Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Tex.: Sears not bound by citizenship admissions for purposes of diversity jurisdiction, (Dec 28, 2015)

By Michael Menzhuber, J.D., LL.M.

The federal district court in Dallas determined that Sears was not bound by its prior admissions regarding a district manager’s state citizenship, in an action brought against the company by former franchisees. The court denied the franchisees’ motion for leave to amend their complaint to add two new Texas defendants because the purpose of the motion was to defeat diversity jurisdiction (Appliance Alliance, LLC v. Sears Home Appliance Showrooms, LLC, December 23, 2015, Lynn, B.).

The former franchisees alleged that Sears Home Appliance Showrooms, LLC, Sears Holdings Corp., Sears.Com, Sears, Roebuck and Co., and Sears district manager Samantha Wilks breached their franchise agreements and wrongfully took possession of their franchise locations. The defendants removed the case on the basis of diversity jurisdiction and, in their answer and notice of removal, alleged that: (1) all the plaintiffs were Texas citizens; (2) Wilks was the only defendant that was a Texas citizen; and (3) Wilk’s citizenship should be ignored because she was improperly joined.

Subsequently, the defendants filed a motion for leave to file an amended answer and amended notice of removal to state that Wilks was a citizen of Florida, not Texas. They claimed that: (1) Wilks was not a Texas citizen: (2) it was only after filing their answer and notice of removal that they discovered facts showing that Wilks was a citizen of Florida; and (3) Wilk’s declaration supported her citizenship in Florida. The plaintiffs moved for leave to amend to join two Texas citizens.

The court determined that the defendants were not bound by their admissions in their notice of removal and answer regarding Wilks’ citizenship because the evidence indicated that Wilks, although residing in Texas, was a Florida resident. It also allowed the defendants to amend their notice of removal because their allegation regarding Wilks’ citizenship was a technical defect which may be corrected under Federal Rule of Civil Procedure 1653.

In denying the plaintiffs’ motion to amend their complaint to add the two new Texas defendants, the court noted that a motion for leave to amend that will add a non-diverse party and destroy diversity is governed by a stricter standard, 28 U.S.C. § 1447(c), which requires a court to consider: (1) the extent to which the purpose of the amendment is to defeat jurisdiction; (2) whether the plaintiff has been dilatory in asking for the amendment; and (3) will the plaintiff be significantly injured if the amendment is not granted.

Based on the circumstances surrounding the plaintiffs’ motion to amend: (1) it was evident that the motion was sought for purpose of defeating diversity jurisdiction; (2) the motion to amend was filed more than four months after the plaintiffs filed their complaint; and (3) the plaintiffs’ prospects for recovery would not be enhanced by the joinder of the two new defendants and they would not otherwise suffer significant injury if the two new defendants were not joined, the court concluded.

The case is No. 3:15-cv-01707-M.

Attorneys: Emil Lippe, Jr. (Law Offices of Lippe & Associates) for Appliance Alliance LLC. Deborah S. Coldwell (Haynes & Boone LLP) for Sears Home Appliance Showrooms LLC, Sears Holdings Corp. d/b/a Sears Hometown & Outlet and Sears Roebuck and Co.

Companies: Appliance Alliance LLC; Sears Home Appliance Showrooms LLC; Sears Holdings Corp.; Sears Roebuck and Co.

Cases: FranchisingDistribution TexasNews