Beeks et al v. American Family Insurance Company et al
Filing
23
ORDER AND OPINION granting 16 Plaintiff's Motion to Remand. This action is remanded to the Circuit Court of the Fourteenth Judicial Circuit in Rock Island County for further proceedings. This matter is now terminated. Entered by Chief Judge James E. Shadid on 5/21/2018. (RK, ilcd)
E-FILED
Monday, 21 May, 2018 11:38:55 AM
Clerk, U.S. District Court, ILCD
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
JASON E. BEEKS, and J.B., a minor,
Plaintiffs,
v.
AMERICAN FAMILY INSURANCE
COMPANY, and MICHAEL ORTH,
Defendants.
)
)
)
)
)
)
)
)
)
)
)
Case No. 17-cv-3265-JES-JEH
ORDER AND OPINION
Now before the Court is a Motion to Remand (Doc. 16) by Plaintiffs Beeks and J.B. For
the reasons set forth below, Plaintiff’s Motion to Remand (Doc. 16) is GRANTED and this
action is remanded to the Circuit Court of the Fourteenth Judicial Circuit in Rock Island County
for further proceedings.
BACKGROUND
Plaintiffs originally filed this action pro se in the Circuit Court of the Fourteenth Judicial
Circuit in Rock Island County on August 1, 2017, naming as Defendants American Family
Insurance Company (“AFIC”) and Michael Orth. Shortly thereafter, Plaintiffs obtained counsel.
The essence of Plaintiffs’ complaint is that AFIC wrongfully denied their claim under a
homeowner’s insurance policy issued by AFIC to Plaintiffs. On November 14, 2017, AFIC
removed this action to the United States District Court for the Northern District of Illinois on the
basis of diversity jurisdiction. 1 Defendant Orth is an Illinois citizen, but Defendants asserted in
1
Because Rock Island County falls within the geographic bounds of the Central District of Illinois, the case was
transferred from the Northern District to this District on November 16, 2017. See 28 U.S.C. §§ 1406, 1441.
1
their Notice of Removal that Orth was fraudulently joined to destroy diversity jurisdiction. Doc.
1.
Following the transfer to this District, Defendants filed a Motion to Dismiss for failure to
state a claim under Federal Rule of Civil Procedure 12(b)(6). Doc. 13. Thereafter, Plaintiffs filed
a Motion to Remand, wherein they argue that removal was improper because diversity of
citizenship is not present. Doc. 16. Specifically, Plaintiffs assert that Orth, an Illinois citizen,
issued the declaration page of the insurance policy central to this dispute. According to Plaintiffs,
Orth may be liable to them because he actually issued two declaration pages—one for the real
estate closing, and the second, with a more limited amount of coverage, that was actually
delivered.
Plaintiffs then filed an amended complaint. Doc. 20. As it relates to Defendant Orth,
Plaintiffs’ amended complaint states as follows:
The closing on the purchase of the home … took place in Moline, Illinois. To
close on the loan Beeks obtained to purchase the property, Beeks was required to
produce evidence of insurance on the property. To that end, Orth issued a
declaration page which listed several Options/Endorsements. The Fungi or
Bacteria Exclusion (END 595 ED 6/02) was not listed on the declaration page as
issued. Subsequently and unknown to Beeks, Orth changed the policy and did add
the Fungi or Bacteria Exclusion (END 595 ED 6/02). The effect of this was to try
[to] eliminate coverage for personal injury/ medical expense coverage for the
members of the household who were injured as a result of the occurrence in
question. This was a failure to exercise ordinary skill and reasonable care towards
Beeks and was an affirmative role in American Family’s wrongful denial of
coverage. When Beeks realized that the damage to the home was a result of the
wind/hail storm of August 2, 2015, he contacted Orth and requested that he
reopen that claim. Orth refused stating that the American Family’s adjusters were
correct and that American Family’s denial of that claim will stand Orth and
thereby [sic] played an affirmative role in American Family’s wrongful denial of
the claim. Additionally, Beeks communicated with American Family through Orth
and Orth played an affirmative role in American Family’s decision to deny
coverage.
Doc. 20, at 5–6 (so in original).
2
Defendants filed a Response to Plaintiffs’ Motion to Remand, arguing that (1) Plaintiffs’
Motion to Remand should be limited to the facts asserted in the original complaint, and (2)
Defendant Orth was fraudulently joined because Plaintiffs fail to allege a cause of action against
him. Doc. 21.
LEGAL STANDARD
Federal courts are courts of limited jurisdiction. Section 1332(a)(1) confers upon district
courts jurisdiction to hear state law claims when complete diversity of citizenship exists between
the parties: “The district courts shall have original jurisdiction of all civil actions where the
matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is
between . . . citizens of different States.” 28 U.S.C. § 1332(a)(1). Thus, “§ 1332 allows plaintiffs
to invoke the federal courts’ diversity jurisdiction.” Lincoln Prop. Co. v. Roche, 546 U.S. 81, 89
(2005). When a plaintiff files a civil action in state court, Ҥ 1441 gives defendants a
corresponding opportunity.” Id. Section 1441(a) provides:
Except as otherwise expressly provided by Act of Congress, any civil action
brought in a State court of which the district courts of the United States have
original jurisdiction, may be removed by the defendant or the defendants, to the
district court of the United States for the district and division embracing the place
where such action is pending.
28 U.S.C. § 1441.
While both § 1332 and § 1441 allow parties to invoke a federal court’s diversity
jurisdiction, “[t]he scales are not evenly balanced.” Id. at 89–90. This is so because an in-state
plaintiff may use § 1332 to establish diversity jurisdiction, but § 1441(b) bars defendants from
removing an action to federal court on the basis of diversity if they are citizens of the state in
which the action is brought. Id. at 90. Additionally, § 1446 places several procedural restrictions
on removal. See 28 U.S.C. § 1446.
3
Jurisdiction of the court generally depends upon the state of things at the time the action
is brought. Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 570 (2004). An exception
to this rule is applied when a party is “fraudulently joined.” Fraudulent joinder may be found
where a litigant makes “false allegations of jurisdictional fact,” but is more commonly found
where a plaintiff makes “a claim against an in-state defendant that simply has no chance of
success, whatever the plaintiff’s motives.” Poulos v. Naas Foods, Inc., 959 F.2d 69, 73 (7th Cir.
1992).
DISCUSSION
(1) Fraudulent Joinder does not Require Intent
Plaintiffs first argue in their Motion to Remand that, despite Defendants’ assertions to the
contrary, Orth was not fraudulently joined. Doc. 16, at 1–2. This is so because “[t]he complaint
was again a pro se complaint filed by two adults who had no idea what was federal diversity
jurisdiction and no motive to destroy federal jurisdiction could be ascribed to them.” Id. at 2.
Therefore, Plaintiffs assert, “[t]he removal cannot be sustained on this ground.” Id. However, the
fraudulent joinder doctrine encompasses more than a plaintiff’s subjective motive in naming an
in-state defendant. Indeed, the doctrine is more often applied where a plaintiff makes “a claim
against an in-state defendant that simply has no chance of success, whatever the plaintiff’s
motives.” Poulos, 959 F.2d at 73. Thus, Plaintiffs’ reliance the intent of the then-pro se litigants
is misplaced.
(2) Plaintiffs’ Failed to Comply with the Local Rules
Plaintiffs’ Motion also fails to comply with this Court’s Local Rule 7.1(B)(1), which
provides that “[e]very motion raising a question of law … must include a memorandum of law
including a brief statement of the specific points or propositions of law and supporting
4
authorities upon which the moving party relies, and identifying the Rule under which the motion
is filed.” C.D. Ill. L.R. 7.1(B)(1). Here, Defendants stated in their Notice of Removal that Orth’s
citizenship should be disregarded for the purposes of determining federal diversity jurisdiction,
and cited to Schwartz v. State Farm Mut. Auto Ins. Co., 174 F.3d 875, 878 (7th Cir. 1999), in
support. Doc. 1, at 2. In Schwartz, the Seventh Circuit affirmed the district court’s finding that
the nondiverse automobile insurance agent was fraudulently joined as a defendant with the outof-state insurer to defeat diversity jurisdiction. Id. at 878–879. However, rather citing to any
authority to support their position or addressing the facts or reasoning in Schwartz, Plaintiffs
simply state in their Motion that Schwartz “deals with Indiana law not Illinois law.” Doc. 16, at
2. Indeed, Schwartz not only deals with Indiana law, it deals with a different type of insurance
(automobile) from the present case, and a different insurer. But why should any of those
distinctions matter? That is counsel’s burden to explain, and an obligation the Court made
explicit in Local Rule 7.1(B)(1). Having failed to develop their argument, the Court would
normally consider it waived and deny the motion. However, because the Court has an
independent obligation to inquire into its subject matter jurisdiction, it must determine whether
Orth was fraudulently joined. Webb v. Fin. Indus. Regulatory Auth., Inc., No. 17-2526, 2018 WL
2111883 (7th Cir. May 8, 2018) (citing Smith v. American Gen. Life & Acc. Ins. Co., 337 F.3d
888, 892 (7th Cir. 2003), St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 287 n.10
(1938)).
(3) The Fraudulent Joinder Analysis is Limited to the Assertions in the Original Complaint
Diversity jurisdiction is not present based on Plaintiffs’ complaints or the Notice of
Removal, but under the fraudulent joinder doctrine, this Court may “assume initial diversity
jurisdiction upon removal from state court despite the presence of nondiverse parties.” Schur v.
5
L.A. Weight Loss Centers, Inc., 577 F.3d 752, 763 (7th Cir. 2009). When a case is originally filed
in federal court, “[j]urisdiction of the court depends upon the state of things at the time the action
is brought.” Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 570 (2004) (quoting
Mollan v. Torrance, 9 Wheat. 537, 539 (1824)). In the context of cases removed from state court,
“jurisdiction depends on the situation at the time of removal.” Shaw v. Dow Brands, Inc., 994
F.2d 364, 367 (7th Cir. 1993), holding modified by Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d
536 (7th Cir. 2006) (citing St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 294
(1938)); Pullman Co. v. Jenkins, 305 U.S. 534, 537–38 (1939). Therefore, the Court agrees with
Defendants that the fraudulent joinder inquiry is usually limited to the factual assertions in the
plaintiff’s complaint at the time of removal. See Lynch Food, Inc. v. Ford Motor Co., Inc., 934 F.
Supp. 1005, 1007 (N.D. Ill. 1996); Poulos, 959 F.2d at 74; BEM I, L.L.C. v. Anthropologie, Inc.,
301 F.3d 548, 552 (7th Cir. 2002).
(4) Plaintiffs Fail to State a Claim Against Orth in their Original Complaint
Plaintiffs’ original complaint alleges only that Beeks purchased the policy from Orth and
that AFIC and Orth “acted in bad faith in protecting [Plaintiffs’] family from loss of use by
delaying responses to claim inquiries, responses to allow evidence to be introduced, and
responses regarding property loss not allowing [Plaintiffs] to seek proper counsel in settling
above said loss.…” Doc. 1-1 at 4, 7. Significantly, Plaintiffs’ original complaint makes no
allegation that Orth issued two different policies, or that Orth did anything but act as the
messenger for AFIC. Cf. Amended Complaint, Doc. 20, at 5–6. Defendants cite two cases in their
Response to the Motion to Remand: Cummings Foods, Inc. v. Great Cent. Ins. Co., 108 Ill. App.
3d 250, 256 (4th Dist. 1982), and Schwartz v. State Farm Mut. Auto Ins. Co., 174 F.3d 875, 878
(7th Cir. 1999). Defendants argue that these cases hold that an agent who denies a claim on the
6
same basis as the insurer who asserted a policy defense within the policy language does not act
in bad faith or unfairly. Doc. 21, at 3. The Court agrees that, based on the allegations in
Plaintiffs’ original complaint, Plaintiffs have not stated a claim against Orth for bad faith denial
of insurance coverage. See Schwartz, 174 F.3d at 878 (noting that the plaintiffs “have not cited a
single case from any jurisdiction, let alone Indiana, which has recognized individual liability for
bad faith denial of an insurance claim”).
(5) Nevertheless, Remand is Appropriate
Plaintiffs’ second argument in support of remanding the action to state court is as follows:
[A]t this stage of the proceedings, it cannot be said that there is “no possibility
that a state court would rule against the in state defendant”. According to the
exhibits attached to the complaint, Michael Orth authored the declaration page of
the policy outlining the coverages afforded by the policy. He actually issued two
different declaration pages: one at the real estate closing of the purchase on the
property by plaintiff Beeks and another for the actual policy delivered. The
second afforded a more limited amount of coverage. This gives rise to the
possibility that Orth committed some error or omission that was the contact with
the plaintiffs concerning this claim the go between the plaintiffs and American
Family and this may create liability on his part as an agent of American Family.
Doc. 16, at 2 (so in original). In their amended complaint, Plaintiffs allege that Orth “had a duty
to exercise reasonable skill and reasonable ordinary care in procuring and maintaining insurance
for Beeks” and “Beeks relied on Orth to procure the broadest coverage to property and any
liability that might result from conditional [sic] on the property.” Doc. 20, at 2. Plaintiffs further
allege that Orth changed the policy to add the Fungi or Bacteria Exclusion. Id. at 5. According to
Plaintiffs, “[t]he effect of this was to try [to] eliminate coverage for personal injury/ medical
expense coverage for the members of the household who were injured as a result of the
occurrence in question.” Id. The amended complaint goes on to state that “[t]his was a failure to
exercise ordinary skill and reasonable care towards Beeks and was an affirmative role in
American Family’s wrongful denial of coverage.” Id. at 6.
7
Plaintiffs never actually identify the specific cause of action against Orth, but it is clear
that counsel is attempting to plead a claim of negligence against Orth for failing to exercise
ordinary care and skill in procuring coverage for Beeks. “Generally, to state a cause of action for
negligence, plaintiff must show that defendant owed plaintiff a duty, defendant breached that
duty, and defendant’s breach was the proximate cause of plaintiff’s injury.” Office Furnishings,
Ltd. v. A.F. Crissie & Co., 2015 IL App (1st) 141724, ¶ 21, 44 N.E.3d 562, 567 (citing Hills v.
Bridgeview Little League Ass’n, 195 Ill.2d 210, 228, 253 Ill.Dec. 632, 745 N.E.2d 1166 (2001)).
Although neither Party cites the statute or the case, the Illinois Supreme Court recently decided
that a person required to be licensed to sell insurance has a duty to exercise ordinary care and
skill in renewing, procuring, binding, or placing coverage requested by the insured or proposed
insured. Skaperdas v. Country Cas. Ins. Co., 2015 IL 117021, ¶ 43, 390 Ill. Dec. 94, 28 N.E.3d
747, 757 (citing 735 ILCS 5/2–2201 (West 2010)). However, that duty arises only after the
insured makes a specific request for coverage. Id. (“Section 2–2201(a) only imposes a duty of
ordinary care after a specific request is made.”); Cummings Foods, 108 Ill. App. 3d at 256;
Moore ex rel. Moore v. Johnson Cty. Farm Bureau, 343 Ill. App. 3d 581, 586, 798 N.E.2d 790,
794 (5th Dist. 2003) (finding that insurer owed no duty to the insured to determine what would
constitute “adequate” insurance coverage and to provide coverage in that amount, regardless of
whether the insured made such a request).
Here, Plaintiffs’ allegation that “Beeks relied on Orth to procure the broadest coverage to
property and any liability that might result from conditional [sic] on the property” is insufficient
to establish a duty under Skaperdas. Doc. 20, at 2. However, Plaintiffs also allege that the
declaration page Orth provided to Beeks at the closing was different than the one later provided
to him because the first declaration page Orth provided did not contain the Fungi or Bacteria
8
Exclusion. Id. at 5. Defendants argue that because “Plaintiffs do not allege that Beeks
specifically requested coverage for mold,” Orth “could not have breached a duty to obtain such
coverage.” Doc. 21, at 5. The Court disagrees—regardless of whether Beeks requested mold
coverage, once the policy was put in place, Orth had a duty to not add exclusions to the policy
which reduced coverage without informing the insured and obtaining his consent. The allegation
that Orth added an exclusion to the policy after it was issued and without Beeks’ knowledge or
consent is sufficient to plead duty and breach of duty to exercise ordinary care and skill in
renewing, procuring, binding or placing coverage. See Skaperdas v. Country Cas. Ins. Co., 2015
IL 117021, ¶ 43, 390 Ill. Dec. 94, 28 N.E.3d 747, 757; 735 ILCS 5/2–2201 (West 2010).
Defendants also argue that Plaintiffs failed to allege an injury resulting from the alleged
breach because their complaints do not allege that they ever submitted a claim to AFIC for
medical or personal injury expenses not covered under the Fungi or Bacteria Exclusion, or that
their claim was otherwise denied based on the Fungi or Bacteria Exclusion. Again, it is unclear
from Plaintiffs’ poorly-drafted amended complaint whether Beeks ever submitted a claim to
AFIC for medical expenses. Inexplicably, neither Party saw fit to provide the Court with the
language of the very exclusion at issue. Perhaps the claim for medical expenses or the language
of the Fungi or Bacteria Exclusion was included in the exhibits Plaintiffs attached to their
original complaint in state court. The Court can only guess, since Defendants failed to file those
exhibits with the Notice of Removal, as required under 28 U.S.C. § 1446(a). But at this stage of
the proceedings, after resolving all issues of fact and law in favor of Plaintiffs, the amended
complaint establishes a claim for negligence against Orth. See Poulos, 959 F.3d at 73.
In sum, based on Plaintiffs’ amended complaint, the Court cannot say that Plaintiffs’
claim against the in-state Defendant has “no chance of success.” Poulos, 959 F.2d at 73. And
9
while the fraudulent joinder analysis may be limited to the allegations in the complaint at the
time of removal, multiple considerations weigh in favor of remanding this action to state court.
The first consideration is judicial economy: by dismissing Orth and allowing the case to proceed
against AFIC only, Plaintiffs will be required to initiate a parallel proceeding in state court
against Orth. Second is the risk of inconsistent judgments: by allowing parallel proceedings in
state and federal court, the Parties run the risk of different courts making conflicting findings and
inconsistent judgments. Third is the fact that nothing prevents Plaintiffs from seeking postremoval joinder of Orth. Rule 15 of the Federal Rules of Civil Procedure requires Plaintiffs to
seek leave to amend their complaint, but the Court must grant leave to amend “when justice so
requires.” At this stage of the proceedings, the Court would allow Plaintiffs to amend their
complaint to cure the pleading deficiencies identified above. At that point, Rules 19 and 21 of the
Federal Rules of Civil Procedure, together with 28 U.S.C. § 1447(e), would allow Plaintiffs or
the Court to join Orth as a party, thus necessitating remand to state court. See also NewmanGreen, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 837, 109 S. Ct. 2218, 2225, 104 L. Ed. 2d 893
(1989) (“Newman–Green should not be compelled to jump through these judicial hoops merely
for the sake of hypertechnical jurisdictional purity.”); 28 U.S.C. § 1447(e) (“If after removal the
plaintiff seeks to join additional defendants whose joinder would destroy subject matter
jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State
court.”). Therefore, Plaintiffs’ Motion to Remand is granted, and this action is remanded to the
Circuit Court of the Fourteenth Judicial Circuit in Rock Island County for further proceedings.
10
CONCLUSION
For the reasons set forth above, Plaintiff’s Motion to Remand (Doc. 16) is GRANTED
and this action is remanded to the Circuit Court of the Fourteenth Judicial Circuit in Rock Island
County for further proceedings. This matter is now terminated.
Signed on this 21st day of May, 2018.
s/ James E. Shadid
James E. Shadid
Chief United States District Judge
11
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?