MEMORANDUM OPINION AND ORDER
This matter is before the Court on Plaintiffs' Motion for Abstention and Remand [DN 21]. Also before the Court is Plaintiffs' Motion for Enlargement of Page Limit for their Reply [DN 35]. Fully briefed, this matter is ripe for decision. For the following reasons, the motions are GRANTED.
In August of 2004, Eastern Livestock Co., LLC ("Eastern Livestock"), a livestock brokerage company with operations in eleven states, refinanced the bulk of its indebtedness through Defendant Fifth Third Bank, Inc. ("Fifth Third"). Fifth Third and Eastern Livestock executed a credit agreement and a security agreement, under which Fifth Third extended Eastern Livestock a revolving credit line in the amount of $22.5 million. Fifth Third took Eastern Livestock's equipment, livestock, inventory, bank accounts, and accounts receivable as collateral. Between 2004 and 2010, Eastern Livestock regularly bought livestock from Plaintiffs, using checks drawn from its Fifth Third account.*fn1
Despite its Fifth Third credit line, Eastern Livestock was starved for cash. In an attempt to generate additional working capital, some of Eastern Livestock's officers and principals-namely, Defendants Darren Brangers, Grant Gibson, and Stephen McDonald-became involved in a check kiting scheme. Essentially, these officers and principals would issue checks to and from certain bank accounts belonging to Eastern Livestock's agents, owners, and associates, as well as to and from its accounts with Fifth Third. This effectively allowed the company to borrow additional funds while creating the appearance that it was both solvent and flourishing. According to Plaintiffs, Fifth Third became aware of this check kiting scheme as early as 2007, when its computer detection software began raising red flags concerning Eastern Livestock. But despite this awareness, Fifth Third chose to take no action regarding Eastern Livestock's accounts. Instead, it decided to collect millions of dollars in additional fees and interest under the $22.5 million revolving credit line.
Plaintiffs assert that thereafter, in 2010, the check kiting scheme became even more apparent and Fifth Third set in motion a plan to minimize its losses. According to Plaintiffs, Fifth Third knew that the peak of Eastern Livestock's annual cattle sales was in late October or early November. Thus, it knew that tens of millions of dollars worth of checks would be deposited into Eastern Livestock's account at Fifth Third--and that Eastern Livestock would have tens of millions of dollars worth of checks that were issued and outstanding. With this knowledge, Fifth Third laid in waiting. Then, on November 2, 2010, it froze Eastern Livestock's accounts and its entire cash flow, without notifying the company of its actions. After the account freeze, Eastern Livestock's business continued for days and Fifth Third continued clearing checks in Eastern Livestock's accounts. As a result, the accounts filled up with cash from the livestock transactions. Thereafter, claiming the deposits as "collateral," Fifth Third applied them to offset its exposure on the check kiting scheme. While this was ongoing, Plaintiffs continued to relinquish possession and control of their livestock to Eastern Livestock. In exchange, Plaintiffs received checks from Eastern Livestock that Fifth Third later refused to honor.
On November 10, 2010, a receiver was appointed for Eastern Livestock. On December 6, 2010, an involuntary Chapter 11 bankruptcy petition was filed in the U.S. Bankruptcy Court for the Southern District of Indiana. All of the cattle that were part of Eastern Livestock's assets, including those sold by Plaintiffs, and the proceeds from the sale of those cattle, became part of the bankruptcy estate. Thereafter, on December 17, 2012, the trustee's Plan of Liquidation was confirmed. Under this plan, Eastern Livestock's assets are to be reduced to cash and distributed to its creditors. See In re Eastern Livestock Co., LLC, No. 10-93904 [DNs 1490, 1644] (Bankr. S.D. Ind. Dec. 17, 2012).
On November 2, 2012, Plaintiffs filed suit in the Allen Circuit Court against Fifth Third, as well as against Brangers, Gibson, and McDonald, who participated in the check kiting scheme. West Kentucky Livestock Market, LLC, which operated a stockyard known as the "Marion Facility," was also named as a defendant. In total, the complaint asserted nine causes of action against Defendants, including: conversion, unjust enrichment, and aiding and abetting fraud against Fifth Third; theft by deception against Brangers, Gibson, and McDonald; aiding and abetting theft by deception against Fifth Third; aiding and abetting Eastern Livestock's breach of trust relationship; tortious interference with Eastern Livestock's contractual and business relationships; and equitable accounting against West Kentucky Livestock Market. However, this complaint and the summonses were not served on Defendants. (See Aff. of Michael J. Gartland [DN 36-2] ¶¶ 4--5 (noting that summonses were issued to, and retained by, Plaintiffs' counsel).) On November 26, 2012, Plaintiffs filed a First Amended Complaint, adding two plaintiffs to the action. This amended complaint and the summonses were served on Defendants. On December 12, 2012, Fifth Third removed this action to federal court under 28 U.S.C. § 1441(a), asserting the existence of diversity, bankruptcy, and supplemental jurisdiction.
On December 28, 2012, Plaintiffs filed a Second Amended Complaint, without the Court's leave, in which they added another new plaintiff, expanded on the facts, and added Brangers, Gibson, and McDonald to Count III's aiding and abetting fraud claim. On January 9, 2013, Fifth Third filed an Amended Notice of Removal, asserting federal question jurisdiction as another basis for removal. Plaintiffs then filed a motion for remand to the Allen Circuit Court, contesting the existence of any type of federal jurisdiction. In the event the Court finds that it has bankruptcy jurisdiction, Plaintiffs request that the Court abstain from exercising such jurisdiction.
On December 12, 2012, Fifth Third removed this action from state to federal court. Plaintiffs thereafter filed a motion for remand to the Allen Circuit Court. As the removing party, Fifth Third bears the burden of establishing federal jurisdiction. See Alexander v. Elec. Data Sys. Corp., 13 F.3d 940, 948--49 (6th Cir. 1999). "All doubts as to the propriety of removal are resolved in favor of remand." Coyne v. Am. Tobacco Co., 183 F.3d 488, 493 (6th Cir. 1999).
As a threshold matter, the Court must determine the point at which to test federal jurisdiction. Plaintiffs argue that the Court must test federal jurisdiction against the Second Amended Complaint because Fifth Third filed its Amended Notice of Removal after that complaint was filed. According to Plaintiffs, the amended notice superseded the original, and the Court must test federal jurisdiction anew from its filing. Plaintiffs assert that this situation is analogous to courts testing jurisdiction at the filing of an amended complaint. See Rockwell Int'l Corp. v. United States, 549 U.S. 457, 473--74 (2007) (noting that "when a plaintiff files a complaint in federal court and then voluntarily amends the complaint, courts look to the amended complaint to determine jurisdiction"). Fifth Third counters that the Court must instead test federal jurisdiction against the First Amended Complaint, as that complaint was in effect on December 12, 2012 when the original notice was filed.
It is well-settled that when considering a motion to remand, a court must determine whether it has subject matter jurisdiction "by examining the complaint as it existed at the time of removal." Harper v. AutoAlliance Int'l, Inc., 392 F.3d 195, 210 (6th Cir. 2004) (emphasis added); see Coyne, 183 F.3d at 492 (noting that when an action is removed on diversity, courts "must determine whether complete diversity exists at the time of removal"). In the present case, the First Amended Complaint was operative at the time of removal. Accordingly, the Court will consider it in determining whether subject matter jurisdiction exists.*fn2 Plaintiffs have identified no cases which suggest that once a notice of removal is amended, the Court should treat the initial notice of removal as if it were never filed.
However, even if the Court were to analyze the Second Amended
Complaint in determining federal jurisdiction, its conclusions here
would be the same given Magistrate Judge Brennenstuhl's order entered
February 15, 2013. (Order [DN 33].) Essentially, Plaintiffs ask the
Court to analyze the Second Amended Complaint to bolster their
fraudulent joinder argument. As discussed below, Fifth Third argues
that Defendant Brangers, a non-diverse defendant, was fraudulently
joined since the claim against him in Count IV is time-barred.
Plaintiffs wish to argue that regardless of the proper limitations period for Count IV, Fifth Third still cannot show
fraudulent joinder since the claim against Defendant Brangers in Count
III of the Second Amended Complaint is not time-barred.*fn3
However, Magistrate Judge Brennenstuhl has held that
Plaintiffs cannot assert Count III against Brangers. (Id. at 11.)
Thus, the Court's analysis of fraudulent joinder will focus on Count
IV, which is the same in the First and Second Amended Complaints.
Removal from state to federal court is proper for "any civil action brought in a State court of which the district courts of the United States have original jurisdiction . . . ." 28 U.S.C. § 1441(a). District courts have original jurisdiction of "civil actions where the amount in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between . . . citizens of different States . . . ." Id. § 1332(a). The Sixth Circuit has held that "fraudulent joinder of non-diverse defendants will not defeat removal on diversity grounds." Coyne, 183 F.3d at 493. To establish fraudulent joinder, a removing party "must present sufficient evidence that a plaintiff could not have established a cause of action against non-diverse defendants under state law." Id. Here, to determine whether Fifth Third has met this burden, the Court must analyze Plaintiffs' claim against Defendant Brangers, the only non-diverse defendant in this action. This claim is found in Count IV of the First Amended Complaint.
In Count IV of the First Amended Complaint, Plaintiffs allege that Brangers, in violation of Kentucky's theft by deception statute, KRS § 514.040, "operated to obtain property of the Plaintiffs by deception with the intent to deprive Plaintiffs thereof by intentionally creating or reinforcing a false impression as to the following: (1) Eastern's compliance with the PSA; (2) Eastern's solvency; and (3) Eastern's intention to fully discharge its obligations to pay for the livestock under the PSA." (1st Amend. Compl. [DN 1-1] ¶ 158.) Plaintiffs also allege that they are entitled to damages for this violation under KRS § 446.070, which states that "[a] person injured by the violation of any statute may recover from the offender such damages as he sustained by reason of the violation, although a penalty or forfeiture is imposed for such violation." Kentucky courts have recognized that KRS § 446.070 was enacted "to codify common law negligence per se." St. Luke Hosp., Inc. v. Straub, 354 S.W.3d 529, 534 (Ky. 2011). The caption of Count IV states that this claim is for theft by deception.
In their Notice of Removal, Fifth Third contends that the applicable statute of limitations for Plaintiffs' claim against Defendant Brangers is a one-year statute found in KRS § 413.140(1)(j). This statute applies to "action[s] for the recovery of damages or the value of stolen property, against the thief or any accessory." KRS § 413.140(1)(j). According to Fifth Third, application of this statute is proper since Brangers allegedly stole Plaintiffs' cattle by deceiving them as to Eastern Livestock's solvency. Fifth Third highlights that Count IV's caption states that the claim is for theft by deception. Importantly, if KRS § 413.140(1)(j) applies, Plaintiffs' claim against Brangers would be time-barred, as Plaintiffs' complaint was not filed until November 2, 2012 and the claim in Count IV accrued two years earlier, on November 2, 2010. (Mem. of Law in Supp. of Pls.' Mot. for Abstention & Remand [DN 21] 15.) Further, Defendant Brangers would be deemed fraudulently joined. See Simpson v. GGNSC Admin. Servs., LLC, 2008 WL 817084, at *3 (E.D. Ky. Mar. 20, 2008) (holding that a defendant was fraudulently joined when the claim against her was barred by a statute of limitations).
Plaintiffs, by contrast, argue that KRS § 413.140(1)(j) is not the applicable limitations period. Instead, Plaintiffs argue that the applicable period is either two years or five years. As to the two-year period, Plaintiffs rely on KRS § 413.125. This statute applies to "action[s] for the taking, detaining or injuring of personal property . . . ." KRS § 413.125. It is the applicable statute for negligence suits for damages to personal property. See Ingram Trucking, Inc. v. Allen, 372 S.W.3d 870, 873 (Ky. App. 2012) (applying KRS § 413.125 to a property damage claim arising from negligence during an automobile accident). Plaintiffs assert that application of this statute is proper because their personal property (i.e. cattle) was wrongfully taken. Plaintiffs also suggest that application of this statute is proper because their claim is truly one for negligence per se. While Plaintiffs concede that Count IV could have been captioned better, they insist that their reliance on KRS § 514.040, the theft by deception statute, was intended to provide a statutory standard of care. Further, since Plaintiffs are in the class of persons that KRS § 514.040 was intended to protect, their claim should be permitted to proceed. See Davidson v. Am. Freightways, Inc., 25 S.W.3d 94, 99--100 (Ky. 2000) (noting that negligence per se exists "only if the alleged offender has violated a statute and the plaintiff was in the class of persons which that statute was intended to protect"). As to the five-year period, Plaintiffs rely on KRS § 413.120(2). This statute applies to "action[s] upon a liability created by statute, when no other time is fixed by the statute creating the liability." KRS § 413.120(2). According to Plaintiffs, since their claim is brought under KRS § 446.070, which was enacted to codify common law negligence per se, and since that statute does not fix a time in which a party must commence an action, the limitations period is arguably five years.
To establish fraudulent joinder, a removing party "must present sufficient evidence that a plaintiff could not have established a cause of action against non-diverse defendants under state law." Coyne, 183 F.3d at 493. An action in federal court must be remanded "if there is a colorable basis for predicting that a plaintiff may recover against non-diverse defendants . . . ." Id. In other words, if "there is arguably a reasonable basis for predicting that the state law might impose liability on the facts involved," then it must be said that the joinder was proper and complete diversity is lacking. Alexander, 13 F.3d at 949. Notably, when making a determination regarding fraudulent joinder, a federal court must resolve "disputed questions and fact and ambiguities in the controlling state law . . . in favor of the nonremoving party." Id. (quotation omitted) (emphasis in original).
In this case, the Court finds that Fifth Third has not satisfied its burden of proving fraudulent joinder. The Court finds that Fifth Third has failed to present sufficient evidence showing that Plaintiffs could not have established a cause of action against Brangers under Kentucky law. While Fifth Third broadly and unequivocally states that the one-year period in KRS § 413.140(1)(j) applies, it seems to the Court that the two-year period in KRS § 413.125 arguably applies. While the caption of Count IV states that Plaintiffs' claim is for theft by deception, Count IV seeks damages under KRS § 446.070, which was enacted to codify negligence per se. Fifth Third has cited no cases in which a Kentucky court has applied KRS § 413.140(1)(j) to a claim made under KRS § 446.070 seeking damages for injury to personal property. Moreover, Fifth Third does not explain why it is unreasonable for Plaintiffs to argue that a claim under KRS § 446.070 should not be governed by the two-year limitations period in KRS § 413.125, which is applicable to other negligence claims for damage to personal property. Indeed, because both statutes arguably apply, the Court will construe the law in favor of Plaintiffs, the non-removing parties.
In support of its position, Fifth Third suggests that the Court must apply the one-year statute because courts must give force to a statute's plain language. See Cromwell Louisville Assocs. v. Commw., 323 S.W.3d 1, 6 (Ky. 2010) (noting that "[d]isregarding the plain language of the statute and trying to take part of another statute to extend the time line only perpetuates the absurdity"); see also Farm Credit Bank of Louisville v. U.S. Mineral Prods. Co., 864 F. Supp. 643, 649 (W.D. Ky. 1994) (interpreting the language of competing statutes of limitation). Fifth Third suggests that due to this rule, the Court should not ignore how closely the language of KRS § 413.140(1)(j) fits Plaintiffs' claim. In support of its position, Fifth Third maintains that if KRS § 413.140(1)(j) does not apply, it would be difficult to imagine any cause of action to which it would. However, the Court finds Fifth Third's argument unpersuasive. In Count IV, Plaintiffs arguably assert a negligence per se claim under KRS § 446.070, and courts have held that KRS § 413.125 applies to negligence claims involving personal property. Further, it appears to the Court that there is no risk that KRS § 413.140(1)(j) would be rendered meaningless if a court were to determine that KRS § 413.125 applies. After all, KRS § 413.140(1)(j) has been applied in cases where KRS § 446.070 was not asserted as a basis for recovery. See, e.g., Ball v. Stalnaker, 517 F. Supp. 2d 946, 947--48 (E.D. Ky. 2007) (recounting the application of KRS § 413.140(1)(j) in an underlying case involving claims of fraud, conversion, and theft). The statutes' plain language simply conflicts, giving rise to two plausible, alternative applications.
Fifth Third next contends that the Court must apply the one-year statute because where two statutes of limitations arguably apply, a "specific statute of limitation preempts a general statute of limitation." Boyd v. C & H Transp., 902 S.W.2d 823, 824 (Ky. 1995). According to Fifth Third, under this rule, even assuming that the two-year statute could apply, KRS § 413.140(1)(j) governs since it more specifically applies to claims brought against a thief for the recovery of damages. But Kentucky courts have also held that "a longer period of limitations should prevail where two statutes are arguably applicable." Troxell v. Trammel, 730 S.W.2d 525, 528 (Ky. 1987). Accordingly, there is ambiguity under Kentucky law and the Court must resolve this ambiguity in favor of Plaintiffs. As a result, the Court concludes that Defendant Brangers was not fraudulently joined. It follows that the Court lacks diversity jurisdiction and Fifth Third's removal on that ground was improper.*fn4
As a final matter, Fifth Third argues that Plaintiffs' claim against Defendant Brangers is time-barred even if the two-year period of KRS § 413.125 applies. In support, Fifth Third notes that "the statute of limitations runs until a summons is actually issued." Bradford v. Bracken Cnty., 767 F. Supp. 2d 740, 745 (E.D. Ky. 2011). Fifth Third then states that it "appears that no summons was issued with Plaintiffs' November 2, 2010 Complaint." (Def.'s Mem. in Opp. to Remand or Abstention [DN 32] 16.) According to Fifth Third, summonses were not issued until November 30, 2012, after the First Amended Complaint was filed. Because this is twenty-eight days after a two-year statute would have run, Brangers was fraudulently joined even if KRS § 413.125 applies.
Plaintiffs counter that the Allen Circuit Clerk did, in fact, issue the summonses on November 2, 2012. However, the summonses were mailed to Plaintiffs' counsel, at their request, instead of to Defendants. According to Plaintiffs' counsel, this was done because Plaintiffs contemplated that an amended complaint would be filed soon thereafter to name additional plaintiffs. (See Aff. of Michael J. Gartland [DN 36-2] ¶¶ 4--5.) Plaintiffs' counsel asserts that Plaintiffs wanted to "avoid spending time and resources serving two complaints within a matter of weeks," when Plaintiffs knew that "the only difference between the Original Complaint and Amended Complaint would be the identification of additional Plaintiffs." Plaintiffs' counsel further asserts that "Plaintiffs certainly were not trying to take advantage of, deceive, or be underhanded as to any of the Defendants." (Id. ¶ 10.)
CR 3.01 states that a "civil action is commenced by the filing of a complaint with the court and the issuance of a summons or warning order thereon in good faith." CR 3.01. "The rule seems to be that if, when the summons was issued, the plaintiff had a bona fide, unequivocal intention of having it served presently or in due course or without abandonment, the summons was issued in good faith." Roehrig v. Merchs. & Buisnessmen's Mut. Ins. Co., 391 S.W.2d 369, 371 (Ky. 1965). Good faith "can be, and usually is, something less than perfection or complete accuracy," and above all, "it means not to take advantage of, not to deceive, not to be underhanded." Id. at 370. In this case, Plaintiffs' counsel accepted the issued summonses and retained them. According to counsel, this was done because Plaintiffs contemplated that an amended complaint ...