Elite Performance LLC v. Echelon Property & Casualty Insurance Company

Filing 21

ORDER ACCEPTING AND ADOPTING IN FULL 14 REPORT AND RECOMMENDATION. IT IS ORDERED that Plaintiff's 4 Motion to Remand is DENIED. This case remains referred to Magistrate Judge Leslie A Bowman for pretrial proceedings and report and recommendation. Signed by Judge Rosemary Marquez on 2/25/21. (BAC)

1

WO

2
3
4
5
6

IN THE UNITED STATES DISTRICT COURT

7

FOR THE DISTRICT OF ARIZONA

8
9

Elite Performance LLC,
Plaintiff,

10
11

ORDER

v.

12

No. CV-20-00552-TUC-RM (LAB)

Echelon Property & Casualty Insurance
Company,

13

Defendant.

14
15

Pending before the Court is Plaintiff Elite Performance LLC’s Motion to Remand

16

(Doc. 4), and Magistrate Judge Leslie A. Bowman’s Report and Recommendation

17

(“R&R”) (Doc. 14), recommending that the Motion to Remand be denied. Plaintiff filed

18

an Objection to the R&R (Doc. 15), to which Defendant Echelon Property & Casualty

19

Insurance Company responded (Doc. 18). For the following reasons, the R&R will be

20

accepted and adopted in full and the Motion to Remand will be denied.

21

I.

Background

22

Plaintiff brought this action in Pima County Superior Court on December 4, 2020.

23

(Doc. 1.) Plaintiff alleges that, in a prior lawsuit, it obtained a stipulated judgment of

24

$475,000.00 against Defendant’s insureds—AC/DC Electric, Inc. (“AC/DC”), its owner

25

Daniel Fazio, and his wife Monica Fazio (collectively, the “Insureds”)—based on

26

AC/DC’s negligent work at a property owned by Plaintiff. (Doc. 1-3 at 3-6.)1 Defendant

27

denied coverage in the prior suit, and the Insureds assigned to Plaintiff their claims

28

1

All record citations herein refer to the page numbers generated by the Court’s electronic
filing system.

1

against Defendant, pursuant to Damron v. Sledge, 460 P.2d 997 (Ariz. 1969). (Id. at 4-5,

2

8.) In the present action, Plaintiff alleges claims for breach of contract and insurance bad

3

faith, seeking to recover reimbursement of attorneys’ fees and costs from the underlying

4

suit against the Insureds, as well as the outstanding balance due on the $475,000.00

5

judgment from that suit. (Id. at 7-9)

6

Defendant removed the action to this Court based on diversity jurisdiction. (Doc.

7

1.) In its Notice of Removal, Defendant avers that Plaintiff is an Arizona limited liability

8

company with its principal place of business in Arizona; Defendant is an Illinois

9

corporation with its principal place of business in Illinois; and over $75,000 is in

10

controversy. (Id. at 1-2.) Plaintiff filed a Motion to Remand, arguing that the Arizona

11

citizenship of the Insureds is imputed to Defendant under 28 U.S.C. § 1332(c)(1), and

12

thus that complete diversity of citizenship does not exist between the parties. (Doc. 4.)

13

II.

Standard of Review

14

A district judge “may accept, reject, or modify, in whole or in part, the findings or

15

recommendations” made by a magistrate judge. 28 U.S.C. § 636(b)(1). The district

16

judge must “make a de novo determination of those portions” of the magistrate judge’s

17

“report or specified proposed findings or recommendations to which objection is made.”

18

Id.

19

III.

Discussion

20

District courts have diversity jurisdiction of civil actions between citizens of

21

different states in which the matter in controversy exceeds $75,000. 28 U.S.C. § 1332(a).

22

A corporation is deemed a citizen of the state in which it has been incorporated and the

23

state in which it has its principal place of business, “except that in any direct action

24

against the insurer of a policy or contract of liability insurance . . . to which action the

25

insured is not joined as a party-defendant,” the insurer is also deemed a citizen of the

26

state “of which the insured is a citizen.” 28 U.S.C. § 1332(c)(1)(A).

27

The R&R finds that the “direct action” provision of § 1332(c)(1) is inapplicable

28

here because this lawsuit is not a direct action. (Doc. 14. at 3-5.) In reaching this

-2-

1

conclusion, the R&R analyzes case law interpreting § 1332(c)(1), as well as the

2

legislative history of the statute. (Id.)

3

In its Objection to the R&R, Plaintiff argues that this case is a direct action based

4

on a dictionary definition of that term and because Plaintiff is bringing suit against

5

Defendant without joining the Insureds. (Doc. 15 at 3-4, 6.) Plaintiff further argues that

6

it is inappropriate to “[r]esort[] to legislative history” in interpreting § 1332(c)(1) because

7

the statute uses the word “any” and thus should be interpreted expansively. (Doc. 15 at

8

1-5.) Plaintiff concedes that Arizona does not have a direct action statute, but it argues

9

that if Congress intended § 1332(c)(1) to be limited to cases brought under a direct action

10

statute, it would have drafted the statutory language to refer not to “direct actions” but

11

instead to actions “brought under a direct action statute.” (Id. at 5 (internal quotation

12

marks omitted).) Plaintiff also argues that the insurance policy at issue allows for a direct

13

action because it permits an entity to sue Defendant to recover on a final judgment

14

against an insured of Defendant. (Id. at 5-6.) In response to Plaintiff’s Objection,

15

Defendant argues that the language of 28 U.S.C. § 1332(c)(1) and the insurance policy at

16

issue, as well as all cases interpreting § 1332(c)(1) and the statute’s legislative history,

17

make clear that this case is not a direct action. (Doc. 18.)

18

Because “the meaning of ‘direct action’” in 28 U.S.C. § 1332(c)(1) “is not clear

19

from the statutory language,” the statute’s “legislative history must be consulted.”

20

Searles v. Cincinnati Ins. Co., 998 F.2d 728, 730 (9th Cir. 1993). The legislative history

21

reveals that § 1332(c)(1) was enacted to eliminate diversity jurisdiction in cases in which

22

the tortfeasor and the injured party are both residents of the same state but a state’s

23

“‘direct action’ statute” allows the case to “be brought directly against a foreign

24

insurance carrier without joining the local tort-feasor as a defendant.” Northbrook Nat’l

25

Ins. Co. v. Brewer, 493 U.S. 6, 9-10 (1989) (emphasis and internal quotation marks

26

omitted). In light of § 1332(c)(1)’s legislative history, “[c]ourts have uniformly defined

27

the term ‘direct action’ as used in this section as those cases in which a party suffering

28

injuries or damage for which another is legally responsible is entitled to bring suit against

-3-

1

the other’s liability insurer without joining the insured or first obtaining a judgment

2

against him.” Beckham v. Safeco Ins. Co. of Am., 691 F.2d 898, 901-02 (9th Cir. 1982).

3

An insurance bad faith action is not a “direct action” under § 1332(c)(1) because it does

4

not seek to impose liability on an insurer for the negligence of an insured but, instead,

5

seeks to impose liability on the insurer “for its own tortious conduct.” Id. at 902; see also

6

Searles, 998 F.2d at 728, 730.

7

It is undisputed that Arizona does not have a direct action statute. (See Doc. 15 at

8

5.) Plaintiff could not have brought this action without first obtaining a judgment against

9

the Insureds and being assigned their claims against Defendant.

The fact that the

10

insurance policy at issue allows an entity to sue Defendant to recover on a final judgment

11

against an insured of Defendant (see Doc. 15 at 5-6) does not mean that the policy allows

12

for a “direct action,” because a case is not a direct action if a plaintiff must first obtain a

13

judgment against a tortfeasor in order to bring suit against the tortfeasor’s liability

14

insurer. Beckham, 691 F.2d at 901-02. Plaintiff’s arguments are contrary to binding

15

precedent and fail to cast any doubt on the reasoning and analysis of the R&R. Because

16

this is not a direct action, § 1332(c)(1)(A) is inapplicable.

17

For purposes of diversity jurisdiction, Defendant is a citizen of Illinois, where it is

18

incorporated and has its principal place of business, and Plaintiff is a citizen of Arizona.

19

(Doc. 1.)

20

$75,000 is in controversy. Accordingly, this Court has diversity jurisdiction under 28

21

U.S.C. § 1332, and Plaintiff’s Motion to Remand will be denied.

22
23

There is complete diversity of citizenship between the parties, and over

IT IS ORDERED that the Report and Recommendation (Doc. 14) is accepted
and adopted in full.
IT IS FURTHER ORDERED that Plaintiff’s Motion to Remand (Doc. 4) is

24
25

denied.

26

....

27

....

28

....

-4-

1

IT IS FURTHER ORDERED that this case remains referred to Magistrate Judge

2

Leslie A. Bowman for pretrial proceedings and report and recommendation, in

3

accordance with the provisions of 28 U.S.C. § 636(b)(1) and LRCiv 72.1 and 72.2.

4

Dated this 25th day of February, 2021.

5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

-5-