Commissioner of Labor v. Chubb Group of Insurance Companies

Filing 36

RULING denying Motion To Remand to State Court (Doc. No. 12). Signed by Judge Alvin W. Thompson on 03/31/2012. (Giering, A)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
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STATE OF CONNECTICUT
:
COMMISSIONER OF LABOR,
:
:
Plaintiff,
:
:
v.
:
:
CHUBB GROUP OF INSURANCE
:
COMPANIES,
:
:
Defendant.
:
:
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CASE NO. 3:11CV00997 (AWT)

RULING ON MOTION TO REMAND
The plaintiff, State of Connecticut Commissioner of Labor
(the “State”), brought this civil wage enforcement action against
the defendant, Chubb Group of Insurance Companies (“Chubb”) in
Connecticut Superior Court.

Chubb removed the case pursuant to

28 U.S.C. § 1332, 1441 and 1446 and the State has moved to
remand.

For the reasons set forth below, the motion is being

denied.
I.

BACKGROUND
Chubb is an insurance corporation chartered in Indiana with

its principal place of business in New Jersey.

Chubb maintained

an office in New Haven, Connecticut and employed Sean McMahon
(“McMahon”) of Shelton, Connecticut.

On July 20, 2010, McMahon

filed a complaint with the State alleging that Chubb had failed

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to pay him $37,700 in performance-based incentive wages under
Chubb’s Annual Incentive Compensation Plan for his work for Chubb
in 2008.
The State filed its complaint, dated May 25, 2011, in
Connecticut Superior Court, Judicial District of Hartford at
Hartford, Connecticut.

The State alleges that Chubb violated

Conn. Gen. Stat. § 31-72 by failing to pay performance-based
incentive wages to McMahon, and brings additional claims for
unjust enrichment, civil penalties under Conn. Gen. Stat. § 3169a, unpaid wages, and quantum meruit based on the alleged
failure to pay wages.

The State “seeks to collect double

damages, i.e., $37,700 x 2 = $75,400 together with a reasonable
attorney’s fee, costs and interest . . . .”, (Compl. (Doc. No.
1), ¶ 28), and to fine Chubb a $300 statutory civil penalty.
II.

DISCUSSION
The State argues that this court lacks subject matter

jurisdiction over this case pursuant to 28 U.S.C. § 1332(a)
because there is no diversity of citizenship between the parties.
Chubb is a citizen of Connecticut.

“There is no question that a

State is not a ‘citizen’ for purposes of the diversity
jurisdiction.”
(1973).

Moor v. Cnty. of Almaneda, 411 U.S. 693, 717

“There is no statute which authorizes the removal of a

suit between the state and citizens on the ground of citizenship,

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for a state cannot, in the nature of things, be a citizen of any
state.”

Stone v. South Carolina, 117 U.S. 430, 433 (1886).

However, in cases where the state is merely a nominal party,
courts will look through the named parties and consider the
citizenship of the real parties in interest.1

See, e.g., New

York v. Walsh, 256 U.S. 490, 500 (1921) (“As to what is to be
deemed a suit against a state, the early suggestion that the
inhibition might be confined to those in which the state was a
party to the record has long since been abandoned, and it is now
established that the question is to be determined not by the mere
names of the titular parties but by the essential nature and

1

Although there are few decisions outside this district containing an
in-depth analysis of the “nominal party” exception to the rule that a state is
not a “citizen” for diversity purposes, courts frequently hold that nominal
parties do not defeat diversity jurisdiction under the “fraudulent joinder”
doctrine. See, e.g., Raphael v. 18 Rest., Inc., 954 F. Supp. 549, 550
(E.D.N.Y. 1996) (“[I]f complete diversity is not present, the Court must
determine whether federal jurisdiction is still proper under the principle of
‘fradulent joinder’, whereby parties which would otherwise defeat diversity do
not, because the non-diverse parties are found to be nominal or sham
parties.”).
The fraudulent joinder doctrine, and courts’ preference to look past the
nominal or titular parties to the real parties in interest for diversity
purposes, stems from 19th-century opinions in which the Supreme Court held
that it would not “suffer its jurisdiction to be ousted by the mere joinder or
non-joinder of formal parties,” but would “rather proceed without them, and
decide upon the merits of the case between the parties, who have the real
interest before it, whenever it can be done without prejudice to the rights of
others.” Wormley v. Wormley, 21 U.S. (8 Wheat.) 421, 451 (1823). These
principles remain intact. See Navarro Savs. Ass’n v. Lee, 446 U.S. 458, 460
(1980) (“‘[C]itizens’ upon whose diversity a plaintiff grounds jurisdiction
must be real and substantial parties to the controversy.”); Dep’t of Fair
Emp’t & Hous. v. Lucent Techs., 642 F.3d 728, 737 (9th Cir. 2001) (“[T]he mere
presence on the record of the state as a party plaintiff will not defeat the
jurisdiction of the Federal court when it appears that the state has no real
interest in the controversy.”) (citing Ex parte Nebraska, 209 U.S. 436, 444
(1908)).

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effect of the proceeding, as it appears from the entire record.”)
(citations omitted); Ferguson v. Ross, 38 F. 161, 162-63 (2d Cir.
1889) (“Courts will look beyond and through the nominal parties
on the record to ascertain who are the real parties to the suit,
and will determine whether a state is the real party to an action
brought by or against its officer by a consideration of the
nature of the case as presented by the whole record.”).
Chubb contends that here there is diversity of citizenship
because the State is not a real party in interest.

In making the

determination here as to whether the State is a real party in
interest for diversity purposes, the court finds most helpful the
leading case in this area, Connecticut v. Levi Strauss & Co., 471
F. Supp. 363 (D. Conn. 1979).

There Connecticut brought an

action in its enforcement capacity under Conn. Gen. Stat § 3532(a) and as parens patriae for its residents who had suffered
damages from artificially high prices and impaired competition in
the market for blue jeans.

Levi Strauss removed the case to

federal court, and Connecticut sought to remand.

Connecticut

argued that “a state cannot, in the nature of things, be a
citizen of any state,” Stone, 117 U.S. at 433, and that “to the
extent that Connecticut is suing in its sovereign capacity, its
claim cannot be brought within the diversity jurisdiction of a
district court.”

Levi Strauss, 471 F. Supp. at 370.

In

response, Levi Strauss argued that Connecticut was suing to some
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extent as parens patriae for its residents, and that their
citizenship was sufficient to satisfy the diversity requirement.
The court analyzed the four types of damages claimed to
determine the capacity in which Connecticut was bringing its
claims.

The state sought “recovery of the alleged unlawful

overcharges incurred by the citizens of Connecticut who purchased
Levi Strauss products. . . . Second, Connecticut [sought] to
collect and propose[d] to keep as state funds all provable
overcharges that cannot feasibly be returned to identifiable
purchasers.

Third, Connecticut sue[d] for $250,000 as a civil

penalty authorized by Conn. Gen. Stat. [§] 35-38.
Connecticut [sought] an award of attorney’s fees.”

Finally,
Id. at 370.

With respect to the first type of damages sought–-recovery
of overpayments to purchasers of Levi Strauss products–-the court
observed that “[i]f Connecticut were suing as Parens patriae for
the benefit of all of its citizens, its capacity would be
essentially sovereign, and it would not be a citizen for
diversity purposes.

But it has long been recognized that a state

can act as Parens patriae for a circumscribed group of its
citizens.”

Id. at 370-71.

The court concluded that “[w]hen

Connecticut claims refunds to be distributed to identifiable
purchasers, the citizen status of the purchasers rather than the
sovereign status of their benefactor controls for diversity
purposes.”

Id. at 371.

Therefore, the citizen status of
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Connecticut residents, and not the sovereign status of the State
of Connecticut, controlled for diversity purposes as to that
claim.2
With respect to the remaining claims, the court concluded:
However, the claim Connecticut makes for the
remainder of overcharges not to be distributed
to
identifiable
purchasers,
for
civil
penalties, and for attorney’s fees is brought
in its sovereign capacity.
These funds are
not sought for any specific individuals or
group of individuals. The funds would belong
to the state.
In seeking them, Connecticut
cannot satisfy the citizenship requirement of
diversity jurisdiction.
Id. at 372.
In Butler v. Cadbury Beverages, Inc., No. 3:97-CV-2241
(EBB), 1998 WL 422863 (D. Conn. Jul. 1, 1998), the court relied
on Levi Strauss in denying a motion to remand.

The plaintiff was

the Commissioner of the Department of Labor of the State of
Connecticut.

He brought an action alleging that the defendant

failed to pay a bonus to an employee under the company’s
incentive plan.

In determining whether the diversity requirement

was met, “[t]he Court [found] that the answer is provided by the
scholarly analysis of then-District Judge Newman in [Levi
Strauss].”

Cadbury, 1998 WL 422863, at *2.

The court stated

that “[i]nasmuch as the State herein is seeking to recover
damages for a single individual, which damages will go to that
2

The claims nevertheless failed to meet the jurisdictional amount, at
that time $10,000. Id. at 371.

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single individual, the Court holds that the citizen status of
that individual controls for diversity purposes.”

Id.

In Connecticut Comm’r of Labor v. AT&T Corp., Civil No.
3:06CV01257(AWT), 2006 WL 3332982 (D. Conn. Nov. 16, 2006), the
plaintiff, the State of Connecticut Commissioner of Labor, had
filed suit in Connecticut Superior Court claiming that the
defendant, AT&T Corporation, had violated Conn. Gen. Stat. § 3172 and owed wages to three former employees.

AT&T removed the

case to federal court, and the State moved to remand.

The court

noted that language in the complaint “reflects in clear and
unambiguous terms that the plaintiff is seeking to collect unpaid
wages plus attorney’s fees, costs and interest, and Conn. Gen.
Stat. § 31-72 makes it clear that the plaintiff shall distribute
any wages collected in this action . . . .”
3332982, at *2.

AT&T Corp., 2006 WL

The court found that “the State of Connecticut

is acting as Parens patriae for a circumscribed group of its
citizens, and the citizen status of those individual citizens
rather than the sovereign status of the state, controls for
diversity purposes.”

Id.

In AT&T, as here, the State argued that it “is a real party
in interest by virtue of the fact that Conn. Gen. Stat. § 31-72
is a tool of public policy and the State of Connecticut has a
real interest in the enforcement of its wage and hour laws.”
at *3.

The court found this argument unpersuasive, concluding

Id.

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that “[s]uch an argument is fundamentally at odds with the
analysis in Levi Strauss in that it would eliminate the wellrecognized distinction between the situation where the state is
suing as Parens patriae for the benefit of all its citizen and
that where it is acting as Parens patriae for a circumscribed
group of its citizens.”

Id.

In Levi Strauss, “[t]o determine whether the State had an
interest in controversy for purposes of diversity, Judge Newman
did not look to the nature of the suit as a whole; rather, he
analyzed separately each type of award sought by the State.”
Butler, 1998 WL 422863, at *2 (agreeing with the analysis set
forth in Levi Strauss).

The court concludes that the approach

taken in Levi Strauss is the better approach, and furthermore,
that Levi Strauss is directly on point.

Here as in Levi Strauss,

the State is suing to some extent as parens patriae for a
circumscribed group of its citizens-–actually one citizen–-and to
some extent in its sovereign status.

The State’s first claim is

for statutory nonpayment of earned performance-based incentive
wages under Conn. Gen. Stat. § 31-72.

The statute provides that

“[w]hen any employer fails to pay an employee wages . . . such
employee . . . may recover, in a civil action, twice the full
amount of such wages, with costs and such reasonable attorney’s
fees as may be allowed by the court, . . . .”
§ 31-72.

Conn. Gen. Stat.

Although the statute provides that “[t]he Labor
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Commissioner may collect the full amount of any such unpaid
wages,” it also provides that “[t]he commissioner shall
distribute any wages, . . . to the appropriate person.”

Id.

By

its own terms, the statute aims to recover damages for
individuals deprived of their rightful wages, not to provide any
benefit to the State.

Thus, this claim and the claims for unjust

enrichment, unpaid wages and quantum meruit, are brought as
parens patriae for McMahon.
The State’s third claim is for $300 in civil penalties
pursuant to Conn. Gen. Stat. § 31-69a.

The statute provides that

employers who violate Section 31-72 and other state labor rules
“shall be liable to the Labor Department for a civil penalty of
three hundred dollars for each violation . . . . The Attorney
General, upon complaint of the Labor Commissioner, shall
institute a civil action to recover [such] penalties . . . . Any
amount recovered shall be deposited in the General Fund and
credit to a separate nonlapsing appropriation to the Labor
Department, . . . .”

Conn. Gen. Stat. § 31-69a.

Thus, this

claim is brought by the State in its sovereign status.
As in Levi Strauss, with respect to the first claim here,
the citizen status of McMahon, rather than the sovereign status
of his benefactor, controls for diversity purposes.

This is so

notwithstanding the fact that the State is also bringing a claim
in its sovereign status.
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The State argues that the “one key fact that distinguishes
this case from AT&T” is that “the State has assessed and seeks to
collect a civil penalty under Conn. Gen. Stat. § 31-69a.

If

successful, the civil penalty will be paid to the State and held
by the State for its own uses.”

(Mem. Supp. Mot. to Remand to

State Ct. (Doc. No. 13) (“Pl.’s Br.”) 3). The amount of the fine
is $300.

That distinction between the instant case and AT&T is

immaterial to the court’s analysis here.
is directly on point.

It is Levi Strauss that

There, the court concluded on the basis of

one of the claims Connecticut was making that the citizen status
of the purchasers controlled for diversity purposes,
notwithstanding the fact that Connecticut was also bringing a
claim for a $250,000 civil penalty.
The State argues that it is the real party in interest here
with respect to all of the claims because it is pursuing its
“quasi-sovereign” interest, which it states is an argument that
is not addressed in Levi Strauss.

It relies on Connecticut v.

Moody’s Corp., Civil No. 3:10cv546(JBA), 2011 WL 63905 (D. Conn.
Jan. 5, 2011).

In addition, the State emphasizes that nonpayment

of earned wages is a felony and contends that “[t]he State’s
pursuit of a company that has committed a felony under
Connecticut law is a matter that belongs in State Court.”

(Id.

at 5).
However, the holding and analysis in Moody’s do not conflict
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with Levi Strauss, as is evident from the following language in
Moody’s:
It is noteworthy that the cases Defendants
rely on, Caldwell, Comcast, and Levi Strauss,
all involve state actions to secure damages or
restitution explicitly on behalf of specific
individuals, insurance policy holders, cable
subscribers,
and
blue
jeans
purchasers
respectively.
Here, although the State
alleges harm to individual citizens, its
prayer for relief seeks only “[a]n order
pursuant to Conn. Gen. Stat. § 42-110,
directing [Defendants] to pay restitution,”
without specifying beneficiaries of that
restitution, which the State argues may be
ordered paid to the Connecticut Department of
Consumer Protection’s Consumer Protection
Enforcement Account “to fund positions and
other related expenses for the enforcement of
Department of Consumer Protection licensing
and registration laws,” Conn. Gen. Stat. §
21a-8a(a).
Moody’s Corp., 2011 WL 63905, at *3.
As to the point that the State’s pursuit of a company that
has committed a felony under Connecticut law is a matter that
belongs in state court, the court simply notes that had state
prosecutors chosen to pursue a criminal prosecution of Chubb, the
matter would not have been removable to federal court.
The State also argues that Chubb has not shown that there is
a reasonable probability that the money damages awarded will
exceed the $75,000 statutory threshold.

The State has demanded

in the Complaint $75,400 plus reasonable attorney’s fee, interest
and costs, and the $300 statutory civil penalty.

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The $75,400

demand represents the amount of the claimed unpaid wages, i.e.,
$37,370, with double damages pursuant to Conn. Gen. Stat. § 3172.
The amount in controversy is determined on the basis of the
plaintiff’s complaint at the time the petition for removal was
filed.

See Tongkook Am., Inc. v. Shipton Sportswear Co., 14 F.3d

781, 784 (2d Cir. 1994).

The Second Circuit recognizes “a

rebuttable presumption that the face of the complaint is a good
faith representation of the actual amount in controversy.”
Wolde-Meskel v. Vocational Instruction Project Cmty. Servs.,
Inc., 166 F.3d 59, 63 (2d Cir. 1999).

An action may not be

remanded unless it is apparent to a legal certainty that the
plaintiff’s claim cannot meet the amount in controversy
requirement.

See St. Paul Mercury Indem. Co. v. Red Cab Co., 303

U.S. 283, 289 (1938) (“It must appear to a legal certainty that
the claim is really for less than the jurisdictional amount to
justify dismissal.”).
“[I]f punitive damages are permitted under the controlling
law, the demand for such damages may be included in determining
whether the jurisdictional amount is satisfied.”

A.F.A. Tours,

Inc. v. Whitchurch, 937 F.2d 82, 87 (2d Cir. 1991).

Although a

heightened level of judicial scrutiny is imposed in cases where
punitive damages are utilized to satisfy the amount-incontroversy requirement, see Zahn v. Int’l Paper Co., 469 F.2d
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1033, 1034 n. 1 (2d Cir. 1972), that scrutiny is not applicable
here because the damages in question are expressly permitted by
the statute and are tied to the amount of the claimed actual
damages.

See Miller v. Eur. Am. Bank, 921 F. Supp. 1162, 1167

(S.D.N.Y. 1996) (“The courts’ heightened scrutiny includes
determining whether, given the facts alleged, damages are
recoverable under state law.

If the applicable law would not

entitle the plaintiff to the sums claimed as punitive damages,
such sums should be excluded in assessing the amount in
controversy.”).3
Therefore, the court concludes that there is a reasonable
probability that the money damages awarded will exceed the
$75,000 statutory threshold.
The State argues that the court should abstain under
Louisiana Power & Light v. City of Thibodaux, 360 U.S. 25 (1959),
which permits abstention “in diversity cases because of unclear
state law.”

Bethpage Lutheran Serv., Inc. v. Weicker, 965 F.2d

1239, 1242 n. 2 (2d Cir. 1992) (citing Thibodaux, 360 U.S. 25).
“Under the Thibodaux abstention doctrine, a district court may

3

In addition, “the attorney’s fees [the State] seeks are an element of
damages to be included in satisfying the jurisdictional amount, since they are
authorized by statute as recoverable” in this action. Connecticut v. Levi
Strauss & Co., 471 F. Supp. 363, 371-72 (D. Conn. 1979); see Conn. Gen. Stat.
§ 31-72 (“[T]he Labor Commissioner may bring any legal action . . . and the
employer shall be required to pay the costs and such reasonable attorney’s
fees as may be allowed by the court.”). The amount of those fees could easily
match the difference between the $37,700 unpaid wage claim and the $75,000
jurisdictional amount.

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abstain from exercising diversity jurisdiction to avoid deciding
an unclear and important issue of state law bearing upon
sovereign prerogative.”

Aurelius Capital Master, Inc. v. MBIA

Ins. Corp., 695 F. Supp. 2d 68, 73 (S.D.N.Y. 2010).
However, there are three recent decisions by the Connecticut
Supreme Court relating to the question of whether an incentive
bonus is a wage under Conn. Gen. Stat. § 31-73a(3) and the most
recent decision, Ass’n Res., Inc. v. Wall, 298 Conn. 145 (2010),
is one where the Connecticut Supreme Court “harmonized its most
recent decisions.”

(Pl.’s Br. at 12).

Therefore, the State has

not shown that there is unclear state law.
III. CONCLUSION
For the reasons set forth above, the plaintiff’s Motion to
Remand to State Court (Doc. No. 12) is hereby DENIED.
It is so ordered.
Signed this 31st day of March, 2012 at Hartford,
Connecticut.

/s/
Alvin W. Thompson
United States District Judge

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