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Capital Credit Inc. v. Mainspring America, Inc.

United States District Court, W.D. Texas, Austin Division

January 9, 2020

CAPITAL CREDIT INCORPORATED,
v.
MAINSPRING AMERICA, INC. and AMAZON.COM SERVICES, INC.

          REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

          ANDREW W. AUSTIN UNITED STATES MAGISTRATE JUDGE.

         TO: THE HONORABLE LEE YEAKEL UNITED STATES DISTRICT JUDGE

         Before the Court are Plaintiffs' Opposed Motion to Remand to State Court (Dkt. No. 12); Defendant Amazon.com Services Inc.'s Response (Dkt. No. 13); and Plaintiff's Reply (Dkt. No. 16). The District Judge referred the above-motions to the undersigned for report and recommendation pursuant to 28 U.S.C. §636(b)(1)(B), Fed.R.Civ.P. 72, and Rule 1(d) of Appendix C of the Local Court Rules.

         I. GENERAL BACKGROUND

         Mainspring America, Inc. distributes cosmetics and skincare products, and offers its product lines directly to retailers such as Defendant Amazon.com Services, Inc., via bulk shipments. To facilitate and finance the increasing volume of orders from Amazon, Mainspring entered into factoring and guaranty agreements with Capital Credit Inc. To secure Mainspring's debts to CCI, Mainspring granted CCI a security interest in all of Mainspring's property (referred to as “the Collateral”). Under these agreements, Mainspring would invoice Amazon for the products shipped to Amazon, and then assign those invoices to CCI, which would advance the sums to Mainspring, give Amazon notice of the assignment of the invoice, and receive the payments from Amazon.

         In December 2017, Amazon stopped placing future orders with Mainspring. Because Mainspring was still committed to ship product to Amazon under previous orders, Mainspring continued to ship products to Amazon into 2018, which Amazon received and accepted, and for which Amazon continued to approve invoices for payment. In April 2018, however, Amazon froze all payments to Mainspring without notice, even though it had previously approved payment of nearly $850, 000 in invoices. CCI, which claims to have a lien on the Mainspring product in Amazon's possession under the Factoring Agreements, made a demand on Amazon for return of the Collateral. Amazon refused to return the Collateral to CCI, and CCI alleges that Amazon has refused to make the Collateral available to CCI, though it has continued to sell the Mainspring products-despite having made no payments to either Mainspring or CCI since December 2017.

         In December 2018, Mainspring and CCI filed for arbitration against Amazon, pursuant to an arbitration clause in the agreement between Mainspring and Amazon. Dkt. No. 1-1. While Mainspring and CCI filed a joint demand for arbitration, they were represented by separate counsel. CCI was subsequently dismissed from the arbitration due to a lack of contractual privity with Mainspring and Amazon. Dkt. No. 1-3. CCI thus filed a state lawsuit in Travis County, Texas against Mainspring and Amazon, asserting claims under the Factoring Agreement against Mainspring, and for return of the Collateral against Amazon.

         Defendant Amazon then removed the case to this court.[1] In the motion before the Court, CCI asks that the Court remand the case to state court. It makes two arguments: (1) removal was defective because Amazon failed to obtain the consent of Mainspring prior to removal; and (2) Amazon was not excused from obtaining Mainspring's consent, because Mainspring is improperly joined as a party. Amazon responds that Mainspring's consent to the removal was not required because Mainspring was not properly served before removal, and, regardless, Mainspring's interests are identical to those of CCI, and CCI sued Mainspring in an attempt to thwart removal.

         II. LEGAL STANDARD

         A defendant may remove an action from state court to federal court if the federal court possesses subject matter jurisdiction. 28 U.S.C. § 1441(a v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002). Federal courts, however, “must presume that a suit lies outside their limited jurisdiction.” Howery v. Allstate Ins. Co., 243 F.3d 912, 916 (5th Cir. 2001). The removing party bears the burden of showing that the removal was proper. Frank v. Bear Stearsns & Co., 128 F.3d 919, 921-22 (5th Cir. 1997).

         In this case no one questions the existence of subject matter jurisdiction (based on the parties' diverse citizenship). Rather, CCI seeks remand based on a procedural defect in the removal. Removal raises significant federal concerns, and thus, “the removal statute is strictly construed ‘and any doubt as to the propriety of removal should be resolved in favor of remand.'” Gutierrez v. Flores, 543 F.3d 248, 251 (5th Cir. 2008). This means that a district court must remand a case to state court if the defendant has not satisfied the statutory requirements for removal. Section 1446 of the removal statute sets forth the procedures for removal. In addition, § 1447(c) authorizes remand for procedural noncompliance with the removal statute, where the noncompliance is timely raised by the opposing party. 28 U.S.C. 1447(c) (“A motion to remand the case on the basis of any defect 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).”). Here, Amazon removed this action on August 9, 2019, and CCI filed the motion to remand on September 6, 2019. CCI has thus timely raised this issue.

         Section 1446(b) articulates several procedural requirements to make a proper removal, including that when a civil action is removed solely under section 1441, all defendants who have been properly joined and served must join in or consent to the removal of the action. To remove a state case, all defendants properly joined and served at the time of removal must consent to the removal. Getty Oil Corp. v. Ins. Co. of N. Am., 841 F.2d 1254, 1262 (5th Cir. 1988). The notice of removal here makes no mention of Mainspring consenting to the removal, nor was any independent notice of consent filed by Mainspring. There are circumstances, however, when all defendants need not join in the petition for removal within the thirty-day time period: (1) when the non-joining defendant has not been served with process at the time the removal petition is filed; (2) when the non-joining defendant is merely a nominal or formal party; or (3) when the removed claim is a separate and independent claim under 28 U.S.C. § 1441(c). Penson Fin. Serv., Inc. v. Golden Summit Investors Group, Ltd., 2012 WL 2680667, at *6 (N.D. Tex. July 5, 2012). If there is a procedural defect, it is independently sufficient to remand. Gutierrez v. La Joya Indep. Sch. Dist., 2012 WL 5464957, at *2 (S.D. Tex. Nov. 8, 2012).

         III. ANALYSIS

         As mentioned, CCI asserts that removal in this case was defective because Amazon failed to obtain Mainspring's consent to the removal of the case. Amazon does not dispute that it failed to obtain Mainspring's consent. Instead, it argues it was excused from obtaining Mainspring's consent because Mainspring was not properly served at the ...


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