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Garner v. Bankplus

United States District Court, Fifth Circuit

May 30, 2013

ALBERT R. GARNER, SIGRID GARNER, THOMAS I. GARNER, R&S DEVELOPERS, LLC, RTC PROPERTIES, LLC, MGR CONSTRUCTION, LLC, PAVILION PROPERTIES, LLC, STORAGE ZONE OF JACKSON, LLC, AND STORAGE ZONE OF FLORENCE, LLC, Plaintiffs,
v.
BANKPLUS, Defendant.

MEMORANDUM OPINION AND ORDER

TOM S. LEE, District Judge.

This cause is before the court on the motion of defendant BankPlus (the Bank) to reconsider that part of the court's December 20, 2012 order granting plaintiffs'[1] cross-motion to compel arbitration of the claims brought against them by BankPlus in BankPlus v. Albert R. Garner and Sigrid Garner, and BankPlus v. Thomas I. Garner, presently pending in the Circuit Court of Madison County, Mississippi (the Madison County suits).[2] The court, having considered the Bank's motion to reconsider and plaintiffs' response thereto, concludes that the motion should be denied.[3]

Briefly, the facts and procedural background of this case and of the Bank's lawsuits against plaintiffs now pending in the Madison County Circuit Court are as follows.[4] Alfred and Sigrid Garner, Thomas I. Garner and certain Garner-owned businesses obtained a number of loans from BankPlus, which were guaranteed by one or more Garner family members. On May 9, 2011, the Bank filed collection actions in the Circuit Court of Madison County, Mississippi against Albert and Sigrid Garner, and against Thomas I. Garner, Case Nos. CI-2011-174 and 17 (Cir. Ct. Mad. Cty.), respectively (the Madison County suits), alleging that the loans were in default and seeking to enforce the terms of the loans and guaranties. The Garner defendants removed the cases to this court on the basis of bankruptcy jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334 after Alfred and Sigrid Garner, Thomas Garner and R&S Developers, LLC, filed for bankruptcy protection. Following removal, BankPlus moved to abstain and remand pursuant to 28 U.S.C. §§ 157, 1334, 1452, and 1447(c). By orders entered November 8, 2012, Judge Carlton Reeves, to whom both cases were assigned, ordered the case remanded upon finding that mandatory abstention applied. See BankPlus v. Albert R. Garner and Sigrid Garner, No. 3:12-cv-449-CWR-FKB (S.D.Miss. Nov. 8, 2012); BankPlus v. Thomas I. Garner, No. 3:12-cv-450-CWR-FKB (S.D.Miss. Nov. 19, 2012). He ruled alternatively that even if mandatory abstention did not apply, the court would abstain and remand based on discretionary abstention/equitable remand principles. Id.

Meanwhile, on July 26, 2011, shortly after BankPlus filed the collection actions in Madison County Circuit Court, the Garners filed suit against BankPlus in the Circuit Court of Hinds County, Mississippi, alleging claims for breach of contract, estoppel, misrepresentation, and injunctive relief under Mississippi law based on allegations that BankPlus had reneged on a loan restructuring agreement entered into with the Garners. Albert R. Garner, et al. v. BankPlus, Cause No. XXX-XX-XXXCIV (Cir. Ct. Hinds Cty.). On August 15, 2011, BankPlus removed the case to this court on the basis of bankruptcy jurisdiction pursuant to 28 U.S.C. §§ 157, 1334, 1452, and 1447(c) after RTC Properties, LLC filed for bankruptcy protection. Following removal, the Garners moved for remand, and by memorandum opinion and order dated February 29, 2012, the undersigned held that mandatory abstention applied and remanded the case. See Albert R. Garner, et al. v. BankPlus, Civ. Action No. 3:11cv515TSL-MTP (S.D.Miss. Feb. 29, 2012). Thereafter, on June 29, 2012, after R&S Developers, LLC, Alfred and Sigrid Garner and Thomas Garner filed for bankruptcy protection, the Garners removed the case on the basis of bankruptcy jurisdiction. Following removal, neither party moved the court to abstain or remand, and on July 19, 2012, BankPlus filed a motion to compel arbitration. The Garners responded and filed a cross-motion to compel arbitration. The court granted both motions by memorandum opinion and order dated December 20, 2012. See Garner v. BankPlus , 484 B.R. 134 (S.D.Miss. 2012). BankPlus seeks reconsideration of that part of the court's order compelling arbitration of its claims against the Garners in the Madison County suits. BankPlus offers the following arguments in support of its motion for reconsideration, which the court will address in turn:

(1) Plaintiffs' cross-motion to compel arbitration filed in this cause was not a proper § 4 petition to compel arbitration of the Bank's claims against them in the Madison County suits, and in the absence of a proper § 4 petition, this court lacked authority to compel arbitration of the Bank's claims in the Madison County suits;

(2) Even if plaintiffs' cross-motion did constitute a proper § 4 petition to compel arbitration, this court erred in compelling arbitration of the Bank's claims in the Madison County suits because the court was barred from exercising jurisdiction over the Madison County suits;

(3) The court's order compelling arbitration is a de facto order consolidating this suit and the Madison County suits, which the court lacked authority to do; and

(4) Plaintiffs waived their right to compel arbitration of the Bank's claims in the Madison County suits.

Section 4 of the Federal Arbitration Act, 9 U.S.C. § 4, states:

A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.

BankPlus first argues that this statute appears to contemplate that a party seeking to compel arbitration of pending proceedings will either file a motion to compel arbitration in the proceeding sought to be arbitrated or file a § 4 petition to initiate a separate cause of action. It concludes that a motion in one action to compel arbitration of claims pending against it in a separate action, as was filed by plaintiffs herein, is not a proper petition to compel arbitration under § 4. However, the Bank has offered no authority in support of its proposed interpretation of the statute and the court, for its part, is aware of nothing that would prevent plaintiffs from asserting their request for arbitration of the Bank's claims in the Madison County suits in the form of a motion filed in this cause.

The Bank further argues that plaintiffs' cross-motion to compel arbitration failed to state a claim under § 4 as it does not even reference § 4 or any of the § 4 requirements. See Somerset Consulting, LLC v. United Capital Lenders, LLC , 832 F.Supp.2d 474, 482 (E.D. Pa. 2011) (motion to compel arbitration should be considered under a Rule 12(b)(6) standard). However, as plaintiffs' cross-motion to compel arbitration was based on the same arbitration agreement that the Bank sought to enforce by its own motion to compel arbitration, the court is persuaded that plaintiffs adequately stated their claim under § 4.

The Bank next submits that the court's opinion granting plaintiffs' cross-motion to compel arbitration misconstrued the Bank's position regarding the court's jurisdiction to compel arbitration. Specifically, according to the Bank, the court erroneously interpreted the Bank's position to be that the court lacked jurisdiction over the plaintiffs' motion to compel arbitration because there was no basis for federal subject matter jurisdiction over the underlying lawsuits. The Bank explains that it does not dispute that this court has jurisdiction over plaintiffs' cross-motion itself (assuming that it is in fact an effective § 4 petition); rather, its position is that, although this court has subject matter jurisdiction over plaintiffs' crossmotion, this court nevertheless lacks authority to compel the Bank's claims in the Madison County suits to arbitration because the court lacks an independent basis for exercising federal jurisdiction over the Madison County suits.

In rejecting the Bank's challenge to the court's jurisdiction to compel arbitration of the Bank's claims against the Garners in the Madison County suits, the court found that the "look through" approach adopted by the Supreme Court in Vaden v. Discover Bank , 556 U.S. 49, 129 S.Ct. 1262, 173 L.Ed.2d 206 (2009), is limited to § 4 petitions based on federal question jurisdiction. Garner v. BankPlus , 484 B.R. 134, 140 (S.D.Miss. 2012). The court further concluded that since the "look through" approach was inapplicable, "the determination of whether the court has jurisdiction to compel arbitration of the claims in the Bank's underlying lawsuit is to be made based on the face of the complaint herein, and does not depend on whether the court would have jurisdiction over the underlying lawsuits." Id . The Bank contends that the court erred in this regard, arguing that federal jurisdiction over a petition to compel arbitration is a separate issue from federal jurisdiction over the substantive controversy between the parties, and that both must exist for a federal court to compel a state-court lawsuit to arbitration. The Bank is correct that "Section 4 provides for an order compelling arbitration only when the federal district court would have jurisdiction over a suit on the underlying dispute; hence, there must be diversity of citizenship or some other independent basis for federal jurisdiction before the order can issue." Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 26 n.32, 103 S.Ct. 927, 942 n.32, 74 L.Ed.2d 765 (1983). See also Shirley v. Maxicare Tex., Inc. , 921 F.2d 565, 568 (5th Cir. 1991) ("[T]his court [has] stated unequivocally that unless a dispute falls within the confines of the jurisdiction conferred by Congress, such courts do not have the authority to issue orders regarding its resolution.'") (quoting Giannakos v. M/V Bravo Trader , 762 F.2d 1295, 1297 (5th Cir. 1985)). Outside the context of federal question jurisdiction, however, that does not mean that where the underlying controversy between the parties is the subject of a separate pending action, the court may compel arbitration only if the federal court would have subject matter jurisdiction over the underlying lawsuit. See, e.g., Snap-On Tools Corp. v. Mason , 18 F.3d 1261 (5th Cir. 1994) (finding jurisdiction to compel arbitration where underlying dispute between federal plaintiff and federal defendant was within court's diversity jurisdiction even though underlying lawsuit included non-diverse defendant and hence was not within confines of federal court's diversity jurisdiction).[5] Instead, what is required before the court may compel arbitration is that there exist an independent basis for federal ...


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