Opinion
Civil No. 03-926 (JRT/RLE)
September 3, 2003
Jerome S. Rice, JEROME S. RICE ASSOCIATES, Plymouth, MN, for plaintiff
Thomas B. Caswell, ZELLE, HOFFMAN, VOELBEL, MASON GETTE, Minneapolis, MN, for defendant TIG Insurance Company
MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFF'S MOTION TO REMAND
Plaintiff, an American Legion Post located in Roseau, Minnesota, brought an action in Minnesota state court in Roseau County after defendants denied plaintiff's claim for losses suffered when its sewer backed up in the Legion Hall. Defendant TIG removed the case to this Court on the basis of diversity jurisdiction. Plaintiff has moved to remand pursuant to 28 U.S.C. § 1447, arguing that complete diversity is lacking and therefore this Court does not have jurisdiction. For the reasons discussed below, plaintiff's motion to remand is granted.
BACKGROUND
On June 11, 2002 the City of Roseau and surrounding areas experienced a significant and devastating flood. Apparently, no flood water entered plaintiff's building directly, but the building was damaged by water that entered the building through the sanitary sewers and drains. Believing such losses would be covered by its insurance policy, plaintiff made a claim for coverage and provided information as requested by the insurance company. After investigating the claim, defendant TIG denied the claim, citing an exclusion in the policy for damage caused by flooding.
Among the coverage provided was a "TUX Property Enhancement Endorsement," which expressly provided coverage for "backup of sewers and drains."
Among the exclusions is an exclusion for "water" described as "flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not; and "water under the ground surface pressing on, or flowing or seeping through: 1) foundations, walls, floors, or paved surfaces; b) basements, whether paved or not; or c) doors, windows or other openings."
Plaintiff then served a complaint on the defendants, alleging breach of contract against all defendants; misrepresentation against all defendants, breach of fiduciary duty against all defendants, violation of applicable insurance statutes and common law against all defendants, and bad faith denial of claim against only defendant TIG. Defendant TIG timely removed the case to this Court on the basis of diversity jurisdiction.
ANALYSIS
I. Removal RequisitesSection 1441(a) of Chapter 28 of the United States Code enables defendants to remove cases to federal court in any civil action over which "the district courts of the United States have original jurisdiction." 28 U.S.C. § 1441(a). District courts have original jurisdiction over cases in which the amount in controversy exceeds the sum of $75,000 and the citizenship of each plaintiff is diverse from the citizenship of each defendant. 28 U.S.C. § 1332; Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996). In other words, for the Court to properly exercise its original jurisdiction in a diversity case, there must be "complete diversity." See Carden v. Arkoma Assocs., 494 U.S. 185, 187 (1990) (citing Strawbridge v. Curtiss, 7 U.S. 267, 267 (1806)).
In this case, defendant TIG is a citizen of Texas and California, while defendant Lake of the Woods Agency, Inc., d/b/a Agassiz Insurance Group, Inc., and defendant Insurance Advisors, Inc. (hereafter "the Minnesota defendants") are Minnesota citizens. Plaintiff is also a Minnesota citizen, so it appears that complete diversity is lacking. Defendant TIG, however, claims that removal is proper because plaintiff fraudulently joined the Minnesota defendants. Defendant TIG claims that there is "no reasonable basis in fact and law" for plaintiff's claims against the Minnesota defendants, and therefore the Minnesota defendants should be disregarded for the purposes of determining whether the Court has diversity jurisdiction over this dispute.
II. Fraudulent Joinder
"Joinder is fraudulent `where there is no reasonable basis in fact or colorable ground supporting the claim against the joined defendant, or no real intention in good faith to prosecute the action against the defendant or seek a joint judgment." Banbury v. Omnitron Int'l Inc., 818 F. Supp. 276, 280 (D. Minn. 1993) (quoting Boyer v. Snap-On Tools Corp., 913 F.2d 108, 111 (3rd Cir. 1991) (internal citation omitted)). In other words, joinder is fraudulent if "whatever the plaintiff[']s motive, [its] claim against an instate defendant has no chance of success." Schwenn v. Sears, Roebuck Co., 822 F. Supp. 1453, 1455(D. Minn. 1993). Fraudulent intent is not required, and defendant TIG does not argue that plaintiff had such an intent. See Federal Beef Processors, Inc. v. CBS, Inc., 851 F. Supp. 1430, 1435 (D.S.D. 1994). Instead, defendant argues that joinder was fraudulent in this case because plaintiff has no chance of succeeding in its claims against the Minnesota defendants. See Palmquist v. Conseco Med. Ins. Co., 128 F. Supp.2d 618, 621 (D. S.D. 2000) (noting that defendant can show fraudulent joinder by demonstrating that on the face of plaintiff's state court pleadings, no cause of action lies against the resident defendant) (citing Anderson v. Home Insurance Co., 724 F.2d 82, 84 (8th Cir. 1983)).
"While fraudulent joinder . . . is rather easily defined, it is much more difficult [to] appl[y]." Filla v. Norfolk S. Ry. Co., 336 F.3d 806, 809 (8th Cir. 2003). The Court's task is made easier, however, by the Eighth Circuit's recent opinion in Filla v. Norfolk S. Ry. Co., which was decided while the instant case was under advisement. Id. The Filla Court held that "if there is a `colorable' cause of action — that is, if the state law might impose liability on the resident defendant under the facts alleged — then there is not fraudulent joinder. Id. at 810 (citing Foslip Pharm., Inc. v. Metabolife Intern., Inc., 92 F. Supp.2d 891, 903 (N.D. Iowa 2000)). The Filla Court continued, "joinder is fraudulent when there exists no reasonable basis in fact and law supporting a claim against the resident defendants." Id. (citing Wiles v. Capitol Indem. Corp., 280 F.3d 868, 871 (8th Cir. 2002)).
The Filla Court noted that "the `colorable' euphemism has been used by both the Fifth and Sixth Circuits to describe an alleged cause of action that is reasonable, but speculative." Id. at 810 n. 10 (citing Jerome-Duncan, Inc. v. Auto-By-Tel, L.L.C., 176 F.3d 904, 907 (6th Cir. 1999); Delgado v. Shell Oil Co., 231 F.3d 165, 180 (5th Cir. 2000)).
The "essential function" required of this Court, therefore, is "simply [to] determine whether there is a reasonable basis for predicting that the state's law might impose liability against the defendant." Id. at 811. If the "sufficiency of the complaint against the non-diverse defendant is questionable, `the better practice is for the federal court not to decide the doubtful question in connection with a motion to remand but simply to remand the case and leave the question for the state courts to decide.'" Id. (citing Iowa Pub. Serv. Co. v. Medicine Bow Coal Co., 556 F.2d 400, 406 (8th Cir. 1977)).
With those guidelines in mind, the Court turns to plaintiff's claims against the non-diverse defendants.
III. Plaintiff's Asserted Causes of Action
Plaintiff asserts several causes of action against the Minnesota defendants: breach of contract, misrepresentation, breach of fiduciary duty, and violation of state statutes. Defendants have the burden to prove that none of the stated claims is colorable; if even one of these claims is colorable, the Court must remand. The Court therefore determines whether plaintiff's admittedly "short and plain" complaint suffices to find any one of the claims against the Minnesota defendants colorable.
IV. Breach of Fiduciary Duty
Plaintiff argues that the Minnesota defendants breached their fiduciary duty by failing to inform Lindquist Post that its sewer and drain backup coverage did not include coverage for damages caused by flood water backing up through the sewer.
Under Minnesota law, an insurance agent's duty to an insured is usually limited to the duties imposed in any agency relationship, to act in good faith and follow instructions. Gabrielson v. Warnemunde, 443 N.W.2d 540, 543 (Minn. 1989) (citing 16A J. Appleman, Insurance Law and Practice, § 8836, at 64 (1981)). However, when "special circumstances" exist, such as a "special relationship," an insurance agent may be under a duty to take some affirmative action, such as offering, advising or furnishing coverage, rather than merely following the client's instructions. Johnson v. Urie, 405 N.W.2d 887, 889-90 (Minn. 1987). This duty may include informing the insured of gaps in coverage. See Born v. Medico Life Ins. Co., 428 N.W.2d 585, 589 (Minn.Ct.App. 1988) (citation omitted).
The existence of a duty is a question of law for the court to determine. Urie, 405 N.W.2d at 891. Minnesota courts find a "special relationship" when an agent knows that the insured (1) is unsophisticated in insurance matters, (2) is relying upon the agent to provide appropriate coverage, and (3) needs a particular type of coverage. See Gabrielson, 443 N.W.2d at 544.
The only case in which Minnesota courts have found a "special relationship" giving rise to an insurance agent's affirmative duty is Osendorf v. American Family Ins. Co., 318 N.W.2d 237 (Minn. 1982). In Osendorf, the insurance agent was held liable for failing to advise the insured to obtain other needed coverage during the ten-year period the policy was in effect. Id. at 238. The insured was a farmer with an eighth-grade education, who could not read much of the insurance policy and therefore relied on his agent to help select the proper coverage. Id. His first agent misrepresented to him that part-time farm workers would be covered under the policy. Id. In fact, they were excluded. His second agent, whom he sued, serviced the policy for ten years, making ten visits to the farm. Id. The Court held that the agent should have been aware that the farmer employed part-time workers who were not covered by the policy, and that he should have advised the insured of this gap in coverage. Id.
Though the instant case does not involve a relationship as extensive as in Osendorf, the Court cannot say that plaintiff's "special relationship" claim has "no chance of success." Schwenn, 822 F. Supp. at 1455. Plaintiff, as a non-profit organization, is a relatively unsophisticated entity. The Minnesota defendants could have been aware of plaintiff's lack of expertise in insurance matters, and it can reasonably be inferred that they knew that plaintiff was relying upon them for appropriate coverage. In addition, the Minnesota defendants may have known that plaintiff needed the specific type of coverage at issue. The TUX Property Enhancement Endorsement expressly stated that sewer and drain backup was included in the policy. The Minnesota defendants, however, never mentioned that the sewer and drain backup did not include backup caused by flooding.
Defendant TIG argues that plaintiff has not stated a colorable claim for breach of fiduciary duty because plaintiff fails to allege facts in the complaint that would allow the Court to find a "special relationship." While plaintiff asserts that "at all relevant times, [plaintiff] relied upon the representations made by [each] Defendant," there is nothing in the complaint alleging that the in-state defendants knew about that reliance. Also lacking in the complaint is any information about plaintiff's lack of business acumen. Under Minnesota pleading requirements, however, there is no duty to plead facts in support of every element of a "special relationship." See Northern States Power, Inc. v. Franklin, 122 N.W.2d 26, 29 (Minn. 1963). Given the very high standard required to show fraudulent joinder, and the requirement that the Court construe the record in the light most favorable to plaintiff, the Court finds that plaintiff states a colorable claim for breach of fiduciary duty.
Because the Court finds that plaintiff's breach of fiduciary duty claim is colorable, there is no need to examine plaintiff's other claims. The Court does not have subject-matter jurisdiction over this case, and under 28 U.S.C. § 1447, the case must be remanded. See Filla, 336 F.3d at 811 (noting that where complete diversity is lacking, the federal courts have no subject-matter jurisdiction, and neither the district court, nor the reviewing court "ha[s] power to decide the merits of a case over which we have no jurisdiction.")
ORDER
Based on the foregoing, the submissions of the parties, the arguments of counsel, and the entire file and proceedings herein, IT IS HEREBY ORDERED that:
1. Plaintiff's motion to remand [Docket No. 4] is GRANTED.
2. This matter is REMANDED to the State of Minnesota District Court, Ninth Judicial District, Roseau County.
LET JUDGMENT BE ENTERED ACCORDINGLY.