McHugh v. Protective Life Insurance Company et al

Filing 22

ORDER Granting 8 Motion to Remand to State Court. Motion for Fees and Costs is denied. (Certified copy sent to State Court via US Mail Service.). Signed by Judge Roger T. Benitez on 9/2/2015. (knb)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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BLAKELY MCHUGH and TRYSTA M.
HENSELMEIER,
Plaintiffs,

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ORDER GRANTING MOTION TO
REMAND

v.

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PROTECTIVE LIFE INSURANCE CO.
and JAMES REINHOLTZ,
Defendants.

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Case No.: 15-CV-1305-BEN (BLM)

Before this Court is a Motion to Remand, filed by Plaintiffs Blakely McHugh and
Trysta M. Henselmeier. (Docket No.8.)

BACKGROUND}

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Plaintiffs initiated the instant action against Defendants Protective Life Insurance

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Company ("Protective") and James Reinholtz in California state court on June 13,2014.

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(Docket No.1, Ex. A.) Plaintiffs allege that the decedent, Mr. McHugh, purchased a life

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insurance policy for their benefit from Protective and with the help of Mr. Reinholtz.

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Unless otherwise noted, the following background is drawn from the allegations of
Plaintiffs' F AC. The Court is not making any factual findings, but rather only
summarizing the relevant facts alleged for purposes of evaluating the Motion to Remand
and the Notice of Removal.
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J5-CV-1305-BEN (BLM)

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(First Amended Compl. ("FAC") '\17.) Mr. Reinholtz is a resident of California, and was

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a broker for either Protective or the decedent. (FAC '\1'\14, 72.) Protective is a citizen of

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Alabama and Tennessee. (FAC '\13; Notice of Removal '\16.)

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Plaintiffs claim Protective breached a contract and the implied covenant of good

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faith and fair dealing with the decedent when Protective failed to notify the decedent of a

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lapse in coverage or an impending termination of coverage. (F AC '\1'\1 47-69.) Plaintiffs

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claim that Mr. Reinholtz was negligent by failing to take reasonable steps to ensure the

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insurance policy was properly maintained, and failing to inform the decedent of any

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pending lapses or termination of the policy. (FAC '\173.) Alternatively, Plaintiffs allege

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that if Mr. Reinholtz was not aware of the lapse or termination of the policy, Mr.

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Reinholtz acted negligently by failing to apprise Protective of his current contact

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information. (FAC '\176.)

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Plaintiff filed the FAC in January 2015. On May 18,2015, Protective filed a

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demurrer to the F AC, arguing that Plaintiffs failed to state sufficient facts to support the

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two claims against Protective. On June 3, 2015, Counsel for Mr. Reinholtz sent a letter to

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Plaintiffs, demanding that Mr. Reinholtz be dismissed from the action. Shortly thereafter,

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on June 12,2015, Protective removed the action to this Court. Plaintiffs timely filed the

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instant Motion to Remand pursuant to 28 U.S.C. § 1447(c). (Docket No.8.)

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LEGAL STANDARD
Under 28 U.S.C. § 1441(b), a defendant may remove an action brought in state
court if a district court may exercise diversity jurisdiction over the matter. Diversity

22 jurisdiction requires complete diversity of citizenship between the plaintiffs and the
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defendants, and that the amount in controversy exceed $75,000. 28 U.S.C. § 1332.

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However, one exception to the complete diversity requirement exists where a non-diverse

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defendant has been fraudulently joined. Morris v. Princess Cruises, Inc., 236 F.3d 1061,

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1067 (9th Cir. 2001).

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"Joinder of a non-diverse defendant is deemed fraudulent, and the defendant's
presence in the lawsuit is ignored for purposes of determining diversity, '[i]fthe plaintiff
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lS-CV -130S-BEN (BLM)

1 fails to state a cause of action against a resident defendant, and the failure is obvious
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according to the settled rules of the state. '" Id. (quoting McCabe v. Gen. Foods Corp.,

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811 F.2d 1336, 1339 (9th Cir. 1987)). Defendants bear a "heavy burden" of

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demonstrating fraudulent joinder by "clear and convincing evidence." Hamilton

5 Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th Cir. 2007). An action is
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not removable if any defendant who has been "properly joined and served ... is a citizen

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of the State in which such action is brought." 28 U.S.C. § 1441(b)(2).
Courts "strictly construe the removal statute against removal jurisdiction." Gaus v.

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9 Miles, Inc., 980 F.2d 564,566 (9th Cir. 1992). Courts need only conduct a summary
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inquiry "to identify the presence of discrete and undisputed facts that would preclude

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plaintiffs recovery against the in-state defendant." Hunter v. Philip Morris USA, 582

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F.3d 1039, 1044 (9th Cir. 2009) (quoting Smallwood v. Ill. Cent. R.R., 385 F.3d 568, 573-

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74 (5th Cir. 2004)). Further, "the inability to make the requisite decision in a summary

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manner itself points to an inability of the removing party to carry its burden." Id.

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"Federal jurisdiction must be rejected ifthere is any doubt as to the right of removal in

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the first instance." Gaus, 980 F.2d at 566.

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DISCUSSION

I.

Motion to Remand
Protective removed this case based upon the theory that Mr. Reinholtz had been

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fraudulently joined as a defendant. Plaintiffs contend that Protective's Notice of

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Removal was untimely and that this Court lacks subject-matter jurisdiction to hear this

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case. The Court declines to address whether the removal was procedurally defective,

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because even if it was not, the Court lacks jurisdiction.

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Protective argues that Mr. Reinholtz was fraudulently joined because Plaintiffs
"admitted" that he was added as a defendant for the sole purpose of avoiding diversity

26 jurisdiction. Plaintiffs' counsel denies making such a statement. (Mot. 7.) Nonetheless,
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Plaintiffs' purpose for joining Mr. Reinholtz as a defendant is irrelevant unless there is no

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chance of recovery against him. See Selman v. Pfizer, Inc., No. 11-cv-1400, 2011 WL
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lS-CV-130S-BEN (BLM)

1 6655354, at *5-11 (D. Or. Dec. 16,2011) (rejecting the "intent test" as inconsistent with
2 Ninth Circuit authority).
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Here, Plaintiffs claim that Mr. Reinholtz was negligent. They allege that Mr.

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Reinho1tz was responsible for maintaining the decedent's life insurance policy, and that

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Mr. Reinholtz failed to do so in a reasonable manner. After a summary review of the

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record and consideration of the relevant case law, the Court cannot say that Plaintiffs

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have no basis under California law to proceed with their claim against Mr. Reinholtz.

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In California, an insurance broker owes "a limited duty" to clients, "which is only

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'to use reasonable care, diligence, and judgment in procuring the insurance requested by

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an insured.'" Pac. Rim Mech. Contractors, Inc. v. Aon Risk Ins. Servs. W, Inc., 203 Cal.

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App. 4th 1278, 1283 (4th Dist. 2012) (alteration in original). However, a broker

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"assumes an additional duty by either express agreement or by 'holding himself out' as

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having expertise in a given field of insurance being sought by the insured." Id. (quoting

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Fitzpatrick v. Hayes, 57 Cal. App. 4th 916,927 (1st Dist. 1997».

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According to Plaintiffs, Mr. Reinholtz was listed as "Agent for the Policy" and

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agreed to be notified of any lapse or termination of the policy. (FAC ~ 17.) Mr.

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Reinholtz held himself out as an experienced and knowledgeable broker oflife insurance,

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and the decedent relied on Mr. Reinholtz to maintain the policy. (FAC ~ 71.) Plaintiffs

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allege that Mr. Reinholtz was aware of the decedent's hospitalization and the decedent's

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need for additional help. (F AC ~ 26.) Plaintiffs also allege that Mr. Reinholtz was aware

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that Protective attempted to inform Mr. Reinholtz of the impending policy termination,

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but could not because Mr. Reinholtz did not keep Protective up to date with his correct

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contact information. (FAC ~ 35.) Finally, Plaintiffs claim Mr. Reinholtz agreed to have

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the policy reinstated on the decedent's behalf, but Mr. Reinholtz did not make any

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attempt to do so. (FAC ~ 36.)

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According to these facts, it is not "obvious" that Plaintiffs' claim of negligence

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will fail. Protective did not present clear and convincing evidence showing that Mr.

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Reinholtz did not represent himself as a specialist in the field, or that Mr. Reinholtz did
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lS-CV-130S-BEN (BLM)

,

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1 not agree to undertake further maintenance of the decedent's policy. The Court holds
2 that Mr. Reinholtz was not fraudulently joined. As such, Protective failed to meet its
3 heavy burden. Because Mr. Reinholtz's citizenship cannot be disregarded, diversity
4 jurisdiction does not exists. The Court therefore GRANTS Plaintiffs' Motion to
5 Remand.
6 II.

Motion for Fees and Costs

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Upon an order for remand, a court may order the payment of attorney fees and

8 costs incurred as a result of the removal. 28U.S.C. § 1447(c). "[A]bsentunusual
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circumstances, attorney's fees should not be awarded when the removing party has an

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objectively reasonable basis for removal." Martin v. Franklin Capital Corp., 546 U.S.

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132, 136 (2005).

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Protective filed a Notice of Removal upon learning of a statement, allegedly made

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by Plaintiffs' counsel, which alerted Protective of the possibility of fraudulent joinder.

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Protective then argued that Mr. Reinholtz had no duty to the decedent beyond procuring

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the requested insurance policy. Although it relied on the correct general rule, Protective

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inappropriately devalued the rest of Plaintiffs' allegations. As a result, any duty of Mr.

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Reinholtz was not as clear-cut as Protective argued. Even though Protective's removal

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was improper, it was not objectively unreasonable. The Court therefore declines to

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exercise its discretion to award fees and costs. The Motion is DENIED.

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CONCLUSION

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The Motion to Remand is GRANTED and the Motion for Fees and Costs is

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DENIED. The case is REMANDED to state court.

IT IS SO ORDERED.

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Dared,

M-:z,

2015

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15-CV-1305-BEN (BLM)