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DUROVE v. FABIAN TRANSPORT INC.

United States District Court, S.D. New York


December 10, 2004.

ZDENKO DUROVE, Plaintiff,
v.
FABIAN TRANSPORT INC., et al., Defendants.

The opinion of the court was delivered by: RICHARD HOLWELL, District Judge

Memorandum Opinion and Order

Plaintiff commenced this personal injury action on August 4, 2004 in the Supreme Court of the State of New York, Bronx County, alleging that he suffered burns, infections and scarring when a defective container of industrial cleaning product called "Zep Oven Brite" leaked onto his feet and lower extremities. The claim was brought against defendants Acuity Specialty Products Group, Inc. ("Acuity"), Zep Manufacturing Co. ("Zep"), Stacey Stewart-Keeler ("Stewart-Keeler") and Fabian Transport, Inc. ("Fabian"), seeking damages "in excess of the jurisdictional limits of the lower Courts of" New York State. (Compl. ¶ 81).*fn1

On August 30, 2004, defendants Zep and Stewart-Keeler filed a Notice of Removal pursuant to 28 U.S.C. §§ 1332(a)(1)*fn2 and 1441(a),*fn3 on the grounds that (i) Stewart-Keeler was fraudulently joined in order to defeat diversity jurisdiction and (ii) complete diversity exists with respect to plaintiff's remaining claims against the properly joined defendants. On September 15, 2004 plaintiff duly responded by moving to remand the proceedings to state court; in his moving papers, plaintiff both denies that Stewart-Keeler is fraudulently joined and argues that removal was improper under 28 U.S.C. § 1441(b)*fn4 because plaintiff, Stewart-Keeler and Zep are all citizens and residents of New York State. (See Affirmation in Support by Lisa Ruiz ¶¶ 2-3.). Thus, the sole issue before the Court is whether removal was proper.*fn5 For the reasons set forth below, the Court finds that removal was not proper, and therefore grants plaintiff's motion to remand [3-1]. Discussion

  Where, as here, removal is premised on the diversity of the parties to the action, federalism concerns are implicated by the jurisdictional analysis. In light of Congress' intent to limit the jurisdiction of federal courts, and recognizing the "importance of preserving the independence of state governments," Lupo v. Human Affairs Int'l, Inc., 28 F.3d 269, 274 (2d Cir. 1994), reviewing courts should "construe the removal statute narrowly," Arseneault v. Congoleum, 2002 WL 472256 at *2 (S.D.N.Y. 2002), and resolve all doubts "in favor of remand." Miller v. First Security Investments, Inc., 30 F.Supp.2d 347, 350 (E.D.N.Y. 1998) (internal quotation marks omitted). For the same reasons, the party invoking removal jurisdiction bears the burden of establishing subject matter jurisdiction on a motion to remand. United Food & Commercial Workers Union, Local 919, AFL-CIO v. CenterMark Properties, 30 F.3d 298, 301 (2d Cir. 1994).

  Under 28 U.S.C. 1332(a)(2), this Court has original subject matter jurisdiction over a claim if the matter in controversy exceeds $75,000 and is between "citizens of different states." 28 U.S.C. § 1332(a)(2). In recognition of the federalism concerns identified above, subject matter jurisdiction under § 1332(a)(2) has been interpreted to require complete diversity, such that the citizenship of each plaintiff must be different from that of each defendant. Caterpillar Inc. v. Lewis, 519 U.S. 61, 75-78 (1996). Moreover, even if complete diversity is demonstrated, the action "shall be removable only if none 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); Vasura v. Acands, 84 F.Supp.2d 531, 538 (S.D.N.Y. 2000). Defendants concede that, like plaintiff, individual defendant Stewart-Keeler is a citizen and resident of New York State,*fn6 but the parties disagree about the citizenship of corporate defendant Zep. Accordingly, plaintiff's motion to remand must be granted unless the Court finds (i) that Zep is not a citizen of New York for purposes of 28 U.S.C. 1332(a)(1) and (ii) that Stewart-Keeler was fraudulently joined. These requisites are addressed in turn.

  1. Defendant Zep

  In their opposition to plaintiff's motion to remand, defendants describe Zep as a "division of Acuity Specialty Products Group, Inc.," but characterize Zep as a "trade name" and contend that it is "not a separate legal entity from Acuity." (Def. Memo. of Law in Opp. to Pl.Mot. to Remand, p. 2 ("Def. Opp. Memo.")). Plaintiff concedes that Acuity is a Delaware corporation headquartered in Georgia, and therefore acknowledges that it cannot be considered a domiciliary of New York State for diversity purposes, but argues that Zep is a distinct entity, pointing out that it "maintains an office" and "derives substantial revenue" from business conducted in New York State. (Pl. Reply Memo. of Law, p. 1 ("Pl. Reply")). According to plaintiff, this is enough to make Zep a "domiciliary of New York State." (Id., p. 4).*fn7

  The citizenship of a corporation for diversity purposes is governed by 28 U.S.C. § 1332, which states in pertinent part: "a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business." 28 U.S.C. § 1332(c). While arguing that Zep is a distinct entity, plaintiff concedes that Zep is a "division" of Acuity, and is therefore not a separately incorporated entity. (Pl. Reply, p. 4). For the purpose of determining diversity, the state of citizenship of an unincorporated division of a corporation is the same as the corporation that owns the division, in this case Georgia and Delaware. Paper Corporation of the U.S. v. Benedetto, Inc., 1993 WL 378341 at *2 n. 1 (S.D.N.Y. Sept 20, 1993); Wisconsin KnifeWorks v. National Metal Crafters, 781 F.2d 1280, 1282 (7th Cir. 1986). Accordingly, despite the presence of a branch office in New York, Zep is a citizen of Georgia and Delaware for purposes of 28 U.S.C. § 1332(a), and is therefore a diverse party.

  2. Defendant Stewart-Keeler

  The doctrine of fraudulent joinder was created to prevent plaintiffs from abusing 28 U.S.C. § 1332(a) by joining non-diverse parties solely in an effort to defeat federal subject matter jurisdiction. Accordingly, district courts considering claims of fraudulent joinder must scrutinize a plaintiff's pleadings, and, as defendants suggest, are permitted to "overlook the presence of a non-diverse defendant if . . . there is no possibility that the claims against that defendant could be asserted in state court." Briarpatch Ltd., L.P v. Phoenix Pictures, Inc., 373 F.3d 296, 302 (2d Cir. 2004); Pampillonia v. RJR Nabisco, Inc., 138 F.3d 459, 460-61 (2d Cir. 1998) ("[A] plaintiff may not defeat a federal court's diversity jurisdiction and a defendant's right of removal by merely joining as defendants parties with no real connection with the controversy.") (citations omitted).

  However, defendants seeking removal on grounds of fraudulent joinder face a "heavy burden," and must prove "by clear and convincing evidence" that either (i) "there has been outright fraud committed in the plaintiff's pleadings" or (ii) "that there is no possibility, based on the pleadings, that the plaintiff can state a cause of action against the non-diverse defendant in state court." 138 F.3d at 461. In recognition of the fact that federal courts should "scrupulously confine their own jurisdiction", Shamrock Oil & Gas Corp. v. Sheets, et al., 313 U.S. 100, 109 (1941) (citations and internal quotation marks omitted), all factual and legal ambiguities must be resolved in favor of the plaintiff. Id.

  Here, defendants argue that plaintiff cannot state a claim against Stewart-Keeler, even resolving all factual and legal ambiguities in plaintiff's favor. The Court reads plaintiff's complaint as containing three identifiable claims against Stewart-Keeler, the first two of which the Court will consider as a failure to warn claim, and the last of which sounds in contract law. Plaintiff alleges that Stewart-Keeler:

(i) "negligent[ly] . . . sold, distributed, warranted, transported, shipped, stacked, sorted and delivered Zep to plaintiff" (Compl., para. 40);
(ii) "fail[ed] to warn . . . [the] intended consumer of the . . . risks and consequences associated with the selling, delivery, transport, stacking, sorting and shipping of Zep." (Compl., para. 43); and
(iii) "breached an express warranty" that "Zep [Oven Brite was] safe for its intended use." (Compl., para. 70).
  The parties agree that New York law applies, so the only issue to be resolved is whether — construing plaintiff's allegations in the most favored light — there is "[any] possibility . . . that the plaintiff [has stated] a cause of action" under New York law. Pampillonia, 138 F.3d at 461. Courts in this Circuit have interpreted the Pampillonia language strictly. See, e.g., Stan Winston Creatures, Inc. v. Toys "R" Us, Inc., 2003 WL 1907978 at * 4 (S.D.N.Y. Apr.17, 2003) (concluding that defendants had not shown that it was "legally impossible" for nondiverse defendant to be liable under state law); Nemazee v. Premier, Inc., 232 F.Supp.2d 172, 178 (S.D.N.Y. 2002) (noting that fraudulent joinder "turns on whether recovery is per se precluded"; "[a]ny possibility, even if slim, militates against a finding of fraudulent joinder"). This Court will do the same.

  It is well-settled under New York law that manufacturers and sellers have a duty to warn users of foreseeable dangers inherent in their products of which they knew or should have known. Rastelli v. Goodyear Tire & Rubber Co., 79 N.Y.2d 289, 297 (1992); McLaughlin v. Mine Safety Appliances Co., 11 N.Y.2d 62, 68 (1962). It is also unquestionable that New York plaintiffs can bring a failure to warn claim on the basis of strict products liability or traditional negligence. Bukowski v. CooperVision, Inc., 185 A.D.2d 31, 33 (N.Y.App. Div. 1993). In this case, it is unclear whether plaintiff's failure to warn claim sounds in both negligence and strict products liability, but because the Court is required to resolve all legal ambiguities in plaintiff's favor, 313 U.S. 100, 109, it will read the complaint to contain both claims.

  a. Negligent Failure to Warn

  In New York, to prove a prima facie case of negligence, a plaintiff must establish "(1) the existence of a duty on defendant's part as to plaintiff; (2) a breach of this duty; and (3) injury to the plaintiff as a result thereof." See, e.g., Akins v. Glens Falls City School Dist., 53 N.Y.2d 325, 333 (N.Y. 1981). Plaintiff's complaint contains factual allegations that, if true, would establish the second and third requirements. Thus, the only issue is whether plaintiff has pled facts sufficient to show that Stewart-Keeler had a duty to warn.

  Although the "the duty owed by one member of society to another is a legal issue for the courts," Eiseman v. State of New York, 70 N.Y.2d 175, 187 (N.Y. 1987), the question here is not whether a duty existed, but whether a clearly existing duty extended to Stewart-Keeler in her capacity as a "sales representative" for Acuity. (See Def. Opp. Memo., p. 3 (characterizing Stewart-Keeler as a "sales representative" employed by Acuity)).*fn8 Recognizing this, defendants maintain that even if a duty to warn existed, it did not extend to Stewart-Keeler. (Def. Opp. Memo., p. 3). That is, defendants contend that there is "no possibility that plaintiff can establish a cause of action against [Stewart-Keeler]" in her individual capacity because she "merely processed [plaintiff's] . . . order" and was "acting within the scope of her employment" at the time. (Id., p. 4). This argument begs the question, though, because it leaves unresolved the critical issue: the nature of Stewart-Keeler's employment relationship with Zep and Acuity.

  Plaintiff alleges in his complaint that, at the time he purchased Zep Oven Brite, Stewart-Keeler was, inter alia, a "business entity authorized to and doing business in the State of New York," (Compl. ¶ 18); at the same time, plaintiff describes Stewart-Keeler as "an agent" of Zep and Acuity, doing business on their behalf. (Compl. ¶¶ 19-20). In yet another portion of the complaint, plaintiff maintains that Stewart-Keeler was "in the business of selling, transporting, packaging, stacking, shipping and distributing hazardous chemicals and substances," including Zep Oven Brite. (Compl. ¶ 28). In his moving papers, plaintiff variously states that he interacted with Stewart-Keeler at the express direction of Zep's customer service department, and notes that he "twice purchased [Zep Oven Brite cleaner] through [her]." (Aff. of Zdenko Durove ¶ 4, attached as Ex. A to Pl. Reply ("Durove Aff.")). Plaintiff further notes that Stewart-Keeler "came to [his] home office and wrote up the sale as well as deliver[ed] supplies to [him] on more than one occasion in Bronx, New York." (Id. ¶ 5). Similarly, plaintiff contends that Ms. Keeler "made all of the shipping and delivery arrangements to [his] home office" with respect to Zep Oven Brite, (Id. ¶ 6), which she "regularly sold." (Compl. ¶ 21). Just as readily as these allegations suggest a traditional employee-employer relationship, they suggest that Stewart-Keeler was acting as an independent contractor when she transacted business with plaintiff.*fn9

  This uncertainty is fatal to defendants' fraudulent joinder claim. In New York, where the issue of duty turns on the resolution of a factual dispute, "the question . . . is not for the court as a matter of law," and must be determined at trial. Gordon v. Muchnick, 180 A.D.2d 715, 715 (N.Y.App. Div. 1992). Resolving all ambiguities in plaintiff's favor, it is simply unclear exactly what Stewart-Keeler's relationship was with Acuity and Zep at the time of the sale.*fn10 The existence and scope of Stewart-Keeler's duty to plaintiff, if any, may turn on the nature of that relationship. See, e.g., Bittler v. White and Co., Inc., 560 N.E.2d 979, 982-83 (Ill.App.Ct. 1990) (granting summary judgment against plaintiff on negligent failure to warn claim where evidence indicated that defendant sales representative was only indirectly involved in the sale of the product in question). Thus, it cannot be said that "there is no possibility that the claims against that defendant could be asserted in state court." Briarpatch Ltd., L.P v. Phoenix Pictures, Inc., 373 F.3d 296 (2d Cir. 2004); see also 63A Am.Jur. 2d Products Liability § 1131 ("the duty to warn may be imposed upon any of the parties within the chain of distribution."). Accordingly, because the Court finds that Stewart-Keeler was not fraudulently joined, and because it is undisputed that Stewart-Keeler is a citizen and resident of New York for diversity purposes, plaintiff's motion to remand must be granted.*fn11

  b. Strict Products Liability

  Although the above discussion serves as an independent ground for remand, the Court addresses plaintiff's strict products liability claim because it is resolved on largely the same basis as is the negligence claim, and will shed additional light on the Court's decision to remand the proceedings.

  In a strict tort liability action to recover for a seller's failure to warn, a plaintiff must plead and prove that the defendant sold the product that injured the plaintiff. However, the parties have not cited any New York case that addesses the question of whether Stewart-Keeler is a "product seller" within the meaning of § 402(a) of the Restatement (Second) of Torts § 402A. Comment f of the Restatement explains what is meant by the phrase "engaged in the business of selling":

The rule stated in this Section applies to any person engaged in the business of selling products for use or consumption. It therefore applies to any manufacturer of such a product, to any wholesale or retail dealer or distributor, and to the operator of a restaurant. It is not necessary that the seller be engaged solely in the business of selling such products. Thus the rule applies to the owner of a motion picture theatre who sells popcorn or ice cream, either for consumption on the premises or in packages to be taken home. The rule does not, however, apply to the occasional seller of food or other such products who is not engaged in that activity as a part of his business. Thus it does not apply to the housewife who, on one occasion, sells to her neighbor a jar of jam or a pound of sugar. Nor does it apply to the owner of an automobile who, on one occasion, sells it to his neighbor, or even sells it to a dealer in used cars, and this even though he is fully aware that the dealer plans to resell it. The basis for the rule is the ancient one of the special responsibility for the safety of the public undertaken by one who enters into the business of supplying human beings with products which may endanger the safety of their persons and property, and the forced reliance upon that undertaking on the part of those who purchase such goods. This basis is lacking in the case of the ordinary individual who makes the isolated sale, and he is not liable to a third person, or even to his buyer, in the absence of his negligence.
  Courts in other jurisdictions have defined the term "seller" broadly in the context of strict products liability, extending a duty to warn to a party that has any "participatory connection, for personal profit or other benefit, with the injury-causing product and with the enterprise that created consumer demand for and reliance upon the product." Kasel v. Remington Arms, Inc., 24 Cal.App.3d 711, 725 (Cal.Ct.App. 1972); see also Bittler v. White and Co., Inc., 560 N.E.2d 979, 982 (Ill App. Ct. 1990) (where exclusive sales representative derived economic benefit from sale of product in question, strict products liability claim for failure to warn survived motion to dismiss). Defendants have not established that a New York court would hold differently.

  Thus, because defendants have not shown that it is "legally impossible" for Stewart-Keeler to be held liable for failure to warn on a theory of strict products liability, Stan Winston Creatures, Inc., 2003 WL 1907978 at * 4, plaintiff's motion to remand must also be granted on this ground. Conclusion

  For the foregoing reasons, plaintiff's motion to remand [3-1] is GRANTED pursuant to 28 U.S.C. § 1447(c). The Clerk of the Court is directed to close the case.

  SO ORDERED.


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