GRAY v. PETOSEED CO.

9:95-3882-19, 9:95-3883-19, 9:95-3884-19

985 F. Supp. 625 (1996) | Cited 0 times | D. South Carolina | February 2, 1996

ORDER

Plaintiffs filed these actions in the Court of Common Pleas for Hampton County, South Carolina, asserting causes of action against defendant for fraud and compensatory contempt. Defendant thereafter removed these actions from state court and moved for their dismissal pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Plaintiffs oppose the motions to dismiss and also have moved the Court to remand these actions to state court. After carefully reviewing these matters, the Court concludes that plaintiffs' claims for compensatory contempt should be remanded to state court and that plaintiffs' claims for fraud should be dismissed.

I

In virtually identical complaints, plaintiffs allege that in 1989, they filed lawsuits against defendant in state court contending that defendant produced and sold to them a disease-contaminated watermelon seed that damaged their watermelon crops for that year. Plaintiffs further allege that during their 1989 lawsuits, they inquired of defendant by way of interrogatory for a description of all tests that defendant had performed on the watermelon seed to determine the nature of the alleged disease, and that following a court order compelling a response to this interrogatory, defendant stated that its tests were negative for the disease. Plaintiffs further allege that defendant's response to the interrogatory was false, but that in reliance on the response, they settled their lawsuits for an amount substantially less than their actual damages.

As noted, plaintiffs assert two causes of action: fraud and compensatory contempt. In their fraud claims, plaintiffs contend that defendant's alleged misrepresentation concerning its test results induced them to settle their claims in the prior suits for less than their actual damages and, but for the misrepresentation, they would have either demanded a larger settlement amount or proceeded to trial. In their compensatory contempt claims, plaintiffs contend that (1) defendant was under a state court order to disclose its results from the watermelon seed tests; (2) because defendant did not do so, it is in contempt of the state court; and (3) as a result of the contempt, they settled for less than their actual damages. 1"

II

As an initial matter, the Court finds that defendant properly removed these cases from state court. Plaintiffs have alleged two causes of action and appear to seek damages in excess of $ 50,000 in each case. Because complete diversity of citizenship between the parties exists, the Court has subject-matter jurisdiction in these cases. 28 U.S.C. § 1332.

However, the Court finds that there is a jurisdictional problem with respect to the claims for compensatory contempt. Assuming arguendo that an independent cause of action for compensatory contempt exists in South Carolina, it is clear such a cause of action must be brought before the court that issued the order which allegedly was violated. As the South Carolina Court of Appeals has held: "Only 'the court offended has the power to punish for the contempt or to entertain proceedings to that end.'" McGee v. McGee, 287 S.C. 644, 340 S.E.2d 571, 573 (S.C. App. 1986) (citation omitted); see also United States v. Barnett, 330 F.2d 369, 385 (5th Cir. 1963) ("It is elementary that the court against which a contempt is committed has exclusive jurisdiction to punish for such contempt"); E.E.O.C. v. Local 40, Int'l Ass'n of Bridge, Structural & Ornamental Iron Workers, 885 F. Supp. 488, 490 (S.D.N.Y. 1994) (applying principle); Culpepper v. State, 516 So. 2d 485, 487-88 (Miss. 1987) (citing cases). A contrary ruling would lead to the "anomalous proceeding of one court taking cognizance of an alleged contempt committed before and against another court, which possesses ample powers, itself to take care of its own dignity and punish the offender." Ex parte Bradley, 74 U.S. (7 Wall.) 364, 372, 19 L. Ed. 214 (1868).

In short, the Court concludes that it properly has subject-matter jurisdiction over plaintiffs' fraud claims. Therefore, the Court will deny the motions to remand those claims. The Court further concludes that it does not have subject-matter jurisdiction over plaintiffs' compensatory contempt claims. Accordingly, the Court will grant the motions to remand those claims to state court.

III

Turning to defendant's motions to dismiss the fraud claims, the Court first rejects plaintiffs' contention that collateral estoppel bars defendant from seeking dismissal of these claims. Plaintiffs base this contention on the fact that defendant filed an identical motion to dismiss in a separate case pending in state court and the state court judge denied the motion. Assuming arguendo that denial of a motion to dismiss in a separate proceeding can have the preclusive effect urged by plaintiffs, it does not in these cases because, in denying the motion to dismiss in the other proceeding, the state court judge did little more than pass on the issue, stating:

There is no dispositive South Carolina law on this particular issue. This court finds that plaintiffs' fraud cause of action alleging violation of a court order presents a novel question of law, which should not be decided on the pleadings. In the interests of justice and fairness to the litigants, the court denies Petoseed's motion to dismiss the fraud causes of action so that all evidence can be presented and a record fully developed.

Jarrell v. Petoseed Co., Order filed Oct. 19, 1994, at 4 (94-CP-25-172) (emphasis added).

On the merits of the motions to dismiss, defendant contends that South Carolina law requires plaintiffs to tender and return the settlement amounts paid in the prior lawsuits before they may maintain their fraud claims. Defendant has cited numerous cases in support of this contention, including Taylor v. Palmetto State Life Ins. Co., 196 S.C. 195, 12 S.E.2d 708 (S.C. 1940), in which the state supreme court held:

We presume that no doubt exists as to the soundness of the general proposition that where a party to a compromise desires to set aside or avoid a release duly entered into and be remitted to his original rights, he must place the other party in statu quo by returning or tendering the return of whatever has been received by him under such compromise, if of any value, and so far as possible any right lost by the other party in consequence thereof. This rule obtains even though the contract of settlement was induced by the fraud or false representations of the other party. The rationale of the doctrine is that by electing to retain the property the party must be conclusively held to be bound by the settlement. The rule applies to actions ex contractu as well as to actions ex delicto.

12 S.E.2d at 710. Plaintiffs seek to avoid this principle by attempting to distinguish Taylor and the other South Carolina cases on several grounds, none of which is persuasive. See also Dunaway v. United Ins. Co. of Am., 239 S.C. 407, 123 S.E.2d 353 (S.C. 1962). Because plaintiffs have failed to tender the settlement amounts they received in the prior suits, they may not maintain their fraud claims in these cases.

IV

The Court therefore ORDERS on this the 2nd day of February, 1996, at Columbia, South Carolina, that: (1) plaintiffs' claims for compensatory contempt be REMANDED to the Court of Common Pleas for Hampton County and (2) plaintiffs' fraud claims be DISMISSED.

DENNIS W. SHEDD

UNITED STATES DISTRICT JUDGE

1. The Supreme Court of South Carolina has recognized "compensatory contempt" as being "a money award for the plaintiff [presumably either party] when the defendant has injured the plaintiff by violating a previous court order." Curlee v. Howle, 277 S.C. 377, 287 S.E.2d 915, 919 (S.C. 1982).

ORDER

Plaintiffs filed these actions in the Court of Common Pleas for Hampton County, South Carolina, asserting causes of action against defendant for fraud and compensatory contempt. Defendant thereafter removed these actions from state court and moved for their dismissal pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Plaintiffs oppose the motions to dismiss and also have moved the Court to remand these actions to state court. After carefully reviewing these matters, the Court concludes that plaintiffs' claims for compensatory contempt should be remanded to state court and that plaintiffs' claims for fraud should be dismissed.

I

In virtually identical complaints, plaintiffs allege that in 1989, they filed lawsuits against defendant in state court contending that defendant produced and sold to them a disease-contaminated watermelon seed that damaged their watermelon crops for that year. Plaintiffs further allege that during their 1989 lawsuits, they inquired of defendant by way of interrogatory for a description of all tests that defendant had performed on the watermelon seed to determine the nature of the alleged disease, and that following a court order compelling a response to this interrogatory, defendant stated that its tests were negative for the disease. Plaintiffs further allege that defendant's response to the interrogatory was false, but that in reliance on the response, they settled their lawsuits for an amount substantially less than their actual damages.

As noted, plaintiffs assert two causes of action: fraud and compensatory contempt. In their fraud claims, plaintiffs contend that defendant's alleged misrepresentation concerning its test results induced them to settle their claims in the prior suits for less than their actual damages and, but for the misrepresentation, they would have either demanded a larger settlement amount or proceeded to trial. In their compensatory contempt claims, plaintiffs contend that (1) defendant was under a state court order to disclose its results from the watermelon seed tests; (2) because defendant did not do so, it is in contempt of the state court; and (3) as a result of the contempt, they settled for less than their actual damages. 1"

II

As an initial matter, the Court finds that defendant properly removed these cases from state court. Plaintiffs have alleged two causes of action and appear to seek damages in excess of $ 50,000 in each case. Because complete diversity of citizenship between the parties exists, the Court has subject-matter jurisdiction in these cases. 28 U.S.C. § 1332.

However, the Court finds that there is a jurisdictional problem with respect to the claims for compensatory contempt. Assuming arguendo that an independent cause of action for compensatory contempt exists in South Carolina, it is clear such a cause of action must be brought before the court that issued the order which allegedly was violated. As the South Carolina Court of Appeals has held: "Only 'the court offended has the power to punish for the contempt or to entertain proceedings to that end.'" McGee v. McGee, 287 S.C. 644, 340 S.E.2d 571, 573 (S.C. App. 1986) (citation omitted); see also United States v. Barnett, 330 F.2d 369, 385 (5th Cir. 1963) ("It is elementary that the court against which a contempt is committed has exclusive jurisdiction to punish for such contempt"); E.E.O.C. v. Local 40, Int'l Ass'n of Bridge, Structural & Ornamental Iron Workers, 885 F. Supp. 488, 490 (S.D.N.Y. 1994) (applying principle); Culpepper v. State, 516 So. 2d 485, 487-88 (Miss. 1987) (citing cases). A contrary ruling would lead to the "anomalous proceeding of one court taking cognizance of an alleged contempt committed before and against another court, which possesses ample powers, itself to take care of its own dignity and punish the offender." Ex parte Bradley, 74 U.S. (7 Wall.) 364, 372, 19 L. Ed. 214 (1868).

In short, the Court concludes that it properly has subject-matter jurisdiction over plaintiffs' fraud claims. Therefore, the Court will deny the motions to remand those claims. The Court further concludes that it does not have subject-matter jurisdiction over plaintiffs' compensatory contempt claims. Accordingly, the Court will grant the motions to remand those claims to state court.

III

Turning to defendant's motions to dismiss the fraud claims, the Court first rejects plaintiffs' contention that collateral estoppel bars defendant from seeking dismissal of these claims. Plaintiffs base this contention on the fact that defendant filed an identical motion to dismiss in a separate case pending in state court and the state court judge denied the motion. Assuming arguendo that denial of a motion to dismiss in a separate proceeding can have the preclusive effect urged by plaintiffs, it does not in these cases because, in denying the motion to dismiss in the other proceeding, the state court judge did little more than pass on the issue, stating:

There is no dispositive South Carolina law on this particular issue. This court finds that plaintiffs' fraud cause of action alleging violation of a court order presents a novel question of law, which should not be decided on the pleadings. In the interests of justice and fairness to the litigants, the court denies Petoseed's motion to dismiss the fraud causes of action so that all evidence can be presented and a record fully developed.

Jarrell v. Petoseed Co., Order filed Oct. 19, 1994, at 4 (94-CP-25-172) (emphasis added).

On the merits of the motions to dismiss, defendant contends that South Carolina law requires plaintiffs to tender and return the settlement amounts paid in the prior lawsuits before they may maintain their fraud claims. Defendant has cited numerous cases in support of this contention, including Taylor v. Palmetto State Life Ins. Co., 196 S.C. 195, 12 S.E.2d 708 (S.C. 1940), in which the state supreme court held:

We presume that no doubt exists as to the soundness of the general proposition that where a party to a compromise desires to set aside or avoid a release duly entered into and be remitted to his original rights, he must place the other party in statu quo by returning or tendering the return of whatever has been received by him under such compromise, if of any value, and so far as possible any right lost by the other party in consequence thereof. This rule obtains even though the contract of settlement was induced by the fraud or false representations of the other party. The rationale of the doctrine is that by electing to retain the property the party must be conclusively held to be bound by the settlement. The rule applies to actions ex contractu as well as to actions ex delicto.

12 S.E.2d at 710. Plaintiffs seek to avoid this principle by attempting to distinguish Taylor and the other South Carolina cases on several grounds, none of which is persuasive. See also Dunaway v. United Ins. Co. of Am., 239 S.C. 407, 123 S.E.2d 353 (S.C. 1962). Because plaintiffs have failed to tender the settlement amounts they received in the prior suits, they may not maintain their fraud claims in these cases.

IV

The Court therefore ORDERS on this the 2nd day of February, 1996, at Columbia, South Carolina, that: (1) plaintiffs' claims for compensatory contempt be REMANDED to the Court of Common Pleas for Hampton County and (2) plaintiffs' fraud claims be DISMISSED.

DENNIS W. SHEDD

UNITED STATES DISTRICT JUDGE

1. The Supreme Court of South Carolina has recognized "compensatory contempt" as being "a money award for the plaintiff [presumably either party] when the defendant has injured the plaintiff by violating a previous court order." Curlee v. Howle, 277 S.C. 377, 287 S.E.2d 915, 919 (S.C. 1982).

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