Mills, Potoczak & Company v. Landmark American Insurance Company

Filing 36

ORDER rejecting 32 Report and Recommendations. Landmark American Insurance Company's Objection to the Magistrate's Report and Recommendation (Doc. 34 ("Objection")) is SUSTAINED IN PART AND OVERRULED IN PART. On or before Monday, January 25, 2016, Plaintiff is DIRECTED to file an amended complaint. Signed by Judge Roy B. Dalton, Jr. on 1/15/2016. (VMF)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION
MILLS, POTOCZAK & COMPANY,
Plaintiff,
v.

Case No. 5:14-cv-689-Oc-37PRL

LANDMARK AMERICAN INSURANCE
COMPANY,
Defendant.
ORDER
This cause is before the Court on the following:
1.

U.S. Magistrate Judge Philip R. Lammens’s Report and Recommendation
(Doc. 32), filed September 10, 2015; and

2.

Landmark American Insurance Company’s Objection to the Magistrate’s
Report and Recommendation (Doc. 34), filed September 24, 2015.
OVERVIEW

The instant insurance action involves the enforcement of a Colbentz settlement
agreement,1 which was reached and approved in a former state court class action
between the class representatives and Mills, Potoczak & Company (“MPC”). (See
Doc. 28-3 (“State Court Settlement”).) In accordance with the terms of the State Court
Settlement, MPC assigned “ALL its rights and ALL title to any and all claims” that it

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In a Coblentz settlement agreement, final judgment is entered against the
defendant, who assigns its right to sue its insurance company to the plaintiff. In exchange,
the plaintiff agrees to execute the judgment exclusively against the defendant’s insurance
company. (See Doc. 28-3, p. 2); see also Coblentz v. Am. Sur. Co. of N.Y., 416 F.2d 1059
(5th Cir. 1969).

possessed under Policy No. LHR74788 (“Policy”) against its liability insurer—Defendant
Landmark

American

Insurance

Company

(“Landmark”)—to

the

state

class

representatives and the state class, as co-assignees. (Doc. 28-4 (“Assignment”).) In light
of the Assignment, MPC no longer holds any rights or title to its claims against Landmark
under the Policy, including the breach of contract claim it purports to assert against
Landmark in this action (see Doc. 1). As such, there is no dispute that MPC is not the
real party in interest here. In short, the wrong plaintiff has been named.
In resolving a discovery motion, Magistrate Judge Philip R. Lammens noted his
confusion about the identity of the Plaintiff. (Doc. 25.) Due to the effect of the identity of
the Plaintiff on the Court’s subject matter jurisdiction, Magistrate Judge Lammens ordered
additional briefing (Docs. 25, 29), held a hearing (Doc. 31 (“Hearing”)), and issued a
Report and Recommendation (Doc. 32 (“R&R”).) Because MPC assigned its claims
against Landmark to both the state class representatives and the state class, Magistrate
Judge Lammens ultimately concluded that: (1) both the state class representatives and
the state class must be named as plaintiffs; and (2) the sole jurisdictional basis for the
instant action is the Class Action Fairness Act (“CAFA”), 28 U.S.C. § 1332(d). (See
Doc. 32, pp. 3–5.) Because the $5 million jurisdictional requirement under CAFA has not
been met, Magistrate Judge Lammens recommended that the Court dismiss the action
for lack of subject matter jurisdiction. (See Doc. 32, pp. 3, 6.) Landmark objected, arguing
that: (1) the state class representatives have standing to prosecute the instant action in
their individual capacity, while owing fiduciary duties to the state class; and (2) if the state
class representatives are substituted as the proper plaintiffs, the action can proceed
under traditional diversity jurisdiction principles pursuant to 28 U.S.C. § 1332(a). (Doc. 34

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(“Objection”).) As further explained below, the Court agrees with Landmark.
As a preliminary matter, the Court appreciates Magistrate Judge Lammens’s
efforts to address these weighty issues in accordance with the continuing judicial duty to
ensure that the Court has subject matter jurisdiction. While the Court does not agree that
this action must be maintained as a class action under CAFA, it agrees that the action
cannot go forward until the proper plaintiff is named.
MPC alleges that the Court has diversity jurisdiction (Doc. 1, ¶ 5), which requires
complete diversity of citizenship between the parties. 28 U.S.C. § 1332(a). Because the
Court must use the citizenship of the real parties in interest to determine whether
complete diversity of citizenship exists, Navarro Savings Ass’n v. Lee, 446 U.S. 558, 460–
461 (1980), MPC must amend its Complaint to: (1) identify the real party interest as the
plaintiff; and (2) allege that party’s citizenship accordingly. The Court will then determine
whether it has subject matter jurisdiction pursuant to 28 U.S.C. § 1332(a).
BACKGROUND
I.

Underlying State Court Action
In 2013, Donald E. Koster, Yvonne M. Koster, Donald E. Hulslander, Judith C.

Hulslander, Richard T. Vermillion, and Patricia A. Vermillion (“State Court Plaintiffs”)
filed a three-count class action complaint in the Circuit Court of the Fifth Judicial Circuit
in and for Lake County, Florida (“State Court”), against Fidelity Assurance Associates,
LLC (“Fidelity”), MPC, and several individual defendants, including William Potoczak
(“Potoczak”). (See Doc. 28-1 (“State Court Action”).) The State Court Plaintiffs sought
relief on claims for sale of unregistered securities (Count I), breach of fiduciary duty
(Count II), and unjust enrichment (Count III), directing many of their allegations solely

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toward MPC. (See id. ¶¶ 69–91.) Ultimately, the State Court certified two classes—
(1) the “Fidelity Class”; and (2) the “Mills Class.”2 (Doc. 28-2 (“State Class
Certification”).)
On August 19, 2014, the State Court approved the State Court Settlement between
the State Court Plaintiffs, MPC, and Potoczak. (Doc. 28-3.) In a subsequent order titled
“Entry of Judgment with Covenant and Assignment of Claims,” the State Court:
(1) entered judgment against MPC and in favor of the State Court Plaintiffs in the amount
of $3,552,695.00; (2) dismissed Potoczak from the action with prejudice; and (3) assigned
all claims and causes of actions owned by MPC against Landmark to the State Court
Plaintiffs and the Mills Class. (Doc. 28-4) Despite language in the Assignment that
appears to designate the State Court Plaintiffs and the Mills Class as co-assignees,3 the
State Court identified the parties to the Assignment as the State Court Plaintiffs, “on behalf
of themselves and on behalf of the [Mills] Class4” and MPC. (Id. at 1.)
Pursuant to the Assignment, MPC and the State Court Plaintiffs filed a third-party
complaint against Landmark in the State Court Action. (Doc. 34, p. 4 (“Third-Party
Action”); see also Koster v. Fid. Assurance Assocs., LLC, 5:14-cv-584 (“Koster Action”),
The State Court defined the Fidelity Class as “[a]ll persons who, within the state
of Florida, invested in Fidelity’s investment contracts between January 1, 2000, and the
date that notice is issued to the class, and who did not receive a return on their investment
equal to the total amount of their initial investment, any additional premiums paid, and
any other fees or charges paid in connection with Fidelity Investment Contracts.”
(Doc. 28-2, p. 5.) The Mills Class was defined as “[a]ll members of the Fidelity Class for
whom [MPC] served as trustee and/or escrow agent at any time between January 1, 2002
and the date notice is issued to the class.” (Id.)
3 Specifically, the State Court ordered and decreed that “ALL rights, title, privileges,
claims and causes of actions owned by MPC set forth herein are hereby irrevocably
assigned to [the State Court Plaintiffs] and the [Mills Class].” (Doc. 28-4, p. 7.)
4 MPC represents that the “Class” referred to in the Assignment is the Mills Class.
(Doc. 28, pp. 2–3.)
2

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Doc. 2.) Landmark removed the Third-Party Action to federal court on the basis of
diversity jurisdiction. (Koster Action, Doc. 1.) Ultimately, MPC and the State Court
Plaintiffs voluntarily dismissed the Third-Party Action in favor of initiating a new and
separate lawsuit. (See Docs. 31, 32.)
II.

Instant Federal Action
On December 19, 2014, MPC initiated a separate breach-of-contract action

against Landmark in federal court (“Instant Federal Action”), omitting the State Court
Plaintiffs as parties. (Doc. 1 (“Complaint”).) The caption of the Complaint indicates that
MPC brings suit “through its assignees,” which it identifies as the State Court Plaintiffs
“and the Class they represent.” (Id.)
During discovery, MPC filed a motion to compel. (Doc. 21 (“Motion”).) In the
process of resolving the Motion, Magistrate Judge Lammens entered an Order noting his
confusion about the identity of the Plaintiff and directing MPC to specify who the Plaintiff
is and, if Plaintiff is the Mills Class, under what authority the state-certified class sought
to proceed in federal court. (Doc. 25 (“August 20 Order”).) In response, MPC claimed
that the Mills Class is the plaintiff and that it is proceeding under the authority of the
Assignment. (Doc. 28 (“MPC’s Response”).) In an Order dated August 28, 2015,
Magistrate Judge Lammens set the matter for hearing, directed the parties to confer, and
permitted Landmark to reply to MPC’s Response. (Doc. 29.) The parties appeared before
Magistrate Judge Lammens on September 9, 2015 (see Doc. 31), and jointly argued that:
(1) the State Court Plaintiffs are the proper plaintiffs; and (2) the Assignment authorizes
the State Court Plaintiffs to prosecute the assigned claims individually, while owing their
fiduciary duties to the Mills Class. (See Doc. 32, p. 4.) After taking the matter under

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advisement (Doc. 31), Magistrate Judge Lammens issued an R&R recommending that
the Court dismiss the Complaint for lack of subject matter jurisdiction. (Doc. 32.)
Landmark objects. (Doc. 34.) The matter is ripe for the Court’s adjudication.
STANDARDS
When a party objects to a magistrate judge’s findings, the district court must “make
a de novo determination of those portions of the report . . . to which objection is made.”
28 U.S.C. § 636(b)(1). The district court “may accept, reject, or modify, in whole or in part,
the findings or recommendations made by the magistrate judge.” Id. The district court
must consider the record and factual issues based on the record independent of the
magistrate judge’s report. Ernest S. ex rel. Jeffrey S. v. State Bd. of Educ., 896 F.2d 507,
513 (11th Cir. 1990).
DISCUSSION
Because MPC alleges that the Court has diversity jurisdiction over the Instant
Federal Action pursuant to 28 U.S.C. § 1332(a)(1) (Doc. 1, ¶ 5), the identity of the Plaintiff
has important implications for the Court’s subject matter jurisdiction. Section 1332
requires complete diversity between the parties; therefore, the Court must identify the
parties.
As previously mentioned, it is undisputed that MPC is not the proper plaintiff. (See
Doc. 32, p. 6; Doc. 28; Doc. 34, p. 9.) However, Magistrate Judge Lammens and the
parties disagree on how to resolve this mistake and determine the proper basis for the
Court’s jurisdiction. (See Docs. 28, 30, 32, 34.)
After conducting a de novo review of the record and the arguments made in the
Objection, the Court has narrowed the issues necessary for resolution to the following—

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(1) whether the State Court Plaintiffs may prosecute the Instant Federal Action in their
individual capacity; and (2) whether the Court may determine the existence of subject
matter jurisdiction under 28 U.S.C. § 1332(a) following amendment of the Complaint. The
Court will consider each issue in turn.
I.

Whether the State Court Plaintiffs May Prosecute the Instant Federal Action
in Their Individual Capacity
Relying on Addison Automatics, Incorporated v. Hartford Casualty Insurance

Company, 731 F.3d 740 (7th Cir. 2013) (“Addison”), Magistrate Judge Lammens
determined that the Assignment affords the State Court Plaintiffs limited standing to sue
only as class representatives, but it does not afford them standing to sue in their individual
capacity. (Doc. 32.) Citing Federal Rule of Civil Procedure Rule 17(a), Landmark
contends that “the only proper plaintiffs are the six named [State Court Plaintiffs], in their
individual capacities and as representatives of the class.” (Doc. 34, p. 9.) Upon
consideration, the Court finds that Rule 17(a)(1)(F) and the Assignment authorize the
State Court Plaintiffs to prosecute the Instant Federal Action in their individual capacity.
Rule 17(a) provides that “[a]n action must be prosecuted in the name of the real
party in interest.” Under this Rule, “a party with whom or in whose name a contract has
been made for another’s benefit” is one of several representatives who may bring suit as
a real party in interest “without joining the person for whose benefit the action is brought.”
Fed. R. Civ. P. 17(a)(1)(F).
The plain language of the Assignment—which defines the “Plaintiffs” as the State
Court Plaintiffs “on behalf of themselves and on behalf of the Class Certified in this
action”—states that “[all] rights, title, privilege, claims and causes of actions owned by

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MPC set forth herein are hereby irrevocably assigned to Plaintiffs and the Class.”
(Doc. 28-4, pp. 1, 7 (emphasis added).) The State Court Plaintiffs are, therefore, a party
with whom, or in whose name, the Assignment was made for their own benefit and the
benefit of the Mills Class. Pursuant to Rule 17(a), this classification designates the State
Court Plaintiffs real parties in interest, allowing them to sue in their own names without
joining the Mills Class members. Further, because Rule 17 recognizes the ability of
representative parties such as trustees—who also owe fiduciary duties to those they
represent—to sue in their own names, see Navarro, 446 U.S. 458, the Court is satisfied
that the State Court Plaintiffs may similarly proceed individually, while independently
owing fiduciary duties to the Mills Class.5 Indeed, not only does Rule 17(a) authorize the
Court to substitute MPC with the State Court Plaintiffs, but it also prevents the Court from
dismissing the action until the State Court Plaintiffs—as real parties in interest—have
been provided the opportunity “to ratify, join, or be substituted into the action.” See Fed.
R. Civ. P. 17(a)(3).
In reaching a contrary conclusion, Magistrate Lammens relies heavily on the
reasoning of the United States Court of Appeals for the Seventh Circuit in Addison, where
the plaintiff was also a class representative in a state class action that resulted in a
Coblentz-type settlement. 731 F.3d at 741. Pursuant to the state court defendant’s
assignment of the right to sue his liability insurer to “the Class (as represented by Plaintiff
and its attorneys),” the Addison plaintiff attempted to initiate an individual action against
the liability insurer. Id. at 741–42. Based on the terms of the state court settlement, the
5

Like trust beneficiaries, the Mills Class would have sufficient recourse in an action
for breach of fiduciary duty should the State Court Plaintiffs fail to adequately represent
their interests. See Brigham v. Brigham, 11 So. 3d 374, 386–87 (Fla. 3d DCA 2009).

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Addison court concluded that the plaintiff only had standing to pursue relief on the
assigned claims in its capacity as class representative, id. at 742, and that “[b]y pursuing
the rights assigned to it as a class representative in the state court class action,” the
plaintiff was “necessarily continuing that class action,” id. at 743. Magistrate Judge
Lammens contends that same analysis can be applied to the Instant Federal Action.
(Doc. 32, pp. 4–5.) The Court respectfully disagrees.
The Court is neither bound nor persuaded by Addison, which is distinguishable
based on the terms of the Assignment at issue here. In Addison, the claims were assigned
“to the Class (as represented by Plaintiff and its attorneys).” 731 F.3d at 741. Here, the
claims are assigned to “Plaintiffs and the Class,” and “Plaintiffs” are defined as the State
Court Plaintiffs “on behalf of themselves and on behalf of the Class.” (Doc. 28-4, pp. 7,
1.) Therefore, unlike in Addison, the Assignment here authorizes the State Court Plaintiffs
to proceed in their individual capacity pursuant to Rule 17(a)(1)(F). Further, the Court
finds that Instant Federal Action is a separate and independent action for indemnity, not
a continuation of the class action initiated in State Court.
II.

Whether the Court May Determine the Existence of Subject Matter
Jurisdiction Under 28 U.S.C. § 1332(a) Following Amendment of the
Complaint
Landmark also objects to Magistrate Judge Lammens’ implicit finding that the only

basis for subject matter jurisdiction over the assigned claim is under CAFA. (See Doc. 32,
p. 3–5.)

CAFA

includes

requirement, 28 U.S.C. § 1332(d),

a

$5

which

is

million
not

satisfied

amount-in-controversy
here

(See

Doc. 1,

¶ 7). Landmark argues that the case may proceed under traditional principles of diversity
jurisdiction without resorting to CAFA.

(See Doc. 34, p. 2.) In accordance with its

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conclusion that the State Court Plaintiffs are authorized to proceed as plaintiffs in their
individual capacity, the Court agrees with Landmark and will determine whether
jurisdiction exists under 28 U.S.C. § 1332(a) following the substitution of the real parties
in interest as Plaintiffs.
District courts have original jurisdiction over cases in which the parties are
completely diverse and the amount in controversy exceeds $75,000. 28 U.S.C. § 1332(a).
Complete diversity requires that the citizenship of each plaintiff be diverse from the
citizenship of every defendant. Lincoln Prop. Co. v. Roche, 546 U.S. 81, 89 (2005). The
citizenship of an individual is determined by domicile, which is established by residence
plus an intent to remain. Miss. Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 48
(1989). “[A] corporation [is] deemed a citizen of any State by which it has been
incorporated and of the State where it has its principal place of business.” 28 U.S.C. §
1332(c). Thus, a corporation has dual citizenship. Fritz v. Am. Home Shield Corp.,
751 F.2d 1152, 1153 (11th Cir. 1985).
The parties sufficiently represent that the amount in controversy is $3,522,695 (see
Doc. 1, ¶ 7) and that Landmark is a citizen of Oklahoma and Georgia (Doc. 13, ¶ 4). The
only impediment to a jurisdictional analysis under § 1332(a) is the Complaint’s failure to
name the real party in interest as plaintiff. See Navarro, 446 U.S. at 460–461 (“[C]itizens
upon whose diversity a plaintiff grounds jurisdiction must be real and substantial parties
to the controversy”).
To resolve this impediment, MPC must amend the Complaint to substitute the real
parties in interest and to alter its jurisdictional allegations accordingly. After an
amendment is filed which properly names the State Court Plaintiffs as Plaintiffs here, the

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Court will then determine whether it has diversity jurisdiction under 28 U.S.C. § 1332(a).
See Lincoln Prop. Co. v. Roche, 546 U.S. 81, 93 (2005) (quoting Little v. Giles, 118 U.S.
596, 603 (1886) (“If a named party’s interest is real, the fact that other interested parties
are not joined ‘will not affect the jurisdiction of the federal courts.’”).
CONCLUSION
Accordingly, it is hereby ORDERED AND ADJUDGED:
1.

U.S. Magistrate Judge Lammens’s Report and Recommendation (Doc. 32)
is REJECTED.

2.

Landmark American Insurance Company’s Objection to the Magistrate’s
Report and Recommendation (Doc. 34 (“Objection”)) is SUSTAINED IN
PART AND OVERRULED IN PART.
a.

The Objection is SUSTAINED only to the extent that Landmark
contends that: (1) Federal Rule of Civil Procedure 17(a) and the
Assignment authorize the State Court Plaintiffs to proceed in their
individual capacity as plaintiffs in the instant action; and (2) the Court
may conduct a jurisdictional analysis under 28 U.S.C. § 1332(a)
following substitution of the plaintiff.

b.
3.

In all other respects, the Objection is OVERRULED.

On or before Monday, January 25, 2016, Plaintiff is DIRECTED to file an
amended complaint that identifies a real party in interest as the plaintiff and
contains appropriate jurisdictional allegations under 28 U.S.C. § 1332(a).

DONE AND ORDERED in Chambers in Orlando, Florida, on January 15, 2016.

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Copies:
Counsel of Record

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