Morrow et al v. Nationwide Mutual Fire Insurance Company et al

Filing 22

ORDER finding as moot #4 Motion to Change Venue; finding as moot #4 Motion to Stay; finding as moot #4 Motion to Dismiss for Failure to State a Claim; granting #16 Motion to Remand. For the reasons set forth herein, pursuant to 28 U.S.C. 1447(c), plaintiffs motion to remand for lack of federal diversity jurisdiction is granted. Defendants motion to transfer or, in the alternative, stay or dismiss pending arbitration is denied as moot. The action is hereby remanded to the Supreme Court of the State of New York, County of Nassau. SO ORDERED. Ordered by Judge Joseph F. Bianco on 9/16/2014. (Chipev, George)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
_____________________
No 14-CV-2664 (JFB)(AKT)
_____________________

CAROLEE MORROW AND THE GROW INSURANCE AGENCY CORP.,
Plaintiffs,
VERSUS

NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, ET AL.,
Defendants.
___________________
MEMORANDUM AND ORDER
September 16, 2014
___________________

JOSEPH F. BIANCO, District Judge:
Plaintiffs Carolee Morrow (“Morrow”)
and The Grow Insurance Agency Corp.
(“Grow
Insurance”)
(collectively,
“plaintiffs”) commenced this action in the
Supreme Court of the State of New York,
Nassau County, seeking a declaratory
judgment and damages stemming from
Morrow’s attempt to acquire her former
employer’s Nationwide Insurance business
from defendants Nationwide Mutual Fire
Insurance Company, Nationwide Mutual
Insurance Company, and Nationwide
Financial
General
Agency,
Inc.
(collectively, “Nationwide”). This lawsuit
concerns the events surrounding that failed
purchase, including the enforceability of a
Nationwide
Advantage
Program
Independent Contract Exclusive Agent
Master Agreement (the “Agent Agreement”)
executed between Morrow and Nationwide.
Defendants removed on the basis of
diversity jurisdiction on April 28, 2014,

arguing
that
defendants
Kimberly
Carmichael (“Carmichael”) and James
Funaro (“Funaro”) (collectively with
Nationwide, “defendants”)—both New York
citizens—were fraudulently joined. Pending
before the Court are (1) plaintiffs’ motion to
remand for lack of diversity jurisdiction; and
(2) defendants’ motion to transfer venue
and/or dismiss or stay pending arbitration.
With respect to the jurisdictional issue, it is
undisputed that, if either individual
defendant is properly named in this action,
the Court has no jurisdiction and remand is
required because both plaintiffs and the
individual defendants are New York citizens
for jurisdictional purposes. Thus, the
question is whether removal is proper
because plaintiffs fraudulently joined
Carmichael, Funaro, or both to the lawsuit.
For the reasons that follow, the Court
concludes that defendants have failed to
meet their burden of demonstrating
fraudulent joinder with respect to Funaro,
and, thus, this Court lacks subject matter

jurisdiction.1 Accordingly, the Court must
remand the action to state court pursuant to
28 U.S.C. § 1447(c).
I.
A.

contract from Nationwide confirming their
acquisition of the Nationwide Sales. (Id.
¶ 25.) Apparently, a proposed contract was
sent to Morrow via email on June 14, 2013,
but she mistakenly deleted it and only saw it
during a telephone call with Nationwide on
June 17, 2013. (Id. ¶¶ 26–27, 35.) Morrow
allegedly was told she had to sign the
contract by June 18, 2013, or else she would
lose the opportunity to take over the
business. (Id. ¶ 36.) Morrow “signed the
Agreement because she did not want to lose
the Bernich Agency Nationwide Sales that
she was promised,” even though she claims
she did not have the time to read it through
or have an attorney review it. (Id. ¶¶ 37–38.)

BACKGROUND
Factual Background

On March 25, 2014, plaintiffs filed this
lawsuit in the Supreme Court of the State of
New York, County of Nassau against
Carmichael and Funaro, who are New York
citizens, and Nationwide.
According to the complaint, Morrow is a
licensed insurance agent who was employed
by the Bernich Agency (the “Agency”) prior
to March 31, 2013. (Complaint ¶¶ 15–16.)
The Agency had a substantial book of
business with Nationwide (the “Nationwide
Sales”). (Id. ¶ 18.) At one point, the Agency
sold products requiring Series 6 and 63
licensing and registration with FINRA, but,
at some time before April 2013, Nationwide
stopped the Agency from selling such
products. (Id. ¶¶ 19–20.) Plaintiffs allege
that Nationwide’s agents told Morrow she
would be able to acquire the Agency’s
Nationwide Sales effective April 1, 2013.
(Id. ¶ 22.) Relying on those representations,
Morrow arranged for a new lease to the
premises where the Agency was located and
began servicing the broker business. (Id.
¶¶ 23–24.) Because plaintiffs did not have a
written agreement with Nationwide at that
time, they serviced the entire broker
business from April 1 through June 30,
2013, through a different Nationwide agent,
which received the payments for the
commission from Nationwide and forwarded
them to plaintiffs. (Id. ¶ 24.)

According to Morrow, pursuant to the
contract’s terms, she had to acquire Series 6
and 63 licenses within six months of the
execution of the contract. (Id. ¶ 40.) When
she failed to do so, she was told her contract
would be terminated and that she would be
given thirty days’ notice of the termination.
(Id. ¶ 41.) Morrow further claims her
contract was summarily and immediately
terminated without the requisite notice on
February 18, 2014. (Id. ¶ 42.) According to
a letter from Nationwide, it canceled the
Agent Agreement because Morrow failed to
pass the Series 6 and 63 examinations within
180 days of the Agent Agreement’s effective
date. (Id. ¶ 43.) Nationwide also noted that it
or Morrow could terminate the contract at
any time, with or without cause. (Id.)
Morrow alleges that the cancellation was a
subterfuge in an attempt to confiscate her
Nationwide insurance business and turn it
over to Funaro. (Id. ¶ 43.) She also claims
that Nationwide’s district sales manager told
her that her sales would be given to Funaro,
with no compensation. (Id. ¶ 44.)

According to plaintiffs, between April 1
and June 14, 2013, they received
reassurances that they would get a new

In the complaint, plaintiffs contend that
“[d]efendants’ scheme was to sell the
franchise to unwitting insurance [salesmen]
on onerous terms that enabled Defendants to

1

Given this ruling, the Court need not address
whether Carmichael was fraudulently joined.

2

take back the franchise at any time and
without reason.” (Id. ¶ 4.) “At the same
time, Defendants would reap the benefits of
purchaser’s agency to generate profits solely
for them while the purchasers undertook all
the obligations and incurred all the expenses
and were falsely led to believe they had
acquired a valuable asset.” (Id.)
B.

1358 (SAS), M 21-88, 2006 WL 1004725, at
*2 (S.D.N.Y. Apr. 17, 2006) (internal
quotation marks and citations omitted).
Further, “[i]n light of the congressional
intent to restrict federal court jurisdiction, as
well as the importance of preserving the
independence of state governments, federal
courts construe the removal statute
narrowly, resolving any doubts against
removability.” Lupo v. Human Affairs Int’l,
Inc., 28 F.3d 269, 274 (2d Cir. 1994)
(quoting Somlyo v. J. Lu-Rob Enters., Inc.,
932 F.2d 1043, 1045–46 (2d Cir. 1991));
accord Fed. Ins. Co. v. Tyco Int’l Ltd., 422
F. Supp. 2d 357, 367–68 (S.D.N.Y. 2006).

Procedural Background

Plaintiffs filed the complaint in the
Supreme Court of the State of New York on
March 25, 2014. Defendants removed to this
Court on April 28, 2014. Defendants filed
their motion on May 5, 2014. Plaintiffs filed
their motion to remand and their opposition
to defendants’ motion on June 16, 2014.
Defendants filed their opposition to
plaintiffs’ motion, and their reply in support
of their motion, on July 16, 2014. Plaintiffs
filed their reply in support of their motion to
remand on August 1, 2014. The Court heard
oral argument on September 10, 2014. The
matter is fully submitted.
II.
A.

B.

Diversity Jurisdiction

It is axiomatic that federal courts only
have diversity jurisdiction when there is
complete diversity between the parties—that
is, when all plaintiffs are citizens of different
states from all defendants. See 28 U.S.C.
§ 1332; Lincoln Prop. Co. v. Roche, 546
U.S. 81, 89 (2005); Advani Enters., Inc. v.
Underwriters at Lloyds, 140 F.3d 157, 160
(2d Cir. 1998). In other words, if any
plaintiff shares citizenship of the same state
as any defendant, complete diversity does
not exist, and diversity jurisdiction is
lacking. However, as the Second Circuit has
made clear, “a plaintiff may not defeat a
federal court’s diversity jurisdiction and a
defendant’s right of removal by merely
joining as defendants parties with no real
connection
with
the
controversy.”
Pampillonia v. RJR Nabisco, Inc., 138 F.3d
459, 460–61 (2d Cir. 1998). Furthermore, in
order for there to be diversity jurisdiction,
the amount in controversy must exceed
$75,000. See 28 U.S.C. § 1332(a).

STANDARD OF REVIEW
Motion to Remand

Generally, a case may be removed from
state court to federal court “only if it could
have originally been commenced in federal
court on either the basis of federal question
jurisdiction or diversity jurisdiction.”
Citibank, N.A. v. Swiatkoski, 395 F. Supp.
2d 5, 8 (E.D.N.Y. 2005) (citing 28 U.S.C.
§ 1441(a)); see also 28 U.S.C. § 1441. If a
federal district court determines that it lacks
subject matter jurisdiction over a case
removed from state court, the case must be
remanded. 28 U.S.C. § 1447(c). “When a
party challenges the removal of an action
from state court, the burden falls on the
removing party to establish its right to a
federal forum by competent proof.” In re
Methyl Tertiary Butyl Ether (“MTBE”)
Prods. Liab. Litig., No. 1:00-1898, MDL

In analyzing whether subject matter
jurisdiction exists, the Court is permitted to
look to materials outside of the pleadings.
See Bldg. & Constr. Trades Council of
Buffalo, N.Y. & Vicinity v. Downtown Dev.,
3

Inc., 448 F.3d 138, 150 (2d Cir. 2006)
(“Although [the district court’s] ruling
required [it] to look outside the pleadings, a
court has discretion to do so when
determining whether it has subject matter
jurisdiction.” (citing Luckett v. Bure, 290
F.3d 493, 496–97 (2d Cir. 2002))); see also
Pampillonia, 138 F.3d at 461–62 (looking to
affidavits on removal petition to determine
whether party had been fraudulently joined).
“Such materials can include documents
appended to a notice of removal or a motion
to remand that convey information essential
to the court’s jurisdictional analysis.”
Romano v. Kazacos, 609 F.3d 512, 520 (2d
Cir. 2010) (citing Davenport v. Procter &
Gamble Mfg. Co., 241 F.2d 511, 514 (2d
Cir. 1957) (looking to information contained
in affidavits submitted in support of a
motion
to
remand
to
determine
removability); Oglesby v. RCA Corp., 752
F.2d 272, 278 (7th Cir. 1985) (holding it
was proper for the district court to look to a
motion to remand and removal petition to
determine removability)).
III.

WL 385541 (E.D.N.Y. Feb. 11, 2009).
Although the Court shall clarify the
appropriate standard of review below, the
Court notes that, at oral argument, counsel
for defendants correctly focused on the
sufficiency of the allegations against Funaro,
instead of pressing the incorrect argument
that he must be a necessary party in order to
avoid a finding of fraudulent joinder. As set
forth below, the Court concludes that
remand is warranted because Funaro was not
fraudulently joined.
A.

Audi’s Holding

In Audi, this Court explained that, “‘to
show that naming a non-diverse defendant is
a fraudulent joinder effected to defeat
diversity, the defendant must demonstrate,
by clear and convincing evidence, either that
there has been outright fraud committed in
the plaintiff’s pleadings, or that there is no
possibility, based on the pleadings, that a
plaintiff can state a cause of action against
the non-diverse defendant in state court.’”
2009 WL 385541, at *3 (quoting
Pampillonia, 138 F.3d at 461). Audi had
argued that Pampillonia mandates that a
cause of action must exist against the nondiverse defendant in order for it to be
considered for diversity purposes. The Court
disagreed and concluded “that there is no
absolute requirement that a party have a
separate cause of action against it.” Id. at *4.
The Court explained that “Pampillonia
should not be read to stand for the
proposition that the existence of a ‘cause of
action’ is the sole basis upon which a
defendant can properly be considered for
diversity of jurisdiction purposes. Instead, a
necessary or indispensable party to a
lawsuit, even where no specific cause of
action is asserted against it, should be
considered for diversity of jurisdiction
purposes if it is a real party to the
controversy.” Id. (emphasis added). Thus,
the Court held that “if a party is not simply a

DISCUSSION

Plaintiffs argue that this case should be
remanded because they, along with Funaro,
are citizens of New York, destroying
diversity jurisdiction. Plaintiffs argue that
defendants have not demonstrated by clear
and convincing evidence that plaintiffs
cannot state a cause of action against
Funaro, and that defendants incorrectly
stated in their Notice of Removal that the
key inquiry is whether Funaro is a necessary
party under state law. In support of that
proposition, defendants rely on CMS
Volkswagen Holdings, LLC v. Volkswagen
Group of America, Inc., No. 13-CV-03929
(NSR), 2013 WL 6409487 (S.D.N.Y. Dec.
6,
2013),
which
interpreted
the
undersigned’s decision in Audi of
Smithtown, Inc. v. Volkswagen of America,
Inc., No. 08-CV-1773 (JFB)(AKT), 2009
4

nominal or formal party but is named
because it is a necessary party under state
law that has interests that will be directly
affected by the adjudication of the lawsuit,
then such party is properly considered for
purposes of diversity jurisdiction, even if
there is no specific cause of action asserted
against that party.” Id.

cause alleged. The defendants’
burden in establishing fraudulent
joinder is greater than on a motion to
dismiss for failure to state a claim.
[That is, it is not sufficient to argue
simply that the complaint fails to
state a claim against that defendant;
rather, the removing party must
satisfy the clear and convincing
standard set forth in Pampillonia.]
While the plaintiffs’ pleadings must
contain sufficient factual foundations
to support any allegations against the
forum defendant, there is no
requirement that plaintiffs’ recovery
in state court be reasonably likely.
Any possibility of recovery, even if
slim, militates against a finding of
fraudulent joinder; only where there
is ‘no possibility’ of recovery is such
a finding warranted. The court may
look beyond the pleadings and
consider evidence submitted by the
parties, and must resolve all factual
and legal issues in favor of the
plaintiff.

Audi does not stand for the proposition
that the only inquiry to determine whether
fraudulent joinder occurred is whether the
defendant at issue is a necessary party under
state law. To the extent defendants and the
decision in CMS Volkswagen construe Audi
to that effect, the Court disagrees. Under the
interpretation pressed by defendants in their
written submissions to this Court, any nondiverse defendants who are sued in state
court on claims that are cognizable causes of
action could be disregarded for purposes of
diversity jurisdiction if such defendants are
not necessary parties. There is absolutely no
legal support for that position, and the Court
rejects that argument. Such defendants may
have a “real connection with the
controversy,” and a plaintiff may have
asserted a viable cause of action against
them, even if they are not necessary parties
under New York law.
B.

Sleight v. Ford Motor Co., No. 10 Civ.
3629(BMC), 2010 WL 3528533, at *2
(E.D.N.Y. Sept. 3, 2010) (internal quotation
marks, alterations, and citations omitted);
accord Audi, 2009 WL 385541, at *3
(setting forth standard).

The Claim Against Funaro

In the instant case, plaintiffs allege a
specific claim against Funaro, a non-diverse
defendant. Plaintiffs do not claim that
Funaro is a “necessary party.” Thus, the
question is whether “there is no possibility,
based on the pleadings, that [plaintiffs] can
state a cause of action against [Funaro] in
state court.” Pampillonia, 138 F.3d at 461.
As Judge Cogan has correctly summarized:

Plaintiffs allege that Funaro tortiously
interfered
with
plaintiffs’
business
relationship with Nationwide. Under New
York law, to bring a claim for tortious
interference with business relations, a
plaintiff must allege: (1) there is a business
relationship between the plaintiff and a third
party; (2) the defendant, knowing of the
relationship, intentionally interfered with it;
(3) the defendant acted with the sole purpose
of harming the plaintiff, or used dishonest,
unfair, or improper (wrongful) means; and
(4) the relationship was injured. E.g.,

On [that] ground, joinder will be
considered fraudulent when it is
established that there can be no
recovery against the forum defendant
under the law of the state on the
5

allegations and theories asserted in the
complaint and at oral argument, the Court
finds that defendants have failed to carry
their burden of showing, by clear and
convincing evidence, that there is “no
possibility, based on the pleadings, that a
plaintiff can state a cause of action against
the non-diverse defendant in state court.”
Audi, 2009 WL 385541, at *3.

Balance Point Divorce Funding, LLC v.
Scrantom, 978 F. Supp. 2d 341, 351
(S.D.N.Y. 2013); see also Catskill Dev.,
L.L.C. v. Park Place Entm’t Corp., 547 F.3d
115, 132 (2d Cir. 2008) (same). The
defendant must have acted with more than
economic self-interest or other economic
considerations. See, e.g., Monex Fin. Servs.
Ltd. v. Dynamic Currency Conversion, Inc.,
878 N.Y.S.2d 432, 433 (N.Y. App. Div.
2009) (dismissing tortious interference with
prospective business relations claim because
plaintiffs did not plead that any defendants
were “motivated solely by malice or to
inflict injury by unlawful means, beyond
mere self interest or other economic
considerations”);
Nassau
Diagnostic
Imaging & Radiation Oncology Assocs.,
P.C. v. Winthrop-Univ. Hosp., 602 N.Y.S.2d
650, 650 (N.Y. App. Div. 1993) (where
defendants’ actions were motivated by
economic self-interest, concluding that
actions were not malicious and that
conclusory allegations that defendants acted
maliciously and in bad faith were
insufficient to defeat summary judgment).

Plaintiffs allege that Funaro attempted to
acquire the Nationwide Sales despite
knowing about the supposed Agent
Agreement, damaging plaintiffs in a sum not
less than $10,000,000, and that Nationwide
terminated the Agreement as subterfuge in
an attempt to turn over the business to
Funaro. (Complaint ¶¶ 43, 60.) Thus,
plaintiffs have alleged the existence of an
agreement, which Funaro knew about; that
he knowingly attempted to and did acquire
the business (an affirmative act); and that his
actions injured plaintiffs. At oral argument,
the Court asked defendants what else
plaintiffs should have to plead to state a
viable claim against Funaro. (Oral Arg., at
1:38–1:40.) Counsel focused on causation
and damages, stating that, assuming the
other elements were pleaded, “the key
element is damages” and Morrow’s failure
to pass the Series 6 and 63 examinations.
Plaintiffs’ counsel responded that plaintiffs
pleaded damages of $10 million. He also
asserted that plaintiffs were injured even
before the Agreement was terminated,
because Funaro was wrongfully planning,
with Nationwide, to acquire plaintiffs’
business from the beginning, and that this
scheme caused plaintiff to expend and
ultimately lose money. (See Oral Arg. at
1:47–1:49.) The complaint does allege, inter
alia, that Morrow, in reliance upon the
representations of Nationwide, arranged for
a new lease to the premises in Bethpage, and
arranged to be responsible for other
expenses, such as utilities and phones.
(Complaint ¶ 23.) Thus, plaintiffs contend

In their removal petition, defendants
argued that Funaro should be disregarded for
purposes of diversity jurisdiction because
(1) Nationwide’s alleged intent to hand over
the Agency to Funaro is irrelevant, and (2)
the only allegation against Funaro is that he
wanted to buy the Agency from plaintiffs
despite knowing about the alleged Agency
Agreement with Nationwide. (Removal
Petition ¶¶ 30–31.) In addition, in their
memorandum in opposition and at oral
argument, defendants stressed that plaintiffs
had failed to allege any causation or
damages from Funaro’s acts (assuming
arguendo they were intentional and
wrongful). According to defendants,
Nationwide canceled the agreement because
of plaintiffs’ failure to complete the Series 6
and 63 examinations, not because of
Funaro’s actions. In light of plaintiffs’
6

Accordingly, this Court lacks subject matter
jurisdiction over this lawsuit and, pursuant
to 28 U.S.C. § 1447(c), plaintiffs’ motion to
remand the action to state court is granted.

that Nationwide never intended to maintain
a contract with them; instead, Funaro and
Nationwide conspired and planned for
Funaro to take over the business even before
the contract had been signed, and the
contract was simply a delay tactic to allow
Funaro to wrongfully interfere with
plaintiffs’ business relations. (See Oral Arg.
at 1:47–1:49.) In addition, the complaint
alleges that the cancellation of the
Agreement (allegedly without the requisite
proper notice) was part of the “subterfuge”
between Nationwide and Funaro in their
“attempt to confiscate Plaintiffs’ Nationwide
insurance business and turn it over to the
Defendant Funaro.” (Complaint ¶ 43.)

IV.

CONCLUSION

For the foregoing reasons, pursuant to 28
U.S.C. § 1447(c), plaintiffs’ motion to
remand for lack of federal diversity
jurisdiction is granted. Defendants’ motion
to transfer or, in the alternative, stay or
dismiss pending arbitration is denied as
moot. The action is hereby remanded to the
Supreme Court of the State of New York,
County of Nassau.
SO ORDERED.

Given these allegations, the Court
concludes that the claim against Funaro is
plausibly premised on more than economic
self-interest and that, under New York law,
plaintiffs could potentially establish that
Funaro “acted for a wrongful purpose or
used dishonest, unfair, or improper means”
by assisting Nationwide in defrauding
plaintiffs, and interfering with their business
relations. Catskill Dev., 547 F.3d at 132.
Moreover, the Court cannot conclude, at this
early juncture, that plaintiffs would be
unable to prove that any damages were
caused by the alleged interference.
Therefore, remand is appropriate because
plaintiffs may be able to pursue a plausible
cause of action against Funaro in state court;
even assuming arguendo that the possibility
of prevailing on this theory of liability is
slim, it is certainly not implausible or nonexistent. See Nemazee v. Premier, Inc., 232
F. Supp. 2d 172, 178 (S.D.N.Y. 2002) (“Any
possibility of recovery, even if slim,
militates against a finding of fraudulent
joinder; only where there is ‘no possibility’
of recovery is such a finding warranted.”).

________________________
JOSEPH F. BIANCO
United States District Judge
Dated: September 16, 2014
Central Islip, NY
***
Plaintiffs are represented by Edward K.
Blodnick and Thomas R. Fazio, of Blodnick,
Fazio & Associates, P.C., 1325 Franklin
Avenue, Suite 375, Garden City, NY 11530.
Defendants are represented by Ali Haque,
Natalie T. Furniss, and Quintin F. Lindsmith
of Bricker & Eckler LLP, 100 South Third
Street, Columbus, Ohio, 43215, and
Kimberly A. O’Toole of d’Arcambal Levine
& Ousley, 40 Fulton Street, Suite 1005, New
York, NY 10038.

In sum, defendants have failed to show
that Funaro was fraudulently joined (or was
only a nominal or formal party).
7