Hagyard-Davison-McGee Associates , PLLC et al v. Chubb Group of Insurance Companies et al
MEMORANDUM OPINION AND ORDER: Plaintiff's Motion to Remand [DE 13 ] is GRANTED. Because of the remand, both Motions to Dismiss filed by Federal [DE 9 and DE 10 ] as well as the Motion to Strike [DE 20] are DENIED AS MOOT. The case is remanded to the Fayette Circuit Court. Signed by Judge Joseph M. Hood on 9/9/21.(JLM)cc: COR, and FCC by US mail. Modified on 9/9/2021 (JLM).
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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
ASSOCIATES, PLLC; et al.,
FEDERAL INSURANCE COMPANY,
This matter is before the Court on Plaintiff’s Motion to
Remand [DE 13] following removal of the action based on fraudulent
joinder [DE 1]. After piercing the pleadings, the Court finds the
plaintiff has asserted a colorable claim against the non-diverse
defendants. Therefore, allegations of fraudulent joinder have been
refuted. The Court will grant the Motion to Remand [DE 13].
I. FACTUAL AND PROCEDURAL HISTORY
Commonwealth of Kentucky. [DE 1-4 at 5, ¶ 16]. HDM was insured
under a policy (“the Policy”) issued by Federal Insurance Company
(“Federal”), which is at the heart of the current dispute.
4 at 5, ¶ 17].
The Policy was purchased through John B. Milward
and John J. Milward (“the Milward Defendants”), operating as the
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Kentucky-based Powell-Walton-Milward and now a division of J.
Smith Lanier & Co. (collectively “the Lanier Defendants”). [DE 14 at 5, ¶ 18].
On July 21, 2017, a lawsuit, Civil Action No. 17-CI-02646
Rocky-Mason, DVM, et al v. Haygard-Davidson-McGee, PLLC, et al
(“the Mason Suit”), was filed in Fayette Circuit Court against HDM
intentional misrepresentation. [DE 1-4 at 5-6, ¶ 19]. Claiming the
Mason Suit was covered under the Policy [DE 1-4 at 6, ¶ 20), HDM
was dissatisfied with Federal’s behavior during the course of the
Mason Suit [DE 1-4 at 6, ¶ 22] and the minimal amount of money
Federal contributed to the ultimate settlement. Because HDM was
required to personally contribute “a substantial financial sum” to
resolve the Mason Suit, HDM brought the current suit against
Defendants in Fayette Circuit Court. [DE 1-4 at 7, ¶ 26].
While the Verified Complaint filed April 23, 2020, (“the
Original Complaint”) alleges ten different counts [DE 1-4 at 716,
Defendants are violation of the Kentucky Consumer Protection Act
(“KCPA”) and Negligent Misrepresentation. [DE 1-4 at 13-15, ¶ 70–
82]. On April 29, 2020, Plaintiffs filed an Amended Complaint,
adding more details to the KCPA and Negligent Misrepresentation
claims as well as five new claims. [DE 7].
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However, prior to the Amended Complaint, on April 23, 2020,
Federal promptly filed a Notice of Removal in the Eastern District
of Kentucky claiming the federal court had original subject matter
Defendants were fraudulently joined. While all Plaintiffs are
citizens of the Commonwealth of Kentucky, all but the Milward
Defendants are citizens of other states. [DE 1-4 at 5, ¶ 12–13].
Federal claims complete diversity exists, nonetheless, because the
citizenship of the Milward Defendants must be ignored as they were
fraudulently joined in order to defeat diversity jurisdiction.
On May 26, 2020, HDM filed the Motion to Remand. [DE 13]. In
support, HDM provided the affidavit of Stuart Brown, II, a partner
at HDM. [DE 13-1]. Brown states that in the twenty-years preceding
the Mason Suit, HDM brokered insurance coverage through the Milward
Defendants and met with them on an annual basis to receive advice
and expertise about what was covered under the Policy. [DE 13-1].
At issue is whether the Milward Defendants were fraudulently
joined. If the Milward Defendants are found have been joined
exists, making subject matter jurisdiction in this Court proper.
However, if the Milward Defendants are found to have been properly
joined, then there is not complete diversity, making subject matter
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jurisdiction in federal court improper and requiring remand to
II. STANDARD OF REVIEW
A defendant may remove a civil action to federal court if
jurisdiction.” 28 USCS § 1441(a). A federal court may exercise
original jurisdiction when "the matter in controversy exceeds the
sum or value of $75,000, exclusive of interest and costs, and is
between” parties who are “citizens of different states." 28 U.S.C.
Fraudulent joinder is a "judicially created doctrine that
provides an exception to the requirement of complete diversity."
Coyne v. Am. Tobacco Co., 183 F. 3d 488, 493 (6th Cir. 1999)
(quoting Triggs v. John Crump Toyota, Inc., 154 F. 3d 1284, 1287
(11th Cir. 1998)). While complete diversity is essential, “only
the citizenship of properly joined defendants may be considered in
determining whether diversity of citizenship exists.” Grubb v.
(referencing 28 U.S.C. § 1441). Thus, if fraudulent joinder is
established, the Court will disregard the citizenship of the party
found to be illegitimately joined. Id. at *3.
“Fraudulent joinder occurs when the non-removing party joins
a party against whom there is no colorable cause of action.“ Walker
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v. Philip Morris USA, Inc., 443 Fed. Appx. 946, 952 (6th Cir. Oct.
31, 2011) (quoting Saginaw Housing Comm'n v. Bannum, Inc., 576 F.
3d 620, 624 (6th Cir.2009)). If a colorable claim at all exists
for predicting that the plaintiffs could prevail in state court
against the non-diverse defendant, “this Court must remand the
action to state court.” Coyne, 183 F. 3d at 493 (emphasis added).
The burden of proof for fraudulent joinder falls on the
defendants. Brierly v. Alusuisse Flexible Packaging, Inc., 184 F.
3d 527, 534 (6th Cir.1999); Alexander v. Elec. Data Sys. Corp., 13
F. 3d 940, 949 (6th Cir. 1994). “The district court must resolve
all disputed questions of fact and ambiguities in the controlling
state law in favor of the non-removing party. All doubts as to the
propriety of removal are resolved in favor of remand.” Hicks v.
Asplundh Tree Expert Co., No. 5:09-CV-410-KSF, 2010 WL 1338071, at
*2 (E.D. Ky. Mar. 31, 2010) (quoting Coyne, F. 3d at 493).
The Sixth Circuit has consistently held that in examining
fraudulent joinder the district court may “pierce the pleadings
and conduct a summary inquiry… to identify the presence of discrete
and undisputed facts that would preclude plaintiff's recovery
against the in-state defendant." Walker, 443 Fed. Appx. at 953
(citation omitted). While normally in a motion to remand the “court
generally looks to the plaintiff's complaint, as it is stated at
the time of removal, and the defendant's notice of removal,” the
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specifically if the removal is based on fraudulent joinder of nondiverse defendants. Walker, 443 Fed. Appx. at 952 (quoting Great
Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F. 3d
305, 311-12 (5th Cir. 2002)). For fraudulent joinder inquiries,
the court “may employ a summary-judgment-like procedure to examine
affidavits and deposition testimony for evidence of fraud.” Id.
Thus, the Court is not limited to reviewing solely the complaint
and notice of removal, for the very act of piercing the pleadings
allows the Court to consider additional evidence, while resolving
all unchallenged and contested factual allegations in the light
most favorable to the plaintiff. With the additional evidence to
be considered and the favorability
given to the plaintiffs, “the
burden of persuasion on those who claim fraudulent joinder is a
heavy one.” Id. (citing Travis v. Irby, 326 F. 3d 644, 648-49 (5th
Though the test differs from a traditional 12(b)(6) motion,
district courts must be careful not to construe a motion to remand
as a summary judgement motion. See Walker, 443 Fed. Appx. at 95556. The inquiry into fraudulent joinder “is not intended to provide
an opportunity to test the sufficiency of the factual support for
a plaintiff's claim, as is done in a Rule 56 motion.” Id. at 956.
District courts are solely to consider “whether Plaintiffs have a
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concerning “whether Plaintiffs had adequate evidentiary support
for their claim.” Id.
A. THE AMENDED COMPLAINT CANNOT BE UTILIZED BY THE COURT IN
RULING ON THE MOTION TO REMAND.
jurisdiction.” CPC Livestock, LLC v. Fifth Third Bank, Inc., 495
B.R. 332, 339. In other words, the Court must determine whether
the Amended Complaint can be considered in the fraudulent joinder
analysis because it was filed after Removal.
The court has long held it to be a “fundamental principal of
law” that “[t]he existence of subject matter jurisdiction is
determined by examining the complaint as it existed at the time of
removal.” Harper v. AutoAlliance Int'l, Inc., 392 F. 3d 195, 210
(6th Cir. 2004) (citing Long v. Bando Mfg. of Am., Inc., 201 F. 3d
754, 758 (6th Cir. 2000)); CPC Livestock, 495 B.R. at 340; Pugh v.
AIG Prop. Cas. Co., 2019 U.S. Dist. LEXIS 715, *11, 2019 WL 97028;
Jones v. Old Dominion Freight Line, Inc., 2018 U.S. Dist. LEXIS
56677, *7, 2018 WL 1602379; Jackson v. Ford Motor Co., 2016 U.S.
Dist. LEXIS 7030, *2, 2016 WL 270485 (“When considering the issue
of fraudulent joinder, if an amended complaint is filed after
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removal, the court should still utilize the complaint that was
operative at the time of removal.”). In this case, since the
Amended Complaint was filed after Removal, the Original Complaint
additional claims brought against the Milward Defendants nor the
clarifying facts detailed in the Amended Complaint. Instead, the
Court will limit its consideration to the two allegations in the
Amended Complaint adds much-needed information to the previously
bare allegations, the Court nevertheless finds a colorable cause
of action after piercing the pleadings.
Even if the Court were to agree that the Original Complaint
is insufficient, the Court is not solely limited to the Original
discussed, in a case where the plaintiff “has misstated or omitted
discrete facts that would determine the propriety of joinder…the
district court may, in its discretion, pierce the pleadings and
Therefore, the Court will take both the Original Complaint and the
Affidavit into consideration. Royer v. Medtronic, Inc., No. 3:12CV-00367-JHM, 2013 WL 252898, at *3 (W.D. Ky. Jan. 23, 2013).
B. THE KCPA CLAIM
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deceptive acts or practices in the conduct of any trade or commerce
are hereby declared unlawful.” KRS § 367.170(1). In order to bring
an action for violation of the KCPA, Plaintiffs “must fit within
the protected class of persons defined in KRS 367.220.” Skilcraft
Sheetmetal, Inc. v. Ky. Mach., Inc., 836 S.W. 2d 907, 909 (Ky. Ct.
App. 1992). The statute states in relevant part that “[a]ny person
who purchases or leases goods or services primarily for personal,
family or household purposes and thereby suffers any ascertainable
loss ... as a result of the use or employment by another person of
a method, act or practice declared unlawful by KRS 367.170, may
bring an action ... to recover actual damages.” KRS § 367.220(1).
Thus, the key qualifier for admission into the protected class
able to sue under the statute is that the service be purchased
Boutique Fitness, LLC v. CycleBar Franchising, LLC, 699 F. App'x
457, 460 (6th Cir. 2017) (“Federal district courts addressing this
issue have largely held that based on the limitation provided by
§ 367.220, only a person who purchases or leases goods or services
primarily for personal, family, or household purposes may bring an
individual private cause of action under the KCPA.”).
While the Original Compliant claims Plaintiffs “are within
the class of persons and/or entities the KCPA sought to protect”
they offer no explanation. Further, in the Motion to Remand, the
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plaintiffs neglect to include the phrase “primarily for personal,
family or household purposes” in their recitation of the statute.
More, the Original Complaint and Affidavit are not only void of
any facts indicating the Policy was for personal use, but actually
state several facts to the contrary. First, the Original Complaint
repetitively claims the Policy was acquired for HDM. [see DE 1-4
at 5-7, ¶ 15-26]. As HDM is self-identified as “entities and
veterinary services to clients” [DE 1-4 at 5, ¶ 16], it seems
unlikely the purpose of the insurance for the business entity would
be at all related personal, family, or households needs, let alone
between the Lanier Defendants and HDM “concerning the various
insurers” occurred “at HDM’s offices,” where HDM conducted their
regular business activity, indicating that the insurance purchased
was part of such business activity. [DE 13-1 ¶ 6]. Third, the
Policy was purchased by HDM. [Id.]. If the Policy was purchased
for personal use, it seems unlikely HDM would bear the financial
burden alone. Fourth, the Policy was entered into by HDM. [Id.].
Fifth, and most compelling, liability hinges upon whether the Mason
Suit, a case based on employment practices exhibited by HDM, is
covered by the Policy. [DE 1-4 at 5-6, ¶ 19].
While ambiguities must be resolved in favor of the plaintiff,
there are no uncertainties in this matter. HDM has failed to
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provide any facts showing the Policy was purchased for personal,
family, or household needs, and
other facts indicate to the
contrary. Therefore, Plaintiffs do not fall into the class of
persons protected under the KCPA. Their KCPA claim is barred. As
such, the Court finds it unnecessary to address issues raised by
Federal regarding the substance of the KCPA claim.
This holding only declares that the KCPA claim is not a
colorable claim based on the Court’s narrow perspective limited by
the facts in the Original Complaint. This decision is not meant to
definitively bar the KCPA claim in further litigation as additional
disclosures and facts may indicate the KCPA claim is fruitful.
However, at this stage, as previously explained, the Court is
confined to certain pleadings.
C. THE NEGLIGENT MISREPRESENTATION CLAIM
While the KCPA claim must fail, HDM has nonetheless asserted
a colorable claim against the Milward Defendants through negligent
misrepresentation. Kentucky courts have adopted the Restatement
misrepresentation. A party who “supplies false information for the
guidance of others in their business transactions” is liable “for
pecuniary loss caused to them by their justifiable reliance upon
the information, if he fails to exercise reasonable care or
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Presnell Constr. Managers, Inc. v. EH Constr., LLC, 134 S.W.3d
575, 580 (Ky. 2004).
The parties disagree about what pleading standard the Court
misrepresentation claims are subject to a heightened pleading
standard and must be plead with particularity, the plaintiffs claim
a more lenient pleading standard is applicable under Kentucky law.
In relevant notes of decision federal courts have held that on
pleading standard, rather than the stricter federal standard, is
to be used for determining whether a colorable claim has been
asserted. Combs v. ICG Hazard, LLC, 934 F.Supp. 2d 915, 923 (E.D.
Ky. 2013); In re Gen. Motors LLC Ignition Switch Litig., No. 14MD-2543 JMF, 2015 WL 3776385, at *2 (S.D.N.Y. June 17, 2015). As
a practical matter, it would “make little sense” to apply federal
pleading standards because the test for fraudulent joinder is
plaintiff's claims against the non-diverse defendant could succeed
under state law.” In re Darvocet, Darvon & Propoxyphene Prod. Liab.
Litig., 889 F. Supp. 2d 931, 940 (E.D. Ky. 2012) (referencing
Coyne, 183 F.3d at 493); Kuperstein v. Hoffman–La Roche, Inc., 457
F. Supp. 2d 467, 471–72 (S.D.N.Y.2006) (“Because the purpose of
fraudulent joinder analysis is to determine whether a state court
might permit a plaintiff to proceed with his claims, I will refer
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to the state pleading standards as they have been applied by state
courts to similar claims.”). The cases relied upon by Federal in
their Response to the Motion to Remand do not involve fraudulent
joinder. There is, therefore, no direct authority for holding that
joinder. Further, even if the Court decided Kentucky law on the
matter is unsettled, this Court must resolve all ambiguities of
state law in favor of the plaintiffs. Coyne, 183 F. 3d at 493.
misrepresentation and fraudulent joinder, the court clarified and
reiterated that the “[t]he relevant inquiry is whether there is a
colorable basis for predicting that a plaintiff may recover against
a defendant." Royer v. Medtronic, Inc., No. 3:12-CV-00367-JHM,
2013 U.S. Dist. LEXIS 9346, at *7 (W.D. Ky. Jan. 22, 2013) (citing
Casias v. Wal-Mart Stores, Inc., 695 F.3d 428, 433 (6th Cir.
2012)). While the court
found the complaint to be
“lacking,” the court still held no fraudulent joinder existed after
piercing the pleadings to review the affidavit. “Given that the
defendant bears a heavy burden to prove fraudulent joinder, there
are allegations and facts suggesting that there is arguably a
reasonable basis for predicting that the state law might impose
liability on Defendant.” Id. at *11. The court does not discuss
whether a heightened pleading standard was proper, but rather
identifies the proper inquiry to be whether there is “arguably a
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reasonable basis” to believe the defendant “might” be guilty under
state law. The nuances of what pleading standard was applicable
was inconsequential to this straightforward and lenient inquiry.
Other courts have similarly suggested that what pleading
standard applies is not the determinative factor in a fraudulent
joinder case. In 2013, this district reiterated that courts “must
apply a ‘more lenient’ standard to the complaint when considering
a motion remand and allegations of fraudulent joinder.” Williams
v. Altman, No. 12-131-ART, 2013 U.S. Dist. LEXIS 281, at *8 (E.D.
Ky. Jan. 2, 2013). Even if the plaintiff’s claim is “not as
artfully pleaded as the defendant would like,” the court will not
fault the plaintiff “for failing to meet an inapplicable, stricter
pleading standard [which] does not affect whether she has laid out
a colorable basis for recovery.” Id. at *7-8 (referencing Coyne,
183 F.3d at 493). The question for the Court to decide at this
phase of litigation is not the likelihood of success on the claim,
but whether there is “at least a colorable cause of action” against
Kentucky Rules of Civil Procedure require a pleading to
contain “a short and plain statement of the claim showing that the
pleader is entitled to relief.” Ky. R. Civ. P. 8.01. Kentucky
applies the more lenient notice pleading approach, in which “a
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complaint will not be dismissed for failure to state a claim unless
it appears to a certainty that the plaintiff would not be entitled
to relief under any state of facts which could be proved in support
of his claim.” Pierson Trapp Co. v. Peak, 340 S.W. 2d 456, 460
(Ky. 1960); see Williams, 2013 U.S. Dist. LEXIS 281, at *7 (citing
Fox v. Grayson, 317 S.W. 3d 1, 7 (Ky. 2010)).
According to the Original Complaint, the Milward Defendants
made statements about the scope of coverage offered under the
Policy to induce HDM to purchase the Policy, HDM relied upon those
assertions, and the coverage position of Federal in the Mason Suit
was contrary to the claims made by the Milward Defendants. [DE 14 at 15 ¶ 78-80]. The Affidavit claims that during the course of
their twenty-year relationship, the Milward Defendants answered
specific questions about policy coverage and advised HDM on an
annual basis. [DE 13-1 ¶ 7]. Regarding the Policy, Brown further
including umbrella coverage for employment practice
claims, and never informed HDM that it did not cover such claims.
Based upon the statements of the Milward Defendants, HDM purchased
the Policy. During the course of the Mason Suit, Brown states it
represented by the Milward Defendants in their annual meetings
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requiring HDM to personally contribute a subsutural financial sum
to resolve the claims. [DE 13-1 ¶ 14-15].
While the Original Complaint and Affidavit do not contain
lengthy or detailed facts related to the ordeal, Kentucky law makes
it clear that such specificity is not remotely required. Instead,
the claims must not be “so frivolous that it has no hope of
success." Murriel-Don Coal Co., Inc. v. Aspen Ins. UK Ltd., 790 F.
Supp. 2d 590, 594 (E.D. Ky. 2011) (citing Saginaw Hous. Comm'n v.
Bannum, Inc., 576 F.3d 620, 624 (6th Cir. 2009)). Therefore, upon
piercing the pleadings and construing all facts in favor of HDM,
this Court finds there are allegations and facts supplying a
liability on the Milward Defendants. A colorable cause of action
precluding claims of fraudulent joinder.
Concluding there is no fraudulent joinder and acknowledging
the undisputed fact that John B. Milward and John J. Milward are
not diverse, jurisdiction in this Court is not proper under § 1332.
Coyne, 183 F.3d at 492. Accordingly, IT IS HEREBY ORDERED that
Plaintiff’s Motion to Remand [DE 13] is GRANTED. Because of the
remand, both Motions to Dismiss filed by Federal [DE 9 and DE 10]
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as well as the Motion to Strike [DE 20] are DENIED AS MOOT. The
case is remanded to the Fayette Circuit Court.
This the 9th day of September, 2021.
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