Federal District Court Opinions

OF WISCONSIN, INC. Defendants. Case No. 06-C-953. United
States District Court, E.D. Wisconsin. November 27, 2006



Plaintiff Eaglestar Intertrade Limited (“Eaglestar”)
commenced this action for declaratory relief against
defendants Dafin Asset Finance Limited (“Dafin”) and
Shipbuilders of Wisconsin, Inc. (d/b/a “Burger Boat”),
seeking a determination that Dafin is in default under a
Sale and Purchase Agreement and a Security Agreement it
entered into with Eaglestar relating to the construction of
two yachts by Burger Boat. The action was commenced in the
Circuit Court for Manitowoc County and removed to federal
court by Dafin. The case is presently before me on Burger
Boat’s motion to remand the case to state court pursuant to
28 U.S.C. § 1447(c).

Plaintiff Eaglestar Intertrade is a corporation organized
under the laws of the British Virgin Islands. Defendant
Dafin Asset Finance is a corporation organized in the Isle
of Man, and defendant Shipbuilders of Wisconsin (d/b/a
“Burger Boat”) is a Wisconsin corporation. In its motion
for remand, Burger Boat asserts that removal is improper
because: (1) it did not consent to removal; (2) Dafin was
tardy in seeking removal; and (3) Burger Boat is a
Wisconsin corporation, making removal improper under 28
U.S.C. § 1441(b). Although the briefs frame their
arguments somewhat Page 2 differently, the central
question is whether Burger Boat is a properly-joined
defendant or not: if it is, then removal is improper under
§ 1441(b) (because Burger is an in-state defendant)
regardless of whether the notice of removal was timely or
whether consent was required. If, on the other hand, Burger
Boat was fraudulently joined as a defendant, its status as
a named defendant will be ignored for the purposes of
consent and timeliness, as well as § 1441(b). For
the reasons given below, I conclude Burger Boat was
fraudulently joined and that its motion to remand should be

Under 28 U.S.C. § 1441(b), a diversity case may not
be removed when any of the properly served defendants is a
citizen of the state in which the action is brought.[fn2]
The idea behind allowing a defendant to remove, after all,
is the notion (perhaps benighted) that the state court will
be biased only against an out-of-state defendant. Thus,
“[i]n cases where at least one defendant is a citizen of
the forum state, section 1441(b) prevents removal since the
lack of prejudice towards the citizen defendant is felt to
extend to all defendants who are viewed collectively.”
Poulos v. NAAS Foods, Inc., 132 F.R.D. 513, 516 (E.D. Wis.
1990), aff’d 959 F.2d 69 (7th Cir. 1992) (citations

But, as suggested at the outset, a plaintiff cannot
foreclose an out-of-state defendant’s access to the federal
forum merely by naming any in-state party as a defendant.
Section 1441(b) applies only to “properly” joined
defendants, so if the in-state defendant is fraudulently
joined, the diverse defendant may still remove.
“[F]raudulent joinder involves a claim against an in-state
defendant that simply has no chance of success, whatever
the plaintiff’s motives.” Poulos v. Naas Foods, Inc. Page
3 959 F.2d 69, 73 (7th Cir. 1992). “An out-of-state
defendant who wants to remove must bear a heavy burden to
establish fraudulent joinder. The defendant must show that,
after resolving all issues of fact and law in favor of the
plaintiff, the plaintiff cannot establish a cause of action
against the in-state defendant.” Id.

Resolving whether a defendant is fraudulently joined
requires analysis of the complaint and the nature of the
claims brought against the defendant in question. The
complaint in this case reveals that in 2004, Burger Boat
contracted to manufacture two yachts for Dafin.[fn3] Under
the yacht construction agreement, Dafin was to periodically
provide Burger with “progress payments” as the course of
manufacturing proceeded. In 2005, Dafin contracted with
Eaglestar to lease those yachts to Eaglestar once they were
built. As part of that agreement, Eaglestar paid Dafin some
10.25 million dollars, which Dafin was to use to fund the
progress payments to Burger. (Compl. ¶ 13.)
Eaglestar’s complaint alleges that Dafin failed to
adequately pay Burger Boat for its work on the yachts.
Eaglestar also alleges that it was forced to pay Burger
Boat itself so as not to bring the construction agreements
into default. In addition, Eaglestar and Dafin had executed
a security agreement, to which Burger Boat consented, the
effect of which was that Eaglestar would obtain a security
interest in Dafin’s rights to the boats under construction
if Dafin defaulted under the terms of the security
agreement. Eaglestar is thus suing Dafin for failing to
honor its obligations under its agreement with Burger Boat,
and it also seeks to enforce the security agreement it
signed with Dafin. The complaint seeks a declaratory
judgment to this effect, alleging that a dispute now exists
as to whether Dafin defaulted on its agreements with
Eaglestar. The complaint also seeks a declaration that
Burger Boat must comply with the consent agreement it
signed at the same time Page 4 Dafin and Eaglestar
entered into their agreement. Finally, the complaint seeks
a declaration that Burger must continue performing under
the yacht construction contracts. The net result of the
relief sought in the complaint is that Eaglestar would
assume all of the rights and duties under the yacht
construction agreements originally possessed by Dafin.

Dafin argues that a practical examination of the complaint
reveals that Burger Boat is not a true defendant in this
action and that it should be deemed fraudulently joined.
First, the declaratory relief the complaint seeks “against”
Burger Boat is illusory because Burger and Eaglestar have
already agreed to continue production and Burger has
consented to continue producing the boats for Eaglestar
under the construction contracts. (Compl., Ex. E.) In
addition, the two parties have signed an indemnification
agreement. In short, their behavior indicates that they
have a mutual interest in continuing with the yacht
production, which means that Eaglestar has no real dispute
with Burger Boat.

In reply, Burger Boat argues that its interests in this
litigation are real and supported by Wisconsin’s
declaratory judgment statute, Wis. Stat. §
806.04(11). Because the fraudulent joinder analysis asks
whether a plaintiff would state any claim against the
defendant in state court, the analysis must follow whatever
state cause of action gives rise to the claim. Burger Boat
reasons that Wisconsin’s declaratory judgment statute very
broadly indicates that “all persons shall be made parties
who have or claim any interest which would be affected by
the declaration,” Wis. Stat. § 806.04(11), and that
its rights will be “affected” by this litigation. For that
principle it cites Regal Ware Inc. v. Advanced Marketing
Int’l, 2006 WL 752899 (E. D. Wis., March 21, 2006). In that
case, Judge Stadtmueller described the issue as follows: “A
dispute has arisen among Regal Ware, AMI, HII, VitaLife,
and Americraft regarding whether: (a) Regal Ware has the
right to be the exclusive supplier to them of Cookware
during the term of the Agreement, and (b) Regal Ware has
Page 5 the right to bid on the manufacture and sale to them
of any other cookware product, including the opportunity to
meet any competitive price on such cookware product.” Id.
at *3. It was alleged that Americraft, one of the
defendants, was fraudulently joined because it was not a
signatory to the supply agreement under review between
Regal Ware and AMI. But since Americraft was a distributor
for AMI, it was possibly affected by a determination of
whether AMI was bound to recognize the plaintiff as its
exclusive supplier. Moreover, Regal Ware’s lawsuit
essentially sought a declaration that the supply agreement
it had with AMI meant that it was to be the exclusive
supplier to all of the named defendants, including
Americraft. Thus, Judge Stadtmueller reasonably determined
that if Regal Ware were successful in obtaining the
declaratory relief it sought, the rights of Americraft
would be affected. Accordingly, Americraft was a proper
defendant and not fraudulently joined.

Just as in Regal Ware, Burger Boat posits, its rights will
be affected if Eaglestar should be victorious in this
lawsuit. It is true that Regal Ware demonstrates that a
declaratory judgment claim may, in some cases, constitute
the basis for proper joinder of a defendant; that is no
surprise. But the dispute alleged in Regal Ware could have
impacted the rights of Americraft by determining who its
exclusive supplier would be. Moreover, it was clear in
Regal Ware that Americraft’s interests, if any, were
adverse to Regal Ware. There is no such dispute here, and
Burger’s reliance on § 806.04(11) is unavailing.
First, it is doubtful that Burger Boat even has an
“interest” affected by the relief sought here. The bulk of
the complaint deals with a dispute between Eaglestar and
Dafin over whether Dafin committed an “Event of Default”
under their security agreement. Although Burger Boat might
plausibly be interested in that dispute, it has no legal
“interest” in the outcome of that dispute because it is
purely a matter between Eaglestar and Dafin. Accordingly,
it seems unlikely that Burger has an “interest” that would
be affected by the relief sought in this lawsuit. Page 6

Moreover, even if under § 806.04(11) Burger Boat
plausibly had an interest “affected” by the declaratory
relief sought in this case, that is not enough. Instead,
for § 1441(b) purposes, the question is whether the
in-state party is a properly served defendant, and there is
nothing in the declaratory judgment statute requiring
Burger to be made a defendant for the purposes of federal
jurisdiction — the statute merely requires that it
be made a “party.” Moreover, even if Burger Boat were
properly named as a defendant under § 806.04(11),
the federal court may still realign that party for the
purposes of the jurisdictional analysis. American Motorists
Ins. Co. v. Trane Co., 657 F.2d 146, 151 (7th Cir. 1981)
(noting that realignment is proper “where there is no
actual, substantial conflict between the parties that would
justify placing them on opposite sides of the lawsuit.”)
Here, to the extent Burger has any interest in the
litigation, it is more properly deemed a plaintiff (if
anything) than a defendant. Its interest is simply in
building the two yachts in question and making a profit on
them. In contrast, Dafin is the only party alleged to be in
breach of any agreement, making it the true defendant in
the action.

To the extent Eaglestar seeks declaratory relief “against”
Burger Boat, there is no indication that Burger would fail
to honor its consent agreement or cease manufacturing the
yachts for Eaglestar’s benefit. Because there is no
suggestion of adversity, it makes more sense to consider
Burger Boat’s interests to be aligned with Eaglestar’s. If
Eaglestar successfully obtains a judgment declaring that
Dafin has committed an Event of Default under their
security agreement, all that means is that Burger Boat must
continue manufacturing the yachts for Eaglestar, which is
exactly what it already agreed to in the consent it signed:

Upon the occurrence and during a continuance of an Event
of Default as defined in the Security Agreement [between
Dafin and Eaglestar], the Grantee [Eaglestar] shall be
entitled to exercise any and all rights of the Grantor
[Dafin] under the Construction Contracts and other
documents and agreements constituting part of the Page 7
Security Collateral . . . and the Manufacturer [Burger
Boats] will comply in all respects with such exercise by
the Grantee.

(Compl., Ex. E, ¶ 1.) Paragraph 3 of the consent
agreement demonstrates that “[u]pon receipt of a written
notice from the Grantee stating that (i) an Event of
Default has occurred and is continuing, . . . the
Manufacturer will continue performance for the benefit of
the Grantee under such Assigned Agreements.” (Id. at
¶ 3.) Paragraph 8 indicates that Burger Boat “will
perform and comply with all terms and provisions of each
Assigned Agreement to which it is a party to be performed
or complied with by it, if any, and will maintain each such
Assigned Agreement in full force and effect in accordance
with its terms.” (Id. at ¶ 8.) Every indication thus
demonstrates that Burger and Eaglestar have already
accounted for the contingencies at issue in this lawsuit,
with Burger giving Eaglestar every assurance that it will
continue performing under the construction contracts. It is
thus clear that Burger and Eagle are not adverse and that
it makes sense to consider Burger’s interest, if at all,
the interest of a plaintiff rather than a defendant.

In sum, the dispute alleged in the complaint is a dispute
between Eaglestar and Dafin over whether Eaglestar is
entitled to assume Dafin’s rights to the yachts. Although
Burger Boat might care, in some sense, who the victor is,
all indications are that Burger will continue manufacturing
the yachts regardless of who ultimately purchases them.
Even accepting Burger’s argument that it has an interest in
the lawsuit under Wis. Stat. § 806.04(11), that does
not mean I must consider it to be a defendant for §
1441(b) purposes. The complaint’s only claim “against”
Burger Boat seeks a declaration merely that Burger honor
its agreements. But that is an inadequate basis to consider
Burger Boat a “defendant” for jurisdictional purposes,
absent some indication that Burger Boat might actually not
perform. No such indication exists here; indeed, Burger
Boat’s answer “consents to the Plaintiff’s prayers for
relief set forth in the complaint as they apply to Dafin. .
. .” (Burger Boat Page 8 Answer at 4.) Accordingly, I
conclude that Burger Boat was fraudulently joined as a
defendant and that Dafin’s removal was proper under 28
U.S.C. § 1441(b).[fn4]

For the reasons given above, IT IS ORDERED that defendant
Burger Boat is realigned as a plaintiff and the motion to
remand is DENIED. The clerk shall set the case for a
telephonic scheduling conference.

[fn1] Fraudulent joinder is a term of art and does not
imply wrongdoing or sharp practices.

[fn2] Although the briefs focus to some extent on diversity
jurisdiction, it appears that subject matter jurisdiction is
not problematic: regardless of which side of the “v.”
Burger Boat is on, there will still be diversity
jurisdiction because the other two parties are foreign
entities. The question is whether Burger Boat is a proper
defendant for § 1441(b) purposes.

[fn3] Facts are taken from the complaint, which is attached
to the notice of removal.

[fn4] Having found Burger Boat improperly joined as a
defendant, the timeliness argument falls out because the
date on which Burger Boat was served did not start Dafin’s
removal clock ticking. See United Computer Systems, Inc. v.
AT & T Corp., 298 F.3d 756, 762-63 (9th Cir. 2002) (“. . .
there is no good reason why date of service on a
fraudulently joined defendant should commence the
thirty-day time period for removal under §
1446(b).”). Since Dafin did file its notice of removal
within thirty days of when it was served with the state
court action, its notice is timely. See also 14C Charles
Alan Wright, Arthur R. Miller, & Edward H. Cooper, Federal
Practice and Procedure § 3732, at 330-31 & n. 58 (3d
ed. 1998) (collecting cases for the proposition that “the
thirty-day time limits prescribed in Section 1446(b) will
be ignored when removal is sought on the ground that some
defendants have been joined fraudulently to prevent
removal”). By the same token, the consent of an improperly
served defendant is not required for removal. Jernigan v.
Ashland Oil Inc., 989 F.2d 812, 815 (5th Cir. 1993) (“in
cases involving alleged improper or fraudulent joinder of
parties, however, application of [the consent] requirement
to improperly or fraudulently joined parties would be
nonsensical, as removal in those cases is based on the
contention that no other proper defendant exists.”)