Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-2_05-cv-01065/USCOURTS-almd-2_05-cv-01065-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1330 Breach of Contract

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IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF ALABAMA

NORTHERN DIVISION

JOE T. SMITH, )

 )

PLAINTIFF, )

 )

v. ) CASE NO.: 2:05-cv-1065-MEF

 )

AMERICAN INTERNATIONAL GROUP, ) (WO - Not Recommended for Publication)

INC., et al., )

 )

DEFENDANTS. )

MEMORANDUM OPINION AND ORDER

I. INTRODUCTION

On several occasions in 2001, Joe T. Smith (“Plaintiff”), a resident of Alabama,

borrowed money from one or more of the corporate entities named as defendants to this

action. Compl. at ¶ 13. Plaintiff has alleged that during the transactions regarding the loans

at issue in this lawsuit, three Alabama residents, Kimberly Singleton (“Singleton”), Pat Porter

(“Porter”), and Roy T. Evans (“Evans”), acted as agents of the corporate defendants, all of

which are foreign companies. Compl. at ¶¶ 3-10, 13. According to the allegations of the

Complaint, sometime after September 28, 2003, Plaintiff discovered that Singleton, Porter,

and Evans had misled him about certain information relating to these loans. Compl. at ¶ 19.

On September 28, 2005, Plaintiff filed suit against American International Group, Inc.,

American General Corporation, American General Finance Inc., American General Finance

Corporation, Merit Life Insurance Company, Singleton, Porter, and Evans in the Circuit

Count of Bullock County, Alabama. In his Complaint, Plaintiff asserted claims for fraud

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(Count One), negligent and/or wanton hiring, training, or supervision of Singleton, Porter,

and Evans (Count Two), breach of fiduciary duty (Count Three), and negligent or wanton

misrepresentation (Count Four).

On November 3, 2005, American General Financial Services of Alabama, Inc.,

American General Finance Corporation, Merit Life Insurance Company, Singleton, Porter,

and Evans jointly filed a Notice of Removal (Doc. #2), invoking this Court’s subject matter

jurisdiction over this action pursuant to 28 U.S.C. §§ 1331 and 1332. American International

Group, Inc. and American General Corporation filed written notice of their joinder in and

consent to the removal (Doc. # 3). In support of their assertion that this Court has subject

matter jurisdiction over this action pursuant to 28 U.S.C. § 1332, Defendants argue that

Singleton, Porter, and Evans were fraudulently joined. In support of their assertion that this

Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1331,

Defendants argue that Plaintiff’s claims necessarily involve substantial questions of federal

law. 

This cause is before the court on the Motion to Remand Plaintiff filed on December

5, 2005 (Doc. #11). The parties have presented a variety of arguments in support of and in

opposition to this motion in a variety of submissions to the Court, both on this motion and

in connection with Defendants’ motion for remand-related discovery. The Court has

carefully considered the merits of these arguments and finds that the Motion to Remand

(Doc. # 11) is due to be GRANTED. 

II. REMAND STANDARD

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Federal courts are courts of limited jurisdiction. Kokkonen v. Guardian Life Ins. Co.

of Am., 511 U.S. 375 (1994); Burns v. Windsor Ins. Co., 31 F.3d 1092, 1095 (11th Cir. 1994);

Wymbs v. Republican State Executive Comm., 719 F.2d 1072, 1076 (11th Cir. 1983). As

such, federal courts only have the power to hear cases that they have been authorized to hear

by the Constitution or the Congress of the United States. Kokkonen, 511 U.S. at 377. The

party seeking removal has the burden of establishing that subject matter jurisdiction exists

and removal is appropriate. See Burns, 31 F.3d at 1095. Because federal court jurisdiction

is limited and removal jurisdiction raises significant federalism concerns, the Eleventh

Circuit Court of Appeals has held that it favors remand of removed cases when federal

jurisdiction is not absolutely clear, explaining that “removal statutes are construed narrowly;

where plaintiff and defendant clash about jurisdiction, uncertainties are resolved in favor of

remand.” Id. 

 III. FACTS

The facts alleged in the Complaint, as they pertain to the Motion to Remand, are as

follows:

Plaintiff entered into several loans with the Defendants in 2001. Defendants

Singleton, Porter, and Evans made representations to Plaintiff during these transactions.

Plaintiff has alleged that the following representations were made: (a) that if he purchased

the credit insurance offered to him, his score/rating would be better and he stood a better

chance of getting the loan he requested; (b) that the best way for him to save money would

be to refinance previous loans into a single loan and Defendants refused to allow Plaintiff

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to have a separate loan; and (c) that credit insurance was a good deal and offered great value

and protection. Compl. at ¶¶ 13-15. Plaintiff has alleged that these representations were

fraudulent. 

IV. DISCUSSION

An action filed in state court may be removed to federal court based upon diversity

or federal question jurisdiction. See 28 U.S.C. § 1441(a), (b). Defendants argue that both

types of subject matter jurisdiction apply to this case. The Court will address each argument

in turn. 

A. Federal Question Jurisdiction

Federal question jurisdiction exists if a plaintiff’s suit “arises under” the

“Constitution, treaties or laws of the United States.” 28 U.S.C. § 1331. In general, a case

“arises under” federal law if federal law creates the cause of action, or if a substantial

disputed issue of federal law is a necessary element of a state law claim. See, e.g., Franchise

Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 9-10, 13 (1983). The

determination of whether federal question jurisdiction exists must be made on the face of the

plaintiff’s well-pleaded complaint; an anticipated or even inevitable federal defense generally

will not support removal based upon federal question jurisdiction. See, e.g., Caterpillar, Inc.

v. Williams, 482 U.S. 386, 392-93 (1987).

Defendants have argued that federal question jurisdiction exists in this case, relying

on Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., __ U.S. __, 125 S. Ct. 2363,

2366 (2005). While the Supreme Court decision in Grable is a recent one, the principles

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applied in it are not new. In fact, the Court noted it has “recognized for nearly 100 years that

in certain cases federal question jurisdiction will lie over state-law claims that implicate

significant federal issues.” Id. at 2367. The Court further explained that it has not “treated

‘federal issue’ as a password opening federal courts to any state action embracing a point of

federal law.” Id. at 2368. In fact, in previous decisions the Court has made it clear that the

“mere presence” of a federal issue “does not automatically confer federal-question

jurisdiction.” Merrell Dow Pharm. Inc. v. Thompson, 478 U.S. 804, 813 (1986). Instead,

the Court held that the dispositive question is does “a state-law claim necessarily raise a

stated federal issue, actually disputed and substantial, which a federal forum may entertain

without disturbing any congressionally approved balance of federal and state judicial

responsibilities.” Grable, 125 S. Ct. at 2368. The claims at issue in Grable implicated the

meaning of a provision of the federal tax code. The Court reasoned that because the meaning

of the federal statute is actually in dispute and appeared to be the only legal or factual issue

contested in the case, jurisdiction existed with respect to the state law claims asserted. Id.

at 2371. 

The federal laws to which the Defendants have pointed in the instant case are the

Truth in Lending Act (“TILA”), 15 U.S.C. § 1601, et seq., and Regulation Z, promulgated

thereunder, 12 C.F.R. § 226.1, et seq. and 12 C.F.R. § 590.101. They have argued that the

issue of Defendants’ compliance with TILA and Regulation Z is “sure to be disputed.” See

Doc. # 22 at p. 22. Plaintiff, of course, has raised no such issue. Defendants argue, however,

that the embedded federal question in Plaintiff’s state law claims is that the loan documents

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made disclosures required by Regulation Z of the annual percentage rate, the amount

financed as well as the finance charge, and the total payment, amount and number of

payments. They further contend that the loan documents comply with TILA which requires

that where the cost of credit insurance is not included in the finance charge, the lender must

disclose that coverage is not required by the creditor. 

In this case, the loan documents contain both disclosures required by TILA and

disclosures not required by TILA. Contrary to Defendants’ contention, this case is not one

in which the meaning and requirements of federal statutes are in dispute or constitute the sole

legal or factual issues contested in the case. Therefore, the Court cannot conclude that this

case presents a case arising under federal law within the meaning of Grable. See, e.g., Acker

v. Aig Intern., Inc., 398 F. Supp. 2d 1239, 1244 (S.D. Fla. 2005) (distinguishing Grable

where state law claims did not question the proper interpretation of the federal tax law);

Easterling v. Gulf Guar. Ins. Co., 60 F. Supp. 2d 586, 588 (S.D. Miss. 1999) (remanding case

where “the Plaintiff has stated viable state law causes of action and if TILA has been

invoked, it is only in an insubstantial way.”). In addition, as stated above, the Grable

decision did not announce a new rule, but merely applied existing law. This Court has been

not been directed to, and is not aware of, any case finding federal jurisdiction on the basis

of TILA when state law claims not invoking TILA have been asserted. Cf. Household Bank

v. JFS Group, 320 F.3d 1249, 1260 (11th Cir. 2003) (in determining that jurisdiction existed,

reasoned that plaintiffs could bring a TILA claim, and therefore implicitly held that asserting

state law claims would not be sufficient to assert a federal question under TILA). Mindful

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of its duty to resolve not only factual, but also legal uncertainties in favor of remand,

Pacheco de Perez v. AT&T Co., 139 F.3d 1368, 1380 (11 Cir. 1998), the Court finds that th

Defendants have not established that this Court has subject matter jurisdiction over this

action pursuant to 28 U.S.C. § 1331. 

B. Diversity Jurisdiction

The diversity statute confers jurisdiction on the federal courts in civil actions

“between citizens of different states,” in which the jurisdictional amount, currently in excess

of $75,000, is met. 28 U.S.C. § 1332(a). “Therefore, where parties are diverse and the

amount in controversy is sufficient, a defendant has the statutory right to remove an action

from state court to federal court.” Moss v. Voyager Ins. Co., 43 F. Supp. 2d 1298, 1300

(M.D. Ala. 1999). However, the non-moving party may move for remand, which will be

granted if “it appears that the district court lacks subject matter jurisdiction.” See 28 U.S.C.

§ 1447(c). 

To satisfy diversity, not only must a plaintiff be a citizen of a state other than the state

of which one defendant is a citizen, but also, under the rule of “complete diversity,” no

plaintiff may share the same state citizenship with any defendant. See Strawbridge v.

Curtiss, 7 U.S. (3 Cranch) 267 (1806). Because of the complete diversity requirement for

subject matter jurisdiction based on diversity of citizenship, a plaintiff may prevent removal

simply by joining a defendant who shares the same state citizenship as the plaintiff. The

filing of a frivolous or otherwise illegitimate claim against a non-diverse defendant solely

to prevent removal is called a “fraudulent joinder.” Courts may disregard the citizenship of

Case 2:05-cv-01065-MEF-VPM Document 26 Filed 02/10/06 Page 7 of 12
 In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. Nov. 1981) (en banc), 1

the Eleventh Circuit adopted as binding precedent all decisions of the former Fifth Circuit

issued prior to October 1, 1981.

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fraudulently joined defendants when assessing the existence of complete diversity. See

Tedder v. F.M.C. Corp., 590 F.2d 115, 117 (5th Cir. 1979) ; see also Thomas v. Jim Walter 1

Homes, Inc., 918 F. Supp. 1498 (M.D. Ala. 1996). 

The Eleventh Circuit applies a threefold test for determining whether a defendant has

been fraudulently joined: the removing party must show either (1) that there is no possibility

the plaintiff could establish a cause of action against the resident defendant in state court, (2)

that the plaintiff fraudulently pleaded jurisdictional facts, or (3) where a diverse defendant

is joined with a non-diverse defendant as to whom there is no joint, several or alternative

liability and the claim has no real connection to the claim against the nondiverse defendant.

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

The burden of proving fraudulent joinder rests with the removing parties. See Crowe

v. Coleman, 113 F.3d 1536, 1538 (11th Cir. 1997). A claim of fraudulent joinder must be

supported by clear and convincing evidence. See Parks v. New York Times Co., 308 F.2d 474,

478 (5th Cir. 1962), cert. denied, 376 U.S. 949 (1964). In evaluating whether there has been

fraudulent joinder, all allegations and submissions must be viewed in the light most favorable

to the plaintiff. See Crowe, 113 F.3d at 1538. In fact, “the district court should resolve all

questions of fact and controlling law in favor of the plaintiff. . . .” Cabalceta v. Standard

Fruit Co., 883 F.2d 1553, 1561 (11th Cir. 1989).

Case 2:05-cv-01065-MEF-VPM Document 26 Filed 02/10/06 Page 8 of 12
 Defendants also argue that Plaintiff’s counsel has manipulated the Complaints in 2

this and other similar matters in a transparent attempt to defeat Defendants’ valid fraudulent

joinder argument. See Doc. # 22 at pp. 15-18. While such allegations are certainly troubling,

this Court cannot say that this argument establishes a proper predicate for denying Plaintiff’s

motion to remand. The conduct of all counsel in these cases is subject to the requirements

of Rule of 11 of the Federal Rules of Civil Procedure (while the case is pending in this

Court) and the Alabama Rules of Civil Procedure (before a case is removed or after it has

been remanded). 

9

In this case, Defendants argue that there is no possibility that Plaintiff can establish

a cause of action against the resident defendants, Singleton, Porter, and Evans, in state court.2

Defendants have argued that Plaintiff cannot establish reasonable reliance in support of his

fraud claim and that his claims against Singleton, Porter, and Evans are time-barred by the

two-year statute of limitations. In response, Plaintiff contends that the fraud claims asserted

in the Complaint state a claim against Singleton, Porter, and Evans, sufficient to withstand

the fraudulent joinder standard. 

The Court begins with Defendants’ contentions that the Plaintiff’s fraud claims

against the non-diverse Defendant are barred by the statute of limitations and that Plaintiff

cannot establish reasonable reliance. The Court addresses these two arguments together

because Plaintiff’s response to the argument that his claims are time-barred is based on a

reasonable reliance argument. 

“In actions seeking relief on the ground of fraud where the statute has 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.” Ala. Code § 6-2-3 (2005). In Foremost Ins. Co. v. Parham, 693 So.

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2d 409, 417, 421-422 (Ala. 1997), the Alabama Supreme Court re-affirmed that the two-year

limitations period for fraud claims begins when the alleged victim discovered or should have

discovered the fraud under a "reasonable reliance" standard. The Court certainly agrees with

the general proposition, applied in cases from this court and others cited by the Defendants,

that where documentation contradicts alleged oral misrepresentations, generally a plaintiff

should have discovered the alleged fraud upon receipt of the documents, and could not

reasonably rely on representations to the contrary. See, e.g., Owens v. Life Ins. Co. of Ga.,

289 F. Supp. 2d 1319, 1325 (M.D. Ala. 2003). This court cannot conclude, however, that

that general proposition necessarily applies to all of the fraud claims in this case. 

Defendants in this case argue, citing to Plaintiff’s loan documents, that the documents

disclose all of the relevant financial terms so that he could have ascertained whether

refinancing prior loans and consolidating existing debt was in his best interest. They also

argue that the premiums for insurance products were disclosed so that he could ascertain

whether the product was a good deal. Finally, Defendants also point to a disclosure in the

loan documents that credit life insurance is not required to obtain a loan and that Plaintiff’s

purchase of credit life insurance was not a factor in the approval of the extension of credit.

Plaintiff contends that he has no training in financial matters, had no reason to suspect

that Defendants had misrepresented the true nature of the loan and insurance transactions,

and that the loan documents do not contradict representations made by Defendants so that

Plaintiff could have discovered the misrepresentations by reading the loan documents. 

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The Court has reviewed the allegations of the Complaint and the loan documents

submitted by Defendants. Particularly with regard to the alleged representation that if

Plaintiff purchased credit insurance, his score/rating would be better and he stood a better

chance of getting the loan he requested, the Court agrees that Plaintiff’s reliance seems

unreasonable in light of the disclosure in the documents he received that credit insurance was

not a factor in the approval of the extension of credit. However, with respect to the other

misrepresentations alleged in the Complaint, there is at least a possibility that a state court

would find that the disclosures in the loan documents do not contradict the alleged

representations. This Court cannot say under the fraudulent joinder standard that a state court

would find that the documents identified as having been provided to Plaintiff contradict all

of the representations allegedly made by Singleton, Porter, and Evans or that the documents

gave Plaintiff reason to suspect that they had misrepresented the true nature of the loan and

insurance transactions.

Given the Eleventh Circuit policy favoring remand of removed cases where federal

jurisdiction is not absolutely clear, Burns v. Windsor Ins. Co., 31 F.3d at 1095, and the

standard applicable in the fraudulent joinder context, this Court cannot conclude that there

is no possibility Plaintiff could establish any fraud claim against any of the resident

defendants in state court despite the defenses of the statute of limitations and alleged inability

to establish reasonable reliance. Thus, Singleton, Porter, and Evans have not been

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Therefore, it is not necessary for the Court to address the parties’ arguments 3

concerning whether the so-called “common defense rule” has some application to this case

or whether the requisite amount in controversy is present in this case. 

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fraudulently joined and their presence in this suit destroys complete diversity. For this

reason, remand is appropriate.3

V. CONCLUSION

For the reasons discussed in this Memorandum Opinion and Order, it is hereby

ORDERED as follows:

(1) Plaintiff’s Motion to Remand (Doc. # 11) is GRANTED.

(2) This case is REMANDED to the Circuit Court of Bullock County, Alabama.

(3) The Clerk is DIRECTED to take appropriate steps to effect the remand.

(4) Plaintiff’s Motion to Stay Defendants’ Motion to Dismiss (Doc. # 15) is

DENIED as MOOT.

(5) Any other pending motions are left for resolution by the Circuit Court of

Bullock County, Alabama.

DONE this 10 day of February, 2006. th

 /s/ Mark E. Fuller 

CHIEF UNITED STATES DISTRICT JUDGE

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