Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-2_08-cv-00773/USCOURTS-almd-2_08-cv-00773-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity- Insurance Fraud

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IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF ALABAMA

NORTHERN DIVISION

BOYD BROTHERS, INC., )

)

Plaintiff, )

)

v. ) CASE NO. 2:08-CV-773-WKW[WO]

)

LIBERTY MUTUAL INS. CO., et al., )

)

Defendants. )

MEMORANDUM OPINION AND ORDER

I. INTRODUCTION

Before the court is Plaintiff Boyd Brothers, Inc.’s (“Boyd Brothers”) Motion to

Remand (Doc. # 9), which is accompanied by a Memorandum in Support (Doc. # 10). Boyd

Brothers seeks remand of this action to the Circuit Court of Barbour County, Alabama, for

lack of diversity jurisdiction, 28 U.S.C. § 1332(a). It asserts that complete diversity of

citizenship does not exist because Defendant Stephen M. Collins (“Collins”) is a non-diverse

Defendant. Defendants Liberty Mutual Insurance Company (“Liberty Mutual”) and Mr.

Collins (collectively, “Defendants”) filed a Response and Brief in Opposition to Boyd

Brothers’s Motion to Remand (Doc. # 13), arguing that, in the absence of fraudulent joinder,

complete diversity exists. For the reasons to follow, the Motion to Remand is due to be

granted.

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II. STANDARD OF REVIEW

A. Generally

“[F]ederal courts have a strict duty to exercise the jurisdiction that is conferred upon

them by Congress.” Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716 (1996). However,

“[f]ederal courts are courts of limited jurisdiction.” Burns v. Windsor Ins. Co., 31 F.3d 1092,

1095 (11th Cir. 1994). Thus, with respect to cases removed to this court pursuant to 28

U.S.C. § 1441, the law of the Eleventh Circuit favors remand where federal jurisdiction is

not absolutely clear. “[R]emoval statutes are construed narrowly; where plaintiff and

defendant clash about jurisdiction, uncertainties are resolved in favor of remand.” Burns, 31

F.3d at 1095.

B. Diversity Jurisdiction

A federal court may exercise diversity jurisdiction where the amount in controversy

exceeds $75,000, exclusive of interest and costs, and complete diversity exists. There is

complete diversity when the parties on one side of the suit are citizens of states different from

the parties on the other side of the suit. 28 U.S.C. § 1332. If, however, non-diverse parties

are fraudulently joined to an action, their citizenship will not be considered for purposes of

determining diversity jurisdiction. Tedder v. F.M.C. Corp., 590 F.2d 115, 117 (5th Cir.

1979) (per curiam). The Eleventh Circuit recognizes three forms of fraudulent joinder.

1

 In Bonner v. City of Prichard, Ala., 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), the 1

Eleventh Circuit adopted as binding precedent all decisions handed down by the former Fifth Circuit

prior to October 1, 1981. 

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Triggs v. John Crump Toyota, Inc., 154 F.3d 1284, 1287 (11th Cir. 1998) (citing Coker v.

Amoco Oil Co., 709 F.2d 1433, 1440 (11th Cir. 1983), superseded by statute on other

grounds as stated in Georgetown Manor, Inc. v. Ethan Allen, Inc., 991 F.2d 1533, 1540 (11th

Cir. 1993)). The one relevant to this case is fraudulent joinder “when there is no possibility

that the plaintiff can prove a cause of action against the resident (non-diverse) defendant.”

Id.

The removing party bears the burden of proving fraudulent joinder, and the burden

is “heavy.” Crowe v. Coleman, 113 F.3d 1536, 1538 (11th Cir. 1997) (internal quotation

marks and citation omitted). “[A]ll factual issues and questions of controlling substantive

law” must be viewed in the light most favorable to the plaintiff. Coker, 709 F.2d at 1440;

accord Pacheco de Perez v. AT&T Co., 139 F.3d 1368, 1380 (11th Cir. 1998). “[I]f there is

any possibility that the state law might impose liability on a resident defendant under the

circumstances alleged in the complaint, the federal court cannot find that joinder of the

resident defendant was fraudulent, and remand is necessary.” Florence v. Crescent Res.,

LLC, 484 F.3d 1293, 1299 (11th Cir. 2007). Although for purposes of determining

fraudulent joinder, courts may consider affidavits and deposition transcripts submitted by

either party, in addition to the plaintiff’s pleadings at the time of removal, Legg v. Wyeth, 428

F.3d 1317, 1322 (11th Cir. 2005), “the jurisdictional inquiry must not subsume substantive

determination,” Crowe, 113 F.3d at 1538 (internal quotation marks and citation omitted).

Courts must be “certain” of their jurisdiction and “are not to weigh the merits of a plaintiff’s

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claim beyond determining whether it is an arguable one under state law.” Id. (internal

quotation marks and citation omitted).

III. BACKGROUND

On August 20, 2008, Boyd Brothers filed a complaint against Mr. Collins and Liberty

Mutual in the Circuit Court of Barbour County, Alabama. Boyd Brothers and Mr. Collins

are citizens of Alabama. Liberty Mutual is a Massachusetts corporation with its principal

place of business also in Massachusetts. (Compl. ¶¶ 1-3; Not. Removal ¶¶ 14-16.)

The complaint alleges the following facts. On July 1, 2005, Mr. Collins, an agent for

Liberty Mutual, persuaded Boyd Brothers to purchase a Liberty Mutual liability insurance

policy and to enter into a collateral agreement. (Compl. ¶¶ 3, 5-8, 13, 39.) The sales pitch

would not have been persuasive but for Mr. Collins’s false representations and omission of

material facts. Namely, Mr. Collins falsely represented to Boyd Brothers that Liberty Mutual

would adjust Boyd Brothers’s security and escrow requirements annually and return

collateral payments to Boyd Brothers that exceeded its collateral obligations. (Compl. ¶ 15.)

Mr. Collins also failed to disclose to Boyd Brothers that the policy it purchased would not

return the initial collateral payment to Boyd Brothers on each anniversary date following a

collateral review. (Compl. ¶ 24.) Because of these fraudulent misrepresentations and the

fraudulent concealment, Boyd Brothers changed its position and purchased the policy.

(Compl. ¶¶ 17-18, 24.) As a result, Boyd Brothers was injured because it made deposits into

an insurance policy that was not as promised; it lost the value of the deposits; it lost interest

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on the deposits; and it was deprived of the insurance policy that it was promised. (Compl.

¶¶ 18, 25.) Boyd Brothers “discovered the fraud within two years of filing this lawsuit.”

(Compl. ¶ 9.)

The complaint contains seven counts. The fraud counts(Counts One, Three and Four)

are against Mr. Collins and Liberty Mutual, and the allegations are framed as having been

committed by “Defendants” collectively. (Compl. ¶¶ 12-18, 23-25, 26-28.) The remaining

counts are against Liberty Mutual for breach of contract, possession of collateral through

fraud and artifice, wrongful exercise of dominion, and negligence and wantonness in the

hiring, training and supervising of Mr. Collins. (Compl. ¶¶ 19-22, 29-32, 33-36, 37-40.)

On September 18, 2008, Defendants filed a Notice of Removal in the United States

District Court for the Middle District of Alabama, predicated on diversity jurisdiction, see

28 U.S.C. §§ 1332(a), 1441. Although complete diversity does not exist on the face of the

complaint, given that Boyd Brothers and Mr. Collins are both citizens of Alabama, the

removal petition alleges that Mr. Collins is fraudulently joined because there is no possibility

that Boyd Brothers can prove a cause of action against him. Defendants filed an affidavit

from Mr. Collins. (Collins Aff. (Ex. B to Not. Removal).) Of particular relevance to the

issue at hand, Mr. Collins, a senior account executive for Liberty Mutual, attests that “he was

involved in the placing of coverage” on the policy at issue, and that the policy was canceled

or “non-renewed” by Boyd Brothers on July 1, 2006. (Collins Aff. 1.)

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On October 7, 2008, Boyd Brothers filed a Motion to Remand and accompanying

brief, asserting that Mr. Collins is a non-diverse defendant who has not been fraudulently

joined and that, therefore, diversity of citizenship does not exist in this case. An affidavit

submitted by Boyd Brothers’s president confirms that Mr. Collins was the Liberty Mutual

agent whom Boyd Brothers contends made the fraudulent representations and material

omissions pertaining to the liability insurance policy at issue. (Richard Bailey Aff. ¶¶ 2-6

(Ex. A to Pl. Mem.).) Also in that affidavit, Richard Bailey (“Bailey”) attests that, in the

months following July 1, 2006, he was assured by Mr. Collins, among other Liberty Mutual

representatives, that Boyd Brothers’s security and escrow requirements would be adjusted

properly and the appropriate collateral payments would be returned, but that never happened.

(Bailey Aff. ¶¶ 7-8.)

IV. DISCUSSION

The issue framed by the parties’ briefs is whether Mr. Collins, a non-diverse

Defendant, has been fraudulently joined in this action on Boyd Brothers’s state-law claims

against him for fraudulent misrepresentation and fraudulent suppression. If Mr. Collins has

been fraudulently joined, then his citizenship is disregarded for purposes of determining

whether complete diversity exists, and the Motion to Remand must be denied. If he has not

been fraudulently joined, Mr. Collins’s presence does not destroy complete diversity, and the

Motion to Remand must be granted.

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Defendants argue that there is no possibility of recovery against Mr. Collins. They

say that Boyd Brothers’s fraudulent misrepresentation and fraudulent suppression claims

against Mr. Collins are “generalized and non-specific” and fail to comply with the

particularized pleading requirements under Alabama and federal law, see Ala. R. Civ. P. 9;

Fed. R. Civ. P. 9. (Not. Removal 7-8). They say also that, because Boyd Brothers alleges

that the purported fraud occurred at the latest on or before July 1, 2005, when the policy of

insurance went into effect and because the state court complaint was not filed until August

20, 2008, the claims are barred by the applicable two-year statute of limitations. (Not.

Removal ¶ 24.)

Boyd Brothers takes a contrary position. (Pl. Mem. 3-4.) It says that the pleading

rules relied upon by Defendants are “of no consequence to [the] fraudulent joinder” analysis.

(Pl. Mem. 4.) Presumably relying on the tolling provision of § 6-2-3 of the Code of

Alabama, Boyd Brothers counters that a “plain reading” of the complaint reveals that the

2

discovery occurred within two years of filing the state court complaint. (Pl. Mem. 9.) In

response, Defendants contend that the complaint’s “bare assertion” that the action was filed

within two years of discovering the fraud is wholly inadequate to invoke Alabama’s tolling

statute. (Defs. Resp. 10.)

 That statute provides: “In actions seeking relief on the ground of fraud where the statute has

2

created a bar, the claim must not be considered as having accrued until the discovery by the aggrieved

party of the fact constituting the fraud, after which he must have two years within which to prosecute his

action.” § 6-2-3.

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Multiple authoritiesin support of the parties’ respective positions have been cited, and

those authorities have been reviewed. It, however, is Henderson v. Washington National

Insurance Co., 454 F.3d 1278 (11th Cir. 2006), which provides the best explanation of why

this case must be remanded.

In Henderson, a removed case involving allegations of fraudulent concealment

surrounding the method for calculating insurance premium increases, the Eleventh Circuit

reversed the district court’s ruling that the non-diverse defendant had been fraudulently

joined. See id. at 1280. The district court found, first, that fraudulent concealment had to

be pleaded in order to invoke Alabama’s tolling statute, § 6-2-3, and, second, that the

allegations of the complaint were insufficient to toll the statute of limitations. Id. at 1282.

Thus, the district court found that there was no possibility that the plaintiff could maintain

a cause of action against the non-diverse defendant.

At the outset, the Eleventh Circuit emphasized that “[o]rdinarily, where the viability

of a plaintiff’s claim against a non-diverse defendant depends on whether section 6-2-3’s

savings clause applies, the case should be remanded summarily; such a question is

emphatically a matter for the state courts to decide.” Id. at 1282. Turning to the district

court’s analysis, the Eleventh Circuit recognized that “the state of the fraudulent concealment

pleading requirement in the context of Alabama fraud cases has often been difficult to

discern,” but concluded that it was unnecessary to “reach a definitive pronouncement on the

state of the fraudulent concealment pleading requirement in Alabama fraud cases.” Id.

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at 1283. Specifically, the Eleventh Circuit cautioned that, in assessing fraudulent joinder,

federal courts should not “gauge the sufficiency of the pleadings” under state law. Id.

at 1284. “[T]he decision as to the sufficiency of the pleadings is for the state courts, and for

a federal court to interpose its judgment would fall short of the scrupulous respect for the

institutional equilibrium between the federal and state judiciaries that our federal system

demands.” Id. (citation omitted). The issue, rather, is “whether the defendants have proven

by clear and convincing evidence that no Alabama court could find this complaint sufficient

to invoke Ala. Code § 6-2-3.” Id.

In Henderson, the defendants had not met that heavy burden. Although the allegation

that the alleged fraud was of a “continuing nature” could not, in and of itself, satisfy

Alabama’s heightened pleading requirementsfor alleging fraudulent concealment, there were

additional allegations. Id. There were allegations that the “[d]efendants” (referred to

collectively) had “fraudulently suppressed and concealed the actual basis for their premium

increases” and that the policy was “serviced” in such a manner “as to actively conceal or

suppress the true nature of the policy and how premium increases were calculated,” id.

(internal quotation marks and citations omitted). The Eleventh Circuit concluded that these

allegations “perhaps alleged active suppression of the fraud in the servicing of the policy.”

Id. While admittedly “not highly detailed,” the allegations were not so general and

conclusory so as to deprive the defendants of “no fair notice at all.” Id. There, thus,

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“exist[ed] a sufficiently substantial question as to whether [the plaintiff] ha[d] successfully

pled fraudulent concealment under Alabama law.” Id. (brackets added).

Here, also, the court finds that Defendants have failed to sustain their burden of

demonstrating that no Alabama court could find the facts of the complaint insufficient to

invoke § 6-2-3. Boyd Brothers’s allegations that the fraud was discovered within the twoyear window preceding the filing of the complaint do not stand alone. (Compl. ¶ 9.) There

also are allegations that “Defendants,” which in context necessarily includes Mr. Collins,

“fraudulently concealed” that the policy at issue would not return the initial collateral

payment to Boyd Brothers on each anniversary date following a collateral review, as

represented (Compl. ¶ 24), and that Mr. Collins “concealed the material facts relating to the

terms of the [collateral] agreement” (Compl. ¶ 28).

The allegations, while not a template for precise pleading, appear to satisfy the

standard pronounced in Henderson. They are not wholly conclusory, and it cannot be said

that the allegations provide “no fair notice at all.” Henderson, 454 F.3d at 1284. To borrow

from Henderson, Boyd Brothers’s “patchy allegations may ultimately prove insufficient, but

[the court] [is] unable to say there is no possibility [it] has asserted a colorable claim for

tolling under Ala. Code § 6-2-3[.]” Id. (brackets added). The court is not saying that the

complaint’s allegations satisfy state-law pleading requirements for invoking the tolling

statute. As stressed in Henderson, such a determination would exceed the permissible legal

bounds in the fraudulent joinder analysis and would encroach upon state court jurisdiction.

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Considerations of comity counsel against that interference. The court merely is saying that

a case for tolling is arguable or colorable. Accordingly, for the foregoing reasons, the

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Motion to Remand is due to be granted.

4

V. CONCLUSION

Controlling precedent requires Defendants to bear the weighty burden of establishing

fraudulent joinder. That burden has not been met. Accordingly, it is ORDERED that:

(1) Boyd Brothers’s Motion to Remand (Doc. # 9) is GRANTED;

(2) This case is REMANDED to the Circuit Court of Barbour County, Alabama;

(3) The Clerk of the Court is DIRECTED to take appropriate steps to effect the

remand; and

(4) Boyd Brothers’ request for attorney’s fees and costs is DENIED.

DONE this 18th day of May, 2009.

/s/ W. Keith Watkins

UNITED STATES DISTRICT JUDGE

 Defendants’ other arguments have been fully considered, but those arguments plainly are

3

insufficient to sustain Defendants’ heavy burden on removal of demonstrating fraudulent joinder.

Moreover, in light of the court’s ruling, and as in Henderson, 454 F.2d at 1284 n.4, it is unnecessary to

address Boyd Brothers’s arguments premised on the common defense rule. 

 Boyd Brothers’s Motion to Remand includes a request for an award of costs and attorney’s 4

fees, pursuant to 28 U.S.C. § 1447(c). Having reviewed the record as a whole, the court does not find

that Defendants “lacked an objectively reasonable basis for seeking removal.” Martin v. Franklin

Capital Corp., 546 U.S. 132, 141 (2005). Costs and fees, therefore, will be denied.

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