McDonald et al v. CSAA Insurance Exchange et al

Filing 25

ORDER granting 9 Motion to Remand to State Court, The Clerk shall remand this matter to the District Court of Logan County.. Signed by Honorable David L. Russell on 3/6/17. (jw)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
GARY McDONALD and
SHARON McDONALD,
Plaintiffs,
v.
CSAA INSURANCE EXCHANGE,
CSAA FIRE AND CASUALTY
INSURANCE COMPANY d/b/a
AAA FIRE AND CASUALTY
INSURANCE COMPANY, and
AUTOMOBILE CLUB OF OKLAHOMA
d/b/a AAA OKLAHOMA,
Defendants.

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CIV-16-336-R

ORDER
This matter comes before the Court on the Motion to Remand, filed by Plaintiffs
(Doc. No. 24). Defendants CSAA Insurance Exchange and CSAA Fire and Casualty
Insurance Company, d/b/a AAA Fire and Casualty Insurance Company responded in
opposition to the motion. The Court previously permitted the parties to conduct
jurisdictional discovery and to file supplemental briefs in support of their respective
positions. Having considered the parties’ submissions, the Court finds as follows.
Plaintiffs allege breach of their homeowners insurance policy by Defendant CSAA
Fire and Casualty Insurance Company d/b/a AAA Fire and Casualty Insurance Company
(“AAAFCIC”), because AAAFCIC refused a claim for alleged earthquake damage to the
insured property. Plaintiffs contend AAAFCIC breached the contract and that the breach
was in bad faith. Plaintiffs name two additional Defendants, although neither is alleged to

have issued the Policy. Rather, they assert that Defendant CSAA Insurance Exchange is
the parent company of AAA Oklahoma, and that CSAA Insurance Exchange, AAAFCIC,
and AAA Oklahoma “operate and are part of a reciprocal insurance exchange, wherein
they pool and partner their businesses under a regime of control such that all of its
subsidiaries and affiliated companies can be held liable for bad faith and breach of
contract.” Petition, ¶ 5. Plaintiffs also allege that in order for a homeowner in Oklahoma to
purchase insurance through AAA Oklahoma, the insured must be a member thereof, and
as a result, AAA Oklahoma may be vicariously liable for action or inaction of AAAFCIC.
Petition, ¶ 4.
Pursuant to 28 U.S.C. § 1332(a), this case was removed from the District Court of
Logan County by CSAA Insurance Exchange and AAAFCIC, prior to an appearance by
AAA Oklahoma. As implied by its name, AAA Oklahoma is not a diverse party. The
removing Defendants contend Plaintiff fraudulently joined the non-diverse Defendant to
avoid federal jurisdiction. Plaintiffs argue Defendants cannot meet the heavy burden of
establishing AAA Oklahoma’s fraudulent joinder, and accordingly, seek remand. Plaintiffs
further assert that CSAA Insurance Exchange is not diverse due to its status as an
unincorporated association and therefore considered domiciled in every state in which it
has members, known in the reciprocal insurance context as subscribers.
A case pending in state court may be removed by a defendant to federal court if the
case is one over “which the district courts of the United States have original jurisdiction.”
28 U.S.C. § 1441(a). “Only state-court actions that originally could have been filed in
federal court may be removed to federal court by the defendant.” Caterpillar, Inc. v.

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Williams, 482 U.S. 386, 392 (1987). The original jurisdiction of the federal courts includes
jurisdiction over civil actions where the amount in controversy exceeds $75,000 and each
defendant is a resident of a different state than each plaintiff. 28 U.S.C. § 1332(a);
Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68 (1996). However, “[r]emoval jurisdiction over
diversity cases is more limited than jurisdiction over diversity cases originally brought in
federal court because removal based on diversity is available only if none of the defendants
is a citizen of the state in which the action is brought.” Wolf Creek Nuclear Operating
Corp. v. Framatome ANP, Inc., 416 F. Supp. 2d 1081, 1085 (D. Kan. 2006); see also 28
U.S.C. § 1441(b)(setting forth the forum defendant rule).
CSAA Insurance Exchange and AAAFCIC, as the parties invoking the Court’s
jurisdiction bear the burden of establishing diversity. See McNutt v. Gen. Motors
Acceptance Corp., 298 U.S. 178, 189 (1936). Federal removal jurisdiction is statutory in
nature, and the Court strictly construes the governing statutes. Shamrock Oil & Gas v.
Sheets, 313 U.S. 100, 108–09 (1941); Merrell Dow Pharm., Inc. v. Thompson, 478 U.S.
804, 814 (1986). It is well-settled that the presumption is against removal jurisdiction.
Coca-Cola Bottling of Emporia, Inc. v. S. Beach Beverage Co., 198 F. Supp. 2d 1280, 1285
(D. Kan. 2002). The Court resolves doubtful cases in favor of remand. Fajen v. Found.
Reserve Ins. Co., 683 F.2d 331, 333 (10th Cir. 1982). As noted, the parties agree diversity
is lacking, the questions are whether diversity exists if AAA Oklahoma is disregarded, and
whether AAA Oklahoma can be disregarded as fraudulently joined. The Court finds that
Defendants have failed to establish the existence of diversity without regard to whether
Plaintiffs’ claims against AAA Oklahoma are viable under Oklahoma law.

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Relying on the allegations in the Petition, the Notice of Removal filed by CSAA
Insurance Exchange and AAAFCIC asserted that CSAA Insurance Exchange is “a foreign
company, formed under the laws of the State of California, with its “nerve center” or
“principal place of business” in California. Doc. No. 1, ¶ 7. CSAA Insurance Exchange
and Plaintiffs agree, however, that CSAA Insurance Exchange is not incorporated, but
rather is a reciprocal insurance exchange, an unincorporated association under California
law. As such, the location of its formation and its principal place of business are irrelevant
to the Court’s diversity analysis. Rather, an unincorporated association is deemed a citizen
of any state in which its “members” are citizens. Siloam Springs Hotel, L.L.C. v. Century
Sur. Co., 781 F.3d 1233, 1234 (10th Cir.2015)(when determining the citizenship of an
unincorporated association, federal courts must include all the entities members); see also
True v. Robles, 571 F.3d 412, 422 n. 2 (5th Cir.2009) (“As an unincorporated association,
a reciprocal insurance exchange is considered to have the citizenship of its members for
diversity purposes in federal court”).
The United States District Court for the District of Oregon recently considered
whether, under California law, subscribers were members or customers of an exchange for
diversity purposes.1 Staggs v. Farmers Insurance Exchange, 2016 WL 1725302 (D.Or.
April 27, 2016). CSAA Insurance Exchange does not take issue with the notion that its
subscribers are its members. It argues, however, that because it is not a licensed reciprocal
insurer in Oklahoma that it therefore does not have any subscribers in Oklahoma, and

  CSAA Insurance Exchange does not argue that its subscribers are not members. Rather, its argument hinges on the
fact that it is not licensed to write policies in Oklahoma.

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therefore cannot be considered a citizen of Oklahoma. The pertinent question from the
Court’s perspective, however, is not whether CSAA Insurance Exchange can write policies
in Oklahoma but rather whether any subscriber is a citizen of Oklahoma. The fact that a
policy may be written in California does not foreclose that one or more subscribers is a
citizen of Oklahoma for purpose of diversity jurisdiction. This is especially true given that
there may be partnerships or limited liability corporations with partners or members who
are Oklahoma residents but who have a basis for obtaining insurance in California and have
obtained such via subscription to the CSAA Insurance Exchange.
CSAA Insurance Exchange further argues that Plaintiffs did not obtain insurance
through the exchange, citing to a statement in Plaintiffs’ motion to remand. Doc. No. 16 at
p. 9 (citing Doc. No. 9 at p. 6). This argument by Plaintiffs, however, was directed at the
issue of whether AAA Oklahoma was fraudulently joined. CSAA Insurance Exchange does
not assert it was fraudulently joined as a party, and thus whether Plaintiffs may pursue a
claim against the Exchange is not pertinent to the issue of the Court’s jurisdiction.
The Court concludes the removing Defendants have failed to establish the existence
of complete diversity between the parties so as to permit this Court to exercise jurisdiction.
As such, for the reasons set forth above, Plaintiffs’ Motion to Remand (Doc. No. 9) is
hereby GRANTED. The Clerk shall remand this matter to the District Court of Logan
County.
IT IS SO ORDERED this 6th day of March 2017.

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