Alabama Insurance Guaranty Association v. FrankCrum 1 Inc et al

Filing 55

REMAND ORDER. Signed by Magistrate-Judge Madeline H Haikala on November 27, 2012. (Haikala, Madeline)

FILED
2012 Nov-27 PM 05:41
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
ALABAMA INSURANCE
GUARANTY ASSOCIATION,
Plaintiffs,
CASE NO. 2:11-cv-3228-MHH

v.
FRANKCRUM 1 INC., et al.,
Defendant.

ORDER
The Court held a status conference in this action on October 30, 2012.
During the conference, the Court raised questions pertaining to subject matter
jurisdiction. Specifically, the Court asked whether, for purposes of diversity
jurisdiction, the defendants may use 28 U.S.C. §1332(d)(10) to establish the
citizenship of plaintiff AIGA, an unincorporated association. The Court ordered
the defendants to file a brief that addressed three questions concerning subject
matter jurisdiction. Doc. 53. In their brief, the defendants concluded that this
Court lacks federal subject matter jurisdiction. Doc. 54. For the reasons stated
below, the Court agrees and directs the Clerk to REMAND this action to the
Circuit Court of Jefferson County, Alabama.
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I.

Procedural History
Plaintiff Alabama Insurance Guaranty Association (hereafter “AIGA”)

initiated this action against defendants FrankCrum 1, Inc.; FrankCrum 11, Inc.;
and FrankCrum 6, Inc. (jointly “FrankCrum”) on August 3, 2011 in the Circuit
Court of Jefferson County, Alabama. Doc. 1, ¶ 1. AIGA seeks reimbursement of
statutory benefits that AIGA purportedly paid on behalf of FrankCrum. Doc. 1-1.
FrankCrum was served on August 8, 2011. Doc. 1, ¶ 1. On September 7,
2011, FrankCrum timely removed the action to this Court. Doc. 1. In its removal
petition, FrankCrum asserted that AIGA “is an unincorporated association
organized under the laws of the State of Alabama,” making AIGA a citizen of
Alabama under 28 U.S.C. § 1332(d)(10). Id. at ¶ 2(a). According to the petition,
the defendants are three related businesses incorporated in the State of Florida
with their principal places of business in Florida. Id. at ¶ 2(b). Thus, FrankCrum
alleged that, “there is diversity of citizenship among the parties.” Doc. 1, ¶ 2.
FrankCrum also alleged that the action satisfies the amount in controversy
requirement because AIGA seeks to recover at least $603,981.49. Id. at ¶ 3.
AIGA did not file a motion to remand. On October 30, 2012, the Court sua

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sponte expressed concern regarding subject matter jurisdiction. Doc. 53.1 The
Court ordered FrankCrum to address the following issues:
1.

May a party use 28 U.S.C. § 1332(d)(10) as a basis for establishing

the citizenship of an unincorporated association outside the context of a Class
Action Fairness Act (“CAFA”) diversity action? See 28 U.S.C. §1332(d)(10)
(“For purposes of this subsection and section 1453, an unincorporated association
shall be deemed to be a citizen of the State where it has its principal place of
business and the State under whose laws it is organized.”).
2.

If defendants may not rely on 28 U.S.C. §1332(d)(10) for the

purpose of establishing the citizenship of plaintiff AIGA in this action, may
defendants cure this defect in jurisdictional pleading? See 28 U.S.C. § 1653
(2006)(“Defective allegations of jurisdiction may be amended, upon terms, in the
trial or appellate courts”).
3.

Outside of the context of CAFA actions, to establish the citizenship

of an unincorporated association, a removing party must identify the citizenship of
the members of the unincorporated association. Carden v. Arkoma Assoc., 494
U.S. 185 (1990). If defendants may not rely on 28 U.S.C. 1332(d)(10) for the

1

This action was reassigned to the undersigned magistrate judge on October 2, 2012.
Doc. 45.
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purpose of establishing the citizenship of plaintiff AIGA in this action, is there an
exception to the Carden rule for insurance guaranty associations?
FrankCrum submitted its thoughtful, thorough analysis of the relevant
jurisdictional issues on November 9, 2012. Doc. 54. FrankCrum concluded that
the Court does not have subject matter jurisdiction over this action. Id. None of
the other parties has challenged FrankCrum’s evaluation.

II.

Discussion
Federal courts are courts of limited jurisdiction: “[t]hey possess only that

power authorized by [the] Constitution and statutes.” Kokkonen v. Guardian Life
Insurance Company of America, 511 U.S. 375, 377 (1994) (citations omitted).
It is incumbent on federal courts to monitor their jurisdiction. See 28 U.S.C. §
1447(c)(“If at any time before final judgment it appears that the district court lacks
subject matter jurisdiction, the case shall be remanded.”).2 Diversity jurisdiction
exists when, “the matter in controversy exceeds the sum or value of $75,000,
exclusive of interest and costs, and is between - [] citizens of different states.”

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See also Fitzgerald v. Seaboard Sys. R.R., 760 F.2d 1249, 1251 (11th Cir. 1985) (per
curiam); Save the Bay, Inc. v. United States Army, 639 F.2d 1100, 1102 (5th Cir. 1981) (per
curiam) (holding that courts must constantly examine the basis of their jurisdiction before
proceeding to the merits).
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28 U.S.C. § 1332(a)(1); see also Underwriters at Lloyd’s, London v. OstingSchwinn, 613 F.3d 1079, 1085 (11th Cir. 2010) (“For federal diversity jurisdiction
to attach, all parties must be completely diverse, and the amount in controversy
must exceed $75,000, 28 U.S.C. § 1332(a).”)(citations omitted).
A defendant may remove any civil action over which the district court
would have had original jurisdiction. 28 U.S.C. § 1441(a). When removing a case
from state to federal court, the defendant bears the burden of proving federal
jurisdiction. Marshall v. Washington, 2012 WL 3553415 at *2 (11th Cir. Aug. 20,
2012). The FrankCrum defendants now concede that the parties in this action are
not completely diverse. Consequently, the Court lacks subject matter jurisdiction
over the action.
A.

The defendants may not use 28 U.S.C. §1332(d)(10) to establish the
citizenship of AIGA, an unincorporated association, because this is not
a CAFA action.
In certain class actions, 28 U.S.C. § 1332(d)(10) invests federal courts with

subject matter jurisdiction when there is “minimal diversity.” Ferrell v. Express
Check Advance of SC LLC, 591 F.3d 698, 702 (4th Cir. 2010)(noting §
1332(d)(10)’s provision for determining the citizenship of unincorporated
associations applies only to class actions covered by CAFA). Although the Court
has located no opinion from the Eleventh Circuit Court of Appeals that addresses
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the issue, the Fifth Circuit, like the Fourth Circuit, has held that §1332(d)(10)
applies only in the context of qualifying class actions. Harvey v. Grey Wolf
Drilling Co., 542 F.3d 1077, 1080 (5th Cir. 2008). The express language of
§1332(d) supports this conclusion. See 28 U.S.C. §1332(d)(10) (“For purposes of this
subsection and section 1453, an unincorporated association shall be deemed to be
a citizen of the State where it has its principal place of business and the State
under whose laws it is organized.”)(emphasis added).3
Because § 1332(d)(10) applies only to qualified class actions, and this is not

3

So does CAFA’s legislative history. See S.Rep. No. 109-14 at 43, 45-46 (Feb. 28, 2005),
reprinted in 2005 U.S.C.C.A.N. 3 (“Overall, new section 1332(d) is intended to expand
substantially federal court jurisdiction over class actions. Its provisions should be read broadly,
with a strong preference that interstate class actions should be heard in a federal court if properly
removed by any defendant . . . New subsection 1332(d)(10) provides that for purposes of this
new section and section 1453 of title 28, an unincorporated association shall be deemed to be a
citizen of a state where it has its principal place of business and the state under whose laws it is
organized. This provision is added to ensure that unincorporated associations receive the same
treatment as corporations for purposes of diversity jurisdiction. The U.S. Supreme Court has held
that ‘[f]or purposes of diversity jurisdiction, the citizenship of an unincorporated association is
the citizenship of the individual members of the association.’ This rule ‘has been frequently
criticized because often * * * an unincorporated association is, as a practical matter,
indistinguishable from a corporation in the same business.’ Some insurance companies, for
example, are ‘inter-insurance exchanges’ or ‘reciprocal insurance associations.’ For that reason,
federal courts have treated them as unincorporated associations for diversity jurisdiction
purposes. Since such companies are nationwide companies, they are deemed to be citizens of any
state in which they have insured customers. Consequently, these companies can never be
completely or even minimally diverse in any case. It makes no sense to treat an unincorporated
insurance company differently from, say, an incorporated manufacturer for purposes of diversity
jurisdiction. New subsection 1332(d)(10) corrects this anomaly.”)(emphasis added).

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a class action, FrankCrum may not rely on 1332(d)(10) to establish the citizenship
of AIGA.
B.

Under the circumstances of this case, FrankCrum cannot invoke 28
U.S.C. § 1653 to cure this jurisdictional defect.
Under 28 U.S.C. § 1653, “[d]efective allegations of jurisdiction may be

amended, upon terms, in the trial or appellate courts.” 28 U.S.C. § 1653 (2006).
“[S]ection 1653 permits amendment only to correct ‘incorrect statements about
jurisdiction that actually exists, and not defects in the jurisdictional facts
themselves.’” San Francisco Residence Club, Inc. v. 7027 Old Madison Pike,
LLC, 583 F.3d 750, 755-56 (11th Cir. 2009) (quoting Newman-Green, Inc. v.
Alfonzo-Lorrain, 490 U.S. 826, 831, 109 S.Ct. 2218, 2222 (1989)); Doc. 54, p. 4.
Although § 1653 permits amendment to correct defective jurisdictional
pleading when the underlying facts, if correctly stated, support federal subject
matter jurisdiction, there are no such facts in this case. Because it is an
unincorporated association, AIGA is a citizen of every state of which one of its
members is a citizen. Underwriters at Lloyd’s, London, 613 F.3d at 1086-88 (with
respect to unincorporated associations, the removing association bears the burden
of proving the citizenship of each of its members to meet the jurisdictional
requirements of 28 U.S.C. § 1332); see also Carden v. Arkoma Association, 494

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U.S. 185 (1990); Rhulen Agency, Inc. v Alabama Insurance Guaranty Association,
896 F.2d 674, 677-78 (2d Cir. 1990)(finding that AIGA and a number of other
state insurance guaranty associations were citizens of each state in which one of its
members was a citizen); Temple Drilling Co. v. Louisiana Insurance Guaranty
Association, 946 F.2d 390, 394 (5th Cir. 1991)(same). At the October 30, 2012
status conference in this action, AIGA’s counsel acknowledged that AIGA’s
members are citizens of almost every state, with the possible exceptions of Alaska
and Hawaii, and AIGA has members who are citizens of Florida.
Because FrankCrum is a citizen of Florida, and AIGA is a citizen of Florida,
an amendment pursuant to §1653 will not cure the existing jurisdictional defect.

III. Conclusion

Because it appears that it lacks subject matter jurisdiction, the Court must
remand this action to the Circuit Court of Jefferson County, Alabama. 28 U.S.C.
1447(c); Univ. of S. Alabama v. Am. Tobacco Co., 168 F.3d 405, 410-11 (11th Cir.
1999)(“a federal court must remand for lack of subject matter jurisdiction
notwithstanding the presence of other motions pending before the court”). If any
party objects to this Order, it must file its objections within 14 days. Absent
objection, the Clerk is DIRECTED to remand this action to the Circuit Court of
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Jefferson County, Alabama by December 14, 2012.

DONE this the 27th day of November, 2012.

MADELINE HUGHES HAIKALA
U.S. MAGISTRATE JUDGE

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