Boyd Bros., Inc. v. Liberty Mutual Insurance Company et al
MEMORANDUM OPINION AND ORDER that Boyd Brothers's 9 Motion to Remand is GRANTED; that this case is REMANDED to the Circuit Court of Barbour County, Alabama; that the clerk is DIRECTED to take appropriate steps to effect the remand; that Boyd Brothers' request for attorney's fees and costs is DENIED. Signed by Honorable William Keith Watkins on 5/18/2009. (cc, ) Copy mailed to Circuit Court Clerk for Barbour County.
IN THE UNITED STATES DISTRICT COURT F O R THE MIDDLE DISTRICT OF ALABAMA N O R T H E R N DIVISION B O Y D BROTHERS, INC., P la in tif f , v. L IB E R T Y MUTUAL INS. CO., et al., D e f e n d a n ts. ) ) ) ) ) ) ) ) )
C A S E NO. 2:08-CV-773-WKW[WO]
M E M O R A N D U M OPINION AND ORDER I . INTRODUCTION B e f o re the court is Plaintiff Boyd Brothers, Inc.'s ("Boyd Brothers") Motion to R e m a n d (Doc. # 9), which is accompanied by a Memorandum in Support (Doc. # 10). Boyd B ro th e rs seeks remand of this action to the Circuit Court of Barbour County, Alabama, for la c k of diversity jurisdiction, 28 U.S.C. § 1332(a). It asserts that complete diversity of c itiz e n s h ip does not exist because Defendant Stephen M. Collins ("Collins") is a non-diverse D e f e n d a n t. Defendants Liberty Mutual Insurance Company ("Liberty Mutual") and Mr. C o llin s (collectively, "Defendants") filed a Response and Brief in Opposition to Boyd B ro th e rs 's Motion to Remand (Doc. # 13), arguing that, in the absence of fraudulent joinder, c o m p le te diversity exists. For the reasons to follow, the Motion to Remand is due to be g ra n te d .
II. STANDARD OF REVIEW A. G e n e r a lly " [ F ]e d e ra l courts have a strict duty to exercise the jurisdiction that is conferred upon th e m by Congress." Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716 (1996). However, " [ f ]e d e ra l courts are courts of limited jurisdiction." Burns v. Windsor Ins. Co., 31 F.3d 1092, 1 0 9 5 (11th Cir. 1994). Thus, with respect to cases removed to this court pursuant to 28 U .S .C . § 1441, the law of the Eleventh Circuit favors remand where federal jurisdiction is n o t absolutely clear. "[R]emoval statutes are construed narrowly; where plaintiff and d e f e n d a n t clash about jurisdiction, uncertainties are resolved in favor of remand." Burns, 31 F .3 d at 1095. B. D iv e r s ity Jurisdiction A federal court may exercise diversity jurisdiction where the amount in controversy e x c e e d s $75,000, exclusive of interest and costs, and complete diversity exists. There is c o m p le te diversity when the parties on one side of the suit are citizens of states different from th e parties on the other side of the suit. 28 U.S.C. § 1332. If, however, non-diverse parties a re fraudulently joined to an action, their citizenship will not be considered for purposes of d e te rm in in g diversity jurisdiction. Tedder v. F.M.C. Corp., 590 F.2d 115, 117 (5th Cir. 1 9 7 9 ) (per curiam).1 The Eleventh Circuit recognizes three forms of fraudulent joinder.
In Bonner v. City of Prichard, Ala., 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), the Eleventh Circuit adopted as binding precedent all decisions handed down by the former Fifth Circuit prior to October 1, 1981.
Triggs v. John Crump Toyota, Inc., 154 F.3d 1284, 1287 (11th Cir. 1998) (citing Coker v. A m o c o Oil Co., 709 F.2d 1433, 1440 (11th Cir. 1983), superseded by statute on other g r o u n d s as stated in Georgetown Manor, Inc. v. Ethan Allen, Inc., 991 F.2d 1533, 1540 (11th C ir. 1993)). The one relevant to this case is fraudulent joinder "when there is no possibility th a t the plaintiff can prove a cause of action against the resident (non-diverse) defendant." Id. The removing party bears the burden of proving fraudulent joinder, and the burden is "heavy." Crowe v. Coleman, 113 F.3d 1536, 1538 (11th Cir. 1997) (internal quotation m a rk s and citation omitted). "[A]ll factual issues and questions of controlling substantive la w " must be viewed in the light most favorable to the plaintiff. Coker, 709 F.2d at 1440; a c c o r d Pacheco de Perez v. AT&T Co., 139 F.3d 1368, 1380 (11th Cir. 1998). "[I]f there is a n y possibility that the state law might impose liability on a resident defendant under the c irc u m s ta n c e s alleged in the complaint, the federal court cannot find that joinder of the re s id e n t defendant was fraudulent, and remand is necessary." Florence v. Crescent Res., L L C , 484 F.3d 1293, 1299 (11th Cir. 2007). Although for purposes of determining
f ra u d u le n t joinder, courts may consider affidavits and deposition transcripts submitted by e ith e r party, in addition to the plaintiff's pleadings at the time of removal, Legg v. Wyeth, 428 F .3 d 1317, 1322 (11th Cir. 2005), "the jurisdictional inquiry must not subsume substantive d e te rm in a tio n ," Crowe, 113 F.3d at 1538 (internal quotation marks and citation omitted). Courts must be "certain" of their jurisdiction and "are not to weigh the merits of a plaintiff's
claim beyond determining whether it is an arguable one under state law." Id. (internal q u o ta tio n marks and citation omitted). III. BACKGROUND O n August 20, 2008, Boyd Brothers filed a complaint against Mr. Collins and Liberty M u t u a l in the Circuit Court of Barbour County, Alabama. Boyd Brothers and Mr. Collins a re citizens of Alabama. Liberty Mutual is a Massachusetts corporation with its principal p la c e of business also in Massachusetts. (Compl. ¶¶ 1-3; Not. Removal ¶¶ 14-16.) The complaint alleges the following facts. On July 1, 2005, Mr. Collins, an agent for L ib e r t y Mutual, persuaded Boyd Brothers to purchase a Liberty Mutual liability insurance p o lic y and to enter into a collateral agreement. (Compl. ¶¶ 3, 5-8, 13, 39.) The sales pitch w o u ld not have been persuasive but for Mr. Collins's false representations and omission of m a te ria l facts. Namely, Mr. Collins falsely represented to Boyd Brothers that Liberty Mutual w o u ld adjust Boyd Brothers's security and escrow requirements annually and return c o lla te ra l payments to Boyd Brothers that exceeded its collateral obligations. (Compl. ¶ 15.) Mr. Collins also failed to disclose to Boyd Brothers that the policy it purchased would not re tu rn the initial collateral payment to Boyd Brothers on each anniversary date following a c o l l a t e ra l review. (Compl. ¶ 24.) Because of these fraudulent misrepresentations and the f ra u d u le n t concealment, Boyd Brothers changed its position and purchased the policy. (Compl. ¶¶ 17-18, 24.) As a result, Boyd Brothers was injured because it made deposits into a n insurance policy that was not as promised; it lost the value of the deposits; it lost interest
on the deposits; and it was deprived of the insurance policy that it was promised. (Compl. ¶ ¶ 18, 25.) Boyd Brothers "discovered the fraud within two years of filing this lawsuit." (Compl. ¶ 9.) T h e complaint contains seven counts. The fraud counts (Counts One, Three and Four) a re against Mr. Collins and Liberty Mutual, and the allegations are framed as having been c o m m itte d by "Defendants" collectively. (Compl. ¶¶ 12-18, 23-25, 26-28.) The remaining c o u n ts are against Liberty Mutual for breach of contract, possession of collateral through f ra u d and artifice, wrongful exercise of dominion, and negligence and wantonness in the h irin g , training and supervising of Mr. Collins. (Compl. ¶¶ 19-22, 29-32, 33-36, 37-40.) On September 18, 2008, Defendants filed a Notice of Removal in the United States D is tric t Court for the Middle District of Alabama, predicated on diversity jurisdiction, see 2 8 U.S.C. §§ 1332(a), 1441. Although complete diversity does not exist on the face of the c o m p la in t, given that Boyd Brothers and Mr. Collins are both citizens of Alabama, the re m o v a l petition alleges that Mr. Collins is fraudulently joined because there is no possibility th a t Boyd Brothers can prove a cause of action against him. Defendants filed an affidavit f ro m Mr. Collins. (Collins Aff. (Ex. B to Not. Removal).) Of particular relevance to the is su e at hand, Mr. Collins, a senior account executive for Liberty Mutual, attests that "he was in v o lv e d in the placing of coverage" on the policy at issue, and that the policy was canceled o r "non-renewed" by Boyd Brothers on July 1, 2006. (Collins Aff. 1.)
On October 7, 2008, Boyd Brothers filed a Motion to Remand and accompanying b rie f , asserting that Mr. Collins is a non-diverse defendant who has not been fraudulently jo in e d and that, therefore, diversity of citizenship does not exist in this case. An affidavit s u b m itte d by Boyd Brothers's president confirms that Mr. Collins was the Liberty Mutual a g e n t whom Boyd Brothers contends made the fraudulent representations and material o m is s io n s pertaining to the liability insurance policy at issue. (Richard Bailey Aff. ¶¶ 2-6 (E x . A to Pl. Mem.).) Also in that affidavit, Richard Bailey ("Bailey") attests that, in the m o n th s following July 1, 2006, he was assured by Mr. Collins, among other Liberty Mutual re p re se n t a t i v e s , that Boyd Brothers's security and escrow requirements would be adjusted p ro p e rly and the appropriate collateral payments would be returned, but that never happened. (Bailey Aff. ¶¶ 7-8.) IV. DISCUSSION T h e issue framed by the parties' briefs is whether Mr. Collins, a non-diverse D e f e n d a n t, has been fraudulently joined in this action on Boyd Brothers's state-law claims a g a in s t him for fraudulent misrepresentation and fraudulent suppression. If Mr. Collins has b e e n fraudulently joined, then his citizenship is disregarded for purposes of determining w h e th e r complete diversity exists, and the Motion to Remand must be denied. If he has not b e e n fraudulently joined, Mr. Collins's presence does not destroy complete diversity, and the M o tio n to Remand must be granted.
Defendants argue that there is no possibility of recovery against Mr. Collins. They s a y that Boyd Brothers's fraudulent misrepresentation and fraudulent suppression claims a g a in s t Mr. Collins are "generalized and non-specific" and fail to comply with the p a rtic u la riz e d pleading requirements under Alabama and federal law, see Ala. R. Civ. P. 9; F e d . R. Civ. P. 9. (Not. Removal 7-8). They say also that, because Boyd Brothers alleges th a t the purported fraud occurred at the latest on or before July 1, 2005, when the policy of in s u ra n c e went into effect and because the state court complaint was not filed until August 2 0 , 2008, the claims are barred by the applicable two-year statute of limitations. (Not. R e m o v a l ¶ 24.) Boyd Brothers takes a contrary position. (Pl. Mem. 3-4.) It says that the pleading ru le s relied upon by Defendants are "of no consequence to [the] fraudulent joinder" analysis. (P l . Mem. 4.) Presumably relying on the tolling provision of § 6-2-3 of the Code of A la b a m a ,2 Boyd Brothers counters that a "plain reading" of the complaint reveals that the d i s c o v e ry occurred within two years of filing the state court complaint. (Pl. Mem. 9.) In re s p o n s e , Defendants contend that the complaint's "bare assertion" that the action was filed w ith in two years of discovering the fraud is wholly inadequate to invoke Alabama's tolling s ta tu te . (Defs. Resp. 10.)
That statute provides: "In actions seeking relief on the ground of fraud where the statute has created a bar, the claim must not be considered as having accrued until the discovery by the aggrieved party of the fact constituting the fraud, after which he must have two years within which to prosecute his action." § 6-2-3.
Multiple authorities in support of the parties' respective positions have been cited, and th o s e authorities have been reviewed. It, however, is Henderson v. Washington National In s u r a n c e Co., 454 F.3d 1278 (11th Cir. 2006), which provides the best explanation of why th is case must be remanded. In Henderson, a removed case involving allegations of fraudulent concealment s u rro u n d in g the method for calculating insurance premium increases, the Eleventh Circuit re v e rse d the district court's ruling that the non-diverse defendant had been fraudulently j o in e d . See id. at 1280. The district court found, first, that fraudulent concealment had to b e pleaded in order to invoke Alabama's tolling statute, § 6-2-3, and, second, that the a lle g a tio n s of the complaint were insufficient to toll the statute of limitations. Id. at 1282. Thus, the district court found that there was no possibility that the plaintiff could maintain a cause of action against the non-diverse defendant. At the outset, the Eleventh Circuit emphasized that "[o]rdinarily, where the viability o f a plaintiff's claim against a non-diverse defendant depends on whether section 6-2-3's s a v in g s clause applies, the case should be remanded summarily; such a question is e m p h a tic a lly a matter for the state courts to decide." Id. at 1282. Turning to the district c o u rt's analysis, the Eleventh Circuit recognized that "the state of the fraudulent concealment p le a d in g requirement in the context of Alabama fraud cases has often been difficult to d is c e rn ," but concluded that it was unnecessary to "reach a definitive pronouncement on the s ta te of the fraudulent concealment pleading requirement in Alabama fraud cases." Id.
at 1283. Specifically, the Eleventh Circuit cautioned that, in assessing fraudulent joinder, f e d e ra l courts should not "gauge the sufficiency of the pleadings" under state law. Id. at 1284. "[T]he decision as to the sufficiency of the pleadings is for the state courts, and for a federal court to interpose its judgment would fall short of the scrupulous respect for the in s titu tio n a l equilibrium between the federal and state judiciaries that our federal system d e m a n d s ." Id. (citation omitted). The issue, rather, is "whether the defendants have proven b y clear and convincing evidence that no Alabama court could find this complaint sufficient to invoke Ala. Code § 6-2-3." Id. In Henderson, the defendants had not met that heavy burden. Although the allegation t h a t the alleged fraud was of a "continuing nature" could not, in and of itself, satisfy A labam a's heightened pleading requirements for alleging fraudulent concealment, there were a d d itio n a l allegations. Id. There were allegations that the "[d]efendants" (referred to c o lle c tiv e ly) had "fraudulently suppressed and concealed the actual basis for their premium in c re a s e s " and that the policy was "serviced" in such a manner "as to actively conceal or s u p p re s s the true nature of the policy and how premium increases were calculated," id. (in te rn a l quotation marks and citations omitted). The Eleventh Circuit concluded that these a lle g a tio n s "perhaps alleged active suppression of the fraud in the servicing of the policy." Id. While admittedly "not highly detailed," the allegations were not so general and
c o n c lu s o ry so as to deprive the defendants of "no fair notice at all." Id. There, thus,
"exist[ed] a sufficiently substantial question as to whether [the plaintiff] ha[d] successfully p le d fraudulent concealment under Alabama law." Id. (brackets added). H e re , also, the court finds that Defendants have failed to sustain their burden of d e m o n s tra tin g that no Alabama court could find the facts of the complaint insufficient to in v o k e § 6-2-3. Boyd Brothers's allegations that the fraud was discovered within the twoye a r window preceding the filing of the complaint do not stand alone. (Compl. ¶ 9.) There a ls o are allegations that "Defendants," which in context necessarily includes Mr. Collins, " f ra u d u le n tly concealed" that the policy at issue would not return the initial collateral p a ym e n t to Boyd Brothers on each anniversary date following a collateral review, as re p re se n te d (Compl. ¶ 24), and that Mr. Collins "concealed the material facts relating to the te rm s of the [collateral] agreement" (Compl. ¶ 28). The allegations, while not a template for precise pleading, appear to satisfy the s ta n d a rd pronounced in Henderson. They are not wholly conclusory, and it cannot be said th a t the allegations provide "no fair notice at all." Henderson, 454 F.3d at 1284. To borrow f ro m Henderson, Boyd Brothers's "patchy allegations may ultimately prove insufficient, but [ th e court] [is] unable to say there is no possibility [it] has asserted a colorable claim for to llin g under Ala. Code § 6-2-3[.]" Id. (brackets added). The court is not saying that the c o m p la in t's allegations satisfy state-law pleading requirements for invoking the tolling s ta tu te . As stressed in Henderson, such a determination would exceed the permissible legal b o u n d s in the fraudulent joinder analysis and would encroach upon state court jurisdiction.
Considerations of comity counsel against that interference. The court merely is saying that a case for tolling is arguable or colorable.3 Accordingly, for the foregoing reasons, the M o tio n to Remand is due to be granted.4 V . CONCLUSION C o n tro llin g precedent requires Defendants to bear the weighty burden of establishing f ra u d u le n t joinder. That burden has not been met. Accordingly, it is ORDERED that: (1 ) (2) (3) re m a n d ; and (4 ) B o yd Brothers' request for attorney's fees and costs is DENIED. B o yd Brothers's Motion to Remand (Doc. # 9) is GRANTED; T h is case is REMANDED to the Circuit Court of Barbour County, Alabama; T h e Clerk of the Court is DIRECTED to take appropriate steps to effect the
D O N E this 18th day of May, 2009. /s/ W. Keith Watkins UNITED STATES DISTRICT JUDGE
Defendants' other arguments have been fully considered, but those arguments plainly are insufficient to sustain Defendants' heavy burden on removal of demonstrating fraudulent joinder. Moreover, in light of the court's ruling, and as in Henderson, 454 F.2d at 1284 n.4, it is unnecessary to address Boyd Brothers's arguments premised on the common defense rule. Boyd Brothers's Motion to Remand includes a request for an award of costs and attorney's fees, pursuant to 28 U.S.C. § 1447(c). Having reviewed the record as a whole, the court does not find that Defendants "lacked an objectively reasonable basis for seeking removal." Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005). Costs and fees, therefore, will be denied.
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