# B and S Equipment Co., Inc. v. Central States Underwater Contracting, Inc.

> District Court, E.D. Louisiana · March 26, 2020

URL: https://www.frixlaw.com/law-library/cases/10185372

## Case

- **Court:** District Court, E.D. Louisiana
- **Decided:** March 26, 2020
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA

B AND S EQUIPMENT CO., INC. CIVIL ACTION

VERSUS NO. 19-14769

CENTRAL STATES UNDERWATER SECTION M (2)
CONTRACTING, INC.

ORDER & REASONS
Before the Court is a motion by plaintiff B&S Equipment Co., Inc. (“B&S”),1 to remand
this matter to the 25th Judicial District Court, Parish of Plaquemines, State of Louisiana.
Defendant Central States Underwater Contracting, Inc. (“CSU”) responds in opposition,2 and B&S
replies in further support of its motion.3 Having considered the parties’ memoranda, the record,
and the applicable law, the Court concludes that B&S’s motion should be denied because CSU did
not waive its right to removal by filing an answer and counterclaim in state court before removing
the case to federal court.

I. BACKGROUND

This case involves a breach-of-contract claim arising from a failure to pay. According to
B&S, on August 27, 2018, CSU approached B&S to supply manpower and equipment to support
CSU’s pipeline abandonment project (the “Project”).4 The parties entered into a contract (the
“Contract”), B&S performed the Contract, and B&S eventually issued three invoices to CSU
totaling $351,135.68.5 To date, CSU has paid B&S only $150,000.00.6 On October 16, 2019,

1 R. Doc. 8.
2 R. Doc. 9.
3 R. Doc. 12.
4 R. Doc. 1-8 at 2.
5 Id. at 4.
6 Id.
B&S filed the instant action in state court against CSU seeking damages for breach of contract,
alleging that “[d]espite repeated amicable demand, [CSU] has failed to pay B&S anything toward
the outstanding balance.”7 B&S claims that as a result of this breach, it “has incurred, and
continues to incur, significant costs and damages.”8 B&S served its state-court petition on CSU
on December 2, 2019.

On December 23, 2019, CSU filed an answer and reconventional demand (i.e.,
counterclaim) in state court, telling a different story than B&S.9 According to CSU, upon its
contacting Scott Ryals of B&S on August 27, 2018, about the Project, B&S proposed a flat rate of
$7,500 per day and indicated that B&S could commence work on September 7, 2018 (which CSU
refers to as the first attempt to mobilize for repair of the pipeline, or “First Mob Attempt”).10 CSU
accepted B&S’s terms and “stressed to B&S that time was of the essence.”11 On September 6,
2018, B&S informed CSU that its charges would be higher than previously agreed.12 Then on
September 10, 2018, three days after B&S said it could commence work on the Project, Ryals
informed CSU that B&S’s boat was inoperable due to mechanical problems.13 When B&S finally

arrived to the job site on September 13, 2018, the Project was “canceled due to the unsafe
conditions caused by the rising river.”14 On September 28, 2018, after the unsafe conditions
subsided, CSU contacted B&S about remobilizing to repair the pipeline (“Second Mob Attempt”),
with Ryals assuring CSU it would only take “two to three days to Mob in.”15 On October 9, 2018,

7 Id.
8 Id.
9 R. Doc. 1-10.
10 Id. at 4.
11 Id.
12 Id.
13 Id. at 4-5.
14 Id. at 5.
15 Id.
CSU informed B&S that the Second Mob Attempt would begin on October 16, 2018.16 According
to CSU, B&S invoiced CSU for the First and Second Mob Attempts despite B&S’s failure to meet
its obligations under the Contract.17 In its answer and reconventional demand, CSU alleges B&S
breached its duties under the Contract “[t]hrough its actions and inactions ... including but not
limited to failing to arrive at the job site on time during the First Mob Attempt and ongoing delays

on both the First Mob Attempt and the Second Mob Attempt.”18 CSU claims that as a result of
this breach, it “has incurred significant costs and damages.”19
Additionally, CSU alleges it lost “valuable contracts” for 2019 with its clients Enterprise
Products (“Enterprise”) and Marathon Petroleum (“Marathon”) as a result of statements made by
Ryals and B&S, who allegedly contacted both companies to inform them that “CSU does not pay
its bills” and to demand that they “stop working with CSU.”20 According to CSU, Ryals and B&S
knew of these existing contracts at the time Ryals made these “defamatory and disparaging
statements … in bad faith and/or with malicious intent” to both Enterprise and Marathon “with the
intent to cause CSU to lose work” and, as a result of these statements, CSU lost its 2019 contracts
with both clients.21 CSU claims, then, that B&S tortiously interferred with CSU’s contracts with

Enterprise and Marathon.
On December 27, 2019, less than 30 days following the date of service of B&S’s petition
on CSU (i.e., December 2, 2019), CSU removed this action to this Court alleging diversity subject-
matter jurisdiction under 28 U.S.C. § 1332.22 CSU asserts that complete diversity exists between
the properly joined parties, because B&S is a citizen of Louisiana, CSU is a corporation organized

16 Id.
17 Id.
18 Id.
19 Id.
20 Id.
21 Id. at 6.
22 R. Doc. 1 at 1.
under the laws of Kansas with its principal place of business located in Texas, and the amount in
controversy exceeds $75,000, exclusive of interest and costs.23
II. PENDING MOTION

On January 14, 2020, B&S filed the instant motion to remand arguing that CSU waived its
right to removal by filing “its answer and permissive reconventional demand at a time wh[en] this
matter was clearly removable.”24 According to B&S, its principal demand seeks damages for
CSU’s alleged breach of contract due to CSU’s failure to pay B&S, while CSU’s counterclaim
(reconventional demand) for tortious interference with contract “seeks damages for actions
allegedly occurring after the project at issue and the value of contracts allegedly lost in 2019,” not
the Contract between CSU and B&S concerning the Project.25 B&S argues that CSU’s
reconventional demand is permissive because final judgment on B&S’s principal demand would
not dispose of CSU’s claim against B&S for Ryals’s allegedly defamatory and disparaging
statements that interfered with CSU’s contracts with Enterprise and Marathon.26
CSU opposes the motion, arguing that it did not waive its right of removal by filing “its
notice of removal only four days after filing its answer” in the state court proceeding.27 CSU adds

that “if CSU continued investigating to determine whether [it] had a right to remove” and “chose
not to file an answer ... CSU might [have] face[d] a motion for default judgment in state court.”28
Further, CSU argues that its reconventional demand is compulsory because B&S’s alleged tortious
interference with CSU’s outside contracts arose out of the same transaction or occurrence (viz., the
Project) that is the basis of this action.29

23 Id. at 2.
24 R. Doc. 8 at 2.
25 R. Doc. 8-1 at 6.
26 Id.
27 R. Doc. 9 at 4-5 (emphasis in original).
28 Id. at 4.
29 Id. at 7.
III. LAW & ANALYSIS
A. Remand Standard
A defendant may remove from state court to the proper United States district court “any
civil action brought in a State court of which the district courts of the United States have original
jurisdiction.” 28 U.S.C. § 1441(a). Because federal courts have limited jurisdiction, the removal
statute is strictly construed, and any ambiguities are construed against removal and in favor of
remand. Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002). The
party seeking removal has the burden of establishing that federal jurisdiction exists and that
removal was proper. Id. The federal court’s jurisdiction is examined as of the time of removal.
See Doddy v. Oxy USA, Inc., 101 F.3d 448, 456 (5th Cir. 1996).

B. Waiver of the Right to Removal
B&S contends that CSU waived its right to removal by filing its answer and counterclaim
in state court before removing the case to federal court. Under well-established precedent,
however, CSU did not waive its right to removal by filing an answer in state court. As explained
by another section of this Court:
The Fifth Circuit has held that a defendant may waive its right to removal “by
proceeding to defend the action in state court or otherwise invoking the processes
of that court.” Brown v. Demco, Inc., 792 F.2d 478, 481 (5th Cir. 1986). However,
a waiver of the right to remove must also be clear and unequivocal. Tedford v.
Warner-Lambert Co., 327 F.3d 423, 428 (5th Cir. 2003). A party has not waived
its right to removal even though it has participated in state proceedings, so long as
the party has not sought an adjudication on the merits. Id. Consistent with this
holding, the Eastern District repeatedly has held that an answer is not sufficient to
constitute as waiver. See Biggers v. State Farm Mut. Auto. Ins. Co., 1992 WL
266166, at *2 (E.D. La. 1992); Demourelle v. Bond, 1999 WL 203269, at *1 (E.D.
La. 1999); Gallo v. Elmotores, Inc., 1998 WL 661485, at *1 (E.D. La. 1998).

Green v. Great W. Cas. Co., 2019 WL 1767269, at *2 (E.D. La. Apr. 22, 2019).
Likewise, “defendants that have merely ... answered and asserted compulsory
counterclaims have generally not been found to have waived the right to remove.” Mastronardi
v. Wells Fargo Bank, N.A., 2015 WL 5472924, at *3 (N.D. Tex. Sept. 17, 2015); see Harris v.
Brooklyn Dressing Corp., 560 F. Supp. 940, 942 (S.D.N.Y. 1983). “However, a party who
voluntarily submits to the jurisdiction of a state court by filing a permissive counterclaim thereby
waives the right of removal.” Harris, 560 F. Supp. at 942 (citing Bedell v. H.R.C. Ltd., 522 F.
Supp. 732 (E.D. Ky. 1981); George v. Al-Saud, 478 F. Supp. 773 (N.D. Cal. 1979)). Thus, B&S

asks this Court to “focus on whether CSU’s reconventional demand is compulsory or permissive
in nature” and, because, in B&S’s view, it is permissive, to find that CSU has waived its right to
removal.30
C. The Nature of CSU’s Reconventional Demand
CSU asserted its reconventional demand pursuant to Louisiana law. Article 1061 of the
Louisiana Code of Civil Procedure governs reconventional demands, both permissive and
compulsory, and provides:
A. The defendant in the principal action may assert in a reconventional demand
any causes of action which he may have against the plaintiff in the principal action,
even if these two parties are domiciled in the same parish and regardless of
connexity between the principal and reconventional demands.

B. The defendant in the principal action ... shall assert in a reconventional demand
all causes of action that he may have against the plaintiff that arise out of the
transaction or occurrence that is the subject matter of the principal action.

La. Code Civ. P. art. 1061. Article 1061 and the doctrine of res judicata, set forth in La. R.S.
13:4231, are closely related. Colbert v. Brennan, 2012 WL 12874157, at *3 (E.D. La. Oct. 9,
2012). “The doctrine of res judicata was substantially changed by La. Acts 1990, No. 521,
effective January 1, 1991,” and Article 1061 was “amended in order to effectuate this change.”
Hy-Octane Invs., Ltd. v. G&B Oil Prods., Inc., 702 So. 2d 1057, 1060 (La. App. 1997).
The purpose of the change in the doctrine of res judicata was to require the plaintiff
“to seek all relief and to assert all rights which arise out of the same transaction or

30 R. Doc. 14 at 1-2.
occurrence.” Comment (a) to La. R.S. 13:4231. This serves the purpose of judicial
economy and fairness. The focus is on the transaction or occurrence as opposed to
a cause of action. See Comment (a) to La. R.S. 13:4231.

In furtherance of this objective, judicial efficiency is also served “by requiring the
defendant through a compulsory reconventional demand to assert all causes of
action he may have against the plaintiff that arise out of the transaction or
occurrence that is the basis for the plaintiff's action.” Comment (a) to Article 1061.

Id.
“Louisiana courts applying Article 1061 have not defined what the phrase ‘arise out of the
transaction or occurrence’ requires and therefore when a reconventional demand is compulsory,”
although “cases interpreting the statute suggest that something more than some shared facts is
required.” Nayani v. Horseshoe Entm’t, 2007 WL 1288047, at *2 (N.D. Tex. May 2, 2007); see
Hy-Octane Invs., 702 So. 2d at 1060. Thus, “[w]hat the transaction or occurrence is that is the
subject matter of the litigation, or the principal demand or action, or the original action, has been
determined on a case-by-case basis ….” Hy-Octane Invs., 702 So. 2d at 1060. “The official
commentary to Article 1061 explains that the purpose of the rule is to prevent multiplicity of suits
and encourage the settlement of all disputes between the parties at one time, and that the practice
has proved satisfactory in federal practice.” Nayani, 2007 WL 1288047, at *1 (internal quotation,
alterations, and citation omitted).
“When an article of the Louisiana Code of Civil Procedure is based on a federal rule,
decisions of the federal courts can be used for guidance.” Hy-Octane Invs., 702 So. 2d at 1060
(citing Scott v. Hosp. Serv. Dist. No. 1, 496 So. 2d 270 (La. 1986)). Article 1061 “closely
resembles” Rule 13 of the Federal Rules of Civil Procedure, especially in providing “that
compulsory reconventional demands must ‘arise out of the transaction or occurrence that is the
subject matter of the principal action.’” Nayani, 2007 WL 1288047, at *1. Therefore, “federal
cases interpreting Rule 13 are germane to [the] interpretation of Article 1061.” Id. at *2.
Rule 13 provides in pertinent part:
(a) Compulsory Counterclaim.

(1) In General. A pleading must state as a counterclaim any claim that –
at the time of its service – the pleader has against an opposing party if the
claim:

(A) arises out of the transaction or occurrence that is the subject
matter of the opposing party’s claim; and

(B) does not require adding another party over whom the court
cannot acquire jurisdiction.
....

(b) Permissive Counterclaim. A pleading may state as a counterclaim against an
opposing party any claim that is not compulsory.

….

Fed. R. Civ. P . 13. The Fifth Circuit has adopted the “logical relationship” test to determine
whether a counterclaim “arises out of the transaction or occurrence that is the subject matter of the
opposing party’s claim” under Rule 13(a). Montgomery Elevator Co. v. Bldg. Eng’g Servs. Co.,
730 F.2d 377, 380 (5th Cir. 1984). A logical relationship “requires more than an incidental
relationship between the claims.” Rayburn v. Brooks, 2009 WL 10678946, at *3 (M.D. La. Mar.
18, 2009) (citing United States v. Aronson, 617 F.2d 119, 121-22 (5th Cir. 1980)). Instead, a
“logical relationship exists when the same operative facts serve as the basis of both claims or the
aggregate core of facts upon which the claim rests activates additional legal rights, otherwise
dormant, in the defendants.” Montgomery Elevator, 730 F.2d at 380 (internal quotation omitted).
Thus, a counterclaim is compulsory “if it arises out of the same aggregate of operative facts as the
claim in the original demand.” New York Life Ins. Co. v. Deshotel, 946 F. Supp. 454, 461 (E.D.
La. 1996) (internal quotation and citations omitted).
B&S argues that CSU’s counterclaim (reconventional demand) is permissive because
“Ryals’[s] alleged tortious conduct” does not arise out of the transaction or occurrence that is the
subject matter of the principal action (i.e., CSU’s breach of the Contract), but rather arises out of
actions “which allegedly took place after B&S’[s] completion of work” on the Contract.31 Thus,
according to B&S, judgment in favor of B&S on its principal demand “could have no res judicata
effect on CSU’s action for tortious interference with contract.”32
But CSU insists that its counterclaim is compulsory. Because “B&S’[s] disparaging

statements to Enterprise and Marathon were motivated by and ‘flowed directly from’ its
dissatisfaction with CSU’s performance of the Contract,” and because the “Contract is the common
nucleus of all the claims in CSU’s reconventional demand” and “the bedrock of B&S’[s] claims
against CSU,” CSU says its reconventional demand arises from the same transaction or occurrence
as B&S’s principal demand.33 According to CSU, “Enterprise hired CSU for the Project, and B&S
and Mr. Ryals were aware that the Project belonged to Enterprise.”34 CSU argues that the Contract
“motivated Mr. Ryals to contact Marathon and Enterprise in the first place,” and that during the
phone calls in which Ryals “claim[ed] that CSU does not pay its bill[s],” he “specifically
mentioned the Contract dispute between B&S and CSU as a basis for [his] demand” that each
client stop working with CSU.35 CSU further contends that during one phone call, Ryals and B&S

“attempted to persuade Enterprise ... to exert pressure on CSU to pay B&S additional money for
the Contract despite B&S’[s] breach.”36 Therefore, CSU maintains that its reconventional demand
for tortious interference with contract bears a logical relationship to B&S’s principal action and is
properly characterized as compulsory.37

31 R. Doc. 8-1 at 3.
32 Id. at 6.
33 R. Doc. 9 at 7.
34 Id. at 2 (emphasis in original).
35 Id. at 2-3.
36 Id. at 2.
37 Id. at 9.
The analysis of CSU’s counterclaim is not much aided by the parties’ arguments. Neither
party bothers to call the Court’s attention to the fact that the reconventional demand consists of
two different claims: one for B&S’s own alleged breach of the Contract, and the other for B&S’s
tortious interference with contract.38 On the one hand, there is no doubt that CSU’s breach-of-
contract claim arises from the same transaction or occurrence as B&S’s breach-of-contract claim

because each asserts breach of the same Contract. B&S alleges CSU breached the Contract by its
failure to pay for the equipment and services B&S provided, and CSU alleges B&S breached the
Contract by its failure to perform its contractual duties on time. Given these circumstances,
Louisiana law supports the conclusion that CSU’s counterclaim for breach of contract should be
deemed compulsory in nature. For example, in Hy-Octane Investments, Ltd. v. G&B Oil Products,
Inc., 702 So. 2d at 1061, because the court determined that the plaintiff’s claim for breach of
contract and the defendant’s reconventional demand for wrongful termination of contract both
arose out of the same motor fuel supply agreement, it concluded that the reconventional demand
involved the same transaction or occurrence so was compulsory. Id.

On the other hand, whether CSU’s tortious interference claim arises from the same
transaction or occurrence as B&S’s breach-of-contract claim is doubtful. While B&S’s
disparaging statements would not have occurred but for the parties’ disputes over the Contract,
they were hardly a necessary result of those disputes. Ryals took affirmative steps in reaching out
to Enterprise and Marathon to ask that they cease their business with CSU. This conduct was
separate and distinct from that underlying the disputes related to the Contract. Louisiana courts
have concluded that a reconventional demand based on such separate and distinct conduct does
not arise out of the same transaction or occurrence as the principal demand. For example, in

38 R. Doc. 1-10 at 5-6.
Nayani v. Horseshoe Entertainment, 2007 WL 1288047, at *1-2, a federal court was faced with
the question whether a claim in the lawsuit before it arose out of the same transaction or occurrence
underlying a previously-filed state suit as would have required that the claim be brought as a
compulsory reconventional demand in the state suit. The state suit involved Horseshoe’s breach-
of-contract claim against Nayani for failure to pay a debt and fulfill other contractual obligations,

whereas the federal suit involved Nayani’s negligence claims for Horseshoe’s “alleged wrongful
reporting of a null and void default judgment on Nayani’s credit report.” Id. at *3. The court held
that Nayani’s claims were “only peripherally related” to the claim in the state suit, explaining that
while “the underlying debt that is the subject of the Louisiana lawsuit and the subsequently entered
judgment in that case, [were] ‘but for’ causes of the dispute underlying the claims in [the federal]
case, … the essential facts for proving the two claims [were] not so closely related that ‘resolving
both sets of issues in one lawsuit would yield judicial efficiency.’” Id. (quoting Jones v. Ford
Motor Credit Co., 358 F.3d 205, 210 (2d Cir. 2004)) (internal quotation omitted). Therefore, the
court concluded that Nayani’s claims in the federal suit did not arise out of the same transaction

or occurrence that was the subject matter of the state suit and thus, because properly characterized
as permissive, not compulsory, they were not required to be asserted in the state suit. See also
Rayburn, 2009 WL 10678946, at *3-4 (although claims in a previously-filed state suit were
“incidentally related” to those brought in the present federal suit and hence could provide
“background or evidence of motive” for the claims in the federal suit, the suits involved “two
entirely different sets of facts occurring at two different times” such that the claims in the federal
suit were “not compulsory counterclaims in the state action”).
Nevertheless, because one of the two claims asserted in CSU’s reconventional demand is
compulsory and the other permissive, it cannot be said that CSU clearly and unequivocally waived
its right to removal. In Lang v. Mattison, 2013 WL 2103145 (E.D. Ky. May 14, 2013), the court
declined to find waiver where “at least a portion of the claims and counterclaims arise out of the
same transaction or occurrence,” since each party claimed that the other breached their contract.
Id. at *5 (“Thus, at the very least, a portion of the defendants’ counterclaim was compulsory.”).
The court also reasoned that evidence of the parties’ business relationship was necessary to both

sets of claims. The Lang court was persuaded that the waiver of defendants’ right to removal
should not be “so lightly inferred” where there is a “razor-thin call regarding the nature of the
counterclaims.” Id. Likewise, this Court sees the case before it as presenting a “razor-thin call
regarding the nature of the counterclaims” where CSU has combined a permissive counterclaim
with a compulsory counterclaim in bringing its reconventional demand. In these circumstances,
waiver should not be so lightly inferred.39 Therefore, this Court finds that CSU did not waive its
right to removal.
IV. CONCLUSION
Accordingly, for the foregoing reasons,

IT IS ORDERED that B&S’s motion to remand (R. Doc. 8) is DENIED.
New Orleans, Louisiana, this 26th day of March, 2020.

________________________________
BARRY W. ASHE
UNITED STATES DISTRICT JUDGE

39 This is especially true where the permissive counterclaim asserted by CSU (tortious interference with
contract) may not be valid. Louisiana recognizes “only a corporate officer’s duty to refrain from intentional and
unjustified interference with the contractual relation between his employer and a third person.” 9 to 5 Fashions, Inc.
v. Spurney, 538 So. 2d 228, 234 (La. 1989). CSU does not make a claim against any individual, much less one of its
own corporate officers, but asserts its claim against B&S’s corporate officer not for interference with any of B&S’s
contracts with third parties, but for interference with CSU’s contracts with third parties. It would be the lightest of
inferences to find that CSU waived its right to removal by bringing such a tenuous claim.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10185372. Public record. Not legal advice.