Settlement Funding, L.L.C. v. Rapid Settlements, Ltd.
2017 U.S. App. LEXIS 5115
5th Cir.2017Background
- Peachtree (Settlement Funding, LLC and related entities and an annuitant) sued Rapid (Rapid Settlements and related entities) for tortious interference, alleging Rapid "poached" clients whose structured-settlement transfer contracts Peachtree had negotiated but not yet had approved by court.
- State-law Structured Settlement Protection Acts (e.g., Texas statute) require court approval before transfer of payment streams; Peachtree’s contracts with the two disputed annuitants had not been approved when Rapid contacted them.
- After six years in Texas state court, third-party defendants (the Wentworth Parties) impleaded by Rapid removed the consolidated litigation to federal court, alleging both diversity and federal-question bases for removal.
- The Wentworth Parties were later dismissed; Peachtree’s tortious-interference claims against Rapid were resolved on summary judgment for Rapid based on a Texas appellate decision holding no tortious interference where transfer lacked statutory approval.
- On appeal, Rapid argued for the first time that federal courts lacked subject-matter jurisdiction at removal (no federal question and no complete diversity). Peachtree bore the burden to prove jurisdiction but admitted it could not establish the citizenship of all LLC members at the time of removal.
- The Fifth Circuit vacated the federal judgment and remanded with instructions to remand to state court because the removal did not establish federal-question jurisdiction and Peachtree failed to prove complete diversity at removal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Rapid’s third-party civil-conspiracy complaint raised a federal question at removal | Rapid’s conspiracy allegations described an industry-wide, nationwide scheme implicating federal antitrust law, so federal-question jurisdiction existed | The complaint pleaded a state-law civil-conspiracy claim and, on its face, was ambiguous and compatible with only Texas antitrust law | No federal-question jurisdiction; the complaint did not, on its face, raise a federal issue |
| Whether removal satisfied complete diversity given multiple LLCs/partnerships | Peachtree submitted a sworn affidavit and public filings to show parties were diverse | Rapid argued the removal notice failed to allege citizenship of each LLC/partnership member, defeating diversity | No diversity jurisdiction; removal failed to allege citizenship of all LLC members and Peachtree later admitted it could not establish those citizenships at removal |
| Whether ambiguities in the removal pleadings should be construed in favor of federal jurisdiction | Peachtree sought judicial notice and argued later corporate changes cured diversity at judgment | Rapid relied on removal defects and Grupo Dataflux to stress jurisdiction is judged as of removal | Ambiguities construe against removal; jurisdiction is fixed at time of removal and exceptions don't apply here |
| Whether the district-court merits dismissal should stand despite jurisdictional defects raised on appeal | Peachtree invoked the merits decision below (relying on Washington Square) as proper resolution | Rapid cited late-raising jurisdictional defects and sought dismissal/remand | Court declined to reach merits because subject-matter jurisdiction was lacking and remanded to state court |
Key Cases Cited
- Elam v. Kan. City S. Ry. Co., 635 F.3d 796 (5th Cir.) (well-pleaded complaint rule and federal-question jurisdiction principles)
- Howery v. Allstate Ins. Co., 243 F.3d 912 (5th Cir.) (standards for when state-law claims present embedded federal questions)
- Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720 (5th Cir.) (ambiguities in removal pleadings construed against removal)
- McLaughlin v. Miss. Power Co., 376 F.3d 344 (5th Cir.) (complete-diversity requirement explained)
- Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373 (U.S.) (federal courts’ exclusive jurisdiction over federal antitrust claims)
- Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567 (U.S.) (jurisdictional facts judged as of time of removal)
- Washington Square Fin., LLC v. RSL Funding, LLC, 418 S.W.3d 761 (Tex. App.—Houston [14th Dist.]) (Texas appellate decision relied on by district court on tortious-interference claim)
- Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077 (5th Cir.) (LLC citizenship determined by each member’s citizenship)