Hyaxiom, Inc. v. Clearcell Power, Inc.

Background

HyAxiom, Inc. sued Clearcell Power, Inc., Alina Mezhibovsky, Victor Mezhibovsky, VM Power, Inc., and JP Morgan Chase Bank, N.A. in New York State Supreme Court. The dispute arose from four construction projects in New York, New Jersey, and Delaware. HyAxiom alleged that Clearcell failed to pay more than $6.6 million for specialized hydrogen fuel cells supplied for those projects.

HyAxiom asserted state-law claims including breach of contract, breach of the implied covenant of good faith and fair dealing, quantum meruit, unjust enrichment, promissory estoppel, and violation of the New York Prompt Payment Act. It also asserted claims involving diversion of trust funds, breach of fiduciary duty, fraudulent inducement, fraudulent conveyance, replevin, and a declaratory judgment concerning its security interest or lien in the fuel cells.

The Clearcell defendants removed the case to federal court based on diversity jurisdiction. JP Morgan did not join the removal. HyAxiom moved to remand the case to state court or, alternatively, for a preliminary injunction. HyAxiom also sought costs and attorney’s fees resulting from the removal.

Diversity Jurisdiction

Federal diversity jurisdiction generally requires complete diversity: no plaintiff may be a citizen of the same state as any defendant. A corporation is a citizen of its state of incorporation and the state where its principal place of business is located. The party seeking federal jurisdiction bears the burden of establishing it.

The parties agreed that HyAxiom is incorporated in Delaware and has its principal place of business in Connecticut. JP Morgan is also incorporated in Delaware and has its principal place of business in New York. Because HyAxiom and JP Morgan share Delaware citizenship, the court held that the Clearcell defendants had not shown that diversity jurisdiction existed.

Clearcell argued that the court could use additional jurisdiction over JP Morgan under a doctrine associated with related claims. The court rejected that argument, explaining that additional jurisdiction cannot overcome the absence of original jurisdiction caused by incomplete diversity.

Forum Defendant Rule

The court also addressed, without deciding, whether the forum defendant rule might independently bar removal. That rule generally prevents removal based only on diversity jurisdiction when a properly joined and served defendant is a citizen of the state where the action was filed.

HyAxiom argued that the rule applied because Clearcell’s principal place of business was in New York and VM Power was incorporated in New York. The court noted that Clearcell had reported its principal place of business as Mineola, New York, in multiple filings through April 2024, and changed that filing to Florida on October 9, 2024, two days after Clearcell’s counsel learned that HyAxiom planned to sue. The court found that Clearcell had not shown that its principal place of business was Florida when HyAxiom filed the state-court action. The court nevertheless found that VM Power’s New York citizenship did not bar removal because VM Power was served one day after the notice of removal was filed. The court did not need to resolve the forum defendant issue because incomplete diversity already required remand.

Fees and Disposition

A court may award costs and attorney’s fees after remanding a removed case when the removal lacked an objectively reasonable basis. Judge Denise Cote exercised the court’s discretion not to require payment of costs or fees.

The court granted HyAxiom’s motion to remand, denied its motion for costs and attorney’s fees, and directed the Clerk of Court to remand the action to the New York State Supreme Court, County of New York. The opinion did not decide the merits of HyAxiom’s underlying claims.