Super Truck Stop 35-55, LLC et al v. Singh et al
Filing
34
ORDER GRANTING IN PART re 13 MOTION to Remand to State Court, Circuit Court of Carroll County, Mississippi; DENIED IN PART as to costs and attorneys fees filed by Manjit Singh Johal, Jagir Singh, Super Truck Stop 35-55, LLC, Sanjay Kumar, 19 DENYING AS MOOT MOTION to Sever filed by Northland Insurance Company, MEMORANDUM OPINION. Signed by District Judge Debra M. Brown on 9/29/16. (tab)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF MISSISSIPPI
GREENVILLE DIVISION
SUPER TRUCK STOP 35-55, LLC;
JAGIR SINGH; MANJIT SINGH JOHAL;
and SANJAY KUMAR
V.
PLAINTIFFS
NO. 4:15-CV-125-DMB-JMV
NISSI INSURANCE SOLUTIONS, LLC,
d/b/a as Horizon Insurance Group; MICHAEL
WELLS; CERTAIN UNDERWRITERS AT
LLOYD’S LONDON SUBSCRIBING TO
POLICY NUMBER LBW522102;
NORTHLAND INSURANCE COMPANY
d/b/a Northfield Insurance Company;
and JOHN DOES 1-10
DEFENDANTS
MEMORANDUM OPINION AND ORDER
Before the Court are: (1) “Plaintiffs’ Motion to Remand,” Doc. #13; and (2) “Defendant,
Northland Insurance Company d/b/a Northfield Insurance Company’s, Response in Opposition to
Plaintiffs’ Motion to Remand and Motion to Sever,” Doc. #19.
I
Procedural History
A. State Court Action
On August 10, 2015, Super Truck Stop 35-55, LLC (“Super Truck”), Jagir Singh, Manjit
Singh Johal, and Sanjay Kumar filed a complaint in the Circuit Court of Carroll County, Mississippi,
against Nissi Insurance Solutions, LLC (“Nissi Insurance”), Michael Wells, Certain Underwriters at
Lloyd’s London Subscribing to Policy Number LBW522102 (“Underwriters”), Northland Insurance
Company (“Northland”),1 and ”John Does 1–10,” regarding the handling of their insurance claim for
fire loss damage sustained by 35/55 Truck Stop in Vaiden, Mississippi. Doc. #2. Against
1
According to the initial complaint filed in state court and the amended complaint filed in this Court, Northland does
business as Northfield Insurance Company. Doc. #2; Doc. #15.
Underwriters and Northland, the complaint sought a declaratory judgment “constru[ing] the pertinent
… provisions” of the insurance policies issued by them and, from Underwriters, damages for a
wrongful denial of the insurance claim. Id. at ¶¶ 23–28. Against Nissi Insurance and Wells, the
complaint asserted negligence claims and sought “actual, compensatory and incidental damages.”
Id. at ¶ 33. The complaint alleged that: (1) Sanjay is a “Mississippi resident;” (2) Super Truck “is a
Mississippi Limited Liability Company in good standing;” (3) Jagir and Manjit are “Mississippi
resident[s]” and members of Super Truck; (4) Nissi Insurance is a “Mississippi Limited Liability
Company in good standing;” (5) Wells “is the owner, agent and/or principle [sic] of [Nissi
Insurance];” (6) Northland is a “foreign insurance company;” and (7) Underwriters “is believed to be
the Member or Members and/or Names that assumed the risks covered by Certificate Number
LBW522102 and Contract Number BO621F3305514 to Super Truck Stop ….” Id. at ¶¶ 1–8.
Northland was provided with a copy of the state court complaint on or about August 12,
2015. Doc. #1 at ¶ 3. Wells and Nissi Insurance were served with the complaint on August 20,
2015. Doc. #3-7; Doc. #3-9. Underwriters was served on or about August 24, 2015. Doc. #1 at ¶ 3.
B. Removal
On September 10, 2015, Northland removed the state court action to this Court, alleging
diversity jurisdiction. Doc. #1. Specifically, in its notice of removal Northland alleges that
“[a]ccording to the Complaint … Jagir Singh, Manjit Singh Johal and Sonjay [sic] Kumar are adult
resident citizens of the State of Mississippi;” that Wells is a “resident citizen of Philadelphia,
Neshoba County, Mississippi,” and that “[i]t is undisputed that Underwriters is a foreign insurer with
its principal place of business in a state other than Mississippi.”2 Doc. #1 at ¶¶ 5–6. The notice of
removal also alleges that “Super Truck Stop 3-5-55 [sic], LLC, is a Mississippi Limited Liability
2
An allegation that a party is not a citizen of a state is insufficient to invoke diversity jurisdiction. Getty Oil Corp., a
Div. of Texaco, Inc. v. Ins. Co. of N. Am., 841 F.2d 1254, 1259 (5th Cir. 1988).
2
Company ….” Id. at ¶ 5. Northland urges the Court to disregard the citizenship of Nissi Insurance
and Wells (“Agent Defendants”), asserting that they were “fraudulently joined or, alternatively,
fraudulently misjoined.” Id. at 3.
On September 17, 2015, Northland answered the state court complaint. Doc. #4. The Agent
Defendants answered the following day. Doc. #5. On September 23, 2015, Underwriters filed a
separate notice of removal, also alleging diversity jurisdiction. Doc. #7. Underwriters states in its
notice of removal that it consented to Northland’s removal, and urges the Court to disregard the
Agent Defendants’ citizenship because Nissi Insurance and Wells “have been fraudulently joined or
mis-joined in this action solely to defeat diversity jurisdiction.”3 Id. at ¶ 6.
On September 30, 2015, Underwriters answered the state court complaint and counterclaimed
against the plaintiffs for a “judicial declaration … regarding its legal rights and obligations for
claims asserted by [the plaintiffs].” Doc. #8; Doc. #9 at ¶ 9. The same day, Underwriters crossclaimed against Northland, also seeking a “judicial declaration … regarding its legal rights and
obligations for claims pursuant to a policy of insurance subscribed to by [Underwriters].” Doc. #10
at ¶ 9. On October 7, 2015, Northland answered the cross-claim and the plaintiffs answered the
counterclaim. Doc. #11; Doc. #12.
C. Motion to Remand and Amended Complaint
On October 8, 2015, the plaintiffs filed the instant motion to remand with three attached
exhibits.”4 Doc. #13.
3
Underwriters made no additional allegations concerning the citizenship of the plaintiffs. As to its own citizenship,
Underwriters alleges that the “[u]nderwriters subscribing to [the policy at issue] comprise three syndicates ... [n]one [of
which] has [sic] any names in Mississippi, and all three comprise 100% corporate capital that are [sic] incorporated in
the United Kingdom with the principal place of business in London.” Doc. #7 at ¶ 5. As noted above, citizenship may
not be shown by alleging that a party is not a citizen of the subject state. See note 2 supra.
4
In violation of Local Uniform Civil Rule 7(b)(2), the plaintiffs failed to provide a meaningful description for each filed
exhibit.
3
On October 12, 2015, the plaintiffs filed an amended complaint, naming the same defendants
and including the same counts as in their initial complaint. Doc. #15. The next day, on October 13,
2015, the plaintiffs filed a motion requesting that this case be stayed pending a ruling on the motion
to remand. Doc. #16. On October 14, 2015, United States Magistrate Judge Jane M. Virden stayed
the attorney conference, disclosure requirements, and all discovery not relevant to the motion to
remand. Doc. #17.
On October 22, 2015, Northland filed two identical documents—a response in opposition to
the motion to remand and a motion to sever under Federal Rule of Civil Procedure 21.5 Doc. #18;
Doc. #19. That same day, Northland answered the amended complaint. Doc. #20.
On October 23, 2015, Underwriters responded in opposition to the motion to remand and, on
October 29, 2015, the plaintiffs filed a combined reply to the responses filed by Northland and
Underwriters. Doc. #22; Doc. #24. On November 4, 2015, Underwriters responded to Northland’s
motion to sever, asking the Court to deny Northland’s request to be severed “from the other coDefendants should this Court remand.” Doc. #27 at 1–2.
On March 30, 2016, the Court issued an order for Northland to show cause “why this matter
should not be remanded due to the absence of diversity under 28 U.S.C. § 1332.” Doc. #31 at 4.
The order to show cause gave Northland fourteen days to submit competent evidence “identifying all
of the members of Super Truck and [Nissi Insurance], and the citizenship of each member as of
September 10, 2015, … and … identifying the state of incorporation and principal place of business
of [Northland] and [Underwriters].” Id. at 4 (footnote omitted). Northland responded to the show
cause order on April 12, 2016. Doc. #32. Of relevance here,6 Northland’s response includes an
5
In violation of Local Uniform Civil Rule 7(b)(2), Northland failed to file a memorandum brief as a separate docket
entry.
6
Because this case will be remanded based on the undisputed citizenships of Sanjay and the Agent Defendants, the Court
need not evaluate the citizenship of the other parties referenced in the show cause order.
4
allegation that, “[a]t the time of the filing of [the] Notice of Removal, the sole member of [Nissi
Insurance] was Michael Wells.”7 Doc. #32 at ¶ 2.
II
Plaintiffs’ Motion to Remand
The plaintiffs seek remand under 28 U.S.C. § 1447, which provides that “[i]f at any time
before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall
be remanded.” In their motion to remand, the plaintiffs contend that the non-diverse Agent
Defendants were properly joined. Doc. #13 at ¶ 3. Further, the plaintiffs request “an award of the
reasonable costs and attorney fees incurred … in securing [remand].” Id. at ¶ 6.
A. Improper Joinder of Agent Defendants
1.
Applicable law
“The right to remove a case from state to federal court derives solely from the statutory grant
of jurisdiction in 28 U.S.C. § 1441.” Willy v. Coastal Corp., 855 F.2d 1160, 1164 (5th Cir. 1988). 28
U.S.C. § 1441 provides that “[e]xcept as otherwise expressly provided by Act of Congress, any civil
action brought in a State court of which the district courts of the United States have original
jurisdiction, 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.” 28 U.S.C.
§ 1441(a).
a.
Diversity jurisdiction
Article III, Section 2 of the United States Constitution provides, “The judicial Power shall
extend to all Cases, in Law and Equity, … between Citizens of different States ….” 28 U.S.C. §
7
Given the representation in the response to the order to show cause, and the undisputed Mississippi citizenship of
Wells, the Court will assume, for the purpose of deciding the instant motion to remand, that Nissi Insurance is a citizen
of Mississippi. See Hill v. Olin Corp., No. 07-cv-0054, 2007 WL 1431865, at *2 (S.D. Ill. May 14, 2007) (“Thus, while
the Court ordinarily would require Olin to amend its notice of removal to allege properly Hill’s citizenship for diversity
purposes, on the state of the record the Court sees no reason not to assume for purposes of the instant motion for remand
that Hill in fact is an Illinois citizen.”) (collecting cases).
5
1332 adds two requirements for the diversity jurisdiction of federal district courts: (1) complete
diversity between the parties and (2) an amount in controversy in excess of $75,000. Caterpillar Inc.
v. Lewis, 519 U.S. 61, 68 (1996). Complete diversity “requires that all persons on one side of the
controversy be citizens of different states than all persons on the other side.” Harvey v. Grey Wolf
Drilling Co., 542 F.3d 1077, 1079 (5th Cir. 2008) (quoting McLaughlin v. Miss. Power Co., 376 F.3d
344, 353 (5th Cir. 2004)).
b.
Improper joinder
“The improper joinder doctrine constitutes a narrow exception to the rule of complete
diversity.”8 Cuevas v. BAC Home Loans Servicing, LP, 648 F.3d 242, 249 (5th Cir. 2011). “To
establish improper joinder, the removing party must demonstrate either: (1) actual fraud in the
pleading of jurisdictional facts, or (2) inability of the plaintiff to establish a cause of action against
the non-diverse party in state court.” Id. The “heavy” burden of showing improper joinder rests
with the removing party. Id. “Because removal raises significant federalism concerns, the removal
statute is strictly construed ‘and any doubt as to the propriety of removal should be resolved in favor
of remand.’” Gutierrez v. Flores, 543 F.3d 248, 251 (5th Cir. 2008) (quoting In re Hot-Hed, Inc.,
477 F.3d 320, 323 (5th Cir. 2007)).
The inquiry into a plaintiff’s ability to establish a cause of action under state law centers on
“whether the [removing] defendant has demonstrated that there is no possibility of recovery by the
plaintiff against a [non-diverse] defendant, which stated differently means that there is no reasonable
basis for the district court to predict that the plaintiff might be able to recover against [the nondiverse] defendant.” Smallwood, 385 F.3d at 573. In “predicting whether a plaintiff has a reasonable
basis of recovery,” the district court initially conducts a Federal Rule of Civil Procedure “12(b)(6)8
See Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568, 571 (5th Cir. 2004) (en banc) (9-7 decision) (“We adopt the term
‘improper joinder’ as being more consistent with the statutory language than the term ‘fraudulent joinder,’ which has
been used in the past. … [T]here is no substantive difference between the two terms ….”).
6
type analysis … to determine whether the [state court] complaint states a claim under state law.”9 Id.
at 573. This Rule 12(b)(6)-type analysis requires “a simple and quick exposure of the chances of the
claim against the … defendant alleged to be improperly joined.” Int’l Energy Ventures Mgmt.,
L.L.C. v. United Energy Grp., Ltd., 818 F.3d 193, 208 n.57 (5th Cir. 2016) (quoting Smallwood, 385
F.3d at 574).
“[I]n cases where the plaintiff stated a claim but ‘misstated or omitted discrete facts,’ the
district court has discretion to pierce the pleadings and conduct a summary inquiry. McDonal v.
Abbott Labs., 408 F.3d 177, 183 n.6 (5th Cir. 2005) (quoting Smallwood, 385 F.3d at 573). Such a
summary inquiry “is appropriate only to identify the presence of discrete and undisputed facts that
would preclude plaintiff’s recovery” against the defendant alleged to be improperly joined.
Smallwood, 385 F.3d at 573.
2.
Analysis
Northland and Underwriters (“Removing Defendants”) do not dispute that the Agent
Defendants share Mississippi citizenship with the plaintiffs. The question here then is whether the
Removing Defendants have demonstrated that the plaintiffs have no possibility of recovering on
their negligence claims against the Agent Defendants. To this end, the Removing Defendants argue
that the plaintiffs’ claims against the Agent Defendants are barred by the duty-to-read and imputed
knowledge doctrines. Doc. #18 at 3; Doc. #22 at 3.
The elements of a negligence claim under Mississippi law are duty, breach of duty, proximate
cause, and damages. Mladineo v. Schmidt, 52 So.3d 1154, 1164 (Miss. 2010). Under Mississippi
law, “[a]n insurance agent must use that degree of diligence and care … which a reasonably prudent
person would exercise in the transaction of his own business.” Id. at 1162 (alteration omitted).
9
See Cavallini v. State Farm Mut. Auto Ins. Co., 44 F.3d 256, 265 (5th Cir. 1995) (stating “general rule” that, in context
of fraudulent joinder, “removal jurisdiction should be determined on the basis of the state court complaint at the time of
removal ….”).
7
Regarding particular duties, “it is well-settled that if an insurance agent or broker with a view to
being compensated agrees to procure insurance for another and through fault or neglect fails to do
so, he will be liable for any damage that results thereby.” Id. at 1164. Further, though “insurance
agents in Mississippi [do not] have an affirmative duty to advise buyers regarding their coverage
needs,” if an agent offers “advice to insureds, they have a duty to exercise reasonable care in doing
so.” Id. at 1163.
Notwithstanding the duties placed on an insurance agent, the insured has a duty to read his
insurance policy. Id. at 1161–62. Based on this duty, “knowledge of an insurance policy is imputed
to an insured regardless of whether the insured read the policy.” Id. at 1162. However, the duty to
read, and thus the corresponding imputed knowledge, may not act as a defense to an insurance
agent’s alleged negligence in advising an insured about coverage needed. Id. at 1163. Where a
plaintiff seeks to recover for an insurance agent’s alleged “omissions and misrepresentations,” the
duty-to-read and imputed knowledge doctrines may act as a defense, but only if the omissions and
misrepresentations are ones that “would have been disclosed by reading the [insurance] policy.” Id.
at 1162–63.
Here, the state court complaint alleged that Jagir contacted Wells to procure commercial
liability and property insurance for the truck stop and Wells, through his business Nissi Insurance,
procured insurance through Underwriters. See Doc. #2 at ¶¶ 16–17. The state court complaint
further alleged that Wells “failed to follow the policies and procedures of Underwriters” in
submitting insurance forms and that Underwriters has denied the plaintiffs’ claim under the policy by
claiming “that there were misrepresentations on the application which could support voiding its
policy.” Id. at ¶¶ 20, 32. Additionally, the state court complaint alleged that Underwriters has
delayed payment “because there are unresolved questions with respect to the ownership of …
8
inventory and [because] it does not have documents showing a transfer of … interest … to the Super
Truck Stop entity ....” Id. at ¶ 20. Based on these allegations, the plaintiffs alleged that they
“reasonably relied” on Wells “to: (1) properly inspect the 35/55 Truck Stop; (2) properly investigate
and analyze their insurance needs; (3) properly advise and consult with them concerning the
coverage needed; (4) to [sic] properly apply for the insurance coverage; and (5) to [sic] properly
procure the insurance coverage.” Doc. #2 at ¶ 30. The complaint alleged that the Agent Defendants
breached each of these duties and that the breaches damaged the plaintiffs in the form of lost
insurance proceeds. Id. at ¶¶ 31, 33.
In their motion to remand, the plaintiffs argue:
Wells undertook to properly apply for and procure the policy from [Underwriters].
Jagir and Manjit reasonably relied on Mr. Wells to provide [Underwriters] with the
information it needed to properly underwrite any policy issued. Based on the fact that
[Underwriters] has refused to pay any insurance coverage, and is now attempting to
void said policy based on the application and information provided by Mr. Wells,
these Plaintiffs have a viable negligence claim.
Doc. #14 at 6.
In sum, the plaintiffs have alleged a duty (the duty to procure insurance coverage), a breach
(failure to include documents with the application and the inclusion of misrepresentations in the
application), damages (denial of insurance proceeds), and causation (denial because of the breaches).
There is no indication that the missing documents or the misrepresentations allegedly made by Wells
in the policy application would have been disclosed by reading the policy. Accordingly, the Court
cannot conclude that the duty to read bars the plaintiffs’ claims. The Court thus concludes that the
plaintiffs have stated a claim for negligence against Wells and that, therefore, Wells has not been
improperly joined. See Young v. Safeway Ins. Co., 807 F.Supp.2d 599, 601, 603–04 (S.D. Miss.
2011) (no fraudulent joinder on “simple negligence” claim against insurance agent for agent’s
9
improper instructions on how to complete application for insurance policy). The Agent Defendants,
therefore, are not improperly joined.10
B. Fraudulent Misjoinder of Claims Against Agent Defendants
As relevant to the Removing Defendants’ allegation of “fraudulent[] misjoinder,” the
plaintiffs argue that “[it is] uncertain if misjoinder is actually a valid basis for removal.” Doc. #14 at
7. Alternatively, the plaintiffs contend that “assuming for the sake of argument that misjoinder is a
valid basis for removal,” because “joinder of all claims is … [neither] egregious [n]or totally
unsupported,” remand is still required. Id. at 7, 9.
1.
a.
Applicable law
Tapscott and Fifth Circuit consideration
The Eleventh Circuit in Tapscott v. MS Dealer Service Corporation held 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.” 77 F.3d 1353, 1360 (11th Cir. 1996), overruled in part on other
grounds by Cohen v. Office Depot, Inc., 204 F.3d 1069, 1076–77 (11th Cir. 2000). The Tapscott
court reasoned that “[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. (quoting Wilson v. Republic
Iron & Steel Co., 257 U.S. 92, 97 (1921)).
In Tapscott, a diverse out-of-state defendant was brought into a putative class action after two
plaintiffs were permissively joined, though the two new plaintiffs were the only ones with claims
against the new defendant. Tapscott, 77 F.3d at 1355 & n.1. The new claims arose out of the same
state law as the other plaintiffs’ claims against the other defendants but from transactions involving
separate sales of different products—specifically, the claims between the newly joined parties related
10
No defendant has asked the Court to pierce the pleadings in conducting the improper joinder analysis, and the Court
otherwise declines to do so.
10
to sales of service contracts on retail products while the claims between the previously joined parties
related to sales of service contracts on automobiles. Id. at 1355. In effect, “two entirely distinct
lawsuits had been merged into one, the only link between them being the invocation of Alabama’s
fraud statute.” Johnson v. Glaxo Smith Kline, 214 F.R.D. 416, 420 (S.D. Miss. 2002) (citing
Tapscott, 77 F.3d at 1360). Tapscott endorsed a rule of fraudulent misjoinder under which
“egregious” misjoinder of a non-diverse, in-state defendant is a form of “fraudulent joinder.”
Tapscott, 77 F.3d at 1360.
The Fifth Circuit has, on two separate occasions, expressed support for the concept of
fraudulent misjoinder without actually adopting the doctrine. See In re Benjamin Moore & Co., 309
F.3d 296, 298 (5th Cir. 2002) (“Benjamin Moore I”) (citing Tapscott and observing that “it might be
concluded that misjoinder of plaintiffs should not be allowed to defeat diversity jurisdiction”); In re
Benjamin Moore & Co., 318 F.3d 626, 630–31 (5th Cir. 2002) (“Benjamin Moore II”) (noting that
holding was not intended to “detract[] from the force of the Tapscott principle that fraudulent
misjoinder of plaintiffs is no more permissible than fraudulent misjoinder of defendants to
circumvent diversity jurisdiction ….”). More recently, in Crockett v. R.J. Reynolds Tobacco Co., the
Fifth Circuit used a footnote “Cf.” citation of Tapscott in an opinion applying the voluntaryinvoluntary rule11 for removal to “an unappealed severance, by a state court, of claims against
improperly joined defendants.” 436 F.3d 529, 533 & n.5 (5th Cir. 2006) (“[I]f … [Rule 20]
requirements are not met, joinder is improper even if there is no fraud in the pleadings and the
plaintiff does have the ability to recover against each of the defendants. Cf. Tapscott ….”).
11
Under “the judicially-created ‘voluntary-involuntary’ rule[,] an action nonremovable when commenced may become
removable thereafter only by the voluntary act of the plaintiff.” Crockett, 436 F.3d at 532 (internal quotation marks
omitted).
11
b. District court application of Tapscott
A majority of district courts in the Fifth Circuit, “based on Benjamin Moore I & II and/or
Crockett … have taken the position that the Fifth Circuit has adopted, or at least appears to have
adopted, Tapscott.” Palermo v. Letourneau Techs., Inc., 542 F.Supp.2d 499, 515 (S.D. Miss. 2008)
(collecting cases).12 Conversely, a minority of district courts in this circuit have declined to adopt a
rule of fraudulent misjoinder as a basis for removal but have nevertheless applied the Tapscott rule as
an alternative holding in considering remand. Moore v. SmithKline Beecham Corp., 219 F.Supp.2d
742, 745 (N.D. Miss. 2002) (“District courts within the Fifth Circuit, … including this court, have
repeatedly distinguished and declined to follow Tapscott.”) (collecting cases); Johnson, 214 F.R.D. at
420 (“Even if the Court were to adopt the holding of Tapscott, which it does not, the instant case
does not present an example of fraudulent misjoinder.”).
While Tapscott’s applicability within this circuit is far from clear,13 the Court need not
address Tapscott’s viability here because, even if Tapscott applied in the Fifth Circuit, this case
would not justify invocation of the fraudulent misjoinder rule.
2. Fraudulent Misjoinder
As applied by district courts in this circuit, “[t]he fraudulent misjoinder analysis is two-fold:
(1) has one defendant been misjoined with another defendant in violation of the applicable joinder
rules; and (2) if so, is the misjoinder sufficiently egregious to rise to the level of a fraudulent
12
See also J.O.B Invs., LLC v. Gootee Servs., LLC, 908 F.Supp.2d 771, 775 (E.D. La. 2012) (“Because the Fifth Circuit
appears to have endorsed this principle and courts in the Eastern District of Louisiana have consistently applied Tapscott,
the Court finds that defendants may argue that plaintiff’s claims against its insurers and against the contractors have no
real connection and thus are egregiously misjoined.”); Centaurus Unity v. Lexington Ins. Co., 766 F.Supp.2d 780, 789
(S.D. Tex. 2011) (“The Fifth Circuit has not directly applied the fraudulent-misjoinder theory, but it has cited Tapscott
with approval and has acknowledged that fraudulent misjoinder of either defendants or plaintiffs is not permissible to
circumvent diversity jurisdiction.”); Tex. Instruments Inc. v. Citigroup Glob. Mkts., Inc., 266 F.R.D. 143, 147 (N.D. Tex.
2010) (“The Fifth Circuit has never expressly adopted Tapscott’s theory of fraudulent misjoinder. However, it has
strongly indicated that it would do so in an appropriate case.”) (internal citations omitted).
13
See In re Prempro Products Liab. Litig., 591 F.3d 613, 620 n.4 (8th Cir. 2010) (“[T]he Eleventh Circuit is the only
federal appellate court to adopt fraudulent misjoinder[;] the Fifth and Ninth Circuits have acknowledged it, although not
expressly adopted it.”) (internal citations omitted).
12
misjoinder.” Centaurus Unity, 766 F.Supp.2d at 789 (footnotes omitted). To be sufficiently
egregious to rise to the level of fraudulent misjoinder under Tapscott, the joined claims must “‘have
no real connection’ to each other, such that joinder is ‘bordering on a sham.’” Tex. Instruments, 266
F.R.D. at 149.
A survey of the cases from this circuit which have considered the question suggests
that misjoinder is so egregious as to be fraudulent only in the following three
situations: (1) two or more lawsuits with little or no party overlap have been
combined in the same action (i.e., there are multiple plaintiffs and defendants, but
each plaintiff or discrete set of plaintiffs is suing only one defendant or a discrete set
of defendants); (2) numerous plaintiffs have sued a common defendant and assert
claims that have no shared factual element other than the presence of the common
defendant; and (3) a single plaintiff or group of plaintiffs has joined multiple
defendants in the same action and is asserting claims against each defendant that are
both factually and legally unrelated.
Id. “These three fact patterns appear to mark the outer limits of Tapscott’s fraudulent-misjoinder
principle. In all other circumstances, the district courts of this circuit have rejected claims of
fraudulent misjoinder and granted motions to remand.” Id. The consideration of fraudulent
misjoinder requires the consideration of the connection between the claims against the diverse
defendants and the claims against the non-diverse defendants and, to that limited extent, requires the
consideration of the nature of the claims.
a.
Claims against Agent Defendants
The plaintiffs claim that the Agent Defendants, after being contacted by Jagir, “negligently
fill[ed] out and submit[ed] the subject insurance application” for the Underwriters insurance policy.
Doc. #2 at ¶¶ 16, 32. As mentioned above, the plaintiffs also allege that they “reasonably relied” on
the Agent Defendants to properly “inspect” 35/55 Truck Stop and to “procure” the Underwriters
insurance coverage. Id. at ¶¶ 30–31.
13
b.
Claims against Underwriters
In their state court complaint, the plaintiffs seek, among other things, a declaratory judgment
against Underwriters “constru[ing] the pertinent policy provisions under the Underwriters policy and
declar[ing] the rights of the Plaintiffs to payment of insurance proceeds ....” Doc. #2 at ¶ 23. As
noted above, the plaintiffs allege that Underwriters has denied payment under the policy due to
alleged omissions and/or representations14 and that any such omissions or misrepresentations were
the result of the Agent Defendants “negligently filling out and submitting the subject insurance
application [for] and … procuring the subject policy from Underwriters.” Id. at ¶¶ 20, 32. In this
way, the alleged omissions and misrepresentations relate both to Underwriters’ liability to the
plaintiffs for coverage of 35/55 Truck Stop and the extent to which the Agent Defendants are liable
in lieu of Underwriters. A real connection, therefore, exists between the plaintiffs’ claims against the
Agent Defendants and the plaintiffs’ claims against Underwriters.
c.
Claims against Northland
In the state court complaint, the plaintiffs seek a declaratory judgment against Northland
“constru[ing] the pertinent policy provisions under the [Northland] policy and declar[ing] the rights
of the Plaintiffs to the additional payment of insurance proceeds ....” Doc. #2 at ¶ 27. The plaintiffs
allege that “[i]n response to the position taken by Underwriters, Northland has taken the position that
no further payment is warranted … because Underwriters has not denied the claim or voided the
policy, and, therefore, Northland only owes a pro rata share of the loss.” Id. at ¶ 22.
A real connection may exist between claims on separate insurance policies that were
purchased at separate times where the policies “provided redundant and excessive coverage ....”
Marble v. Am. Gen. Life and Accident Ins. Co., 996 F.Supp. 571, 574 (N.D. Miss. 1998).
14
In its answer, Underwriters argues that the plaintiffs’ insurance policy application contains omissions and
misrepresentations, calling into question the obligation to pay the plaintiffs’ insurance claim. Doc. #9 at ¶¶ 17–18.
14
Accordingly, to the extent Northland denied coverage based on the alleged coverage of the
Underwriters policy, a real connection exists between the plaintiffs’ claims against Underwriters and
the plaintiffs’ claims against Northland.
d. Summary
All of the plaintiffs’ claims arise out of a fire occurring at the 35/55 Truck Stop. Accordingly,
with regard to liability for uncovered damage resulting from that fire, the plaintiffs’ claims against
Northland are connected to the plaintiffs’ claims against the Agent Defendants insofar as the
Northland claims are connected to the Underwriters claims.
Northland’s liability bears on
Underwriters’ liability, which bears on the Agent Defendants’ liability. A real connection, therefore,
exists among all of the plaintiffs’ claims. See Taylor Mach. Works, Inc. v. Great Am. Surplus Lines
Ins. Co., 635 So.2d 1357, 1361–62 (Miss. 1994) (reversing and remanding for further proceedings,
holding insured may state claim against primary insurer for failure to pay claim and alternative claim
against insurance agent for negligently procuring inadequate excess policy). The Agent Defendants
are not fraudulently misjoined under the principles annunciated in Tapscott.15
C. Costs and Attorney’s Fees
The plaintiffs request an “award of the reasonable costs and attorney [sic] fees incurred by
the Plaintiffs in securing [remand].” Doc. #13 at ¶ 6. Under 28 U.S.C. § 1447(c), “[a]n order
remanding [a] case may require payment of just costs and any actual expenses, including attorney
fees, incurred as a result of the removal.” The district court’s decision “to award or not to award
15
To the extent the Removing Defendants assert that the Agent Defendants are fraudulently misjoined on the sole basis
that they are misjoined under the applicable rules of procedure, regardless of whether the misjoinder is “egregious,” the
Court notes that Tapscott expressly rejects such a rule of “mere misjoinder,” Tapscott, 77 F.3d at 1360; and that the Fifth
Circuit has never suggested that it would adopt fraudulent misjoinder without an egregiousness requirement as an
exception to required complete diversity. Nevertheless, as explained above, all claims arise out of a fire occurring at the
35/55 Truck Stop. Consequently, under either Mississippi’s Rule 20 or the Federal Rule 20, all claims “aris[e] out of the
same transaction, occurrence, or series of transactions or occurrences,” and share a “question of law or fact common to
all defendants.” The occurrence is the fire loss at 35/55 Truck Stop and the series of transactions is the successive
purchases of insurance by the plaintiffs on 35/55 Truck Stop. The common question of law includes Northland’s liability
and the common question of fact includes the value of the fire loss.
15
attorney’s fees” is reviewed for abuse of discretion.” Valdes v. Wal-Mart Stores, Inc., 199 F.3d 290,
292 (5th Cir. 2000). “[A]bsent unusual circumstances, attorney’s fees should not be awarded when
the removing party has an objectively reasonable basis for removal.” Martin v. Franklin Capital
Corp., 546 U.S. 132, 136 (2005). This standard also applies to the determination of whether to
award costs and expenses on remand. Glover v. DG La., LLC, No. 14-151-SDD-SCR, 2014 WL
3513394, at *5 (M.D. La. July 15, 2014).
The Court finds that, although the Removing Defendants failed to establish that the Agent
Defendants were improperly joined or fraudulently misjoined, they still had an objectively
reasonable basis for removal. Therefore, an award of costs and attorney’s fees is unwarranted.
D. Summary
The non-diverse Agent Defendants are neither improperly joined nor fraudulently misjoined.
Their presence in this action, therefore, destroys the complete diversity required for this Court to
exercise diversity jurisdiction.
III
Northland’s Motion to Sever
In its motion to sever, Northland seeks severance under Federal Rule of Civil Procedure 21.
Doc. #19 at 8. Northland argues that “the claims filed against [Northland] and Underwriters” should
be severed from “the claims filed against the Agent Defendants.” Doc. #18 at 8. “In the alternative,
[Northland] requests this Court … [to] sever the claims filed against [Northland] from the claims
filed against Underwriters and the Agent Defendants.” Id. Underwriters responds in opposition,
asking the Court to deny Northland’s request that Underwriters be severed “from the other coDefendants should [the] Court remand,” arguing that “severance would force Underwriters to defend
[itself] in a separate forum, which could inequitably create res judicata and collateral estoppel
issues.” Doc. #27 at 1–2.
16
As explained above, the Agent Defendants are not improperly joined or fraudulently
misjoined as defendants in this action. Consequently, this action will be remanded to state court for
lack of subject-matter jurisdiction. The issue of party severance in this federal district court is now
moot. See Johnson, 214 F.R.D. at 422 (denying as moot motion to sever after deciding to remand);
Tex. Instruments, 266 F.R.D. at 153 (same).
Even if the motion were not mooted, it would be denied. Rule 21 provides that “[o]n motion
or on its own, the court may at any time, on just terms, add or drop a party.” “Rule 21 is an
appropriate vehicle to sever or dismiss the claims of even properly joined parties.” Blum v. Gen.
Elec. Co., 547 F.Supp.2d 717, 722 (W.D. Tex. 2008).
Courts consider the following factors in determining whether to sever claims under
Rule 21: (1) whether the claims arise out of the same transaction or occurrence; (2)
whether the claims present some common questions of law or fact; (3) whether
settlement of the claims or judicial economy would be facilitated; (4) whether
prejudice would be avoided if severance were granted; and (5) whether different
witnesses and documentary proof are required for the separate claims.
Johnson v. BAE Sys. Land & Armaments, L.P., No. 3:12-cv-1790, 2014 WL 1714487, at *35–36
(N.D. Tex. Apr. 30, 2014).
As explained above, the claims in this case arise out of the same transaction or occurrence
(the insurance coverage for the fire at the truck stop). Furthermore, these claims present some
common questions of law or fact (the alleged misstatements or omissions in the Underwriters policy
application). For these reasons, the Court concludes that severance would not facilitate judicial
economy and would not avoid any potential prejudice. Finally, there is no indication that different
witnesses and documentary proof are required for the separate claims. Therefore, Rule 21 severance
is inappropriate.
17
IV
Conclusion
For the reasons above, the motion to remand [13] is GRANTED in Part and DENIED in
Part. The motion is GRANTED to the extent it seeks remand and is DENIED to the extent it seeks
costs and attorney’s fees. This action is REMANDED to the Circuit Court of Carroll County,
Mississippi. Northland’s Motion to Sever [19] is DENIED as moot.
SO ORDERED, this 29th day of September, 2016.
/s/ Debra M. Brown
.
UNITED STATES DISTRICT JUDGE
18
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