Batoff v. State Farm Ins. Co.

• Citation: 977 F.2d 848
• Decision Date: 23 October 1992
• Docket Number: No. 92-1275,92-1275
• Parties: Stephen B. BATOFF, Ph.D., Appellant, v. STATE FARM INSURANCE COMPANY, Leonard M. Paul, Ed.D.
• Court: U.S. Court of Appeals — Third Circuit

Page 848

977 F.2d 848

Stephen B. BATOFF, Ph.D., Appellant, v. STATE FARM INSURANCE COMPANY, Leonard M. Paul, Ed.D.

No. 92-1275.

United States Court of Appeals Third Circuit.

Argued Oct. 6, 1992.

Decided Oct. 23, 1992.

David S. Dessen (argued), Dessen, Moses & Sheinoff, Philadelphia, Pa., for appellant.

Brian A. Wall, Jr., Joseph M. Hankins (argued), Britt, Hankins, Schaible & Moughan, Philadelphia, Pa., for State Farm Ins. Co.

Edwin L. Scherlis, Margolis, Edelstein, Scherlis, & Kraemer, Philadelphia, Pa., for Leonard M. Paul, Ph.D.

Before: GREENBERG, COWEN, and WEIS, Circuit Judges.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

Stephen B. Batoff appeals from two orders in this action which he initiated in state court but which was removed to the district court. The first order, entered on January 15, 1992, dismissed the non-diverse defendant, appellee Leonard M. Paul, and denied Batoff's motion to remand the case to the state court for lack of complete diversity. The second order, entered on March 23, 1992, granted the motion of the remaining defendant, appellee State Farm Insurance Company, to dismiss under Fed.R.Civ.P. 12(b)(6). We find that the district court should not have dismissed Paul as a defendant and that it thus lacked subject matter jurisdiction. Accordingly, we will reverse the order of January 15, 1992, vacate the order of March 23, 1992, and remand the case to the district court with instructions in turn to remand the case to the state court in which it was originated.

I. BACKGROUND

Batoff, a Pennsylvania citizen, is a licensed psychologist who treats individuals injured in motor vehicle accidents. A number of Batoff's patients are insured under automobile insurance policies with medical payment provisions issued by State Farm and have assigned to him their rights under their policies to be reimbursed for medical expenses. While Batoff has submitted his bills to State Farm under these provisions, State Farm has refused to pay some of them. State Farm, at least in part, has based its refusal on reports written by Paul, a psychologist in private practice, who is retained by State Farm to address questions relating to the appropriateness, necessity, and cost of psychological services rendered to State Farm insureds.

This refusal led Batoff to file a suit in the Court of Common Pleas of Philadelphia County, Pennsylvania, against State Farm, a citizen of Illinois, and against Paul, a citizen of Pennsylvania. In Count I of the complaint, Batoff contends that State Farm owes him $107,744 as assignee of his patients' rights to payment for medical expenses, and in this count he seeks compensation, costs, attorneys' fees, and punitive damages from State Farm. In Count II, Batoff seeks compensatory and punitive damages, costs, and attorneys' fees from State Farm and Paul for their alleged civil conspiracy to (1) deprive him of money due, (2) disparage and ruin his reputation, and (3) cause others to refrain from referring patients to him. ¹

In Count III, Batoff alleges that State Farm breached its duty of fair dealing owed to him and its insureds, by (1) arbitrarily determining in advance not to pay his bills, (2) "employing as an expert Dr. Paul who is not competent, fair or unbiased," (3) "directing Dr. Paul to prepare" the misleading reports, and (4) distributing the reports to third persons with the intent to damage Batoff's reputation and injure his business. In this count, in which he seeks damages only from Paul, Batoff alleges:

Dr. Paul, by producing reports he knew to be inaccurate find that he knew State Farm would use to justify its refusal to pay Dr. Batoff's bills and distribute to third persons with the intent to damage Dr. Batoff's reputation and injure his business breached the duty he owed to Dr. Batoff. [sic]

App. at 36.

On October 5, 1990, State Farm filed a notice removing the case to the United States District Court for the Eastern District of Pennsylvania. State Farm alleged in the notice that Paul is immune from suit and was joined by Batoff to defeat the diversity jurisdiction which the district court otherwise could exercise under 28 U.S.C. § 1332(a)(1). ² On October 15, 1990, State Farm filed a motion in the district court to dismiss the complaint under Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief could be granted. In response, on October 23, 1990, Batoff filed a petition to remand the case to the Court of Common Pleas pursuant to 28 U.S.C. § 1447(c), ³ asserting that diversity is not complete because he and Paul are citizens of Pennsylvania.

On January 15, 1992, the district court entered an order denying Batoff's petition. While in its accompanying memorandum the court indicated that State Farm had urged that Paul is immune from Batoff's suit and was joined fraudulently, the court stated that it would deny "the motion to remand but not for the reasons advanced by the defendants."

The court then evaluated the merits of Batoff's claims against Paul. Citing cases from the courts of appeals for the Third and Sixth Circuits and from the district court for the Eastern District of Pennsylvania, the court determined that a corporation cannot conspire with its employee. It said that because the complaint alleged Paul was an employee of State Farm acting under its direction, Paul could not have been a co-conspirator "nor otherwise be legally responsible" to Batoff. It further held that to the extent that the complaint alleged that Paul was an independent expert, retained to provide information and advice to State Farm, he was "immune from suit, Moses v. McWilliams, 549 A.2d 950, 956-7 (Pa.Super.1988)." Ultimately, the court held, "[Because] I conclude that the complaint fails to state a valid claim against Dr. Paul, he will be dismissed as a defendant." Therefore, the court would not remand as "there is diversity between plaintiff and State Farm." ⁴

The court, in a memorandum and order entered on March 23, 1992, subsequently granted State Farm's motion to dismiss the action against it under Rule 12(b)(6). However, in view of our conclusion that the district court lacked subject matter jurisdiction, we will not describe the basis for the second order or consider it on the merits. Batoff has appealed, and we have jurisdiction under 28 U.S.C. § 1291, and exercise plenary review. ⁵

II. DISCUSSION

We center our discussion on an examination of the district court's decision to dismiss Paul as a defendant for, in view of the common Pennsylvania citizenship of Batoff and Paul, there could be no basis for federal jurisdiction in this diversity case if Paul properly were made a defendant. Thus, if Paul should not have been dismissed as a defendant, this case should have been remanded to the court of common pleas.

A district court must consider a number of settled precepts in ruling on a petition to remand a case to state court for lack of diversity jurisdiction. When a non-diverse party has been joined as a defendant, then in the absence of a substantial federal question the removing defendant may avoid remand only by demonstrating that the non-diverse party was fraudulently joined. But the removing party carries a "heavy burden of persuasion" in making this showing. Steel Valley Author. v. Union Switch & Signal Div., 809 F.2d 1006, 1012 n. 6 (3d Cir.1987), cert. dismissed, 484 U.S. 1021, 108 S.Ct. 739, 98 L.Ed.2d 756 (1988); see also Boyer v. Snap-On Tools Corp., 913 F.2d 108, 111 (3d Cir.1990), cert. denied, --- U.S. ----, 111 S.Ct. 959, 112 L.Ed.2d 1046 (1991). It is logical that it should have this burden, for removal statutes "are to be strictly construed against removal and all doubts should be resolved in favor of remand." Steel Valley, 809 F.2d at 1010 (citing Abels v. State Farm Fire & Casualty Co., 770 F.2d 26, 29 (3d Cir.1985)).

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 defendants or seek a joint judgment.' " Boyer, 913 F.2d at 111 (quoting Abels, 770 F.2d at 32). But, " '[i]f 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 joinder was proper and remand the case to state court.' " Boyer, 913 F.2d at 111 (quoting Coker v. Amoco Oil Co., 709 F.2d 1433, 1440-41 (11th Cir.1983)). Furthermore, we recently have held that "where there are colorable claims or defenses asserted against or by diverse and non-diverse defendants alike, the court may not find that the non-diverse parties were fraudulently joined based on its view of the merits of those claims or defenses." Boyer, 913 F.2d at 113 (citing Chesapeake & O. Ry. Co. v. Cockrell, 232 U.S. 146, 34 S.Ct. 278, 58 L.Ed. 544 (1914)).

In evaluating the alleged fraud, the district court must "focus on the plaintiff's complaint at the time the petition for removal was filed. In so ruling, the district court must assume as true all factual allegations of the complaint." Steel Valley, 809 F.2d at 1010 (citation omitted). It also must "resolve any uncertainties as to the current state of controlling substantive law in favor of the plaintiff." Boyer, 913 F.2d at 111.

As we have stated already, the court concluded that it could dismiss Paul from the action simply because Batoff's complaint "fails to state a valid claim" against him. Thus, while the court did not characterize its analysis as being the same as it would make on a ruling on a motion to dismiss under Fed.R.Civ.P. 12(b)(6), that is exactly what it was. But the inquiry into the validity of a complaint triggered by a motion to dismiss under Rule 12(b)(6) is more searching than that permissible when a party makes a claim of fraudulent joinder. Therefore, it is possible that a party is not fraudulently joined, but that the claim against that party...