Opinion
Civil Action No. CCB-08-00317.
August 21, 2008
MEMORANDUM
Now pending before the court is a motion to remand filed by plaintiff Universal Concrete Products Corporation ("Universal"). Defendant The Netherlands Insurance Company ("Netherlands") removed this case to federal court on the basis of diversity jurisdiction. Universal seeks remand on the grounds that: (1) not all defendants consented to removal, and (2) there is not complete diversity between the parties as required by 28 U.S.C. § 1441. Defendant Morgan State University ("MSU") has also filed a motion to remand or, in the alternative, to dismiss. Defendants Peerless Insurance Company ("Peerless") and Hess Construction Company, Inc. ("Hess") have each filed motions to dismiss. The issues in this case have been fully briefed and no hearing is necessary. For the reasons stated below, the plaintiff's motion to remand will be denied and this court will retain jurisdiction over the case. MSU's motion to remand will be denied on the same grounds. The motions to dismiss filed by MSU, Hess, and Peerless will be granted. Universal will have 30 days to amend the Complaint as it pertains to Peerless, if justified.
BACKGROUND
In a complaint filed on December 14, 2007, Universal brought this action for declaratory relief against Defendants Peerless, Netherlands, Concrete Building Systems ("CBS"), Hess, and MSU in the Circuit Court for Baltimore City. (Compl. at 1-2.) CBS has sued Universal and others in the Circuit Court for Baltimore City in an underlying case ("CBS Complaint"), seeking to recover from Universal losses allegedly sustained as a result of the collapse and failure of stair towers and other components at the Morgan State University Parking Garage ("Garage") project. (Compl. ¶ 18.) Hess is a general contractor that contracted with MSU to construct the Garage. (Compl. ¶ 12.) CBS contracted with Hess to provide and install, among other things, all precast concrete components for the Garage. (Compl. ¶ 13.) Universal contracted with CBS to provide architectural and structural precast concrete components for the Garage, including precast concrete stair and elevator towers. (Compl. ¶ 14.) According to its Certificate of Liability Insurance, Universal obtained a general liability insurance policy issued by Netherlands, an automobile liability policy issued by Excelsior, and an excess/umbrella policy issued by Peerless. (Universal's Opp. to MSU's Mot. to Dismiss at Ex. A.) CBS, Hess, and MSU are listed as additional insured parties in all policies except those relating to workers' compensation. ( Id.) Upon the filing of the CBS Complaint, Universal filed a motion to compel arbitration, and CBS subsequently filed a demand for arbitration naming Universal and Hess as defendants. (Compl. ¶¶ 19-20.) Universal then tendered the claim to Netherlands and Peerless under the General Liability policy (Policy Number CBP9632367). (Compl. ¶¶ 5 21; Def.'s Reply in Supp. of Mot. to Dismiss at Ex. A.) Netherlands and Peerless subsequently refused to defend and indemnify Universal against the result of the occurrence and/or CBS's claim. (Compl. ¶ 23.) As a result, Universal filed this action for declaratory relief in order to establish that Peerless and Netherlands have a duty to defend and indemnify Universal for all losses, costs, and expenses incurred as a result of CBS's claim. (Compl. ¶¶ 22-23.)
Case No. 24-C-07-009772 CN.
E B Erectors, Inc. v. Hartford Fire Ins. Co. and Concrete Building Systems, Inc. and Hess Construction Co., Inc., Case No. 24-C-05-008161. ( See Def. Peerless's Opp. to Motion to Remand at 2.)
After the filing of the present complaint on December 14, 2007, Hess filed a motion to dismiss under Maryland Rule 2-322 in the Circuit Court. Before the Circuit Court ruled on Hess's motion, Netherlands removed the case to federal court on February 5, 2008 under 28 U.S.C. § 1441, arguing that complete diversity existed between the parties and the amount in controversy exceeded $75,000. (Notice of Removal ¶ 11, 12.) Universal responded by filing a motion to remand on February 11, 2008. Peerless filed a motion to dismiss under Fed.R.Civ.P. 12(b)(6) on the same date. Shortly thereafter, MSU filed both a motion to dismiss and a motion to remand, alternatively requesting dismissal on Eleventh Amendment grounds. These motions to dismiss and the MSU motion to remand are currently pending.
Netherlands notes that Peerless did not issue the Netherlands policy and therefore should not be a party to the suit. (Notice of Removal ¶ 6.)
In its notice of removal, Netherlands states: (1) Plaintiff Universal is a Pennsylvania citizen; (2) Defendant Peerless is a citizen of New Hampshire; (3) Defendant Netherlands is a citizen of New Hampshire; (4) Defendant CBS is a Delaware citizen; (5) Defendant Hess is a citizen of Maryland; and (6) Defendant Morgan State University is a citizen of Maryland. (Notice of Removal ¶¶ 4-10.) In its motion to remand, Universal argues that remand is proper because not all defendants consented to removal and two of the defendants are citizens of the forum state of Maryland as prohibited under 28 U.S.C. § 1441(b). In opposition, Netherlands contends that there is complete diversity because the parties that are citizens of the forum state are nominal parties; as such, Netherlands suggests they should not be considered in determining diversity and are not required to consent to removal. Additionally, Netherlands argues that the motion to remand is without merit because it fails to consider applicable federal procedural law. Alternatively, Netherlands argues that the three "nominal" defendants should be realigned as plaintiffs under the "principal purpose" test. See Indianapolis v. Chase Nat'l Bank, 314 U.S. 69 (1941); U.S. Fidelity Gaur. Co. v. A S Mfg. Co., 48 F.3d 131, 132 (4th Cir. 1995).
ANALYSIS
As will be discussed, Universal's complaint fails to establish that there is an actual case or controversy between Universal and CBS, Hess, and MSU that justifies their alignment as defendants in this case. Because the interests of CBS, Hess, and MSU align with those of Universal as additional named insureds on the insurance certificate, they will be realigned and designated as plaintiffs in this case. Therefore, the case satisfies the requirements for federal diversity jurisdiction under 28 U.S.C. § 1441(b) and Universal's motion to remand will be denied. Additionally, the motions to dismiss filed by Hess and MSU will be granted as they are disclaiming any interest in the case. Defendant Peerless's pending motion to dismiss will be granted with leave to amend the Complaint within 30 days if Universal has a basis for a claim against the Peerless Excess/Umbrella policy. A. Motion to Remand
MSU's motion to remand will be denied for this reason as well.
Under 28 U.S.C. § 1332, federal district courts have original jurisdiction over civil actions between citizens of different states where the matter in controversy exceeds $75,000.00. However, under 28 U.S.C. § 1441(b), actions originally filed in state court may be removed to federal court on the basis of diversity jurisdiction "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." The burden of proof is on the party seeking removal to show that federal jurisdiction is proper. Mulcahey v. Columbia Organic Chems Co., 29 F.3d 148, 151 (4th Cir. 1994).
In this case, there is no dispute about the amount in controversy or the specific citizenships of the parties. However, Defendants Hess and MSU are citizens of Maryland which, if they are real parties in interest properly joined, would preclude federal jurisdiction under § 1441(b). Universal challenges the removal of the case on the grounds that the presence of Hess and MSU as defendants violates the forum defendant rule of § 1441(b) and that even if removal was not precluded by § 1441(b), remand is proper because not all of the defendants consented to the removal. (Pl.'s Mot. to Remand at 2-3.) Netherlands argues that removal is proper because CBS, Hess, and MSU are nominal parties and are thus not considered in determining diversity jurisdiction, nor are they required to consent to removal. (Def.'s Mem. of Law in Opp. to Pl.'s Mot. to Remand 5-8.) In evaluating whether there is diversity jurisdiction, federal courts "must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy." Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 461 (1980). Before considering whether CBS, Hess, and MSU are nominal parties, however, the court must first consider whether those parties are properly joined as defendants in this case. If Hess and MSU, in particular, are not properly joined or aligned as defendants, then 28 U.S.C. § 1441(b) would not bar removal and remand would not be necessary.
As a general rule, all defendants in an action who may properly join in the notice of removal must so join. Chaghervand v. CareFirst, 909 F.Supp. 304, 308 (D. Md. 1995). The plaintiff is correct that all defendants, including those without the right to remove, are required to consent. Id. However, there are exceptions to this rule. If a defendant is improperly served or is a formal or nominal party, the defendant is not required to join in or consent to removal. Egle Nursing Home, Inc. v. Erie Ins. Group, 981 F.Supp. 932, 933 (D. Md. 1997). Nominal or formal parties are parties who do not have a significant interest in the controversy. Martin Sales Processing, Inc. v. West Virginia Dep't of Energy, 815 F.Supp. 940, 942 (S.D. W. Va. 1993). Additionally, "parties aligned in interest with the plaintiff are not required to join or consent to the removal." Smilgin v. New York Life Ins. Co., 854 F.Supp. 464 (S.D. Tex. 1994).
The first step in analyzing jurisdiction is to align the parties according to their interests. St. Paul Fire Marine Ins. Co. v. Croker, Inc., 21 F.Supp.2d 537, 540 (D. Md. 1998). The Supreme Court has stated that a federal court must "look beyond the pleadings, and arrange the parties according to their sides in the dispute." Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 69 (1941) (internal quotation omitted). When appropriate, a court may thus retain diversity jurisdiction based on the parties' realigned positions. See Hidey v. Waste Systems Int'l, Inc., 59 F.Supp.2d 543, 545-46 (D. Md. 1999).
The Fourth Circuit has adopted the principal purpose test for realignment from Indianapolis v. Chase Nat'l Bank, requiring district courts "to ascertain the `collision of interests' from the `principal purpose of the suit, and the primary and controlling matter in dispute' and to `arrange the parties according to their sides in the dispute.'" U. S. Fidelity Guar. Co. v. A S Mfg. Co., 48 F.3d 131, 133 (4th Cir. 1995) (quoting Chase Nat'l Bank, 314 U.S. at 69). The application of the principal purpose test thus requires that the court (1) "determine the primary issue in the controversy," and (2) "align the parties according to their positions with respect to the primary issue." Id. The court in U. S. Fidelity also noted that "[d]iversity jurisdiction cannot be conferred upon the federal courts by the parties' own determination of who are plaintiffs and who defendants." Id. Finally, if diversity jurisdiction is challenged, "the burden of proof remains on the party invoking federal court jurisdiction." Roche v. Lincoln Property Co., 373 F.3d 610, 616 (4th Cir. 2004).
Universal contends that the principal purpose test is inapplicable to actions removed from state court, citing Washington v. Ernster, 551 F.Supp.2d 568 (E.D. Tex. 2007). Ernster suggests that the principal purpose test in Chase Nat'l Bank only applies to actions that fall within a federal court's federal question jurisdiction. Ernster, 551 F.Supp.2d at 575. See 28 U.S.C. §§ 1331, 1441(c). A decision from this district, however, appears to reject the conclusions of Ernster. In Hidey, a case originally filed in state court, the district court addressed a motion to remand for lack of diversity jurisdiction by realigning the parties under the principal purpose test. 59 F.Supp.2d at 545. The interpleader action in that case had been removed from the Circuit Court of Allegany County, and the district court found that once realigned, complete diversity existed between the parties and none of the realigned defendants was a citizen of the state in which the action was brought, rendering federal jurisdiction proper. Id. at 546.
Following the procedure adopted in Hidey and U. S. Fidelity, the court here will: (1) determine the primary issue in the controversy and (2) align the parties according to their positions with respect to that primary issue. Hidey, 59 F.Supp.2d at 545 (citing U. S. Fidelity, 48 F.3d at 133). In the present case, the primary issue is whether Netherlands has a duty to defend and indemnify Universal for all losses, costs, and expenses incurred as a result of the underlying lawsuit against Universal. Considering the nature of Universal's complaint in this case, there appears to be no dispute at all between Universal and either CBS, Hess, or MSU, and any possible claims are not the principal or primary issues in dispute. Universal argues that it is required to join CBS, Hess, and MSU under the Maryland Declaratory Judgment Act as necessary and indispensable parties. (Pl.'s Mot. to Remand at 4.) Universal contends joinder is mandatory because the Maryland law states that in an action seeking declaratory relief, "a person who has or claims any interest which would be affected by the declaration shall be made a party." ( Id. (quoting Md. Cts. Jud. Proc. Code Ann. § 3-405(a)(1)).) Universal argues that, because CBS, Hess, and MSU are additional named insureds on the insurance certificate, they have an interest in the outcome of the declaratory judgment and therefore they must be joined. In addition, Universal contends that, because CBS, Hess, and MSU are adverse parties in the underlying action, they must be aligned as defendants in the declaratory judgment action. However, as noted above, Universal's complaint alleges no cause of action against CBS, Hess, or MSU and makes no claim of any kind for relief against them. Thus, there is no dispute on the issue of insurance coverage between Universal and those three parties.
Universal is generally accurate when it states that the purpose of the mandatory joinder rule is to "assure that a person's rights are not adjudicated unless that person has had his `day in court,'" and to "prevent multiplicity of litigation." (Pl.'s Mot. to Remand at 4 (quoting Bender v. Secretary, Maryland Dep't of Personnel, 483 A.2d 66, 69 (Md. 1981).) Still, courts have interpreted this requirement more flexibly than Universal suggests. See Bodnar v. Brinsfield, 483 A.2d 1290, 1295 (1984) (where the court concluded that, so long as necessary parties are aware of the litigation and have the opportunity to participate, but choose not to do so, they are bound by the result of such litigation). Therefore, the formal non-joinder of necessary parties may not be fatal to the litigation. Id.
Because the principal purpose of the litigation is to determine Netherland's duty to defend and indemnify Universal, the court must next align the parties according to their positions with respect to that issue. Chase Nat'l Bank, 314 U.S. at 69. In this case, the interests of Universal and the three joined parties (CBS, Hess, and MSU) appear to be aligned, because they are all named insureds on the insurance certificate. In addition, because Universal may owe damages to CBS, Hess, and/or MSU in the underlying action, those parties have an interest in seeing Universal indemnified by its insurance policy in order to ensure that they are able to recover the full amount of any damages that may be awarded. Thus, CBS, Hess, and MSU will be properly realigned and designated as plaintiffs with Universal for purposes of determining diversity in this matter.
Complete diversity exists between the parties, as realigned, and the forum defendant rule does not apply. Therefore, federal diversity jurisdiction is proper and Universal's motion to remand will be denied. Because the realignment of parties resolves the issue of diversity jurisdiction, the court need not address the issue of whether CBS, Hess, and MSU are nominal parties, nor the issue of whether they are "necessary and indispensable parties" under Md. Cts. Jud. Proc. Code Ann. § 3-405(a)(1).
MSU's motion to remand also will be denied.
B. Motions to Dismiss
The motions to dismiss filed by plaintiffs Hess and MSU and defendant Peerless next will be addressed. First, the motions filed by Hess and MSU will be granted, because they are disclaiming any interest in the action. While Hess and MSU may be necessary parties under Maryland law, they may choose to opt out of involvement in the litigation. In Grubb v. Donegal Mutual Insurance Co., the Fourth Circuit stated in dictum that, "[a]lthough [the individuals named as defendants] were necessary parties under Maryland law, they could choose to waive their right to take part in the proceedings." 935 F.2d 57, 60 (4th Cir. 1991) (citing Bodnar v. Brinsfield, 483 A.2d 1290, 1295 (1984)). Second, because Universal has stated no claim in its complaint against the excess/umbrella policy issued by Peerless, Peerless's motion to dismiss will be granted. Universal will have 30 days to seek to amend the complaint, however, if there is a basis for a claim against the Peerless policy.
A separate order follows.
ORDER
For the reasons stated in the accompanying Memorandum, it is hereby ORDERED that:
1. the plaintiff's motion to remand (docket entry no. 10) is DENIED;
2. defendant MSU's motion to remand (docket entry no. 19) is DENIED;
3. defendant MSU's motion to dismiss (docket entry no. 12) is GRANTED;
4. defendant Hess's motion to dismiss (docket entry no. 5) is GRANTED;
5. defendant Peerless's motion to dismiss (docket entry no. 9) is GRANTED; and
6. Universal has 30 days to seek to amend the complaint if there is a basis for a claim against the excess/umbrella liability policy issued by Peerless.