     Case: 09-20759     Document: 00511516603          Page: 1    Date Filed: 06/22/2011




            IN THE UNITED STATES COURT OF APPEALS
                     FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                     Fifth Circuit

                                                  FILED
                                                                            June 22, 2011

                                       No. 09-20759                         Lyle W. Cayce
                                                                                 Clerk

YOLANDA S. HOLDEN,

                                                   Plaintiff-Appellant,
v.

ILLINOIS TOOL WORKS INC.,

                                                   Defendant-Appellee.




                   Appeal from the United States District Court
                        for the Southern District of Texas
                             USDC No. 4:08-CV-2783


Before JONES, Chief Judge, and JOLLY and GARZA, Circuit Judges.
PER CURIAM:*
        This appeal relates to Yolanda S. Holden’s repeated attempts to sue
Valeron Strength Films Co., a division of Illinois Tool Works Inc.                    Holden
appeals the district court’s orders, which denied remanding the case to state
court, imposed monetary sanctions, and dismissed Holden’s case with prejudice.
We AFFIRM the district court for reasons discussed below.




        *
         Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
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                                             I
       In 2006, Holden, a former machinist for Illinois Tool Works (“ITW”), sued
ITW and Valeron Strength Films Co. (“Valeron”) in federal court alleging sexual
harassment, sexual discrimination, and retaliation in violation of Title VII of the
Civil Rights Act of 1964, 42 U.S.C § 2000e, et seq. Soon after, ITW repeatedly
informed Holden that Valeron was not a legal entity capable of being sued.1
Eventually, Melvin Houston, Holden’s counsel, signed a letter in which he
agreed, on Holden’s behalf, to dismiss Valeron as a defendant. The district court
dismissed Valeron from the lawsuit, which proceeded to trial before a jury. The
jury found in favor of ITW and the trial court taxed costs against Holden,
ordering her to pay $5,979.29. Holden has yet to pay these costs.
       Shortly after her first case ended, Holden sued ITW and Valeron again.
This time, she alleged various claims of sexual harassment and sexual
discrimination under Texas law and Holden proceeded with her lawsuit in Texas
state court. ITW removed the lawsuit to district court on the basis of diversity
jurisdiction,2 and argued that Valeron, the non-diverse defendant, was
fraudulently joined. Holden moved to remand the case, arguing that Valeron
was a proper party. The district court disagreed and denied the remand motion,
concluding that Valeron was not a legal entity capable of being sued. ITW
moved for sanctions against Holden and Houston due to their decision to sue
Valeron despite the proceedings in the first lawsuit. The district court partially
granted ITW’s request, limiting the sanctions to $3,843.80, the attorneys’ fees




       1
         ITW explained to Holden that Valeron was only a division of ITW and could not be
sued or served in its Answer, responses to Holden’s interrogatories, and Motion for Summary
Judgment.
       2
         ITW is a diverse defendant because it is incorporated in Delaware and its principal
place of business is in Illinois.

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ITW incurred while removing the case to federal court and responding to
Holden’s remand motion.
       After the district court ordered sanctions against Holden and Houston,
ITW moved to stay the case because Holden had failed to pay costs from her first
lawsuit. The district court ordered Holden to pay the costs and sanctions by
September 30, 2009, or face dismissal of the case with prejudice.                      Holden
declined to comply and, instead, moved for the court to reconsider its previous
orders. The court denied Holden’s reconsideration motion. The court dismissed
the case with prejudice when Holden did not pay the costs or sanctions by
September 30, 2009. Holden appealed to us.
                                              II
                                               A
       Holden argues that the trial court erred by denying her motion for
remand, issuing sanctions, and dismissing her second lawsuit. We begin by
considering whether the district court erred by declining to remand Holden’s
case to Texas state court.3
       Under 28 U.S.C. § 1441(a), a party may remove to federal court any civil
action initially filed in State court “of which the district courts of the United
States have original jurisdiction.” Removal is permitted when a lawsuit centers
on a question of federal law or if a claim based on State law does not involve
defendants who are citizens of “the State in which such action is brought.” 28
U.S.C. § 1441(b). A defendant seeking removal of a case based on diversity
jurisdiction must demonstrate that the lawsuit satisfies the requirements




       3
         Typically, we do not have jurisdiction to consider a district court’s remand order
because “in and of itself” it is not a final judgment. B., Inc. v. Miller Brewing Co., 663 F.2d
545, 548 (5th Cir. 1981). In this case, however, the district court’s dismissal of Holden’s case
constitutes an appealable final decision and under 28 U.S.C. § 1291, permits for our
consideration of that court’s earlier decision as to remand. Id. at 548.

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outlined in 28 U.S.C. § 1332.4 A district court is “prohibited by statute from
exercising jurisdiction over a suit in which any party, by assignment or
otherwise, has been improperly or collusively joined to manufacture federal
diversity jurisdiction.” Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568, 572 (5th
Cir. 2004).   Remand due to improper joinder may occur when a party has
committed outright fraud in pleading jurisdictional facts or the plaintiff is
reasonably unable to establish “‘a cause of action against the non-diverse party
in state court.’” Id. at 573 (quoting Travis v. Irby, 326 F.3d 644, 646–47 (5th Cir.
2003)). The latter type of improper joinder is often referred to as “fraudulent
joinder,” Smallwood, 385 F.3d at 573, but it does not require proof that the
plaintiff intended to deceive the court. Poulos v. Naas Foods, Inc., 959 F.2d 69,
73 (7th Cir. 1992).
      In this case, the district court’s remand decision hinged on whether Holden
had established a valid claim against Valeron, a non-diverse defendant that
would destroy diversity jurisdiction.          To decide whether a plaintiff has a
reasonable basis for recovery under state law, a district court may “conduct a
Rule 12(b)(6)-type analysis, looking initially at the allegations of the complaint
to determine whether the complaint states a claim under state law against” an
in-state defendant. Smallwood, 385 F.3d at 573. Alternatively, a district court
may “pierce the pleadings and conduct a summary inquiry” if a plaintiff’s claim
misstates or omits specific facts that would determine whether joinder was
proper. Id. This inquiry is appropriate “only to identify the presence of discrete
and undisputed facts that would preclude plaintiff’s recovery against the in-state
defendant.” Id. at 573–74.
      Holden argues that the district court erred by examining the record when
that court considered whether Valeron was fraudulently joined.               We have,

      4
        Section 1332, in pertinent part, requires for diversity jurisdiction a matter in
controversy that exceeds $75,000, which is between citizens of different States.

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however, repeatedly held that a district court may examine the record to
determine whether a reasonable basis exists for predicting that state law might
impose liability on a defendant who alleges fraudulent joinder. Smallwood, 385
F.3d at 573–75.; Jernigan v. Ashland Oil Inc., 989 F.2d 812, 815–16 (5th Cir.
1993); Cavallini v. State Farm Mut. Auto Ins. Co., 44 F.3d 256, 263 (5th Cir.
1995); B., Inc., 663 F.2d at 549. Holden relies on Cavallini to argue that a
district court may only examine documents that existed in the record when a
party filed for removal. But Cavallini does not stand for that proposition. See
44 F.3d at 264–65. Rather, in Cavallini we upheld the district court’s decision
not to consider a complaint amended after a case was removed to federal court.
Id. Here, the district court was free to consider evidence in the record as part
of a summary inquiry into whether a defendant was improperly joined in an
attempt to defeat diversity jurisdiction.
      Holden also argues that there is no proof of fraud in the record and that
ITW failed to prove there was no reasonable possibility that Holden could
establish a cause of action against Valeron in Texas state court. As we explained
in Smallwood, 385 F.3d at 573–75, and Jernigan, 989 F.2d at 815–16, an inquiry
into allegations of fraudulent joinder considers whether a plaintiff has any
possibility of recovery against an in-state defendant. Contrary to Holden’s
assertion, under this standard, proof of actual fraud is unnecessary. See
Poulos, 959 F.2d at 73. The trial court examined the record and concluded that
ITW had repeatedly demonstrated that Valeron was a division of ITW and
therefore, was not a separate legal entity that could be sued or served. Among
other pieces of evidence, the district court relied on a letter ITW sent to Houston
during the first lawsuit. In the correspondence, ITW explained that Valeron was
“not a legal entity capable of being sued” and asked Houston to voluntarily
dismiss Valeron from the previous lawsuit.        Houston signed the letter on
Holden’s behalf, agreeing to dismissal. On appeal, Holden argues that because

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the letter lacked attachments, the correspondence could not serve as proof of
Valeron’s inability to be sued.            This argument is erroneous.            The letter
adequately demonstrated that ITW had notified Holden and Houston of this fact.
       The district court’s conclusion of improper joinder is strengthened by that
court’s reliance on several additional pieces of evidence. For example, the trial
court considered Holden’s W2 forms, which showed that her employer was ITW,
not Valeron. Additionally, ITW supplied the trial court with filings from the
Texas Secretary of State that showed Valeron’s certificate of limited partnership
was cancelled in 2002 and that no other business filings for Valeron existed.
This evidence clearly established that ITW, not Valeron, had employed Holden
and that Valeron could not be sued.5 Therefore, the district court did not err by
concluding that Valeron was fraudulently joined because a valid cause of action
could not be established against Valeron in Texas state court.
                                               B
       Holden’s subsequent contentions relate to the district court’s imposition
of monetary sanctions and that court’s order to dismiss the lawsuit for Holden’s
failure to pay costs and sanctions. We consider these allegations under an abuse
of discretion standard. Skidmore Energy, Inc. v. KPMG, 455 F.3d 564, 566 (5th
Cir. 2006). A district court abuses its discretion when that court has an
erroneous view of the law or makes a clearly erroneous assessment of evidence.
Id. An abuse of discretion occurs when “no reasonable person could take the
view adopted by the trial court.” Whitehead v. Food Max of Miss., Inc., 332 F.3d
796, 803 (5th Cir. 2003).
       State sanction rules, not federal, “apply to filings in state court, even if the
case is later removed to federal court.” Tompkins v. Cyr, 202 F.3d 770, 787 (5th
Cir. 2000). But, once a case is removed to federal court, filings in that court are

       5
           We note that at no point did Holden contest the validity of the evidence supplied by
ITW.

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governed by Rule 11 of the Federal Rules of Civil Procedure. Edwards v. Gen.
Motors Corp., 153 F.3d 242, 245 (5th Cir. 1998). Here, the district court correctly
relied on Rule 13 of the Texas Rules of Civil Procedure when it considered ITW’s
request for sanctions, which related to Holden’s complaint filed in Texas state
court.
         A court may impose sanctions under Rule 13 for a groundless pleading
brought in bad faith or to harass an opposing party. Sanctions may also be
levied when counsel has failed to make a reasonable inquiry into facts after
receiving notice that such facts are incorrect. To interpret Rule 13, Texas courts
look to cases that apply Rule 11 of the Federal Rules of Civil Procedure, which
“define[ ] a standard of reasonableness under the circumstances to measure the
party’s or counsel’s conduct.” Monroe v. Grider, 884 S.W.2d 811, 817 (Tex. App.
1994).     Rule 11 also requires that each filing reflect a party or counsel’s
reasonable inquiry into facts that support the document. F ED. R. C IV. P. 11.
“Reasonable inquiry means the amount of examination that is reasonable under
the circumstances of the case.” Monroe, 884 S.W.2d at 817. And, trial courts
may “impose sanctions for a party’s or his counsel’s failure to inquire into the
facts after he is on notice that the facts are not what he believes.” Id.; see also
P.N.L., Inc. v. Owens, 799 S.W.2d 439, 441 (Tex. App. 1990).
         Holden asserts that the district court abused its discretion by ordering
sanctions because she did not file her Texas lawsuit against Valeron Strength
L.P. Rather, she filed her claims against Valeron Strength Films, Co., the firm
which Holden alleged had employed her. Indeed, as Holden argues in her brief,
during her tenure she received job-related correspondence with the header:
“Valeron Strength Films An ITW Company.” This letterhead indicated that
Valeron was associated with ITW, but it did not indicate that Valeron was an
independent legal entity. This stationary may have supplied Holden with the



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misguided belief that she could sue Valeron in her first lawsuit. The same can
not be said, however, for this case.
      During the first lawsuit, ITW repeatedly informed Holden and Houston
that Valeron was a division of ITW and could not be sued or served. And,
Houston signed a letter in which ITW had requested that Houston voluntarily
dismiss Valeron due to this fact or ITW would initiate sanction proceedings. Due
to the proceedings in the first case, both Holden and Houston knew that as of
2002, Valeron had ceased to be a recognized limited partnership in Texas.
Therefore, the district court did not abuse its discretion by concluding that
Houston had not made a reasonable inquiry into Valeron’s legal status before
filing suit in Texas state court. Furthermore, the district court did not err by
ordering Holden and Houston to pay $3,843.80 in attorneys’ fees. The Texas
Rules of Civil Procedure state that when a court finds a party has violated Rule
13, that court “shall” order the offending party to pay sanctions, which include
“the reasonable expenses incurred in obtaining the order, including attorneys
fees.” T EX. R. C IV. P. 215.1(d). Under this standard, the district court’s decision
was not unreasonable.
      Finally, the district court did not abuse its discretion in dismissing
Holden’s lawsuit with prejudice. Under Rule 41(b) of the Federal Rules of Civil
Procedure, a district court, pursuant to a defendant’s motion, may dismiss a
lawsuit for a plaintiff’s failure to comply with a court order. “Dismissals with
prejudice are ‘reserved for the most egregious of cases, usually cases where the
requisite factors of clear delay and ineffective lesser sanctions are bolstered by
the presence’” of several aggravating factors. Boudwin v. Graystone Ins. Co.,
Ltd., 756 F.2d 399, 401 (5th Cir. 1985) (quoting Rogers v. Kroger Co., 669 F.2d
317, 320 (5th Cir. 1982)).     These factors include: “(1) delay resulting from
intentional conduct, (2) delay caused by the plaintiff personally, and (3) delay
causing prejudice to the defendant.” Id. Here, the trial court’s orders clearly

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discussed why that court taxed costs against Holden and, more than a year later,
ordered sanctions against her. Holden refused to comply with either order. In
addition, Holden and Houston’s continued insistence in naming Valeron as a
defendant delayed the district court from reaching a conclusion as to the merits
of Holden’s second lawsuit.
      The district court’s sanction and dismissal orders appear particularly
reasonable when we pause to consider Houston’s past behavior in a similar
employment litigation case, Worrell v. Houston Can! Academy, No. 08-20012, 287
Fed. Appx. 320 (5th Cir. July 16, 2008) (unpublished). In Worrell, Houston
represented a plaintiff who sued several firms, including a company for whom
she did not work. Id. at 322. The improperly joined defendant in that lawsuit,
like the present matter, repeatedly informed Houston that the plaintiff had sued
the wrong party. Id. at 322–23. After receiving no response from Houston, the
improperly joined defendant moved for dismissal and sanctions. Id. The trial
court granted the sanction motion and Houston, as in the present matter,
declined to pay the sanctions and appealed to us. We affirmed the district court.
Id. at 322. Despite our mandate, Houston refused to pay the sanctions until he
faced a motion for contempt. Worrell v. Houston Can! Academy, No. 07-1100,
2010 WL 222902, at *2 (S.D. Tex. Jan. 15, 2010). Eventually, the district court
dismissed the case because of the plaintiff’s “opprobrious conduct” and
“contumacious refusals” to comply with court orders. Id. at *2–*3. Now, less
than three years later, Houston reappears before us, arguing that another
district court has unreasonably dismissed his client’s case and ordered sanctions.
In light of Houston’s history, it is difficult to agree with his interpretation.
Instead, we find that the district court did not act unreasonably by ordering
sanctions and dismissing Holden’s case.




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                                     III
     We AFFIRM the district court’s orders for the payment of $5,919.22 in
costs and $3,843.80 in sanctions to ITW. Additionally, we AFFIRM the district
court’s order denying remand and the order dismissing Holden’s lawsuit.




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