Opinion
No. 2:05-CV-112 PS.
December 7, 2005
OPINION AND ORDER
Before the Court is Plaintiffs' Motion for Remand. [Doc. 5.] Defendant State Farm removed the case on diversity grounds even though its co-defendant and Plaintiffs are citizens of the same state. The central issue is whether Plaintiffs fraudulently joined the co-defendant so as to render his citizenship irrelevant for purposes of diversity jurisdiction. Because the joinder is not fraudulent, we grant Plaintiffs' motion and remand the case to state court.
BACKGROUND
Plaintiff Clarinda Higginbotham was involved in a car accident in April 2003. She was insured at the time by Defendant State Farm Automobile Insurance Company. After the accident, police contacted Defendant Baroevich who operates a towing service. Baroevich went to the accident scene and towed Clarinda's car to a repair shop.
In August 2004, Clarinda and her husband Christopher sued State Farm (and only State Farm) in Indiana state court. The driver of the other car was underinsured so Clarinda pursued a claim against State Farm pursuant to the underinsured motorist provisions of her policy. Plaintiffs alleged that State Farm breached its insurance policy with Plaintiffs and that State Farm underpaid Plaintiffs' claim in bad faith. Plaintiffs are citizens of Indiana. State Farm is incorporated in Illinois and has its principal place of business in that state. After State Farm removed the case on diversity grounds, Plaintiffs voluntarily dismissed the case without prejudice.
In February 2005, Plaintiffs tried again in state court. Plaintiffs asserted the same claims against State Farm (breach of contract and bad faith) but this time they added Baroevich, an Indiana resident, as a defendant. Plaintiffs allege that Baroevich negligently caused additional damage to Clarinda's car when he towed it from the accident scene. State Farm refused to pay for the excess damage allegedly caused by Baroevich.
Even though Baroevich and Plaintiffs are citizens of the same state, State Farm again removed the case on diversity grounds. State Farm contends that Baroevich's citizenship is irrelevant for diversity jurisdiction purposes because Plaintiffs' misjoinder of State Farm and Baroevich as defendants constitutes fraudulent joinder. Plaintiffs have moved for remand. Plaintiffs argue that Baroevich was properly joined as a defendant and that his presence destroys diversity jurisdiction. In particular, according to the Plaintiffs, because the damage to their car resulted both from the accident and from the lousy tow job, and they do not know who did what damage, the cases are sufficiently related to one another to be joined.
DISCUSSION
Congress has authorized the removal of civil actions filed in state court if the action could have been brought originally in federal court. 28 U.S.C. § 1441; Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987). Federal removal jurisdiction is to be strictly construed. See Shamrock Oil Gas v. Sheets, 313 U.S. 100, 108 (1941). A defendant seeking removal bears the burden of establishing federal subject matter jurisdiction. Disher v. Citigroup Global Markets Inc., 419 F.3d 649, 654 (7th Cir. 2005).
Federal district courts have original jurisdiction over all civil actions between citizens of different states where the amount in controversy exceeds $75,000. 28 U.S.C. § 1332. Although a plaintiff is free to choose his own forum, he may not fraudulently join an in-state or non-diverse defendant solely for the purpose of defeating diversity jurisdiction. Schwartz v. State Farm Mut. Auto. Ins. Co., 174 F.3d 875, 878 (7th Cir. 1999). In determining whether diversity exists, a district court must disregard any party who has been joined fraudulently. Gottlieb v. Westin Hotel Co., 990 F.2d 323, 327 (7th Cir. 1993). In other words, the fraudulent joinder of a non-diverse defendant does not destroy diversity jurisdiction if diversity exists without the fraudulently-joined defendant. Id.
A defendant seeking removal bears a "heavy burden to establish fraudulent joinder." Poulos v. Naas Foods, Inc., 959 F.2d 69, 73 (7th Cir. 1992). In addressing fraudulent joinder issues, courts must keep in mind that a plaintiff is the master of his complaint. See Garbie v. DaimlerChrysler Corp., 211 F.3d 407, 410 (7th Cir. 2000). As such, a plaintiff "may include (or omit) claims or parties in order to determine the forum." Id. "It is enough that the claims be real and that the parties not be nominal." Id.
In this Circuit, fraudulent joinder occurs when: 1) there is no possibility that the plaintiff can state a cause of action against the non-diverse defendant in state court; or 2) the plaintiff commits outright fraud in pleading jurisdictional facts. Hoosier Energy Rural Elec. v. Amoco Tax Leasing IV Corp., 34 F.3d 1310, 1315 (7th Cir. 1994), citing Gottlieb, 990 F.2d at 327.
State Farm does not argue that either of these situations is present in this case. Instead, State Farm contends that Plaintiffs simply misjoined the case against Baroevich with the case against State Farm and that misjoinder equates to a fraudulent joinder. Indeed, in its Notice of Removal, State Farm indicates that its "Co-Defendant's citizenship is irrelevant for purposes of removal as [he] is misjoined pursuant to Ind. T.R. 20. For this reason, Co-Defendant is fraudulently joined." [Doc. 2 at 2; see also Doc. 6-1, Response to Motion for Remand, at 2-6.]
State Farm's slant on things conflates fraudulent joinder and misjoinder. But they are distinct concepts. As mentioned, fraudulent joinder occurs where there is no possible cause of action against the diversity-destroying defendant or where there is outright fraud in pleading jurisdictional facts. Hoosier Energy, 34 F.3d at 1315. Misjoinder, by contrast, involves the incorrect pairing up of two otherwise non-frivolous cases.
State Farm fails to cite any Seventh Circuit authority that recognizes the doctrine of fraudulent misjoinder, nor is this Court aware of any. The genesis of fraudulent misjoinder is the Eleventh Circuit's decision in Tapscott v. MS Dealer Service Corp., 77 F.3d 1353 (11th Cir. 1996), abrogated on other grounds, Cohen v. Office Depot, 204 F.3d 1069 (11th Cir. 2000). In Tapscott, Alabama plaintiffs filed a putative class action in state court against certain Alabama defendants arising from the sale of service contracts on automobiles. Plaintiffs later amended their complaint to add new claims against a diverse defendant arising from the sale of "extended service contracts" on various retail products ( i.e., not automobiles). The claims against the two sets of defendants had absolutely nothing to do with one another. The newly-added diverse defendant removed the case to federal court. Plaintiffs sought remand on the basis that there was not complete diversity among the parties. In denying the remand motion, the district court found that there was an "improper and fraudulent joinder, bordering on a sham" because plaintiffs' non-removable claims arising from automobile purchases were "wholly distinct" from their claims against the diverse defendant, which were based on the purchase of retail products. Tapscott, 77 F.3d at 1360.
The Eleventh Circuit affirmed the district court's finding that the plaintiffs' misjoinder of parties amounted to fraudulent joinder. Id. Stressing the insufficient factual nexus between the claims against the different defendants, the Eleventh Circuit explained that "[m]isjoinder may be just as fraudulent as the joinder of a resident defendant against who[m] a plaintiff has no possibility of a cause of action." Id. Significantly, the plaintiffs in Tapscott did not contend that their joinder of defendants was proper, but simply that a misjoinder, no matter how egregious, can never be fraudulent joinder. Id. The Eleventh Circuit rejected this argument: "We do not hold that mere misjoinder is fraudulent joinder, but we do agree with the district court that [plaintiff's] attempt to join these parties is so egregious as to constitute fraudulent joinder." Id. In other words, sometimes joinder is so blatantly improper that it amounts to fraudulent joinder.
The Seventh Circuit has never endorsed or even addressed Tapscott or the fraudulent misjoinder doctrine it created. Tapscott has been the subject of debate among district courts and commentators. Most Circuit Courts have not commented on Tapscott, except the Fifth Circuit which hinted agreement with the decision. See In re Benjamin Moore, 309 F.3d 296, 297 (5th Cir. 2002). Some district courts have criticized Tapscott. See, e.g., Osborn v. Met. Life Ins. Co., 341 F. Supp.2d 1123, 1127-28 (E.D. Cal. 2004) (expressing "substantial doubts about the propriety of the Tapscott doctrine"); Jamison v. Purdue Pharma Co., 251 F. Supp.2d 1315 (S.D. Miss. 2002 (noting that district courts "have been reticent to follow Tapscott's lead"). In addition, a leading commentator has questioned the egregiousness standard set forth in Tapscott. 14B Wright, Miller, and Cooper, Federal Practice and Procedure: Jurisdiction 3d § 3723 (3d ed. 1998) (describing Tapscott as "cryptic" and "inject[ing] a considerable degree of ambiguity" into the fraudulent misjoinder analysis).
Two district courts in this Circuit have applied Tapscott's fraudulent misjoinder doctrine yet ultimately found that no misjoinder (never mind an egregious one) had occurred. See In re Bridgestone/Firestone, Inc., 260 F. Supp.2d 722 (S.D. Ind. 2003) (plaintiffs' joinder of non-diverse automobile dealers with diverse tire manufacturer in class action involving allegedly defective tires was not fraudulent misjoinder under Mississippi law); Conk v. Richards O'Neil, LLP, 77 F. Supp.2d 956 (S.D. Ind. 1999) (where a selling shareholder had joined as defendants the chief financial officer of the sold corporation and the law firm that issued an opinion letter, it was reasonably possible that a state court would find the joinder to be proper under Indiana law).
Even if we were inclined to apply Tapscott, we are reluctant to equate — as State Farm would have us do — any misjoinder with fraudulent joinder. By eliminating the "egregiousness" component, this goes well beyond the holding in Tapscott, which held that mere misjoinder is not enough to constitute fraudulent joinder. 77 F.3d at 1360. If a plaintiff has misjoined a non-diverse defendant to avoid federal court, a better procedure would be to have the diverse defendant seek severance of the non-diverse defendant in state court. If successful, the diverse defendant could then remove its case to federal court provided it did so within a year from the date the suit was commenced. See 28 U.S.C. § 1446(b); Osborn, 341 F. Supp. 2d at 1127-28 ("the last thing the federal courts need is more procedural complexity . . . the better rule would require [the diverse defendant] 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"); 14B Wright, Miller, and Cooper, Federal Practice and Procedure: Jurisdiction 3d § 3723 (3d ed. 1998) ("In many situations, th[e] confusion [regarding the difference between mere misjoinder and egregious misjoinder] easily could be avoided by having the removing party challenge the misjoinder in state court before seeking removal.").
In any event, even if we embrace the doctrine of fraudulent misjoinder as enunciated in Tapscott, this case must be remanded to state court because the joinder here is not so egregious as to rise to the level of a "fraud." Indeed, we doubt whether an Indiana court would find any misjoinder at all.
The parties agree (as does the Court) that Indiana Trial Rule 20 should govern whether joinder is appropriate in this case. Indiana Trial Rule 20(A)(2) provides that persons may be joined as defendants in one action 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." Indiana courts give T.R. 20 "the broadest possible reading" because it is designed "to promote trial convenience, expedite claims, and avoid multiple lawsuits." Russell v. Bowman, Heintz, Boscia Vician, P.C., 744 N.E.2d 467, 471 (Ind.App. 2001).
Federal courts disagree whether a district court conducting a fraudulent misjoinder inquiry should apply the state joinder rule or the federal joinder rule. Tapscott, for instance, simply applied the federal rule, Fed.R.Civ.P. 20, without discussion. 77 F.3d at 1360. Conk, on the other hand, applied the state joinder rule because "[a]fter all, when [plaintiff] filed his complaint in the Indiana court, he was not required to comply with the Federal Rules of Civil Procedure in terms of joinder of parties or claims or any other aspect of the case." Conk, 77 F. Supp.2d at 971; accord Bridgestone, 260 F. Supp.2d at 728-29; see also Jamison v. Purdue Pharma Co., 251 F. Supp.2d 1315, 1321 (S.D. Miss. 2003) ("In the instant case, the defendant has removed an action that, as pleaded, does not exhibit complete diversity. If the defendant has removed the action because the resident [defendant] has been fraudulently misjoined, the misjoinder of claims must have existed under [the state joinder rule] when the action was brought. It makes little sense to say that the resident [defendant's] joinder became fraudulent only after removal and only under the federal rule."). To the extent this Circuit embraces the fraudulent misjoinder doctrine, we agree with Conk and Jamison that the state joinder rule should govern whether joinder is appropriate in a removed case. In this case, as in Conk, applying the Indiana joinder rule will have little practical effect because it virtually mirrors its federal counterpart.
In determining whether fraudulent joinder exists, the Seventh Circuit instructs district courts "to engage in an act of prediction: is there any reasonable possibility that a state court would rule against the non-diverse defendant?" Poulos, 959 F.2d at 73 (emphasis added). In the fraudulent misjoinder context, the controlling standard is the same: "Is there a reasonable possibility that a state court would find [plaintiff's] claims against [one defendant] were properly joined with his claims against the other defendants?" Conk, 77 F. Supp. 2d at 971 (emphasis added); see also Ashworth v. Albers Medical, Inc., 395 F. Supp. 2d 395 (S.D.W. Va. 2005); Reed v. American Medical Sec. Group, Inc., 324 F. Supp. 2d 798, 804 (S.D. Miss. 2004); Jackson v. Truly, 307 F. Supp. 2d 818, 824 (N.D. Miss. 2004); In Re Diet Drugs, 294 F. Supp. 2d 667, 673-74 (E.D. Pa. 2003).
State Farm urges that Plaintiffs do not meet the two requirements of T.R. 20. First, State Farm argues that Plaintiffs' claims against State Farm and their claim against Baroevich do not "arise out of the same transaction, occurrence, or series of transactions or occurrences." Ind. T.R. 20. Not so fast. Indiana courts apply a "logical relationship" test to the first prong of the permissive joinder standard under T.R. 20. Russell, 744 N.E.2d at 472. In addition, "`transaction' is a word of flexible meaning. It may comprehend a series of many occurrences, depending not so much upon their connection as upon their logical relationship." Id.
Given this framework, Plaintiffs can arguably satisfy the first element of T.R. 20. Plaintiffs allege that one defendant underpaid an insurance claim. While the bulk of the claim against State Farm is for personal injuries, there is also a claim that State Farm failed to pay for all of the damage done to the car. The claim against the second defendant is that he negligently caused damage to the Plaintiffs' car when he towed it from the accident scene. There is a reasonable possibility that an Indiana court would find that these claims are "logically related" and arise out of the same transaction or occurrence, or series of transactions or occurrences. After all, to determine if State Farm engaged in bad faith when it allegedly underpaid on the property damage claim, one must look at the facts surrounding how the car was damaged. Fault for the property damage must then be apportioned between that which was caused during the accident (for which State Farm is responsible) and that which was done during the tow (for which the tow company is responsible).
Second, State Farm argues that Baroevich is misjoined because no "question of law or fact common to all defendants will arise in the action." Ind. T.R. 20. There is no dispute that Plaintiffs' claims against State Farm (breach of contract and breach of the duty of good faith and fair dealing) differ from their tort claim against Baroevich (negligence in towing Plaintiffs' car). However, this does not mean that the claims cannot share a common question of fact. In their motion to remand, Plaintiffs submit evidence that State Farm has refused to pay for any damage caused by Baroevich in towing Plaintiffs' car. Thus, as mentioned, a state court conceivably could find the factual issues of what damage (if any) was caused by Baroevich and what damage was caused by the accident are common to the claims against both parties.
Accordingly, we find there is at least a reasonable possibility that an Indiana court would determine that defendants State Farm and Baroevich have not been misjoined under T.R. 20. Even if an Indiana court were to find otherwise, such misjoinder would not rise to the level of "egregious misjoinder" present in Tapscott. The Eleventh Circuit created the fraudulent misjoinder doctrine in an exceptional case where the misjoinder was blatant and the plaintiffs did not even attempt to justify the joinder. Indeed, the plaintiffs in Tapscott were practically flaunting the misjoinder by arguing essentially: "no matter how bad the misjoinder is, district court, there's nothing you can do about it." We believe Tapscott is persuasive on its facts as it helps to close a loophole in the fraudulent joinder doctrine that the Tapscott plaintiffs blatantly tried to exploit. This case, however, is not the same as Tapscott. Therefore, we must remand it to state court.
It is likely that Plaintiffs added Baroevich to this case to ensure that their claims against State Farm would not be litigated in federal court. To think otherwise would be naive, given the procedural history of this case. Nevertheless, the fact remains that plaintiffs are free to choose their forum and to join their claims against multiple defendants however the plaintiffs see fit, provided they play by the rules and do not fraudulently join any claims or parties. Garbie, 211 F.3d at 410. On this record and given the current law in this Circuit, we cannot find that Plaintiffs fraudulently joined Baroevich as a defendant in this case. If State Farm can obtain severance in the Indiana court, it is free to remove the case again provided it does so within the time limits of § 1446(b).