Lake Ridge New Tech Schools et al v. The Bank of New York Mellon Trust Company NA et al

Filing 31

OPINION AND ORDER: For the reasons set forth in the Opinion and Order, Plaintiff's motion to remand 11 is DENIED. The Court also DISMISSES Defendant Moss from this action. Signed by Chief Judge Theresa L Springmann on 7/31/2018. (jss)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF INDIANA
LAKE RIDGE NEW TECH SCHOOLS, and
LAKE RIDGE MULTI PURPOSE SCHOOL
BUILDING CORPORATION, INC.,
Plaintiffs,
v.
THE BANK OF NEW YORK MELLON,
TRUST COMPANY, N.A., and BRADLEY
MOSS,
Defendants.

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CAUSE NO.: 2:17-CV-388-TLS

OPINION AND ORDER
This matter is before the Court on the Plaintiffs’ Motion to Remand [ECF No. 11], filed,
on November 3, 2017. Defendants Bank of New York Mellon Trust Company, N.A. (“the
Bank”) and Bradley Moss filed a Response [ECF No. 14] on November 17, 2017. There has
been no reply, and the deadline for filing a reply has passed. Therefore, this matter is fully
briefed and ripe for review.

BACKGROUND
On August 2, 2017, Plaintiffs Lake Ridge New Tech Schools (“New Tech School”) and
Lake Ridge Multi Purpose School Building Corporation, Inc. (“Building Corp.”) filed a
Complaint [ECF No. 5] against the Defendants in the Lake Circuit Court. The Complaint alleges
that the Plaintiffs are corporations with their principal places of business in Indiana, Moss is a
resident and citizen of Indiana, and the Bank has its principal place of business in California.
They further allege that Plaintiff Building Corp. and the Bank executed a Trust Indenture
Agreement (“Agreement”) which governed the issuance and redemption of municipal bonds to

fund the renovation of Calumet High School (“Project”) via a trust (“Trust”). Under the
Agreement, the Bank was to act as the Trustee and was authorized to employ agents, attorneys,
and counsel to administer and execute the Trust. The Bank assigned Moss, who was an employee
of the Bank, to administer the trust account. The Complaint alleges that, pursuant to the
Agreement, the Bank was responsible for any default or misconduct by any agent or employee
that it appointed if the agent or employee was not selected with reasonable care, or if the agent or
employee engaged in willful misconduct or gross negligence. Construction funds for the Project
were deposited and held in the trust account, and the Bank, as Trustee, made payments to
contractors and vendors on the Project from the trust account upon the submission of a pay
affidavit from Plaintiff Building Corp. that complied with a specified protocol. On October 12,
2016, an improperly submitted pay affidavit (“Pay Affidavit”) was sent to the Bank from
Plaintiff Building Corp.’s representative’s email account. Moss was not in the office that day.
The Bank’s agents and employees processed and paid $120,882.83 from Plaintiff Building
Corp.’s Trust account based upon the Pay Affidavit. However, the Pay Affidavit was fraudulent.
The Plaintiffs allege that the Bank should have been on notice that the Pay Affidavit was
fraudulent based on several discrepancies. The Plaintiffs demanded that the Bank credit
$120,882.83 to the Trust, but the Bank refused to do so.
The Plaintiffs assert breach of contract against the Bank, as well as negligence and grossnegligence against the Bank and Moss. The negligence claim alleges in relevant part that Bank
employees—including Moss—had a duty to refrain from acting in a grossly negligent manner in
administering and executing the Trust, and that Moss acted in a grossly negligent manner in
making $120,882.83 in unauthorized vendor payments from the trust account based upon the

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clearly fraudulent Pay Affidavit. The Plaintiffs also allege that Moss was grossly negligent in
failing to ensure that the correct protocol would be followed during his absence.
On October 6, 2017, the Defendants filed a Notice of Removal [ECF No. 1] premised on
diversity jurisdiction under 28 U.S.C. §§ 1332, 1441, and 1446, asserting that Moss was
fraudulently joined solely for the purpose of defeating diversity jurisdiction. On November 3,
2017, the Plaintiffs filed the instant Motion for Remand, arguing that there is no diversity
jurisdiction because the Plaintiffs and Moss are citizens of Indiana, and Moss was not
fraudulently joined. Included in the Defendants’ Response in Opposition to the Motion for
Remand was a supporting declaration executed by Moss. Moss’s declaration states that Moss
was never the Trustee of the funds, that the Bank asked Moss, at times, to administer the
Plaintiffs’ trust account pursuant to the Agreement, that Moss was on vacation and not in the
office at the relevant times, and that the Bank assigned another employee to administer the
Agreement during Moss’s absence.

ANALYSIS
A civil case brought in state court may be removed to federal court as long as the district
court has original jurisdiction and the notice of removal is timely. See Boyd v. Phoenix Funding
Corp., 366 F.3d 524, 529 (7th Cir. 2004) (citing 28 U.S.C. §§ 1441, 1446). “The party seeking
removal bears the burden of proving the propriety of removal; doubts regarding removal are
resolved in favor of the plaintiff’s choice of forum in state court.” Morris v. Nuzzo, 718 F.3d 660,
668 (7th Cir. 2013) (citing Schur v. L.A. Weight Loss Centers, Inc., 577 F.3d 752, 758–59 (7th
Cir. 2009)); see Chase v. Shop ‘N Save Warehouse Foods, Inc., 110 F.3d 424, 427 (7th Cir.
1997) (a party seeking to invoke federal jurisdiction must support jurisdictional allegations with

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“competent proof”). When challenged, the party seeking federal jurisdiction bears the burden of
proving by a preponderance of the evidence that a case belongs in federal court. Meridian Sec.
Ins. Co. v. Sadowski, 441 F.3d 536, 540-43 (7th Cir. 2006).
A case may be properly removed from state court to federal court on the basis of diversity
jurisdiction. 28 U.S.C. § 1332. For diversity jurisdiction to exist, the parties are required to be
diverse of citizenship, and the matter in controversy must exceed the sum or value of $75,000. 28
U.S.C. § 1332(a). “For a case to be within the diversity jurisdiction of the federal courts,
diversity must be ‘complete’ meaning that no plaintiff may be a citizen of the same state as any
defendant.” McCready v. eBay, Inc., 453 F.3d 882, 891 (7th Cir. 2006) (citations omitted). Here,
the Complaint seeks more than $75,000 in damages, and it alleges that the Plaintiffs have their
principal places of business in Indiana, and thus, are considered citizens of the state of Indiana.
See 28 U.S.C. § 1332(c)(1). It also alleges that Defendant Moss is a citizen of Indiana, thereby
defeating diversity jurisdiction for lack of complete diversity between the parties.
The Defendants removed the Complaint to federal court, asserting that the Plaintiffs
fraudulently joined Moss to avoid diversity jurisdiction. “A plaintiff typically may choose its
own forum, but it may not join a nondiverse defendant simply to destroy diversity jurisdiction.”
Schur, 577 F.3d at 763 (citations omitted). Courts may disregard parties fraudulently joined in
determining whether diversity of citizenship exists. See id. “To establish fraudulent joinder, a
removing defendant ‘must show that, after resolving all issues of fact and law in favor of the
plaintiff, the plaintiff cannot establish a cause of action against the in-state defendant.’” Morris,
718 F.3d at 666 (quoting Poulos v. Naas Foods, Inc., 959 F.2d 69, 73 (7th Cir. 1992)). “In
conducting this analysis, a district court must turn to state law to determine whether the plaintiff
has any reasonable possibility of success.” Schur, 577 F.3d at 764; see also Poulos, 959 F.2d at

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73 (“[T]he federal court must engage in an act of prediction: is there any reasonable possibility
that a state court would rule against the non-diverse defendant?”). To decide whether a defendant
has been fraudulently joined, a court “can pierce the pleadings to consider summary judgmenttype evidence, such as affidavits.” Millman v. Biomet Orthopedics, Inc., No. 3:13-CV-77, 2013
WL 6498394, at *2 (N.D. Ind. Dec. 10, 2013); see also Rutherford v. Merck & Co., Inc., 428 F.
Supp. 2d 842, 848 (S.D. Ill. 2006) (noting that fraudulent joinder considerations are “limited to
uncontroverted summary evidence which establishes unmistakably that a diversity-defeating
defendant cannot possibly be liable to a plaintiff under applicable state law”). Because Indiana
law governs the Plaintiffs’ claims, the relevant inquiry is whether there is a reasonable possibility
that an Indiana court would find in Moss’s favor on the negligence claim against him. Under
Indiana law, to prove negligence, a plaintiff must prove three elements: “(1) a duty owed by the
defendant to the plaintiff; (2) a breach of that duty; and (3) injury to the plaintiff resulting from
the defendant’s breach.” Kramer v. Catholic Charities of Diocese of Fort Wayne-S. Bend, Inc.,
32 N.E.3d 227, 231 (Ind. 2015).
Defendants argue that the negligence claim against Moss is improper because the
Agreement governs the relationship between the parties, and Moss owes no independent duty to
the Plaintiffs. Defendants rely on Greg Allen Construction Company v. Estelle, 798 N.E.2d 171
(Ind. 2003), in which the plaintiffs sued a corporate contractor and its president, Greg Allen, for
defective work performed on their home, alleging breach of contract and negligence. The Indiana
Supreme Court found that “[a]ny duty Allen had to perform . . . flowed from this contract.” Id. at
173.
Whatever negligence is attributed to Allen was performed in the course of his duties
as an employee of the corporation. Under the traditional respondeat superior
doctrine, if Allen is liable in negligence to the [plaintiffs], then so is his principal,

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the corporation. That result would convert most breach of contract claims into
negligence claims.
...
The basic theory underlying the distinction between contract and tort is that tort
liability is imposed by law and that contract liability is the product of an agreement
of the parties. But only the principal, who is a party to the contract, has agreed to
perform the obligations of the agreement. To impose “the same” liability on the
agent is to make the agent the promisor when the parties had arranged their affairs
to put the principal, and only the principal, on the line.
Id. (internal citations omitted). The Court explained that a “defendant’s exposure to tort liability
is best framed in terms of what the defendant did.” Id. It found that Allen was not liable because
“his negligence consisted solely of his actions within the scope of his authority in negligently
carrying out a contractual obligation of the corporation as his employer.” Id. Nothing Allen did
constituted an independent tort even if there had been no contract. Id. (“[H]ere there is no claim
of injury that the law would protect if there were no contract.”).
The Court finds that Estelle precludes the negligence claim against Moss. Moss’s
allegedly negligent conduct was performed in the course of his duties as an employee of the
Bank. The Plaintiffs allege that, as an employee of the Bank, Moss “had a duty to refrain from
acting in a grossly negligent manner in administering and executing the trust.” 1 They allege that
Moss was grossly negligent in making $120,882.83 in unauthorized vendor payments from the

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The Plaintiffs contend that Moss’s duty is based on the following contract provision:
The Trustee shall not be responsible in any manner for . . . the default or misconduct of any
agent or employee appointed by it, if such agent or employee shall have been selected with
reasonable care, or for anything done by it in connection with this trust, except for its willful
misconduct or gross negligence. . . .

(Compl. Ex.1 41–42.) This provision addresses the Trustee’s liability for willful misconduct or gross
negligence, rather than imposing liability on an employee or agent for such conduct. While the Complaint
alleges that Moss was Trustee of the Trust, the parties agree that Moss was not the Trustee, but rather, he
administered the Trust. Thus, this provision does not support a negligence claim against Moss.

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trust account based upon the fraudulent Pay Affidavit. They further allege that Moss was grossly
negligent in failing to ensure that the proper protocol would be followed during his absence. 2
Nothing Moss allegedly did would have constituted an independent tort if there had been no
Agreement. See Estelle, 798 N.E.2d at 173; JMB Mfg., Inc. v. Child Craft, LLC, 799 F.3d 780,
786 (7th Cir. 2015) (“Under Indiana law, an agent acting within the scope of his authority is not
personally liable in carrying out a contractual obligation of the principal.”) (citing Estelle, 798
N.E.2d at 173); Lodholtz v. York Risk Servs. Grp., Inc., 778 F.3d 635, 642 (7th Cir. 2015) (“An
agent is not liable for the harm that befalls a third party by failing to perform under the
contract.”). As in Estelle, Moss cannot be held liable because his alleged negligence “consisted
solely of his actions within the scope of his authority in negligently carrying out a contractual
obligation of the [Bank] as his employer.” Estelle, 798 N.E.2d at 173.
The Plaintiffs did not file a reply or otherwise address the applicability of Estelle. The
Plaintiffs’ memorandum in support of its Motion cites several cases in of support their claim
against Moss, but the cases are distinguishable, as they involve individual defendants who may
have had an independent duty to plaintiffs specifically recognized under Indiana law. See, e.g.,
Trembinski v. Allstate Ins. Co., No. 2:06-CV-173, 2006 WL 2435544, at *3 (N.D. Ind. Aug. 21,
2006) (“Negligence claims by insureds against individual insurance agents have at least some
support under Indiana law”) (citing Bojrab v. John Carr Agency, 597 N. E. 2d 376, 378 n.1 (Ind.
App. 1992) (“[c]onversations between an insurance agent and an insured may impose upon the
agent a duty to exercise reasonable care, skill and diligence” in effecting insurance)); Walgreen
Co. v. Hinchy, 21 N.E.3d 99, 109 (Ind. Ct. App. 2014), on reh'g, 25 N.E.3d 748 (Ind. Ct. App.
2015) (“Indiana law recognizes a relationship between a pharmacist and her customer that gives

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The Plaintiffs do not dispute that the Bank assigned another employee to administer the Agreement
during Moss’s absence.

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rise to a duty on the pharmacist's part.”). Other cases cited by the Plaintiffs are distinguishable in
that they did not involve a breach of contract. See, e.g., Van Swol v. ISG Burns Harbor, LLC, 491
F. Supp. 2d 807, 813 (N.D. Ind. 2007) (holding “claims based upon the active negligence of a
principal, the agent, or both the principal and agent clearly have support under Indiana law” in an
action raising premises liability and negligence claims, not breach of contract claims); Hudgins
v. Bemish, 64 N.E.3d 923, 932 (Ind. Ct. App. 2016) (reversing summary judgment on respondeat
superior claim where employee caused an accident while driving the employer’s vehicle). Based
on the holding in Estelle, the Plaintiffs’ negligence claim against Moss has no chance of success.
Therefore, the Plaintiffs’ Motion to Remand is denied. 3

CONCLUSION
For the reasons set forth above, Plaintiffs’ motion to remand [ECF No. 11] is DENIED.
The Court also DISMISSES Defendant Moss from this action.

SO ORDERED on July 31, 2018.
s/ Theresa L. Springmann
CHIEF JUDGE THERESA L. SPRINGMANN
UNITED STATES DISTRICT COURT
FORT WAYNE DIVISION

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Because the Court finds that Estelle precludes the negligence claim against Moss, it need not address
Defendants’ argument based on economic loss.

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