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Hipps v. Biglari Holdings, Inc.

United States District Court, S.D. Indiana, Indianapolis Division

March 26, 2018

JOSEPH HIPPS, Plaintiff,
v.
BIGLARI HOLDINGS, INC., SARDAR BIGLARI, PHILIP L. COOLEY, KENNETH R. COOPER, JAMES P. MASTRIAN, RUTH J. PERSON, Defendants.

          REPORT AND RECOMMENDATION REGARDING PLAINTIFF'S MOTION TO REMAND

          Tim A. Baker, United States Magistrate Judge

         I. Introduction

         Before the Court is Plaintiff Joseph Hipps's motion to remand this action to the Hamilton Superior Court. [Filing No. 11.] Hipps also asks the Court to impose sanctions and award fees. Hipps commenced this action in Hamilton Superior Court to enjoin Defendants Sardar Biglari, Philip L. Cooley, Kenneth R. Cooper, James P. Mastrain, and Ruth J. Person (the “Individual Defendants”) and Defendant Biglari Holdings, Inc. from a proposed reclassification of Biglari Holdings and to prevent a special meeting of shareholders to vote on the proposed reclassification. Defendants removed this action to this Court, indicating that they believe Biglari Holdings was fraudulently joined so as to trigger the “forum defendant” rule. In their response to Hipps's motion to remand, Defendants argue that Biglari Holdings was fraudulently joined to prevent removal and that Biglari Holdings is a nominal party, so its citizenship should be ignored. However, Defendants fail to show the fraudulent joinder doctrine applies to a diverse, forum defendant and fail to show that Biglari Holdings is a mere nominal defendant. Therefore, remand is appropriate. [Filing No. 11.]

         Hipps's motion also asks the Court to impose sanctions in the form of an injunction and to award fees and costs under 28 U.S.C. § 1447(c). However, such an injunction, if warranted, would be better administered by Hamilton Superior Court, and Hipps failed to meet its burden of showing that Defendants lacked an objectively reasonable basis for removal. Accordingly, sanctions and fees are not appropriate.

         II. Background

         Hipps filed a shareholder class action in Hamilton Superior Court alleging the Individual Defendants breached their fiduciary duties as members of Biglari Holdings' board of directors in connection with a pending reclassification of Biglari Holdings' capital structure. Hipps alleges that if the vote is allowed to take place, the reclassification will be approved because Sardar Biglari is the controlling shareholder. In an attempt to prevent the restructuring, Hipps sought an injunction, and the state court set a hearing on the issue. However, before the hearing the Individual Defendants timely removed to this Court with the consent of Biglari Holdings. The removal is based on the Court's diversity jurisdiction, and there is no dispute that there is complete diversity.[1]

         III. Discussion

         a. Forum Defendant, Fraudulent Joinder, and Nominal Parties

         Even when there is complete diversity, the removing defendant must clear the “additional hurdle” of 28 U.S.C. § 1441(b)(2)-otherwise known as the “forum defendant rule.” Morris v. Nuzzo, 718 F.3d 660, 665 (7th Cir. 2013) (quoting Hurley v. Motor Coach Indus., Inc., 222 F.3d 377, 378 (7th Cir. 2000)). This hurdle is straight forward: “A civil action removable solely on the basis of [diversity jurisdiction] 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.” 28 U.S.C. § 1441(b)(2). The forum defendant rule “is designed to preserve the plaintiff's choice of (state) forum under circumstances where it is arguably less urgent to provide a federal forum to prevent prejudice against an out-of-state party.” Hurley, 222 F.3d at 380. The presence of Biglari Holdings as a defendant triggers the forum defendant rule in this instance. Biglari Holdings is incorporated in Indiana and is therefore a citizen of Indiana. Yet, Defendants removed the case to federal court.

         Defendants argue that they can clear the forum defendant rule hurdle by removing Biglari Holdings' citizenship from consideration. As the parties seeking removal, Defendants bear the burden of proving removal is proper and any doubt is “resolved in favor of the plaintiff's choice of forum in state court.” See Morris, 718 F.3d at 668. Defendants offer two arguments: 1) Biglari Holdings was fraudulently joined and 2) Biglari Holdings is merely a nominal party whose citizenship is irrelevant. Neither argument is persuasive.

         “Under the fraudulent joinder doctrine . . ., an out-of-state defendant's right of removal premised on diversity cannot be defeated by joinder of a nondiverse defendant against whom the plaintiff's claim ‘has no chance of success.'”[2] Morris, 718 F.3d at 666 (quoting Poulos v. Naas Foods, Inc., 959 F.2d 69, 73 (7th Cir. 1992). Defendants argue that Biglari Holdings is fraudulently joined because Hipps fails to level a claim against it, much less a claim with a chance of success.

         In their zeal to clear the hurdle of the forum defendant rule, Defendants leapt right over an important initial question: does the fraudulent joinder doctrine apply when the defendant in question does not destroy diversity, but merely triggers the forum defendant rule? This is an open question that the Seventh Circuit expressly left undecided:

It seems to us that extending the fraudulent joinder doctrine to diverse resident defendants would constitute a nontrivial expansion of the removal right. To offer a first appellate resolution of a question not often considered even in district courts in a case in which the briefs are, at best, unhelpful, would be unwise . . . . Accordingly, we will lay out the policy factors we deem to be the most relevant in considering whether to extend the doctrine, but ultimately do not decide the issue.

Morris, 718 F.3d at 668. In Bahalim v. Ferring Pharm., Inc., 16 C 8335, 2017 WL 118418, at *3-4 (N.D. Ill. Jan. 12, 2017), the defendant successfully argued that the Morris factors favored application, but the court merely found that the fraudulent joinder doctrine ...


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