Stanton v. Encompass Indemnity Company et al

Filing 11

ORDER REMANDING CASE to the Summit County, Colorado District Court, by Judge William J. Martinez on 1/13/2012. (ervsl, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 12-cv-0069-WJM-CBS
PAULA STANTON,
Plaintiff,
v.
ENCOMPASS INDEMNITY COMPANY, a Foreign corporation,
ARROW INSURANCE MANAGEMENT, INC., a Colorado corporation,
Defendants.

ORDER OF REMAND

Before the Court is Defendant Encompass Indemnity Company’s (“Encompass”)
Notice of Removal. (ECF No. 1.) Because, as set forth below, the Court finds that
there is not complete diversity, the Court remands this action to the Summit County,
Colorado District Court.
Jurisdictional issues must be addressed at the beginning of every case and, if
jurisdiction is found to be lacking, the case or claim comes to an immediate end. In re
Franklin Savings Corp., 385 F.3d 1279, 1286 (10th Cir. 2004). “The party invoking
federal jurisdiction bears the burden of establishing such jurisdiction as a threshold
matter.” Radil v. Sanborn W. Camps, Inc., 384 F.3d 1220, 1224 (10th Cir. 2004).
When a case is originally filed in state court, there is a “strong presumption” against
removal and all ambiguities must be resolved against removal. Martin v. Franklin
Capital Corp., 251 F.3d 1284, 1290 (10th Cir. 2001).

Encompass removed the above-captioned action to this Court solely on the basis
of diversity jurisdiction. (ECF No. 1.) Encompass acknowledges that Plaintiff is a
resident of Colorado and Defendant Arrow Insurance Management, Inc. (“Arrow”) is a
Colorado corporation. (Id. at 5.) Thus, on the face of the Complaint, there is not
complete diversity between the parties. Encompass alleges, however, that Plaintiff
fraudulently joined Arrow solely to defeat diversity and, therefore, the Court should
disregard Arrow’s presence in considering jurisdiction. (Id.)
Fraudulent joinder is a narrow exception to the requirement of complete diversity
between the parties. Smoot v. Chicago, Rock Island & Pac. R.R. Co., 378 F.2d 879,
882 (10th Cir. 1967). The party asserting fraudulent joinder faces a “heavy burden” and
must “demonstrate that there is no possibility that plaintiff would be able to establish a
cause of action against the joined party in state court.” Montano v. Allstate Indemnity,
2000 WL 525592, *1 (10th Cir. April 14, 2000).
Encompass contends that there is no possibility that Plaintiff will be able to
establish a cause of action against Arrow in this case. (ECF No. 1 ¶ 21.) The Court
disagrees. Plaintiff’s claims in this case relate to Encompass’s failure to pay benefits
on an underinsured motorist policy that Plaintiff obtained through Arrow. (Complaint
(ECF No. 2) at 1-2.) Plaintiff alleges that Arrow promised her that the insurance policy
she purchased would “comply with Colorado laws as they applied to the sales and
service of Encompass insurance products, goods and services.” (Id. ¶ 15.)

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Colorado recognizes a cause of action “predicated on the failure of an insurance
broker or agent servicing the insurance needs of the plaintiff to procure a particular type
of insurance coverage sought by the plaintiff.” Bayly, Martin & Fay, Inc. v. Pete’s Satire,
Inc., 739 P.2d 239, 242 (Colo. 1987). Given the allegations that Arrow made promises
about the type of insurance it would procure for Plaintiff, the Court cannot say that there
is no possibility that Plaintiff would be able to state a claim against Arrow. Thus,
Defendant has failed to show that Arrow was fraudulently joined as a defendant.
Montano, 2000 WL 525592 at *1.
Because Arrow was not fraudulently joined as a defendant in this action, there is
not complete diversity between the parties. As such, this Court did not have original
jurisdiction over this matter at the time it was filed, see 28 U.S.C. § 1332(a), and
removal to this Court was not proper. See id. § 1441(a) (removal is proper where
federal court had original jurisdiction over a case). Accordingly, remand of this case is
appropriate. See Hale v. MasterSoft Intern. Pty. Ltd., 93 F.Supp.2d 1108, 1114 (D.
Colo. 2000).
For the reasons set forth above, the Court REMANDS this action to the Summit
County, Colorado District Court.
Dated this 13th day of January, 2012.
BY THE COURT:

William J. Martínez
United States District Judge
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