiff, v. MORTON LEVINE and PETER MORRONI, Defendants

No. 75 Civ. 64

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

390 F. Supp. 475; 1975 U.S. Dist. LEXIS 13794

February 18, 1975

CASE SUMMARY

PROCEDURAL POSTURE: Plaintiff purchaser moved pursuant to 28 U.S.C.S. § 1447 to remand the case to the state court from which it had been removed by defendant sellers. The purchaser had filed an action to recover damages for breach of contract and fraud and had amended the complaint to allege a violation of § 12(2) of the Securities Act of 1933, 11 U.S.C.S. § 771(2).

OVERVIEW: The purchaser alleged that it was fraudulently induced to purchase a company from the sellers, that the sellers breached certain warranties, and that the sellers' material misrepresentations constituted a violation of § 12(2) of the Securities Act of 1933. The sellers removed the action based on diversity jurisdiction, and the purchaser moved to remand the case. Granting the motion, the court noted that 28 U.S.C.S. § 1441(a) provided that any civil action brought in a state court was removable if such action could have been brought in the federal courts, unless otherwise expressly provided by Act of Congress. Section 22(a) of the Securities Act of 1933 prohibited removal of any case arising under the Securities Act, which had been brought in a state court of competent jurisdiction. Further, the purchaser's Securities Act claim, if sued on alone, would be non-removable. Moreover, all three causes of action derived from a single transaction. Finally, the sellers failed to satisfy the "separate and independent" test for removability and failed to show that the Securities Act claim was so baseless as to constitute a fraud on the federal court's jurisdiction.

OUTCOME: The motion for remand was granted.

CORE TERMS: Securities Act, removal, common law, causes of action, removability, summons, Act of Congress, fraudulently induced, cause of action, misrepresentations, non-removable, demanded, baseless

LexisNexis(R) Headnotes Hide Headnotes

Civil Procedure > Removal > Removal Proceedings

HN1 Removability is determined by the state of plaintiff's pleadings at the time of the filing of the removal petition. More Like This Headnote

Civil Procedure > Removal > Basis for Removal

Securities Law > Bases for Liability > Misleading Statements

HN2 28 U.S.C.S. § 1441(a) provides that any civil action brought in a state court is removable to the federal courts if such action could have originally been brought in the federal courts. This blanket statement is, however, qualified by the provision "except as otherwise expressly provided by Act of Congress." 28 U.S.C.S. § 1441(a). Section 22(a) of the Securities Act of 1933 is just such an "Act of Congress." It expressly forbids removal of any case "arising under" the Securities Act which has been brought in a state court of competent jurisdiction. More Like This Headnote | Shepardize: Restrict By Headnote

Civil Procedure > Removal > Basis for Removal

Evidence > Procedural Considerations > Burdens of Proof

HN3 The burden to show removability is on defendants. More Like This Headnote

COUNSEL: [**1]

Appearances: Rogers & Wells, Attorneys for Plaintiff, New York, New York, By: William S. Greenawalt, Esq., Stuart A. Jackson, Esq. Donald F. Luke, Esq. of Counsel.

Golenbock and Barell, Attorneys for Defendant, Levine, New York, New York, By: Arthur C. Silverman, Esq. Stephen M. Rathkopf, Esq. of Counsel.

JUDGES: Knapp, D.J.

OPINIONBY: KNAPP

OPINION: [*476] MEMORANDUM AND ORDER

KNAPP, D.J.

Plaintiff has moved pursuant to 28 U.S.C. § 1447 to remand this case to the New York Supreme Court, New York County whence it was removed by defendants. The action was originally commenced in the state court on October 10, 1974 by service of a summons alone, which tersely stated that "the object of this action is recovery of damages arising out of (i) breach of contract and (ii) fraud . . ." The complaint -- served on December 12, 1974 -- conformed with the object notice in the summons, but set forth the two causes of action in much greater detail. The first cause alleged that as a result of certain false and fraudulent statements made by defendant during the course of negotiations between the parties, plaintiff was fraudulently induced to purchase Amberlite Plastics Corp. from defendants pursuant [**2] to a written agreement. The second cause alleged that certain warranties contained in this agreement were breached by defendant. The precise relief demanded in the summons -- $1,777,673 -- was set forth in the ad damnum clause of the complaint.

On December 27, 1974 -- before any responsive pleading had been served -- plaintiff amended its complaint as of right. This amended complaint is virtually identical to the original, except that it adds a third cause of action alleging that the material misrepresentations made by defendants -- and alleged in the original complaint -- constituted a violation of Section 12(2) of the Securities Act of 1933, 15 U.S.C. § 77l(2). As a result of this alleged Securities Act violation, plaintiff is claimed to have suffered damages of $500,000, the statutory maximum.

A week or so after service of this amended complaint, defendants removed the action n1 to this court on the basis of diversity jurisdiction. Plaintiff now moves to remand the case on the ground that removal was improper, in that Section 22(a) of the Securities Act [*477] of 1933, 15 U.S.C. § 77v(a) precludes removal to the federal courts of any case "arising under [the Act]" and [**3] because no "separate and independent claim or cause of action" within the meaning of 28 U.S.C. § 1441(c) is joined with the non-removable Securities Act claim.

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n1 HN1Since removability is determined by the state of plaintiff's pleadings at the time of the filing of the removal petition, it is to the amended -- and not the original -- complaint we look. St. Paul Indemnity Co. v. Cab Co. (1938) 303 U.S. 283, 58 S. Ct. 586, 82 L. Ed. 845; Adams v. Western Steel Buildings, Inc. (D. Colo. 1969) 296 F. Supp. 759; Corcoran v. Pan American World Airways (D. Mass. 1961) 194 F. Supp. 840; Stuart v. Creel (S.D.N.Y. 1950) 90 F. Supp. 392.

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We begin our discussion of the issues raised by plaintiff's motion for remand with the general premise -- as stated in 28 U.S.C. § 1441(a) -- HN2that "any civil action brought in a State court" is removable to the federal courts if such action could have originally been brought in the federal courts. This blanket statement is, however, qualified by the provision "[except] as otherwise expressly [**4] provided by Act of Congress". 28 U.S.C. § 1441(a). Section 22(a) of the Securities Act of 1933 is just such an "Act of Congress". It expressly forbids removal of any case "arising under" the Securities Act which has been brought in a state court of competent jurisdiction. In light of this express statutory prohibition, there is no question but that plaintiff's Securities Act claim -- if sued on alone -- would be non-removable.

As observed by Judge Wyatt in Korber v. Lehman (S.D.N.Y. 1963) 221 F. Supp. 358, defendants must justify n2 removal, therefore, by showing either

(a) that the two common law causes of action are "separate and independent" claims, so that "the entire case may be removed" (28 U.S.C. § 1441(c));

or

(b) that the Securities Act claim is "so baseless, colorable, and false that the assertion thereof constituted a fraud on the jurisdiction of the federal court" Farmers' Bank & Trust Co. v. Atchison, T. & S.F. Ry. Co. (8th Cir. 1928) 25 F.2d 23, 31

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n2 HN3The burden to show removability is on defendants. Maybruck v. Haim (S.D.N.Y. 1968) 290 F.S. 721; Puritan Fashions v. Courtaulds Ltd. (S.D.N.Y. 1963) 221 F.S. 690.

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A careful comparison of the two common law claims and the Securities Act claim discloses that the three claims arise out of identical facts and seek redress for "but a single wrongful invasion of a single primary right". American Fire & Casualty Co. v. Finn (1951) 341 U.S. 6, 13, 95 L. Ed. 702, 71 S. Ct. 534. All three causes of action derive from a single transaction -- the sale of all the interests in the outstanding stock of Amberlite Plastics Corp. -- which plaintiff claims to have been fraudulently induced. These claims represent nothing more than alternative theories of recovery for the single wrong which plaintiff claims to have suffered as a result of defendants' alleged misrepresentations. The only "new" allegation contained in the Securities Act claim is that defendants used the mails and other instrumentalities of interstate commerce to effectuate the fraudulent scheme. This allegation is merely jurisdictional and is not sufficient by itself to render the claim "separate and independent" from the more mundane common law claims. n3 Pinto v. Maremont Corporation (S.D.N.Y. 1971) 326 F. Supp. 165, 169.

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n3 Defendants also point to the "gross" disparity in the respective amounts of damages demanded for each cause of action: almost $2 million on the common law claims and only $500,000 on the Securities Act claim. Again, this discrepancy is due to a statutory limitation on damages in Section 12(2) actions to $500,000.

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Having concluded that defendants have failed to satisfy the first -- "separate and independent" -- test for removability, we turn now to the second justification for removal, that the Securities Act claim is so "baseless", etc. as to constitute "a fraud on the jurisdiction of the federal court". Farmers' Bank & Trust Co., supra. Defendants contend that the "tacking-on" of such claim to the complaint was part of plaintiff's "unworthy scheme" to "oust" the federal court of jurisdiction. Be that as it may, plaintiff, within the time allowed [*478] by law, amended its complaint as of right to include this Securities Act claim. This court is not prepared to say that the count is "so farfetched that its inclusion in the complaint is a fraud on the jurisdiction of [the] Court". Korber v. Lehman, supra, 221 F. Supp. at p. 360. Plaintiff's motive in amending its complaint is immaterial to the issue at bar. Moreover, the merits of the claim are not before us; they "will have to be determined by the state court in which the action was originally brought". Id.

The motion for remand is, accordingly, granted.

SO ORDERED.