Republic Services Incorporated v. American International Group Incorporated et al
ORDER and OPINION that the case is REMANDED to the Superior Court of Arizona for Maricopa County. Signed by Judge John W Sedwick on 9/26/11. (Attachments: # 1 Remand Letter)(DMT)
UNITED STATES DISTRICT COURT
DISTRICT OF ARIZONA
REPUBLIC SERVICES, INC.,
CHARTIS, INC., et al.,
ORDER AND OPINION
[Re: Motion at Docket 46]
I. MOTION PRESENTED
At docket 46, defendants Chartis, Inc. (“Chartis”) and several insurance
companies (collectively “defendants”) move pursuant to Federal Rule of Civil Procedure
12(b)(6) to dismiss the complaint for failure to state a claim and, in the alternative, to
compel arbitration pursuant to the Federal Arbitration Act. At the same docket entry,
pursuant to the court’s request, defendants support the court’s exercise of subject
matter jurisdiction. Plaintiff Republic Services, Inc. (“Republic” or “plaintiff”) responds to
the jurisdictional question at docket 47 and opposes the motion at docket 53.
Defendants’ reply is at docket 54. Oral argument was held on September 21, 2011.
Republic is a waste management company. In 2008, Republic merged with
Allied Waste Industries, Inc. (“Allied”). Republic is Allied’s successor in interest.
From 2001 through 2008, Allied entered “large deductible casualty programs,
covering worker’s compensation, employer’s liability, general liability and automobile
liability exposures” on an annual basis.1 The programs required Allied to post security.
The amount of security “was a function of anticipated losses within Allied’s deductible
over the coming year . . . and projected exposures from prior program years.”2 The total
collateral requirement consequently varied from year to year, but was in excess of $200
million for each year that Allied participated in a program. Republic rejected the
insurers’ proposal for 2009. Republic alleges that the collateral requirements for 2009
and 2010 were not reviewed and that collateral was wrongfully retained.
Republic initially filed suit in Arizona state court, alleging breach of contract
claims against Chartis, American International Group, Inc. (“AIG”), and various other
defendants. The case was removed to federal court in November 2011. In June 2011,
the court dismissed Republic’s complaint for failure to state a claim and granted
Republic leave to amend.3 In an order denying Republic’s motion for reconsideration,
Doc. 42 ¶ 26.
Id. ¶ 30.
the court expressed concern regarding subject matter jurisdiction and directed the
parties to brief the issue.4 Republic subsequently filed an amended complaint.5
The amended complaint alleges breach of contract claims against the actual
issuers of Republic’s insurance policies. In addition, the amended complaint includes a
claim against Chartis for violation of an Arizona insurance fraud statute. At docket 45,
the court granted defendants’ request to combine briefing of the jurisdictional issue with
their response to the amended complaint. The present motion followed.
Removal was premised on diversity. Republic and Chartis are both citizens of
Delaware. Defendants argue that Chartis is a sham defendant and therefore that its
citizenship should not be considered in determining whether the court has diversity
jurisdiction. “Joinder of a non-diverse defendant is deemed fraudulent, and the
defendant’s presence in the lawsuit is ignored for purposes of determining diversity, if
the plaintiff fails to state a [claim] against [the] resident defendant, and the failure is
obvious according to the settled rules of the state.”6
Defendants argue that Republic’s claim against Chartis is barred by the statute of
limitations. Republic’s claim against Chartis arises under A.R.S. § 20-443. Claims
under § 20-443 are subject to a one-year statute of limitations.7 Section 20-443 forbids
Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001) (internal
Sparks v. Republic Nat. Life Ins. Co., 647 P.2d 1127, 1139 (Ariz. 1982); A.R.S. § 12-
issuance or circulation of materials “[m]isrepresenting the terms of any policy issued”
and “[m]aking any misrepresentation to any policyholder for the purpose of inducing . . .
the policyholder to . . . retain . . . any insurance policy.”8 Republic maintains that Chartis
violated those provisions by representing that it would review Republic’s collateral
requirement annually and return collateral as appropriate.9
“An amendment to a pleading relates back to the date of the original pleading
when . . . the amendment asserts a claim . . . that arose out of the conduct, transaction,
or occurrence set out–or attempted to be set out–in the original pleading.”10 Republic’s
§ 20-443 claim arises out of the conduct set out in the original pleading and
consequently, relates back to it.
To begin with, defendants argue that Republic’s complaint does not allege the
falsity of Chartis’ statements concerning collateral reviews. The complaint does allege
falsity insofar as it states that Chartis represented that collateral reviews would be
conducted annually and that because of the failure to renew, they were not.11 This
Defendants also argue that Republic has not alleged any facts “that establish its
claim accrued any time after November 12, 2008, the date of the most recent binder.”12
Therefore, defendants maintain, because Republic’s original complaint was filed on
A.R.S. § 20-443(A)(1), (5).
Doc. 42 ¶¶ 62–63.
Fed. R. Civ. P. 15(c)(1)(B).
Doc.42 at ¶¶ 62-63.
Doc. 54 at 4.
September 27, 2010, the § 20-443 claim is time-barred. Republic responds that claims
based on failure to conduct collateral reviews and return collateral in 2009 and 2010 are
not time-barred. Defendants’ argument confuses issuance of the binder–the source of
the alleged misrepresentation–with the conduct putting Republic on notice that the
representation was false. The complaint alleges that Allied and BFI Insurers, “should
have conducted a collateral review at the end of 2009 . . . but . . . refused to do so” and
that they did not conduct an annual review in 2010.13
Nothing establishes exactly when an annual review promised by Chartis would
take place. However, a review was to take place annually, and its purpose was to make
adjustments of the amount of collateral required in light of the then perceived risk.
Thus, collateral reviews would continue well beyond the date the last binder was
purchased, because claims would continue to be made that were the subject of the
previously purchased insurance. In other words, Chartis’ representation that there
would be annual reviews did not evaporate when Republic elected not to participate
Defendants rely on the affidavit of Dave Spruance, Republic’s Vice President of
Risk Management. In his affidavit, Spruance stated that “in the first half of 2009" an
employee of AIG Fusion Group “relayed that because Allied . . . had not renewed its
2009 casualty insurance program with AIG, and was no longer an ‘active client,’ AIG
was not . . . subject to any review process or requirements to any future return of
Doc. 42 ¶¶ 43, 44. See generally id. ¶¶ 37–47.
collateral.”14 Based on that language, Chartis maintains that Republic knew there would
be no review in 2009, and consequently Republic’s claim accrued “in the first half of
2009.”15 Spruance’s affidavit, however, indicates that he was unconvinced by the
unnamed employees’ assertion. Spruance’s affidavit makes clear that he believed the
AIG Fusion Group employee’s “position [was] contrary to the clear terms of the Binder
Agreements [which] require[d] annual reviews of collateral.”16 Spruance also says he
sent a letter to AIG in May 2010 reiterating Republic’s position that AIG was required to
review collateral requirements annually. In sum, Spruance’s affidavit is inconsistent
with the premise that Republic knew there would be no further collateral reviews.
“A misrepresentation in violation of . . . § 20-443 is one that concerns the ‘terms’
of a policy, its ‘benefits’ or ‘advantages,’ or its ‘true nature.’”17 Defendants argue that
the statements regarding collateral requirements did not concern the “terms” or
“benefits” of the actual insurance policies insofar as “collateral is required to secure
Republic’s payment obligations and has nothing to do with the actual policies.”18
Republic characterizes a promise to review collateral requirements as a “benefit,”19 but
the court doubts that “benefits” as used in the statute was meant to encompass
anything more than the actual benefits under the policy. However, because collateral
Doc. 31-1 at 6.
Doc. 54 at 4–5.
Doc. 31-1 at 6.
Haisch v. Allstate Ins. Co., 5 P.3d 940, 944–45 (Ariz. Ct. App. 2000).
Doc. 46 at 11.
See, e.g., doc. 47 at 4.
was required, the review is correctly viewed as a term of an insurance policy. In other
words, because Chartis’ statement related to the collateral obligation, one of the terms
of the insurance, it falls within the scope of § 20-443.
In summary, this court finds that Republic has pled a viable claim against Chartis.
While this court expresses no opinion on the merit of that claim, it does hold that it is not
obvious under the law of Arizona that the claim cannot be pursued. Because the
complaint states a claim against Chartis, a non-diverse defendant, this court is without
subject matter jurisdiction. In keeping with the well recognized proposition that “federal
courts are under an independent obligation to examine their own jurisdiction,”20 this
case must be returned to state court whence it came.
For the reasons above, the case is REMANDED to the Superior Court of Arizona
for Maricopa County.
DATED this 26th day of September 2011.
/s/ JOHN W. SEDWICK
UNITED STATES DISTRICT JUDGE
FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990).
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