Ake v. Central United Life Insurance Company et al
Filing
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ORDER granting 5 Motion to Remand, as more fully set out. Signed by Honorable David L. Russell on 7/21/17. (jw)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
REBECCA L. AKE,
Plaintiff,
v.
CENTRAL UNITED LIFE
INSURANCE CO., a foreign
insurance company, and
CAROL GATLIN, an Oklahoma
resident,
Defendants.
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Case No. CIV-17-539-R
ORDER
Before the Court is Plaintiff’s Motion to Remand. Doc. 5. Defendant has responded.
Doc. 6. For the reasons that follow, Plaintiff’s Motion is GRANTED.
I. Background
Plaintiff Rebecca Ake filed this action against Defendants in the District Court of
Oklahoma County, Oklahoma, on November 2, 2016. Nearly a decade before that, in July
1997, Defendant Central United Life Insurance Company (“Central United”) issued an
insurance policy to Ms. Ake. The policy provided for benefits if Ms. Ake or her spouse
contracted cancer. When Ms. Ake’s spouse contracted cancer, Central United refused to
pay benefits under the policy. In response, Ms. Ake sued Central United for breach of
contract and the duty to deal in good faith. She also has sued Central United’s agent,
Defendant Carol Gatlin, whom Ms. Ake alleges made fraudulent or at least negligent
representations about the policy.
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Citing diversity jurisdiction per 28 U.S.C. § 1332, Central United removed this
action under 28 U.S.C. § 1441 on May 9, 2017. Ms. Ake moves to remand, arguing that
Defendants have not established the requisite amount in controversy and that Defendant
Carol Gatlin—an Oklahoma citizen like Ms. Ake—spoils complete diversity. Because the
Court agrees that Ms. Gatlin’s presence in this case destroys jurisdiction under 28 U.S.C.
§ 1332, it will remand the case to state court.
II. Diversity Jurisdiction under § 1332(a)
“The district courts of the United States . . . are courts of limited jurisdiction.” Exxon
Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 (2005) (quotes omitted). Diversity
jurisdiction under 28 U.S.C. § 1332(a) requires that complete diversity exist between
plaintiffs and defendants and that the amount in controversy exceeds $75,000, exclusive of
interests and costs. Section § 1332(a) demands that the citizenship of all defendants must
be different from the citizenship of all plaintiffs. McPhail v. Deere & Co., 529 F.3d 947,
951 (10th Cir. 2008). “For purposes of diversity jurisdiction, a person is a citizen of a state
if the person is domiciled in that state . . . [a]nd a person acquires domicile in a state when
the person resides there and intends to remain there indefinitely.” Middleton v. Stephenson,
749 F.3d 1197, 1200 (10th Cir. 2014). In regard to § 1332(a)’s amount in controversy
requirement, that amount is simply “an estimate of the amount that will be put at issue in
the course of the litigation.” McPhail, 529 F.3d at 956 (10th Cir. 2008). It is the party
invoking diversity jurisdiction, in this case Central United, who has the “burden of proving
[diversity jurisdiction] by a preponderance of the evidence.” Middleton v. Stephenson, 749
F.3d 1197, 1200 (10th Cir. 2014). The removing party may rely on, among other things,
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affidavits, interrogatories or admissions in state court, and calculations from the
complaint’s allegations. McPhail, 529 F.3d at 954.
A. Amount in Controversy
So the first question, then, is whether Defendant Central United has established that
this dispute meets § 1332(a)’s amount in controversy requirement—a sum greater than
$75,000—by a preponderance of the evidence. Id. “The general federal rule has long been
to decide what the amount in controversy is from the complaint itself, unless it appears or
is in some way shown that the amount stated in the complaint is not claimed ‘in good
faith’.” Marchese v. Mt. San Rafael Hosp., 24 Fed.Appx. 963, 964 (10th Cir. 2001) (citing
Horton v. Liberty Mut. Ins. Co., 367 U.S. 348, 353 (1961)); see also St. Paul Mercury
Indem. Co. v. Red Cab Co., 303 U.S. 283, 288 (1938) (“[U]nless the law gives a different
rule, the sum deemed by the plaintiff controls if apparently made in good faith.”). Once the
party asserting federal jurisdiction has done that, the “St. Paul Mercury standard comes to
the fore”—that is, “the case stays in federal court unless it is legally certain that the
controversy is worth less than the jurisdictional minimum.” McPhail, 529 F.3d at 954. In
a sense, then, the burden shifts to the party seeking remand, who must then prove to a legal
certainty that the amount in controversy is less than $75,000.
Here, the amount in controversy requirement is clearly met: Ms. Ake’s Petition
seeks “judgment against the Defendant or Defendants in a sum in excess of Seventy-Five
Thousand Dollars . . . .” Doc. 1, Ex. 1, at 3. A “[p]laintiff cannot defeat jurisdiction by
backtracking on [her] allegations.” Chen v. Dillard Store Servs., Inc., 579 F.Appx. 618,
621 (10th Cir. 2014), which is precisely what Ms. Ake is attempting to do here by asserting,
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for the first time, that the amount in controversy requirement is not satisfied. Her Petition
says the opposite. This is not to say that a party moving to remand could never argue that
the amount sought in the Petition does not fairly represent the amount in controversy. If
that were the case, the party would have the burden of proving to a legal certainty that the
amount in dispute is $75,000 or less. Ms. Ake, though, has not done that, and her
conclusory allegations fail to carry her burden. Nor is the Court convinced otherwise by
Johnson v. Wal-Mart Stores, Inc., 953 F. Supp. 351 (N.D. Okla. 1995), which Ms. Ake
cites for the idea that when the amount sought is uncertain, Defendant will not have
established the requisite amount in controversy. Ms. Ake, however, omits that in Johnson
the plaintiff’s petition sought damages “in excess of $10,000”—plainly less than §
1332(a)’s jurisdictional threshold. Id. at 353.
B. Diversity of Citizenship
The issue of diversity between the parties is a tad trickier. Again, under 28 U.S.C. §
1332(a) the citizenship of all defendants must be different from the citizenship of all
plaintiffs. See, e.g., McPhail, 529 F.3d at 951 (10th Cir. 2008). No one is disputing the
alleged citizenship of the named parties. Plaintiff Ake is a citizen of Oklahoma. Defendant
Central United is a citizen of Arkansas (its state of incorporation) and Texas (its principal
place of business). What the parties dispute is whether Defendant Carol Gatlin, a citizen of
Oklahoma, spoils diversity because she has not been properly served.
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Central United’s theory is this: once a plaintiff has filed a petition in Oklahoma state
court, she has 180 days to serve a defendant with process. Okla. Stat. tit. 12, § 2004(I).1 If
she fails to serve “and the plaintiff cannot show good cause why such service was not made
within that period, the action shall be deemed dismissed as to that defendant without
prejudice.” Id. Central United Argues that the 180-day period for Ms. Ake to serve Gatlin
with summons and a copy of the Petition lapsed on May 1, 2017. Her failure to serve Gatlin
within the six-month period thus shows that Ms. Ake fraudulently joined Ms. Gatlin for
the sole purpose of spoiling diversity jurisdiction. And because a “defendant’s right of
removal cannot be defeated by a fraudulent joinder[,]”, see, e.g., Estes v. Airco Serv., Inc.,
No. 11-CV-776-GKF-FHM, 2012 WL 1899839, at * 1 (N.D. Okla. May 24, 2012), this
case has been properly removed to federal court.
Central United’s argument tees up an uncomplicated question for the Court: does
an unserved defendant’s citizenship count for diversity purposes? Nearly every court has
said yes. That is, even if a named defendant has not been properly served, that defendant
can still spoil diversity. “[T]he law is clear that the citizenship of all named defendants,
whether served with process or not, must be considered in determining whether complete
diversity exists, thereby providing a jurisdictional basis for removal under 28 U.S.C. §
1441(a).” Ott v. Consol. Freightways Corp. of Delaware, 213 F. Supp. 2d 662, 664 (S.D.
Miss. 2002). This rule comes from blackletter law requiring a court to “examine the face
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On removal, federal courts look to the law of the forum state, in this case Oklahoma, to determine whether
service of process was properly made before removal. See Wallace v. Microsoft Corp., 596 F.3d 703, 706
(10th Cir. 2010).
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of the complaint to determine whether a party has adequately presented facts sufficient to
establish diversity jurisdiction.” Gaines v. Ski Apache, 8 F.3d 726, 729 (10th Cir. 1993). It
follows, then, that “[d]iversity jurisdiction is determined by the face of the complaint, not
by which defendants have been served.” Hunter Douglas Inc. v. Sheet Metal Workers
Intern. Ass'n, Local 159, 714 F.2d 342 (4th Cir.1983).
Given this, courts hold that the citizenship of a named, though unserved, defendant
matters for diversity purposes. See, e.g., Pecherski v. General Motors Corp., 636 F.2d
1156, 1160 (8th Cir.1981) (“Despite the joined and served provision of section 1441(b),
the prevailing view is that the mere failure to serve a defendant who would defeat diversity
jurisdiction does not permit a court to ignore that defendant in determining the propriety
of removal.”); Clarence E. Morris, Inc. v. Vitek, 412 F.2d 1174, 1176 (9th Cir. 1969)
(“[T]he existence of diversity is determined from the fact of citizenship of the parties
named and not from the fact of service.”); Boulter v. Citi Residential Lending, No. 10–350,
2011 U.S. Dist. LEXIS 3794, at *7, 2011 WL 128786 (E.D.Okla. Jan. 14, 2011)
(“[D]iversity of each defendant must be considered prior to removal, whether or not each
defendant has been served.”); Rushing v. Dan River, Inc., No. Civ. 1:00CV00395, 2000
WL 1456292, *2 (M.D.N.C. Sept.6, 2000) (“[R]egardless of whether an unserved resident
defendant may be ignored in determining removability under 28 U.S.C. § 1441(b), the
citizenship of all named defendants, whether served with process or not, must be
considered in determining whether complete diversity exists,”); In re Norplant
Contraceptive Products Liability Litigation, 889 F.Supp. 271, 274 (E.D.Tex.1995)
(“Section 1441(b) ... did not change the removal requirement set forth in [Pullman Co. v.
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Jenkins, 305 U.S. 534, 59 S.Ct. 347 (1939)] that a court, in determining the propriety of
removal based on diversity of citizenship, must consider all named defendants regardless
of service.”); Thigpen v. Cheminova, Inc., 992 F.Supp. 864, 871 (S.D. Miss.1997)
(recognizing that “service of process [is] irrelevant in the initial determination of
diversity”); also see 14B Charles Alan Wright et al., Federal Practice and Procedure § 3723
(4th ed.) (“A party whose presence in the action would destroy diversity must be dropped
formally, as a matter of record, to permit removal to federal court. It is insufficient, for
example, that service of process simply has not been made on a non-diverse party; the case
may not be removed until that party actually has been dismissed from the case.”). The
Court of course realizes that the state court could dismiss Ms. Gatlin and Central United
could remove, meaning that “plaintiff’s victory on this remand is probably more fanciful
than real, and will be short-lived.” Stamm v. Am. Tel. & Tel. Co., 129 F. Supp. 719, 721
(W.D. Mo. 1955). But the Court cannot brush aside the above authority requiring remand
simply because Ms. Ake’s victory may be fleeting. Here, the Plaintiff is not diverse from
all Defendants. Ms. Ake and Ms. Gatlin are citizens of Oklahoma, making remand proper.
To be clear, a court can permit removal if a defendant was fraudulently joined or
the defendant is merely a nominal party against whom no real relief is sought.” See, e.g.,
Pecherski v. Gen. Motors Corp., 636 F.2d 1156, 1161 (8th Cir. 1981). And no one is
contending otherwise. But when reviewing allegations of fraudulent joinder, a Court must
“give paramount consideration to the reasonableness of the basis underlying the state
claim.” Filla v. Norfolk Southern Ry. Co., 336 F.3d 806, 810 (8th Cir. 2003); see also Menz
v. New Holland N. Am., Inc., No. 05-1739, 2006 WL 645908, at *2 (8th Cir. March 16,
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2006) (“The common thread underlying the question whether a defendant has been
fraudulently joined to defeat jurisdiction is reason.”) (quotations omitted). Fraudulent
joinder exists “when the circumstances do not offer any other justifiable reason for joining
the defendant” other than to defeat jurisdiction. Baeza v. Tibbetts, No. 06-0407 MV/WPL,
2006 WL 2863486, at *1 (D.N.M. July 7, 2006).
It seems unlikely that Ms. Ake joined Ms. Gatlin solely to avoid federal court. Take
the case that Central United cites for the blanket proposition that “other courts” have
deemed that a failure to serve a party is sufficient for fraudulent joinder, Johnson v. Tyson
Fresh Meats, Inc., No. C-06-1002-LRR, 2006 WL 1004970 (N.D. Iowa Apr. 17, 2006).
There the Court found fraudulent joinder not because one defendant had not been served
per se, but because the plaintiff lacked any excuse for his failure to serve: “Plaintiff's failure
to serve the Individual Defendants, even though Plaintiff knows who they are and works
in the same building with them, is unreasonable.” Id., 2006 WL 1004970, at *4 (N.D. Iowa
Apr. 17, 2006)
Here, the Court does not have any reason to believe that is the case. As Defendants
have admitted, Ms. Gatlin was the agent who sold the insurance policy to Ms. Ake. See
Response to Interrogatory, Doc. 1, Ex. 8, at 8. Nonetheless, Central United still insists that
Ms. Gatlin’s joinder was fraudulent. Plaintiff allegedly did not sign and notarize the
affidavits indicating that she could not locate Ms. Gatlin until after Central United filed its
Notice of Removal and the six-month period for service had expired. In fact, Central United
says, the affidavits do not indicate whether Ms. Ake attempted to serve Ms. Gatlin prior to
Central United’s filing the Notice of Removal; and they do not indicate whether Ms. Ake
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made any other attempts to serve Ms. Gatlin. Further, Central United argues, Ms. Ake could
have always attempted to serve Gatlin by any other method allowed under Oklahoma law,
such as service by a sheriff, by mail or publication, or by any other method approved by
the state court.
Ms. Ake could have doubtless been more persistent in serving Ms. Gatlin. But Ms.
Ake’s failure to properly serve Gatlin does not mean Gatlin has been fraudulently joined.
Joinder is fraudulent where “(1) plaintiff’s jurisdictional allegations are fraudulent and
made in bad faith; or (2) plaintiff has no possibility of recovery against the non-diverse
defendant.” Dollison v. Am. Nat’l Ins. Co., No. 13-CF-100-CVE-FHM, 2013 WL 1944891,
at *3 (N.D. Okla. May 9, 2013). Central United is not arguing there is no possibility of
recovery against Ms. Gatlin. Instead, they argue this failure to serve shows fraudulent intent
and bad faith. That seems a stretch. Ms. Ake’s attempted service were undoubtedly
imperfect and maybe even halfhearted. But Ms. Ake’s attempt to sue the agent from whom
she purchased the policy based on that agent’s alleged misleading statements does not
suggest fraud.
Plaintiff’s Motion to Remand is therefore GRANTED.
IT IS SO ORDERED this 21st day of July 2017.
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