Howard v. Direct General Insurance Company of Mississippi et al
Filing
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MEMORANDUM OPINION re 61 Order Remanding Case. Signed by District Judge Sharion Aycock on 9/27/2013. (dm)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF MISSISSIPPI
GREENVILLE DIVISION
EMMA HOWARD
PLAINTIFF
v.
CIVIL ACTION NO.: 4:12-cv-87-SA-JMV
DIRECT GENERAL INSURANCE COMPANY
OF MISSISSIPPI, DIRECT GENERAL INSURANCE
AGENCY, INC., DIRECT GENERAL CORPORATION,
DIRECT GENERAL INSURANCE COMPANY, and
NATION MOTOR CLUB (a/k/a NATION SAFE DRIVERS, LLC),
and LEVAR HILL
DEFENDANTS
MEMORANDUM OPINION
Presently before the Court are the Direct General Defendants’ Motion to Dismiss [39]
and Defendant Nation Safe’s Motion for Judgment on the Pleadings [45]. Because the Court sua
sponte determines that it has no subject matter jurisdiction over the present matter, this case is
remanded to the Circuit Court of Leflore County, Mississippi.
FACTUAL AND PROCEDURAL BACKGROUND
The Plaintiff in this action is a Mississippi domicilliary who purchased an automobile
insurance policy from Direct General. Specifically, Howard obtained a Direct General policy in
2004 and has maintained her coverage with Direct General from that time to the present.
Howard purchased the policy at the Direct General Insurance Agency office in Greenville,
Mississippi. Each of the Plaintiff’s policies were serviced by Direct General Agent Levar Hill.
Contemporaneously with the purchase of those automobile insurance policies, Plaintiff also
purchased a number of add-on products or automobile club services.
Those products, the
Roadside Assistance Program and Auto Protection Plan, were not Direct General products, but
were instead underwritten by Nation Safe Drivers (Nation Safe).
Contending that she was fraudulently induced to purchase those add-on products, that the
products were worthless, unreasonably priced, and were sold in violation of state law, Plaintiff
filed the present action in the Circuit Court of Leflore County, Mississippi. Defendant Nation
Safe thereafter removed the action to this Court on grounds of purported diversity jurisdiction.
In its notice of removal, Nation Safe alleged that although Direct General Insurance Company of
Mississippi and Direct General Insurance Agency Inc. (Direct Defendants) were non-diverse
defendants, those parties should be overlooked under the theory of fraudulent misjoinder or
improper joinder.
STANDARD OF LAW
Federal courts are courts of limited jurisdiction and, as such, are called to presume that a
suit lies outside their jurisdictional limits. Kokkonen v. Guardian Life Ins. Co. of America, 511
U.S. 375, 377, 114 S. Ct. 1673, 128 L. Ed. 2d 391 (1994); Howery v. Allstate Ins. Co., 243 F.3d
912, 916 (5th Cir. 2001). When a case is removed under the premise of the court’s diversity
jurisdiction, it “shall be removable only if none of the parties in interest properly joined and
served as defendants is a citizen of the State in which such action is brought.” 28 U.S.C. §
1441(b). Thus, when there is a single defendant who is a citizen of the forum state present,
removal on the basis of diversity jurisdiction is barred. Similarly, in a case with multiple
plaintiffs or multiple defendants, complete diversity is required.
Significantly, the party removing the case bears the burden of showing that jurisdiction is
proper in federal court. Guillory v. PPG Indus., Inc., 434 F. 3d 303, 309 (5th Cir. 2005). If at
any time before final judgment it appears that the district court lacks subject matter jurisdiction,
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the case shall be remanded. 28 U.S.C. § 1447(c). The removal statute is to be strictly construed,
and any doubt about the propriety of removal must be resolved in favor of remand. Gasch v.
Hartford Acc. & Indem. Co., 491 F. 3d 278, 281 (5th Cir. 2007).
DISCUSSION AND ANALYSIS
In the case at hand, it is undisputed that the Plaintiff is a domicilliary of the forum state.
Similarly, Defendants Direct General Mississippi and Direct General Agency Inc. are also
domicilliaries of Mississippi.
Defendant Nation Safe, however, contends that diversity
jurisdiction is nonetheless proper under either a fraudulent misjoinder or improper joinder
theory, while the Direct Defendants argue that diversity jurisdiction is proper under only
improper joinder.
Fraudulent Misjoinder
The concept of fraudulent misjoinder was first articulated by the Eleventh Circuit in
Tapscott v. MS Dealer Serv. Corp., 77 F.3d 1353 (11th Cir. 1996), abrogated on other grounds,
Cohen v. Office Depot, Inc., 204 F.3d 1069 (11th Cir. 2000). Previously, fraudulent joinder
provided the sole basis for disregarding the citizenship of a non-diverse party. However, in
Tapscott, the Eleventh Circuit articulated that “[m]isjoinder may be just as fraudulent as the
joinder of a resident defendant against whom a plaintiff has no possibility of a cause of action.”
Id. at 1360. Therefore, at least where the joinder of defendants constitutes an “improper and
fraudulent joinder, bordering on a sham,” the Eleventh Circuit has instructed that the presence of
such non-diverse defendants should not destroy federal jurisdiction.
In other words, “a
defendant’s ‘right of removal cannot be defeated by a fraudulent joinder of a resident defendant
having no real connection with the controversy.’” Id. at 1359 (quoting Wilson v. Republic Iron &
Steel Co., 257 U.S. 92, 97, 42 S. Ct. 35, 66 L. Ed. 144 (1921)).
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Although the Fifth Circuit has seemingly endorsed the theory of fraudulent misjoinder,
the court has provided limited instruction on how the doctrine should be applied. See In re
Benjamin Moore & Co., 309 F.3d 296, 298 (5th Cir. 2002) (noting that “it might be concluded
that misjoinder . . . should not be allowed to defeat diversity jurisdiction.”); Jackson v. Truly,
307 F. Supp. 2d 818, 823 (N.D. Miss. 2004) (“This Court concludes that the Fifth Circuit has
adopted, at least in principle, the doctrine of fraudulent misjoinder.”). Federal district courts
within this state, however, have first looked to the Mississippi Rules of Civil Procedure in order
to evaluate a party’s fraudulent misjoinder claim. Palermo v. Letourneau Tech. Inc., 542 F.
Supp. 2d 499, 517 (S.D. Miss. 2008); Jamison v. Purdue Pharma Co., 251 F. Supp. 2d 1315,
1323 (S.D. Miss. 2003).
Purported Misjoinder of Defendants
Thus, under Mississippi Rule of Civil Procedure 20(a), “[a]ll persons may be joined in
one action as defendants if there is asserted against them jointly, severally, or in the alternative,
any right to relief in respect of or arising out of the same transaction, occurrence, or series of
transactions or occurrences, and if any question of law or fact common to all defendants will
arise in the action.” Miss. R. Civ. P. 20(a). For joinder to be proper, both prongs of Rule 20(a)
—(1) the right to relief arises out of the same transaction, occurrence, or series of transactions or
occurrences, and (2) a question of law or fact common to all defendants will arise in the action—
must be satisfied. See e.g. Wyeth-Ayerst, 905 So. 2d 1205, 1207 (Miss. 2005). In order for an
alleged “occurrence” to be sufficient to satisfy the two factors required under Rule 20(a), “there
must be a ‘distinct litigable event linking the parties.’” Hegwood v. Williamson, 949 So. 2d 728,
730 (Miss. 2007) (quoting Wyeth-Ayerst, 905 So.2d at 1208).
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Whether a “distinct litigable event” exists is determined by considering the proof
necessary to succeed on the alleged claims. Id. at 730. As explained by the Mississippi Supreme
Court in Hegwood:
The appropriateness of joinder decreases as the need for additional
proof increases. If plaintiffs allege a single, primary wrongful act,
the proof will be common to all plaintiffs; however separate proof
will be required where there are several wrongful acts by several
different actors. The need for separate proof is lessened only where
the different wrongful acts are similar in type and character and
occur close in time and/or place.
Id.
Although both prongs of Rule 20 must be met in order to deny a motion to sever, the rule
extends broad discretion to the trial courts in determining how to try claims, and such
determinations are properly reviewed on a case-by-case basis. Mississippi Farm Bureau Fed. v.
Roberts, 927 So. 2d 739, 741 (Miss. 2006). Moreover, when considering the propriety of a
party’s Rule 20(a) joinder in the fraudulent misjoinder context, mere misjoinder will not suffice
for purposes of overlooking a non-diverse party’s presence in the action. Sweeney v. Sherwin
Williams Co., 304 F. Supp. 2d 868, 873 (S.D. Miss. 2004). Instead, the application of fraudulent
misjoinder requires that the misjoinder must be grossly improper, or, as the Eleventh Circuit
articulated, “bordering on a sham.” Walton v. Tower Loan of Miss., 338 F. Supp. 2d 691, 695
(N.D. Miss. 2004); Tapscott, 77 F.3d at 1359. Therefore, this Court has previously stated that
the doctrine is most readily applied “in cases where it seems clear that parties were misjoined
specifically to defeat diversity jurisdiction as opposed to cases where such an inference is less
clear.” Id. at 697.
Turning to the case at hand, the Court finds that Defendant’s fraudulent misjoinder
argument fails. Defendant, in arguing that the Plaintiff’s claims against Nation Safe and those
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against the Direct General Defendants have been misjoined, relies almost exclusively on the
argument that the Plaintiff’s contracts with Nation Safe and contracts with the Direct Defendants
were separate and distinct transactions. Essentially, Nation Safe’s argument seems to be that
Plaintiff cannot show a “distinct litigable event.” Specifically, however, Howard avers that each
alleged fraudulent transaction was carried out in a standardized and uniform manner, sold by the
same agent, during the same sitting. For present purposes, the Court finds that Plaintiff has the
more persuasive side of the argument.
Indeed, as articulated in Hegwood, “[t]he need for separate proof is lessened only where
the different wrongful acts are similar in type and character and occur close in time and/or
place.” 949 So. 2d at 730. In Roberts, the Mississippi Supreme Court specifically considered
the distinct litigable event requirement in the insurance policy context. 927 So. 2d at 740.
Although that case applied the requirement as to the joinder of separate plaintiffs’ claims, its
holding is equally illustrative in regard to the joinder of an individual plaintiff’s claims against
separate defendants. There, the plaintiffs were a group of independent insurance agents who
contracted with a number of separate insurers to sell insurance products. Id. They alleged that
although they were good producers, they were prevented from expanding their business as
promised and averred causes of action under both tort and contract theories. Id. at 741. In
determining whether the plaintiffs could respectively join their actions, the Court considered
whether there was a distinct litigable event tying the parties. The Court found in the negative,
relying on the fact that the plaintiffs “worked under different supervisors in different locations,
and were subject to several different alleged circumstances at different times.” Id. at 742.
Additionally, the Court noted that no plaintiff had lodged claims against all defendants. Id.
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In the case at hand, Plaintiff argues that the two products, the Nation Safe add-ons and
the Direct General automobile policy, were sold by the same agent, in the same sitting, with the
same sales pitch, on the same date. The Court finds that Plaintiff has at the very least proffered
sufficient argument that a Mississippi court might find that their claims against both Nation Safe
and the Direct Defendants were properly joined under the Mississippi permissive joinder
standards. Unlike the Plaintiffs in Roberts who were disjointed, Howard has put forth significant
argument that her respective claims arise out of wrongful acts that, albeit are separate, are
nonetheless similar in type and character and occurred close in proximity.
Moreover, even if joinder were ultimately found improper, the Court determines that it is
not so egregious as to constitute fraudulent misjoinder.
As this Court noted in Walton,
fraudulent misjoinder is most appropriate “in cases where it seems clear that parties were
misjoined specifically to defeat diversity jurisdiction as opposed to cases where such an
inference is less clear.”
Walton, 338 F. Supp. 2d at 697.
Here, the Court finds ample
justification for Plaintiff’s decision to attempt to join her claims against both Nation Safe and the
Direct Defendants. Unlike the plaintiffs in Tapscott, where the claims against the non-diverse
defendants were completely inapposite to the claims against the diverse defendants, Plaintiff
contends that her claims against the Direct Defendants here are essentially part and parcel of her
claims against Nation Safe.
Improper Joinder
Additionally, however, Nation Safe and the Direct Defendants also contend that even if
the doctrine of fraudulent misjoinder provides them no relief, the Court should overlook the nondiverse Direct Defendants under an improper joinder theory. In the Fifth Circuit, “[i]mproper
joinder can be established in two ways: (1) actual fraud in the pleading of jurisdictional facts, or
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(2) inability of the plaintiff to establish a cause of action against the non-diverse party in state
court.” Mumfrey v. CVS Pharmacy, Inc., 719 F.3d 392, 401 (5th Cir. 2013) (quoting McKee v.
Kansas City S. Ry. Co., 358 F.3d 329, 333 (5th Cir. 2004)). The Defendants here rely only on
the second method. Therefore, the ultimate question before the court is “whether the defendant
has demonstrated there is no possibility of recovery by the plaintiff against an in-state defendant,
which stated differently means that there is no reasonable basis for the [court] to predict that the
plaintiff might be able to recover against an in-state defendant.” Smallwood v. Illinois Cent. R.
Co., 385 F.3d 568, 573 (5th Cir. 2004). “If no reasonable basis of recovery exists, a conclusion
can be drawn that the plaintiff’s decision to join the local defendant was indeed fraudulent,
unless that showing compels dismissal of all defendants.” McDonal v. Abbott Labs., 408 F.3d
177, 183 (5th Cir. 2005).
In assessing the possibility of recovery, 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.” Id. Typically, if the plaintiff’s
complaint survives such scrutiny, there is no improper joinder. Id. Alternatively, at its discretion
and in “hopefully few” cases, the court may opt to pierce the pleadings and conduct a summary
inquiry where the plaintiff has stated a claim, but omitted or misstated discrete facts. Id.; see
also Boone v. Citigroup Inc., 416 F.3d 382, 388 (5th Cir. 2005) (“A motion to remand is
normally analyzed with reference to the well-pleaded allegations of the complaint, which is read
leniently in favor of remand under a standard similar to Rule 12(b)(6)”). Under either avenue,
however, all disputed issues of fact and any ambiguities of state law must be resolved in the
plaintiff’s favor. Smith v. Petsmart, Inc., 278 F. App’x 377, 380 (5th Cir. 2008).
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In the present case, the Court finds no justification for converting the inquiry into a
summary review and therefore analyzes the Plaintiff’s complaint under the more lenient Rule
12(b)(6) framework. Smallwood, 385 F.3d at 574 (noting that the court’s inquiry at this stage
should be guided by “simple and quick exposure of the chances of the claim against the in-state
defendant”). Thus, the Court asks whether there is any reasonable, opposed to merely theoretical,
basis to predict that state law might impose liability on the facts involved. Travis v. Irby, 326
F.3d 644, 649 (5th Cir. 2003); Smith, 278 F. App’x at 379.
Fraudulent Misrepresentation
The Court turns to the allegations of the complaint for analysis. In order to establish a
prima facie case of fraudulent misrepresentation, the Plaintiff must show: (1) that Defendant
made a representation, (2) the representation was false, (3) the representation was material, (4)
the speaker knew the statement was false or was ignorant of the truth, (5) Defendant intended
that the statement should be acted upon by Plaintiff in a manner reasonably contemplated, (6) the
Plaintiff was ignorant of the statement’s falsity, (7) the Plaintiff relied on the statement as true,
(8) Plaintiff had a right to rely thereon, and (9) the Plaintiff suffered proximate injury as a
consequence.” Oxford Mall Co. v. Sadie’s Inc., 18 F. 3d 935, *5 (5th Cir. 1994); Moran v.
Fairley, 919 So. 2d 969, 975 (Miss. Ct. App. 2005).
Defendants attack the Plaintiff’s fraudulent misrepresentation claims as to the reasonable
reliance factor, contending that “given the language of the signed documents, Plaintiff cannot
show that she reasonably relied on any of the alleged misrepresentations or omissions.” In
support of such an argument, Defendants point to a number of contractual provisions, which
Defendants contend preclude any reliance on the agent’s purported oral misrepresentations. As
Defendants indeed contend, under Mississippi law, “a person is under an obligation to read a
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contract before signing it, and will not as a general rule be heard to complain of an oral
misrepresentation the error of which would have been disclosed by reading the contract.”
Godfrey, Bassett & Kuykendall Architects, Ltd. v. Huntington Lumber & Supply Co., Inc., 584
So. 2d 1254, 1257 (Miss. 1991).
However, Mississippi law also recognizes an exception to that general rule in
circumstances where “a party alleges that his entry into a contract was procured by fraudulent
misrepresentations.” Turner v. Terry, 799 So. 2d 25, 33 (Miss. 2001). As articulated in Turner,
when such allegations are brought forth,
parol evidence is admissible to show that the making of a written
contract was procured by fraudulent representations. Evidence of
this kind does not vary the written contract; it destroys and avoids
it. It impeaches the written contract. Its purpose is to show that
there was no valid, written contract, and a provision in a written
contract that it contains all the stipulations entered into by the
parties does not add anything to its strength.
In Anderson v. Equitable Life Assurance Society of the United States, the court
considered a situation similar to that presented here. 248 F. Supp. 2d 584, 584 (S.D. Miss.
2003).
There, plaintiffs purchased a number of various savings plans that included a life
insurance product. Id. at 588. The plaintiffs further alleged that defendants had fraudulently
misrepresented the nature of those products by producing illustrations and sales materials that
purported to demonstrate the value of those plans. Id. In determining that the case was due to be
remanded, the court found that plaintiffs possessed “an arguably reasonable basis for recovering
against [d]efendants on their claims of fraudulent misrepresentation.” Id. at 594.
In the case at bar, the Court finds two principal shortcomings with Defendant’s
reasonable reliance argument.
First, as previously pointed out in Flowers, this Court is
unconvinced that the cited contractual provisions necessarily speak to the ills now complained of
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by Plaintiffs.
---- F. Supp. 2d ----, 2013 WL 38116087, *1 (N.D. Miss. Jul. 10, 2013).
Additionally, although the general rule is that the Court will not look outside the signed
documents, there is a well delineated exception for fraudulent inducement. At this juncture, the
Court cannot say that the exception should not apply.
Additionally, however, Defendants also attack Plaintiff’s fraud claims under a failure to
plead with particularity theory.
Under Mississippi Rule of Civil Procedure 9(b), “In all
averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated
with particularity.” These circumstances include the time, place, and contents of the fraudulent
representation. Allen v. Mac Tools, Inc., 671 So. 2d 636, 642 (Miss. 1996). Previously, this
Court characterized a similar complaint brought against Defendants as “lengthy and highly
specific” and determined that when viewed in its entirety, the complaint sufficiently satisfied
Rule 9(b). See Flowers, 2013 WL 38116087 at *1. The Court finds no reason to deviate from
that finding here. The Plaintiff has pled which agent sold the products, where the sales took
place, who made the alleged misrepresentations, when they took place, how the statements took
place, and which statements were omitted.
Defendants’ failure to plead with particularity
argument therefore also fails.
Administrative Exhaustion
Defendants also challenge Plaintiff’s complaint under the interrelated theories of
administrative exhaustion and primary jurisdiction. Neither of those theories, however, carries
the day here. Nation Safe broadly argues that “[t]here is no basis for any claim against [the
Direct General Defendants].” Nation Safe contends that “under the doctrine of exhaustion of
administrative remedies and the doctrine of primary jurisdiction, any claims about the products
offered to the Plaintiff must be presented to the Department of Insurance.” Nation Safe avers
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that “the Complaint repeatedly references alleged violations of the Mississippi Insurance Code
and Mississippi’s public policy regarding insurance.” According to Nation Safe, “[t]he
Commissioner’s plenary authority covers, not only licensed insurers, but also unauthorized
insurers and automobile clubs.” Thus, according to Nation Safe, “[b]ecause a challenge to sales
practices, rates, premiums, and forms goes to the heart of the Commissioner’s jurisdiction,
Plaintiff first must exhaust their administrative remedies.”
The primary problem with Nation Safe’s position is glaring. As noted, Nation Safe
argues that almost any complaints regarding insurance or insurance-like products must first be
presented to the Insurance Commissioner. Such a defense, however, is plainly excluded from
consideration here under the common defense doctrine articulated in Smallwood. As the Fifth
Circuit has made clear, “when, on a motion to remand, a showing that compels a holding that
there is no reasonable basis for predicting that state law would allow the plaintiff to recover
against the in-state defendant necessarily compels the same result for the nonresident defendant,
there is no improper joinder; there is only a lawsuit lacking in merit.” 385 F.3d at 574.
Therefore, to the extent that the doctrines of primary jurisdiction or administrative exhaustion
might or might not serve to preclude Plaintiff’s claims as to both Nation Safe and the Direct
Defendants, it cannot be considered here, and Defendant’s cries of improper joinder fall flat.
Class Action Jurisdiction
Finally, Plaintiff contends that class action diversity jurisdiction is proper under 28
U.S.C. § 1332(d)(2)(A). As firmly established, however, “[t]o determine whether jurisdiction is
present for removal, [the court] consider[s] the claims in the state court petition as they existed at
the time of removal. Manguno v. Prudential Prop. and Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir.
2002) (citing Cavallini v. State Farm Mut. Auto Ins. Co., 44 F.3d 256, 264 (5th Cir. 1995). The
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Plaintiff’s state court complaint contained no class-based allegations. Instead, Plaintiff first
attempted to articulate any class-based allegations in her first amended complaint, which was
filed well after the removal of this cause. The Court therefore determines that Plaintiff’s class
action jurisdictional theory fails to affect this Court’s jurisdiction.
CONCLUSION
In light of the foregoing, the Court finds that the Plaintiff has an arguably reasonable
basis for recovering against the Direct Defendants on her claims of fraudulent misrepresentation.
The existence of one claim suffices to render the entire action unremovable on diversity grounds.
See 28 U.S.C. § 1441(c); Anderson, 895 F. Supp. 2d at 594. Additionally, the Court finds that
Plaintiff’s allegations regarding class action jurisdiction are immaterial. IT IS THEREFORE
ORDERED that this case be remanded to the Circuit Court of Leflore County, Mississippi.
SO ORDERED, this the 27th day of September, 2013.
/s/ Sharion Aycock___________________
U.S. DISTRICT JUDGE
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