Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-alsd-1_06-cv-00225/USCOURTS-alsd-1_06-cv-00225-0/pdf.json

Parties Involved:
Rebecca Runyon Bryan
Plaintiff
Lexington Insurance Company
Defendant
Orange Beach Insurance Agency
Defendant

Document Text:

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

REBECCA RUNYAN BRYAN, :

Plaintiff, :

vs. CA 06-0225-C

:

LEXINGTON INSURANCE 

COMPANY and ORANGE :

BEACH INSURANCE AGENCY,

:

Defendant.

MEMORANDUM OPINION AND ORDER

This cause is before the Court on plaintiff’s motion to remand (Doc. 7),

defendant Lexington Insurance Company’s brief and response to the motion

to remand (Doc. 15), and defendant Orange Beach Insurance Agency’s joinder

in Lexington’s response (Doc. 16). The parties have consented to the exercise

of jurisdiction by the Magistrate Judge, pursuant to 28 U.S.C. § 636(c), for all

proceedings, including disposition of this motion. (Docs. 18 & 19 (“In

accordance with the provisions of 28 U.S.C. 636(c) and Fed.R.Civ.P. 73, the

parties in this case consent to have a United States Magistrate Judge conduct

any and all proceedings in this case, including the trial, and order the entry of

a final judgment, and conduct all post-judgment proceedings.”)) Upon

consideration of the contents of the briefs, all pertinent materials submitted in

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 1 of 24
2

support of those briefs, and the arguments of counsel on June 29, 2006, the

Court GRANTS plaintiff’s motion to remand (Doc. 7) and hereby remands

this cause to the Circuit Court of Baldwin County, Alabama from whence it

came.

FINDINGS OF FACT

1. On March 6, 2006, plaintiff, Rebecca Runyan Bryan, filed a fivecount complaint in the Circuit Court of Baldwin County, Alabama, against

defendants Lexington Insurance Company (hereinafter, “Lexington”) and

Orange Beach Insurance Agency (hereinafter, “Orange Beach”) arising out of

events leading up to her purchase of insurance from Lexington, through

Orange Beach, and her attempts to collect proceeds under that policy following

Hurricane Ivan. (Doc. 1, COMPLAINT) The complaint reads, in pertinent part,

as follows:

COUNT ONE

Breach of Contract

1. That Plaintiff, Rebecca Runyan Bryan, is a

resident citizen of Baldwin County, Alabama, and is over the

age of nineteen (19) years.

2. That Defendant, Lexington Insurance Company,

is a foreign corporation having its principal place of business in

Boston, Massachusetts, and doing business by agent or

otherwise in the State of Alabama.

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 2 of 24
1 The parties have stipulated that plaintiff’s home was damaged by Hurricane Ivan

which made landfall on September 16, 2004. (See Doc. 15, Exhibit A, Affidavit of Kevin

McCarron, at 2)

3

3. That Defendant, Orange Beach Insurance Agency,

is, on information and belief, an Alabama corporation having its

principal place of business in Baldwin County, Alabama.

4. That on or about July 14, 2004, the Defendant

Lexington Insurance Company issued a policy of property

insurance insuring the Plaintiff’s dwelling in Orange Beach,

Alabama, a copy of which is attached hereto as Exhibit “A”.

5. That the Plaintiff is the owner of said policy.

6. That on or about the 16th day of September, 2005

(sic), the Plaintiff’s home was damaged as a result of windstorm

during Hurricane Katrina (sic).1

7. That Defendant Lexington Insurance Company

was given timely notice of said loss and Plaintiff made a claim

under the policy.

8. Defendant Lexington Insurance Company has

refused to pay the Plaintiff the amount due under the said policy.

WHEREFORE Plaintiff demands judgment for

compensatory damages against Defendant Lexington Insurance

Company in an amount exceeding the jurisdictional limits of the

court, plus interest and costs, together with such further, other,

or different relief as the Court may deem proper and just.

COUNT TWO

Bad Faith Denial of Insurance Claim

9. Plaintiff realleges the allegations and averments

set forth in paragraphs one through eight above and incorporates

the same as if set out here in their entirety.

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 3 of 24
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10. That the Defendant Lexington Insurance Company

has intentionally refused to pay the Plaintiff’s claim under said

policy and denied the same without lawful jurisdiction.

11. That said Defendant’s refusal to pay said claim

was not based upon a reasonably legitimate, arguable, or

debatable reason.

12. That the Defendant knew there was no legitimate,

arguable, or debatable reason to deny the claim, when the

Defendant refused to pay said claim.

13. That Defendant intentionally failed to determine

whether or not there was any lawful basis for its refusal to pay

said claim.

14. That Defendant Lexington intentionally or

recklessly failed to properly investigate the Plaintiff’s claim and

failed to subject the results of said investigation to a reasoned

and informed evaluation and review; and, moreover, the

Defendant acted with reckless indifference to facts and proof

submitted to it by the Plaintiff.

15. That the Defendant acted in bad faith in refusing

to pay said claim and in the investigation thereof.

16. That Plaintiff claims punitive damages of the said

Defendant.

WHEREFORE Plaintiff demands judgment against

Defendant for compensatory and punitive damages in an amount

exceeding the jurisdictional limits of this Court, plus costs,

together with such further, other, or different relief as the Court

may deem proper and just.

COUNT THREE

Negligence

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 4 of 24
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17. Plaintiff realleges the allegations and averments

set forth in paragraphs one through sixteen above and

incorporates the same as if set out here in their entirety.

18. Defendant, Orange Beach Insurance Agency, was

contacted by the Plaintiff concerning the procurement of a

policy of property insurance.

19. That Defendant Orange Beach Insurance Agency

procured said policy of property insurance on behalf of the

Plaintiff, said policy was originally issued on or about July 14,

1997, and reissued each subsequent year until July 14, 2004.

[20]. That Defendant Orange Beach Insurance

Agency negligently failed to inform the Plaintiff that

Lexington Insurance Company would not pay the amount she

was entitled to receive under the subject policy if her home was

damaged by both wind and flood; and, that the Plaintiff was

under insured in the even[t] the subject dwelling was

destroyed by flood.

[21]. As a proximate result of the Defendant Orange

Beach Insurance Agency’s said negligence, Plaintiff has

suffered damages.

[22]. That at the time of the acts or omissions

complained of herein above, Defendant Orange Beach Insurance

Agency was acting in its own capacity and/or as the agent of the

Defendant Lexington Insurance Company.

WHEREFORE Plaintiff demands judgment against

Defendants in an amount exceeding the jurisdictional limits of

this Court, plus costs, together with such further, other, or

different relief as the Court may deem proper and just.

COUNT FOUR

Wantonness

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 5 of 24
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[23]. Plaintiff realleges the allegations and averments

set forth in paragraphs one through twenty-one (sic) above and

incorporates the same as if set out here in their entirety.

[24]. That Defendant Orange Beach Insurance Agency

wantonly failed to inform the Plaintiff that Lexington Insurance

Company would not pay the amount she was entitled to receive

under the subject policy if her home was damaged by both wind

and flood; and, that the Plaintiff was under insured in the even[t]

the subject dwelling was destroyed by flood.

[25]. As a proximate result of the Defendant Orange

Beach Insurance Agency’s said wantonness, Plaintiff has

suffered damages.

[26]. That at the time of the wanton conduct complained

of herein above, Defendant Orange Beach Insurance Agency

was acting in its own capacity and/or as the agent of the

Defendant Lexington Insurance Company.

WHEREFORE Plaintiff demands judgment against

Defendants for compensatory and punitive damages in an

amount exceeding the jurisdictional limits of this Court, plus

costs, together with such further, other, or different relief as the

Court may deem proper and just.

COUNT FIVE

Fraudulent Suppression

[27]. Plaintiff realleges the allegations and averments

set forth in paragraphs one through twenty-five above and

incorporates the same as if set out here in their entirety.

[28]. That Defendant Orange Beach Insurance Agency

knew or should have known at the time of the reissuance of the

policy as set forth herein above that the Defendant Lexington

Insurance Company would seek to deny coverage and/or refuse

to pay the Plaintiff the amount she was entitled to under the said

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 6 of 24
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policy in the event the subject dwelling was damaged by both

wind and flood as is common in the region the subject property

is located.

[29]. That Defendant Orange Beach Insurance Agency,

with notice that the Plaintiff was relying on the representations

to her concerning the policy of insurance, failed to inform the

Plaintiff that the Defendant Lexington Insurance Company

would seek to deny coverage and/or refuse to pay the Plaintiff

the amount she was entitled to under the said policy in the event

the subject dwelling was damaged by both wind and flood as is

common in the region the subject property is located.

[30]. That said Defendant’s failure to so inform the

Plaintiff constitutes fraudulent suppression pursuant to ALA.

CODE §6-5-102 (Repl. 1993).

WHEREFORE Plaintiff demands judgment for

compensatory and punitive damages in an amount exceeding the

jurisdictional limits of this Court, plus costs, together with such

further, other, or different relief as the Court may deem proper

and just.

(Id. at 1-7, ¶¶ 1-30 (emphasis supplied)) 

2. It is apparent from the face of the complaint that Bryan is a

resident citizen of Alabama as is defendant Orange Beach. (Id. at 1, ¶¶ 1 & 3)

Defendant Lexington is a Delaware corporation having its principal place of

business in that state of Massachusetts. (Doc. 1, at ¶ 4; see also id.,

COMPLAINT, at ¶ 2) Defendant Lexington removed the action to this Court

on April 10, 2006 and therein alleges diversity of citizenship based upon the

alleged fraudulent joinder of defendant Orange Beach. (Doc. 1, NOTICE OF

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 7 of 24
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REMOVAL, at ¶ 7 (“Orange Beach Insurance Agency, Inc. has been

fraudulently joined to defeat federal diversity jurisdiction. There is no

possibility, given the facts stated in the complaint, that plaintiff can recover

against Defendant Orange Beach Insurance Agency, Inc. under the

theories of recovery alleged in the complaint or any conceivable claim

which could be properly joined in this action. Thus, Orange Beach

Insurance Agency, Inc. must be disregarded in determining the existence of

diversity jurisdiction.”) (emphasis supplied))

3. Plaintiff’s motion to remand was filed on May 9, 2006 (Doc. 7)

and, quite naturally, therein plaintiff addressed the sole fraudulent joinder issue

raised in the removal petition which, as aforesaid, was Lexington’s contention

that plaintiff cannot recover “under the theories of recovery alleged in the

complaint or any conceivable claim which could be properly joined in this

action.” (See id., at ¶ 7 (“[I]t would appear that the removing party’s position

is that negligent/wanton procurement for failure to procure adequate

insurance and fraudulent suppression concerning the coverage actually

procured and the scope of the various coverages in the applicable policies are

not cognizable in the law of the State of Alabama. The Alabama Courts have

long recognized causes of action against agents for applicants or insureds for

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 8 of 24
2 The Court construes the defendant’s response to the plaintiff’s remand motion as

an amendment of its stated grounds for removal which is allowable. See 14C C. Wright, A.

Miller & E. Cooper, Federal Practice & Procedure § 3733, at 358 (3d ed. 1998) (“[T]he cases

indicate that the notice may be amended only to set out more specifically the grounds for

removal that already had been stated, albeit imperfectly, in the original notice.”). “Although the

new text of Section 1446(a) is designed to make the statement of the grounds for removal

simpler, there is no question that the notice must make the basis for the federal court’s exercise

of removal jurisdiction clear and contain enough information so that the district judge can

determine whether removal jurisdiction exists.” Id. at 354. 

9

such acts or omissions as alleged in the Complaint.”) (emphasis supplied)) 

4. On June 6, 2006, the removing defendant, in its brief and

response to plaintiff’s motion to remand, argued not only that Orange Beach

had been fraudulently joined to defeat diversity jurisdiction (Doc. 15, at 2-5)

but, as well, spent an equal amount of space in its brief arguing for the first

time that the claims asserted against Orange Beach were fraudulently

misjoined with unrelated claims asserted against Lexington (id. at 5-9).2

5. Attached to Lexington’s brief and response to the motion to

remand is the affidavit of Kevin McCarron. (Doc. 15, Exhibit A)

My name is Kevin McCarron and I am the President of

McCarron Insurance Group, Inc., an Alabama Corporation, with

its principal place of business in the City of Orange Beach,

Alabama. McCarron Insurance Group, Inc. is the successor

company to Orange Beach Insurance Agency, a defendant in

this action. As a previous employee of Orange Beach Insurance

Agency and President of McCarron Insurance Group, Inc., I

have personal knowledge or knowledge from books, records or

research to the facts attested to below.

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 9 of 24
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I am aware that for several years plaintiff, Rebecca

Runyon Bryan, purchased insurance on the relevant property

from Orange Beach Insurance Agency. For the three (3) years

previous and leading to the event of September 16, 2004

(Hurricane Ivan) the insurance contract was written with

Lexington Insurance Company. For 2002 the policy was

effective 7-14-02, for 2003 the policy was effective 7-14-03, and

for 2004 the policy was effective 7-14-04. The insurance

contracts were written by Lexington Insurance Company, a

surplus lines insurance carrier, through a surplus lines

insurance broker. The contracts since 7-14-02 were LE

0533050 01, LE 0533050 02, and LE 0533050 03. The terms,

conditions and coverages of the contracts were the same for the

three (3) years. The relevant contract for this loss is LE 0533050

03, which would have been the Lexington Insurance Company

contract effective 7-14-04 and expiring 7-14-05. I have inquired

of the surplus lines broker in the course of my business and have

been informed that the policy for 2002 was mailed to Orange

Beach Insurance Agency on June 26, 2002, the policy for 2003

was mailed to Orange Beach Insurance Agency on July 15,

2003, and the insurance policy for 2004 was mailed to Orange

Beach Insurance Agency on July 1, 2004. The insurance

contracts would have been immediately passed on by Orange

Beach Insurance Agency to the insured so that they would be in

the insured’s possession, following receipt by Orange Beach

Insurance Agency.

Orange Beach Insurance Agency was not a Lexington

Insurance Company agent. Orange Beach Insurance Agency

was the agent of the insured and simply had the right to

submit, through the surplus line market, as a broker, for

issuance or non-issuance, of a surplus lines insurance

contract from Lexington Insurance Company to the

plaintiff.

Orange Beach Insurance Agency did not control the

contractual terms and conditions of the insurance contract.

Orange Beach Insurance Agency simply applied for what

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 10 of 24
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available coverages the insured wanted and applied for the

monetary amounts applicable to each of these coverages. The

company, as is normal in the surplus lines market, would issue

a contract over which Orange Beach Agency had no control

over the contractual terms of the insurance contract.

At the time of sale and issuance of these insurance

contracts to plaintiff, Orange Beach Insurance Agency had every

reason to believe that the Lexington Insurance Company would,

when a claim was reported, handle the claim pursuant to the

terms and conditions of the contract issued to plaintiff. Orange

Beach Insurance Agency certainly would expect that the claims

would be processed pursuant to the terms and conditions of the

insurance contract and would have no reason to inform the

plaintiff that Lexington Insurance Company would not pay the

claim pursuant to the terms and conditions of the insurance

contract, because that was a contract between the plaintiff and

Lexington Insurance Company. The complaint incorrectly

references the loss date as 16 September, 2005 and refers to

it as Hurricane Katrina. The actual loss date was September

16, 2004 and it was a loss caused by Hurricane Ivan.

Orange Beach Insurance Agency does not know and

would have no way to know or expect that a claim off in the

future would be declined or processed not in accord with the

terms and conditions of the insurance contract.

(Id. (emphasis supplied))

CONCLUSIONS OF LAW

1. “Any civil case filed in state court may be removed by the

defendant to federal court if the case could have been brought originally in

federal court.” Tapscott v. MS Dealer Serv. Corp., 77 F.3d 1353, 1356 (11th

Cir. 1996), citing 28 U.S.C. § 1441(a), abrogated on other grounds by Cohen

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 11 of 24
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v. Office Depot, Inc., 204 F.3d 1069 (11th Cir. 2000). Federal courts may

exercise diversity jurisdiction over all civil actions where the amount in

controversy exceeds $75,000, exclusive of interest and costs, and the action is

between citizens of different states. 28 U.S.C. § 1332(a)(1). However,

“[b]ecause removal jurisdiction raises significant federalism concerns, federal

courts are directed to construe removal statutes strictly. . . . Indeed, all doubts

about jurisdiction should be resolved in favor of remand to state court.”

University of South Alabama v. American Tobacco Co., 168 F.3d 405, 411

(11th Cir. 1999).

2. “[T]he removing party bears the burden of demonstrating federal

jurisdiction.” Triggs v. John Crump Toyota, Inc., 154 F.3d 1284, 1287 n.4

(11th Cir. 1998) (citation omitted); Tapscott, supra (“A removing defendant

has the burden of proving the existence of federal jurisdiction.”). Therefore,

in this case, the burden is on the removing defendant Lexington to establish

complete diversity, that is, the plaintiff is diverse from every defendant,

Triggs, supra, 154 F.3d at 1287 (citation omitted), and, in addition, to establish

by a preponderance of the evidence that the amount in controversy more likely

than not exceeds the $75,000 jurisdictional requirement, Tapscott, supra, 77

F.3d at 1357 (“[W]e hold where a plaintiff has made an unspecified demand

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 12 of 24
3 Although plaintiff makes no argument in this regard (see Doc. 7), the Court would

note, as an aside, that in the removal petition Lexington makes a wholly conclusory and

unsupported allegation that the amount in controversy element has been met in this matter (see

Doc. 1, at ¶ 8 (“In her complaint, plaintiff alleges claims for breach of contract, for bad faith and

suppression, refusal to pay an insurance claim, negligence, wantonness, seeking unspecified

damages which are, upon information and belief, in excess of $75,000.00 exclusive of interest

and costs.”) (emphasis supplied)); the removing party has supplied positively no evidence, much

less a preponderance of the evidence, that the amount in controversy in this action more likely

than not exceeds the $75,000 jurisdictional requirement. 

13

for damages in state court, a removing defendant must prove by a

preponderance of the evidence that the amount in controversy more likely than

not exceeds the $50,000 jurisdictional requirement.”).3

3. In order to establish complete diversity of citizenship and the

removability of this case, Lexington must show that the joinder of the nondiverse party, Orange Beach, was fraudulent. Tapscott, 77 F.3d at 1359 (“An

action may nevertheless be removable if the joinder of non-diverse parties is

fraudulent.”); see Sellers v. Foremost Ins. Co., 924 F.Supp. 1116, 1117

(M.D.Ala. 1996) (“The citizenship of a resident defendant fraudulently joined

should not be considered by a court for the purpose of determining diversity

jurisdiction.”). “The burden of establishing fraudulent joinder is a heavy one.”

Pacheco de Perez v. AT&T Co., 139 F.3d 1368, 1380 (11th Cir. 1998); see

Brooks v. Paulk & Cope, Inc., 176 F.Supp.2d 1270, 1274 (M.D.Ala. 2001) (“A

claim of fraudulent joinder must be supported by clear and convincing

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 13 of 24
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evidence.”).

4. “Fraudulent joinder is a judicially created doctrine that provides

an exception to the requirement of complete diversity.” Triggs, 154 F.3d at

1287. Joinder has been deemed fraudulent in three situations in the Eleventh

Circuit: (1) when there is no possibility that the plaintiff can prove a cause of

action against the resident non-diverse defendant; (2) when the plaintiff has

fraudulently pled jurisdictional facts in order to bring the resident defendant

into state court; and (3) “where a diverse defendant is joined with a nondiverse

defendant as to whom there is no joint, several or alternative liability and

where the claim against the diverse defendant has no real connection to the

claim against the nondiverse defendant.” Id. The removing party argues that

both the first and third fraudulent joinder situation are applicable in this

instance. (See Doc. 15)

5. “‘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 the joinder was proper and remand

the case to the state court.’ . . . The plaintiff need not have a winning case

against the allegedly fraudulent defendant; he need only have a possibility of

stating a valid cause of action in order for the joinder to be legitimate.” Triggs,

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 14 of 24
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154 F.3d at 1287 (citation omitted); see also Pacheco de Perez, supra (“Where

a plaintiff states even a colorable claim against the resident defendant, joinder

is proper and the case should be remanded to state court.”); Bedford v.

Connecticut Mut. Life Ins. Co., 916 F.Supp. 1211, 1214 (M.D.Ala. 1996)

(“‘The joinder is fraudulent if it is clear that, under the law of the state in

which the action is brought, the facts asserted by the plaintiff as the basis for

the liability of the resident defendant could not possibly create such liability

so that the assertion of the cause of action is as a matter of local law plainly a

sham and frivolous.”). 

6. “The determination of whether a resident defendant has been

fraudulently joined must be based upon the plaintiff’s pleadings at the time of

removal, supplemented by any affidavits and deposition transcripts submitted

by the parties. . . . In making its determination, the district court must evaluate

factual allegations in the light most favorable to the plaintiff and resolve any

uncertainties about the applicable law in the plaintiff’s favor.” Pacheco de

Perez, 139 F.3d at 1380 (citations omitted); see also Crowe v. Coleman, 113

F.3d 1536, 1538 (11th Cir. 1997) (“To determine whether the case should be

remanded, the district court must evaluate the factual allegations in the light

most favorable to plaintiff and must resolve any uncertainties about state

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 15 of 24
16

substantive law in favor of the plaintiff. . . . The federal court makes these

determinations based on the plaintiff’s pleadings at the time of removal; but

the court may consider affidavits and deposition transcripts submitted by the

parties.”); Cabalceta v. Standard Fruit Co., 883 F.2d 1553, 1561 (11th Cir.

1989) (“In addressing the issue of fraudulent joinder, the district court should

resolve all questions of fact and controlling law in favor of the plaintiff and

can consider any submitted affidavits and/or deposition transcripts.”). 

While “the proceeding appropriate for resolving a claim

of fraudulent joinder is similar to that used for ruling on a

motion for summary judgment under Fed.R.Civ.P. 56(b),” . . .,

the jurisdictional inquiry “must not subsume substantive

determination.” . . . Over and over again, we stress that “the trial

court must be certain of its jurisdiction before embarking upon

a safari in search of a judgment on the merits.”

Crowe, supra, 113 F.3d at 1538. 

7. “In a fraudulent joinder inquiry, ‘federal courts are not to weigh

the merits of a plaintiff’s claim beyond determining whether it is an arguable

one under state law.’” Pacheco de Perez, 139 F.3d at 1380-1381 (quoting

Crowe v. Coleman, 113 F.3d 1536, 1538 (11th Cir. 1997)).

In terms of this circuit’s law, the main point for us is this

one: For a Plaintiff to present an arguable claim against an instate defendant and, therefore, to require a case removed to

federal court to be remanded to state court, the plaintiff need not

show that he could survive in the district court a motion for

summary judgment filed by that in-state defendant. For a

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 16 of 24
4 Lexington’s brief in opposition to plaintiff’s motion to remand appears to rely

more heavily upon fraudulent misjoinder; however, during oral argument Lexington relied

primarily upon the first basis for fraudulent joinder.

17

remand, the plaintiff’s burden is much lighter than that: after

drawing all reasonable inferences from the record in the

plaintiff’s favor and then resolving all contested issues of fact in

favor of the plaintiff, there need only be “a reasonable basis for

predicting that the state law might impose liability on the facts

involved.” Because the procedures are similar while the

substantive standards are very different, district courts must

exercise extraordinary care to avoid jumbling up motions for

remand and motions for summary judgment that come before

them. 

 

In the remand context, the district court’s authority to

look into the ultimate merit of the plaintiff’s claims must be

limited to checking for obviously fraudulent or frivolous claims.

Although we have said that district courts may look beyond the

face of the complaint, we emphasize that the district court is to

stop short of adjudicating the merits of cases that do not appear

readily to be frivolous or fraudulent.

Crowe, 113 F.3d at 1541-1542 (internal citations omitted).

8. During oral argument, Lexington primarily staked its removal of

this case on this first fraudulent joinder ground, arguing that there is no

possibility that plaintiff can prove a cause of action against the resident nondiverse defendant Orange Beach.4

 In making this argument, Lexington

contends that “[t]he allegations against the resident defendant whether couched

in negligence, wantonness or suppression, all revolve around whether or not

Orange Beach Insurance Agency advised the plaintiff at the time of

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 17 of 24
5 The plaintiff would undoubtedly admit that her allegations in this regard are, at

the very least, not very artfully pled.

18

procurement of the insurance contracts in 2002, 2003 and 2004 that defendant

Lexington Insurance Company would not process and pay claims per the

conditions and terms of the insurance contracts issued by Lexington[,]” and

relies upon fraudulent suppression/concealment cases to establish that plaintiff

cannot sustain a claim against Orange Beach (Doc. 15, at 3 & 4). Lexington’s

arguments in this regard, however, are rejected by this Court. Lexington solely

focuses upon the allegations of the complaint related to Orange Beach failing

to inform plaintiff that Lexington would not pay her claim5

 to the exclusion of

plaintiff’s clear allegations that Orange Beach negligently and/or wantonly

failed to inform her that she was underinsured in the event “the subject

dwelling was destroyed by flood.” (Doc. 1, COMPLAINT, at ¶¶ [20] & [24])

Alabama law is clear that “[w]hen an insurance agent or broker, with a view

to compensation, undertakes to procure insurance for a client and unjustifiably

or negligently fails to do so, he becomes liable for any damage resulting

therefrom.” Lewis v. Roberts, 630 So.2d 355, 357 (Ala. 1993); see also Montz

v. Mead & Charles, Inc., 557 So.2d 1, 4 (Ala. 1987) (same); Cox v. Pridgen,

372 So.2d 855, 856 (Ala. 1979) (same); Crump v. Geer Brothers, Inc., 336

So.2d 1091, 1093 (Ala. 1976) (same); Timmerman Ins. Agency v. Miller, 285

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 18 of 24
6 By affidavit, Orange Beach Insurance Agency admits that in its capacity as broker

for plaintiff it procured the insurance policy at issue from defendant Lexington. (Doc. 15,

Exhibit A, Affidavit of Kevin McCarron)

7 This issue is not even a close one. The plaintiff has stated a valid claim under

Alabama law against Orange Beach for negligent procurement of insurance and the removing

defendant has simply done nothing towards satisfying its heavy burden of establishing this form

of fraudulent joinder. What it appears Lexington is trying to get this Court to do is to find that

plaintiff has no claim against Orange Beach which a court will ultimately determine to be

meritorious; however, whether plaintiff’s allegations that Orange Beach negligently (and/or

wantonly) failed to procure adequate insurance on her home has ultimate merit is an issue that

must necessarily be decided by the state courts of Alabama, not this Court.

19

Ala. 82, 229 So.2d 475, 477 (Ala. 1969).6 In this case, like in Crump, supra,

it is clear to the undersigned that the central issue will be whether Orange

Beach negligently (and/or wantonly) failed to procure complete and adequate

coverage. Compare Doc. 1, COMPLAINT, at ¶¶ 20 & 24 with Crump, 336

So.2d at 1093. Accordingly, it is apparent to this Court that plaintiff not only

has a possibility of stating a valid cause of action against Orange Beach, she

in fact has stated a valid negligence claim against the resident defendant under

Alabama law.7

 

9. “Misjoinder may be just as fraudulent as the joinder of a resident

defendant against whom a plaintiff has no possibility of a cause of action. A

defendant’s ‘right of removal cannot be defeated by a fraudulent joinder of a

resident defendant having no real connection with the controversy.’” Tapscott,

supra, 77 F.3d at 1360 (citation and footnote omitted). The Eleventh Circuit

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 19 of 24
8 The Eleventh Circuit’s failure in Tapscott to define “egregious misjoinder” as

opposed to mere “misjoinder” has left courts in its wake either struggling to define the term, see,

e.g., Ashworth v. Albers Medical, Inc., 395 F.Supp.2d 395, 410 (S.D. W. Va. 2005) (“In Conk v.

Richards & O’Neil, LLP., 77 F.Supp.2d 956 (S.D. Ind. 1999), the court defined procedural

misjoinder to be: ‘a plaintiff’s purposeful attempt to defeat removal by joining together claims

against two or more defendants where the presence of one would defeat removal and where in

reality there is no sufficient factual nexus among the claims to satisfy the permissive joinder

standard.’”); see Walton v. Tower Loan of Mississippi, 338 F.Supp.2d 691, 695 (N.D. Miss.

2004) (“[T]he governing legal standards regarding the fraudulent misjoinder doctrine are far

from clear.”); Bright v. No Cuts, Inc., 2003 WL 22434232, at *4 n.21 (E.D. La. 2003) (“While

the Tapscott [c]ourt was clear that ‘mere misjoinder’ is not equivalent to fraudulent misjoinder,

this aspect of the Tapscott holding has engendered confusion among courts and commentators

alike.”); In re Bridgestone/Firestone, Inc., 260 F.Supp.2d 722, 728 (S.D. Ind. 2003) (“[U]nder

Tapscott, something more than ‘mere misjoinder’ of parties may be required to find fraudulent

misjoinder. Precisely what the ‘something more’ is was not clearly established in Tapscott and

has not been established since.”), or rejecting the theory of misjoinder as an inappropriate

jurisdictional inquiry, see, e.g., A. Kraus & Son v. Benjamin Moore & Co., 2006 WL 1582193,

*5 (E.D. N.Y. 2006) (“What is clear [] is that any finding of egregious misjoinder inevitably

clashes with the well-recognized principle that federal courts are courts of limited jurisdiction. . .

. And, in the absence of any clear direction from the Supreme Court or Congress, this court is

reluctant to extend the jurisdictional confines of the federal courts by wading into the uncharted

waters of fraudulent-egregious misjoinder.”); Riddle v. Merck & Co., Inc., 2006 WL 1064070,

*7 & 8 (S.D. Ill. 2006) (“In the Court’s view, whether viable state-law claims have been

misjoined-even ‘egregiously’ misjoined-is a matter to be resolved by a state court. Nothing in the

jurisprudence of the Supreme Court of the United States regarding fraudulent joinder suggests

that the joinder of non-fraudulent claims under state procedural rules is a question that implicates

the subject matter jurisdiction of a federal court. . . . In sum, just as the Court has refused to

follow Tapscott in the past . . ., the Court will continue to reject the doctrine of fraudulent

misjoinder until such time as it is adopted by the United States Supreme Court or the Seventh

Circuit Court of Appeals.”); Osborn v. Metropolitan Life Ins. Co., 341 F.Supp.2d 1123, 1127 &

1128 (E.D. Cal. 2004) (“My own judgment is that the last thing the federal courts need is more

procedural complexity. I thus conclude that the better rule would require Met Life to resolve the

claimed misjoinder in state court, and then, if that court severed the case and diversity then

existed, it could seek removal of the cause to federal court. . . . In sum, because there appears to

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made clear in Tapscott that it was not holding that “mere misjoinder is

fraudulent joinder,” but rather, that egregious misjoinder constitutes fraudulent

joinder. Id.

8

 Therefore, in considering the propriety of joinder in this case, the

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 20 of 24
be no reason to develop a fraudulent misjoinder theory, and because of the uncertainty as to how

such a theory should be applied, I respectfully decline to apply it.”). To say the least, Tapscott

has been roundly criticized. 14B C. Wright, A. Miller & E. Cooper, Federal Practice and

Procedure § 3723, at 658 (3d ed. 1998) (“[T]he fraudulent-joinder doctrine and its allied

jurisprudence adds a further level of complexity–and additional litigation–to a federal court’s

decision regarding removal jurisdiction. The complexity is increased if the Eleventh Circuit’s

admonition that not all procedural misjoinder rises to the level of fraudulent joinder is accepted

and because numerous additional decisions will be needed to clarify the distinction. In many

situations this confusion easily could be avoided by having the removing party challenge

the misjoinder in state court before seeking removal.”); see Bowling v. Kerry, Inc., 406

F.Supp.2d 1057, 1061 (E.D. Mo. 2005) (“Federal courts, of course, could easily avoid this

confusing standard if a removing party challenged misjoinder in state court before seeking

removal.”).

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Court need keep in mind that Rule 20(a) of the Federal Rules of Civil

Procedure sets forth the following requirements for permissive joinder of

defendants: “[a]ll persons . . . may be joined in one action as defendants if

there is asserted against them jointly, severally, or in the alternative, any right

to relief in respect of or arising out of the same transaction, occurrence, or

series of transactions or occurrences and if any question of law or fact common

to all defendants will arise in the action.” Fed.R.Civ.P. 20(a).

[T]he rule “is liberally interpreted in favor of joinder.” . . .

“[T]here is no strict rule for determining what constitutes the

same transaction or series of transactions for purposes of Rule

20(a).” Instead, courts look at each case individually to

determine whether the claims are logically related, thereby

allowing “all reasonably related claims for relief by or against

different parties to be tried in a single proceeding.”

Atchison v. Woodmen of the World Ins. Soc’y, 982 F.Supp. 835, 839 (S.D.Ala.

1997) (internal citations omitted).

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 21 of 24
22

10. Neither the removing defendant, Lexington, nor Orange Beach,

has cited this Court to any case similar to the instant one where a finding of

fraudulent misjoinder was made. Rather, the removing defendant Lexington

makes the following general and conclusory arguments, which Orange Beach

has joined (Doc. 16):

The claims against Lexington Insurance Company

involve the handling of insurance claims under a contract of

insurance far subsequent to any events relating to the sale of the

insurance. The claims against Orange Beach Insurance Agency

make claim only for things that plaintiff claims should have

occurred back at the point of sale of the insurance.

...

[A] review of the allegations in plaintiff’s complaint

under Rule 20 shows the egregious mis-joinder of plaintiff’s

claims against Orange Beach Insurance Agency and Lexington

Insurance Company in one lawsuit, in an attempt to defeat the

diversity jurisdiction of this court over the claims against

Lexington Insurance Company. Plaintiff should not be allowed

to affect this court’s jurisdiction.

(Doc. 15, at 6 & 9) The Court disagrees with the removing defendant’s

arguments in this regard and find that same take a very myopic view not only

of the permissive joinder rule, Fed.R.Civ.P. 20(a), but also of Tapscott’s

reminder that mere misjoinder does not constitute fraudulent joinder. Even if

this Court was to assume, for the sake of argument, that the removing

defendant in this case was misjoined with the Alabama defendant, the

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 22 of 24
9 The Court’s discussion of whether the permissive joinder requirements have been

met in this case is not meant to suggest that plaintiff has any burden of proof in this regard;

rather, it is meant to highlight that Lexington cannot establish that plaintiff’s claims were

misjoined, much less egregiously misjoined.

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removing defendant has simply not satisfied its heavy burden of establishing

that the misjoinder was so egregious as to constitute fraudulent joinder. In

regard to the Rule 20 permissive joinder requirements, it is apparent that both

Lexington and Orange Beach were involved in the sale of the Lexington policy

to Bryan and that the occurrence from which plaintiff’s claims arose against

both defendants was the property loss caused by Hurricane Ivan. In addition,

the second requirement of Rule 20 is satisfied because the issue of damages

involves questions of fact common to all the parties.9

 In light of the foregoing,

the Court finds the claims asserted against the removing defendant and those

asserted against Orange Beach logically related thereby allowing those claims

to be tried in a single proceeding. In fact, the Court can discern of no legal,

factual or commonsense reason why all claims stated by the plaintiff in the

instant case should not be tried together. 

11. Lexington, as the removing party, has failed to satisfy its heavy

burden of establishing that there exists any species of fraudulent joinder in this

case. Accordingly, this Court cannot disregard the citizenship of defendant

Orange Beach for purposes of diversity of citizenship and because complete

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24

diversity does not exist this case need be remanded to the Circuit Court of

Baldwin County, Alabama from whence it came. See Crowe, supra, 113 F.3d

at 1538 (“This consequence makes sense given the law that ‘absent fraudulent

joinder, plaintiff has the right to select the forum, to elect whether to sue joint

tortfeasors and to prosecute his own suit in his own way to a final

determination.’”). 

CONCLUSION

Lexington has failed to carry its heavy burden of showing either that the

plaintiff has failed to state a claim against Orange Beach (or, otherwise, has no

possibility of stating a claim against Orange Beach) or an egregious misjoinder

of defendant Orange Beach so as to constitute fraudulent joinder. Accordingly,

plaintiff’s motion to remand this case to the Circuit Court of Baldwin County,

Alabama (Doc. 7) is GRANTED.

DONE this the 20th day of July, 2006.

s/WILLIAM E. CASSADY 

UNITED STATES MAGISTRATE JUDGE

Case 1:06-cv-00225-C Document 20 Filed 07/20/06 Page 24 of 24