Storey et al v. Owners Insurance Company et al
Filing
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OPINION AND ORDER GRANTING 13 Motion to Remand to the State Court of Gwinnett County; DENYING AS MOOT 3 Motion to Dismiss for Failure to State a Claim and 4 Motion to Dismiss for Failure to State a Claim. Signed by Judge William S. Duffey, Jr on 2/16/18. (adg)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
JOHN W. STOREY and SUZANNE
L. STOREY, as Administrators of
the Estate of JOHN JARED
STOREY,
Plaintiffs,
v.
1:17-cv-1247-WSD
OWNERS INSURANCE
COMPANY, AUTO-OWNERS
INSURANCE COMPANY, and
FRANCINA SWINTON,
Defendants.
OPINION AND ORDER
This matter is before the Court on Plaintiffs John W. Storey and Suzanne L.
Storey (“Plaintiffs”) Motion to Remand [13]; Defendant Francina Swinton’s
(“Ms. Swinton”) Motion to Dismiss Francina Swinton as an Improperly Named
Party [3] (the “Swinton Motion”); and Defendants Owners Insurance Company
(“Owners”) and Auto-Owners Insurance Company’s (“Auto-Owners,” together
with Owners, the “Insurers”) Joint Motion to Dismiss [4] (the “Insurers’ Motion to
Dismiss”).
I.
BACKGROUND
A.
Facts
Plaintiff John W. Storey and Suzanne L. Storey are the surviving parents and
administrators of the estate of their son, John Jared Storey. John Jared Storey
suffered severe injuries on March 9, 2014, when he was injured while attempting
to perform a jump with a motorized bike at Marietta Motorsports, Inc. (“Marietta
Motorsports”). (Complaint [1.1] “Compl.” ¶ 9). John Jared Storey died from his
injuries on December 10, 2015. (Id. ¶ 37).
Plaintiffs made demands on Marietta Motorsports and Owners and AutoOwners for compensation for negligently performing work on John Jared Story’s
motorbike prior to the accident. The Insurers issued liability insurance coverage to
Marietta Motorsports. The parties entered into settlement negotiations. When they
began, a claims adjustor for Owners represented to Plaintiffs that Owners did not
cover the March 9, 2014, incident. (Id. ¶¶ 17-21). Later in the negotiations, the
Insurers identified and disclosed to Plaintiffs the existence of a Commercial
General Liability Policy (“CGL Policy”) and a Garage Liability Policy (“Garage
Policy”), each with limits of $1,000,000.
After Plaintiffs made their settlement demand, they learned from counsel to
Marietta Motorsports about the possible existence of a General Commercial
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Umbrella Policy (“Umbrella Policy”). (Id. ¶ 30). When Plaintiffs asked about the
Umbrella Policy, the Insurers’ counsel stated in an October 16, 2015, email there
was an Umbrella Policy, but that it “was canceled before this accident.” ([13.4]).
The Insurers’ counsel gave Plaintiffs a copy of the Umbrella Policy, and a copy of
the policy cancelation document. (Compl. ¶ 32).
After this representation was made Plaintiffs decided to settle the case.
Because Plaintiff agreed to the settlement amount based on their understanding of
the insurance policy coverage available they requested a representation from the
Insurers under oath that coverage under the Umbrella Policy was not available. In
response, on or about December 2, 2015, Ms. Swinton, in her capacity as the
underwriting manager for the Insurers, executed an affidavit stating that the
Umbrella Policy was canceled prior to the accident, rendering the additional
$1 million layer of coverage unavailable. ([13.2] (the “Swinton Affidavit”)). The
Swinton Affidavit states that, other than the Garage Policy and the CGL Policy,
“there were no other insurance policies in force or effect at the time of the Subject
Incident.” (Id. ¶ 5). The Affidavit further states, “While [Owners] issued a
Commercial Umbrella Insurance Policy to Marietta Motorsports . . . with an
original policy period of October 16, 2013 to October 16, 2014, this Umbrella
policy was canceled effective January 31, 2014.” (Id.). The Affidavit concludes,
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“I understand that the information provided herein is being provided to Claimants
and/or their Counsel, who are relying on the truth and accuracy of these
statements.” (Id. ¶ 6).
On or about February 19, 2016, Plaintiffs and Marietta Motorsports entered
into a settlement based on payment of the limits of Marietta Motorsports’s liability
insurance. ([13.1] (the “Settlement Agreement”)). The Settlement Agreement
includes a general release of Marietta Motorsports, which states: “[Plaintiffs] fully,
finally, and forever completely release Marietta Motorsports . . . together with [its]
insurers . . . from any and all claims, demands, damages, costs, settlements,
expenses, awards, liability, judgments, actions, causes of action, or claims of
liability or responsibility of any kind whatsoever which [Plaintiffs] now have, may
have, has had, or may hereafter have at any time in the future” arising out of the
accident. (Id. ¶ 1). The Settlement Agreement further provides that “$1,000,000 is
the only coverage provided by Owners/Auto-Owners for this claim as set forth in
the attached [Swinton Affidavit] and Releasees have expressly relied on this
affidavit from Owners/Auto-Owners in entering into this settlement agreement.”
(Id. ¶ 19).1
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In the Settlement Agreement, “[Plaintiffs] agree and represent that no
promise or agreement not expressed herein has been made to them other than that
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Plaintiffs allege as false the representation in the Swinton Affidavit that the
Umbrella Policy was canceled before the accident. Plaintiffs allege further that the
Insurers and Ms. Swinton fraudulently induced Plaintiffs to settle their claims for
an amount less than what they would have accepted if Plaintiffs had known that the
Umbrella Policy was not canceled before the accident. Plaintiffs allege that
Marietta Motorsports did not request cancelation of the Umbrella Policy, did not
sign the cancelation, and that coverage under the Umbrella Policy was available to
cover the accident. To support this position, Plaintiffs submitted the Declaration of
Paul Wright, CEO of Marietta Motorsports ([13.3] “Wright Decl.”). In it
Mr. Wright states: “The ‘Signature of Named Insured’ referenced in attached
cancelation request . . . for the commercial umbrella policy . . . is not my signature,
and I did not authorize anyone to sign this request on my behalf or on behalf of
Marietta Motorsports.” (Wright Decl. ¶ 5).
B.
Procedural History
On March 6, 2017, Plaintiffs filed their complaint in the State Court of
Gwinnett County, Georgia against the Insurers and Ms. Swinton (17-C-01208-S6)
[1.1]. Plaintiffs assert claims against the Defendants for violation of the Georgia
which is set forth in this Release, [and] that this Release contains the entire
agreement between the parties.” (Settlement Agreement ¶ 6).
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Racketeering Influenced and Corrupt Organizations (“RICO”) Act; negligent
misrepresentation; fraud and deceit under O.C.G.A.§ 51-6-2; and attorney’s fees.
On April 6, 2017, the Insurers filed their Notice of Removal [1], under
28 U.S.C. §§ 1332 and 1441. The Insurers allege that this Court may exercise
diversity jurisdiction over this action because Ms. Swinton, a citizen of Georgia,
was fraudulently joined by Plaintiffs to defeat diversity jurisdiction.
On April 7, 2017, Ms. Swinton filed her Motion to Dismiss [3] on the
grounds she was improperly joined as a party to this action.
On April 12, 2017, the Insurers filed their Joint Motion to Dismiss [4].
The Court considers first Plaintiffs’ motion to remand because the Court
must first determine if it has federal diversity jurisdiction over this action.
28 U.S.C. § 1332.
II.
DISCUSSION
A.
Diversity Jurisdiction Principles
Diversity jurisdiction exists where the amount in controversy exceeds
$75,000 and the suit is between citizens of different states. 28 U.S.C § 1332(a).
“Diversity jurisdiction, as a general rule, requires complete diversity—every
plaintiff must be diverse from every defendant.” Palmer Hosp. Auth. of Randolph
Cnty., 22 F.3d 1559, 1564 (11th Cir. 1994). “Citizenship for diversity purposes is
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determined at the time the suit is filed.” MacGinnitie v. Hobbs Grp., LLC,
420 F.3d 1234, 1239 (11th Cir. 2005).
When a defendant removes a case from state to federal court based on
diversity of citizenship, diversity is determined based on the allegations of the
complaint and any additional factual information contained in affidavits,
deposition testimony or other competent evidence submitted to support a
defendant’s notice of removal. Pacheco de Perez v. AT&T Co., 139 F.3d 1368,
1380 (11th Cir. 1998). The burden to establish diversity jurisdiction “rests with the
defendant seeking removal.” Scimone v. Carnival Corp., 720 F.3d 876, 882 (11th
Cir. 2013); City of Vestavia Hills v. Gen. Fidelity Ins. Co., 676 F.3d 1310, 1313
n.1 (11th Cir. 2012) (“The removing party bears the burden of proof regarding the
existence of federal subject matter jurisdiction.”).
Plaintiffs in this action are citizens of Georgia. (Compl. ¶ 1-2). See
28 U.S.C. §1331(c)(2) (stating that legal representatives of estate shall be citizens
“only of the same State as the decedent”); King v. Cessna Aircraft Co., 505 F.3d
1160, 1170 (11th Cir. 2007) (“Where an estate is a party, the citizenship that
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counts for diversity purposes is that of the decedent . . . [where] she was domiciled
at the time of her death”).2
There are three Defendants: Owners, Auto-Owners, and Ms. Swinton.
Owners is organized under Ohio law with its principal place of business in
Michigan. (Compl. ¶ 3). Auto-Owners is organized under Michigan law with its
principal place of business in Michigan. (Id. ¶ 4). They are diverse from
Plaintiffs. Ms. Swinton is a citizen of Georgia. Defendants argue that Plaintiffs
named her as a defendant to defeat diversity, that she was thus fraudulently joined,
must be dismissed and that jurisdiction in this Court is appropriate. The Court
considers if Ms. Swinton was joined fraudulently.
B.
Fraudulent Joinder
Fraudulent joinder is “a judicially created doctrine that provides an
exception to the requirement of complete diversity.” Triggs v. John Crump
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The Complaint purports an amount in controversy exceeding $75,000.
Plaintiffs specifically allege that Defendants’ wrongdoing “resulted in Plaintiffs
agreeing to a settlement for $1,000,000 when they would have only accepted
$2,000,000 had they been rightfully informed.” (Compl. ¶ 88). It is apparent from
the Complaint that Plaintiffs are demanding at least $1,000,000 in damages. See
Pretka v. Kolter City Plaza II, Inc., 608 F.3d 744, 754 (11th Cir. 2010) (“When the
complaint does not claim a specific amount of damages, removal from state court
is jurisdictionally proper if it is facially apparent from the complaint that the
amount in controversy exceeds the jurisdictional amount.”) (citations omitted).
The parties do not contest that the amount in controversy requirement is met.
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Toyota, Inc., 154 F.3d 1284, 1287 (11th Cir. 1998). Where fraudulent joinder is
established, “the district court must ignore the presence of the non-diverse
[fraudulently joined] defendant and deny any motion to remand the matter back to
state court.” Henderson v. Washington Nat. Ins. Co., 454 F.3d 1278, 1281 (11th
Cir. 2006).
When fraudulent joinder is alleged, “the removing party has the burden of
proving either: (1) there is no possibility the plaintiff can establish a cause of
action against the resident defendant; or (2) the plaintiff has fraudulently pled
jurisdictional facts to bring the resident defendant into state court.” Crowe v.
Coleman, 113 F.3d 1536, 1538 (11th Cir. 1997). “If there is any possibility that
the state law might impose liability on a resident defendant under the
circumstances alleged in the Complaint, the federal court cannot find that joinder
of the resident defendant was fraudulent, and remand is necessary.” Florence v.
Crescent Res., LLC, 484 F.3d 1293, 1299 (11th Cir. 2007). “The burden to prove
fraudulent joinder is a heavy one.” Pacheco de Perez, 139 F.3d at 1380. It must be
“supported by clear and convincing evidence.” Parks v. New York Times Co., 308
F.2d 474, 478 (5th Cir. 1962).
“To determine whether the case should be remanded, the district court must
evaluate the factual allegations in the light most favorable to the plaintiff and must
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resolve any uncertainties about state substantive law in favor of the plaintiff.”
Crowe, 113 F.3d at 1538. “[W]hether a resident defendant has been fraudulently
joined must be based upon the plaintiff’s pleadings at the time of removal,
supplemented by any affidavits and deposition transcripts submitted by the
parties.” Pacheco de Perez, 139 F.3d at 1380; see also Legg v. Wyeth, 428 F.3d
1317, 1322 (11th Cir. 2005). “The plaintiff need not have a winning case against
the allegedly fraudulent defendant; he need only have a possibility of stating a
valid cause of action in order for the joinder to be legitimate.” Triggs, 154 F.3d at
1287.
C.
Analysis
The question here is whether Plaintiffs have asserted a claim or claims
against Ms. Swinton “that might impose liability” against her under state law.
Florence, 484 F.3d at 1299. Defendants must prove by clear and convincing
evidence they have not. Plaintiffs assert claims based on the Georgia RICO Act,
negligent misrepresentation, and fraud and deceit.
1.
The Settlement Agreement
Defendants argue that Plaintiffs have affirmed the Settlement Agreement
and therefore are bound by its terms. (Notice of Removal ¶ 11). Plaintiffs do not
contest that they affirmed the contract and are suing for damages. ([13] at 12-13).
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Defendants argue that because Plaintiffs are suing under the Settlement
Agreement, the Complaint cannot support a cause of action against Ms. Swinton
because (i) the release in the Settlement Agreement bars Plaintiff’s fraud claims
and (ii) the purported merger clause extinguishes claims based on representations
prior to the Plaintiffs’ entering into the Settlement Agreement. (Notice of Removal
¶ 9).
Plaintiffs argue that Defendants’ misrepresentation was made
contemporaneously with and incorporated into the Settlement Agreement. Georgia
law supports that a fraudulent representation made in a settlement agreement is not
released because the cause of action does not arise until after the agreement is
signed. See Gaines v. Crompton & Knowles Corp., 380 S.E.2d 498, 502 (Ga. Ct.
App. 1989). Here, the Settlement Agreement incorporates by reference the
Swinton Affidavit that contains the allegedly fraudulent representation regarding
the availability of coverage. (Settlement Agreement ¶ 19). The Complaint alleges
that Ms. Swinton’s statements were not pre-contract representations but were
instead made in the Swinton Affidavit and submitted “[a]s part of the Settlement.”
(Compl. ¶ 40). Furthermore, the Settlement Agreement itself states that
“[Plaintiffs] have expressly relied on this affidavit from Owners/Auto-Owners in
entering into this settlement agreement.” (Settlement Agreement ¶ 19). Because
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Ms. Swinton’s representations were incorporated into the Settlement Agreement,
there is at least a possibility that Georgia law will support tort claims against
Defendants.
Similarly, the purported merger clause does not preclude Plaintiffs’ claims
under Georgia law. See Authentic Architectural Millworks, Inc. v. SCM Grp.
USA, Inc., 586 S.E.2d 726, 729 (Ga. Ct. App. 2003) (“Because the record shows
that [plaintiff] relied upon misrepresentations in the contract itself, no alleged
merger clause can bar its fraud and misrepresentation claims.”). Because the
record shows that Plaintiffs relied upon misrepresentations incorporated into the
Settlement Agreement, the purported merger clause does not bar Plaintiffs’ claims.
Execution of the Settlement Agreement does not bar Plaintiffs’ claims in the action
removed to this Court.
2.
The Fraud Claims
To establish a prima facie case of fraud under Georgia law, Plaintiffs must
prove the following elements: “(1) a false representation by a defendant,
(2) scienter, (3) intention to induce the plaintiff to act or refrain from acting,
(4) justifiable reliance by plaintiff, and (5) damage to plaintiff.” Engelman v.
Kessler, 797 S.E.2d 160, 166 (Ga. Ct. App. 2017) (internal citations omitted).
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Plaintiffs allege that in executing the allegedly fraudulent Swinton Affidavit,
Defendants, including Ms. Swinton, knowingly and falsely represented that the
Umbrella Policy was unavailable to cover the loss from their son’s accident.
Plaintiffs further allege damages resulting from their reliance on Defendants’
representations which were made with the intent that Plaintiffs settle their claims
for an amount less than they otherwise would have had they known about the
availability of the additional coverage.
Defendants argue that the Complaint does not state a fraud claim against
Ms. Swinton because Plaintiffs fail to establish the element of justifiable reliance.
Defendants argue that Plaintiffs could not have justifiably relied on Ms. Swinton’s
alleged misrepresentation because they “could have and should have discovered
[Ms.] Swinton’s alleged misrepresentation” after conducting proper due diligence
and that instead of justifiable reliance, “Plaintiffs paint a picture of justifiable
mistrust.” ([17] at 22). In other words, Defendants argue that, as a matter of law,
Plaintiffs’ reliance on Defendants’ representations was not justifiable given the
“adversarial and contentious relationship” between Plaintiffs and the Insurers
during settlement negotiations. (Id. at 23). This argument is not persuasive and
misapplies Defendants’ burden in removing this case to this Court, which is to
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show, by clear and convincing evidence, there is no possibility Plaintiffs can
establish a cause of action against Ms. Swinton.
The Complaint alleges Defendants’ repeated assurances that the cancelation
of the Umbrella Policy “was signed by the insured” and “was clearly canceled
effective January 31, 2014, before this incident ever occurred.” (Compl. ¶ 31, 33).
The Complaint alleges that in entering into the Settlement Agreement, Plaintiffs
sought additional assurances that the Umbrella Policy was unavailable to cover the
loss from the accident and, in response to those requests, the Swinton Affidavit
was provided and attached to the Settlement Agreement to show it was relied upon
by Plaintiffs in executing the agreement. On these facts, the Court does not find
that the Complaint fails to allege justifiable reliance as a matter of law. See Hagan
v. Keyes, 764 S.E.2d 423, 426 (Ga. Ct. App. 2014) (issue of reliance properly
reserved for the jury where “there was some evidence” that plaintiff justifiably
relied). The Complaint adequately alleges Plaintiffs justifiably relied on
Defendants’ fraudulent representations, including those made by Ms. Swinton.
Plaintiffs have shown they have asserted a possibly valid claim and remand is
required.
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3.
The Georgia RICO Act
Georgia’s RICO Act makes in unlawful “for any person, through a pattern of
racketeering activity or proceeds derived therefrom, to acquire or maintain, directly
or indirectly, any interest in or control of any enterprise, real property, or personal
property of any nature, including money.” O.C.G.A. § 16-14-4(a). “The statute
does not require proof of an enterprise. . . . Rather, under the Georgia civil RICO
statute, the plaintiffs need only establish racketeering activity; that is, a plaintiff
must show that the defendant committed predicate offenses (set forth in O.C.G.A.
§ 16–14–3(9)) at least twice.” Burgess v. Religious Tech. Ctr., Inc., 600 F. App’x
657, 663 (11th Cir. 2015) (internal quotations and citations omitted).
The Georgia RICO Act defines “pattern of racketeering activity” as
“[e]ngaging in at least two acts of racketeering activity in furtherance of one or
more incidents, schemes, or transactions that have the same or similar intents,
results, accomplices, victims, or methods of commission or otherwise are
interrelated.” O.C.G.A. § 16-14-3(4). “[T]he two alleged predicate incidents must
be sufficiently linked to form a RICO pattern, but nevertheless sufficiently
distinguishable so that they do not become ‘two sides of the same coin.’”
S. Intermodal Logistics, Inc. v. D.J. Powers Co., 10 F. Supp. 2d 1337, 1359 (S.D.
Ga. 1998). “[W]hile alleged predicate acts can be too dissimilar and disconnected
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to constitute a pattern of racketeering activity, such acts can also be too
indistinguishable to give rise to such a pattern—even if a court could technically
ascribe more than one criminal offense to different aspects of the conduct.”
McGinnis v. Am. Home Mortg. Servicing, Inc., 817 F.3d 1241, 1253 (11th Cir.
2016).
Here, Plaintiffs allege that Defendants, including Ms. Swinton, acquired or
maintained an interest in or control of money by falsely denying the existence of
additional insurance coverage available for Plaintiffs’ injuries and settlement.
Plaintiffs allege several distinct acts which establish at least two predicate acts.
Plaintiffs properly allege that Defendants, including Ms. Swinton, committed mail
and wire fraud, and made false statements and writings, on several separate
occasions. (Compl. ¶ 65-93). First, the Complaint alleges that on December 16,
2014, in response to Plaintiffs’ inquiry of available insurance, Defendants sent a
letter falsely stating that “Our investigation shows there is no coverage under the
policy to pay your claim.” (Id. ¶ 67). The Complaint further alleges that on
August 17, 2015, and on September 18, 2015, in response to Plaintiffs’ continued
requests for disclosure of all available insurance, Defendants’ counsel sent a letter
misrepresenting the insurance coverage available to Marietta Motorsports and
failing to disclose all available insurance. (Id. ¶¶ 68-69). The Complaint alleges
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that on October 30, 2015, Defendants counsel sent a letter falsely stating that the
then-recently identified Umbrella Policy “was clearly canceled effective January
31, 2014, before this incident ever occurred.” (Id. ¶ 70). The Complaint further
alleges that Defendants committed wire fraud on March 6, 2015, by transmission
of the false statement that that “the policy was rescinded back to the date of the
incident.” (Id. ¶ 79). Accepting these facts as true, Plaintiffs properly allege that
Defendants, including Ms. Swinton, committed predicate acts “at least twice” to
state a claim under the Georgia RICO Act. The Court concludes that Plaintiffs
have stated a possibly valid claim against Ms. Swinton and, for this additional
reason, Defendants cannot show that she was fraudulently joined.
Defendants fail to show that there is no possibility that a Georgia state court
could find that Plaintiffs adequately pleaded a viable claim against Ms. Swinton.
Accordingly, her joinder as a defendant was not improper and complete diversity
among the parties does not exist. This Court lacks subject matter jurisdiction over
the Complaint and, as a result, this action is required to be remanded.
III.
CONCLUSION
For the foregoing reasons,
IT IS HEREBY ORDERED that Plaintiffs John W. Storey and Suzanne L.
Storey Motion to Remand [13] is GRANTED.
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IT IS FURTHER ORDERED that Defendant Francina Swinton’s Motion
to Dismiss Francina Swinton as an Improperly Named Party [3] is DENIED AS
MOOT.
IT IS FURTHER ORDERED that Defendants Owners Insurance Company
and Auto-Owners Insurance Company’s Joint Motion to Dismiss [4]is DENIED
AS MOOT.
IT IS FURTHER ORDERED that this action be remanded to State Court
of Gwinnett County.
SO ORDERED this 16th day of February, 2018.
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