Day v. Clevenger et al

Filing 15

MEMORANDUM OPINION AND ORDER GRANTING MOTION TO REMAND: It is ORDERED that Plaintiff's 9 Motion to Remand is granted and this case is REMANDED to the Circuit Court of Harrison County, WV. Signed by District Judge Irene M. Keeley on 5/6/13. (copy counsel; cert. copy Harrison Co. Cir. Court)(cnd)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
AUSTIN T. DAY,
Plaintiff,
v.

//

CIVIL ACTION NO. 1:13CV16
(Judge Keeley)

LIBERTY MUTUAL FIRE INSURANCE CO.,
a Massachusetts corporation, and
ERIE INSURANCE CO., a Pennsylvania
corporation,
Defendants.

MEMORANDUM OPINION AND ORDER
GRANTING MOTION TO REMAND [DKT. NO. 9]
Pending before the Court is the plaintiff’s motion to remand
(dkt. no. 9). For the reasons that follow, the Court GRANTS the
motion and REMANDS this case to the Circuit Court of Harrison
County, West Virginia.
I.
A.
On April 9, 2010, the plaintiff, Austin T. Day (“Day”), a West
Virginia resident, was operating a vehicle owned by his employer,
Dominion Resources, Inc. (“Dominion”), in Harrison County, West
Virginia. (Dkt. No. 1-1 at 9). While Day was stopped at a red
light, he was struck by James W. Clevenger (“Clevenger”), another
West Virginia resident, who was driving eastbound on U.S. Route 50.
Id. at 9-10. As a result, Day allegedly suffered serious injuries,
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MEMORANDUM OPINION AND ORDER
GRANTING MOTION TO REMAND [DKT. NO. 9]
medical expenses, and other damages. Id. at 10.
Prior to filing the instant suit, Day, by counsel, reached a
settlement agreement with both Clevenger and Clevenger’s insurer,
Nationwide Mutual Insurance Company (“Nationwide”). Pursuant to
this settlement agreement, Day executed a Full and Final Release of
All Claims (“Release”) on March 14, 2012, expressly releasing
Nationwide and Clevenger from any liability arising from the
subject accident. (Dkt. No. 1-2 at 36-37). Approximately two weeks
later, on March 27, 2012, Day executed an Addendum to this Release,
which included, inter alia, the following paragraph:
The parties herein understand that Mr. Day may be required
to file a lawsuit in order to pursue and collect
underinsured motorist coverage insurance from other
insurance companies. Said lawsuit will likely name James
W. Clevenger as a Defendant solely for the purpose of
pursuing
the
underinsured
claims.
Austin
T.
Day
acknowledges that James W. Clevenger and Nationwide
Insurance shall not be required to pay any sums above the
. . . settlement previously paid Mr. Day, including but not
limited to any subrogation claims. Mr. Day agrees not to
execute against Mr. Clevenger for payment of any additional
sums arising from the aforesaid claim and Mr. Day will seek
said sums from the underinsured motorist coverage insurers
Liberty Mutual/Dominion Resources and Erie Insurance only.
Mr. Clevenger agrees to cooperate to the extent required
to maintain jurisdiction and venue over all parties named
or unnamed who are not released by this document and to the
extent required to maintain any claim for underinsured
motorist coverage.
(Dkt. No. 1-2 at 40) (emphasis added).

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MEMORANDUM OPINION AND ORDER
GRANTING MOTION TO REMAND [DKT. NO. 9]
B.
On April 5, 2012, Day filed suit in the Circuit Court of
Harrison County, West Virginia, against three defendants: his
employer’s underinsured motorist carrier, Liberty Mutual Fire
Insurance Company (“Liberty Mutual”), a resident of Massachusetts;
his own underinsured motorist carrier, Erie Insurance Company
(“Erie”), a resident of Pennsylvania; and James Clevenger, who, as
a West Virginia resident, was the only defendant with citizenship
in common with Day. (Dkt. No. 1-1 at 8). The complaint contains
five counts: (1) negligence by Clevenger;1 (2) declaratory judgment
regarding Day’s coverage under Dominion’s policy with Liberty
Mutual; (3) breach of the common law duty of good faith and fair
dealing by Liberty Mutual; (4) violation of the West Virginia
Unfair Trade Practices Act by Liberty Mutual; and (5) damages

1

Notably, as to Count One, the only claim against Clevenger,
Day’s complaint states:
Plaintiff Day has settled all claims with Defendant
Clevenger as a result of Defendant Clevenger’s negligent
acts for the policy limits of Defendant Clevenger’s
bodily injury liability policy. Defendant Liberty Mutual
consented to this settlement and waived subrogation
rights by letter dated December 6, 2011. Defendant Erie
consented to this settlement and waived subrogation
rights by letter dated January 4, 2012.
(Dkt. No. 1-1 at 10).
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MEMORANDUM OPINION AND ORDER
GRANTING MOTION TO REMAND [DKT. NO. 9]
arising

from

Clevenger’s

negligence,

allegedly

owed

by

Erie

pursuant to Day’s underinsured motor vehicle policy. Id. at 9-17.
On May 31, 2012, while the case was pending in state court,
Clevenger filed a motion to dismiss pursuant to W. Va. R. Civ. P.
12(b)(6). Id. at 42. He argued that he should be dismissed from the
case because the Release, per its plain terms, barred Day from any
further

recovery

against

him.

Id.

Day

filed

a

response

in

opposition to Clevenger’s motion on June 6, 2012. (Dkt. No. 1-2 at
28). Pointing to the aforementioned cooperation clause in the
Addendum to the Release, id. at 40, Day argued that it would be
contrary to the parties’ settlement agreement to dismiss Clevenger
from the case. Id. at 32. Day also argued that, inasmuch as the
allegations in his complaint set forth a facially valid claim for
negligence, Clevenger should have moved for summary judgment under
W. Va. R. Civ. P. 56, and not dismissal under W. Va. Civ. P.
12(b)(6). Id. at 30.
On August 20, 2012, the parties appeared before the Honorable
Judge John Lewis Marks, Jr. (“Judge Marks”) in the Circuit Court of
Harrison County, West Virginia, for a hearing on Clevenger’s
motion. (Dkt. No. 1-3 at 2). During the hearing, Day acknowledged
that he had executed a full and final release of Clevenger and
could, as a matter of law, bring his suit directly against Liberty
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MEMORANDUM OPINION AND ORDER
GRANTING MOTION TO REMAND [DKT. NO. 9]
Mutual and Erie. Id. Liberty Mutual, for its part, indicated that
it had not yet made a decision as to whether it intended to defend
in its own name or in the name of Clevenger, the tortfeasor. Id.
Judge Marks ordered Liberty Mutual to notify the court of its
decision within fourteen days of the date of the hearing, i.e., by
September 3, 2012, and deferred ruling on the pending motion. Id.
On October 23, 2012, having received no response from Liberty
Mutual, Judge Marks entered a written order denying Clevenger’s
motion to dismiss “for the reasons set forth in [Day’s] response.”
(Dkt. No. 1-3 at 4).
More than two weeks later, on November 7, 2012, Liberty Mutual
filed a Notice setting forth its intent to defend against Day’s
suit in its own name. Id. at 7. Citing this Notice, Clevenger filed
a Motion for Reconsideration on December 10, 2012, urging the state
court to revisit his earlier motion to dismiss. Id. at 11. During
a hearing conducted on January 15, 2013, Judge Marks orally granted
the motion for reconsideration and dismissed Clevenger from the
case. (Dkt. No. 1 at 1). He entered a written Order to this effect
on January 28, 2013, noting that Clevenger had received a “full and
final release for all claims against him.” (Dkt. No. 9-4 at 2). It
was this Order, Liberty Mutual contends, that finally created

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MEMORANDUM OPINION AND ORDER
GRANTING MOTION TO REMAND [DKT. NO. 9]
diversity jurisdiction and rendered this case removable pursuant to
28 U.S.C. § 1446(b)(3).
C.
Thus, more than nine months after the complaint was first
filed, Liberty Mutual removed the case to this Court on January 29,
2013. (Dkt. No. 1). The Notice of Removal alleges that, due to the
state court’s oral dismissal of James Clevenger on January 15,
2013, “complete diversity of citizenship” in this action “now
exists,” id.

at 2, and the Court therefore has jurisdiction

pursuant to 28 U.S.C. §§ 1332 and 1446(b)(3).
On February 8, 2013, the Court issued an Order directing the
parties to brief the propriety of removal in light of the so-called
“voluntary-involuntary rule,” which prohibits federal courts from
exercising diversity jurisdiction over a case that has been removed
after the involuntary dismissal of the non-diverse defendants.
See, e.g., Higgins v. E.I. DuPont de Nemours & Co., 863 F.2d 1162,
1166 (4th Cir. 1988). Critically, both Liberty Mutual and Day agree
that, for the purposes of the voluntary-involuntary rule, Clevenger
was involuntarily dismissed from this action. Liberty Mutual argues
that its removal was nonetheless proper because Clevenger was a
fraudulently joined party, a fact which it did not discover until

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MEMORANDUM OPINION AND ORDER
GRANTING MOTION TO REMAND [DKT. NO. 9]
the state court granted Clevenger’s motion to dismiss on January
15, 2013. Day disagrees. On February 11, 2013, he filed a motion to
remand, arguing that the Notice of Removal was untimely filed,
(dkt. no. 9), and that Clevenger was not fraudulently joined. (Dkt.
No. 13).
II.
A party may remove to federal court any state “civil action[]
where the matter in controversy exceeds the sum or value of $75,000
. . . and is between citizens of different States.” 28 U.S.C.
§§ 1332(a), 1441(a). Generally, a defendant must file a notice of
removal within thirty days following receipt of the complaint. 28
U.S.C. § 1446(b)(1). However,
if the case stated by the initial pleading is not
removable, a notice of removal may be filed within thirty
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.
28 U.S.C. § 1446(b)(3). The party seeking removal bears the burden
of showing that the district court has original jurisdiction,
Mulcahey v. Columbia Organic Chems. Co., 29 F.3d 148, 151 (4th Cir.
1994), and “courts should ‘resolve all doubts about the propriety
of removal in favor of retained state court jurisdiction.’” Hartley

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MEMORANDUM OPINION AND ORDER
GRANTING MOTION TO REMAND [DKT. NO. 9]
v. CSX Transp., Inc., 187 F.3d 422, 425 (4th Cir. 1999) (quoting
Marshall v. Manville Sales Corp., 6 F.3d 229, 232 (4th Cir. 1993)).
Diversity jurisdiction must be established at the time an
action is removed. Higgins, 863 F.2d at 1166; see also Freeport v.
McMoRan, Inc. v. K N Energy, Inc., 498 U.S. 426, 428 (1991). Even
where the requisite diversity exists at the time of removal,
however, “a case may nevertheless not be removable depending on
whether [a] non-diverse party [was] eliminated from the state
action by voluntary or involuntary dismissal.” Higgins, 863 F.2d at
1166 (citation omitted). This judicially-created doctrine, known as
the “voluntary-involuntary rule,” prevents federal courts from
“exercis[ing] diversity jurisdiction over a case that becomes
removable because of the involuntary dismissal of all non-diverse
defendants, as opposed to some voluntary action on the part of the
plaintiff.” Wingfield v. Franklin Life Ins. Co., 41 F.Supp.2d 594,
597 (E.D. Va. 1999) (collecting cases); see also 14B C. Wright, A.
Miller & E. Cooper, Federal Practice and Procedure § 3723 (4th ed.
2010). In other words, where a non-diverse defendant is dismissed
from a state law action without the plaintiff’s consent, the case
does not thereafter become removable under 28 U.S.C. § 1446(b).
The fraudulent joinder doctrine operates as an exception to
the voluntary-involuntary rule. Farley v. Argus Energy, LLC, No.
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MEMORANDUM OPINION AND ORDER
GRANTING MOTION TO REMAND [DKT. NO. 9]
2:08-00818, 2008 WL 2789948, at *2 (S.D. W. Va. July 16, 2008)
(citing Arthur v. E.I. du Pont, 798 F.Supp. 367, 369 (S.D. W. Va.
1992)). To establish that a non-diverse party was fraudulently
joined, the removing party must demonstrate either “‘outright fraud
in the plaintiff’s pleading of jurisdictional facts’ or that ‘there
is no possibility that the plaintiff would be able to establish a
cause of action against the in-state defendant in state court.’”
Hartley, 187 F.3d at 424

(quoting Marshall, 6 F.3d at 232). The

burden on the party invoking this doctrine is heavy: “[T]he
defendant must show that the plaintiff cannot establish a claim
against the nondiverse defendant even after resolving all issues of
fact and law in the plaintiff’s favor.” Marshall, 6 F.3d at 232-33
(citation omitted). This standard “is even more favorable to the
plaintiff than the standard for ruling on a motion to dismiss under
Fed. R. Civ. P. 12(b)(6),” Hartley, 187 F.3d at 424, as the
plaintiff need only have “a possibility of a right to relief”
against the nondiverse defendant in order to defeat removal.
Marshall, 6 F.3d at 233 (citation omitted) (emphasis added).
III.
The propriety of Liberty Mutual’s removal of this case depends
on two separate, but interrelated, inquiries: (1) whether Clevenger

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MEMORANDUM OPINION AND ORDER
GRANTING MOTION TO REMAND [DKT. NO. 9]
was fraudulently joined in this action; and (2) if so, whether
Liberty Mutual’s Notice of Removal was timely filed. The Court
addresses each of these issues in turn.
A.
As a threshold matter, Liberty Mutual’s fraudulent joinder
arguments misapprehend the applicable standard. Presumably in an
effort to explain how it could not have earlier “ascertained” that
this case was removable under 28 U.S.C. § 1446(b), Liberty Mutual
repeatedly emphasizes how Day “successfully argued and maintained
that [he] had a valid cause of action against Defendant Clevenger
in

negligence,

and

that

dismissal

of

Clevenger

would

place

Clevenger in breach of the settlement agreement,” (dkt. no. 10 at
6), convincing both “counsel and the [state] [c]ourt he could
establish a cause of action against Defendant Clevenger” and
ultimately defeating the first motion to dismiss. Id.

at 7.

According to Liberty Mutual, it was only when the state court
resolved

the

“extensive

and

contested

motion

practice”

in

Clevenger’s favor that it even realized he had been fraudulently
joined. (Dkt. No. 11 at 8, 7). This theory, however, actually
serves to undercut - rather than support - any argument that
Clevenger was fraudulently joined.
Contrary to Liberty Mutual’s arguments, a defendant is not
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MEMORANDUM OPINION AND ORDER
GRANTING MOTION TO REMAND [DKT. NO. 9]
fraudulently joined simply because the claims against him did not
“ultimately succeed.” Marshall, 6 F.3d at 233 (citation omitted).
Such a position would render the voluntary-involuntary distinction
a

nullity,

as

a

party

could

invoke

“fraudulent

joinder

by

hindsight” any time a nondiverse defendant is dismissed from a
case. Riverdale Baptist Church v. Certainteed Corp., 349 F.Supp.2d
943, 954 (D. Md. 2004). Liberty Mutual, in other words, cannot
satisfy its burden of demonstrating fraudulent joinder merely by
pointing to the fact that the state court has ruled against Day on
the merits of his claim. See, e.g., Deming v. Nationwide Mut. Ins.
Co., No. 3:03-1225, 2004 WL 332741, *4 (D. Conn. Feb. 14, 2004). It
must instead establish that, even after resolving all issues of
fact and law in Day’s favor, he has absolutely “no possibility” of
establishing a cause of action against Clevenger. Marshall, 6 F.3d
at 232; see also Hartley, 187 F.3d at 426 (fraudulent joinder
standard “even more favorable” than motion to dismiss standard).
Here, the Court need not undertake an extensive analysis to
determine

whether

Liberty

Mutual

has

carried

its

burden

of

demonstrating fraudulent joinder – the defendant itself has limited
its

argument

to

emphasizing

the

ostensibly

“colorable

claims

against [] Clevenger,” (dkt. no. 10 at 3), and “[o]nce the court
identifies

this

glimmer

of

hope
11

for

the

plaintiff,

the

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MEMORANDUM OPINION AND ORDER
GRANTING MOTION TO REMAND [DKT. NO. 9]
jurisdictional inquiry ends.” Hartley, 187 F.3d at 426. Indeed, far
from demonstrating that Day had “no possibility” of success,
Liberty Mutual goes to great lengths to characterize the state
court’s initial denial of Clevenger’s motion to dismiss as the
direct result of Day’s “persua[sive]” argument that “he could
establish a cause of action against [] Clevenger.” (Dkt. No. 10 at
7); see, e.g., Beaudoin v. Sites, 886 F.Supp. 1300, 1302 (E.D. Va.
1995) (stating that the “no possibility” standard for fraudulent
joinder should be applied as an inquiry to determine whether there
exists a “reasonable possibility that a state court would rule
against any of the [defendants]”).
In sum, Liberty Mutual has subverted its own argument and
wholly failed to establish that Clevenger was fraudulently joined
in this action. Accordingly, in light of the parties’ agreement
that Clevenger was involuntarily dismissed as contemplated by the
voluntary-involuntary rule, this case must be remanded. See, e.g.,
Cohen v. TWI Franchising, Inc., No. 5:09-69, 2009 WL 4915673, at *1
(W.D. Va. Dec. 18, 2009) (involuntary dismissal of non-diverse
party by state court results in defect in federal subject matter
jurisdiction).

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MEMORANDUM OPINION AND ORDER
GRANTING MOTION TO REMAND [DKT. NO. 9]
B.
Even if the joinder of Clevenger were fraudulent, Liberty
Mutual would still have to overcome Day’s argument that its removal
was untimely. See Cades v. H & R Block, Inc., 43 F.3d 869, 873 (4th
Cir. 1994) (untimely removal constitutes a procedural defect that
renders the case improperly removed). On this point, Liberty Mutual
contends that it was entitled to remove within thirty days of the
state court’s dismissal of Clevenger. The Court disagrees.
It is well-established that a defendant has thirty days to
remove an action after it is first able to ascertain, from the
initial pleading or some other document, that a case is or has
become removable. 28 U.S.C. § 1446. In the fraudulent joinder
context, this means that the defendant must remove within thirty
days of “the time [it] can first ascertain that a party has been
fraudulently joined.” Delaney v. Viking Freight, Inc., 41 F.Supp.2d
672, 674 n.2 (E.D. Tex. 1999) (collecting cases); see also Haythorn
v. Erie Ins. Property & Cas. Co., No. 5:06CV67, 2006 WL 2595278, at
*3 (N.D. W. Va. Sept. 11, 2006) (“[A] defendant has thirty days to
remove an action after learning that a non-diverse defendant has
been fraudulently joined.”). It follows that where, as here, a
removal is based on the fraudulent joinder of a former party, the
dispositive date is “not when the state court first put its stamp
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MEMORANDUM OPINION AND ORDER
GRANTING MOTION TO REMAND [DKT. NO. 9]
on the matter,” i.e., when the state court actually dismissed the
nondiverse defendant, but instead when the removing party “was
first able to ascertain that the case was removable.” Riverdale,
349 F.Supp.2d at 953-54; see also Nexbank, SSB v. BAC Home Loan
Servicing, LP, No. 3:11–CV–00279, 2011 WL 5182118, at *8 (N.D. Tex.
Oct. 28, 2011); Fehlman v. McCaffrey, No. CV–10–122–ST, 2010 WL
1959534, at *4–5 (D. Or. Apr. 14, 2010); Deming, 2004 WL 332741, at
*5.
Liberty Mutual argues that it “was first made aware that there
was no possibility that [Day] could establish a cause of action
against Defendant Clevenger” on January 15, 2013, when the state
court granted Clevenger’s motion to dismiss. (Dkt No. 10 at 3).
Painting itself as the unsuspecting victim of Day’s “elaborate
scheme to avoid federal jurisdiction,” id. at 6, it complains that,
prior to the state court’s dismissal order, it had believed Day was
pursuing a valid cause of action against Clevenger. See id. at 7-8.
In support, it notes that the complaint specifically alleged that
“[r]emoval is improper,” a legal conclusion it apparently took to
heart,

and

makes

much

of

Day’s

early

success

in

defeating

Clevenger’s motion to dismiss. Id. Only when Clevenger was actually
dismissed, Liberty Mutual contends, did it finally “have grounds to
argue that there was no possibility that [Day] would be able to
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MEMORANDUM OPINION AND ORDER
GRANTING MOTION TO REMAND [DKT. NO. 9]
establish a cause of action against [] Clevenger in state court –
that [] Clevenger had been fraudulently joined.” Id. at 7.
Setting

aside

the

obvious

point

that

Liberty

Mutual’s

professed confusion is hardly indicative of fraudulent joinder, the
question presented is when, exactly, the thirty-day removal period
began to run. As Day points out, Liberty Mutual has not indicated
it learned any new information bearing on the validity of the claim
against Clevenger between the time it received Day’s complaint and
the time the state court entered its dismissal order. Indeed,
inasmuch as the Release is the basis for the fraudulent joinder
argument, the complaint itself explicitly states that “Day has
settled all claims with [] Clevenger as a result of [] Clevenger’s
negligent acts,” a fact that Liberty Mutual, given its pre-suit
“consent[] to this settlement,” must have already known. (Dkt. No.
1-1 at 10). Liberty Mutual’s assertions that Day “elaborat[ly]
scheme[d]” to obfuscate the removability of this case (dkt. no. 10
at 6) cannot overcome this simple truth: the grounds for removal
were plainly apparent on the face of the complaint. (Dkt. No. 1-1
at 10).
Liberty Mutual, in short, had all of the information necessary
to construct its fraudulent joinder argument on or about April 18,
2012, when it accepted service of the complaint. Nevertheless,
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MEMORANDUM OPINION AND ORDER
GRANTING MOTION TO REMAND [DKT. NO. 9]
rather than filing a Notice of Removal within the requisite thirtyday period, it consciously chose to wait until after the state
court had issued a ruling on the merits of the claim against
Clevenger before asserting he had been fraudulently joined. As
other courts have found, “permitting such ‘fraudulent joinder by
hindsight’ removal petitions would serve both to undermine 28
U.S.C. § 1446(b)’s thirty-day limit and . . . render meaningless
the

long-held

dismissals

of

distinction

between

non-diverse

parties

voluntary
in

and

creating

involuntary

removability.”

Riverdale, 349 F.Supp.2d at 954 (quoting Deming, 2004 WL 332741, at
*5). Liberty Mutual cannot now avoid the statutory time limits of
28 U.S.C. § 1446(b) simply because it regrets its initial decision
to remain in state court.
The Court thus concludes that “[Liberty Mutual] could have
intelligently ascertained within the thirty days following [its]
receipt of the Complaint [whether or not] it had valid arguments
that [the claims against Clevenger] should fail.” Riverdale, 349
F.Supp.2d at 954 (quoting Deming, 2004 WL 332741 at *5). As such,
it was required to remove “within 30 days after the receipt . . .
of a copy of the initial pleading,” and the current Notice of
Removal was untimely filed. 28 U.S.C. § 1446(b).

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MEMORANDUM OPINION AND ORDER
GRANTING MOTION TO REMAND [DKT. NO. 9]
IV.
Pursuant to 28 U.S.C. § 1447(c), attorneys’ fees may be
shifted upon remand “only where the removing party lacked an
objectively

reasonable

basis

for

seeking

removal.”

Martin

v.

Franklin Capital Corp., 546 U.S. 132, 141 (2005). A court’s
decision whether to award fees under § 1447(c) is discretionary.
Gibson v. Tinkey, 822 F. Supp. 347, 348 (S.D. W. Va. 1993); see
also Martin, 546 U.S. at 136. Here, although Liberty Mutual’s
removal was not well-founded, it was not objectively unreasonable.
Therefore, the Court declines to award costs and fees to the
plaintiff.
V.
For the reasons discussed, the Court GRANTS the plaintiff’s
motion to remand (dkt. no. 9) and REMANDS this case to the Circuit
Court of Harrison County, West Virginia, pursuant to 28 U.S.C.
§ 1447(c).
It is so ORDERED.
The Court directs the Clerk to transmit copies of this Order
to counsel of record, and to mail a copy to the Circuit Court of
Harrison County, West Virginia.
DATED: May 6, 2013.
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE
17