Conifer Insurance Company v. Continental Enterprises et al

Filing 27

ORDER granting 21 Motion to Remand to Wayne County Circuit Court. Signed by District Judge Robert H. Cleland. (SSch)

UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

CONIFER INSURANCE COMPANY,
Plaintiff,
Case No. 15-11650

v.
CONTINENTAL INC., et al.,
Defendants.
/

ORDER GRANTING PLAINTIFF’S MOTION TO REMAND
On March 25, 2015, Plaintiff Conifer Insurance Company filed this Complaint
against Defendants Continental, Inc., SMTS, LLC, Trarms, Inc., Leapers, Inc., and
Chuanwen Shi in the Wayne County Circuit Court, seeking declaratory relief with
respect to Continental’s commercial general liability policy. (Dkt. # 1-2.) Defendants
removed the case to this court on May 7, 2015. (Dkt. # 1.)
In its Preliminary Scheduling Order following removal, however, the court
“questioned the existence of subject matter jurisdiction over this . . . case.” (Dkt. # 20,
Pg. ID 212.) On the face of the Complaint, no federal question was asserted and
complete diversity seemed to be lacking. (Dkt. # 1-2, Pg. ID 11-12.) The court,
therefore, ordered Plaintiff to either “a) submit a stipulation and proposed order that
would i) eliminate non-diverse parties and clarify this court’s jurisdiction, or ii) maintain
the non-diverse parties and remand the case to state court OR, b) in the absence of a
stipulated proposed order, file a motion to remand.” (Dkt. # 20, Pg. ID 212.) Now
before the court is Plaintiff’s timely Motion to Remand in response to that Order. (Dkt.

# 21.) After reviewing the briefs, the court concludes that a hearing is unnecessary.
See E.D. Mich. LR 7.1(f)(2). For the reasons explained below, the court will grant
Plaintiff’s Motion.
I. BACKGROUND
Defendant Continental is an investigative and consulting firm incorporated in
Indiana that specializes in trademark infringement. (Dkt. # 25, Pg. ID 549; Dkt. # 21,
Pg. ID 217, 220.) Fellow Defendant Leapers, a Michigan corporation, hired Continental
to investigate SMTS (a Michigan LLC), Trarms (a California corporation), and Shi (a
Chinese citizen and resident of California) in order to determine if they were unlawfully
replicating Continental’s intellectual property in their product designs. (Dkt. # 25, Pg. ID
218; Dkt # 21, Pg. ID 217.) At the conclusion of the investigation, Leapers sued those
parties under the Lanham Act. SMTS, Trarms, and Shi filed a counterclaim against
Leapers and Continental, alleging that they had been the victims of tortious conduct
during Continental’s investigation. That litigation is currently pending before this court in
the companion case Leapers, Inc. v. SMTS, LLC, No. 14-12290.
In 2011 — more than two years before the commencement of the underlying
case — Continental “applied for commercial general liability insurance coverage and
errors and omissions coverage from Conifer[,]” which was approved. (Dkt. # 21, Pg. ID
220.) The policy was renewed at the end of 2013, and remained in effect when SMTS,
Trarms, and Shi filed the aforementioned counterclaims. (Dkt. # ) As a result,
Continental sought indemnification from Conifer. (Dkt. # 21, Pg. ID 219.)
Conifer then filed the instant action in the Wayne County Circuit Court, asserting
(among other things) that (a) the allegations in the Counter-Complaint fall outside the
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coverage of Continental’s insurance policy, (b) “[c]ertain of the events alleged in the
Counter-Complaint occurred prior to the policy period[;]” and (c) Continental had failed
to disclose important details about “the nature and extent of its business” before the
“insurance transaction was consummated.” (Dkt. # 1-2, Pg. ID 13-17.) Conifer asked
the court to “enter its Judgment declaring that Plaintiff has no duty to defend or
indemnify Continental or any other Defendant with respect to any claim or demand
made in the currently pending litigation[,]” or in the alternative, “rescinding all coverages
issued by Plaintiff to Continental as a result of fraud.” (Id. at Pg. ID 17.)
II. STANDARD
“Federal courts are not courts of general jurisdiction and have only the power that
is authorized by Article III of the Constitution and the statutes enacted by Congress
pursuant thereto.” Marine Equip. Mgmt. v. United States, 4 F.3d 643, 646 (8th Cir.
1993). “It is to be presumed that a cause lies outside this limited jurisdiction, and the
burden of establishing the contrary rests upon the party asserting jurisdiction.”
Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994).
The U.S. District Court has jurisdiction over claims based on a federal question
and claims with complete diversity of citizenship between parties. Title 28 U.S.C. §
1332 defines diversity jurisdiction. It provides, in pertinent part, that “[t]he district courts
shall have original jurisdiction of all civil actions where the matter in controversy
exceeds the sum or value of $75,000, exclusive of interest and costs, and is between . .
. citizens of different states.” 28 U.S.C. § 1332(a)(1) (2006). Under 28 U.S.C. §
1332(a), therefore, the two requirements for diversity jurisdiction are (1) that the matter

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in controversy exceed $75,000.00, and (2) that complete diversity exist between the
disputing parties.
III. DISCUSSION
In its Notice of Removal, Defendant Continental argued that all other Defendants
“have been fraudulently joined to this Action and should be ignored for purposes of the
diversity analysis.” (Dkt. # 1, Pg. ID 5.) Plaintiff Conifer counters that “joinder of each
of the Michigan based Defendants was not only appropriate, but was required under
Michigan law[.]” (Dkt. # 21, Pg. ID 227.) The court agrees. The party seeking removal
has the burden of proving that a non-diverse party was fraudulently joined. Freeman v.
Unisys, Corp., 870 F. Supp. 169, 173 (E.D. Mich. 1994). As the Sixth Circuit has held,
“there can be no fraudulent joinder unless it be 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.”
Defendant has not satisfied its burden in this regard, and as such the case will be
remanded to state court.
The Michigan Supreme Court has specifically stated that “the injured party in an
insurer’s action for declaratory relief is a proper party to that action.” Allstate Ins. Co. v.
Hayes, 499 N.W.2d 743, 748 (Mich. 1993). Once an insurance company begins “its
action for declaratory judgment and allege[s] an actual controversy exist[s] between
itself and its insured and [the injured party], the trial court [can] declare the rights and
responsibilities of all interested parties before it.” Id. at 745. Here, Defendants SMTS,
Trarms, and Shi have all allegedly been injured by Continental’s actions, injuries for
which Continental has sought indemnification under its insurance policy. As such, these
Defendants are proper parties to Plaintiff’s action under Michigan law and have not
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been fraudulently joined. Complete diversity between the opposing sides, therefore,
does not exist. Both Conifer and SMTS are Michigan companies, obviating this court’s
jurisdiction over the matter.
IV. CONCLUSION
IT IS ORDERED that Plaintiff’s Motion to Remand (Dkt. # 21) is GRANTED. The
matter is remanded to Wayne County Circuit Court.

s/Robert H. Cleland
ROBERT H. CLELAND
UNITED STATES DISTRICT JUDGE
Dated: November 12, 2015

I hereby certify that a copy of the foregoing document was mailed to counsel of record
on this date, November 12, 2015, by electronic and/or ordinary mail.
s/Lisa Wagner
Case Manager and Deputy Clerk
[phone]

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