Rocky Mount Family YMCA, Inc. v. United States Fire Insurance Company et al
ORDER granting 14 Motion to Remand. This case is REMANDED to the General Court of Justice, Superior Court Division, Nash County, North Carolina, for further proceedings. The clerk is DIRECTED to transmit a certified copy of this order to the clerk of the General Court of Justice, Superior Court Division, Nash County, North Carolina, and to file in this case a copy of the clerk's transmittal letter with certified copy of the instant order. The clerk is further DIRECTED to close this case. Signed by District Judge Louise Wood Flanagan on 4/1/2021. (Collins, S.)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
ROCKY MOUNT FAMILY YMCA, INC.,
UNITED STATES FIRE INSURANCE )
COMPANY and THE REDWOODS )
This matter is before the court on plaintiff’s motion to remand (DE 14). The issues raised
have been briefed fully, and in this posture, are ripe for ruling. For the following reasons,
plaintiff’s motion is granted.
STATEMENT OF THE CASE
Plaintiff commenced this action in the General Court of Justice, Superior Court Division,
Nash County, North Carolina, on October 21, 2020, asserting claims for declaratory judgment,
breach of contract, bad faith, and unfair and deceptive trade acts and practices arising out of
defendants’ denial of insurance coverage. Plaintiff seeks declaratory relief, compensatory and
exemplary damages, costs, attorneys’ fees, and jury trial.
Defendants filed notice of removal in this court on November 23, 2020, asserting that
plaintiff fraudulently joined defendant The Redwoods Group, Inc. (“Redwoods”), thereby
allowing the court to assume diversity jurisdiction. One month later, plaintiff filed the instant
motion to remand for lack of subject matter jurisdiction. Defendants responded in opposition
January 12, 2021, and plaintiff replied in support of the motion January 26, 2021.
STATEMENT OF FACTS
The facts alleged in plaintiff’s complaint may be summarized as follows. Defendant
United States Fire Insurance Company (“U.S. Fire”), a subsidiary of Crum & Forster Holdings
Corp (“Crum & Forster”), is authorized to conduct the business of insurance in North Carolina.
(Compl. (DE 1-1) ¶ 7). Defendant Redwoods, also a Crum and Forster company, is allegedly in a
joint venture with defendant U.S. Fire. (Id. ¶¶ 11-12). Defendant Redwoods administers insurance
policies issued by defendant U.S. Fire and provides consulting services, training, education, and
other services to defendant U.S. Fire’s insureds. (Id. ¶¶ 8-10). Plaintiff, a nonprofit corporation,
was issued an insurance policy by defendant U.S. Fire for the policy period from May 1, 2019, to
May 1, 2020, (“the Policy”). (Id. ¶ 18).
The Policy provides business income coverage and includes a Food Contamination and
Communicable Disease Coverage Endorsement (“the Endorsement”), which states in pertinent
(The Endorsement (DE 1-1) at 124-25). The Endorsement defined “communicable disease” as
(Id. at 126).
On March 10, 2020, the governor of North Carolina issued Executive Order 116, declaring
a state of emergency and recommending that nonessential businesses close or reduce operations
due to concerns related to the COVID-19 pandemic. (Compl. (DE 1-1) ¶ 21). Shortly thereafter,
the governor of North Carolina issued another executive order, closing all public schools and
prohibiting mass gatherings of more than 100 people. (Id. ¶ 22).
After receiving recommendations from the president and chief executive officer of the
YMCA and the Deputy Director of the Nash County Health Department that plaintiff should shut
down operations, plaintiff decided to close its facilities, including its main facility at 1000
Independence Drive, Rocky Mount, North Carolina 27804 (the “Premises”). (Id. ¶¶ 23, 25).
Plaintiff’s insurance agent asked defendant Redwoods whether the Endorsement would provide
coverage if plaintiff closed the Premises to mitigate the spread of Covid-19. (Id. ¶ 27). In a March
16, 2020, email, defendant Redwoods allegedly replied “Yes. This coverage applies if they have
BI [Business Income] coverage, which they do.” (Id.). Accordingly, plaintiff submitted a notice
of loss to defendant Redwoods, indicating that plaintiff had experienced “loss due to the state of
North Carolina’s imposed restrictions related to the Coronavirus.” (Id. ¶ 28).
As the Covid-19 pandemic began to accelerate in the United States, defendants allegedly
realized the Endorsement could be construed to provide coverage for business income losses “in
the tens of millions, if not hundreds of millions, of dollars, which U.S. Fire would be obligated to
pay.” (Id. ¶ 42). In consequence, defendants allegedly began to take steps to dissuade and suppress
any such claims under the Endorsement. (Id.). In particular, on March 20, 2020, defendant
Redwoods sent an email to its insureds titled “COVID-19 Crisis Response”, which stated in
(Email (DE 1-1) at 324).
On June 30, 2020, defendant Redwoods sent plaintiff a written denial of coverage, stating
that in order for coverage to exist under the Endorsement, the scheduled premises must be closed
due to “the discovery or suspected presence of communicable disease at the closed Premises.” (Id.
¶¶ 32, 34). Because the documentation submitted by plaintiff “fail[ed] to support the discovered
or suspected presence of communicable disease at the Premises or that the Premises was ordered
to close as a result thereof”, defendant Redwoods disclaimed coverage on behalf of defendant U.S.
Fire. (Id. ¶¶ 32, 35). However, plaintiff alleges that the “Endorsement nowhere includes the words
‘suspected presence of.’ Rather, the Endorsement clearly and explicitly provides coverage for
business income loss when the Premises is closed by governmental authority ‘as a result of the
discovery or suspicion of’ communicable disease.” (Id. ¶ 36) (emphasis in original).
Approximately one month later, defendant Redwoods sent an email to its insureds,
indicating that it was “making changes to our coverage to create greater standardization within our
parent company and our industry.” (Id. ¶ 49). As relevant here, those changes included removing
the Endorsement. (Id.).
Standard of Review
In any case removed from state court, “[i]f at any time before final judgment it appears that
the district court lacks subject matter jurisdiction, the case shall be remanded.” 28 U.S.C. §
1447(c). “The burden of establishing federal jurisdiction is placed upon the party seeking
removal.” Mulcahey v. Columbia Organic Chems. Co., 29 F.3d 148, 151 (4th Cir. 1994).
“Because removal jurisdiction raises significant federalism concerns, [the court] must strictly
construe removal jurisdiction.” Id. “If federal jurisdiction is doubtful, a remand is necessary.”
Id.; see Palisades Collections LLC v. Shorts, 552 F.3d 327, 336 (4th Cir. 2008) (recognizing the
court’s “duty to construe removal jurisdiction strictly and resolve doubts in favor of remand.”).
In notice of removal, defendants invoke the court’s diversity jurisdiction. This court has
diversity jurisdiction over civil actions “where the matter in controversy exceeds the sum or value
of $75,000, exclusive of interest and costs, and is between . . . citizens of different States[.]” 28
U.S.C. § 1332(a)(1). Importantly, “Section 1332 requires complete diversity among parties,
meaning that the citizenship of every plaintiff must be different from the citizenship of every
defendant.” Cent. W. Virginia Energy Co. v. Mountain State Carbon, LLC, 636 F.3d 101, 103
(4th Cir. 2011) (citing Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68 (1996)). A corporation is a citizen
of the state in which it is incorporated and of the state in which it maintains its principal place of
business. See id. § 1332(c)(1); Hertz Corp. v. Friend, 559 U.S. 77, 80– 81 (2010).
Plaintiff and defendant Redwoods are both citizens of North Carolina, (see Compl. (DE 11) ¶¶ 6,8; Not. of Rem. (DE 1) ¶¶ 7, 9), and thus, complete diversity is lacking. Defendants argue,
however, that defendant Redwoods’s citizenship must be disregarded for diversity purposes
because it was fraudulently joined in this action. “[T]he fraudulent joinder doctrine provides that
diversity jurisdiction is not automatically defeated by naming non-diverse defendants.” Weidman
v. Exxon Mobil Corp., 776 F.3d 214, 218 (4th Cir. 2015). The doctrine “effectively permits a
district court to disregard, for jurisdictional purposes, the citizenship of certain nondiverse
defendants, assume jurisdiction over a case, dismiss the nondiverse defendants, and thereby retain
jurisdiction.” Johnson v. Am. Towers, LLC, 781 F.3d 693, 703–05 (4th Cir. 2015) (quoting Mayes
v. Rapoport, 198 F.3d 457, 461 (4th Cir.1999)).
Invocation of the fraudulent joinder doctrine is appropriate only where “there is no
possibility that the plaintiff would be able to establish a cause of action against the in-state
defendant in state court; or . . . there has been outright fraud in the plaintiff’s pleading of
jurisdictional facts. Marshall v. Manville Sales Corp., 6 F.3d 229, 232–33 (4th Cir. 1993)
(emphasis in original) (internal citations omitted). “[U]ltimate success is not required to defeat
removal. Rather, there need be only a slight possibility of a right to relief. Once the court identifies
this glimmer of hope for the plaintiff, the jurisdictional inquiry ends.” Hartley v. CSX Transp.,
Inc., 187 F.3d 422, 426 (4th Cir. 1999) (citing Marshall, 6 F.3d at 233).
“The party alleging fraudulent joinder bears a heavy burden—it must show that the plaintiff
cannot establish a claim even after resolving all issues of law and fact in the plaintiff’s favor.” Id.
at 424. “In order to determine whether an attempted joinder is fraudulent, the court is not bound
by the allegations of the pleadings, but may instead ‘consider the entire record, and determine the
basis of joinder by any means available.’” AIDS Counseling & Testing Ctrs. v. Grp. W Television,
Inc., 903 F.2d 1000, 1004 (4th Cir. 1990) (quoting Dodd v. Fawcett Publ’ns, Inc., 329 F.2d 82, 85
(10th Cir. 1964)).
In support of their fraudulent joinder argument, defendants contend that plaintiff cannot
maintain a breach of contract claim against defendant Redwoods because defendant Redwoods is
not a party to the Policy. However, plaintiff contends that defendant Redwoods is liable under the
Policy because it is in a joint venture with defendant U.S. Fire. As explained by the North Carolina
Supreme Court, a joint venture is:
an association of persons with intent, by way of contract, express or implied, to
engage in and carry out a single business adventure for joint profit, for which
purpose they combine their efforts, property, money, skill, and knowledge, but
without creating a partnership in the legal or technical sense of the term.
Facts showing the joining of funds, property, or labor, in a common purpose to
attain a result for the benefit of the parties in which each has a right in some measure
to direct the conduct of the other through a necessary fiduciary relation, will justify
a finding that a joint adventure exists.
To constitute a joint adventure, the parties must combine their property, money,
efforts, skill, or knowledge in some common undertaking. The contributions of the
respective parties need not be equal or of the same character, but there must be
some contribution by each coadventurer of something promotive of the enterprise.
Cheape v. Town of Chapel Hill, 320 N.C. 549, 561 (1987) (quoting Pike v. Wachovia Bank & Tr.
Co., 274 N.C. 1, 8 (1968)). “One of the elements of a joint venture on which most, if not all,
jurisdictions agree is that each party to a joint venture has a right in some measure to direct the
conduct of the other through a necessary fiduciary relationship.” Id. at 562. This means that
“each joint venturer [must] stand in the relation of principal, as well as agent, as to each of the
other coventurers.” Id. (internal citation omitted).
Here, plaintiff alleges that defendant Redwoods administers insurance policies with
defendant U.S. Fire and other Crum and Forster underwriters. (Compl. (DE 1-1) ¶ 9). In addition
to serving as authorized claims administrator for defendant U.S. Fire, defendant Redwoods
allegedly provides consulting services, training, education and other services to defendant U.S
Fire’s insureds. (Id. ¶ 10). Moreover, defendant Redwoods “extensively markets” these services
to YMCA member organizations in order to lower claims costs and keep insureds doing business
with defendant U.S. Fire and other Crum & Forster companies. (Id.). Finally, plaintiff alleges that
defendant Redwoods drafted and interpreted the language of the Endorsement in the Policy. (Id.
¶¶ 39-49); (Mem. (DE 15) at 6-7). Construing the record in plaintiff’s favor, plaintiff possesses at
least a “glimmer of hope” that defendants are engaged in a joint venture, which subjects defendant
Redwoods to liability for the same claims against defendant U.S. Fire. Hartley, 187 F.3d at 426.
Defendants argue that no North Carolina court has extended the joint venture doctrine in
the context of a claims administrator and an insurer. Notably, however, defendants have not
identified any North Carolina case addressing this issue, the novelty of which weighs against a
finding of fraudulent joinder. Hartley, 187 F.3d at 425 (“Because all legal uncertainties are to be
resolved in the plaintiff’s favor in determining whether fraudulent joinder exists, a truly ‘novel’
issue such as this cannot be the basis for finding fraudulent joinder.”). In light of this novelty, the
fact that, unlike other cases involving a joint venture, here both parties to the alleged joint venture
deny its existence, is not determinative. Moreover, plaintiff has identified out of state authority
finding a claims administrator and an insurer to be involved in a joint venture, where they shared
profits and where the claims administrator “developed promotional material, issued policies, billed
and collected premiums, paid and adjudicated claims, and assisted [the insurer] in the development
of the ancillary charges limitation provision.” Albert H. Wohlers & Co. v. Bartgis, 114 Nev. 1249,
1263 (1998). While Albert is not binding on North Carolina courts, it at least shows possibility of
relief. Cf. Hartley, 187 F.3d at 425 (“The very fact that courts may differ in their resolutions of
this issue shows there is a possibility of recovery.”).
Defendants also argue that the complaint is devoid of allegations of profit sharing or of
defendant Redwoods’s right to control defendant U.S. Fire, and it cites several cases dismissing
claims premised on a joint venture theory of liability, where those elements are lacking. Regarding
defendant Redwoods’s control over defendant U.S. Fire, plaintiff alleges that defendant Redwoods
drafted and interpreted the Endorsement, exerting control over U.S. Fire’s coverage obligations.
(Compl. (DE 1-1) ¶¶ 39-49; Mem. (DE 15) at 6-7). Moreover, plaintiff argues the sharing of
profits can be inferred from defendant Redwoods’s attempts to lower the cost of claims, in order
to keep insureds doing business with defendant U.S. Fire, as well as defendant Redwood’s stated
concern over Covid-19’s impact on the insurance industry, and its subsequent alleged attempts to
dissuade and suppress claims made under the Endorsement. (Compl. (DE 1-1) ¶¶ 10,42; Mem.
(DE 17) at 3). Viewing these issues of fact in plaintiff’s favor, plaintiff has demonstrated at least
a “glimmer of hope” that defendants are involved in a joint venture.1 See Hartley, 187 F.3d at 426
(“Ultimate success is not required to defeat removal.”). Accordingly, the fraudulent joinder
doctrine is inapplicable, and remand is required.
Based on the foregoing, plaintiff’s motion to remand (DE 14) is GRANTED. This case is
REMANDED to the General Court of Justice, Superior Court Division, Nash County, North
Carolina, for further proceedings. The clerk is DIRECTED to transmit a certified copy of this
Having determined that defendant Redwoods was not fraudulently joined, on the basis of a joint venture
theory of liability, the court does not reach the parties’ arguments regarding plaintiff’s other causes of action against
order to the clerk of the General Court of Justice, Superior Court Division, Nash County, North
Carolina, and to file in this case a copy of the clerk’s transmittal letter with certified copy of the
instant order. The clerk is further DIRECTED to close this case.
SO ORDERED, this the 1st day of April, 2021.
LOUISE W. FLANAGAN
United States District Judge
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?