The Lab, LLC v. Travelers Property Casualty Company of America et al

Filing 19

OPINION & ORDER re: 12 MOTION to Remand to State Court . filed by The Lab, LLC. For the reasons herein, The Lab's motion to remand this action to New York State Supreme Court pursuant to 28 U.S.C. § 1447(c) is granted. (Signed by Judge John F. Keenan on 1/21/2016) (kgo)

USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: 01/21/2016

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES DISTRICT COURT
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SOUTHERN DISTRICT OF NEW YORK
THE LAB, LLC,
:
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In re FANNIE MAE 2008 SECURITIES : :
08 Civ. 7831 (PAC)
Plaintiff,
: :
LITIGATION
09 MD 2013 (PAC)
: :
No. 14 Civ. 7773 (JFK)
-against: :
OPINION & ORDER
:
OPINION & ORDER
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TRAVELERS PROPERTY CASUALTY
:
COMPANY OF AMERICA and NATHAN
:
BUTWIN COMPANY, INC.
:
HONORABLE PAUL A. CROTTY, United :
States District Judge:
Defendants.
:
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BACKGROUND1
JOHN F. KEENAN, United States District Judge:

The early years of this decade saw a boom in home financing which was fueled, among
Before the Court is Plaintiff The Lab, LLC’s motion to
other things, by low interest rates and lax credit conditions. New lending instruments, such as
remand this case back to New York State Supreme Court pursuant
subprime mortgages (high credit risk loans) and Alt-A mortgages (low-documentation loans)
to 28 U.S.C. § 1447(c). For the reasons that follow, the motion
kept the boom going. Borrowers played a role too; they took on unmanageable risks on the
is granted.
assumption that the market would continue to rise and that refinancing options would always be
Background
available in the future. Lending discipline was lacking in the system. Mortgage originators did
The following facts are alleged in the complaint and are
not hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the
taken as true for the purposes of deciding the motion to remand.

Prior originators sold their loans into the secondary mortgage market, often as securitized packages
to October 29, 2012, The Lab hired Defendant Nathan Butwin
known as mortgage-backed securities (“MBSs”). coverage grew almost exponentially.
Company (“Butwin”) to obtain insurance MBS marketson its behalf,

requesting But then the housing bubble burst. In 2006, the demand for housing dropped abruptly
insurance that would cover business interruptions
and home prices began to power” or the changing of use or banks modified
caused by “any loss of fall. In light of“any loss housing market,occupancy” their
lending practices and became unwilling to refinance home mortgages without refinancing.
at The Lab’s business premises. (Compl. ¶¶ 24-25.) In response

to that request, Butwin obtained an insurance policy for The Lab
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Unless otherwise indicated, all references cited as “(¶ _)” or to the “Complaint” are to the Amended Complaint,

from Travelers2009. For purposes of this Motion,Company ofthe Amended Complaint are taken as true.
dated June 22, Property Casualty all allegations in America
(“Travelers”). (Id. ¶ 27.)
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1

While the policy was in effect, The Lab suffered a business
interruption caused by Hurricane Sandy. (Id. ¶¶ 19, 27.)

The

Lab submitted a timely claim to Travelers for the losses caused
by the interruption. (Id. ¶¶ 43-44.)

Travelers disclaimed

coverage and has refused to indemnify The Lab. (Id. ¶ 45.)

As a

result, The Lab brought this action against Travelers and Butwin
in New York State Supreme Court.
As to Travelers, The Lab asserts claims for breach of
contract and breach of the covenant of good faith and fair
dealing under New York law. (Id. ¶¶ 47-48.)

With respect to

Butwin, The Lab alleges that, in the event the policy does not
cover The Lab’s losses, Butwin breached its common law duty to
obtain the coverage that The Lab requested. (Id. ¶ 55.)

The Lab

seeks damages of no less than $750,000 on its claims. (Id. ¶¶
53, 57.)
On September 25, 2014, Travelers removed this action to
federal court on the basis of diversity jurisdiction.1 (ECF No.
1, Notice of Removal.)

On May 21, 2015, The Lab filed the

instant motion to remand the case to New York State Supreme

1

The parties’ citizenship for jurisdictional purposes is
undisputed. The Lab is a New York limited liability company,
and its members are all individuals who reside in New York.
(Compl. ¶ 5; Def.’s Mem. at 2.) Butwin is a New York
corporation with a principal place of business in New York.
(Compl. ¶¶ 15-16; Def.’s Mem. at 2.) Travelers is a Connecticut
corporation with a principal place of business in Hartford,
Connecticut. (Compl. ¶ 7; Def.’s Mem. at 2.)
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Court, arguing that this Court lacks subject matter
jurisdiction.
Legal Standard
On a motion to remand, the burden is on the defendant to
establish that removal was appropriate. See Cal. Pub. Emps.’
Ret. Sys. v. WorldCom, Inc., 368 F.3d 86, 100 (2d Cir. 2004).
The removal requirements are construed narrowly and any doubts
are resolved against removal. See In re Methyl Tertiary Butyl
Ether (“MTBE”) Prods. Liab. Litig., 488 F.3d 112, 124 (2d Cir.
2007).

Further, where a motion to remand is based on a

district court’s lack of subject matter jurisdiction, the court
must accept the material factual allegations contained in the
complaint. See Atl. Mut. Ins. Co. v. Balfour Maclaine Int'l
Ltd., 968 F.2d 196, 198 (2d Cir. 1992).
Discussion
In arguing that this Court has subject matter jurisdiction
over the action, Travelers acknowledges that both The Lab and
Butwin are citizens of New York, which would ordinarily defeat
diversity jurisdiction and thereby bar removal. See 28 U.S.C.
§ 1332(a); Briarpatch Ltd., L.P v. Phoenix Pictures, Inc., 373
F.3d 296, 302 (2d Cir. 2004) (recognizing the requirement of
complete diversity between the parties).

However, Travelers

contends that Butwin’s New York citizenship should be
disregarded for the purposes of determining diversity
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jurisdiction because, according to Travelers, Butwin was
fraudulently joined to avoid federal jurisdiction.
The doctrine of fraudulent joinder prevents a plaintiff
from joining a non-diverse defendant “with no real connection to
the controversy” in an effort to defeat federal jurisdiction.
Pampillonia v. RJR Nabisco, Inc., 138 F.3d 459, 461 (2d Cir.
1998).

“Under the doctrine, courts will overlook the presence

of a non-diverse defendant if, based on the pleadings, there is
no possibility that the plaintiff could state a claim against
the defendant under state law.” Briarpatch, 373 F.3d at 302.
“The defendant bears the heavy burden of proving this
circumstance by clear and convincing evidence, with all factual
and legal ambiguities resolved in favor of plaintiff.” Id.
Thus, to determine whether Butwin was fraudulently joined
to the action, the Court must assess the viability of The Lab’s
claims under New York law.

In New York, “[i]nsurance agents

have a common-law duty to obtain requested coverage for their
clients within a reasonable time or inform the client of the
inability to do so.” Am. Bldg. Supply Corp. v. Petrocelli Grp.,
Inc., 979 N.E.2d 1181, 1184 (N.Y. 2012).

In order to state a

claim against an insurance agent for a breach of this duty, the
plaintiff must establish that it made a specific request for a
certain type of coverage not provided in the policy; a general
request for coverage does not suffice. Compare 5 Awnings Plus,
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Inc. v. Moses Ins. Grp., Inc., 970 N.Y.S.2d 158 (App. Div. 2013)
(finding request for the “best policy value” for plaintiff’s
worker’s compensation to be a general request for coverage), and
Empire Indus. Corp. v. Ins. Companies of N. Am., 641 N.Y.S.2d
345 (App. Div. 1996) (determining that a request for the “‘best’
available coverage” was not a specific request), with Am. Bldg.
Supply, 979 N.E.2d at 1184 (denying summary judgment for the
defendant insurance agent based on plaintiff’s testimony that it
specifically requested from the agent “general liability for
[its] employees . . . if anybody was to trip and fall or get
injured in any way”).
Here, although Travelers argues that The Lab’s request for
coverage was general rather than specific in nature, the Court
disagrees.

The Lab alleges that it specifically requested

coverage for business interruptions caused by “any loss of
power” or “any loss of use or occupancy” at its business
premises. (Compl. ¶¶ 24-25.)

In so doing, The Lab identified a

specific type of coverage as well as certain contingencies that
the policy should cover.

Thus, the Court finds that the request

was specific enough that The Lab could at least possibly recover
against Butwin for its alleged failure to provide the coverage
The Lab requested. See Am. Bldg. Supply, 979 N.E.2d at 1184.

As

a result, Travelers has not met its burden of establishing that
there is “no possibility” The Lab could state a claim against
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Butwin under New York law, as required to demonstrate a
fraudulent joinder.
As the parties acknowledge, both Butwin and The Lab are
citizens of New York.

In light of the Court's finding that

Butwin was not fraudulently joined to the action, Butwin's
presence destroys complete diversity of citizenship and deprives
the Court of subject matter jurisdiction under 28 U.S.C.
§

1332(a).

Accordingly, The Lab's motion to remand this action

to New York State Supreme Court pursuant to 28 U.S.C.

§

1447(c)

is granted.
SO ORDERED.

Dated:

New York, New York
January 21, 2016

~OHN F. KEENAN
United States District Judge

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