Opinion
CIVIL ACTION NO. 02-3182, SECTION "C".
April 11, 2003
ORDER AND REASONS
Timothy P.F. Crowley, a third year law student at Tulane Law School, assisted in the research and preparation of this decision.
This matter comes before the Court on motion to remand filed by plaintiff Gertrude Gardner, Inc. ("GGI"). Having considered the record, the memoranda of counsel, and the law, the motion is DENIED.
I. BACKGROUND
This action, which was removed from the Louisiana courts to this Court, is grounded in principles of tort law and contract law arising out of an insurer's denial of coverage following an automobile accident.
The instant matter concerns the allegedly negligent and fraudulent issuance of an automobile insurance policy. In 1993, GGI negotiated for an automobile insurance policy from State Farm Mutual Automobile Insurance Company ("State Farm") to cover its corporate automobile and provide under-insured/uninsured ("UM") coverage. That coverage was obtained through Richard C. Frank ("Frank"), a State Farm agent and formerly a co-defendant in this action. For reasons that are at the heart of the subject of this dispute, GGI was issued a policy that allegedly did not conform to its coverage specifications: rather than receiving a corporate automobile policy, it alleges it was issued a personal lines automobile insurance policy, which did not provide coverage to employees.
By order of the Court dated Feb. 5, 2003, Frank was dismissed from the action without prejudice for plaintiffs failure to prosecute. (Rec. Doc. 13). That dismissal was post-removal, and therefore does not moot the issue of diversity, as a federal court's subject matter jurisdiction in a removed action is based on the nature of the action at the time of removal, not on events subsequent to its removal. See Manguno v. Prudential Prop. Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002).
On May 6, 1995, Gail Gardner, a corporate officer of GGI, suffered injuries while a passenger in an automobile that collided with another in Orleans Parish, Louisiana. On May 8, 1995, Ms. Gardner initially filed an action in state court seeking damages from her personal insurer, as well as from the driver and his insurer (State Farm). Upon an unsuccessful recovery from those sources, on April 15, 1997, Ms. Gardner amended her petition, seeking damages under GGI's insurance policy issued by State Farm.
On February 4, 1998, the state court granted State Farm's motion for summary judgment as to claims against it with regard to the GGI policy. Under a strict reading of the policy terms, Ms. Gardner was not an insured, as she was neither a spouse nor member of the household of GGI. Following the grant of State Farm's motion for summary judgment, on May 11, 1998, Ms. Gardner filed a third amended and supplemental action in state court against State Farm, alleging it breached its professional standard of care. On April 7, 1999, Ms. Gardner yet again amended her complaint, adding Mr. Frank as a party. GGI intervened in the action only after the fourth amendment complaint dated September 8, 2000, was filed. On December 6, 2000, Gail Gardner filed an additional petition, seeking reformation of the GGI policy. State Farm filed with the trial court, and was denied, exceptions of no right and no cause of action. On appeal, the trial court's denial was reversed, ruling that only GGI, as the named insured, could file such an action.
On September 20, 2002, GGI did just that, filing this action in state court against State Farm and Mr. Frank seeking reformation of the policy and damages from Mr. Frank for his failure to properly execute his duties as an insurance agent, in contravention of LSA-R.S. 9:5606. State Farm removed the action to this Court on October 21, 2002.
Following removal of the action from state court, GGI timely filed a motion to remand, claiming that because of a lack of complete diversity of citizenship and because of a lack of the requisite amount in controversy, this Court lacks subject matter jurisdiction over the case.
II LAW ANALYSIS
A defendant may remove an action from state court to federal court if that action is one that may have been filed in federal court in the first instance. See Manguno, 276 F.3d at 723 (citing 28 U.S.C. § 1448(a)). Defendant State Farm removed this state law action pursuant to 28 U.S.C. § 1448(b) on the grounds that the action satisfies the elements of diversity and amount in controversy established under 28 U.S.C. § 1332. In considering whether removal was proper, the Court considers the jurisdictional elements as they existed at the time of removal and any ambiguities are resolved in favor of remand. See St. Paul Mercury Indemnity, Co. v. Red Cab Co., 303 U.S. 283, 289 (1938) (holding elements viewed at time or removal); Manguno, 276 F.3d at 723 (holding ambiguities resolved in favor f remand). GGI seeks to have the case remanded to state court on the basis that neither complete diversity nor the amount in controversy are met.
28 U.S.C. § 1448(b) provides: "any [diversity action] shall be removable only if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought."
C. Diversity of Citizenship
It is a well-settled principle that absent complete diversity no subject matter jurisdiction is conferred on the federal courts under 28 U.S.C. § 1332. E.g. Strawbridge v. Curtiss, 3 Cranch (7 U.S.) 267, 267-68 (1806). GGI moves that this action should be remanded on the basis that complete diversity is lacking. Specifically, GGI urges that Frank is a resident of Louisiana and is therefore not subject to this Court's diversity jurisdiction. State Farm counters this argument on several theories: that Frank is not a resident of Louisiana, but an Austrian resident; that he was fraudulently joined by GGI to thwart the exercise by the Court of its diversity jurisdiction; and that, because of Louisiana's peremptory statute governing actions against insurance agents, the claims against Frank are prescribed. In considering whether this Court's removal jurisdiction is proper, all ambiguities are strictly construed in favor of remand. See Manguno, 276 F.3d at 723.
Though the Court dismissed Frank as a party from this action, that does not, as State Farm urges, moot the issue of diversity for two reasons. First, the subject matter jurisdiction of this court for purposes of removal is based on the time of removal, it is not premised on subsequent events. Id. Second, if the Court was without subject matter jurisdiction at the time of removal, it was similarly without that jurisdiction at the time it dismissed Frank.
1. Residency of Mr. Frank
The parties dispute the residency of Mr. Frank: GGI declares him to be a resident of Louisiana; State Farm claims he is a resident of Austria. What is not in dispute is that during the 1990s Mr. Frank was a State Farm agent residing and living in Jefferson Parish, Louisiana who sold to GGI an automobile insurance policy. During his deposition on November 11, 1998, Mr. Frank testified that he was a resident of Metairie, Louisiana. Dep. of Richard Charles Frank, Nov. 11, 1998 at 6, lines 10-13. Because the residency of Mr. Frank remains in dispute, and where only conflicting statements concerning his residency have been provided by both GGI and State Farm, for purposes of this decision, the Court must consider him to be a resident of Louisiana. Manguno, 276 F.3d at 723.
4. Fraudulent Joinder
State Farm contends that Frank was fraudulently joined in this action and therefore his presence at the time of removal did not interfere with the exercise by the Court of its jurisdiction over this matter. Other than by demonstrating outright fraud in the pleadings, in order to prove that a non-diverse defendant was fraudulently joined, "the removing party must show . . . that there is no possibility that the plaintiff would be able to establish a cause of action against the instate defendant in state court." B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (1981);see also Rodriguez v. Sabatino, 120 F.3d 589, 591 (5th Cir. 1997);Carriere v. Sears, Roebuck Co., 893 F.2d 98, 100 (5th Cir. 1990). Because there is no allegation of fraud or misrepresentation in GGI's pleadings, to establish fraudulent joinder, State Farm must show that there exists no reasonable probability that GGI can recover against Frank. See Parks v. New York Times Co., 308 F.2d 474, 477 (5th Cir. 1963) (holding that joinder is fraudulent if under the laws of the state the facts asserted against the resident defendant could not possibly create liability). State Farm pleads that the state law claims against Frank are prescribed, thereby denying recovery against him, making him a fraudulently joined party. Where a removing party can demonstrate that an action against a non-diverse defendant is prescribed, he meets the burden of showing that the plaintiff cannot recover against that non-diverse defendant. See generally, Ruth U. Fertel, Inc. v. Exec. Risk Specialty Ins. Co., 2001 U.S. Dist. LEXIS 7896 (E.D.La. 2001) (Clement, J.); Yates v. Southwestern Life Ins. Co., 1998 U.S. Dist. LEXIS 2001 (E.D.La. 1998) (Vance, J.). The Court agrees with State Farm that GGI's claims against Frank have been extinguished by peremption. GGI urges that such state law defenses should have been raised in state court pursuant to Louisiana's Rules of Civil Procedure. While the facts are assessed in a light most favorable to the plaintiff where fraudulent joinder is alleged, Sid Richardson Carbon Gasoline Co. v. Interenergy Res. Ltd., 99 F.3d 746, 751 (5th Cir. 1996), the Court finds GGI's unsupported procedural argument unpersuasive.
Peremption is a type of prescription. La. Civ. Code art. 3458 provides: "Peremption is a period of time fixed by law for the existence of a right. Unless timely exercised, the right is extinguished upon the expiration of the peremptive period."
Louisiana's peremption statute governing actions against insurance professionals requires a multi-layered analysis: any action for professional insurance malpractice must be filed within one-year of the tortious act or contractual breach or within one-year following the date the tortious act or contractual breach is discovered or should have been discovered, but in no instance shall such action be filed three years after the tortious act or contractual breach. LSA-R.S. 9:5606(a) (West Supp. 1999). If a plaintiff fails to satisfy this discovery rule, the cause of action is extinguished. Huffman v. Goodman, 784 So.2d 718, 724-25 (La.App. 2 Cir. 2001). Allegations of fraud under La. Civ. Code art. 1953, however, are exempted from the three-year peremptive restriction. LSA-R.S. 9:5606(c) (West Supp. 1999); Huffman, 784 So.2d at 725. It is logical that where a defendant fraudulently conceals his error, thereby preventing an insured from realizing the limits of his coverage, the three-year peremptive period should not apply. See Huffman, 784 So.2d at 726-27.
The Court notes that GGI contends that a ten-year prescriptive period should apply because GGI also seeks reformation of the State Farm policy. However, because the action for reformation is against State Farm and not Frank, this argument is without merit.
GGI's petition for damages dated September 20, 2002, alleges that Frank negligently obtained an automobile policy for GGI and fraudulently withheld information necessary for GGI to make proper business determinations concerning its policy selections, all in contravention of the instructions given by GGI. State Farm analogizes the instant matter to that in Huffman, where the court failed to find fraud because the defendant in Huffman notified the plaintiff that it was not covered under its policy. Id. at 726. GGI argues that Huffman is not on point; the Court disagrees. In Huffman, as in the instant matter, there existed disagreement as to whether the claims were actions for neglect or fraud. But even if fraud were found, the Louisiana court held the plaintiff failed to state a claim for damages until after the one-year peremptive period had lapsed, because the plaintiff was on notice that it was not covered. See id. at 727-28 (concluding the one-year peremption period tolled the date plaintiff should have discovered coverage was not allowed — when insurer noticed the insured).
It is clear from the record that GGI's claims against Frank are prescribed as a matter of Louisiana law. Gardner was injured in an accident on May 6, 1995. She filed a direct action against various insurers, including her own on November 8, 1995. When it was determined that there was insufficient coverage, she amended her complaint on April 15, 1997, adding State Farm as the issuer of GGI's UM policy. On December 11, 1997, State Farm filed a motion for summary judgment in state court on the basis that Ms. Gardner was not covered by their policy. Ms. Gardner then filed yet a third amended complaint in May 1998 alleging State Farm's breach of duty for its failure to provide her with coverage. On April 7, 1999, Ms. Gardner amended her complaint for a fourth time, naming Mr. Frank as a co-defendant for fraud and negligent performance of his duties.
GGI intervened in Gardner's fourth amended complaint on September 8, 2000.
Nothing in the record indicates why Mr. Frank was not added as a co-defendant prior to this date. Yet the record is clear that Ms. Gardner, an executive officer of GGI, knew as early as October 11, 1997 that the State Farm policy procured by Mr. Frank and issued to GGI did not provide UM to GGI's employees. As in the Huffman case, the insured was on notice relatively early-on in the litigation that GGI's UM insurance was not a policy that covered their employees. While, as stated above, ambiguities are ruled in the plaintiff's favor when considering a motion to remand, there exists no ambiguity here. It is clear to the Court that this litigation has meandered through the state system since 1995 and that by as early as 1997 it became clear that GGI, if it did not know, certainly should have known that Frank, as the procuring agent for State farm, should be a party to any action concerning its policy. Even if the Court accepts that GGI was not aware of this dispute concerning its insurance policy until it intervened in September 2000, it still waited two years before commencing this action, one year past the end of the prescription period. Because the claims against Frank are prescribed, he is a fraudulently joined party and therefore does not prevent the Court from exercising its diversity jurisdiction in this matter.
La. R.S. 9:5606(A) (2003) provides that an action against an insurance agent must be filed "within one year from the date that the alleged act, omission, or neglect is discovered or should have been discovered." (Emphasis added).
B. Amount in Controversy
Because Louisiana law prohibits a party from alleging or demanding a specific monetary amount of damages, the complaint filed in Orleans Parish by GGI does not indicate the amount sought against Frank or State Farm.See La. Code Civ. P. art. 893(A)(1). Similarly, the complaint does not indicate what the value any reformation of the contract has to State Farm or GGI. In order to resolve this threshold matter for purposes of invoking this Court's diversity jurisdiction, we apply the Fifth Circuit test announced most recently in Manguno. State Farm, as the removing party, must establish by a preponderance of the evidence that the jurisdictional amount is satisfied either (1) by demonstrating that it is apparent from the face of the petition that the claims are likely to exceed $75,000 or (2) by setting forth facts in controversy that support a finding of the requisite mount. Manguno, 276 F.3d at 723.
In analogizing GGI's reformation claim to a declaratory judgment action, State Farm indicates that the jurisdictional amount can be measured against the value of the underlying claim made, or by the face value of the policy limits. State Farm further states that GGI and Ms. Gardner have offered to settle their claims against State Farm for $500,000. The value of a settlement offer can be valuable evidence indicating the amount in controversy at the time of removal. Lonon v. Prieto, 2000 U.S. Dist. LEXIS 9587, *6 (E.D.La. 2000). In the alternative, State Farm indicates that the claim for reformation should be measured by the face value of the policy. See Hartford Ins. Group v. Lou-Con, Inc., 293 F.3d 908, 911 (5th Cir. 2002) (holding "policy limits controlling 'in declaratory action . . . as to the validity of the entire contract between the parties'"). Based on this measurement, the value of the claim would be the outer limits of the policy or one million dollars. GGI has not sufficiently challenged either of State Farm's calculations concerning the amount in controversy. It simply asserts an unsupportable proposition that no value is involved in a simple reformation action. Because State Farm's characterization of the amount in controversy are meritorious, removal of the action is appropriate.
III. CONCLUSION
For the reasons set forth above, the Court finds that State Farm has met its burden of showing that GGI cannot recover against Frank and, therefore, that Frank was improperly joined. Further, State Farm has demonstrated that the value of the claims against it satisfy the jurisdictional threshold. Accordingly,
IT IS ORDERED that the motion to remand filed by the plaintiff, Gertrude Gardner, Inc., is DENIED.