Barber v. Sedgwick Claims Management Services, Inc.
MEMORANDUM OPINION AND ORDER granting Defendant's 320 Motion to Dismiss and dismissing this case from the docket of this Court; the part of the Motion to Dismiss requesting a Stay All Proceedings is denied as moot. Signed by Judge Robert C. Chambers on 8/7/2017. (cc: counsel of record; any unrepresented parties) (jsa)
IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF WEST VIRGINIA
JILL C. BARBER,
CIVIL ACTION NO. 3:14-27349
JAMES W. HESLEP,
MEMORANDUM OPINION AND ORDER
Pending before the Court is Defendant’s Motion to Stay All Proceedings and Dismiss the
Case (ECF No. 320) pursuant to Federal Rule of Civil Procedure 12(h)(3) for lack of subject matter
jurisdiction. Plaintiff filed the instant case in federal court claiming diversity jurisdiction pursuant
to 28 U.S.C. § 1332. As Defendant, a citizen of West Virginia, remains the only defendant left in
this case against Plaintiff, a citizen of West Virginia, Defendant challenges this Court’s
jurisdiction. For the following reasons, the Court GRANTS Defendant’s Motion to Dismiss
(ECF No. 320).
The factual allegations of this case have been summarized in past opinions and do not
require further repetition. See Mem. Op. & Order, ECF No. 191 (denying prior defendant’s
motion to dismiss); Mem. Op. & Order, ECF No. 284 (denying Defendant’s motion to dismiss).
Plaintiff’s original case sought damages from multiple defendants, including Sedgwick Claims
Management Services, Inc. (Sedgwick), MES Solutions, and Defendant James Heslep
(Defendant). The Court terminated defendant MES Solutions on May 23, 2016 when Plaintiff
removed the corporation from the Second Amended Complaint. See Pl.’s Second Am. Compl.,
ECF No. 230. The Court dismissed Sedgwick on July 5, 2017 pursuant to the parties’ joint
motion. See Final Order, ECF No. 319. Accordingly, only Defendant remains in this case. The
Third Amended Complaint specifies that both Plaintiff and Defendant are citizens of West
Virginia. See Pl.’s Third Am. Compl., ECF No. 268, at ¶¶ 3, 13. Defendant, thus, seeks dismissal
for lack of subject matter jurisdiction based on the lack of complete diversity between the
remaining parties. See Def.’s Mot. to Dismiss, ECF No. 320, at 1.
It is axiomatic that a court must have subject matter jurisdiction over a controversy before
it can render any decision on the merits. A motion to dismiss for lack of subject matter jurisdiction
raises the fundamental question of whether a court is competent to hear and adjudicate the claims
brought before it and requires dismissal if the court lacks such jurisdiction. Rule 12(h)(3)
specifies that a court must dismiss a case “[i]f the court determines at any time that it lacks subjectmatter jurisdiction.” Fed. R. Civ. P. 12(h)(3) (emphasis added). Federal courts possess “only
the jurisdiction authorized them by the United States Constitution and by federal statute.” United
States ex rel. Vuyyuru v. Jadhav, 555 F.3d 337, 347 (4th Cir. 2009). Rules 12(b)(1) and 12(h)(3)
permit a party to move for dismissal for lack of subject matter jurisdiction. In such cases, the
plaintiff has the burden of establishing a factual basis for jurisdiction. See Lujan v. Defs. Of
Wildlife, 504 U.S. 555, 561 (1992); Richmond, Fredericksburg & Potomac R.R. Co. v. United
States, 945 F.2d 765, 768 (4th Cir. 1991). In ruling on the motion, the court may consider the
pleadings’ allegations as jurisdictional evidence. Id.
Challenges to jurisdiction under Rules 12(b)(1) or 12(h)(3) may be raised in two distinct
ways: “facial attacks” and “factual attacks.” Thigpen v. United States, 800 F.2d 393, 401 n.15
(4th Cir. 1986), rejected on other grounds by Sheridan v. United States, 487 U.S. 392 (1988). A
“facial attack” questions whether the complaint’s allegations are sufficient “to sustain the court’s
jurisdiction.” Id. If a “facial attack” is made, the court must accept the complaint’s allegations
as true and decide if the complaint is sufficient to confer subject matter jurisdiction. Id. A
“factual attack” challenges the truthfulness of the factual allegations in the complaint upon which
subject matter jurisdiction is based. Id. In this situation, a “district court is to regard the
pleadings’ allegations as mere evidence on the issue, and may consider evidence outside the
pleadings without converting the proceeding to one for summary judgment.”
Fredericksburg & Potomac R.R. Co., 945 F.2d at 768 (citations omitted). To prevent dismissal,
“the nonmoving party must set forth specific facts beyond the pleadings to show that a genuine
issue of material fact exists.” Id. (citation omitted). A dismissal should only be granted in those
instances in which “the material jurisdictional facts are not in dispute and the moving party is
entitled to prevail as a matter of law.” Id. (citation omitted).
Defendant’s Motion to Dismiss asserts that this Court does not have proper subject matter
jurisdiction over the case because Plaintiff destroyed complete diversity by adding Defendant to
the Third Amended Complaint. See Def.’s Mot. to Dismiss, ECF No. 320, at 1. Plaintiff argues
that Defendant has consented to jurisdiction by filing an answer and counterclaim and by failing
to raise the subject matter jurisdiction issue previously. See Pl.’s Resp., ECF No. 325, at 2.
Plaintiff also asserts that this Court can retain the claim against Defendant under supplemental
jurisdiction. Id. at 8. The parties do not dispute that jurisdiction in this case is based on diversity
jurisdiction governed by 28 U.S.C. § 1332.
As an initial matter, the Court finds that Defendant cannot waive or consent to subject
matter jurisdiction. See Gaines Motor Lines, Inc. v. Klaussner Furniture Indus., Inc., 734 F.3d
296, 301 (4th Cir. 2013) (“A challenge to a federal court’s jurisdiction can never be forfeited or
waived because it concerns our very power to hear a case.” (internal quotation marks and citations
omitted)). Plaintiff recognizes that subject matter jurisdiction cannot be waived but still holds
onto a notion that Defendant had previously concluded that he fell under § 1367 supplemental
jurisdiction. See Pl.’s Surreply, ECF No. 330, at 4. This alleged conclusion and this Court’s
inaction at the motion to amend stage does not diminish the current task of deciding whether
jurisdiction is proper. A party can challenge subject matter jurisdiction at any point during the
litigation, regardless of whether that party previously submitted answers or motions to the court
under an assumption of proper jurisdiction. See Gaines Motor Lines, 734 F.3d at 301 (analyzing
whether district court had subject matter jurisdiction even though parties raised issue for first time
on appeal). Federal courts have limited jurisdiction and must dismiss cases that fail to meet the
federal question standard set forth in the Constitution or the statutory requirements dictated by 28
U.S.C. § 1332. See Fed. R. Civ. P. 12(h)(3). Accordingly, Defendant’s Motion to Dismiss is
proper and timely before the Court.
In determining whether this case has subject matter jurisdiction, the Court must follow the
directives within the statutes for diversity jurisdiction and supplemental jurisdiction. Section
1332 on diversity states that a “district court shall have original jurisdiction of all civil actions
where the matter in controversy exceeds the sum or value of $75,000, exclusive of interests and
costs, and is between citizens of different states.” 28 U.S.C. § 1332. The Supreme Court has
interpreted the diversity mandate as requiring complete diversity between the class of plaintiffs
and the class of defendants.
See Strawbridge v. Curtiss, 7 U.S. 267, 267 (1806).
supplemental jurisdiction with diversity claims, “the district courts shall not have supplemental
jurisdiction … over claims … against persons made parties under Rule 14, 19, 20, or 24 … when
exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional
requirements of section 1332.” 28 U.S.C. § 1367(b).
The Supreme Court analyzed how the supplemental jurisdiction statute changed
jurisdictional requirements in Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546 (2005).
In Exxon, the Supreme Court held that courts could retain diversity claims that fail to meet the
jurisdictional amount in controversy under supplemental jurisdiction as long as the court had one
claim that met the requirements to satisfy original jurisdiction. Id. at 558. Although the Supreme
Court’s ruling focused on the amount in controversy requirement, the Court analyzed the purpose
of diversity jurisdiction and the differences between satisfying an amount in controversy versus
complete diversity. Id. at 562 (“The presence of a single nondiverse party may eliminate the fear
of bias with respect to all claims, but the presence of a claim that falls short of the minimum amount
in controversy does nothing to reduce the importance of the claims that do meet this
requirement.”). Reading the exception to supplemental jurisdiction in § 1367(b), the Supreme
Court determined that the exceptions prevented parties from adding nondiverse parties late in the
litigation in attempts to avoid the complete diversity requirement. Id. at 565. Throughout the
analysis, the Court reiterated the importance of complete diversity.
Id. at 553 (“we have
consistently interpreted § 1332 as requiring complete diversity: … the presence in the action of a
single plaintiff from the same State as a single defendant deprives the district court of original
diversity jurisdiction over the entire action”); id. at 554 (“Incomplete diversity destroys original
jurisdiction with respect to all claims, so there is nothing to which supplemental jurisdiction can
adhere.”); id. at 566 (“Under § 1367, the court has original jurisdiction over the civil action
comprising the claims for which there is no jurisdictional defect.” (emphasis added)).
As Exxon concerns the amount in controversy requirement specifically, Plaintiff argues
that adding a nondiverse party does not always destroy original jurisdiction. Plaintiff points to
the Supreme Court’s holding in Freeport-McMoRan, Inc. v. K N Energy, Inc., 498 U.S. 426 (1991)
for support. In Freeport, both parties were originally diverse when litigation commenced, but
McMoRan subsequently transferred its interest to a limited partnership for unrelated reasons. Id.
at 427. The Supreme Court found that the district court could retain jurisdiction over the case
because “if jurisdiction exists at the time an action is commenced, such jurisdiction may not be
divested by subsequent events.” Id. at 428. “Diversity jurisdiction, once established, is not
defeated by the addition of a nondiverse party to the action.” Id.
However, the Court finds that Plaintiff’s reliance on Freeport is misplaced. Although the
Supreme Court has recognized limited instances in which nondiverse parties do not destroy
diversity jurisdiction, the Freeport exception is inapposite to the instant case. Here, rather than
substitute a party for transferred interest, Plaintiff voluntarily added Defendant to its Third
Amended Complaint under Rule 15. As noted by the Fourth Circuit and the Northern District of
West Virginia, the Freeport decision does not permit the voluntary addition of nondiverse
defendants. See Martinez v. Duke Energy Corp., 130 F. App’x 629, 635 (4th Cir. 2005) (limiting
Freeport to substitutions under Rule 25(c)); Am. Heartland Port, Inc. v. Am. Port Holdings, Inc.,
Civ. No. 5:11CV50, 2014 WL 1123384, at *4 (N.D.W.V. Mar. 21, 2014) (“addition, rather than
substitution, of a non-diverse defendant did destroy diversity jurisdiction”). Freeport stood for
the proposition that nondiverse substitutions of parties would not destroy diversity once litigation
has commenced. To expand this holding to voluntary additions of nondiverse parties would
permit plaintiffs “to circumvent the requirement of complete diversity simply by suing one or more
diverse joint tortfeasors and then adding by amended complaint any and all nondiverse joint
tortfeasors.” Martinez, 130 F. App’x at 635. Accordingly, once additional parties are added to
the litigation and a party challenges the subject matter jurisdiction of the court, the court must
determine whether the parties remain diverse to maintain diversity jurisdiction over the action.
In this case, the analysis is straightforward. Plaintiff resides in West Virginia. Defendant
also resides in West Virginia. Plaintiff’s Surreply focuses on policy arguments and explanations
of cases involving intervention or substitution of parties. See Pl’s Surreply, ECF No. 330, at 1-3.
Although Plaintiff attempts to characterize Defendant’s interest as a transferred interest from prior
defendant Sedgwick, the Court disagrees. See Pl.’s Resp., ECF No. 325, at 7. Defendant was
voluntarily added by Plaintiff to the Third Amended Complaint under Rule 15 for separate causes
of action. Plaintiff did not substitute Sedgwick for Defendant, and Plaintiff maintained separate
claims against each defendant until resolving claims against Sedgwick. Plaintiff’s Surreply also
failed to address Martinez and American Heartland Port, which the Court finds as the most
convincing evidence supporting this case’s dismissal.
The Court, therefore, concludes that
because Plaintiff and Defendant reside in the same state, diversity has been destroyed.
The Court finds that complete diversity is required to meet the original and supplemental
jurisdiction requirements to establish subject matter jurisdiction. This decision falls in line with
Exxon’s emphasis on complete diversity and the decisions of other cases around the country. See
Exxon, 545 U.S. at 564 (“A failure of complete diversity, unlike the failure of some claims to meet
the requisite amount in controversy, contaminates every claim in the action.”); In re Lorazepam &
Clorazepate Antitrust Litig., 631 F.3d 537, 541-42 (D.C. Cir. 2011); Merrill Lynch & Co. v.
Allegheny Energy, Inc., 500 F.3d 171, 179 (2d Cir. 2007); Estate of Alvarez v. Donaldson Co., 213
F.3d 993, 995 (7th Cir. 2000). There is no dispute that Plaintiff and Defendant both reside in
West Virginia. Therefore, this case lacks complete diversity, and the Court does not have subject
matter jurisdiction. Any discussion of judicial economy, costs to the party, and time already spent
in litigation cannot overcome the requirement to maintain complete diversity. The Court must
GRANT Defendant’s Motion to Dismiss (ECF No. 320).
Accordingly, the Court no longer retains subject matter jurisdiction over this case because
complete diversity does not exist between Plaintiff and Defendant as required under 28 U.S.C.
§ 1332. Therefore, the Court GRANTS Defendant’s Motion to Dismiss (ECF No. 320) and
DISMSSES this case from the docket of this Court. The part of the Motion to Dismiss requesting
a Stay All Proceedings (ECF No. 320) is DENIED as moot.
The Court DIRECTS the Clerk to send a copy of this Order to counsel of record and any
August 7, 2017
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