United States District Court,

S.D. Texas,

Houston Division.

Will BLACK, et al, Plaintiffs,

v.

XPRESS GLOBAL SYSTEMS, INC. f/k/a CSI/Crown, Inc., Defendant.

Civil Action No. H-09-2912.

Nov. 12, 2009.

MEMORANDUM OPINION AND ORDER OF REMAND

KENNETH M. HOYT, District Judge.

I. Introduction

Pending before the Court is the defendant Xpress Global Systems, Inc.’s (“XGS”) motion to dismiss pursuant Federal Rule of Civil Procedure 12(b)(6) (Docket Entry No. 3). The plaintiffs, Will Black and Donna Black (collectively, the “Blacks”), submitted a response to this motion (Docket Entry No. 5) and a supplemental response to this motion (Docket Entry No. 6). XGS filed a reply to the Blacks’ responses (Docket Entry No. 7).

Further pending before the Court is the Blacks’ motion to remand to state court (Docket Entry No. 4). XGS submitted a response to this motion (Docket Entry No. 7). Having carefully reviewed the parties’ submissions, the record and the applicable law, the Court hereby GRANTS the Blacks’ motion to remand to state court and DENIES XGS’s motion to dismiss.

II. Factual Background

In 1997, the Blacks contracted with XGS (then known as CSI/Crown, Inc.) to store 373 square feet of carpet and a rug (collectively, the “carpet”) at its facilities. The present lawsuit arose after XGS was unable to produce the carpet at the Blacks’ demand.

Between 1997 and October of 2005, the Blacks maintained a current account with XGS for storage of the carpet. In October of 2005, the Blacks inquired about the condition of their property. In response, XGS told them that the carpet could not be located. XGS searched for the carpet until May of 2006, when the Blacks filed a claim with XGS requesting payment for the loss. They assert the value of the carpet to be approximately $20,000. XGS refused to pay the claim because the Blacks did not evidence the value of the lost property.

On July 3, 2008, the Blacks filed suit against XGS in the Justice Court, Precinct Four, Position One, Harris County, Texas, seeking to recover the value of the carpet. The case was tried in November of 2008. After both parties presented their case, Judge J. Kent Adams dismissed the suit with prejudice because the amount in controversy exceeded the court’s jurisdictional limits. On October 6, 2009, the court granted a motion for a judgment nunc pro tunc dismissing the case without prejudice.

The Blacks filed a second suit on August 5, 2009, in the 113th Judicial District Court of Harris County, Texas (Will Black and Donna Black v. Xpress Global Systems, Inc. f/k/a CSI/Crown, INC., Cause No.2009-49979). The suit alleged breach of contract and breach of a bailment agreement. XGS removed this case to federal court on September 8, 2009. It asserted that federal jurisdiction was proper because the Blacks’ claims fall under the Carmack Amendment (a federal law), which is the exclusive remedy a party has for damages to shipped property.

III. Contentions

A. The Defendant’s Contentions

XGS requests that this case be dismissed because the Blacks have failed to state a claim upon which relief can be granted. Specifically, it states that the present claims are precluded by the doctrine of res judicata and are time barred under the Carmack Amendment. Further, XGS argues that federal court jurisdiction is proper because the complaint (as alleged) falls under the Carmack Amendment. In the alternative, XGS claims that it could establish federal jurisdiction after limited discovery.

B. The Plaintiff’s Contentions

The Blacks state that this Court does not have jurisdiction over this case and should remand it to state court. To this end, the Blacks assert that their claims do not fall under the Carmack Amendment. Further, they claim that XGS previously waived any right it had to removal. In the alternative, were this Court to find the Carmack Amendment applicable, the Blacks argue that the statute of limitations on their claim has not run because it was tolled due to XGS’s failure to comply with procedural requirements. Lastly, the Blacks assert that res judicata is inapplicable because the predicate case was dismissed without prejudice.

IV. Standard of Review

The applicable statute provides two grounds for remand: (1) a defect in removal procedure; and (2) the lack of subject matter jurisdiction. See 28 U.S.C. § 1447(c); Things Remembered, Inc. v. Petarca, 516 U.S. 124, 127-28, 116 S.Ct. 494, 133 L.Ed.2d 461 (1995). A remand for lack of subject matter jurisdiction is permissible at any time before final judgment, with or without a motion. 28 U.S.C. § 1447(c). Here, the essential inquiry is whether removal of the state court action on the basis of federal question jurisdiction was proper in light of the facts presented.

Pursuant to 28 U.S.C. § 1441(a), a defendant is permitted to remove an action from a state court to a federal court only if the action is one over which the federal court has original jurisdiction. See 28 U.S.C. 1441(a). Since federal courts are courts of limited jurisdiction, absent jurisdiction granted by statute, federal courts lack the power to adjudicate claims. See Stockman v. Fed. Election Comm’n, 138 F.3d 144, 151 (5th Cir.1998) (citing Veldhoen v. U.S. Coast Guard, 35 F.3d 222, 225 (5th Cir.1994)). Thus, “[i]t is incumbent on all federal courts to dismiss an action whenever it appears that subject matter jurisdiction is lacking.” Id. at 151. Further, the party seeking to invoke the jurisdiction of a federal court carries the burden of establishing the existence of federal jurisdiction. Id. Any doubt as to the district court’s jurisdiction must be resolved in favor of remand. Bosky v. Kroger Tex., L.P., 288 F.3d 208, 211 (5th Cir.2002).

Federal subject matter jurisdiction is limited to cases that either “aris[e] under the Constitution, laws or treaties of the United States” or involve matters where the amount in controversy exceeds $75,000, exclusive of costs and interest, and diversity of citizenship exists. 28 U.S.C. §§ 1331, 1332. When determining whether a claim “arises under” federal law, courts should reference the well-pleaded complaint. See Merrell Dow Pharm. Inc. v. Thompson, 478 U.S. 804, 808, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986) (citing Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 9-10, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983)).

V. Analysis & Discussion

“[T]he Carmack Amendment, as judicially interpreted, provides an exclusive remedy for a breach of contract of carriage provided by a bill of lading …. “ Air Prods. and Chems., Inc. v. Ill. Cent. Gulf R.R. Co., 721 F.2d 483, 484-85 (5th Cir.1983). “[T]herefore, such claims ‘arise[ ] under federal law and [can] … be removed under [28 U.S.C.] § 1441.’ “ New Process Steel Corp. v. Union Pac. R.R. Co., 91 Fed. Appx. 895, 898 (5th Cir.2003) (unreported opinion) (quoting Hoskins v. Bekins Van Lines, 343 F.3d 769, 778 (5th Cir.2003)) (insertions and deletions in original). Accordingly, with regard to the propriety of the present case’s removal to federal court, the outcome determinative question is whether the present suit alleges “a breach of contract of carriage provided by a bill of lading.” The Blacks assert that their suit does not fall into this scope and therefore, removal was improper. The Court agrees.

“Under the well-pleaded complaint rule, ‘a federal court has … removal jurisdiction only if a federal question appears on the face of the plaintiff’s well-pleaded complaint; generally, there is no federal jurisdiction if the plaintiff properly pleads only a state law cause of action.’ “ Gutierrez v. Flores, 543 F.3d 248, 251-52 (5th Cir.2008) (quoting Bernhard v. Whitney Nat’l Bank, 523 F.3d 546, 551 (5th Cir.2008)). “However, the Supreme Court has created an exception to this rule when federal law wholly displaces a state law cause of action through complete preemption.” McAteer v. Silverleaf Resorts, Inc., 514 F.3d 411, 416 (5th Cir.2008) (citing Beneficial Nat’l Bank v. Anderson, 539 U.S. 1, 8, 123 S.Ct. 2058, 156 L.Ed.2d 1 (2003)). “[C]omplete preemption … creates federal question jurisdiction.” Rio Grande Underwriters, Inc. v. Pitts Farms, Inc. ., 276 F.3d 683, 685 (5th Cir.2001) (citing Hart v. Bayer Corp., 199 F.3d 239, 244 (5th Cir.2000)). “The Fifth Circuit has explicitly recognized the application of the complete-preemption doctrine to claims arising under the Carmack Amendment.” Marks v. Suddath Relocation Sys., Inc., 319 F.Supp.2d 746, 751 (S.D.Tex.2004) (citing Hoskins v. Bekins Van Lines, 343 F.3d 769, 778 (5th Cir.2003)).

As such, if the claims at bar fall under the Carmack Amendment’s purview, federal jurisdiction-and XGS’s removal to the court-would be proper. In describing the scope of the Carmack Amendment, Judge Gray Miller (S.D. Texas, Houston Div.) has stated:

The Carmack Amendment, enacted in 1906 as an amendment to the Interstate Commerce Act of 1887, now codified in pertinent part at 49 U.S.C. § 14706 et seq., governs the liability of carriers for goods lost or damaged during the interstate shipment of property. See 49 U.S.C. § 14706(a) (addressing liability of motor carriers). Under the Amendment, a shipper may recover for the actual losses resulting from damage to property caused by any of the interstate carriers involved in the shipment. See 49 U.S.C. § 14706.

United Van Lines, L.L.C. v. Jackson, 467 F.Supp.2d 711, 713 (S.D.Tex.2006); see also Hanlon v. United Parcel Serv., 132 F.Supp.2d 503, 505 (N.D.Tex.2001). Thus, this Court must determine whether the Blacks allege “damage to property caused by [an] interstate carrier[ ] involved in [their] shipment.” The Fifth Circuit has previously addressed this issue.

In Centraal Stikstof Verkoopkantoor, N.V. v. Alabama State Docks Dept., Centraal Stikstof Verkoopkantoor (“C.S.V.”) alleged damage to commercial fertilizer that was stored at the Alabama State Docks Department’s (“Docks”) warehouse. 415 F.2d 452, 454 (5th Cir.1969). The facts of the case are as follows:

C.S.V. unloaded a cargo of commercial fertilizer called nitrolime in good condition in September 1959 in a warehouse of Docks in Mobile, Alabama. A uniform warehouse receipt was issued. The nitrolime was damaged when a sprinkler system in the warehouse was activated. The contention of C.S.V. is that the nitrolime was improperly stored in that it was piled over the sprinkler system and the corrosive tendencies of the nitrolime on the metal components of the sprinkler system caused it to discharge.

This resume demonstrates a fact which will prove crucial in this Court’s determination, i.e.: Docks’ role was solely that of a warehouseman. C.S.V.’s own stevedore unloaded the ship which carried the nitrolime …. It is apparent that Docks was never involved in the transportation of the fertilizer. It merely stored the nitrolime for a fee.

Id. (emphasis added). Under these facts, C.S.V. alleged that the federal courts had jurisdiction because Docks was subject to, among other things, the Carmack Amendment. Id. at 455. The court rebuffed this argument by distinguishing common carriers from mere storers of goods and holding storers to be outside the scope of the Carmack Amendment. To this end, Centraal noted that “[t]his view is consistent with the common law which has traditionally refrained from classifying warehousemen as common carriers.” Id. at 456 (citation omitted).

The case at bar is factually consistent with Centraal. In their present complaint, the Blacks solely allege that XGS was deficient in storing their goods (as opposed to shipping them). In example, the Blacks allege that, with regard to their breach of contract claim, the parties “entered into a valid enforceable contract when the Plaintiff agreed to tender monies to the Defendant, and the Defendant agreed to store the Plaintiffs’ carpet in consideration for accepting Plaintiffs’ monies …. Defendant breached the contract when it ceased to provide storage for Plaintiffs’ carpet.” Further, with regard to their breach of a bailment agreement claim, the Blacks state that they “delivered personal property to Defendant for the specific purpose of Defendant storing the personal property …. Defendant breached this duty when it lost or converted Plaintiffs personal property.” As both of these quotations evince, the present cause of action arises from an alleged failure to safely store goods, not a failure to safely ship goods. Accordingly, the factual basis of the present suit is consistent with Centraal, and as such, the Carmack Amendment is not applicable. Therefore, federal court jurisdiction is improper, and this case must be remanded to state court.

The Court notes that XGS has requested that, if this case is determined to be outside the scope of the Carmack Amendment, this Court allow XGS limited discovery to determine if it shipped the carpet (in addition to merely storing it), such that the Carmack Amendment would be applicable. The Court declines to do so.

XGS failed to raise this argument in its notice of removal. It also failed to raise this issue in its motion to dismiss. Only in its response to the Blacks’ motion to remand to state court did XGS finally raise this argument. Such a late-presented argument does not warrant the exercise of the Court’s discretion to allow limited discovery. Further, XGS could have utilized state court discovery (prior to removal) to determine if removal was proper. XGS did not. This further reinforces the Court’s decision not to allow the requested limited discovery.

VI. Conclusion

Based on the preceding discussion, the Court hereby GRANTS the Blacks’ motion to remand to state court. This civil action is hereby remanded, pursuant to 28 U.S.C. § 1447(c), to the 113th Judicial District Court of Harris County, Texas, where it was originally filed and assigned Cause No.2009-49979.

It is so ORDERED.

S.D.Tex.,2009.

Black v. Xpress Global Systems, Inc.

Slip Copy, 2009 WL 3834419 (S.D.Tex.)

END OF DOCUMENT

Court of Appeal, Fourth District, Division 2, California.

ALAMO RECYCLING, LLC, Plaintiff, Cross-defendant and Appellant,

v.

SAN BERNARDINO TRUCKING, LLC et al., Defendants, Cross-complainants and Respondents.

No. E046244.

(Super.Ct.No. CIVSS804077).

Oct. 27, 2009.

OPINION

HOLLENHORST, Acting P.J.

Plaintiff Alamo Recycling, LLC (Alamo) contends the trial court abused its discretion in granting the motion of defendants San Bernardino Trucking, LLC (SB Trucking) and Abad Rodriguez (Rodriguez) (herein collectively referred to as Defendants) to disqualify Alamo’s counsel. We affirm.

I. PROCEDURAL BACKGROUND AND FACTS

On December 9, 2008, this court granted the November 17, 2008, request to augment the record with (1) motion to disqualify Alamo’s attorneys; (2) declaration of Rodriguez; (3) notice of nonreceipt of opposition to the motion to disqualify; (4) the court’s minute order dated June 25, 2008; and (5) the July 2, 2008 order granting the motion to disqualify.

On April 1, 2008, Alamo, represented by Gregory A. Paiva (Paiva) and The Law Offices of Gregory A. Paiva (the Law Firm), initiated this action against Defendants. Alamo was a recycling business that started in or about October 2006. From Alamo’s inception, Defendants ran its operation. About August 2007, Alamo noticed discrepancies in bank deposits. Alamo suspected that Defendants were not disclosing all monies and keeping cash transactions.

About January 2008, Alamo assumed its own day-to-day operations; however, it allowed SB Trucking to remain for hauling materials. One month later, Alamo still suspected that Defendants were not disclosing all monies. In March, Alamo discharged Defendants and anyone related to Rodriguez. That same month, Defendants purchased land and equipment at a location close to Alamo’s location for the purpose of conducting the same type of business. According to Alamo, Defendants harassed Alamo’s customers, entered its property without permission, and removed three Caterpillar forklifts.

On May 23, 2008, Defendants filed a motion to disqualify Paiva and the Law Firm from representing Alamo in the underlying action. The motion was supported by the declaration of Rodriguez with attached exhibits. The motion alleged that Paiva and the Law Firm previously represented Defendants in connection with matters substantially related to this action, that Paiva obtained confidential information from Defendants, and that Paiva is a witness, or potentially a cross-defendant, in this action. It was further asserted that Rodriguez never consented to Paiva’s representation of Alamo in this action.

In support of the motion, Rodriguez submitted a declaration. He stated that he was in the business of providing trucking and administrative services and owned specific trade equipment pertaining to the recycling industry. About May 2006, Michael Mendonca (Mendonca) sought to operate a recycling business and formed Alamo for that purpose. Rodriguez provided trucking and administrative services for Alamo and allowed Alamo to utilize certain trade equipment owned by Rodriguez on an “at will” basis in exchange for a percentage of Alamo’s profits. The Law Firm provided legal advice with respect to the parties’ business relationship relating to the recycling business.

Rodriguez and Mendonca discussed the need for estate planning. Mendonca introduced Rodriguez to Paiva of the Law Firm. Rodriguez hired Paiva and provided him with “detailed information concerning [Rodriguez’s] assets, including … various business interests, banking and investment accounts, real and personal property including where such assets are located.” Paiva created a family trust for Rodriguez and his wife, which was executed on July 24, 2006. Later that year, Rodriguez hired Paiva to collect on a defaulted note against the purchaser of real property owned by Rodriguez.

Paiva submitted a declaration in support of Alamo’s opposition to the motion. Paiva denied that the Law Firm was ever hired by Rodriguez to collect on a defaulted note; however, he acknowledged that the Law Firm had drafted a family trust and last will and testament for Rodriguez and his wife.

After considering the evidence and arguments, the trial court granted the motion to disqualify, stating that Paiva and the Law Firm “are disqualified from representing any party in the … action and are ordered not to disclose any confidential information gained by virtue of their representation of [Defendants] to [Alamo and Mendonca] or any representative thereof.”

II. DISCUSSION

A. Standard of Review

“ ‘A motion to disqualify counsel brings the client’s right to the attorney of his or her choice into conflict with the need to maintain ethical standards of professional responsibility. [Citations.] The paramount concern is the preservation of public trust in the scrupulous administration of justice and the integrity of the bar. [Citations.]’ [Citation.]

“ ‘Where an attorney successively represents clients with adverse interests, and where the subjects of the two representations are substantially related, … the attorney [must] be disqualified from the second representation. [Citation.]’ [Citation.] ‘[T]he substantial relationship test is “intended to protect the confidences of former clients when an attorney has been in a position to learn them.” ‘ [Citation.]

“The ‘court should “focus on the similarities between the two factual situations, the legal questions posed, and the nature and extent of the attorney’s involvement with the cases.” ‘ [Citation.] It should consider “ ‘… the attorney’s possible exposure to formulation of policy or strategy.” [Citation.]’ [Citation.] Where there is a substantial relationship, it is presumed the attorney had access to confidential information. [Citation.] ‘Generally, a trial court’s decision on a disqualification motion is reviewed for abuse of discretion.’ [Citations.]” ( Knight v. Ferguson (2007) 149 Cal.App.4th 1207, 1212-1213 (Knight ).)

B. Analysis

Alamo challenges the trial court’s order granting Defendants’ motion to disqualify, contending: (1) there was no conflict of interest; (2) its past representation of Rodriguez is over; (3) there is no substantial relationship between Defendants and the Law Firm or Paiva; (4) the integrity of the judicial process will not be injured, nor will Defendants be unfairly disadvantaged; and (5) even if a substantial relationship existed, Alamo already knew Defendants’ confidential information, because Mendonca had known Rodriguez for over five years and had acted as his real estate agent.

An attorney is required to avoid conflicts of interest in which duties owed to different clients are in opposition. ( Flatt v. Superior Court (1994) 9 Cal.4th 275, 282 & fn. 2, (Flatt ); Rules Prof. Conduct, rule 3-310(C).) A conflict of interest may arise when an attorney simultaneously or successively represents clients with adverse interests. (Flatt, supra, at pp. 283-284.) These situations implicate distinct ethical concerns and public policies. (Ibid.)

Assuming that Paiva and the Law Firm are not currently retained by Rodriguez to collect on a defaulted note, the undisputed facts establish that Paiva and the Law Firm did create a family trust for Rodriguez and his wife. When an attorney successively represents adversaries, “the chief fiduciary value jeopardized is that of client confidentiality,” not loyalty. ( Flatt, supra, 9 Cal .4th at p. 283.) The former client’s expectation of confidentiality must be preserved to ensure “ ‘ “the right of every person to freely and fully confer and confide in one having knowledge of the law, and skilled in its practice, in order that the former may have adequate advice and a proper defense.” [Citation.]’ “ ( People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1146 (SpeeDee Oil ), quoting Mitchell v.. Superior Court (1984) 37 Cal.3d 591, 599.) The attorney must maintain those confidences inviolate and preserve them at every peril. (Bus. & Prof.Code, § 6068, subd. (e).) By virtue of this duty, an attorney in actual possession of material confidential information from a former client may not represent an adverse party absent the former client’s consent. ( H.F. Ahmanson & Co. v. Salomon Brothers, Inc. (1991) 229 Cal.App.3d 1445, 1452; Rules Prof. Conduct, rule 3-310(E).)

In successive representation cases, if a “substantial relationship between the subjects of the prior and the current representations can be demonstrated, access to confidential information by the attorney in the course of the first representation (relevant, by definition, to the second representation) is presumed and disqualification of the attorney’s representation of the second client is mandatory….” ( Flatt, supra, 9 Cal.4th at p. 283; see also Rosenfeld Construction Co. v. Superior Court (1991) 235 Cal.App.3d 566, 575, [“ ‘If a substantial relationship is established, the discussion should ordinarily end. The rights and interests of the former client will prevail. Conflict would be presumed; disqualification will be ordered.’ “].) In the private arena, disqualification extends from the affected attorney to his or her firm. ( SpeeDee Oil, supra, 20 Cal.4th at p. 1146.) When a client has disclosed confidences to an attorney who later becomes the client’s litigation opponent, “[n]o amount of assurances or screening procedures, no ‘cone of silence,’ could ever convince the opposing party that the confidences would not be used to its disadvantage.” ( Cho v. Superior Court (1995) 39 Cal.App.4th 113, 125.) “No one could have confidence in the integrity of a legal process in which this is permitted to occur without the parties’ consent.” (Ibid.)

Applying the above to the facts of this case, we note that an attorney-client relationship existed between Rodriguez, on the one hand, and Paiva and the Law Firm, on the other. Paiva and the Law Firm’s creation of Rodriguez’s family trust required Rodriguez to disclose confidences, specifically financial confidences. Now Paiva and the Law Firm represent Alamo and have filed a lawsuit against Defendants based on Alamo’s claim that Defendants misappropriated money and wrongfully took three Caterpillar forklifts. We reject Alamo’s claim that Paiva and the Law Firm did not obtain relevant confidential information. The financial information obtained from Rodriguez for the purpose of creating a trust is relevant in collecting any judgment that Alamo obtains against Defendants. To allow Paiva and the Law Firm to continue to represent Alamo would unfairly disadvantage Defendants. “A lawyer has a duty not to ‘ “do anything which will injuriously affect his former client.” ‘ [Citation.]” ( Knight, supra, 149 Cal.App.4th at p. 1215-1216.)

Although Mendonca had known Rodriguez for five years and acted as his real estate agent, the financial information provided for the purchase of real property is not nearly as extensive as that provided in the creation of a family trust.

While we recognize Alamo’s interest in maintaining its current counsel, such interest “must yield to ethical considerations that affect the fundamental principles of our judicial process. [Citations.]” ( SpeeDee Oil, supra, 20 Cal.4th at p. 1145.)

III. DISPOSITION

The order is affirmed. Costs are awarded to Defendants on appeal.

We concur: RICHLI and GAUT, JJ.

Cal.App. 4 Dist.,2009.

Alamo Recycling, LLC v. San Bernardino Trucking, LLC

Not Reported in Cal.Rptr.3d, 2009 WL 3451717 (Cal.App. 4 Dist.)

END OF DOCUMENT