Nelson et al v. Clark et al
Filing
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OPINION & ORDER: 1) Plas Motion to Remand (DE 13 ) is DENIED; and 2) case is REASSIGNED for all further proceedings to the Honorable Amul R. Thapar, Judge, United States District Court for the Eastern District of Kentucky. Signed by Judge Karen K. Caldwell on 10/14/2011.(TDA)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
SOUTHERN DIVISION
PIKEVILLE
CIVIL ACTION NO. 7:11-82
JIMMY NELSON and TAWANA NELSON,
v.
PLAINTIFFS
OPINION AND ORDER
JOHN THOMAS CLARK, et al.,
DEFENDANTS
*********
This matter is before the Court on the Plaintiffs' Motion to Remand [DE 13].
Because the Plaintiffs have fraudulently joined a nondiverse insurance agent to this
action, the Motion to Remand will be denied.
I.
Facts.
A fire caused damage to certain real and personal property belonging to the
Plaintiffs, Jimmy and Tawana Nelson. Prior to the time of the fire, the Nelsons purchased
an insurance policy with Defendant Nationwide Mutual Fire Insurance Company through
either Defendant John Clark and Associates, Inc. or through Defendant John Thomas
Clark d/b/a John Thomas Clark Agency. For purposes of this motion, it does not matter
which of these Defendants sold the Nelsons the policy and, thus, they will be referred to
collectively as "Clark." The Nelsons assert they submitted a claim against the policy to
Nationwide to cover their losses but that Nationwide has refused to pay their claims.
Nationwide then filed an action in federal court asking the Court to declare the
Nelsons' insurance policy null and void for a variety of reasons, the most relevant of
which to this action is that the Nelsons represented on the policy application that neither
had been convicted of a felony in the preceding 10 years when Jimmy Nelson actually
did have a felony conviction in that time period. That federal action has been assigned to
the Honorable Amul R. Thapar. See Nationwide Mutual Fire Insurance Co. v. Nelson, et
al., No. 7:11-cv-00032-ART.
After Nationwide filed its federal declaratory action, the Nelsons filed this action
in Johnson Circuit Court asserting breach of contract and bad faith claims against
Nationwide. The Nelsons also assert a negligence claim against Clark. For this claim,
the Nelsons assert that Clark knew that Jimmy Nelson had a felony conviction but
negligently allowed the Nelsons to state on the policy application that he did not. The
Nelsons argue that, if a court should determine that Nationwide appropriately denied the
Nelsons' claims based on the misrepresentation, then Clark should have to pay for the
Nelsons' losses caused by the fire. [DE 1, Complaint, ¶ 15].
Nationwide removed the action to this Court. The Nelsons followed with a motion
to remand the matter back to Johnson Circuit Court.
II.
Analysis.
The federal removal statute, 28 U.S.C. § 1441, grants defendants in civil suits the
right to remove cases from state courts to federal district courts when the latter would
have had original jurisdiction. Jerome-Duncan, Inc. v. Auto-By-Tel, L.L.C., 176 F.3d
904, 907 (6th Cir. 1999). In order for a defendant to remove a case to federal court based
upon diversity jurisdiction, there must be complete diversity of citizenship both at the
time the case is commenced and at the time the notice of removal is filed. Id.
The Nelsons and Clark are Kentucky citizens. "When a non-diverse party has
been joined as a defendant, then in the absence of a substantial federal question the
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removing defendant may avoid remand only by demonstrating that the non-diverse party
was fraudulently joined." Id. (quoting Batoff v. State Farm Ins. Co., 977 F.2d 848, 851
(3d Cir. 1992)).
Nationwide asserts that the non-diverse Clark has been fraudulently joined. The
burden of proving fraudulent joinder of a non-diverse defendant is on the removing party.
Alexander v. Electronic Data Systems Corp., 13 F.3d 940, 948-949 (6th Cir. 1994).
"To prove fraudulent joinder, the removing party must present sufficient evidence
that a plaintiff could not have established a cause of action against non-diverse
defendants under state law." Coyne v. American Tobacco Co., 183 F.3d 488, 493 (6th Cir.
1999). "[I]f there is a colorable basis for predicting that a plaintiff may recover against
non-diverse defendants, this Court must remand the action to state court." Id.
The test is not whether the defendants were added to defeat removal but "whether
there is arguably a reasonable basis for predicting that the state law might impose liability
on the facts involved." Alexander, 13 F.3d at 949 (citation and quotations omitted). All
disputed questions of fact and all ambiguities in the controlling state law should be
resolved in favor of the plaintiff. Id. Nationwide, therefore, bears the burden of showing
that there is not even arguably a reasonable basis for predicting that Kentucky law might
impose liability on Clark.
In order to state a negligence claim under Kentucky law, a plaintiff must establish
the following elements: “(1) a duty on the part of the defendant; (2) a breach of that duty;
and (3) consequent injury.” Mullins v. Commonwealth Life Ins. Co., 839 S.W.2d 245, 247
(Ky.1992).
The Nelsons do not allege that they disclosed the felony conviction to Clark who
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then failed to put that information on the insurance application. Instead, the basis for their
negligence claim against Clark is that Clark did not prohibit them from completing the
application with false information. In other words, at least for purposes of this motion,
the Nelsons do not dispute that they made misrepresentations on the application but argue
that Clark should be held liable to them because he did not stop them from doing so.
In order for the Nelsons to succeed on their negligence claim against Clark, they
must establish that an insurance agent has a duty to the insured to prohibit the insured
from making misrepresentations on an insurance application.
While the agent may well have a duty to the insurance company to prohibit an
insured from making such misrepresentations, the Court has been unable to locate any
cases holding that an insurance agent owes the same duty to the insured who has himself
made the misrepresentations. In fact, Kentucky courts hold that "if the applicant knows
that false answers are being placed on the application he will be responsible for them."
Ketron v. Lincoln Income Life Ins. Co., 523 S.W.2d 228 (Ky. 1975).
Thus, the Court does not find any reasonable basis for predicting that a Kentucky
court would hold an insurance agent liable to the insured for negligence where the
insured himself places false answers on an insurance application and the agent fails to
stop him from doing so.
In their Complaint, the Nelsons also assert that Clark "intentionally" permitted
them to put false information on their insurance application. Again, the Court finds no
reasonable basis for predicting that a Kentucky court would hold Clark liable to the
Nelsons even if he intentionally, as opposed to negligently, permitted them to put false
information on the application. Because Clark has been fraudulently joined to this action,
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the motion to remand will be denied.
Nationwide has moved to consolidate this action with the federal action it
previously filed which has been assigned to Judge Thapar. The Nelsons state they have
no objection to consolidation should this Court deny their motion to remand. While the
Court will not rule on the motion to consolidate, it does find that this matter is related to
Nationwide Mutual Fire Insurance Co. v. Nelson, et al., No. 7:11-cv-00032-ART and,
thus, will order that this matter be reassigned to Judge Thapar pursuant to paragraph 10 of
this Court’s General Order No. 11-3.
III.
Conclusion.
For all these reasons, the Court hereby ORDERS as follows:
1)
the Motion to Remand [DE 13] is DENIED; and
2)
this case is REASSIGNED for all further proceedings to the Honorable
Amul R. Thapar, Judge, United States District Court for the Eastern District of Kentucky.
Dated this 14th day of October, 2011.
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