Israel v. Shelter Mutual Insurance Company et al
ORDER granting 6 motion to remand to state court; denying as moot 5 motion to vacate. Signed by Judge Kristine G. Baker on 4/11/2014. (mmd)
IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
Case No. 4:13-cv-00587-KGB
SHELTER MUTUAL INSURANCE COMPANY
and RICHIE TANKSLEY
On October 7, 2013, separate defendant Shelter Mutual Insurance Company (“Shelter”)
filed notice of removal of this action from the Circuit Court of Pulaski County, Arkansas, to this
Court (Dkt. No. 1). Before the Court is plaintiff Denise Israel’s motion to remand back to state
court (Dkt. No. 6). For the reasons that follow, the Court grants Ms. Israel’s motion to remand.
Factual Background And Procedural Posture
On May 21, 2013, Ms. Israel filed her complaint in the Circuit Court of Pulaski County,
Arkansas (Dkt. No. 2). Shelter and Richie Tanksley are named as defendants. The parties do not
dispute that Ms. Israel is a resident and citizen of Arkansas, Shelter is a Missouri corporation
with its principal place of business in Columbia, Missouri, and Mr. Tanksley is a resident of
Arkansas County, Arkansas (Dkt. No. 1).
In July of 2010, Ms. Israel’s house burned down. Shelter is the insurance company that
issued insurance on the house that burned. Ms. Israel claims that Mr. Tanksley, acting within the
scope of the apparent or express authority granted him by Shelter, inspected the home, assured
her the house was a complete loss, and told her the claim would be promptly paid. However,
according to Ms. Israel, Mr. Tanksley and Shelter knew that her claim would not be promptly
paid, and Ms. Israel relied on the untrue statement to her detriment, as “she made no attempt to
preserve the burned out shell that was her home” (Dkt. No. 2).
Shelter removed this case pursuant to 28 U.S.C. § 1441(a) and (b). It claims this Court
has diversity jurisdiction under 28 U.S.C. § 1332 because the action is between citizens of
different states and the matter in controversy exceeds $75,000.
Complete diversity exists,
Shelter contends, because Mr. Tanksley is fraudulently joined, which allows the Court to ignore
In Ms. Israel’s motion to remand, she responds that Mr. Tanksley is not
fraudulently joined, and thus, complete diversity, along with this Court’s jurisdiction, is
defeated—which would require the Court to remand this case back to state court.
“Federal courts are courts of limited jurisdiction” and “possess only that power
authorized by Constitution and statute.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S.
375, 377 (1994). “[A]ny civil action brought in a State court of which the district courts of the
United States have original jurisdiction, may be removed by the defendant or the defendants, to
the district court of the United States for the district and division embracing the place where such
action is pending.” 28 U.S.C. § 1441(a). Federal courts have original jurisdiction over all civil
actions in which the amount in controversy exceeds $75,000.00 and is between citizens of
different states. Id. § 1332. The statute requires complete diversity between the parties. Junk v.
Terminix Int’l Co., 628 F.3d 439, 445 (8th Cir. 2010). “If at any time before final judgment it
appears that the district court lacks subject matter jurisdiction, the case shall be remanded.” 28
U.S.C § 1447(c).
The removing party has the burden to show, by a preponderance of the evidence, that
removal was proper. Altimore v. Mount Mercy Coll., 420 F.3d 763, 768 (8th Cir. 2005). Federal
courts are required to “‘resolve all doubts about federal jurisdiction in favor of remand’ and are
strictly to construe legislation permitting removal.” Dahl v. R.J. Reynolds Tobacco Co., 478
F.3d 965, 968 (8th Cir. 2007) (quoting Transit Cas. Co. v. Certain Underwriters at Lloyd’s of
London, 119 F.3d 619, 625 (8th Cir. 1997)).
Although diversity jurisdiction exists only when there is complete diversity, an exception
to that rule allows a federal district court to “retain jurisdiction where the nondiverse defendant
has been fraudulently joined.” Junk, 628 F.3d at 445. “Joinder is fraudulent and removal is
proper when there exists no reasonable basis in fact and law supporting a claim against the
resident defendants.” Wiles v. Capitol Indem. Corp., 280 F.3d 868, 871 (8th Cir. 2002) (citing
Anderson v. Home Ins. Co., 724 F.2d 82, 84 (8th Cir. 1983)). A district court’s “essential
function” in a fraudulent joinder analysis is to “determine whether there is a reasonable basis for
predicting that the state’s law might impose liability against the defendant.” Filla v. Norfolk S.
Ry. Co., 336 F.3d 806, 811 (8th Cir. 2003). Accordingly, to establish that a diversity-destroying
defendant was fraudulently joined and that the federal district court has diversity jurisdiction
over the action, the defendant seeking removal must “prove that the plaintiff's claim against the
diversity-destroying defendant has ‘no reasonable basis in fact and law.’” Knudson v. Sys.
Painters, Inc., 634 F.3d 968, 977 (8th Cir. 2011) (quoting Filla, 336 F.3d at 810). This standard
requires the defendant “to do more than merely prove that the plaintiff's claim should be
dismissed pursuant to a Rule 12(b)(6) motion.” Id. at 980.
Ms. Israel alleges fraudulent misrepresentation on the part of Mr. Tanksley. Shelter
argues that this claim has no reasonable basis in fact or law because Ms. Israel fails to allege two
of the five elements of the tort of fraud: justifiable reliance upon the representation and damage
suffered as a result of the reliance. Moss v. Am. Alt. Ins. Corp., 420 F. Supp. 2d 962, 965 (E.D.
Ark. 2006) (citing Tyson Foods, Inc. v. Davis, 66 S.W.3d 568, 577 (Ark. 2002)). If Ms. Israel
did not so allege, she has failed to plead fraud with particularity as required by both Arkansas
Rule of Civil Procedure 9(b) and Federal Rule of Civil Procedure 9(b).
To begin, the Court is not convinced that Ms. Israel failed to plead justifiable reliance and
resulting damage. See Fille v. Norfolk S. Ry. Co., 336 F.3d 806, 811 (holding that “where the
sufficiency of the complaint against the non-diverse defendant is questionable, ‘the better
practice is for the federal court not to decide the doubtful question in connection with a motion to
remand but simply to remand the case and leave the question for the state courts to decide’”
(quoting Iowa Pub. Serv. Co. v. Med. Bow Coal Co., 556 F.2d 400, 406 (8th Cir. 1977)));
Wilkinson v. Shackelford, 478 F.3d 957, 964 (8th Cir. 2007) (“The relevant inquiry in analyzing
fraudulent joinder . . . focuses only on whether a plaintiff ‘might’ have a ‘colorable’ claim under
state law against a fellow resident, not on the artfulness of the pleadings.” (internal citation
omitted)). Ms. Israel alleged in her complaint that she relied on Mr. Tanksley’s statements “to
her detriment because she made no attempt to preserve the burned out shell that was her home”
(Dkt. No. 2, at 3).
Shelter also points out that, under Arkansas law, an agent acting within the scope of his
authority on behalf of a disclosed principal typically cannot be held personally liable. See, e.g.,
First United, Inc. v. Chi. Title Ins. Co., 237 S.W.3d 15, 19 (Ark. 2006) (“An agent that acts
within the scope of its authority for a disclosed principal is not liable on an insurance contract.”);
McCullough v. Johnson, 816 S.W.2d 886, 888 (Ark. 1991); Ferguson v. Huddleston, 186 S.W.2d
152, 154 (Ark. 1945); Grayson & Grayson, P.A. v. Couch, 388 S.W.3d 96, 104 (Ark. Ct. App.
2012). Moreover, district courts ignore such an agent’s citizenship when joined as a defendant.
See Linville v. ConAgra Inc., No. 1:04-cv-00004-WRW, 2004 WL 3167119, at * (E.D. Ark.
2004) (ignoring an agent’s citizenship when joined as a defendant in a promissory estoppel claim
because “[i]t is well-settled in Arkansas that ‘an agent is not personally liable on contracts made
for a disclosed principal in the absence of an express agreement to be bound’” and other courts
“have concluded that ‘promissory estoppel claims are not viable against an agent for a disclosed
principal’”). However, this principle appears not to apply for an agent’s bad-faith fraudulent
misrepresentation, even when that statement was authorized by the principal. See Brooks v.
Smith, 220 S.W.2d 801, 803 (Ark. 1949) (“Of course an agent may be held responsible for
making a statement which he has reason to know to be fraudulent.”); Mayhue v. Matthews, 294
S.W. 364, 365 (Ark. 1927); Cleveland v. Biggers, 260 S.W. 432, 434 (Ark. 1924); Strout Realty,
Inc. v. Burghoff, 718 S.W.2d 469, 473 (Ark. Ct. App. 1986) (“If the agent making the statement
does not act in good faith, then he may be held liable, even when his agency is known and he
acts under the authority granted him.”).
Here, Ms. Israel expressly alleges that Mr. Tanksley, in making the alleged fraudulent
misrepresentation, acted “within the scope of the apparent or express authority granted him by
Shelter” but “knew this was untrue,” thus intentionally misleading her (Dkt. No. 2, at 1).
Accordingly, Ms. Israel alleges bad faith on the part of Mr. Tanksley. Based on this and the
cases cited above, the Court finds that there is a reasonable basis in fact and law supporting Ms.
Israel’s claim of fraudulent misrepresentation against Mr. Tanksley.
Because Mr. Tanksley is not fraudulently joined, complete diversity of citizenship is
lacking. The Court grants Ms. Israel’s motion to remand (Dkt. No. 6) and denies as moot her
motion to vacate order of dismissal (Dkt. No. 5).
SO ORDERED this 11th day of April, 2014.
KRISTINE G. BAKER
UNITED STATES DISTRICT COURT
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