Smith v. New York Life

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 96-31260
NEW YORK LIFE INSURANCE COMPANY,
Plaintiff - Appellee,
VERSUS
JANE DESHOTEL; ET AL,
Defendants,
JUNE G. SMITH,
Defendant - Appellant,
__________________________________________________
Appeal from the United States District Court
for the Eastern District of Louisiana
__________________________________________________
No. 96-31269
JUNE G. SMITH, ET AL.,
Plaintiffs,
JUNE G. SMITH,
Plaintiff - Appellant,
VERSUS
NEW YORK LIFE INSURANCE COMPANY,
Defendant - Appellee.
Appeal from the United States District Court
for the Western District of Louisiana
June 1, 1998
Before JOLLY, SMITH, and DENNIS, Circuit Judges.
DENNIS, Circuit Judge:
In these consolidated appeals, Appellant June G. Smith,* whose
claim to be the sole beneficiary of her husband’s life insurance
policies was rejected in previous litigation, seeks to have us
reverse (1) the judgment of the United States District Court for
the Eastern District of Louisiana enjoining Smith from prosecuting
two delictual civil actions against New York Life based on the
alleged negligence of New York Life in mishandling and not
recording a form naming Smith beneficiary of the life insurance
policies, originally filed in state court and later removed to the
United States District Court for the Western District of Louisiana;
and (2) the judgment of the Western District Court dismissing those
civil actions with prejudice based on the Eastern District Court’s
injunction.
I.
Rodney Smith purchased five life insurance policies from New
York Life between 1964 and 1974. The original beneficiary listed
on each policy was his wife, June Smith. In September 1991, the
Smiths separated after thirty-one years of marriage. Two years
later, Rodney Smith was diagnosed with terminal cirrhosis of the
liver. He designated his half-brother, Donald Kelley, to aid him
in his business affairs during his illness.
On February 14, 1994, Rodney Smith's insurance agent, Thomas
C. Klotz, received a change of beneficiary form designating Kelley
*
Appellant June G. Smith appears in this litigation in both
her individual capacity and as administrator of the Succession of
Rodney G. Smith. For convenience, we refer to her in both
capacities as “June G. Smith” or “Smith.”
and Jane Deshotel -- a high school and college friend of Rodney
Smith -- as co-beneficiaries of Rodney Smith's life insurance
policies. Klotz sent the form to New York Life's Customer Service
Office (the "CSO") in Dallas for processing. On February 17, Klotz
received another change of beneficiary form signed by Rodney Smith
-- this time indicating Kelley as the sole beneficiary. The next
day, in Klotz's presence, Rodney Smith executed a change of
beneficiary form designating Jane Deshotel as sole beneficiary.
This change of beneficiary was received and processed by the CSO on
February 24.
Rodney Smith died on May 6, 1994. June Smith alleges that,
before he died, Rodney Smith made one final change to his policies.
According to June Smith, on March 11, 1994, Rodney Smith signed a
change of beneficiary form designating her as the sole beneficiary.
She contends that he instructed Kelley to hold onto the form until
further notice, and that later, on the day of his death, Rodney
Smith directed Kelley to submit the final change of beneficiary
form to New York Life. Kelley states that he mailed the form to
the office of insurance agent Linwood Broussard. Broussard's
office manager testified that she received the change of
beneficiary form. However, the form was never received or
processed by the CSO, and consequently, the records of the CSO
continued to indicate that Jane Deshotel was the sole beneficiary.
When New York Life received beneficiary claims from both Jane
Deshotel and June Smith, it instituted an action for interpleader
under Federal Rule of Civil Procedure 22 in the District Court for
3
the Eastern District of Louisiana. In its complaint for
interpleader New York Life stated that it had no beneficial
interest in the policies but that it was only a stakeholder willing
to make payment to the person lawfully entitled to receive the
proceeds. The company said that it had been unable to determine
which of the claimants was entitled to payment.
The New York Life complaint for interpleader, filed October
11, 1994, alleged, in pertinent part, the following:
9.
In investigating the conflicting claims, New York
Life records revealed a change of beneficiary form dated
February 12, 1994, which purported to bear the signature
of Rodney G. Smith and which named “Jane Deshotel, a
Friend and Donald W. Kelly, a half brother to share and
share alike” as first beneficiaries of the Policies. The
form indicates that it was forwarded to New York Life
Central Records on February 18, 1994.
10.
On information and belief, Rodney G. Smith’s wife,
Jane G. Smith, had been the beneficiary of the above
policies prior to the change of beneficiary executed on
February 12, 1994.
11.
New York Life records further revealed a change of
beneficiary form dated February 18, 1994, which purported
to bear the signature of Rodney G. Smith and which named
“Jane Deshotel, Friend of Insured” as first beneficiary
of the Policies. The form indicates that it was
forwarded to New York Life Central Records on March 2,
1994.
12.
New York Life also was presented with a change of
beneficiary form dated March 11, 1994 which purported to
bear the signature of Rodney G. Smith and which named
“June Smith (wife)” as beneficiary of the Policies.
13.
New York Life was advised that the foregoing change
of beneficiary form had been turned over to a New York
Life agency office on May 10, 1994 and that the form then
was forwarded to New York Life’s Dallas Customer Service
4
Office for processing. New York Life has no record of
the submission or processing of the March 11, 1994 change
of beneficiary form.
New York Life deposited with the court the policy proceeds
plus interest -- $106,397.51. New York Life was granted summary
judgment dismissing it from the interpleader action. Jane Deshotel
and June Smith filed cross motions for summary judgment. The
district court found that Rodney Smith and New York Life had
contracted that changes in beneficiary would not be enforceable
absent recordation of the change at the CSO.2 The court determined
that as a matter of law Rodney Smith had not strictly complied with
the policy. Therefore, on September 12, 1995, the Eastern District
Court rendered summary judgment in favor of Jane Deshotel,
decreeing her to be the owner of the insurance proceeds.
Smith appealed. This court, on March 22, 1996, affirmed the
Eastern District Court’s judgment declaring Jane Deshotel owner of
the insurance proceeds. New York Life Ins. Co. v. Jane Deshotel
and June G. Smith, No. 95-31050, slip op. (5th Cir., March 22,
1996)(per curiam).
2
The insurance contract between Rodney Smith and New York
Life provided in pertinent part:
While the Insured is living, the beneficiary designation can
be changed from time to time by written notice in form
satisfactory to the Company. No such change will take effect
unless recorded in the records of the Company at its Home
Office. Upon being so recorded, the change will be effective
as of the date the notice was signed, whether or not the
Insured is living when the change is recorded, subject to any
payment made or other action taken by the Company before such
recording.
Record at 162, New York Life Ins. Co. v. Smith (No. 96-31260).
5
After New York Life filed the interpleader action on October
11, 1994, Smith filed three state court delictual actions based on
the alleged negligence in handling the change of beneficiary form
by New York Life and its agents in the 15th Judicial District Court
for the Parish of Lafayette, State of Louisiana. The first state
court action was filed on April 20, 1995 by June G. Smith in her
individual capacity and in her capacity as representative of the
Succession of Rodney G. Smith against New York Life Insurance
Company (“Smith I”). The second state court action was filed on
April 26, 1995 by June G. Smith in her individual capacity and in
her capacity as representative of the Succession of Rodney G. Smith
against Linwood Broussard (“Smith II”). The third state court
action was filed on October 30, 1995 by June G. Smith in her
capacity as representative of the Succession of Rodney G. Smith
against New York Life Insurance Company and Linwood Broussard
(“Smith III”). In accordance with the instructions of Smith’s
attorney, the clerk of court withheld service of process on the
defendants in the three state court delictual actions.
On May 28, 1996, soon after this court had affirmed the
Eastern District Court’s award of the insurance proceeds to Jane
Deshotel and had denied Smith’s petition for rehearing on April 19,
1996, Smith obtained an order from the state district court
consolidating the three state court delictual actions, Smith I,
Smith II, and Smith III, in state court. On May 27, 1996, New York
Life received a copy of the ex parte motion to consolidate. This
was the first notice New York Life received of the pending state
6
suits. New York Life removed Smith I and III to the District Court
for the Western District of Louisiana on June 4, 1996 and June 26,
1996, respectively. Smith II was not removed and is pending in the
state court.
In July 1996, Smith moved the Western District Court to remand
Smith I and Smith III to state court. On October 3, 1996, the
Western District Court denied Smith’s motions to remand.
Meanwhile, the Eastern District Court, on June 25, 1996,
entered an amended judgment sua sponte to correct a clerical
mistake by adding to its original judgment in the interpleader an
order permanently enjoining Jane Deshotel and June G. Smith from
instituting or prosecuting any proceedings against New York Life
in any state or federal court pertaining to the proceeds of the
life insurance policies. On July 1, 1996, Smith moved the Eastern
District Court to alter or amend its judgment to state that it does
not enjoin her from bringing or prosecuting her delictual actions
against New York Life in Smith I, Smith II, and Smith III. New
York Life opposed Smith’s motion on grounds that her delictual
claims against it were barred by res judicata because they should
have been raised as compulsory counterclaims in the interpleader
action. On July 19, 1996, New York Life filed a motion for a
preliminary and permanent injunction enjoining Smith from
prosecuting her delictual claims against it in any state or federal
court.
On November 21, 1996, the Eastern District Court denied
Smith’s motion to alter or amend its judgment; denied New York
7
Life’s motion insofar as it sought to enjoin Smith from proceeding
in Smith II, the action pending in state court; and entered
judgment permanently enjoining Smith or the Succession of Rodney
Smith from prosecuting the civil actions Smith I and Smith III,
which had been removed to the Western District Court.
On November 22, 1996, based on the Eastern District Court’s
injunction, the Western District Court dismissed Smith I and III
with prejudice.
II.
Pursuant to the All Writs Statute, 28 U.S.C. § 1651, the
Eastern District Court enjoined Smith’s delictual actions against
New York Life pending in the Western District Court. Under the All
Writs Statute, a federal court has the power to enjoin a party
before it from attempting to relitigate the same issues or related
issues precluded by the principles of res judicata and collateral
estoppel in another federal court. Kinnear-Weed Corp. v. Humble
Oil & Refining Co., 441 F.2d 631, 637 (5th Cir.), cert. denied, 404
U.S. 941 (1971); Kentucky Fried Chicken, Corp. v. Diversified
Packaging, 552 F.2d 601, 603 (5th Cir. 1977); see also Santopadre
v. Pelican Homestead & Sav. Assn., 937 F.2d 268, 273 (5th Cir.
1991); 18 JAMES WM. MOORE ET AL., MOORE’S FEDERAL PRACTICE ¶ 131.53 (3d
ed. 1997). Accordingly, a federal court in a Rule 22 interpleader
proceeding may issue an injunction to restrain the parties from
pursuing such issues in another federal court. See 7 CHARLES A.
WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 1717, at 616; Pan Am. Fire
& Cas. Co. v. Revere, 188 F. Supp. 474, 484 n.49 (E.D. La. 1960);
8
28 U.S.C.A. § 2283 revision notes (West 1994). The Eastern
District Court found that the injunction was warranted because
Smith’s delictual claim against New York Life would be barred in a
second action by res judicata and as a compulsory counterclaim that
she failed to bring, as required by Rule 13(a), in the interpleader
proceedings.
A.
Smith’s principal argument on appeal is that her delictual
action was not barred as a compulsory counterclaim because it had
not accrued or matured at the time she served her pleading in the
interpleader case. Thus, Smith relies primarily on one of the
explicit exceptions to the compulsory counterclaim requirement of
Federal Rule of Civil Procedure 13(a), viz., that the party need
not assert a counterclaim that has not matured at the time he
serves his pleading. See Cochrane v. Iowa Beef Processors, Inc.,
596 F.2d 254, 264 (8th Cir.), cert. denied, 442 U.S. 921 (1979); 6
WRIGHT, supra § 1411, at 80.
We agree with the district court that Smith’s delictual claim
against New York Life had ripened into a mature claim at the time
she filed her answer to the interpleader complaint on November 3,
1994. Therefore, her delictual claim was a compulsory
counterclaim, and her failure to plead it bars her from bringing it
as a later independent action in federal court. See Dillard v.
Security Pac. Brokers, Inc., 835 F.2d 607, 609 (5th Cir. 1988);
Ake v. Chancey, 149 F.2d 310 (5th Cir. 1945); 3 Moore, supra ¶
13.14; WRIGHT, supra § 1417, at 129.
9
Under Louisiana law, a delictual cause of action accrues when
a defendant violates a duty owed to a plaintiff and thereby causes
damage to the plaintiff’s legally protected interest. LA. CIV. CODE
arts. 2315, 2316. A wrongful act alone does not suffice. There
must also be damage caused by the wrongful act. It is the
combination of the wrongful act, the damage, and the causal link
between them that gives rise to the cause of action. Owens v.
Martin, 449 So. 2d 448, 451 (La. 1984); Jones v. Texas & Pac. Ry.
Co., 125 La. 542, 544, 51 So. 582, 582-83 (1910). The one year
prescription applicable to delictual actions does not commence to
run, however, until the date that the injured party discovers or
should have discovered the delict, the damage, and the relationship
between them. LA. CIV. CODE arts. 3536, 3537; see also Branch v.
Willis-Knighton Med. Ctr., 636 So. 2d 211, 216 (La. 1994); Lott v.
Haley, 370 So. 2d 521, 523 (La. 1979); R.J. Reynolds Tobacco Co.
v. Hudson, 314 F.2d 776, 783 (5th Cir. 1963).
Damage to a person’s right or legally protected interest is
sustained “‘when it has manifested itself with sufficient certainty
to be susceptible of proof in a court of justice.’” Rayne State
Bank & Trust Co. v. National Union Fire Ins. Co., 483 So. 2d 987,
996 (La. 1986) (quoting Jones v. Texas & Pac. Ry. Co., 51 So. 582,
583 (La. 1910)). The cause of action arises, however, before the
plaintiff sustains all or even the greater part of the damage
occasioned by the delict. Any actual and appreciable injury
flowing from the defendant’s negligence or other wrongful act
establishes a cause of action upon which the plaintiff may sue,
10
even though he may thereafter come to a more precise realization of
the damages he has already incurred or incur further damage as a
result of the tortious act. Harvey v. Dixie Graphics, Inc., 593
So. 2d 351, 354 (La. 1992); Braud v. New England Ins. Co., 576 So.
2d 466, 468 (La. 1991); Rayne State Bank, 483 So. 2d at 996.
Applying these principles, the Louisiana Supreme Court held
that a bank whose mortgages were challenged as being defective in
bankruptcy court had an accrued legal malpractice cause of action
against the attorney who drafted the mortgages, because “[t]his
attack, which Rayne State Bank was forced to defend, was direct
damage to the bank resulting from the existence of the defects,
regardless of any future determination of further damage resulting
from invalidity of the mortgages.” Rayne State Bank, 483 So. 2d at
996. Similarly, that court in Braud v. New England Insurance
Company, 576 So. 2d 466 (La. 1991), held that Braud, who had
obtained a default judgment against Citicorp, acquired a legal
malpractice action against his former attorney when Citicorp sued
Braud to annul the judgment because Braud’s former attorney
allegedly engaged in ill practices and negligently failed to
present sufficient evidence in obtaining the default judgment. The
court stated: “Like the client in Rayne State Bank & Trust v.
National Union Fire Ins. Co., supra, Braud sustained appreciable
and actual harm when the validity of his right or asset was
attacked by a third party because of the alleged negligence of his
former attorney and he was compelled to incur and pay attorney’s
fees, legal costs and expenditures.” Id. at 469. Finally, in
11
Harvey v. Dixie Graphics, Incorporated, 593 So. 2d 351 (La. 1992),
the state supreme court applied the appreciable actual injury test
in holding that Harvey’s malpractice action against an accounting
firm accrued when he was informed by the IRS that he faced tax
liability due to the firm’s negligent tax return preparation after
Harvey had incurred substantial accountant’s and attorney’s fees in
investigating and preparing to defend against the potential tax
assessment. The court explained that “[t]he mere fact that all of
his damages were not yet suffered because he had not yet written a
check to the IRS does not change the key fact that [Harvey] was
certainly aware that he had suffered appreciable harm from the
allegedly tortious act of [the accounting firm].” Id. at 355.
We do not agree with Smith’s argument that her delictual
action based on the alleged negligence of New York Life is
analogous to an action for malicious prosecution and therefore
could not accrue until the termination of the interpleader
proceedings. An action for malicious prosecution in a criminal
proceeding lies when there is a concurrence of the following
elements: (1) the commencement or continuance of an original
criminal proceeding; (2) its legal causation by the present
defendant against plaintiff who was defendant in the original
proceeding; (3) its bona fide termination in favor of the present
plaintiff; (4) the absence of probable cause for such proceeding;
(5) the presence of malice therein; and (6) damage conforming to
legal standards resulting to plaintiff. Miller v. East Baton Rouge
Parish Sheriff’s Dept., 511 So. 2d 446, 452 (La. 1987).
12
The termination of the criminal proceeding in favor of the
accused is an essential element for the accrual of a malicious
prosecution cause of action. This element and others essential to
a malicious prosecution action are required to balance the
individual interest in freedom from unjustifiable litigation and
the social interest in supporting a resort to law. See W. PAGE
KEETON ET AL., PROSSER & KEETON ON THE LAW OF TORTS § 119, at 871 (5th ed.
1984); HARPER, JAMES AND GRAY, THE LAW OF TORTS § 4.2, at 407-408 (2d
ed. 1986). As we have noted above, the accrual of a delictual
cause of action based on negligence requires only the concurrence
of a wrongful act, damage, and a causal link between them. Owens,
449 So. 2d at 451; Jones, 51 So. at 582-83. The negligence action
does not require the termination of other litigation and most
other essential elements of a malicious prosecution action,
probably because it involves a different balance of individual and
societal interests.
In the present case, New York Life, pursuant to its
interpleader petition under Rule 22, joined Smith and Deshotel as
defendants and required them to interplead their claims. Clearly,
their claims are adverse to each other because each claimant
asserts sole rights to the proceeds of Rodney Smith’s insurance
policies. The interpleader complaint alleges facts that plainly
indicate that Jane Deshotel is the only validly designated
beneficiary of the policies because Rodney Smith’s final change of
beneficiary form naming June Smith as beneficiary was never
processed or recorded although it had been forwarded to New York
13
Life’s Customer Service Office for that purpose.
Under these circumstances, Smith’s legal right as beneficiary
to the insurance proceeds was challenged as being defective in a
court of law. Like the plaintiffs in Rayne State Bank and Braud,
Smith was forced to defend her rights against an attack in a
judicial proceeding. This attack was “direct damage” to her rights
resulting from the existence of the alleged defects, regardless of
any future determination of further damage resulting from the
invalidity of her beneficiary claims. See Rayne State Bank, 483
So. 2d at 996. Moreover, just as the Rayne State Bank and Braud
plaintiffs, Smith sustained appreciable and actual harm from the
legal attack upon her rights because she was compelled to incur and
pay attorney fees and legal costs in her defense.
The interpleader complaint additionally gave Smith clear
notice that her damage likely had been caused by the negligence of
New York Life and its agents in failing to properly handle and
record the change of beneficiary form naming her as sole
beneficiary. Consequently, Smith’s delictual action against New
York Life accrued or matured no later than the date upon which she
was served in the interpleader proceeding.
The Federal Rules of Civil Procedure, including their joinder
provisions, apply in interpleader cases just as they would in any
other civil action in federal court. See 4 MOORE, supra ¶ 22.02[5].
Once the stakeholder joins the claimants, a claimant may file a
counterclaim against the stakeholder as an opposing party. Wayzata
Bank & Trust Co. v. A & B Farms, 855 F.2d 590, 592-93 (8th Cir.
14
1988); Liberty Nat’l Bank & Trust Co. v. Acme Tool Div., 540 F.2d
1375, 1380-81 (10th Cir. 1976); Davis v. Prudential Ins. Co., 331
F.2d 346, 348 n.2 (5th Cir. 1964); see also Libby, McNeill, and
Libby v. City Nat’l Bank, 592 F.2d 504, 507-08 (9th Cir. 1978);
Dakota Livestock Co. v. Keim, 552 F.2d 1302, 1307 (8th Cir. 1977).
Counterclaims are either compulsory, if they arise from the same
transaction or occurrence as the underlying dispute, FED. R. CIV. P.
13(a), or permissive, if they are transactionally unrelated to the
underlying dispute, FED. R. CIV. P. 13(b). See Wayzata Bank & Trust
Co., 855 F.2d at 592-93 (claimants’ separate cause of action
against stakeholder for damages for breach of fiduciary duty was a
compulsory counterclaim); 4 MOORE, supra ¶ 22.02[5].
The compulsory counterclaim rule requires a party to plead any
counterclaim that “arises out of the transaction or occurrence that
is the subject matter of the opposing party’s claim and does not
require for its adjudication the presence of third parties of whom
the court cannot acquire jurisdiction.” FED. R. CIV. P. 13(a);
Reiter v. Cooper, 507 U.S. 258, 263-264 (1993); McDaniel v.
Anheuser-Busch, Inc., 987 F.2d 298, 303-304 (5th Cir. 1993). To
determine whether claim and counterclaim arise from the “same
transaction or occurrence,” federal courts have constructed
analyses using as their foundation the logical relationship test
developed by the Supreme Court under former Equity Rule 30. See
Moore v. New York Cotton Exch., 270 U.S. 593, 609-610 (1926)
(“‘Transaction’ is a word of flexible meaning. It may comprehend a
series of many occurrences, depending not so much upon the
15
immediateness of their connection as upon their logical
relationship.”). While using the “logical relationship” concept,
this Circuit gives weight to whether the claim and counterclaim
share an “aggregate of operative facts.” McDaniel, 987 F.2d at
1381-82.
In the present case, it is readily apparent that New York
Life’s interpleader claim and Smith’s delictual counterclaim share
an aggregate of operative facts and have a logical relationship.
Both logically relate to and arise from the same facts: Rodney
Smith purchased life insurance policies from New York Life; he
designated his wife, June Smith, and his friend, Jane Deshotel, his
sole beneficiary on several different occasions; on his final
attempt to change beneficiaries to name June Smith, his signed form
was sent to New York Life, but for some yet undetermined reason,
perhaps the company’s negligence, it was not processed and
recorded, so that Jane Deshotel was the last duly recorded
beneficiary upon Rodney Smith’s death. Indeed, Smith does not
argue that the claims are not logically and factually related;
instead she contends only that her delictual claim had not matured
at the time she answered the interpleader complaint, an argument we
rejected for the reasons previously assigned.
It is well settled that a failure to plead a compulsory
counterclaim bars a party from bringing a later independent action
on that claim. See, e.g., Baker v. Gold Seal Liquors, Inc., 417
U.S. 467, 469 n.1 (1974); Crutcher v. Aetna Life Ins. Co., 746
F.2d 1076, 1080 (5th Cir. 1984). Consequently, we conclude that
16
the district court correctly determined that Smith’s delictual
action against New York Life is barred because it was a compulsory
counterclaim that she failed to plead in the interpleader
proceeding.
B.
Smith’s remaining arguments on appeal from the Eastern
District Court’s judgment may be dealt with readily.
In its order giving reasons for its summary judgment of
September 7, 1995 awarding the insurance proceeds to Deshotel and
enjoining Deshotel and Smith from proceeding against New York Life
in any court pertaining to the insurance proceeds, the district
court stated that “[n]othing in the injunction prevents Ms. Smith
from bringing any action so long as it is not directed at the
proceeds at issue here.” Smith argues that, in view of this
statement, the district court’s later modification of the
injunction to bar, as a compulsory counterclaim, her delictual
action against New York Life in federal court was manifestly
inequitable. This argument must be rejected. The district court
did not err in its description of the initial injunction issued on
September 7, 1995. The district court did not enjoin Smith from
proceeding on her delictual actions until November 26, 1996, after
Smith moved to clarify the court’s judgment and New York Life
responded with a motion to enjoin Smith from prosecuting her
delictual claim in any state or federal court. Smith does not
demonstrate that the court erred in its September 7, 1995 statement
or explain how she was prejudiced by the statement.
17
Smith also briefly urges in this appeal an argument that she
presents more fully in the companion appeal, i.e., that her
delictual claims were improperly removed to the Western District
Court, that the Western District Court lacks jurisdiction of them
and must remand the actions to the state court, and that the
Eastern District Court’s injunction, which expressly does not
enjoin state actions, therefore cannot affect the improperly
removed actions.
III.
Turning to Smith’s appeal from the judgment of the District
Court for the Western District of Louisiana, we consider (1) sua
sponte an inquiry into the district court’s jurisdiction over
Smith’s negligence action against Linwood Broussard and New York
Life in Smith III, (2) New York Life’s challenge to our appellate
jurisdiction based on Smith’s notice of appeal, and (3) Smith’s
arguments for remanding the removed actions to state court.
A.
A federal court of appeals has a duty to inquire into the
basis of its jurisdiction and of the jurisdiction of the district
court. Arizonans for Official English v. Arizona, -- U.S. --, 117
S. Ct. 1055, 1071 (1997). “‘[I]f the record discloses that the
lower court was without jurisdiction [a federal appellate court]
will notice the defect, although the parties make no contention
concerning it.’” Id. at 1071-72 (quoting Bender v. Williamsport
Area School Dist., 475 U.S. 534, 541 (1986)) (internal citations
omitted) (brackets added). Our jurisdiction extends “‘not [to] the
18
merits but merely for the purpose of correcting the error of the
lower court in entertaining the suit’” when the district court
lacks jurisdiction. Id. (same).
The record discloses that in Smith III complete diversity of
citizenship is lacking because the plaintiff and the defendant
Broussard are both Louisiana citizens. The district court
erroneously concluded that Broussard’s citizenship did not defeat
diversity because any possibility of recovery against him had been
eliminated by prescription. Prescription had not run, however, but
had been interrupted by the timely filing of the same action
against Broussard in Smith II.
Delictual actions in Louisiana are subject to a liberative
prescription of one year. LA. CIV. CODE art. 3492. Prescription is
interrupted, however, when the obligee commences action against the
obligor (e.g., when the tort victim sues the tortfeasor) in a court
of competent jurisdiction and venue. Id. art. 3462. “An
interruption of prescription resulting from the filing of a suit in
a competent court and in the proper venue . . . continues as long
as the suit is pending.” Id. art. 3463. In cases in which a
second suit is filed prior to abandonment, voluntary dismissal, or
failure to prosecute of the first suit, on the same cause of action
between the same parties, the interruption provided by the first
suit is still viable at the time of the filing of the second suit,
and the interruption remains viable during the pendency of the
second suit, even if the first suit is later dismissed. Deris v.
Lee, 613 So. 2d 962, 962 (La. 1993); Martin v. Franklin State Bank
19
& Trust Co., 595 So. 2d 371, 373 (La. Ct. App. 2d Cir. 1992); Levy
v. Stelly, 277 So. 2d 194, 196 (La. Ct. App. 4th Cir. 1973).
The district court found that prescription commenced on June
14, 1994, when Smith became aware that she had been damaged by
Broussard and New York Life. Smith filed Smith II on the delictual
claim naming Broussard as a defendant in a state court of competent
jurisdiction and venue on April 26, 1995, within the one year
prescriptive period. Hence, the timely filing of Smith II caused
an interruption of prescription that was still viable when Smith
III was filed and that remains viable during the pendency of Smith
II or Smith III.3
Broussard’s non-diverse citizenship cannot be ignored simply
because he was an unserved defendant. A non-resident defendant
cannot remove an action if the citizenship of any co-defendant,
joined by the plaintiff in good faith, destroys complete diversity,
regardless of service or non-service upon the co-defendant.
Whenever federal jurisdiction in a removal case depends upon
complete diversity, the existence of diversity is determined from
the fact of citizenship of the parties named and not from the fact
3
New York Life argued below that Smith’s filing of Smith II
did not interrupt prescription because at the time she was not yet
properly qualified as succession representative. However, “[i]t is
sufficient to interrupt prescription that a cause of action be
asserted that is adequate to put the defendant on notice of the
nature of the claim against him.” Smith v. Williams, 535 So. 2d
959, 962 (La. Ct. App. 2d Cir. 1988). “It is not necessary that
the action be brought by the correct plaintiff or that he sue in
the proper procedural capacity.” Id. (citing Jones v. Philco-Ford
Corp., 441 So. 2d 1251, on rehearing, 452 So. 2d 370, 371 (La. Ct.
App. 1st Cir. 1983), writs denied, 457 So. 2d 1193, 1198 (La.
1984)).
20
of service. Pullman Co. v. Jenkins, 305 U.S. 534, 540-41 (1939);
Howell v. Tribune Entertainment Co., 106 F.3d 215, 217 (7th Cir.
1997); Coker v. Amoco Oil Co., 709 F.2d 1433, 1440 (11th Cir.
1983); Pecherski v. General Motors Corp., 636 F.2d 1156, 1160 &
n.6 (8th Cir. 1981); Preaseau v. Prudential Ins. Co., 591 F.2d
74, 78-79 (9th Cir. 1979); Clarence E. Morris, Inc. v. Vitek, 412
F.2d 1174, 1176 (9th Cir. 1969); see also Everett v. MTD Products,
Inc., 947 F. Supp. 441, 442 & n.1 (N.D. Ala. 1996); In re Norplant
Contraceptive Products Liability Litigation, 889 F. Supp. 271, 273-
76 (E.D. Tex. 1995); Zaini v. Shell Oil Co., 853 F. Supp. 960, 963
(S.D. Tex. 1994); Kelly v. Drake Beam Morin, Inc., 695 F. Supp.
354, 357 (E.D. Mich. 1988); Schwegmann Bros. Giant Super Mkts.
Inc. v. Pharmacy Reports, Inc., 486 F. Supp. 606, 614-15 (E.D. La.
1980); cf. Cripps v. Life Ins. Co., 980 F.2d 1261, 1265 & n.4 (9th
Cir. 1992).
Accordingly, the district court’s judgment in Smith III will
be vacated and the case will be remanded to the district court with
directions to remand that case to the state court. The collateral
effects upon the state court proceedings, if any, of the Eastern
District Court’s judgment, which we have affirmed, must be
considered and determined by the state courts.
B.
Remaining for our consideration is Smith’s appeal from the
judgment of the Western District Court in Smith I. New York Life
questions the scope of our appellate jurisdiction, contending that
Smith did not preserve for our review alleged errors in the
21
district court’s ruling denying remand.
In opening briefs, Smith challenged two aspect of the district
court’s order denying remand. Smith argued New York Life filed
notice of removal out of time. In the alternative, Smith contended
the district court erred in denying her leave to amend to join
Broussard, a non-diverse party, as a defendant. However, the
notice of appeal designated “the order dismissing the above
captioned consolidated actions and the incidental order recognizing
the Motion to Alter Judgment as moot” dated November 22, 1996. It
did not specifically appeal from the October 3, 1996 order denying
Smith’s motion to remand. That omission, New York Life argues,
precludes review of these two issues.
We disagree. Rule 3(c) of the Federal Rule of Appellate
Procedure requires the appellant to “designate the judgment, order,
or part thereof appealed from” in the notice of appeal. FED. R.
APP. PROC. 3(c). While the requirements of Rule 3(c) are
jurisdictional, and “noncompliance is fatal to an appeal,” courts
construe a notice of appeal liberally to avoid technical barriers
to review. Smith v. Barry, 502 U.S. 244, 248 (1992). A mistake in
designating orders to be appealed does not bar review if the intent
to appeal a particular judgment can be fairly inferred and if the
appellee is not prejudiced or misled by the mistake. Friou v.
Phillips Petroleum Co., 948 F.2d 972, 974 (5th Cir. 1992).
Applying this circuit’s precedents, we conclude that Smith
preserved her right to have the district court’s ruling reviewed.
First, the order designated in the notice is the final judgment in
22
this case. “[A]n appeal from a final judgment preserves all prior
orders intertwined with the final judgment.” Trust Co., 104 F.3d
at 1485. Second, the issues in that final order are inextricably
intertwined with the issue of whether the court properly exercised
removal jurisdiction: the final judgment was predicated on the
district court’s decision that removal was proper and that the
cases were properly pending in the Western District Court. See
Trust Co., 104 F.3d at 1486. Moreover, any doubts as to Smith’s
intent to appeal these issues are resolved by Smith’s opening
briefs, in which Smith advances arguments on both issues. For these
reasons the notice of appeal coupled with the opening briefs gave
New York Life adequate notice that the matters were at issue in
this appeal. New York Life fails to demonstrate that it was
prejudiced by any deficiency in the notice of appeal.
New York Life’s contention that we have no jurisdiction to
review claims on behalf of the estate of Rodney Smith because
Smith’s notice of appeal does not refer to the estate specifically
is contrary to our case law. “A party’s failure to designate all
of the capacities in which he brings suit does not defeat
jurisdiction.” Baker v. Putnal, 75 F.3d 190, 194 (5th Cir. 1996).
C.
Smith contends that New York Life did not timely file its
notices of removal and that this procedural defect invalidates the
removals and requires that Smith I and Smith III be remanded to the
state court. We have decided above that Smith III must be remanded
because the district court was without jurisdiction of Smith III
23
due to lack of complete diversity. Accordingly, we address Smith’s
argument that removal was untimely only as it pertains to Smith I.
Smith filed Smith I against New York Life only in state court
on April 20, 1995. New York Life removed Smith I on June 4, 1996,
more than one year after Smith I was filed. However, New York Life
did not receive a copy of Smith’s initial pleading in Smith I until
May 28, 1996, less than thirty days prior to the removal of that
civil action.
The procedure for removal is set forth by 28 U.S.C. § 1446.
The pertinent part governing timeliness of removal in the present
case, Section 1446(b), provides:
The notice of removal of a civil action or
proceeding shall be filed within thirty days after the
receipt by the defendant, through service or otherwise,
of a copy of the initial pleading setting forth the claim
for relief upon which such action or proceeding is based,
or within thirty days after service of summons upon the
defendant if such initial pleading has then been filed in
court and is not required to be served on the defendant,
whichever period is shorter.
If the case stated by the initial pleading is not
removable, a notice of removal may be filed within thirty
days after receipt by the defendant, through service or
otherwise, 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
24
removable, except that a case may not be removed on the
basis of jurisdiction conferred by section 1332 of this
title more than 1 year after commencement of this action.
28 U.S.C. § 1446(b) (emphasis added).
Under both Louisiana and federal law, an action “commences”
when it is filed. LA. CODE CIV. PROC. art 421 (“A civil action is a
demand for the enforcement of a legal right. It is commenced by
the filing of a pleading presenting the demand to a court of
competent jurisdiction.”); FED. R. CIV. P. 3 (“A civil action is
commenced by filing a complaint with the court.”); see also Allred
v. Moore & Peterson, 117 F.3d 278, 283 (5th Cir. 1997); de la
Vergne v. de la Vergne, 479 So. 2d 549, 550 (La. Ct. App. 1st Cir.
1985); Haynie v. Haynie, 452 So. 2d 426, 427 (La. Ct. App. 3d Cir.
1984); Sims v. Sims, 247 So. 2d 602, 604 (La. Ct. App. 3d Cir.
1971); Saxon v. Fireman’s Ins. Co., 224 So. 2d 560 (La. Ct. App.
3d Cir. 1969); accord Martine v. National Tea Co., 841 F. Supp.
1421, 1422 (M.D. La. 1993). Smith contends that New York Life’s
removal of Smith I well over thirteen months after the action
commenced violated the one-year limitation established by Section
1446(b).
The question presented is whether the one-year limitation for
removal of diversity cases under Section 1446(b) applies only to
those state court cases that are not initially removable, or to all
diversity cases that a defendant seeks to remove. The federal
district courts are disunited on the issue. Compare, e.g.,
Rezendes v. Dow Corning Corp., 717 F. Supp. 1435, 1438-39 (E.D.
25
Cal. 1989) (one-year limit is an absolute bar to removal of all
diversity cases), with, e.g., Breese v. Hadson Petroleum, Inc., 947
F. Supp. 242, 243-44 (M.D. La. 1996) (one-year limit applies only
to cases that are not initially removable), and, e.g., Kinabrew v.
Emco-Wheaton, Inc., 936 F. Supp. 351, 353 (M.D. La. 1996) (one-year
limit applies to all diversity actions with exceptions as equity
demands). We have not found a Supreme Court or circuit court
decision that resolves the issue.
In determining the meaning of the statute, we must look not
only to the particular statutory language, but also to the statute
as a whole, including its design, object, and policy. Crandon v.
United States, 494 U.S. 152, 158 (1990) (citing K Mart Corp. v.
Cartier, Inc., 486 U.S. 281, 291 (1988), and Pilot Life Ins. Co. v.
Dedeaux, 481 U.S. 41, 51 (1987)); Massachusetts v. Morash, 490
U.S. 107, 115 (1989) (citing Pilot Life Ins. Co., 481 U.S. at 51).
“[T]he meaning of statutory language, plain or not, depends on
context.” King v. St. Vincent’s Hosp., 502 U.S. 215, 221 (1991)
(citing Shell Oil Co. v. Iowa Dept. of Revenue, 488 U.S. 19, 26
(1988); see also id. (“‘Words are not pebbles in alien
juxtaposition; they have only a communal existence; and not only
does the meaning of each interpenetrate the other, but all in their
aggregate take their purport from the setting in which they are
used . . . .’”)(quoting Judge Learned Hand in NLRB v. Federbush
Co., 121 F.2d 954, 957 (2nd Cir. 1941)(quoted in Shell Oil, 488
U.S. at 25 n.6)).
When read in its entirety with these precepts in mind, Section
26
1446 requires that we interpret the one-year limitation on
diversity removals as applying only to the second paragraph of that
section, i.e., only to cases that are not initially removable.
Section 1446(b) consists of two single sentence paragraphs. The
first paragraph applies only to civil actions in which the case
stated by the initial pleading is removable. The second paragraph
applies only to civil actions in which the initial pleading states
a case that is not removable. The dependent phrase -- “except that
a case may not be removed on the basis of jurisdiction conferred by
section 1332 of this title more than 1 year after commencement of
the action” -- is incorporated into the second paragraph.
Normally, one would read such a phrase as relating only to the
sentence or paragraph of which it is a part. Section 1446(b) does
not reasonably indicate a contrary intention. Courts applying the
one-year limitation to the first paragraph of Section 1446(b) can
do so only by distorting its ordinary meaning. They are forced to
read the words “except that” out of the statute and treat the
remainder of the phrase as if it were an independent one-sentence
paragraph. They, in effect, must rewrite the statute. For if the
statute is read as written, it is not plausible that Congress
intended to affect the statement of the first paragraph by creating
an exception to that made by the second paragraph. If Congress had
intended for the one-year limit to apply to all diversity removals,
it is highly unlikely it would have chosen such an eccentric and
obscure means to accomplish its purpose. See 14A WRIGHT supra §
3723, at 284 (Supp. 1997).
27
Although the scant legislative history regarding Section
1446(b) is not completely without ambiguity, it lends substantial
support to this interpretation. The legislative history provides:
Subsection (b)(2) amends 28 U.S.C. s 1446(b) to
establish a one-year limit on removal based on diversity
jurisdiction as a means of reducing the opportunity for
removal after substantial progress has been made in state
court. The result is a modest curtailment in access to
diversity jurisdiction. The amendment addresses problems
that arise from a change of parties as an action
progresses toward trial in state court. The elimination
of parties may create for the first time a party
alignment that supports diversity jurisdiction. Under
Section 1446(b), removal is possible whenever this event
occurs, so long as the change of parties was voluntary as
to the plaintiff. Settlement with a diversity-destroying
defendant on the eve of trial, for example, may permit
the remaining defendants to remove. Removal late in the
proceedings may result in substantial delay and
disruption.
H.R. REP. NO. 100-889 (1988), reprinted in 1988 U.S.C.C.A.N. 5982,
6031-6034; see also 134 CONG. REC. 31064 (1988).
The congressional report states that the one-year limit on
removal based on diversity jurisdiction establishes “a means of
reducing the opportunity for removal after substantial progress has
been made in state court.” Id. Substantial state court progress
28
cannot occur in cases that are initially removable under the first
paragraph of Section 1446(b), (unless, of course, the defendant
fails to remove, in which event the case will remain in state court
and the expenditure of its resources will not have been wasted).4
The report also states that the legislation addresses problems that
arise from “a change of parties as an action progresses toward
trial in state court,” such as “when the elimination of parties may
create for the first time a party alignment that supports diversity
jurisdiction.” Id. Congressional concern is expressed that
“settlement with a diversity-destroying defendant on the eve of
trial, for example, may permit removal by the other defendants,
causing substantial delay and disruption.” Id. These problems are
associated with cases not initially removable on diversity grounds
that are governed by the second paragraph of Section 1446(b), not
with cases dealt with in the Section’s first paragraph, in which
the initial pleading sets forth a case removable on the basis of
diversity jurisdiction.
In the present case, the initial pleading of Smith I sets
4
Even if there are multiple defendants, the general rule is
that “‘[i]f the first served defendant abstains from seeking
removal or does not effect a timely removal, subsequently served
defendants cannot remove . . . due to the rule of unanimity among
defendants which is required for removal.’” Brown v. Demco, Inc.,
729 F.2d 478, 481 & n.11 (5th Cir. 1986)(quoting 1A JAMES WM. MOORE
ET AL., MOORE’S FEDERAL PRACTICE, ¶ 0.168 [3.5-5], 586-87 (2d ed. 1985)
and citing 14A CHARLES A. WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE:
JURISDICTION 2d, § 332 at 531-32)); accord Getty Oil Corp. v.
Insurance Co. of N. Am., 841 F.2d 1254, 1262-63 (5th Cir. 1988);
Brooks v. Rosiere, 585 F. Supp. 351, 353 (E.D. La. 1984);
Friedrich v. Whittaker Corp., 467 F. Supp. 1012, 1013-14 (S.D. Tex.
1979); Jones v. Scogin, 929 F. Supp. 987 (W.D. La. 1996); see
also 16 JAMES WM. MOORE, MOORE’S FEDERAL PRACTICE, ¶ 107.30[3][a] (3d ed.
1997).
29
forth a case that is removable on the basis of diversity
jurisdiction. The first paragraph of Section 1446(b) provides that
the notice of removal of such a civil action shall be filed within
thirty days after the receipt by the defendant of a copy of the
initial pleading. The defendant New York Life filed its notice of
removal timely within thirty days of its receipt of the plaintiff’s
initial pleading. Consequently, there was no procedural defect in
the removal of Smith I, and the district court reached the correct
result in denying Smith’s motion to remand that case to state
court.
Smith also argues that the district court erred in not
allowing her to amend her petition in Smith I to name Broussard as
a defendant so as to destroy complete diversity and require a
remand of the case. We do not reach this issue because the Eastern
District Court’s injunction prevents Smith from proceeding further
in Smith I.
Because Smith I was properly before the Western District
Court, and we have affirmed the judgment of the Eastern District
Court permanently enjoining Smith from proceeding in Smith I, we
find no error in the Western District Court’s decision to dismiss
Smith I based on that injunction.
IV.
For the reasons assigned, (1) the judgment of the Eastern
District Court in No. 96-31260 is AFFIRMED, (2) the judgment of the
Western District Court in No. 96-31269 with respect to Smith I is
AFFIRMED, and (3) the judgment of the Western District Court in No.
30
96-31269 with respect to Smith III is VACATED, and Smith III is
REMANDED to the district court with instructions to REMAND the case
to the state court.
31