HINES v. MUTUAL OF OMAHA INSURANCE COMPANY et al

Filing 23

MEMORANDUM OPINION. Signed by Judge Mark R. Hornak on 5/20/15. (bdb)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
DAVID HINES,
Plaintiff,
v.
MUTUAL OF OMAHA INSURANCE
COMPANY and JOHN HUNTER,

Defendants.

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Civil Action No. 2:15-cv-00245
Judge Mark R. Hornak

MEMORANDUM OPINION
Mark R. Hornak, United States District Judge
The question the Court must address is: in what court should this case be decided? The
Defendants removed this action pursuant to the diversity of citizenship jurisdiction conferred by
28 U.S.C § 1332, even though one of the Defendants, John Hunter, was not a diverse party. The
Defendants asserted in their Notice of Removal that Hunter was “fraudulently joined” by the
Plaintiff and that removal was thus permissible under that limited exception to the complete
diversity rule. The Plaintiff did not file (and has not filed) a motion to remand this action to state
court, but this Court has an independent duty to ensure that it has subject matter jurisdiction.
Having reviewed the Defendants’ Notice of Removal and the applicable law related to fraudulent
joinder, the Court concludes that it does not have subject matter jurisdiction and must therefore
order that this action be remanded forthwith to the Court of Common Pleas of Allegheny County.
I.

BACKGROUND

On December 31, 2014, Plaintiff David Hines filed an action in the Allegheny County
Court of Common Pleas against Mutual of Omaha Insurance Company (“MOIC”) and John
Hunter. ECF No. 1-2. Hines is a citizen of Pennsylvania. ECF No. 1-2, at ¶ 1. MOIC is

incorporated in Nebraska and its principal place of business is there also. ECF No. 1, at 2.
Hunter, however, is a citizen of Pennsylvania. Id.
The Complaint alleges the following facts.

Hines met with Hunter to fill out an

application for disability insurance with MOIC. ECF 1-2, at ¶ 4. At the meeting, Hunter asked
Hines questions, and Hines answered honestly. ECF 1-2, at ¶¶ 5–6. Hunter then used Hines’s
statements to fill out an “Insured’s Statement for Disability Benefits” and had Hines sign the
statement. ECF 1-2, at ¶¶ 7–9.

Hines started making monthly premium payments of $87.98 on

September 7, 2013. ECF 1-2, at ¶ 10–11. On November 19, 2013, Hines suffered an injury that
caused him to be disabled. ECF 1-2, at ¶¶ 12–13. Hines filed for disability benefits with MOIC
but was denied benefits. ECF 1-2, at ¶¶ 14–15. MOIC cited two reasons as grounds for its
denial of benefits: (1) based on medical records it had obtained, MOIC concluded that Hines’s
application was not correct because he was treated from February 2011 through September 2012
for severe arthritis of Plaintiff's knees; and (2) Hines’s actual 2013 income was less than his
stated 2013 income of $55,400.00. ECF No. 1-2, at ¶ 15.
Based on those facts, the Complaint asserted two causes of action against the Defendants:
breach of contract and insurance bad faith. For the breach of contract claim, Hines alleges that
“[t]he parties entered into an agreement wherein Plaintiff agreed to pay premiums and upon
receipt of those premiums, Defendants were to provide disability insurance to the Plaintiff should
Plaintiff become disabled” and that “Defendant breached that agreement by failing to provide
disability payments as per the agreement.” ECF No. 1-2, at ¶¶ 20–21. The bad faith claim
alleges that MOIC breached an implied covenant of good faith and fair dealing by refusing to
pay disability benefits without a reasonable basis for that refusal. ECF No. 1-2, at ¶¶ 25–29.
Defendants removed the case to this Court on February 23, 2015, invoking this Court’s
jurisdiction based on diversity of citizenship under 28 U.S.C. § 1332. ECF No. 1. Defendants
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argued that Hines had fraudulently joined Hunter as a Defendant, specifically asserting that
Hines failed to plead a cause of action against Hunter and that Hines only included Hunter in the
Complaint to destroy diversity. ECF No. 1, at ¶¶ 9–23. Further, Defendants said that the amount
in controversy was more than $75,000. ECF No. 1, at ¶¶ 27–34. Hines did not file a motion to
remand.1
II.

STANDARD OF REVIEW

“Remand to state court is required ‘if at any time before final judgment it appears that the
district court lacks subject matter jurisdiction.’” Hoffman v. Nutraceutical Corp., 563 F. App'x
183, 185 (3d Cir. 2014) (quoting 28 U.S.C. § 1447(c)) (alteration omitted). Moreover, “the
removal statute should be strictly construed and all doubts should be resolved in favor of
remand.”

Abels v. State Farm Fire & Cas. Co., 770 F.2d 26, 29 (3d Cir. 1985).

“The

defendant's right to remove is to be determined according to the plaintiffs' pleading at the time of
the petition for removal, and it is the defendant's burden to show the existence of federal
jurisdiction.”

Id.

(citing Pullman Company v. Jenkins, 305 U.S. 534, 537, 540 (1939)).

“[B]ecause subject matter jurisdiction is non-waivable, courts have an independent obligation to
satisfy themselves of jurisdiction if it is in doubt,” and a “court can raise sua sponte subjectmatter jurisdiction concerns.” Nesbit v. Gears Unlimited, Inc., 347 F.3d 72, 76-77 (3d Cir.
2003).

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The subsequent history of the case is not essential for the purposes of this Memorandum Opinion, but the Court
will lay out the basics here. On February 25, 2015, Hunter filed a Motion to Dismiss. ECF No. 4. On March 13,
2015, MOIC filed an Answer that included a counterclaim alleging that Hines had obtained his disability insurance
policy through fraud and that the policy must therefore be rescinded. ECF No. 7. On March 25, 2015, Hines filed
an Amended Complaint reasserting the breach of contract and bad faith claims (only against MOIC this time) and
adding three additional claims: civil conspiracy (against both Defendants, at Count III), negligent misrepresentation
(against Hunter only), and fraud (against Hunter only). On March 15, 2015, MOIC filed a Motion to Dismiss
Counts I – III (the Counts specifically alleged against it), and Hunter filed a Motion to Dismiss Counts III – V (the
Counts alleged against him). ECF Nos. 18–19. On May 6, 2015, Hines filed a Response in Opposition to Hunter’s
Motion, and a supporting brief, ECF Nos. 20–21, but Hines did not file a motion opposing MOIC’s Motion. In the
course of considering these matters, the issue of whether this Court had subject matter jurisdiction came into clarity.

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III.

DISCUSSION
A. Fraudulent Joinder

A defendant may remove a civil action from state court if the case could have originally
been brought in federal court. 28 U.S.C. § 1441(a). “For a removal predicated upon diversity of
citizenship, a proper exercise of federal jurisdiction requires satisfaction of the amount in
controversy requirement as well as complete diversity between the parties, that is, every plaintiff
must be of diverse state citizenship from every defendant.” In re Briscoe, 448 F.3d 201, 215 (3d
Cir. 2006). “The doctrine of fraudulent joinder represents an exception to the requirement that
removal be predicated solely upon complete diversity.” Id. at 215–16. “Joinder is fraudulent
where there is no reasonable basis in fact or colorable ground supporting the claim against the
joined defendant, or no real intention in good faith to prosecute the action against the defendants
or seek a joint judgment.” Brown v. Jevic, 575 F.3d 322, 326 (3d Cir. 2009) (quoting In re
Briscoe, 448 F.3d at 216).
This Court has stated in the past that fraudulent joinder may be found to have occurred
“when a party is joined as a defendant in good faith (or at least not in bad faith), but as a matter
of law, based on the facts alleged, there is no basis for the assessment of liability against such
joined defendant.” Rice v. Chesapeake Energy Corp., No. 12-00392, 2012 WL 3144318, at *1
(W.D. Pa. Aug. 1, 2012). In cases removed on the basis of fraudulent joinder, “the removing
party carries a heavy burden of persuasion in making this showing.” In re Briscoe, 448 F.3d at
217 (quoting Batoff v. State Farm Ins. Co., 977 F.2d 848 (3d Cir.1992)). As our Court of
Appeals has explained:
If there is even a possibility that a state court would find that the complaint states
a cause of action against any one of the resident defendants, the federal court must
find that joinder was proper and remand the case to state court....

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In evaluating the alleged fraud, the district court must focus on the plaintiff's
complaint at the time the petition for removal was filed. In so ruling, the district
court must assume as true all factual allegations of the complaint. It also must
resolve any uncertainties as to the current state of controlling substantive law in
favor of the plaintiff.
Brown, 575 F.3d at 326 (quoting In re Briscoe, 448 F.3d at 217). “Thus, the Court must consider
the applicable substantive state law and assess whether the Complaint states a claim for relief,
giving every benefit of the doubt (as to fact and law) to the plaintiffs.” Rice, 2012 WL 3144318,
at *2.
B. Claims Against Hunter
The key issue here, then, is whether Hines’s Complaint, as it was on February 25, 2015,
can possibly be read to allege a claim against Hunter. If the answer is yes, then this case has to go
back to the Allegheny County Court of Common Pleas. The Complaint alleges two claims
generally against both Defendants: breach of contract and bad faith.

Defendants say that

“[u]nder Pennsylvania law, one cannot be liable for a breach of a contract unless one is a party to
the contract.” ECF No. 1, at ¶ 12 (citing Electron Energy Corp. v. Short, 597 A.2d 175, 177 (Pa.
Super. Ct. 1991)). They say that an insured may bring claims for breach of contract only against
the insurer who issued the policy, and not against other parties, even if related, who are not in
privity of contract with the insured. Id. at ¶ 13 (citing Reid v. Ruffin, 469 A.2d 1030, 1033 (Pa.
1983)). Further, they cite Brown v. Progressive Ins. Co., 860 A.2d 493, 498 (Pa. Super. Ct.
2004), for the proposition that only an insurance company can be held liable for bad faith.
So can Hines, under the facts pled in the Complaint, possibly maintain a breach of
contract action against Hunter? While the Defendants may be correct that under Pennsylvania
law Hines may not have a breach of contract action against Hunter for breach of the insurance
policy itself, that does not mean that Hines may not have a separate breach of contract action
against Hunter for his failure to procure insurance for him. As one district court explained:
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The Third Circuit held under Pennsylvania law an insurance broker who violates
its duty to its principal is liable for breach of contract. Consolidated Sun Ray, Inc.
v. Lea 401 F.2d 650, 657 (3d Cir. 1968) (holding broker liable for failing to
include a subsidiary in a company's insurance policies). An insurance broker is
liable to its client if the broker “neglects to procure insurance, or does not follow
instructions, or if the policy is void or materially defective through the agent's
fault.” Laventhol & Horwath v. Dependable Ins. Associates, Inc., 579 A.2d 388,
391 (Pa. Super. Ct. 1990). When an insurance policy provides an insurer “a
defense it could not have raised if plaintiffs' instructions had been carried out,”
the broker is liable. Consolidated Sun Ray, 401 F.2d at 657.
Acands, Inc. v. Aon Risk Servs., No. 01-3277, 2004 WL 2601035, at *1 (E.D. Pa. Nov. 10, 2004)
(footnote omitted); see also Mychak v. Alexander & Alexander, Inc., No. 86-4962, 1988 WL
11528, at *3–4 (E.D. Pa. Feb. 12, 1988) (noting that “[t]he Third Circuit . . . has determined that
under Pennsylvania law, an insurance broker who violates its duty to its principal is liable for
breach of contract). Thus, there appears to be authority that, under Pennsylvania law, a plaintiff
may maintain against an insurance agent or broker a breach of contract action in cases where the
insurance policy is void or materially defective because of something the agent or broker did or
did not do.
Hines’s Complaint specifically alleges that Hines supplied true and correct responses to
all questions posed to him by Hunter during the application process but that, despite his truthful
answers, he was denied benefits based solely on the alleged non-disclosure of certain medical
records and alleged misrepresentation of his income in 2013. See ECF No. 1-2, at ¶¶ 15–18.
The Complaint alleges that it was Hunter who filled out the application for Hines after posing
questions to Hines and receiving truthful answers to those questions. Hines then signed the
statement and began making monthly premium payments. He was then denied disability benefits
two months later because of defects in the application. These facts support a possible action
against Hunter based on the fact that “the policy is void or materially defective through the
agent's fault.” Laventhol, 579 A.2d at 391 (alterations and internal quotation marks omitted).
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This does not mean that a breach of contract claim against Hunter will survive in state
court, but that is not the test here. Rather, because Pennsylvania recognizes a breach of contract
action by an insured against an insurance agent or broker, this Court concludes that it is at least
possible that a state court could find that Hines’s original Complaint states a cause of action
against Hunter, the resident Defendant.2 That’s all it takes. Defendants have failed to carry their
heavy burden in demonstrating that joinder was fraudulent. Joinder was therefore proper, which
deprives this Court of subject matter jurisdiction, and this action must be remanded to state
court.3
IV.

CONCLUSION

For the reasons stated in this Memorandum Opinion, and pursuant to 28 U.S.C.
§ 1447(c), this action will be remanded forthwith to the Allegheny County Court of Common
Pleas.
An appropriate Order will follow.

s/ Mark R. Hornak
Mark R. Hornak
United States District Judge
Dated: May 20, 2015
cc:
All counsel of record

2

It is also possible that the facts alleged in the original Complaint could be enough to state a claim under a different
legal theory not specifically articulated in the Complaint. While the Court is to consider only the Complaint at the
time of removal, the Court would note that Hines’s Amended Complaint, using the same facts that were alleged in
the original Complaint, articulates three additional causes of action against Hunter. ECF No. 11, at ¶¶ 32–60.
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Having concluded that the Complaint possibly states a claim for breach of contract against Hunter, the Court need
not address the issue of the bad faith claim.

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