Walker v. Northwestern Mutual Investment Services, LLC et al

Filing 12

MEMORANDUM OPINION & ORDER: 1) That the Plaintiff's Motion to Remand 8 is DENIED ; 2) the Clerk shall TERMINATE Executive Benefits Specialists of Kentucky, LLC, as a defendant; 3) that Executive Benefits Specialist of Kentucky, LLC, Motion to Dismiss or in the Alternative for Summary Judgment, 6 , is DENIED AS MOOT . Signed by Judge Joseph M. Hood on 07/14/2015.(KRB)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON
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DEBRA WALKER,
Plaintiff,
v.
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY, et al.,
Defendants.

Civil Case No.
5:15-cv-79-JMH
MEMORANDUM OPINION & ORDER

***
This matter is before the Court on Plaintiff’s motion to
remand to state court, [DE 8], to which both Defendants have
responded. [DE 9, 11]. Plaintiff did not reply, although the
time

to

do

so

has

passed.

Additionally,

Defendant

Executive

Benefit Specialists of Kentucky, LLC, has filed a motion to
dismiss for failure to state a claim, or in the alternative, for
summary judgment. [DE 6]. Plaintiff has responded, [DE 7], and
Executive has replied. [DE 10]. These motions are now ripe for
the Court’s review.
I. Factual and Procedural Background
Plaintiff’s Complaint, which was filed in the Boyle Circuit
Court on March 3, 2015, alleges that her insurer wrongfully
refused to pay disability benefits to which she was entitled. As
a consequence, she seeks compensatory and punitive damages on
state

law

claims

for

breach

of

contract,

violation

of

the

Kentucky Unfair Claims Settlement Practices Act (KUCSPA), and
common law bad faith. [DE 1-3]. These claims are brought against
Northwestern

Mutual

Life

Insurance

Company

(“Northwestern”),

with whom Plaintiff held several policies of insurance. It is
undisputed

that

Northwestern’s

citizenship

for

purposes

of

diversity jurisdiction is Wisconsin. Plaintiff has also brought
suit against Executive Benefits Specialists of Kentucky, LLC, an
insurance

agency.

It

is

also

undisputed

that

Executive’s

citizenship for diversity purposes is Kentucky.
Northwestern filed its Notice of Removal in this Court on
March 30, 2015. [DE 1]. Plaintiff now moves the Court to remand
the

case

because

it

lacks

subject

matter

jurisdiction.

More

specifically, Plaintiff argues that because the parties are not
completely diverse, the Court lacks jurisdiction under 28 U.S.C.
§

1332.

Northwestern

jurisdiction

because

responds
the

that

non-diverse

the

Court

party,

does

Executive,

have
was

fraudulently joined. On a related theory, Executive moves the
Court to dismiss all claims against it, arguing that Plaintiff
has failed to state a claim against Executive.
II. Standard of Review
Generally, any civil action brought in a state court may be
removed by a defendant to federal court if it could have been
brought

there

originally.

28

U.S.C.

§

1441(a).

A

federal

district court has original diversity jurisdiction when there is
2

complete diversity, that is, when no plaintiff and no defendant
are citizens of the same state, and the amount in controversy
exceeds $75,000. 28 U.S.C. § 1332(a); Strawbridge v. Curtiss, 7
U.S. 267 (1806). “A defendant desiring to remove a case has the
burden

of

proving

the

diversity

jurisdiction

requirements.”

Gafford v. Gen. Elec. Co., 997 F.2d 150, 155 (6th Cir. 1993).
In cases of removal based on diversity in which parties are
not diverse, the removing party may defeat remand if it can show
that the non-diverse parties were fraudulently joined. Coyne v.
Am. Tobacco Co., 183 F.3d 488, 493 (6th Cir. 1999). Fraudulent
joinder occurs when “it is clear that there can be no recovery
under the law of the state on the cause alleged or on the facts
in view of the law.” Casias v. Wal-Mart Stores, Inc., 695 F.3d
428, 432-33 (6th Cir. 2012) (internal quotation and citation
omitted). The removing party also carries the burden of proving
fraudulent joinder. Id.
Because

“[q]uestions

of

removal...involve

facial

and

factual inquiries ...courts may look beyond the pleadings to
assess

challenged

facts.”

Gentek

Bldg.

Products,

Inc.

v.

Sherwin-Williams Co., 491 F.3d 320, 330 (6th Cir. 2007). In
essence, courts will employ a “summary-judgment-like procedure
to examine affidavits ... for evidence of fraud.” Id. (citation
omitted). In so doing, the court should resolve all questions of
fact and ambiguities in controlling state law in favor of the
3

plaintiff. Coyne, 183 F.3d at 493; see also Walker v. Philip
Morris

USA,

Notably,

Inc.,

the

443

Sixth

F.

App'x

Circuit

has

946,

952

(6th

Cir.

2011).

cautioned

that

despite

the

summary-judgment-type evidence used, the proper standard is akin
to that of a Rule 12(b)(6) motion to dismiss, and is “arguably
even more deferential.” Walker, 443 F. App’x at 954.
III. Discussion
Plaintiff brings only state law claims and, thus, the Court
has jurisdiction over this matter if the diversity requirements
of 28 U.S.C. § 1332(a) are met. However, Plaintiff is a citizen
of Kentucky, as is Defendant Executive. Regardless, Northwestern
argues that this matter is properly in federal court because
Executive, the non-diverse party, was fraudulently joined. In
support, Northwestern contends that there is no colorable basis
for Plaintiff’s claim against Executive and that Plaintiff has
engaged in outright fraud. See Salisbury v. Purdue Pharma, L.P.,
166

F.Supp.2d

546,

548

(E.D.

Ky.

2001)

(summarizing

three

situations in which fraudulent joinder may be established).
First, the Court takes up Northwestern’s contention that
Plaintiff

engaged

in

outright

fraud.

Hugh

Hines’

affidavit

serves as the basis for Northwestern’s argument. Hines is an
independent contractor for Northwestern, authorized to sell its
products, as well as an owner of Executive. [DE 9-1 at ¶¶ 1, 4].
In

his

March

27,

2015,

affidavit,
4

Hines

states

that

the

plaintiff told him that Executive had been named as a defendant
solely to keep this case in state court. [DE 1-4 at ¶ 3].
Plaintiff submits an affidavit in which she denies that she
stated as much. [DE 8-3 at ¶ 17]. Resolving factual disputes in
the plaintiff’s favor, see Coyne, 183 F.3d at 493, the Court
concludes

that

this

argument

fails

to

provide

evidence

of

fraudulent joinder.
Next,
Plaintiff

the
has

Court
no

considers

colorable

Northwestern’s

claim

against

argument

Executive.

As

that
an

initial matter, the Court looks to the claims against Executive
in

Plaintiff’s

Complaint.

Plaintiff

alleges

that

the

“Defendants” profited from Plaintiff’s premium payments, refused
to pay her benefits to which she is entitled and are, thus,
liable

on

several

claims.

Plaintiff

raises

two

factual

allegations against Executive, specifically. Plaintiff alleges
that, in addition to the original insurance policies Plaintiff
purchased

from

Northwestern,

Plaintiff

purchased

“additional

policies and investments through Executive” and that Executive
received commissions for those sales. [DE 1-3 at ¶ 11]. The
Complaint also alleges that after refusing to pay benefits on
Plaintiff’s policies, Northwestern instructed Executive to have
no communication with Plaintiff. [DE 1-3 at ¶ 25].
Northwestern

asserts

that

Plaintiff

has

attempted

to

connect Executive to this case based solely on the actions of
5

its principal, Hugh Hines. Hines acknowledges that it was he who
sold Plaintiff’s daughter (not Plaintiff, according to Hines) an
insurance policy, and his partner Gordon Montgomery who sold
Plaintiff

the

Complaint.

Northwestern

[DE

Montgomery’s

9-1

at

clients,

¶

policies
3,

7].

including

she
Hines

Plaintiff,

references

in

agreed

service

upon

to

her

Montgomery’s

retirement. [Id. at ¶ 6]. Hines also states that it was he who
assisted Plaintiff “in her communications with Northwestern.”
[Id. at ¶ 10]. All this, Hines states, was as an independent
contractor for Northwestern, by which he is authorized to sell
its

products,

[Id.

at

¶

8],

and

not

in

his

capacity

as

a

principal of Executive. In fact, Hines avers that Executive does
not sell insurance to individuals (rather, it sells exclusively
in

the

“Community

Bank

market”).

[Id.

at

¶

1].

Thus,

Northwestern argues, Executive could not have sold, handled, or
serviced any of the insurance policies relevant to this case.
Northwestern

asserts

that

Plaintiff’s

Complaint,

therefore,

alleges no wrongdoing by, and seeks no relief from, Executive.
Northwestern essentially contends that the references to
“Executive” in Plaintiff’s Complaint are actually references to
the conduct of Hugh Hines outside of his capacity as an agent
for Executive. In light of a potential factual inaccuracy in
Plaintiff’s Complaint, the Court looks past the pleadings to the

6

facts

that

undermine

Plaintiff’s

claims.

See

Walker,

443

F.

App'x at 956.
In

her

“and/or”

affidavit,

Montgomery

Plaintiff

who

sold

states

her

that

it

Northwestern

was

Hines

policies

and

collected a commission. [DE 8-3 at ¶ 23, 26]. She confirms that
she believes that it was Hines who Northwestern instructed not
to

communicate

with

her.

[Id.

at

¶

29-30].

Plaintiff

also

acknowledges that she understood Hines and Montgomery to own a
“Northwestern

Agency”

or

“Northwestern

office”

and

to

be

“Northwestern Agents.” [Id. at ¶ 7-8]. Additionally, although
Hines

is

listed

as

the

Financial

Representative

on

the

Northwestern policy statements that Plaintiff has attached to
its

Motion

to

Remand,

Executive

is

not.

[DE

8-4].

This

is

supported by the fact that Executive and its agents do not sell
insurance to individuals and that Executive does not have a
contract

with

Northwestern

to

sell

its

products,

facts

that

Plaintiff does not dispute. [Hines Affidavit of April, 2015, DE
9-1 at ¶ 1; Plaintiff’s Affidavit, DE 8-3].
At no point in the record before the Court does Plaintiff
claim that she purchased insurance from Executive, or had any
dealings with any agent of Executive in their capacity as agents
of Executive. Thus, Plaintiff’s insistence that Executive is a
proper defendant appears to be based on a misunderstanding of
the law of agency.
7

A company may be liable for the acts of its agents if those
acts

are

within

within

the

the

scope

of

scope
the

of

his

agent’s

agency

or

employment,

authority.

See

and

Restatement

(Third) Of Agency § 7.03 (2006); see also Pan-Am. Life Ins. Co.
v. Roethke, 30 S.W.3d 128, 132 (Ky. 2000). Certainly, as an
owner (or member) of Executive, Hines is its agent by default.
KRS 275.135; Pannell v. Shannon, 425 S.W.3d 58, 76 n.17 (Ky.
2014). It does not follow, however, that all of Hines’ conduct
should be attributed to Executive for liability purposes. His
conduct must be within the scope of his agency with Executive in
order

for

Plaintiff

to

have

any

colorable

claim

against

Executive. Without commenting or deciding on the existence of or
scope of Hines’ agency relationship with Northwestern, Hines’
conduct

here

had

nothing

to

do

with

his

position

as

the

principal of Executive based on the facts before the Court.
Thus, there being no facts to connect Executive with the alleged
wrongful conduct, Plaintiff has no chance of recovery against
Executive. See Salisbury, 166 F. Supp. 2d at 549-52.
Likewise, Executive was not a party to any of the contracts
at

issue

in

this

case.

Accordingly,

there

is

no

privity

of

contract between Plaintiff and Executive and, thus, Plaintiff
has no chance of recovery on her claims of breach of contract,
bad faith, and the KUCSPA. See Chicago Motors, LLC v. Apex Ins.
Agency Int'l, Inc., No. 3:13-CV-00356-CRS, 2014 WL 798154, at *2
8

(W.D. Ky. Feb. 27, 2014) (“Under Kentucky law, parties may only
sue for a breach of contract if privity of contract existed.”)
(citing Presnell Constr. Managers, Inc. v. EH Constr., LLC, 134
S.W.3d 575, 579 (Ky. 2004));

Davidson v. Am. Freightways, Inc.,

25 S.W.3d 94, 100 (Ky. 2000) (“Absent a contractual obligation,
there simply is no bad faith cause of action, either at common
law or by statute.”).
Having concluded that Plaintiff has no chance of recovery
under Kentucky law on her claims against Executive, the Court
finds that Executive was fraudulently joined and removal was
proper pursuant to 28 U.S.C. §§ 1332(a) and 1441. Therefore, the
Court need not, and will not, address Executive’s Motion to
Dismiss.
CONCLUSION
For the reasons stated above, IT IS ORDERED:
1) that Plaintiff’s Motion to Remand, [DE 8], is DENIED;
2) the Clerk shall TERMINATE Executive Benefits Specialists
of Kentucky, LLC, as a defendant;
3) that Executive Benefits Specialists of Kentucky, LLC,
Motion to Dismiss or in the Alternative for Summary Judgment,
[DE 6], is DENIED AS MOOT;
This, the 14th day of July, 2015.

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