S & W Mobile Home & RV Park, LLC v. B&D Excavating and Underground, LLC et al
ORDER by Magistrate Judge Charles S. Miller, Jr denying 6 Motion to Dismiss; denying 10 Motion to Remand. (ZE)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
S & W Mobile Home & RV Park, LLC,
B&D Excavating and Underground, LLC,
Bill Avery, LLC,
Assurance Company of America,
ORDER DENYING PLAINTIFF’S
MOTION TO REMAND AND
GARNISHEE’S MOTION TO DISMISS
Case No. 1-17-cv-9
Before the court is S & W Mobile Home & RV Park, LLC’s (“S & W”) Motion to Remand
(Doc. No. 10), wherein S & W argues this case should be remanded to North Dakota state court for
want of the complete diversity of citizenship required by 28 U.S.C. § 1332 and improper removal
under 28 U.S.C. § 1441. Garnishee Zurich American Insurance Company (“Zurich”), as successor
in interest to Assurance Company of America, opposes the motion. (Doc. No. 14).
Also, before the court is an earlier filed Motion to Dismiss (Doc. No. 6) by Zurich, wherein
it argues that this case must be dismissed for failure to state a claim upon which relief can be granted.
S & W opposes that motion. (Doc. No. 9).
The underlying state action
The factual and procedural backgrounds giving rise to this action are straight-forward. In
October 2015, S & W sued B&D Excavating and Underground, LLC (“B&D”) and Bill Avery, LLC
(“Avery”) in North Dakota state court in Dunn County, alleging B&D and Avery provided faulty
workmanship at a site owned by S & W. Neither B&D nor Avery appeared, and the state district
court entered judgment in favor of S & W in the amount of $1,002,676.00.
The state garnishment proceeding
On September 9, 2016, S & W served a garnishment summons on Zurich, B&D’s insurer.
(Doc. No. 1-2). On September 27, 2016, Zurich returned a garnishee disclosure form asserting it was
not liable to B&D. (Doc. No. 1-1). On December 28, 2016, S & W filed an objection to this
disclosure. (Doc. No. 1-2).
Removal of the state garnishment proceeding and post-removal motions
Zurich then removed this action under 28 U.S.C. § 1332 by filing a notice of removal, dated
January 5, 2017, on January 9, 2017.
Zurich filed its motion to dismiss on January 13, 2017. Notably, one or more of the
arguments that Zurich makes for dismissal revolve around its claim that S & W’s garnishment action
is an impermissible direct action against an insurer. S & W filed a substantive response to the
motion on February 3, 2017, contending, among other things, that the garnishment proceeding is not
an impermissible direct action against an insurer.
S & W filed its motion for remand three days later alleging two deficiencies in the removal.
First, notwithstanding having claimed that this action is not an impermissible direct action against
an insurer in response to Zurich’s motion to dismiss as discussed later, S & W now claims it is a
direct action - at least for purposes of 28 U.S.C. § 1332(c)(1) - and that, because of this, diversity
jurisdiction is lacking after a realignment of the parties. S & W also contends that Zurich’s removal
of the action was untimely because it was too late.
Zurich filed a response to the motion for remand, contending that the garnishment is not an
impermissible direct action for purposes of 28 U.S.C. § 1332(c)(1) , although still contending it is
for purposes of state law. It also presents an argument for why its removal was timely.
On February 23, 2017, S & W filed a reply to Zurich’s response opposing remand. In its
reply, S & W included a new ground for why Zurich’s removal was improvident, contending now
that the removal was premature instead of being too late as originally claimed. Notably, not only was
this new ground not alleged in the original motion for remand, the reply brief in which it was
asserted was not filed until after the 30-day deadline for a filing a “motion to remand the case on the
basis of any defect other than lack of subject matter jurisdiction . . .” as required by 28 U.S.C. §
The putative citizenship of the parties
As represented to the court, Zurich is a citizen of both Illinois and New York. According to
well-established precedent, S & W, B&D, and Avery assume the citizenship of their “members.”
OnePoint Solutions, LLC v. Borchert, 486 F.3d 342, 346 (8th Cir. 2007) (stating an “LLC's
citizenship, for purposes of diversity jurisdiction, is the citizenship of each of its members.”).
According to Zurich: (1) Douglas Jelly, a Montana citizen, is the member of B&D, meaning B&D
is to be considered a Montana citizen; Bill Avery, a Florida citizen, is the member of Avery, making
Avery a Florida citizen; and (3) S & W is owned by two trusts whose trustee, Lois Selle, is a citizen
of Minnesota, suggesting the trusts, and by extension S & W, are citizens of Minnesota. (Doc. No.
1, pp. 5-6). Because S & W does not contest these citizenships, the court will assume them to be
accurate for purposes of this motion. Of course, if the assumed facts relevant to the existence of
diversity of citizenship for some reason change, the court may again have to confront the issue since
the parties cannot confer jurisdiction upon the court by agreement or acquiescence. E.g., Smith v.
Ashland, Inc., 250 F.3d 1167, 1172 (8th Cir.2001).
S & W’s MOTION TO REMAND
S & W’s argument that the court lacks jurisdiction
In relevant part, 28 U.S.C. § 1441(a) provides that “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 . . . .” When removal was improper for want of subject matter jurisdiction, 28 U.S.C. §
1447(c) requires remand to state court.
Original jurisdiction exists under 28 U.S.C. § 1332(a)(1) when the amount in controversy
exceeds $75,000 and the parties are citizens of different states. The latter has been interpreted as
requiring that all plaintiffs must be diverse from all defendants. Universal Underwriters Ins. Co. v.
Wagner, 367 F.2d 866, 870 (8th Cir. 1966) (“Universal Underwriters”). Further, it is not enough
that the parties have captioned the case such that diversity nominally exists. Rather, there must be
an “actual” and “substantial” controversy between the parties. See id.; see also Zavanna, LLC v.
RoDa Drilling Co., No. 4:09-cv-022, 2009 WL 3720117, at *8 (D.N.D. Nov. 3, 2009) (concluding
that the 8th Circuit has adopted the “actual and substantial” test despite having also referenced in
Universal Underwriters, supra, the primary purpose of the suit); Hartford Accident and Indemnity
Company. v. Doe Run Resources Corporation, No. 4:08-cv-1687, 2009 WL 1067209, at *2 (E.D.
Mo. April 21, 2009) (same and citing other cases). And, the court is required to “look beyond the
pleading and to arrange the parties according to their sides in the dispute.” City of Indianapolis v.
Chase Nat'l Bank of City of New York, 314 U.S. 63, 69 (1941) (quoted case omitted).
Realignment of the parties
In this case, S & W contends, and Zurich does not appear to disagree, that B&D and Avery
should be realigned with S & W because the three have a joint interest in having Zurich pay on the
insurance policy, which would either eliminate or reduce the amount owed under the default
judgment. This realignment is in keeping with a number of other federal courts that have considered
proper party alignment within the context of a garnishment action against an insurer. Randolph v.
Employers Mut. Liab. Ins. Co., 260 F.2d 461, 464 (8th Cir.1958) (stating the defendant in a
garnishment action “should be aligned for jurisdictional purposes with the plaintiff, as it would be
to [the defendant’s] interest to have the judgment against him satisfied by his insurer.”); Davis v.
Carey, 149 F. Supp. 2d 593, 596 (D. Ind. 2001) (collecting a number of cases with similar holdings).
While this realignment does not nominally destroy diversity, it would if 28 U.S.C. §
1332(c)(1) applies. That part of § 1332 reads as follows:
[I]n any direct action against the insurer of a policy or contract of liability insurance,
whether, incorporated or unincorporated, to which action the insured is not joined as a
party-defendant, such insurer shall be deemed a citizen of-(A) every State and foreign state of which the insured is a citizen;
(B) every State and foreign state by which the insurer has been incorporated; and
(C) the State or foreign state where the insurer has its principal place of business . . . .
S & W’s argument for why this a “direct” action” under § 1332(c)(1)
S & W argues that this garnishment proceeding is a “direct action” for purposes of § 1332(c)(1) so
that, in addition to Zurich’s New York and Illinois citizenship, § 1332(c)(1) imputes B&D’s
Montana citizenship onto Zurich. Then, if B&D is realigned as a plaintiff for purposes of this action,
diversity is destroyed since the result is at least one party on each side having the same citizenship.
That is, on the plaintiff’s side, B&D is a Montana citizen and, on the defendant’s side, so is Zurich
by virtue of the citizenship imputed by § 1332(c)(1).
Zurich argues S & W misapplies § 1332(c)(1) because this action does not constitute a direct
action under § 1332(c)(1). And, if that is the case, there would be no imputation of citizenship and
complete diversity would still exist based Zurich’s original citizenship.
The court agrees with Zurich’s argument and is persuaded by the opinions of other federal
courts which have held that garnishment actions under state law do not constitute “direct actions”
under § 1332(c)(1). One such opinion from a sister court in the Eighth Circuit stated:
The court finds the present action is not a “direct action” within the meaning of section
1332(c)(1). The proviso was enacted to keep ordinary state-court tort claims out of federal
court. See Northbrook Nat. Ins. Co. v. Brewer, 493 U.S. 6, 10, 110 S.Ct. 297, 107 L.Ed.2d
223 (1989) (noting that “Congress added the proviso to § 1332(c) in 1964 in response to a
sharp increase in the caseload of Federal District Courts in Louisiana resulting largely from
that State's adoption of a direct action statute” whose effect was to “create diversity
jurisdiction in cases in which both the tortfeasor and the injured party were residents of
Louisiana, but the tortfeasor's insurer was considered a resident of another State”).
“Congress' plain objective in amending § 1332(c) was to ensure that ‘tort cases involving
only local residents, which in the other States would come within the exclusive jurisdiction
of the State courts' would not appear in federal court.” Rosa v. Allstate Ins. Co., 981 F.2d
669, 678 n. 22 (2d Cir.1992), quoting S.Rep. No. 1308, 88th Cong., 2d Sess. 1 (1964),
reprinted in 1964 U.S.C.C.A.N. 2778, 2779 (emphasis added in Rosa). Nebraska law does
not authorize such direct actions. See Medical Protective Co. v. Schrein, 255 Neb. 24, 582
N.W.2d 286, 291 (1998).
The essential feature of a tort “direct action” is that the insurer has been substituted as a
party-defendant for the legally responsible insured. Rosa, 981 F.2d at 675 n. 10. The term
“direct action” as used in 28 U.S.C. § 1332(c)(1) refers to a case “in which a party suffering
injuries or damage for which another is legally responsible is entitled to bring suit against
the other's liability insurer without joining the insured or first obtaining a judgment against
him.” Beckham v. Safeco Ins. Co. of Am., 691 F.2d 898, 901–02 (9th Cir.1982) (citations
omitted); accord McGlinchey v. Hartford Accident & Indem. Co., 866 F.2d 651, 653 (3d
Cir.1989); Fortson v. St. Paul Fire & Marine Ins. Co., 751 F.2d 1157, 1159 (11th Cir.1985).
Thus, unless the cause of action against the insurance company is essentially the same claim
that would seek liability against the insured, the action is not a direct action. See Rosa, 981
F.2d at 675. . .
The court's conclusion rests on the distinction, recognized in case law, between a tort claim
to determine liability and a contract claim to determine coverage. See Searles v. Cincinnati
Ins. Co., 998 F.2d 728, 729 (9th Cir.1993) (an insured's bad faith action against his insurer
is not a “direct action” within the meaning of § 1332(c), limiting “direct actions” to cases
in which “a plaintiff is entitled to bring suit against the tortfeasor's liability insurer without
joining the insured”); Rosa v. Allstate Ins. Co., 981 F.2d at 674–75 (an action by an injured
automobile passenger against the automobile owner's no-fault insurer is not a “direct action”
within the meaning of § 1332(c) because “[w]hereas a ‘direct action’ is a tort claim in which
the insurer essentially stands in the shoes of its legally responsible insured, no-fault
coverage is contractual in nature”); White v. United States Fid. & Guar. Co., 356 F.2d 746,
747–48 (1st Cir.1966) (finding that section 1332(c) “refers only to cases brought by an
alleged victim of a tort under a ‘direct action’ statute against the liability insurer of the
alleged tortfeasor”); Stockton v. General Accident Ins. Co., 897 F.2d 530, 1990 WL 20477
at *3 (6th Cir.1990) (unpublished opinion) (holding that a garnishment lawsuit brought by
judgment creditors against an insurer is not a direct action for purposes of Section 1332(c)).
A garnishment action most likely involves determination of coverage under a contract of
insurance. See, e.g., Freeman v. Walley, 276 F.Supp.2d 597, 599–602, 2003 WL 21954755,
*2–5 (S.D.Miss. April 30, 2003). Accordingly, the action is in the same posture as either a
declaratory judgment action on coverage, or an action in which an injured plaintiff has
obtained an assignment of insurance rights from a tortfeasor, both of which could have been
originally brought in federal district court, assuming diversity. See Evanston Ins. Co. v.
Jimco, Inc., 844 F.2d 1185, 1189 (5th Cir.1988) (holding that 28 U.S.C. § 1332(c) does not
bar a declaratory judgment action brought by an insurer seeking a declaration as to
coverage—“the fact that an insurer is a ‘direct’ party does not make the litigation a ‘direct
Where a tort action has already been litigated against the insured, the insurer is no longer
litigating the issue of its insured's liability but is instead “litigating the existence of a new
liability”—whether it owes a debt to its insured. Butler v. Polk, 592 F.2d at 1295–96. Once
a plaintiff sues the tortfeasor and obtains a judgment, the judgment debtor has an interest
in the policy if it provides coverage for the judgment. The insurer is then subject to suit to
collect on the judgment because it holds an asset of the insured. The insurer is in no
different posture from any other person or entity that holds assets of the judgment debtor.
The court thus concludes that § 1332(c)(1) does not apply . . . .
Hipke v. Kilcoin, 279 F. Supp. 2d 1089, 1091-93 (D. Neb. 2003). Likewise, another sister
court from the Eighth Circuit concluded:
On the surface, it would appear that this garnishment proceeding is a direct action against
the insurer. However, “direct action” is a term of art, and an understanding of that term
demonstrates that this is not a direct action within the meaning of the statute.
Courts have uniformly recognized that section 1332(c) “was primarily intended to eliminate
the use of diversity jurisdiction to gain entry into the federal district court of Louisiana to
sue in tort under that state's direct action statute, which allows an injured party to sue
directly the insurer of a tortfeasor without joining the tortfeasor himself as a defendant.”
Home Indemnity Co. v. Moore, 499 F.2d 1202, 1205 (8th Cir.1974); see also Hernandez v.
Travelers Ins. Co., 489 F.2d 721, 723 (5th Cir.1974). Courts have further recognized that
in employing the phrase “direct action,” Congress intended “to refer to statutes such as those
in Louisiana and Wisconsin which allow a party injured by the negligence of an insured to
pursue his right of action against the insurer alone.” Velez v. Crown Life Ins. Co., 599 F.2d
471, 473 (1st Cir.1979) (quotation omitted).
This garnishment proceeding is not a direct action. Hayes is not suing the insurer in order
to establish Courtney's liability to her; she established Courtney's liability in a proceeding
against Courtney. In this proceeding, Hayes does not litigate any claim she has against
Courtney, but only claims she has against his insurer. This case is not a direct action against
the insurer within the meaning of section 1332(c), so diversity of citizenship and,
consequently, federal jurisdiction, are both present.
Hayes v. Pharmacists Mut. Ins. Co., 276 F. Supp. 2d 985, 987 (E.D. Mo. 2003).
The court finds persuasive the foregoing discussions with respect to the statutory history and
precedential development of § 1332(c)(1). In a direct action, the plaintiff substitutes the insurer for
the insured as a party-defendant in suing to establish the insured’s liability. In a garnishment action
such as this, the insured’s liability has already been established and the plaintiff is seeking to garnish
on an insurance contract. In doing so, the plaintiff is not litigating liability of the insured, but is only
litigating liability of the insurer and the insurer is no different position than any other party who
might be liable to the judgment debtor. The two inquiries are, absent special circumstances, legally
distinct, just as other federal courts have concluded under other state garnishment statutes.
Additionally, the garnishment process codified at N.D.C.C. ch. 32-09.1 bears no resemblance
to the actions Congress sought to disallow from the federal courts. In the direct action, Congress
sought to exclude from federal court actions brought pursuant to state statutes that allow the injured
party to substitute an insurer for the insured as party-defendant in an action to establish liability of
the insured. By allowing substitution of a foreign insurance company for a local insured defendant,
these state statutes artificially created diversity when none would have otherwise existed. North
Dakota’s garnishment statutes do nothing of the sort. Garnishment is available in North Dakota only
after the plaintiff secures judgment against the insured defendant, at which point the plaintiff and the
garnishee litigate the “pivotal question” of “whether the insurance policy provided coverage under
the circumstances.” Rebel v. Nodak Mut. Ins. Co., 1998 ND 194, ¶ 12, 585 N.W.2d 811 (“Rebel”).
This litigation by way of garnishment between a local plaintiff, now judgment creditor, and a foreign
insurance company is not a dispute between local residents being prosecuted in federal court on
diversity grounds because of a state law allowing substitution of a foreign insurance company for
the local defendant. Rather, the garnishment is a new action onto itself involving naturally diverse
parties and N.D.C.C. ch. 32-09.1 does nothing to create diversity where it would otherwise not exist.
Here, S & W has already established liability on the part of B&D by way of the default
judgment entered in state court. With that judgment, the sole issue to be litigated in this garnishment
proceeding is whether Zurich is liable to pay under its insurance policy with B&D. This garnishment
action is a dispute between citizens of different states and Zurich is in no different position than any
other party that may be in possession of property belonging to B&D or who might be indebted to
B&D. But for the potential ramifications of § 1332(c)(1), this is an action where complete diversity
unquestionably exists. By allowing this case into federal court, the court does no damage to the ends
Congress sought to address by enacting the direct action provision of § 1332(c)(1). For these
reasons, the court concludes this is not a “direct action” within the meaning of § 1332(c)(1).
In arguing to the contrary, S & W cites Glover v. State Farm Fire & Cas. Co., 984 F.2d 259
(8th Cir. 1993) and Prendergast v. Alliance General Ins. Co., 921 F. Supp. 653 (E.D. Mo. 1996).
Glover is of no moment here because the Eighth Circuit only considered whether the
plaintiff/judgment creditor could “maintain a diversity-based federal declaratory judgment action
directly against [the insurer] to determine whether [the] judgment debtor had coverage . . . .”
Lancaster v. Am. and Foreign Ins. Co., 272 F.3d 1059, 1064 (8th Cir. 2001) (negatively reviewing
Glover). The circuit court did not consider whether a garnishment action was a direct action under
§ 1332(c)(1), such that the garnishee assumes the citizenship of the insured/judgment debtor.
S & W’s citation to Prendergast, though more on point than Glover, is of no more avail.
Missouri’s equitable garnishment statute, Mo.Rev.Stat. § 379.200, allows a plaintiff to proceed in
equity directly against an insurer for satisfaction of a judgment entered against the insured. Under
Missouri law, equitable garnishment is a coexistent remedy with traditional garnishment. Allen v.
Bryers, 512 S.W.3d 17, 30 (Mo. 2016). In Prendergast, the court concluded that equitable
garnishments under Mo.Rev.Stat. § 379.200 are “direct actions” for purposes of § 1332(c)(1)
because it allowed the plaintiff to proceed directly against the insured, thus achieving an end
otherwise prohibited by Missouri’s direct action ban. 921 F. Supp. at 655.
A number of reasons render S & W’s reliance on Prendergast questionable. First, other
federal courts within Missouri, particularly the western district, have disagreed with the eastern
district and held equitable garnishments under Mo.Rev.Stat. § 379.200 are not direct actions under
§ 1332(c)(1). See Peterson v. Discover Property & Cas. Ins. Co., No. 11-6115-CV, 2012 WL
728353, at *2 n.1 (W.D. Mo. March 6, 2012). So whether equitable garnishment actions under
Mo.Rev.Stat. § 379.200 are direct actions under § 1332(c)(1) is far from a settled question, making
Prendergast of questionable precedential value. Second, even if equitable garnishment actions under
Mo.Rev.Stat. § 379.200 are properly considered direct actions under § 1332(c)(1), Missouri courts
have held “traditional” garnishments brought under Mo.Rev.Stat. ch. 525 are not direct actions under
§ 1332(c)(1). See Hayes v. Pharmacists Mut. Ins. Co., 276 F. Supp. 2d 985 (W.D. Mo. 2003); see
also Village at Deer Creek Homeowners Ass’n, Inc. v. State Auto, Ins. Co., No. 4:11-cv-339, 2011
WL 2681229 (W.D. Mo. July 8, 2011) (recognizing the distinction between how equitable
garnishments and traditional garnishments under Missouri law should be treated for purposes of §
1332(c)(1)). North Dakota does not have an equitable garnishment statute and judgment creditors
may only proceed in garnishment under N.D.C.C. ch. 32-09.1, which is, in substance, analogous to
Mo.Rev.Stat. ch. 525. S & W’s reliance on Prendergast misses that distinction. The court finds no
compelling reason why Prendergast should have any impact on the conclusion that a garnishment
action under N.D.C.C. ch. 32-09.1 is not a direct action under § 1332(c)(1).
S & W also cites Reko v. Creative Promotions, Inc., 70 F. Supp. 2d 998 (D. Minn. 1999), in
which the federal district court for Minnesota concluded that the garnishment action initiated under
Minnesota law in that case constituted a direct action for purposes of § 1332(c)(1). In Reko, the
plaintiff and defendant were Minnesota citizens and the insurer a citizen of New York. Id. at 1002.
The plaintiff and defendant entered into a Miller-Shugart agreement and the plaintiff sought to
garnish against the foreign insurer.1 In concluding the garnishment qualified as a direct action under
§ 1332(c)(1), the Reko court stated the “holding in this case is limited to garnishment proceedings
that arise from the context of a ‘Miller–Shugart’ settlement.” Id. at 1004 n.4.
There are other decisions from the federal courts for Minnesota that have disagreed with
Reko, however. See Kuepers Const., Inc. v. State Auto Ins. Co., Civil No. 15-449, 2015 WL
4247153 (D. Minn. July 13, 2015) (stating “[u]pon reexamination and further development of the
case law, the Court no longer finds the reasoning of Reko persuasive and therefore reverses course
to join with a multitude of courts in concluding that a suit brought against an insurer for the insurer's
A Miller-Shugart settlement derives its name from the Minnesota Supreme Court's decision in Miller v.
Shugart, 316 N.W.2d 729 (Minn.1982) (describing the nature of and enforcing the settlement). See Sellie v. North
Dakota Ins. Gaur. Ass’n, 494 N.W.2d 151, 155 (N.D. 1992).
independent wrongs is not ‘direct’ within the context of § 1332(c)(1)(a).”); Interlachen Prop., LLC
v. State Auto Ins. Co., 136 F. Supp. 3d 1061, 1073 (D. Minn. 2015) (stating “[a]lthough Reko arises
in a slightly different factual setting, to the extent it would call for a different result than the cases
cited above, the Court disagrees with its reasoning and conclusion.”). This court finds the reasoning
of those cases to be persuasive. Hence, if there was a Miller-Shugart agreement in place here, the
court would not conclude this would be a direct action within the meaning of § 1332(c)(1).2
Given the court’s conclusion that this action is not a “direct action” under § 1332(c)(1),
Zurich does not assume B&D’s Montana citizenship pursuant to that section, meaning complete
diversity exists amongst the parties.
Because complete diversity exists, and this matter
unquestionably satisfies the jurisdictional amount, this court has subject matter jurisdiction under
28 U.S.C. § 1332(a)(1).
S & W’s argument that Zurich’s removal of this action was too late
The second ground alleged in S & W’s motion to remand is that Zurich’s removal of the
action was untimely. As explained in its supporting brief, this was because Zurich failed to remove
the action within 30 days after having been served with the initial pleading setting forth a claim for
relief against it (which S & W then asserted was the garnishment summons) as required by 28 U.S.C.
§ 1446(b)(1), which reads:
The notice of removal of a civil action or proceeding shall be filed within 30 days after the
receipt by the defendant, through service or otherwise, of a copy of the initial pleading
setting forth the claim for relief upon which such action or proceeding is based, or within
30 days after the service of summons upon the defendant if such initial pleading has then
been filed in court and is not required to be served on the defendant, whichever period is
As discussed later, the North Dakota Supreme Court in a number of cases has addressed the liability of an
insurance carrier in a garnishment action brought after the parties have entered into a Miller-Shugart agreement. E.g.,
Peterson v. Dakota Molding, Inc., 2007 ND 144, 738 N.W.2d 501; D.E.M. v. Allickson, 555 N.W.2d 596 (N.D. 1996);
Medd v. Fonder, 543 N.W.2d 483 (N.D. 1996)
Zurich disagrees. It relies upon the exception to the statutory 30-day shot clock for removal
provided by § 1446(b)(3), which reads, in relevant part, as follows:
if the case stated by the initial pleading is not removable, a notice of removal may be filed
within 30 days after receipt by the defendant, through service or otherwise, of a copy of an
amended pleading, motion, order or other paper from which it may first be ascertained that
the case is one which is or has become removable.
Zurich contends it could not determine from the garnishee summons what the citizenships of the
other parties were and that it removed the action within 30 days of having received sufficient
information that it allowed it to determine that there was a basis for federal jurisdiction based on
diversity of citizenship.
S & W served the garnishee summons on September 9, 2016. (Doc. No. 1-2). The summons
contained the captioning from the state court proceeding identifying S & W as the plaintiff, B&D
and Avery as defendants, and Zurich as the garnishee. The summons also identified the amount of
the default judgment. The summons did not identify any information pertaining to the parties’
citizenships, however, and S & W concedes as much. (Doc. No. 11 p. 12).
This concession notwithstanding, S & W argues Zurich had access to the parties’ citizenships
at the time of service of the garnishment summons because Zurich was in possession of the
complaint from the underlying state court action that indicated S & W was an LLC with its primary
place of business in North Dakota. With this cumulative information, S & W argues that Zurich’s
basis for removal - i.e., diversity of citizenship and a disputed amount in excess of $75,000 - was
ascertainable as of September 9, 2016. But, even if not, S & W alternatively argues it was incumbent
upon Zurich to investigate the parties’ citizenships within thirty days of receiving the garnishment
summons and Zurich’s failure to do so was to its own detriment.
Zurich argues it did not have sufficient information on September 9, 2016, to ascertain
whether diversity existed so as to warrant removal. Rather, Zurich argues that the existence of
diversity was not clear until correspondence between the two sets of counsel in mid-December 2016
provided information pertaining to the possible citizenships of the trusts owning S & W. If that date
is given credence, Zurich’s removal on January 5, 2017, would have been timely under § 1446(b)(3).
In examining whether a basis for removal was ascertainable, the “thirty-day time limit of
section 1446(b) begins running upon receipt of the initial complaint only when the complaint
explicitly discloses the” circumstances giving rise to federal jurisdiction. In re Willis, 228 F.3d 896,
897 (8th Cir. 2000). This precludes consideration of a defendant’s subjective knowledge. Id.; see
also Knudson v. Systems Painters, Inc., 634 F.3d 968, 974 (8th Cir 2011).
Here, the garnishment summons did not contain any information regarding the parties’
citizenship. The complaint from the underlying action, which Zurich had in its possession, indicated
S & W was an LLC with its principal place of business in North Dakota.3 This, standing alone, is
insufficient to invoke diversity jurisdiction because an LLC’s membership controls the citizenship
of the LLC, not the state of the LLC’s business, rendering this information of little consequence.
OnePoint Solutions, 486 F.3d at 346 (8th Cir. 2007). On the critical issue of S & W’s membership,
the garnishment pleadings and the underlying complaint are silent. Further compounding this
problem, S & W is owned by two trusts. Nothing in the initial pleadings or complaint from the
underlying case provide any information as to the trusts’ trustees or their members, one or both of
which may control the citizenship of the trusts and, in turn, control S & W’s citizenship. See, e.g.,
The court expresses no opinion on whether relying on the complaint from the underlying action, which was
not provided in the garnishment pleadings in this case, to provide the potential basis for removal is appropriate under
§ 1446(b)(3). In this case, it does not effect the outcome.
Americold Reality Trust v. Conagra Foods, Inc., 136 S.Ct. 1012 (2016); Raymond Loubler
Irrevocable Trust v. Loubler, 858 F.3d 719, 732 (2d Cir. 2017); City of Beach v. Goepfert, 147 F.2d
480, 481 (1949). Based on the information available as of September 9, 2016, the citizenship status
of S & W was anyone’s guess and the garnishment summons and other papers served by S & W did
not suffice to alert Zurich that the matter might be removable.
After combing the record, the court concludes the first time Zurich could reasonably be
charged with ascertaining a possible basis for diversity jurisdiction was on December 16, 2016. In
an email dated that day, S & W’s counsel provided the citizenships of the trustees and beneficiaries
for the trusts owning S & W. (Doc. No. 12-5). Under § 1446(b)(3), this gave Zurich thirty days to
remove the action to federal court which Zurich did when it filed its notice of removal on January
5, 2017. (Doc. No. 1).
S & W argues that Zurich should have inquired about the membership of the trusts owning
S & W within thirty days from service of the garnishment summons. S & W has not pointed to, nor
has the court found, any precedent from the Eighth Circuit imposing a duty on the party seeking
removal to investigate the basis for removal beyond the documents provided by the plaintiff.
Requiring Zurich to go beyond the four corners of the initial pleadings would be inconsistent with
Willis and Knudson requiring the plaintiff to explicitly set forth the basis for removal in order to
trigger the thirty-day removal period. Other courts, within the context of cases involving the Class
Action Fairness Act, which incorporates the removal standards of § 1446(b)(3), have held a
defendant is not required “to investigate or to supply facts outside of those provided by the plaintiff.”
See. e.g., Romulus v. CVS Pharmacy, Inc., 770 F.3d 67, 75 (1st Cir. 2014); see also Cutrone v.
Mortgage Electronic Registration Systems, Inc., 749 F.3d 137, 143 (2d Cir. 2014) (stating
“defendants have no independent duty to investigate whether a case is removable.”); Graiser v.
Visinoworks of America, Inc., 819 F.3d 277 (6th Cir. 2016) (same). Accordingly, Zurich was not
required to independently research potential bases for removal. But, even if it was, the court
concludes it acted within a reasonable amount of time.
S & W’s contradictory argument - raised for the first time in its reply brief - that
Zurich’s removal was too early
S & W argued for the first time in its reply brief that Zurich is not a “defendant” under §
1441(a) because S & W had not yet joined it as a party by way of service of a supplemental
complaint. Accordingly, S & W argues Zurich’s removal was premature and the case must be
remanded for this reason.
In response, Zurich argues the court should not reach the merits of this argument because
S & W did not raise the issue in its initial briefing with the court. In the alternative, Zurich argues
the garnishment action in state court began at issuance of the garnishment summons, making it a
party to the action at the time of service and thus a “defendant” for purposes of § 1441(a) even
though labeled as a “garnishee.”
During oral argument, S & W prudently elected to waive this argument, although it likely had
done so already.4 Consequently, the court need not decide whether the inclusion of the argument in
Generally speaking, courts are under no obligation to address issues raised for the first time in reply briefing.
See Powell v. St. Francois Cty., No. 4:14-cv-1230, 2016 WL 695674 at *2 (E.D. Mo. Feb. 19, 2016) (stating “a court
generally will not consider an issue raised for the first time in a reply brief.”); see also Kirt v. Fashion Bug # 3253, Inc.,
479 F. Supp.2d 938, 948 n.4 (N.D. Iowa 2007) (stating “[r]aising a new issue in a reply brief, however, generally does
not require the court to consider that issue.”). In this instance, given what S & W first urged in its opening brief (which
was that the removal was too late), the court likely would have concluded that its contradictory argument raised for the
first time in its reply brief (which was the removal was premature) rose to the level of being a waiver. Cf. Peterson v.
Berryhill, No. 16-5740, 2017 WL 2701838, at *4 (C.D. Cal. June 21, 2017) (claim of error on the part of an SSA ALJ
raised for the first time in a reply brief deemed waived); Edgewell Personal Care Brands v. Abaad Massuot Yitzhak,
No. 15-1188, 2017 WL 1900736, at *4 (D. Del. May 9, 2017) (failure to timely include an argument during briefing
amounted to a waiver of the argument); Roy v. McCollum, No. 15-306, 2017 WL 1740468, at *5 (W.D. Okla. May 3,
2017) (argument raised for the first time in a reply brief deemed waived).
its reply brief was timely under 28 U.S.C. § 1447(c)5 or what pleading under North Dakota’s
garnishment process triggers the right to remove.6
The courts are in disagreement with respect to whether grounds for remand alleged for the first time after the
expiration of the time for filing a motion to remand under 28 U.S.C. 1447(c) can be considered if a timely motion for
remand on other grounds was filed. Compare, e.g., Northern California Dist. Council of Laborers v. Pittsburgh-Des
Moines Steel Co., 69 F.3d 1034, 1038 (“We hold that § 1447(c) prohibits a defect in removal procedures from being
raised later than 30 days after the filing of the notice of removal, regardless of whether a timely remand motion has been
filed.”) with BEPCO, L.P. v. Santa Fe Minerals, Inc., 675 F.3d 466, 470-71 (5th Cir. 2012) (concluding that new grounds
can be considered because “for a timeliness analysis under Section 1447(c), the central inquiry is whether the remand
motion satisfies the 30–day requirement.”). The court is not aware of an Eighth Circuit decision on the issue.
Several judges in the District of Minnesota have concluded that the pleading triggering the right to remove
under Minnesota’s garnishment statutes is the motion to seek leave to file a supplemental complaint. See, e.g.,, Reko
v. Creative Promotions, Inc., 70 F. Supp. 2d 998, 1001 (D. Minn. 1999) (“In the context of garnishment proceedings in
Minnesota, the motion for leave to file a supplemental complaint is analogous to filing a new complaint in a civil action
and is the appropriate trigger for the thirty day removal period under 28 U.S.C. § 1446(b).”). This court has not ruled
on the issue in the context of North Dakota’s statutory scheme, which is similar to Minnesota’s. And, while the reasons
articulated by the district court in Minnesota are good ones, there is a contrary argument to be made for the triggering
pleading being the service of the garnishment summons.
Under 28 U.S.C. § 1446(b), a “civil action or proceeding” can be removed by the filing of a notice of removal
within 30 days after receipt by a defendant by service or otherwise of the “initial pleading setting forth the claim for relief
upon which such action or proceeding is based . . . .” (italics added). Under North Dakota’s garnishment statutes, the
garnishment summons does more work than a summons in an ordinary civil action. Among other things, (1) the
garnishment summons must set forth the amount that will claimed by the plaintiff, and (2) the garnishment summons
and/or the mandatory “garnishee disclosure form” (which must accompany the summons,) requires that the garnishee
disclose any money or property held that is subject to being garnished as well as to set forth whether the garnishee is
claiming any adverse interest, setoff, or other “defense.” N.D.C.C § 32-09.1-07, 32-09.1-09. All of this precedes the
ability of the plaintiff to seek leave to file a supplemental complaint against the garnishee under § 32-09.1-12. Further,
if the garnishee fails to respond to the garnishment summons within the time required, the court upon affidavit of the
plaintiff may render a judgment against the garnishee without plaintiff having to first seek leave to file a supplemental
complaint. N.D.C.C. § 32-09.1-14. Finally, the garnishment process contemplates (and in fact specifically exists) to
provide for recovery of the garnished property from the garnishee.
Given all of this, there is an argument of some force that the garnishment summon constructively is the initial
pleading setting forth a claim for relief upon which the proceeding is based and that the garnishee constructively is a
defendant for purposes of s 1446(b). See Northern States Power Co. v. TriVis, Inc., No. 16-51, 2016 WL 2621953 (D.
Minn. May 6, 2016) (no objection raised to removal of a Minnesota garnishment proceeding within thirty days of service
of the garnishment summons and before the filing of a motion seeking leave to file a supplemental complaint); Hamptons
at Metrowest Condominium Ass’n, Inc. v. Nationwide Prop. & Cas. Ins. Co., No. 6:15-cv-753, 2015 WL 5021684, **3-4
(M.D. Fla. Aug. 24, 2015) (if garnishment actions are removable, the pleading triggering removal under Florida law
would be the writ of garnishment because it sets forth the amount that is being claimed and default judgment can be
entered against the garnishee for failing to respond); cf. Armentrout v. Atlantic Cas. Ins. Co., 731 F. Supp. 2d 1249, 1258
(S.D. Ala. 2010) (rejecting the argument that the garnishee was “not a ‘defendant’ entitled to removal, and therefore this
cause must be remanded out of this Court.”); Clarise Sportswear Co. v. U & W Mfg. Co., 223 F. Supp. 961, 961-62 (E.D.
Pa. 1963) (holding removal by a garnishee was proper despite the argument “the garnishee [was] not a defendant in the
State action as required by 28 U.S.C. § 1441(a)”).
Notably, this construction has at least a couple of advantages over other possible interpretations. First, the
service of the garnishment summons coincides with what is deemed to be the commencement of the garnishment process
under North Dakota law. Under a prior garnishment statutory scheme, the North Dakota Supreme Court noted a
ZURICH’S MOTION TO DISMISS
Zurich moves to dismiss this action for failure to state a claim pursuant to Fed. R. Civ. P.
12(b)(6), arguing: (1) S & W’s garnishment against Zurich constitutes a direct action against an
insured not allowed under North Dakota law (notwithstanding it having claimed it is not a direct
action for purposes of 28 U.S.C. § 1332(c)(1)); (2) S & W lacks standing to litigate insurance
coverage on a contract to which it was not a party: and (3) any obligation of Zurich was discharged
by operation of N.D.C.C. § 32-09.1-11.
S & W responds by arguing this garnishment action is not a direct action against Zurich
despite it having earlier claimed it was pursuant for purposes of 28 U.S.C. § 1332(c)(1). It further
argues that it has standing to proceed by garnishment against Zurich, and that the action has not been
discharged under § 32-09.1-11.7
garnishment “action is instituted by service of the garnishee summons and affidavit for garnishment upon the garnishee.”
Park, Grant & Morris v. Nordale, 170 N.W. 555 (N.D. 1918). Reaffirming this principle under the current garnishment
scheme, save legislative amendments not relevant to this case, the Bankruptcy Court for North Dakota observed that a
“creditor commences the garnishment by serving upon the garnishee a garnishee summons.” In re Heilman, 39 B.R. 492,
493 (D.N.D. Bank. 1984). Second, it places the federal court in the position of ruling upon a default judgment against
the garnishee if that should become necessary as well whether there is sufficient cause to justify the continuation of the
process by way of supplemental complaint if there is no default. This is consistent with the underlying purpose of the
removal statutes, which is to provide a federal forum.
It may be because of one or more of these things that the Eighth Circuit has twice ducked the question of
whether the triggering pleading for purposes of federal removal under Minnesota law is the garnishment summons or
the later notice of a request to file a supplemental complaint or still later the service of the supplemental complaint. Lang
v. SSA, 612 F.3d 960, 964-65 (8th Cir. 2010) (“It is again unnecessary for us to decide which event triggers the
thirty-day period, because the government's removal was untimely whether the clock started to run when the initial
garnishment summons was served or when the supplemental complaint was served.”); Koehnen v. Herald Fire Ins. Co.,
89 F.3d 525, 529 n.5 (8th Cir. 1996) (“We therefore need not decide which of Koehnen's state court filings was the
“initial pleading” for removal purposes—his garnishment summons to Herald Fire, or his state court motion to file a
supplemental complaint after Herald Fire had denied garnishee liability.”).
Neither party has offered has offered a principled basis for why there is a difference between whether or not
this action is a direct action for purposes of 28 U.S.C. § 1332(c)(1) and whether it is or not under state law. The flipflopping by both parties on this question has left the court suffering from legal whiplash.
Standard for Rule 12(b)(6) motions
The standard for whether to grant a motion to dismiss under Fed. R. Civ. P. 12(b)(6) for
failure to state a claim is well-established. Under Fed. R. Civ. P. 12(b)(6), the court must accept all
factual allegations set forth in the complaint as true. Although the court may generally look only to
those allegation set forth in the complaint, “the district court may sometimes consider materials
outside the pleadings, such as materials that are necessarily embraced by the pleadings and exhibits
attached to the complaint.” Mattes v. AVC Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir. 2003)
(citing Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999)). After doing so, the
court must determine whether, on those assumed facts, the plaintiff has stated a plausible claim upon
which relief may be granted. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
Zurich’s argument that this is an impermissible direct action
Zurich argues this garnishment action should be dismissed because it runs afoul with North
Dakota’s long-standing prohibition on direct actions. S & W argues Zurich’s reliance on this
prohibition is misplaced because a garnishment action is not a direct action under North Dakota law.
These arguments present the question of whether a garnishment action against a judgment debtor’s
insurer, in an attempt to collect on an insurance policy between the judgment debtor and the insurer,
is a direct action under North Dakota law. The parties have not cited, and the court has not found,
any North Dakota Supreme Court decision directly answering this question. However, the reason
for this may be that most litigants have assumed it not to be an issue given the number of
garnishment actions against insurers the North Dakota Supreme Court has addressed without one
mention of it.8
North Dakota does not have a direct action statute allowing a plaintiff with a claim against
an insured party to bring suit directly against that party’s insurer to establish liability of the insured.
Shermoen v. Lindsay, 163 N.W.2d 738, 745 (N.D. 1968). The North Dakota Supreme Court has also
not allowed direct actions at common law. Id. As a result, “[a]bsent a clause in the insurance
contract bestowing the right to bring a direct action against the insurer, an injured party's claim must
be asserted against the tortfeasor, not the tortfeasor's insurer.” Dvorak v. Am. Family Mut. Ins. Co.,
508 N.W.2d 329, 331 (N.D. 1993). This generally precludes the plaintiff from joining an insurer in
an action to establish liability of the insured. Id.; but see James v. Young, 43 N.W.2d 692 (N.D.
1950) (allowing joinder of an insurer in a negligence action against an insured with compulsory
insurance). Joinder of an insurer prior to this establishment warrants dismissal because “the action
against it, at [that] stage of the proceedings, is premature.” Shermoen, 163 N.W.2d at 745. This
disallowance, however, “in no way implies that an ultimate responsibly may not devolve upon [the
insurer] should judgment in favor of the plaintiff . . . be subsequently entered.” Id.
As implicated here, N.D.C.C. ch. 32-09.1 provides the statutory framework and procedures
governing garnishments in North Dakota. In North Dakota, any “creditor is entitled to proceed by
garnishment . . . against any person . . . indebted to or having any property in possession or under
control, belonging to the creditor’s debtor after securing a judgment against the debtor in a court of
competent jurisdiction.” N.D.C.C. § 32-09.1-02. Where there is a dispute about whether a garnishee
Without any prior decision directly on point, the court must predict how the North Dakota Supreme Court
would answer the question. It is well-established that, "[i]n the absence of controlling North Dakota law, the Court is
obligated to predict what North Dakota law is based upon ‘relevant state precedent, analogous decisions, considered
dicta, . . . and any other reliable data.'" Hoff v. Elkhorn Bar, 613 F. Supp. 2d 1146, 1149 (D.N.D. 2009) (quoting
Bockelman v. MCI Worldcom, Inc., 403 F.3d 528, 531 (8th Cir. 2005)).
is liable to a judgment debtor, a garnishment proceeding is one forum to determine whether that
liability exists. Shortridge v. Sturdivant, 155 N.W. 20, 21 (N.D. 1915) (stating the “principal
question to be determined in this [appeal from a garnishment] action is whether [the garnishee] was
indebted to the defendant.”). Consistent with this principle, the North Dakota Supreme Court has
declared that a “pivotal question in a garnishment action” involving a judgment creditor and an
insurer is “whether the insurance policy provided coverage under the circumstances.” Rebel, 1998
ND 194, ¶ 12. In answering this question, the North Dakota Supreme Court, without objection on
direct action grounds, has considered numerous appeals from garnishment actions where a judgment
creditor attempted to garnish against an insured’s insurance policy and the insurer contested
coverage. See, e.g., Close v. Eberts, 1998 ND 167, 583 N.W.2d 794 (considering policy coverage
in an action for garnishment on a default judgment entered against an insured); D.E.M. v. Allickson,
555 N.W.2d 596 (N.D. 1996) (considering policy coverage in an action for garnishment on a
stipulated judgment pursuant to a Miller-Shugart agreement); Medd v. Fonder, 543 N.W.2d 483
(N.D. 1996) (same).
Against this backdrop, the undersigned predicts the North Dakota Supreme Court would hold
(to the extent it has not already implicitly done so) that a garnishment action under N.D.C.C. ch. 3209.1 is not a direct action under North Dakota law because the principles and procedures underlying
a direct action and a garnishment action are dissimilar. In a direct action, the plaintiff substitutes the
insurer for the insured as a party-defendant in suing to establish the insured’s liability. In a
garnishment action such as the one concerned here, the insured’s liability has already been
established and the plaintiff is seeking to garnish on an insurance contract. In doing so, the plaintiff
is not litigating the liability of the insured, but is only litigating liability of the insurer and the insurer
is no different position than any other party who might be liable to the judgment debtor. The two
inquiries are, absent special circumstances, distinct, and nothing within N.D.C.C. ch. 32-09.1
suggests insurers are to entitled to preferential treatment through exemption from garnishment.
Here, S & W’s garnishment action only seeks to litigate the question of insurance coverage between
Zurich and B&D; S & W does not seek to litigate any claim it may have against B&D by substituting
Zurich for B&D. This is not a direct action.
Possibly recognizing this distinction, Zurich argues a garnishment under N.D.C.C. ch. 3209.1 cannot circumvent North Dakota’s direct action prohibition, citing Shermoen. Problematically
for Zurich, to the extent a garnishment action can be considered one in the same with a direct action,
N.D.C.C. ch. 32-09.1 represents a legislative exception to the direct action prohibition. Zurich’s
tortured reading of Shermoen is just as problematic. As is relevant here, the North Dakota Supreme
Court in Shermoen only held that joinder of the insurer as a party-defendant prior to establishment
of liability against the insured was “premature.” 163 N.W.2d at 745. This characterization as
“premature” suggests joinder would be appropriate once the case became sufficiently mature, which,
when read in light of the entire opinion, would arguably occur upon entry of judgment against the
insured. At that point, Shermoen suggests an action against the insurer would be permitted, and
nothing with Shermoen forecloses garnishment as an available option for pursuing that action, which
is exactly what occurred in Close, D.E.M., and Medd. In short, Zurich’s argument reads far too
much into Shermoen at the expense of ignoring N.D.C.C. ch. 32-09.1's allowance of suit against
parties liable to the judgment debtor, regardless of whether that party is an insurer.
Based on the foregoing, North Dakota’s prohibition on direct actions is not a bar to S & W’s
garnishment action against Zurich.
Zurich’s argument that S & W lacks standing
Zurich next argues this action should be dismissed because S & W, as a third-party claimant
and a stranger to the contract between B&D and Zurich, does not have standing to litigate the issue
of insurance coverage. To support this argument, Zurich heavily relies on the North Dakota Supreme
Court’s decision in Rebel, wherein the court stated:
An insurance contract relates to the parties executing it. A liability policy is designed for
the benefit and protection of the insured and is in no way intended to be of direct benefit to
the claimant. The parties to the policy of liability or indemnity insurance are the insurer and
the insured, the latter being the person for whose benefit the policy is procured-usually the
employer, or owner, or other person procuring the policy. Absent a specific contractual or
statutory provision, the person actually injured is not the party insured, and has no rights
against the insurer, or in or to a policy issued by it under an indemnity contract with the
employer, owner, or other person, as the case may be.
Rebel, at ¶ 10 (internal quotations, citations, and alterations omitted). Thus, Zurich is correct in
noting that, generally speaking, a third-party claimant does not have standing to litigate the question
of insurance coverage between an insured and insurer for want of an interest in the insurance
There are two problems with Zurich’s argument. First, the court does not have before it the
insurance policy, so it cannot determine whether there is something in the policy that contractually
confers rights upon S & W vis-a-vis Zurich.
Second, where Zurich’s argument also goes awry at this early stage, as S & W correctly
notes, is that N.D.C.C. § 32-09.1-02 bestows standing onto a judgment creditor to litigate insurance
coverage notwithstanding that creditor’s third-party status. In its primary briefing, Zurich, in what
can be charitably described as a glaring omission, failed to note the North Dakota Supreme Court
in Rebel also said “N.D.C.C. § 32-09.1-02 grants an injured third-party creditor standing to
challenge insurance policy coverage . . . .” Rebel, at ¶ 13 (italics added).
In its reply briefing, Zurich tries to reason around this conferral by relying on Medd v.
Fonder, 543 N.W.2d 483 (N.D. 1996). In Medd, Medd sued a fellow employee, Fonder, for injuries
sustained on the job at her employer, the Bronze Boot. Id. at 484. Fonder had insurance with Walle
Mutual Insurance Co. and the Bronze Boot had insurance with Great American Insurance Co. Id.
at 485. Medd and Fonder entered into a stipulated judgment consistent with a Miller-Shugart
agreement. Id. No judgment was entered against the Bronze Boot. Medd then sought to garnish
against both insurance policies, with both insurers objecting. Id. With regard to Fonder, the North
Dakota Supreme Court held Fonder’s insurance policy with Walle Mutual did not cover the conduct
giving rise to the judgment. Id. at 486-87. With regard to the Bronze Boot, the court held Medd did
not have standing to contest Great American’s denial of coverage. Id. 487-488. As such, the court
affirmed the district court’s dismissal of Medd’s garnishment action.
How the North Dakota Supreme Court approached Medd reveals the folly of Zurich’s
standing argument. In regards to Medd’s claim against Fonder, against whom judgment had already
been entered, the North Dakota Supreme Court addressed the merits of the insurance coverage issue
within the garnishment proceeding. In regards to Medd’s claim against the Bronze Boot, for which
judgment had not been entered, the North Dakota Supreme Court refused to entertain whether
insurance coverage existed because Medd did not have standing to litigate the issue. The distinction
between the two holdings rests on the fact that the stipulated judgment allowed Medd to invoke the
standing provided by N.D.C.C. § 32-09.1-02 to pursue Fonder’s insurer. See also N.D.C.C. § 3209.1-02 (providing garnishment is available to a creditor “after securing a judgment against the
debtor . . . .”). The same did not apply to the Bronze Boot’s insurer because Medd did not have a
judgment against the Bronze Boot.
Here, with judgment already entered against B&D, Zurich sits in the same position as
Fonder’s insurer and S & W sits in the same position as Medd. This suffices to confer third-party
standing on S & W to litigate the issue of insurance coverage under the contract between B&D and
Zurich, just as it did in Medd. Pursuant to Zurich’s invitation for the court “to follow Medd’s
holding,” (Doc No. 13 p. 3), the court does so and holds S & W, as a judgment creditor, has standing
under N.D.C.C. § 32-09.1-02 to proceed further. For this reason, S & W’s motion to dismiss based
on the purported failure to state a claim because of lack of standing fails.
Zurich’s argument that any liability as a garnishee was discharged by operation
of § 32-09.1-11
Zurich next argues this case should be dismissed because any debt it might owe under the
insurance contract with B&D has been discharged by operation of N.D.C.C. § 32-09.1-11, which
reads as follows:
§ 32-09.1-11. Effect of disclosure. Subject to the provisions of sections 32-09.1-12 and
32-09.1-13, the disclosure is conclusive as to all property of the defendant. If the garnishee
denies having any indebtedness to the defendant or having any property of the defendant in
possession, the filing in court of a copy of the disclosure operates as a full discharge of the
garnishee at the end of twenty days from the date of service of the disclosure, in the absence
of further proceedings as provided for in sections 32-09.1-12 and 32-09.1-13. The filing of
objections to the disclosure or the filing of any motion or other proceedings operates as a
stay of the discharge. The court may, upon proper showing, relieve the plaintiff from the
operation of the discharge after the expiration of twenty days. The garnishee may be
discharged where the value of the property of the defendant held or indebtedness owing to
the defendant is less than ten dollars, and the garnishee may apply to the court to be
discharged as to any property or indebtedness in excess of the amount which may be
required to satisfy the plaintiff's judgment.
(italics added). Zurich argues the discharge occurred upon the failure of S & W to take any action
within twenty days after the service of its disclosure form on September 27, 2016.
Zurich admits, however, that its disclosure was not filed in court, whether federal or state,
until Zurich removed this case on January 9, 2017. (Doc. No. 7 p. 10). This admission, as S & W
correctly notes, is fatal to Zurich’s discharge claim under N.D.C.C. § 32-09.1-11.
The problem with Zurich’s argument is that it fails to take into account the language of § 3209.1-11 set forth in italics as set forth above. That is, while the date of service of the disclosure may
control when the garnishee is to be discharged, the filing of the garnishee disclosure with the court
controls whether the garnishee can be discharged at all. And here, the disclosure was not filed with
the court prior to the service of S & W’s objections to Zurich’s disclosure statement on December
28, 2016, which then stayed any discharge.
But, even if the court has erred in its interpretation of § 32-09.1-11, the court concludes that
Zurich’s failure to file its disclosure is sufficient justification under § 32-09.1-11 for the court to
grant relief from the operation of any discharge.
CONCLUSION AND ORDER
Based on the foregoing, the court concludes that the Zurich had the right to remove this
garnishment proceeding and that the removal was timely. Hence, the court DENIES the Motion to
Remand (Doc. No. 10). Also, the court concludes that S & W has stated a plausible claim upon
which relief can be granted. Accordingly, Zurich’s Motion to Dismiss (Doc. No. 6) is DENIED.
IT IS SO ORDERED.
Dated this 21st day of July, 2017.
/s/ Charles S. Miller, Jr.
Charles S. Miller, Jr., Magistrate Judge
United States District Court
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