TEXAS BRINE COMPANY, L.L.C., Plaintiff – Appellant v. AMERICAN ARBITRATION ASSOCIATION, INCORPORATED; ANTHONY M. DILEO; CHARLES R. MINYARD, Defendants – Appellees
No. 18-31184
United States Court of Appeals, Fifth Circuit
April 7, 2020
Before SOUTHWICK, WILLETT, and OLDHAM, Circuit Judges.
Appeal from the United States District Court for the Eastern District of Louisiana
One of the parties to an arbitration claimed that two of the arbitrators hid conflicts of interest. Those claims were the basis on which a Louisiana state court
FACTUAL AND PROCEDURAL BACKGROUND
In reviewing an order granting judgment on the pleadings, we accept the factual allegations in the plaintiff‘s complaint as true. Great Plains Tr. Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 312-13 (5th Cir. 2002). What follows are therefore from the complaint.
In 1975, plaintiff Texas Brine Company, L.L.C., contracted with Vulcan Materials Company to supply brine. Among agreed-on amendments to the contract in 2000 was the addition of an arbitration clause. The clause provided that “[a]ny dispute, controversy or claim arising out of or relating to” the contract or its breach would be resolved by arbitration. The clause further provided that any arbitration would be conducted under the rules of the American Arbitration Association (“AAA“) and would be governed by the Federal Arbitration Act. In 2005, Vulcan assigned its rights under the contract to Occidental Chemical Corporation (“Oxy“).
After a dispute arose between Texas Brine and Oxy in 2012, Texas Brine invoked the arbitration clause. Texas Brine and Oxy chose Anthony DiLeo, Charles Minyard, and Denise Pilié as arbitrators in 2014. The prospective arbitrators had to disclose potential conflicts of interest. After selection, the arbitrators signed an oath that recognized a continuing duty to disclose potential conflicts.
Early in 2018, Texas Brine learned that DiLeo was representing a corporation in a dispute in which the opposing counsel was also Texas Brine‘s counsel in its dispute with Oxy. Minyard, too, had become involved as DiLeo‘s attorney in a related legal-malpractice action. DiLeo and Minyard had not disclosed these potential conflicts. Texas Brine moved the AAA to remove both DiLeo and Minyard, but the AAA‘s Administrative Review Council summarily denied the motions. A few weeks later, though, the AAA removed Minyard from the arbitration panel due to an offensive comment he made to Texas Brine‘s counsel. Texas Brine again urged the removal of DiLeo. The day after the renewed urging, both DiLeo and Pilié resigned.
Texas Brine filed a motion in Louisiana state court to vacate the panel‘s awards and for reimbursement of fees, including approximately $550,000 in arbitrator fees and $17,300 in administrative expenses that Texas Brine had paid the AAA before the panel was disbanded. In June 2018, the court vacated all the arbitral panel‘s rulings on contested issues pursuant to
On July 6, 2018, Texas Brine filed the current suit against the AAA, DiLeo, and Minyard in the Civil District Court of the Parish of Orleans. Texas Brine requested over $12 million in damages and equitable relief, alleging that the defendants engaged
The jargon for removal prior to service on all defendants is “snap removal.” On August 9, Texas Brine moved to remand, challenging the AAA‘s snap removal and disagreeing with the contention that DiLeo and Minyard were improperly joined. The district court denied the motion on October 11, holding that the plain language of the removal statute did not bar snap removal. The court did not reach the alternate ground of fraudulent joinder. On November 2, the district court granted the defendants’ motions to dismiss, then entered judgment dismissing Texas Brine‘s claims with prejudice. Texas Brine appeals from the denial of remand and from the final judgment.
DISCUSSION
We review orders denying remand de novo, and the party who sought removal has the burden of proving removal was proper. Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 722-23 (5th Cir. 2002). Any necessary statutory interpretation is performed de novo. Cervantez v. Bexar Cnty. Civil Serv. Comm‘n, 99 F.3d 730, 732 (5th Cir. 1996). Finally, dismissals under Federal Rule of Civil Procedure 12(c) are reviewed de novo. Brittan Commc‘ns Int‘l Corp. v. Sw. Bell Tel. Co., 313 F.3d 899, 904 (5th Cir. 2002). We first consider the denial of the motion to remand and then consider the judgment on the pleadings.
I. Snap Removal
A defendant may remove a civil case brought in state court to the federal district court in which the case could have been brought.
[a] civil action otherwise removable solely on the basis of the jurisdiction under [
28 U.S.C. § 1332(a) ] may not be removed if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.
We begin by recognizing that the forum-defendant rule is a procedural rule and not a jurisdictional one. In re 1994 Exxon Chem. Fire, 558 F.3d 378, 392-93 (5th Cir. 2009). Here, the district court had subject-matter jurisdiction because each defendant was diverse from the plaintiff. Id. at 393-94. The plaintiff is a Texas limited liability company. The defendants are a New York corporation (the AAA) and two individual citizens of Louisiana (DiLeo and Minyard). Thus, there is no jurisdictional defect under
Texas Brine accepts that the statute‘s plain language allows snap removal. It argues, though, that such a result is absurd and defeats Congress‘s intent. See Schaeffler v. United States, 889 F.3d 238, 242 (5th Cir. 2018). Texas Brine asserts that Congress added the “properly joined and served” language to
In statutory interpretation, an absurdity is not mere oddity. The absurdity bar is high, as it should be. The result must be preposterous, one that “no reasonable person could intend.” ANTONIN SCALIA & BRYAN A. GARNER, READING LAW: THE INTERPRETATION OF LEGAL TEXTS 237 (2012); see also United States v. Dison, 573 F.3d 204, 210 n.28 (5th Cir. 2009). In our view of reasonableness, snap removal is at least rational. Even if we believed that there was a “drafter‘s failure to appreciate the effect of certain provisions,” such a flaw by itself does not constitute an absurdity. SCALIA & GARNER, supra, at 238. We are not the final editors of statutes, modifying language when we perceive some oversight. The Second and Third Circuits rejected the same absurdity argument in upholding snap removal. The Second Circuit believed there was more than one sensible reason for the language “properly joined and served“:
Congress may well have adopted the “properly joined and served” requirement in an attempt to both limit gamesmanship and provide a bright-line rule keyed on service, which is clearly more easily administered than a fact-specific inquiry into a plaintiff‘s intent or opportunity to actually serve a home-state defendant.
Gibbons, 919 F.3d at 706. In other words, a reasonable person could intend the results of the plain language. The Third Circuit also found that the result was not absurd because the interpretation gives meaning
Texas Brine also argues that the removal here is an example of an abuse of the statute. We have stated in dicta that “exceptional circumstances” might, in some cases where a plaintiff acts in bad faith, warrant departing from a strict application of the rule that removal may not happen more than 30 days after the first defendant is served. E.g., Brown v. Demco, Inc., 792 F.2d 478, 482 (5th Cir. 1986). In such cases, we considered whether a district court‘s equitable powers extended to permit late filing for removal. E.g., Doe v. Kerwood, 969 F.2d 165, 169 (5th Cir. 1992); Ortiz v. Young, 431 F. App‘x 306, 307 (5th Cir. 2011). Those cases may support tolling removal-filing deadlines in exceptional cases, but they do not support rewriting the statute here. We will not insert a new exception into
II. Exclusive Remedy
Having held that the case properly was retained in federal court, we now review the district court‘s decision to grant judgment for the defendants on the pleadings. The district court held that the defendants enjoyed arbitral immunity and that the Federal Arbitration Act (“FAA“) provided the exclusive remedy for complaints of bias or a corrupt arbitrator‘s conduct. Because these are independent reasons for dismissal, our agreement with either obviates the need to consider the other. Here, we rule on exclusive-remedy grounds and do not opine on the legitimacy of arbitral immunity.
Judicial review in the arbitration context is limited. The Supreme Court has held that the statutory bases for vacating an arbitrator‘s award are the only grounds on which a court may vacate an award. Hall St. Assocs. L.L.C. v. Mattel, Inc., 552 U.S. 576, 586 (2008) (citing
The defendants argue that Texas Brine‘s suit is an impermissible collateral attack on the arbitration award that seeks to bypass the congressionally created remedy for challenging an arbitration through a vacatur or modification proceeding. The defendants rely in part on two Sixth Circuit cases in which the court found an
In the Sixth Circuit‘s Corey decision, an arbitration panel dismissed a plaintiff‘s claim and assessed costs against him; the plaintiff did not appeal or move to vacate the judgment within the statutory period. Corey, 691 F.2d at 1208. The plaintiff sued the arbitrators and the sponsoring organization, alleging that the latter deprived him of a fair hearing by “select[ing] members of the arbitration panel in violation of the [sponsoring organization‘s] rules” and by rescheduling hearings over the plaintiff‘s objections. Id. The plaintiff also alleged that the arbitrators had prejudged the merit of his claims and inappropriately disallowed certain evidence. Id. The plaintiff asked for punitive damages for the mental anguish and physical problems he alleged occurred because of these acts. Id.
The Sixth Circuit held that the FAA was the exclusive remedy for the alleged wrongdoing and that the plaintiff‘s claims impermissibly collaterally attacked the arbitration award. Id. at 1211-12. The wrongdoing alleged in the complaint was “squarely within the scope of section 10 of the Arbitration Act.” Id. at 1212. The court noted that the complaint “challenge[d] the very wrongs affecting the award for which review is provided under section 10 of the Arbitration Act. The mere presence of the [sponsoring organization] or the arbitrators or the prayer for damages does not change the substance of [the plaintiff‘s] claim.” Id. at 1213. As a result, the court affirmed the district court‘s summary judgment in favor of the defendant. Id.
The Sixth Circuit expounded on its approach to analyzing collateral attacks in Decker. There, the plaintiff brought tortious interference and breach-of-contract claims. Decker, 205 F.3d at 909-10. The court held that these were impermissible collateral attacks because the plaintiff‘s harm resulted from the prejudice to the plaintiff in the arbitration proceedings and the impact on the arbitration award. Id. at 910.
We have used the Sixth Circuit decisions in our analysis of a collateral attacks on an arbitration award. In Gulf Petro, the plaintiff asserted claims under the Racketeer Influenced and Corrupt Organizations Act, the Texas Deceptive Trade Practices Act, and Texas common-law fraud and the tort of civil conspiracy; it sought vacatur of the arbitration award under the FAA. Gulf Petro, 512 F.3d at 745. The plaintiff sought damages for “(1) costs and expenses of the arbitration and subsequent legal challenges; (2) lost expenses and profits that would have been awarded had the panel rendered a fair award; (3) reputational injury suffered as a consequence of not prevailing in the arbitration; and (4) lost business opportunities suffered as a consequence of not prevailing in the arbitration.” Id. at 749.
We held that to categorize a claim against an arbitration decision, we look to “the relationship between the alleged wrongdoing, purported harm, and arbitration award.” Id. The test for a collateral attack is not merely whether the claims “attempt to relitigate the facts and defenses that were raised in the prior arbitration.” Id. at 749-50. Such a limitation
We now apply this analysis to Texas Brine‘s claims. We start with the alleged wrongdoing. Alleging wrongdoing that would justify vacatur is a sign of a collateral attack. Id. at 749. In Gulf Petro, the plaintiff alleged two kinds of wrongdoing: first, that the defendant bribed the arbitrators for a favorable outcome and, second, that the arbitrators failed to disclose their business dealings and ex parte communications with the defendant. Id. Texas Brine alleges similar wrongdoing involving the arbitrators’ failure to disclose potential conflicts of interest. Further, the alleged wrongdoing here resembles the wrongdoing that led the Louisiana court to vacate the underlying arbitration awards, namely, the arbitrators’ conflicts of interest. This wrongdoing is “squarely within the scope of section 10” of the FAA, Corey, 691 F.2d at 1212, which allows for vacatur based on “evident partiality or corruption in the arbitrators,”
Next, we look to the purported harm. See Gulf Petro, 512 F.3d at 749. In its petition for damages, Texas Brine alleges harm that we may summarize into a few categories: (1) the strategic disadvantage in the arbitration process due to arbitrator bias; (2) a “tainted” arbitration; and (3) wasted money spent on the arbitration. For example, Texas Brine alleges that the nondisclosure of conflicts of interest “deprived Texas Brine of the opportunity to make an informed decision as to [DiLeo‘s] continued service as an arbitrator.” Texas Brine also contends that the arbitrators had an “unjust advantage” in the proceedings because of the nondisclosure. As in Decker and Corey, the harm to Texas Brine from the strategic disadvantage and the “tainted” arbitration ultimately manifested in its effect on the arbitration awards. Decker, 205 F.3d at 910. This means that it is the kind of harm appropriately remedied through
Last, we look to the requested relief and its relationship to the alleged wrongdoing and purported harm. See Gulf Petro, 512 F.3d at 749. Texas Brine complains that “[v]acatur is an incomplete remedy.” Instead, the argument goes, Texas Brine should be reimbursed for all the fees and costs it paid during the arbitration and state-court litigation. According to Texas Brine, it is owed over $12 million, including over $560,000 from fees paid directly to the AAA and the arbitrators. In its prayer for relief, Texas Brine requested that the court grant various forms of relief and that the court find “such relief is delictual [i.e., based on tort], or alternatively, contractual, in nature.” Texas Brine also requested that the defendants “fully disgorge [themselves] of all amounts paid during the arbitration proceedings . . . .” As previously mentioned, Gulf Petro categorized a plaintiff‘s request for reimbursement of the costs and fees that it paid in the arbitration as a collateral attack. Gulf Petro, 512 F.3d at 749.
Congress identified some potential problems that may arise in arbitration in
III. Texas Brine‘s Motion to Supplement the Record
Texas Brine seeks to supplement the record on appeal with recently produced documents from the state-court litigation. The evidence relates to the AAA‘s administration of the underlying arbitration. Even if admitted, the evidence would not change that
AFFIRMED.