Hiser et al v. Seay et al
Filing
22
MEMORANUM OPINION & ORDER denying 13 Motion to Remand; granting 19 Motion for Leave to File Sur-Reply. Signed by Senior Judge Thomas B. Russell on 12/4/2014. cc: Counsel(KJA)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
PADUCAH DIVISION
CIVIL ACTION NO. 5:14-CV-170
CLINT HISER, et al.,
Plaintiffs
v.
LAKIN H. SEAY, et al,
Defendants
MEMORANDUM OPINION AND ORDER
This matter is before the Court upon two motions. First, Plaintiffs Clint Hiser and Karen
Hiser have filed a Motion to Remand. (Docket No. 13). Defendants Volkswagen De Mexico,
S.A. de C.V., and Volkswagen Group of America, Inc. (“VW Defendants”) have responded,
Docket No. 15, and Plaintiffs have replied, Docket No. 16. Additionally, VW Defendants filed a
Motion for Leave to File Sur-Reply to Plaintiffs’ Motion to Remand.
(Docket No. 19).
Plaintiffs have responded, Docket No. 20, and the time for VW Defendants to reply has passed.
These matters are now fully briefed and ripe for adjudication. VW Defendant's Request to File a
Sur–Reply, (Docket No. 19), is GRANTED, and the Court has considered VW Defendant's
arguments in their attached Sur-Reply, (Docket No. 19–1). For the following reasons, Plaintiffs’
Motion to Remand is DENIED.
BACKGROUND
This litigation arises from an accident that occurred on December 21, 2011, in which
Plaintiff Shelby Hiser sustained serious injuries and was paralyzed. Plaintiffs filed suit in the
Union County Circuit Court on December 19, 2012 against the VW Defendants, as well as
against Lakin Seay, Delores Seay, and the Kentucky Farm Bureau Mutual Insurance Company
(“KFB”). The VW Defendants are not citizens or residents of Kentucky, but the Seays and the
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KFB are citizens or residents of Kentucky. The parties agree that the amount in controversy
exceeds $75,000.
On January 18, 2013, the Seays’s insurer offered to pay its policy limits of $50,000 in full
settlement of claims against the Seays. Docket No. 15-2. On January 23, 2013, the Plaintiffs’
counsel sent a letter to KFB’s counsel, stating that the Seays were offering to settle with their
policy limits and asking KFB to pay its underinsured motorist policy limits of $100,000. Id.
Plaintiffs invoked Coots v. Allstate, 853 S.W.2d 895 (Ky. 1993), which establishes a procedure
where an underinsured motorist carrier (here, KFB) can elect to tender its policy limits upon
notification that the plaintiff has settled with the underinsured tortfeasor (here, the Seays).
Docket No. 15. On January 28, 2013, KFB’s counsel responded that his client was prepared to
tender its policy limits as long as certain conditions were met. Id.
Because the Plaintiff was a minor, Plaintiffs sought approval of the settlement from the
Henderson District Court on April 18, 2013; the settlement was approved, but a dispute later
arose because the Plaintiffs had not actually accepted the Seays’ settlement offer yet, a necessary
precursor step under the Coots framework.
Id.
The Crittenden Circuit Court denied the
Plaintiffs’ Motion to Enforce Settlement Agreement on July 11, 2013, because the agreement
with KFB was predicated on the Plaintiffs’ need to first settle with the Seays. Id. After this
however, both the Seays and KFB remained willing to pay their policy limits. VW Defendants
attach the affidavit of David T. Schaefer, an attorney who alleges that at a settlement conference
on March 21, 2014, Plaintiffs’ counsel stated that he would not accept the policy limits from the
Seays yet because it would allow the VW Defendants to remove the case to federal court.
Docket No. 15-5. Schaefer alleges that counsel also noted that because the VW Defendants were
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served several months after the case was filed, he thought that the statutory one-year deadline
had not yet expired. Id.
On August 6, 2014, counsel for the VW Defendants received emails which stated that
Plaintiffs had accepted the policy limits and were settling with the Seays and KFB. Docket No.
15-6. On August 26, 2014, the VW Defendants filed their Notice of Removal. Plaintiffs now
move to remand the action to the Crittenden County Circuit Court under 28 U.S.C. s. 1446(c)
and on the grounds that more than one year passed between the commencement of the action and
the Notice of Removal.
STANDARD
Removal is proper in “any civil action brought in a State court of which the district courts
of the United States have original jurisdiction.” 28 U.S.C. § 1441(a). An action “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.” Id. Under 28 U.S.C. §
1446, when a case not originally removable to federal court becomes removable, “a notice of
removal may be filed within 30 days after receipt by the defendant, through service or otherwise,
of a copy of an amended pleading, motion, order or other paper from which it may first be
ascertained that the case is one which is or has become removable.” 28 U.S.C. § 1446(b)(3). 28
U.S.C. s. 1446(c)(1) bars removal of a case to federal court more than 1 year after the
commencement of an action, unless the district court finds that the plaintiff has acted in bad faith
in order to prevent a defendant from removing the action.
Following the filing of a notice of removal, a plaintiff may move to remand the case “on
the basis of any defect other than lack of subject matter jurisdiction” within thirty days. 28
U.S.C. § 1447(c). Finally, “[t]he removal petition is to be strictly construed, with all doubts
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resolved against removal.” Her Majesty the Queen in Right of Province of Ontario v. Detroit,
874 F.2d 332, 339 (6th Cir. 1989) (citations omitted).
DISCUSSION
1) VW Defendants’ properly removed this case to federal court under 28 U.S.C. §
1446.
a. VW Defendants’ removal was timely under 28 U.S.C. § 1446(b)(3).
Plaintiffs first argue that VW Defendants’ removal was not proper because on August 26,
2014, when the Defendants filed their Notice of Removal, the Seays and the KFB had not been
yet dismissed from the case. Docket No. 13. The Plaintiffs argue that the state court lost
diversity when the Notice was filed, and that the Seays and the KFB are still Defendants in this
action, destroying diversity jurisdiction.1 Docket No. 13. In response, Defendants state that they
received notice through e-mail on August 6, 2014 that the Plaintiffs agreed to settle with the
Seays and the KFB. Docket No. 15. Defendants attach those e-mails. Docket No. 15-6.
Defendants argue that formal dismissal of settled defendants is not required for removal, and that
the emails constitute “other paper” under the plain language of 28 U.S.C. § 1446(b)(3). Id.
28 U.S.C. § 1446(b)(3) permits removal after a defendant receives notice or “other paper
from which it may first be ascertained that the case is one which is or has become removable.”
28 U.S.C. § 1446(b)(3). While there is little Sixth Circuit case law on this issue, federal courts
have held that formal dismissal of the parties required to create diversity jurisdiction is not
required as long as the parties have notice that the case will become removable. See, e.g.
Bumgardner v. Combustion Engineering, Inc. 432 F. Supp. 1289, 1291 (D. S.C. 1977)
(“Therefore, the defendants other than [the non-diverse defendant], upon learning of the
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The Crittenden Circuit Court entered orders dismissing Plaintiffs’ claims against the Seays and
the KFB with prejudice. Docket No. 15-1.
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settlement agreement, had a right to remove because the plaintiff had effectively discontinued its
action against [the non-diverse defendant].”)
Additionally, 28 U.S.C. § 1446(b)(3) is clear that some document must be received
before filing a Notice of Removal. “The definition of ‘other paper’ is broad and may include any
formal or informal communication received by a defendant.” See Nagarajan v. Ostruskza, 2012
WL 5077691, at *2 (W.D. Ky. Oct. 18. 2012); Wilson v. Target Corp., 2010 WL 3632794, at *2
(S.D. Fla. Sept. 14, 2010); Yarnevic v. Brinks's, Inc., 102 F.3d 753, 755 (4th Cir. 1996). Courts
have found that settlement offers and other correspondence between parties can constitute “other
paper” under the statute. See Wilson, 2010 WL 3632794, at *2; Lowery v. Alabama Power Co.,
483 F.3d 1184, 1212 n. 62 (11th Cir. 2007) (discussing the judicial development of “other
paper”); Addo v. Globe Life & Accident Ins. Co., 230 F.3d 759, 761–62 (5th Cir. 2000)
(discussing a post-complaint letter concerning settlement terms). “Documents qualifying as
‘other paper’ trigger the time period for removal when they result from ‘a voluntary act of
plaintiff’ and make it clear that federal jurisdiction exists.” See Wilson, 2010 WL 3632794, at
*2; Bosky v. Kroger Tex., L.P., 288 F.3d 208, 212 (5th Cir. 2002).
Plaintiffs concede that they had reached settlement agreements with the Seays and KFB,
but note that those parties had not been formally dismissed when Defendants filed their Notice.
The attached e-mail correspondence indicates that the Plaintiffs “agreed to accept the Seays’
policy limits and are now settling with the Seays” and “have indicated they will accept KFB’s
limits and settle with KFB[.]” Docket No. 15-6. This correspondence indicated to the VW
Defendants that the Plaintiffs were settling with the two non-diverse Defendants, and that the
case was now removable to federal court. Formal dismissal of the parties required to create
diversity jurisdiction is not required as long as the parties have notice that the case will become
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removable. As the VW Defendants had notice, the Court holds that their Notice to Remove was
timely filed after receiving e-mails from Plaintiffs’ counsel. Because a formal dismissal is not
required, the Court finds that the Notice of Removal was filed within the deadline, as the emails
constituted “other paper.”
b. VW Defendants’ removal was permissible under the “bad faith” exception of
28 U.S.C. § 1446 (c)(1).
Alternatively, Plaintiffs argue that the removal was not proper because the VW
Defendants filed their Notice for removal more than a year after the case was filed and that the
bad faith exception in § 1446(c)(1) does not apply. Docket No. 13. In response, the VW
Defendants argue that Plaintiffs’ actions do constitute bad faith because Plaintiffs intentionally
delayed accepting the settlement offers from the non-diverse Defendants until after the one year
removal date had passed. Docket No. 15. Plaintiffs could have settled in July of 2013 by
accepting the offers from the Seays and KFB, but they instead waited a year, admittedly
intending to prevent removal. Id. The VW Defendants note that while parties have completed
numerous witness depositions, fact discovery is still ongoing and there were no pretrial deadlines
or a trial date set in state court, and all discovery could be easily transferred to federal court. Id.
In their Reply, Plaintiffs argue that the Court must strictly construe the removal statute in
favor of remand and state that their actions were litigation strategy and not bad faith. Docket No.
16. To explain their delay in accepting the settlement offers from the non-diverse parties,
Plaintiffs state that they “did not intend to release the Seay defendants from the case until the
Defendants were deposed and Plaintiffs were fully satisfied that the Seays were relatively
judgment-proof.” Id. Additionally, Plaintiffs state that they “admittedly decided to continue the
litigation with all parties in the case until the one-year time period passed” due to the “likelihood
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of attempted removal.” Id. “This decision was not bad faith . . . it was sound strategy meant to
keep the case in state court.” Id. Finally, in their Sur-reply, Defendants attach the depositions
taken of the Seays, in which they made it clear that they did not have any assets and were
judgment-proof. Docket No. 19-1. These depositions occurred on June 4, 2013, two months
before Plaintiffs accepted the settlement offers from these defendants. Id.
The “bad faith exception” was added to 28 U.S.C. § 1446 (c)(1) in 2011. It states that
removal based upon diversity jurisdiction may not be sought more than one-year after
commencement of the action, unless the district court finds that the plaintiff has acted in bad
faith in order to prevent a defendant from removing the action. 28 U.S.C. § 1446(c)(1). The
Sixth Circuit has not clearly defined the meaning of “bad faith” in the amended statute, however
federal courts that have examined the new language agree that the issue is whether the plaintiff
engaged in intentional conduct to deny the defendant the chance to remove the case to federal
court. See Taylor v. King, 2012 WL 3257528 at *4 (W.D. Ky. Aug. 8, 2012); Ehrenreich v.
Black, 994 F. Supp. 2d 284 (E.D.N.Y. 2014) (discussing the new statutory language and finding
that the ‘bad faith’ exception was not met because the plaintiff did not take any actions intended
to prevent removal).
This Court examined the new statutory language in Taylor, where the removing
defendant alleged fraudulent joinder and bad faith to excuse his tardy removal of the case to
federal court. Taylor, 2012 WL 3257528 at *5. The Court found that removal was not proper,
framing the inquiry in terms of whether the plaintiffs had acted specifically to prevent removal:
“there is no basis for concluding that Plaintiffs' tactic in waiting to assert their bad faith claim
against [a defendant] was employed specifically to defeat diversity jurisdiction.” Id.
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Here, Plaintiffs filed the original complaint in the state trial court on December 19, 2012.
The VW Defendants did not file their Notice of Removal until August 26, 2014, which exceeds
the one-year deadline. Thus, absent a showing of bad faith, the case may not be removed. The
crux of the amendment to the statutory language is whether the Plaintiffs intentionally took
actions to prevent Defendants from removing the case to federal court. In the instant situation,
Plaintiffs could have accepted settlement offers early on in the litigation. Instead, they state in
their Reply that they delayed accepting the offers in order to retain the non-diverse parties to
“continue the litigation with all parties in the case until the one-year time period passed” due to
the “likelihood of attempted removal” and a desire to keep the case in state court. Docket No.
16. Unlike in Taylor, this Court has evidence that Plaintiffs took action “employed specifically
to defeat diversity jurisdiction.” Because of this, the “bad faith” exception to 28 U.S.C. §
1446(c)(1) applies, Thus, the VW Defendants properly removed this litigation to federal court.
CONCLUSION
For these reasons, and consistent with the Court’s conclusions above,
IT IS HEREBY ORDERED that the VW Defendant's Request to File a Sur–Reply,
(Docket No. 19), is GRANTED and Plaintiffs’ Motion to Remand, (Docket No. 13), is
DENIED.
December 4, 2014
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