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Branch Banking and Trust Company v. Servisfirst Bank

United States District Court, S.D. West Virginia, Charleston

December 20, 2019

BRANCH BANKING AND TRUST COMPANY, a North Carolina corporation, Plaintiff,



         Pending are (1) a motion to dismiss or alternatively transfer venue of the interpleader complaint, filed May 30, 2019 by defendants World Global Capital, LLC, Green Capital Funding, LLC, and MCA Recovery, LLC (collectively the “New York Defendants”), (2) a motion for remand, filed June 7, 2019 by defendant MBH Highland, LLC (“Highland”), a hospital, (3) a motion to realign the parties, filed June 20, 2019 by the New York Defendants, (4) a motion for leave to interplead and deposit interpleader funds with the court, filed July 12, 2019 by plaintiff Branch Banking and Trust Company (“BB&T”), and (5) a motion requesting leave to file an amended complaint, filed July 26, 2019 by BB&T.


         On December 11, 2019, the court granted the parties' joint motion to stay all deadlines and trial and pretrial dates in this case. This followed the court's memorandum opinion and order, entered November 1, 2019, granting the New York Defendants' motion to stay discovery pending a ruling on certain preliminary jurisdictional motions. As discussed therein, BB&T instituted this interpleader action in the Circuit Court of Kanawha County, West Virginia on April 5, 2019. Compl., ECF No. 1-1 (“ECF No. 1-1”). The underlying dispute revolves around competing claims to certain deposit accounts opened and maintained by defendant Highland at BB&T, with which Highland maintains its account at the BB&T branch located at 300 Summers Street, Charleston, West Virginia. Id. ¶¶ 9, 15-17.

         The interpleader complaint alleges that in February 2019, defendants World Global Capital, LLC (“WGC”) and Green Capital Funding, LLC, (“GCF”) were each awarded a judgment in the Supreme Court of the State of New York against Wesley E. Mason III, Meridian Behavioral Health Systems, LLC (“Meridian”)[1] and its affiliates, including Highland. ECF No. 1-1 ¶¶ 10-11.[2] On February 27, 2019 and March 1, 2019, BB&T allegedly received two Information Subpoenas with Restraining Notices in connection with the two New York judgments stating that $305, 466.91 (WGC) and $834, 001.00 (GCF), respectively, remained due on the judgments plus interest, and instructing BB&T to freeze Highland's BB&T deposit accounts. Id. ¶¶ 12-13; Highland's Cross-cl. ¶ 41, ECF No. 3. On March 1, 2019, BB&T also received a levy and demand on Highland's deposit accounts, directing BB&T to remit the sum of $876, 113.65 to GCF. ECF No. 1-1 ¶ 14. The interpleader complaint further alleges that “BB&T has been notified, ” by sources unidentified, that the funds requested may not properly belong to WGC or GCF and that ServisFirst Bank (“ServisFirst”) “may hold a first priority perfected security interest in all assets of [Meridian] and its affiliates, including Highland, and has filed UCC financing statements regarding the same.” Id. ¶ 15. BB&T instituted this interpleader complaint as a disinterested stakeholder with no claim to the money in Highland's deposit accounts. Id. ¶ 22. BB&T seeks a court's determination of the proper distribution of the funds in these accounts among the conflicting claims of the defendants. Id. ¶¶ 15, 20.

         The New York Defendants' entitlement to the funds relates to two contracts signed by Mr. Mason as “Seller, ” each titled “Future Receivables Sale and Purchase Agreement.” See Castro Decl., Exs. 2, 4, ECF No. 9-1. On November 29, 2018, Mr. Mason - purportedly acting on behalf of Meridian, Highland, and other affiliates - signed an agreement whereby GCF agreed to pay $750, 000.00 in exchange for Seller's right, title and interest in 25% of future receipts from receivables, i.e., money generated from goods and services sold, of Meridian, Highland, and other affiliates. Id., Ex. 2. The 25% yield from the receivables was to be remitted in daily installments of $9, 599.00 until there has been paid the sum of $1, 124, 250.00 which is designated as the “Purchased Amount.” Id. Mr. Mason signed an “Affidavit of Confession of Judgment” on November 30, 2018 that authorized the entry of judgment against Mr. Mason, Meridian, Highland, and other affiliates without notice in the event of default. Id., Exs. 4-5; Highland's Cross-cl. ¶ 23, ECF No. 3.

         On January 22, 2019, WGC reached a similar agreement with Mr. Mason, this time signing on behalf of Highland and other affiliated entities, but not Meridian itself. See Castro Decl., Ex. 2, ECF No. 9-1. Doing business as Fundkite Funding, WGC agreed to pay $200, 000.00 in exchange for Highland and other affiliated entities agreeing to sell 25% of each of their future receipts from receivables and remitting daily installments of $2, 591.00 for a total purchased amount of $298, 000.00. Id. That same date, Mr. Mason signed another Affidavit of Confession of Judgment that WGC could enter in the event of default. Id., Ex. 2-3; Highland's Cross-cl. ¶ 27, ECF No. 3.

         Highland filed its answer and crossclaims against the New York Defendants in the state court action on April 16, 2019, alleging that it was not a party to either of these agreements. See Highland's Answer & Cross-cl. ¶¶ 22, 26, ECF No. 3. Still, GCF and WGC obtained Highland's BB&T deposit account information and began debiting payments from its accounts. Id. Between November 29, 2018 and February 20, 2019, GCF allegedly debited $337, 964.00 from Highland's BB&T deposit accounts. Id. ¶ 29. Between January 22, 2019 and February 20, 2019, WGC allegedly debited $51, 820.00 from these accounts. Id. ¶ 30.

         On February 13, 2019, the New York Defendants allegedly each received a letter from ServisFirst informing GCF and WGC that ServisFirst has a perfected security interest in Highland's assets that has priority over WGC's and GCF's interests, and the New York Defendants must stop any collection efforts or else ServisFirst will consider these actions to be conversion. Highland's Cross-cl. ¶ 32, ECF No. 3. ServisFirst, which filed its own answer and crossclaims, alleges that as a condition of providing millions of dollars in financing for the operations of Meridian and its affiliates, including Highland, it obtained a security interest in certain assets, including Highland's accounts. ServisFirst Cross-cl. ¶ 1, ECF No. 18. After Meridian and its affiliates defaulted on the loans, ServisFirst agreed to refrain from taking further action if Meridian, MBH West Virginia, LLC (Highland's parent entity), [3] and Highland agreed to conform to a budget approved by ServisFirst and refrain from transferring funds or assets subject to ServisFirst's security interest to any third parties without ServisFirst's consent. Id. ¶¶ 10-11.

         Despite receiving express warnings that their authority to access Highland's deposit accounts was “revoked, ” GCF and WGC collectively debited an additional $48, 760.00 between February 11 and February 14. Highland's Cross-cl. ¶¶ 33-34, ECF No. 3. After Highland and its related parties notified BB&T directly that GCF and WGC's account access was revoked, BB&T stopped GCF and WGC from debiting Highland's accounts after February 14, 2019. Id. ¶ 35. GCF and WGC then proceeded to obtain the New York judgments. On February 20, 2019, GCF obtained its judgment by confession, decreeing that Meridian, Mr. Mason, and other affiliates, including Highland, owed GCF $843, 600.00 after defaulting on the November 29, 2018 transaction. Castro Decl., Ex. 5, ECF No. 9-1. On February 21, 2019, WGC obtained a separate judgment by confession, ruling that Highland, Mr. Mason, and other affiliates owed WGC $308.057.91 after defaulting on the January 22, 2019 agreement. Id., Ex. 3. BB&T was subsequently served with the two Information Subpoenas with Restraining Notices instructing it to freeze Highland's BB&T deposit accounts. Highland's Cross-cl. ¶¶ 41-44, ECF No. 3.

         In sum, Highland alleges in its crossclaims that it possesses a valid claim to the deposit funds, subject to ServisFirst's perfected security interest (Count I), the New York Defendants violated the Uniform Enforcement of Foreign Judgments Act (“UEFJA”), W.Va. Code § 55-14-2, by failing to domesticate the New York judgments in West Virginia (Count II), the New York Defendants violated the Business Registration Tax Act (Count III), MCA Recovery, LLC violated the Collection Agency Act of 1973 (Count IV), WGC violated the Trade Names Act, W.Va. Code § 47-8-4 (Count V), WGC and GCF committed usury by concealing that the purported factoring transactions were in fact loan agreements charging in excess of 18 percent interest (Count VI), unjust enrichment/disgorgement by WGC and GCF (Count VII), and tortious interference with business relations by the New York Defendants (Count VIII). See Highland's Cross-cl., ECF No. 3. ServisFirst asserts nearly identical crossclaims against the New York Defendants, except it brings a claim of conversion instead of usury under Count VI and brings an additional claim of fraud against the New York Defendants. See ServisFirst's Cross-cl., ECF No. 18.[4]

         After receiving service of process on April 12, 2019, the New York Defendants filed a notice of removal on May 8, 2019, pursuant to 28 U.S.C. §§ 1332, 1335, 1441, and 1446 et seq. See Not. Removal, ECF No. 1 (“ECF No. 1”). The notice mirrors the case caption from the state interpleader action, which positions BB&T as the nominal plaintiff and the New York Defendants, ServisFirst, and Highland as defendants. The notice also alleges that diversity jurisdiction exists in this case because BB&T is a citizen of North Carolina, ServisFirst is a citizen of Alabama, the New York Defendants are citizens of New York, and Highland is a citizen of Tennessee. ECF No. 1 ¶ 5; Compl. ¶¶ 1-6; 28 U.S.C. § 1332.

         On June 7, 2019, however, Highland moved to remand this case to state court because the New York Defendants failed to obtain the consent of either Highland or ServisFirst before removing to federal court. Highland's Mem. Supp. Mot. Remand, ECF No. 14 (“ECF No. 14”); George Decl. ¶ 5, ECF No. 14-1. The New York Defendants maintain that removal was proper notwithstanding the lack of unanimous consent because they moved on June 20, 2019 to realign Highland and ServisFirst as plaintiffs, which they believe would solve Highland's jurisdictional concerns and properly capture the parties' true posture in this litigation. New York Defs.' Mot. Realign, ECF No. 25. Both Highland and ServisFirst oppose the motion to realign the parties.

         BB&T does not oppose the motion to realign the parties so long as the court finds jurisdiction proper. See BB&T's Resp. Mot. Realign & Mot. Stay, ECF No. 45 (“ECF No. 45”). BB&T filed a motion for leave to interplead and deposit interpleader funds into the court on July 12, 2019, pursuant to Federal Rule of Civil Procedure 67 and Local Rule 67.1. BB&T's Mot. Deposit Interpleader Funds, ECF No. 46 (“ECF No. 46”). As a nominal party, BB&T seeks to deposit the funds with the court and be dismissed from this case. ECF No. 45 at 2. The New York Defendants argue that depositing the funds in this court would be premature until the court decides whether this interpleader action is proper. New York Defs.' Reply to BB&T's Resp. Mot. Realign & Mot. Stay 1-2, ECF No. 51. The court will address each of these issues in turn.


         A. Motion to Remand and Motion to Realign the Parties

         In moving to remand, Highland argues that the notice of removal is “fatally defective” because the New York Defendants' failed to obtain the consent of Highland and ServisFirst, violating the “rule of unanimity” under 28 U.S.C. § 1446(2)(A). See ECF No. 14 at 1.

         “Federal courts are courts of limited jurisdiction. They possess only that power authorized by Constitution and statute.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). The Fourth Circuit has observed that it is “obliged to construe removal jurisdiction strictly because of the ‘significant federalism concerns' implicated.” Md. Stadium Auth. v. Ellerbe Becket Inc., 407 F.3d 255, 260 (4th Cir. 2005) (quoting Mulcahey v. Colum. Organic Chem. Co., 29 F.3d 148, 151 (4th Cir. 1994)). Congress has intended that the federal courts should “resolve all doubts about the propriety of removal in favor of retained state court jurisdiction.” Marshall v. Manville Sales Corp., 6 F.3d 229, 232 (4th Cir. 1993). “If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.” 28 U.S.C. § 1447(c). The party seeking removal bears the burden of establishing that the court to which the case is removed has federal jurisdiction over it. Mulcahey, 29 F.3d at 151.

         Title 28 U.S.C. § 1441(a) governs federal removal jurisdiction and provides as follows:

[A]ny civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant . . . to the district court of the United States for the district and division embracing the place where such action is pending.

28 U.S.C. § 1441(a). Section 1446(b) adds that “all defendants who have been properly joined and served must join in or consent to the removal of the action” and that each defendant “shall have 30 days after receipt by or service on that defendant of the initial pleading or summons . . . to file the notice of removal.” 28 U.S.C. § 1446(b)(2)(A)-(B). Federal courts have long recognized this so-called “rule of unanimity, ” which requires each defendant to consent to removal. See Lapides v. Bd. of Regents of the Univ. Sys. of Ga., 535 U.S. 613, 620 (2002); Mayo v. Bd. of Educ. of Prince George's Cty., 713 F.3d 735, 741 (4th Cir. 2013) (“The Supreme Court has construed the statute to include a ‘unanimity requirement,' such that all defendants must consent to removal.”). Griffioen v. Cedar Rapids & Iowa City Ry. Co., 785 F.3d 1182, 1186 (8th Cir. 2015) (noting existence of rule of unanimity prior to its codification in the 2011 amendments to 28 U.S.C § 1446(b)). “The rule of unanimity helps to effectuate Congress's intent in limiting removal to prevent it from being used too broadly or casually.” Hartford Fire Ins. Co. v. Harleysville Mut. Ins. Co., 736 F.3d 255, 259 (4th Cir. 2013). This court has explained that “[t]o allow one party, through counsel, to bind or represent the position of other parties without their express consent to be so bound would have serious adverse repercussions, not only in removal situations but in any incident of litigation.” Dorsey v. Borg-Warner Auto., Inc., 218 F.Supp.2d 817, 820 (S.D. W.Va. 2002) (quoting Creekmore v. Food Lion, Inc., 797 F.Supp. 505, 509 (E.D. Va. 1992)).

         Yet, the lack of unanimous consent is a procedural defect, not jurisdictional. Payne ex rel. Estate of Calzada v. Brake, 439 F.3d 198, 203 (4th Cir. 2006) (“Failure of all defendants to join in the removal petition does not implicate the court's subject matter jurisdiction. Rather, it is merely an error in the removal process.”); Lloyd v. Cabell Huntington Hosp., Inc., 58 F.Supp.2d 694, 697-98 (S.D. W.Va. 1999) (“failure of all defendants to join in the removal notice constitutes a procedural defect, which may be waived if not objected to within 30 days after filing of the removal notice”). Therefore, certain exceptions apply to the rule of unanimity. For one, nominal defendants who have “no immediately apparent stake in the litigation either prior or subsequent to the act of removal” need not join in the removal. See Hartford Fire, 736 F.3d at 259-60. Courts have also applied exceptions to defendants that were unserved or unknown at the time of removal. See Klein v. Manor Healthcare Corp., 19 F.3d 1433 n.8 (6th Cir. 1994); Mason v. Int'l Bus. Machines, Inc., 543 F.Supp. 444, 446 n.1 (M.D. N.C. 1982).

         The New York Defendants ask the court to apply another exception to this case: “parties that are aligned in interest with the plaintiff are not required to join or consent to the removal.” Herbalife Int'l, Inc. v. St. Paul Fire & Marine Ins. Co., No. CIV.A. 5:05CV41, 2006 WL 839515, at *6 (N.D. W.Va. Mar. 30, 2006) (citing Smilgin v. New York Life Ins. Co., 854 F.Supp. 464, 465- 66 (S.D. Tex. 1994) (holding that unanimous consent was not required because non-consenting defendant “should not be considered a ‘defendant' for the purpose of joinder in removal” when his and “the Plaintiffs' interest in the primary thrust of this lawsuit are the same”)); New York Defs.' Resp. Opp. Mot. Remand 2-3, ECF No. 29. Federal courts are not bound by the alignment of the parties, but rather must “look beyond the pleadings and arrange the parties according to their sides in the dispute.” Jackson v. Home Depot U.S.A., Inc., 880 F.3d 165, 172 (4th Cir. 2018) (quoting Indianapolis v. Chase Nat'l Bank of City of N.Y., 314 U.S. 63, 69 (1941)). It is “settled authority in this circuit and elsewhere” that “post-removal party realignment to create diversity is permissible.” Lott v. Scottsdale Ins. Co., 811 F.Supp.2d 1220, 1223 (E.D. Va. 2011) (citing cases).

         Likewise, lack of unanimous consent does not necessarily defeat diversity jurisdiction when the defendants share adverse interests and proper realignment would moot the issue. See Lott, 811 F.Supp.2d at 1222 n.2 (noting that “defendants are not required to consent to removal given the realignment [of the] defendants as plaintiffs for jurisdictional purposes”); Ohio Cas. Ins. Co. v. RLI Ins. Co., No. 1:04CV483, 2005 WL 2574150, at *4 (M.D. N.C. Oct. 12, 2005) (“If a defendant is disregarded or is realigned for jurisdictional purposes, that defendant need not consent to removal, and the Court will evaluate jurisdiction based on the positions of the parties after the realignment.”). Thus, the motion to remand would be moot if the court realigned ServisFirst and Highland as plaintiffs rather than allowing them to defeat removal.

         Even if realignment were allowed, Highland argues that the New York Defendants' motion to realign must be dismissed as untimely. Highland's Reply Mot. Remand 2-3, ECF No. 31 (“ECF No. 31”). Under 28 U.S.C. § 1446(a), the notice of removal must “contain[] a short and plain statement of the grounds for removal.” Highland interprets the New York Defendants' realignment arguments as “new allegations of a jurisdictional basis” barred by 28 U.S.C § 1446 and § 1653[5] because they effectively seek to amend the notice of removal after the 30-day deadline.[6] Highland argues that the New York Defendants should have sought realignment in state court and that the failure to even mention the need for realignment in the notice of removal precludes realignment after the fact. ECF No. 31 at 2.

         Highland bases this argument on Wood v. Crane Co., where the court noted the following:

[A]fter thirty days, district courts have discretion to permit amendments that correct allegations already present in the notice of removal. Courts have no discretion to permit amendments furnishing new allegations of a jurisdictional basis.

764 F.3d 316, 323 (4th Cir. 2014) (citing Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 831 (1989)).[7] Yet, this principle from Wood was based on Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826 (1989) and the proposition that “§ 1653 speaks of amending ‘allegations of jurisdiction,' which suggests that it addresses only incorrect statements about jurisdiction that actually exists, and not defects in the jurisdictional facts themselves.” Id. at 831. Wood distinguished “new allegations of a jurisdictional basis” from cases where “amendment is appropriate for technical changes, such as the exact grounds underlying diversity jurisdiction.” Wood, 764 F.3d at 323; Yarnevic v. Brink's, Inc., 102 F.3d 753, 755 (4th Cir. 1996) (finding that “[w]hile it would have been prudent for [defendant] to file a supplemental petition specifying the new basis for diversity within 30 days” after plaintiff moved from Ohio to Pennsylvania, “it was not required” because complete diversity existed either way).

         In Wood, the defendant had originally removed based on a federal defense to one of the plaintiff's state tort claims, but the case was remanded after the plaintiff had dropped the only claim to which the federal defense applied. 764 F.3d at 318. The defendant then sought to amend its notice of removal to add an entirely new federal defense even though the original 30-day removal period had long since elapsed. Id. at 318-20. The Fourth Circuit rejected the defendant's belated effort because the failure to include the new defense in the original notice of removal was neither inadvertent “nor a clerical error, but instead a strategic choice.” 764 F.3d at 324.

         Highland also compares this case to Andalusia Enterprises, Inc. v. Evanston Insurance Co., which rejected a motion to realign the parties that was filed after the 30-day deadline. 487 F.Supp.2d 1290, 1293 (N.D. Ala. 2007); ECF No. 31 at 5-6. But the facts of that case were quite distinct. The original notice of removal in Andalusia Enterprises alleged that the non-diverse defendant - who did not consent to the removal and moved to remand - was fraudulently joined and/or a nominal party. 487 F.Supp.2d at 1293. In truth, the non-diverse defendant was neither fraudulently joined nor a nominal party, but the tort claimant in the underlying state action and a necessary party under Alabama law. Id. at 1293. Thus, there was no question at the time of the notice of removal that realignment would have been necessary to achieve complete diversity. Inasmuch as the parties were not diverse, the court held “that it must decline jurisdiction when no jurisdictional basis is affirmatively shown in the removal papers.” Id. at 1295. The court added that “[t]he fact that realignment was not referenced by any defendant until after the expiration of the thirty (30) day period for removal, and then only after motions to remand had been filed, further disinclines the court to realign [the non-diverse defendant], especially over vigorous opposition.” Id.

         Numerous other circuits have held that the 30-day deadline is not jurisdictional, but rather constitutes a procedural defect. See Universal Truck & Equip. Co. v. Southworth-Milton, Inc., 765 F.3d 103, 110 (1st Cir. 2014) (citing cases). Moreover, unlike Wood and Andalusia, no jurisdictional defect exists here because all the parties are diverse no matter how this case is aligned. BB&T is a citizen of North Carolina, Highland is a citizen of Tennessee, [8] ServisFirst is a citizen of Alabama, and the New York Defendants are citizens of New York. ECF No. 1-1 ¶¶ 1-6; ECF No. 1 ¶ 5. The New York Defendants do not seek to add any claims or defenses or assert new facts, but simply request that the court realign the parties according to their interests in the litigation.

         There is little reason here to allow defendants with adverse interests to thwart removal by withholding their consent. In Premier Holidays International, Inc. v. Actrade Capital, Inc., 105 F.Supp.2d 1336(N.D.Ga. 2000), the court similarly reasoned that “no policy is served by allowing a mislabeled ‘defendant' to defeat the true defendants' right to remove the case by withholding its consent.” Id. at 1341. “The joinder requirement is designed only to insure a unanimous choice of a federal forum by the defendants. It cannot reasonably be understood to give a party who in reality occupies a position in conflict with that of other defendants a veto over the removal of the action.” Id. (quoting First Nat. Bank of Chicago v. Mottola, 302 F.Supp. 785, 790 (N.D.Ill. 1969), aff'd sub nom. First Nat. Bank of Chicago v. Ettlinger, 465 F.2d 343 (7th Cir. 1972)). Inasmuch as the rule of unanimity is a procedural rather than jurisdictional requirement, the failure to mention the need for realignment in the notice of removal does not automatically bar motions to realign after the 30-day deadline expires.

         Having determined that the motion to realign the parties was timely, the court next turns to how the parties should be aligned. Under the “principal purpose test, ” the Fourth Circuit instructs courts to follow two steps to determine the proper alignment of the parties. U.S. Fid. & Guar. Co. v. A & S Mfg. Co., 48 F.3d 131, 133 (4th Cir. 1995). “First, the court must determine the primary issue in the controversy. Next, the court should align the parties according to their positions with respect to the primary issue. If the alignment differs from that in the complaint, the court must determine whether complete diversity continues to exist.” Id.

         All parties agree that the primary issue in this case is determining who is entitled to the deposit funds held by BB&T. New York Defs.' Mem. Supp. Mot. Realign 5-6, ECF No. 26 (“ECF No. 26”); Highland's Resp. Opp. Mot. Realign 5, ECF No. 37 (“ECF No. 37”). However, the parties dispute how the court should position the parties. There is no doubt that ServisFirst and Highland's interests are aligned. ECF No. 26 at 2; ECF No. 37 at 8. BB&T also seeks to remove itself from this interpleader action entirely as a mere nominal plaintiff, and therefore the court need not consider its interests for purposes of realignment. See Tune, ...

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