Feller et al v. The Medical Protective Company et al
Filing
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OPINION AND ORDER denying 5 Motion to Remand & TO DISMISS COUNTERCLAIM & DISMISSING DEFENDANT LINDA JONES-BARDEN. Signed by District Judge Patrick J. Duggan. (MOre)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
GRETCHEN FELLER, M.D. and
GRETCHEN FELLER, M.D., P.C.,
Plaintiffs,
Civil Case No. 13-14193
Honorable Patrick J. Duggan
v.
THE MEDICAL PROTECTIVE COMPANY
and LINDA JONES-BARDEN,
Defendants.
_______________________________/
OPINION AND ORDER (1) DENYING PLAINTIFFS’ MOTION TO
REMAND TO STATE COURT AND TO DISMISS COUNTERCLAIM AND
(2) SUA SPONTE DISMISSING DEFENDANT LINDA JONES-BARDEN AS
A DEFENDANT PURSUANT TO FEDERAL RULE OF CIVIL
PROCEDURE 21
This declaratory judgment action arises from a medical malpractice lawsuit
that Linda Jones-Barden (“Jones-Barden”) filed against Gretchen Feller, M.D.
(“Dr. Feller”) and Gretchen Feller, M.D., P.C. (“the practice”) (collectively
“Plaintiffs”) in the Circuit Court for Monroe County, Michigan on March 12, 2013
(hereafter the “underlying case”). Plaintiffs responded by initiating this action in
state court on September 17, 2013 against the Medical Protective Company (“Med
Pro”) and Jones-Barden. Plaintiffs seek a declaration that Med Pro must defend
and indemnify Plaintiffs in the underlying case. On October 2, 2013, Med Pro
removed Plaintiffs’ Complaint to federal court on the basis of diversity
jurisdiction, 28 U.S.C. § 1332.
Although acknowledging that Plaintiffs and Jones-Barden are citizens of
Michigan (see Compl. ¶¶ 8-10), Med Pro asserts in its notice of removal that
Jones-Barden’s citizenship should be ignored for diversity purposes because she
has been fraudulently joined. Disagreeing, Plaintiffs filed the pending motion to
remand the action to state court on October 24, 2013. (ECF No. 5.) In the motion,
Plaintiffs additionally ask the Court to dismiss Med Pro’s Counter-Complaint in
which Med Pro similarly seeks a declaration concerning coverage in the underlying
case under the federal Declaratory Judgment Act. Plaintiffs argue that Med Pro’s
counterclaim should be dismissed because “it does not create diversity (removal)
jurisdiction.” (Id. ¶ 35.) Plaintiffs’ motion has been fully briefed and the Court
held a motion hearing on January 23, 2014. With leave of the Court, Plaintiffs
filed a supplemental brief in support of their motion on January 29, 2014. MedPro filed a response on February 3, 2014. For the reasons that follow, the Court
denies the motion and sua sponte dismisses Jones-Barden as a defendant.
I.
Background
Dr. Feller is a licensed Michigan physician. (Compl. ¶ 8.) She provides
surgical services to patients at the practice in Monroe County, Michigan. (Id.
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¶ 18.) The practice is a Michigan professional corporation with its principal place
of business in Monroe, Michigan. (Id. ¶¶ 8-9.) Jones-Barden, one of Dr. Feller’s
former patients, is a Michigan resident. (Id. ¶ 7.)
Med Pro is an Indiana corporation with its principal place of business in Fort
Wayne, Indiana. (ECF No. 1 ¶ 5.) Med Pro issued a professional liability
insurance policy to Plaintiffs that was effective from February 1, 2012 through
February 1, 2013 (“Med Pro Policy”). (Id. at Pg ID 41-82.) At Dr. Feller’s
request, however, the Med Pro Policy was cancelled effective January 1, 2013.
(Compl. ¶ 21.) Dr. Feller cancelled the policy because she purchased professional
liability insurance coverage from a different carrier, Professional Solutions
Insurance Company (“PSIC”). (Id.)
On March 12, 2013, Jones-Barden filed the underlying case alleging medical
malpractice by Plaintiffs and Mercy Memorial Health System. (Compl. Ex. A.)
Plaintiffs reported the lawsuit to PSIC, which denied coverage under a reservation
of rights letter and then filed a declaratory judgment action against Plaintiffs on
March 15, 2013 in the Circuit Court for Monroe County, Michigan. (Compl.
¶¶ 27-29.) Plaintiffs thereafter initiated the pending action asserting three counts:
(I) demand for declaratory relief against Med Pro and Jones-Barden; (II) breach of
contract as to Med Pro only; (III) promissory estoppel as to Med Pro only; and (IV)
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unjust enrichment as to Med Pro only. In Count I, as indicated earlier, Plaintiffs
seek a declaration concerning Med Pro’s duty to defend and indemnify Plaintiffs in
the underlying case. (Id. ¶¶ 37-57.)
II.
Applicable Standard
Removal of an action based on diversity jurisdiction is proper only where
complete diversity exists at the time of removal, that is, when all parties on one
side of the litigation are of a different citizenship from all parties on the other side
of the litigation. Coyne v. Am. Tobacco Co., 183 F.3d 488, 492 (6th Cir. 1999).
The party removing the action to federal court bears the burden of establishing
diversity jurisdiction. Certain Interested Underwriters at Lloyd’s London England
v. Layne, 26 F.3d 39, 41 (6th Cir. 1994).
A plaintiff’s fraudulent joinder of a non-diverse defendant will not defeat
removal on diversity grounds. Alexander v. Elec. Data Sys. Corp., 13 F.3d 940,
949 (6th Cir. 1994). It is the removing party’s burden to demonstrate fraudulent
joinder, id., and this burden has been described as “ ‘a heavy one.’ ” Walker v.
Philip Morris USA, Inc., 443 F. App’x 946, 953 (6th Cir. 2011) (unpublished op.)
(quoting Travis v. Irby, 326 F.3d 644, 649 (5th Cir. 2003)). The removing party
must demonstrate that the plaintiff lacks a “colorable cause of action” under state
law against the non-diverse defendant. Jerome-Duncan, Inc. v. Auto-By-Tel, LLC,
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176 F.3d 904, 907 (6th Cir. 1999). As alternatively described, “ ‘the question is
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 (quoting
Bobby Jones Garden Apts., Inc. v. Suleski, 391 F.2d 172, 176 (5th Cir. 1968)).
The Sixth Circuit has described two methods for determining whether the
plaintiff states a colorable claim against the non-diverse party:
“The court may conduct a Rule 12(b)(6)-type analysis, looking
initially at the allegations of the complaint to determine whether the
complaint states a claim under state law against the in-state defendant.
Ordinarily, if a plaintiff can survive a Rule 12(b)(6) challenge, there is
no improper joinder. That said, there are cases, hopefully few in
number, in which a plaintiff has stated a claim, but has misstated or
omitted discrete facts that would determine the propriety of joinder.
In such cases, the district court may, in its discretion, pierce the
pleadings and conduct a summary inquiry.”
Walker, 443 F. App’x at 952-53 (emphasis added) (quoting Smallwood v. Illinois
Cent. R.R. Co., 385 F.3d 568, 573 (2004) (en banc)). Regardless of which
approach the district court chooses to follow, its analysis is similar to that
employed when addressing a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(6): the court “must resolve ‘all disputed questions of fact and
ambiguities in the controlling . . . state law in favor of the non-removing party.’”
Coyne, 183 F.3d at 493 (quoting Alexander, 13 F.3d at 949).
Nevertheless, the standard for determining whether a non-diverse party has
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been fraudulently joined is not the same standard for addressing either dismissal
for failure to state a claim or for summary judgment. See In re Briscoe, 448 F.3d
201, 219 (3d Cir. 2006). The removing party has a higher burden to demonstrate
fraudulent joinder than a party has to succeed on a motion to dismiss under Rule
12(b)(6). See Little v. Purdue Pharma, L.P., 227 F. Supp. 2d 838, 845-46 (S.D.
Ohio 2002) (citing Batoff v. State Farm Ins. Co., 977 F.2d 848 (3d Cir.1992) and
Hartley v. CSX Transp., Inc., 187 F.3d 422 (4th Cir.1999)). As one district judge in
the Sixth Circuit has explained: “[T]he benefit of the doubt given a plaintiff as part
of the fraudulent joinder inquiry should be more deferential than even that given
under Rule 12(b)(6)” because the decision to deny a “motion for remand where the
defendant is claiming fraudulent joinder connotes that a plaintiff’s claim, as to the
non-diverse defendants, has no basis in law or reason.” Little, 227 F. Supp. 2d at
846-47; see also Batoff, 977 F.2d at 852 (holding that a party is not fraudulently
joined if the claims against the party are not “wholly insubstantial and frivolous”).
III.
Analysis
In their motion, Plaintiffs argue that Jones-Barden is properly joined as a
defendant in this action because “[i]t is well settled under Michigan law that an
injured party has a substantial interest in the insurance policy of an insured
defendant and thus the injured party has a legitimate interest in litigating the
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coverage of that policy.” (ECF No. 5 ¶ 21.) For support, Plaintiffs cite Allstate
Insurance Company v. Hayes, 442 Mich. 56, 499 N.W.2d 743 (1993), and Cloud v.
Vance, 97 Mich. App. 446, 296 N.W.2d 68 (1980). Plaintiffs further assert that
Jones-Barden is a “necessary party” to this action under Michigan Court Rule
2.205 because “[h]er presence . . . is essential to permit a court to render complete
relief.” (Id. ¶ 25.) Plaintiffs attempt a new tactic in their supplemental brief in
support of their motion to remand, arguing that the Court should decline to
exercise its discretion under the Declaratory Judgment Act.
As an initial matter, this last argument raised by Plaintiffs does not support
their motion to remand. The relevant question in deciding whether to grant
Plaintiffs’ motion is whether this Court has subject matter jurisdiction over their
Complaint. The decision whether to exercise that jurisdiction is a completely
separate issue. Moreover, the case law Plaintiffs cite relate to a Court’s discretion
to decide a claim brought under the federal Declaratory Judgment Act. Plaintiffs’
Complaint does not assert a cause of action under federal law. Moreover, even if
Plaintiffs’ argument applied to their state law declaratory judgment claim, they
allege other causes of action in their Complaint to which their argument does not
apply. In other words, once this Court has subject matter jurisdiction, it does not
have the discretion to choose not to address those claims.
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Turning to Plaintiffs’ other arguments, this Court finds that Jones-Barden
may in fact have an interest– and even a “ ‘substantial interest’ ”– in the subject of
this litigation. See Cloud, 97 Mich. App. at 450, 296 Mich. App. at 69 (quoting
Flanagan v. Harder, 270 Mich. 288, 258 N.W. 633 (1935) (stating that an injured
plaintiff has a “substantial interest in [a defendant’s insurance] policy”)).
Nevertheless, Med Pro has satisfied its heavy burden of showing that Plaintiffs
have not stated a colorable claim against her. There is no reasonable basis for
finding Jones-Barden liable to Plaintiffs under the facts alleged in Plaintiffs’
Complaint. Plaintiffs, in fact, seek no relief from Jones-Barden. They seek relief
as to Med Pro only. While this relief may have some impact on Jones-Barden in
that it will determine where she can recover any damages awarded in the
underlying case (if she prevails), the cases Plaintiffs cite do not establish that she
must necessarily be joined as a defendant to enable the court to render Plaintiffs the
complete relief they seek. See MCR 2.205(A) (providing that “persons having
such interests in the subject matter of an action that their presence in the action is
essential to permit the court to render complete relief must be made parties and
aligned as plaintiffs or defendants in accordance with their respective interests.”).
In Cloud, the Michigan Court of Appeals decided whether a default
judgment obtained by an insurance company in an action against its insured is
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binding on an injured party who was not given notice of the action or an
opportunity to intervene and be heard. 97 Mich. App. at 452, 296 N.W.2d at 70.
The court held that the default judgment declaring no coverage was not a valid
defense against the injured party. Id. The court simply found the third prerequisite
for application of the doctrine of res judicata missing: that “the two actions must
be between the same parties or their privies.” Id. at 451, 296 N.W.2d at 69-70
(additional quotation marks and citation omitted).
The Cloud court’s decision in no way suggests that an insured (or even an
insurance company) must join an injured party in an action seeking a declaratory
judgment regarding coverage. As to the insurance company, the failure to notify
the injured party of the litigation or name it as a party may prevent the insurance
company from using a declaratory judgment in its favor as a defense if the injured
party ultimately prevails and turns to the insurance company to satisfy the damage
award. Nevertheless, even in the injured party’s absence, the court can declare the
rights and other legal relations of the parties before it and that declaration is
binding on those parties.
In Hayes, the Michigan Supreme Court addressed the issue of whether a
court loses the power to declare the rights and liabilities of the insurer and injured
party in an action for declaratory judgment brought by an insurance company
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against the insured and the injured party, where the insured has defaulted. 442
Mich. at 57, 499 N.W.2d at 743. The Court held that the trial court does not,
stating:
We now hold that once Allstate began its action for declaratory
judgment and alleged that an actual controversy existed between itself
and its insured and Keillor [the injured party], the trial court could
declare the rights and responsibilities of all interested parties before it.
This power was not destroyed by virtue of the default judgment
entered against the insured. Although the court might have refused to
declare the rights of the remaining parties, leaving Keillor to pursue
the underlying tort action and, if successful, a garnishment action
against Allstate, it was within its discretion to allow the action to
continue and declare the rights of the parties remaining before it.
Id. at 61, 499 N.W.2d at 745 (footnote omitted). Again, this holding does not
suggest that Plaintiffs have a colorable claim against Jones-Barden or that they had
to name her as a defendant to their declaratory judgment action. If anything, the
Michigan Supreme Court’s decision suggests that, if named, Jones-Barden’s
interests would be aligned with Plaintiffs. Diversity jurisdiction would then still
exist.
For these reasons, the Court concludes that Jones-Barden’s citizenship
should be ignored when determining whether diversity jurisdiction exists. It does.
Thus Plaintiffs’ Complaint need not be remanded to state court. There is no basis
stated in Plaintiffs’ motion for dismissing Med Pro’s Counter-Complaint.
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Sixth Circuit precedent instructs that before adjudicating Plaintiffs’
Complaint and Med Pro’s Counter-Complaint, this Court must remove JonesBarden as a party. See Yuille v. American Home Mortgage Servs., Inc., 483 F.
App’x 132, 134 n.1 (6th Cir. 2012) (finding that the court exceeded its jurisdiction
by adjudicating the defendants’ motions for summary judgment where a nondiverse defendant was not dismissed from the lawsuit after the court concluded that
the plaintiff lacked standing to sue that defendant); Probus v. Charter Commc’ns,
LLC, 234 F. App’x 404 (6th Cir. 2007) (vacating district court’s summary
judgment decision where the court did not sua sponte assess the removing party’s
claim that a non-diverse defendant was fraudulently joined prior to adjudicating the
matter). In Yuille, the Sixth Circuit instructed that the district court should have
dropped the non-diverse defendant as a party pursuant to Federal Rule of Civil
Procedure 21 after finding that the plaintiff could not state a claim against that
defendant. 483 Fed. App’x at 134 n.1. Rule 21 provides in part that “[o]n motion
or on its own, the court may at any time, on just terms, add or drop a party.” Fed.
R. Civ. P. 21. The Court therefore is dropping Jones-Barden as a defendant.1
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Alternatively, perhaps, the Court could realign the parties as Med-Pro
suggests. There seems to be no benefit in doing so, however. Jones-Barden has
never responded to Plaintiffs’ lawsuit and no attorney has entered his or her
appearance on her behalf in this lawsuit.
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Accordingly,
IT IS ORDERED, that Plaintiffs’ motion to remand to state court and to
dismiss counterclaim is DENIED;
IT IS FURTHER ORDERED, that the Court drops Linda Jones-Barden as
a defendant pursuant to Federal Rule of Civil Procedure 21 and she is
DISMISSED AS A PARTY to this lawsuit.
Dated: February 4, 2014
s/PATRICK J. DUGGAN
UNITED STATES DISTRICT JUDGE
Copies to:
Clyde M. Metzger, Esq.
Adam A. Fadly, Esq.
Patrick E. Winters, Esq.
Jeffrey S. Cook. Esq.
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