Boy Scouts of Am. v. Hartford Accident & Indem. Co.

• Decision Date: 10 March 2020
• Docket Number: CIVIL ACTION NO. 3:19-CV-1318-B
• Citation: 443 F.Supp.3d 753
• Parties: BOY SCOUTS OF AMERICA; Connecticut Yankee Council; Spirit of Adventure Council; Aloha Council; and Cascade Pacific Council, Plaintiffs, v. The HARTFORD ACCIDENT & INDEMNITY COMPANY and First State Insurance Company, Defendants.
• Court: U.S. District Court — Northern District of Texas

443 F.Supp.3d 753

BOY SCOUTS OF AMERICA; Connecticut Yankee Council; Spirit of Adventure Council; Aloha Council; and Cascade Pacific Council, Plaintiffs,

v.The HARTFORD ACCIDENT & INDEMNITY COMPANY and First State Insurance Company, Defendants.

CIVIL ACTION NO. 3:19-CV-1318-B

United States District Court, N.D. Texas, Dallas Division.

Signed March 10, 2020

Ernest Martin, Jr., Carla Verena Green, Haynes & Boone LLP, Dallas, TX, for Plaintiffs.

Todd M. Tippett, Zelle Hofmann Voelbel & Mason LLP, Dallas, TX, Abigail W. Williams, Pro Hac Vice, James P. Ruggeri, Pro Hac Vice, Joshua Weinberg, Pro Hac Vice, Shipman & Goodwin LLP, Washington, DC, Joseph C. Weinstein, Squire Sanders & Dempsey LLP, Cleveland, OH, for Defendants.

MEMORANDUM OPINION AND ORDER

JANE J. BOYLE, UNITED STATES DISTRICT JUDGE

This is an insurance coverage dispute that has been removed from a Texas state court. Boy Scouts of America and several of its local councils—specifically, Connecticut Yankee Council, Spirit of Adventure Council, Aloha Council, and Cascade Pacific Council—sued their insurer, Hartford. The coverage dispute arises out of sexual-abuse lawsuits filed against the Boy Scouts and these councils. Before the Court is Plaintiffs' Motion to Remand (Doc. 4). The issue the motion presents is whether the parties have complete diversity of citizenship. Currently, it appears as if there is not complete diversity—Plaintiff Connecticut Yankee Council and both Defendants are citizens of Connecticut. However, Defendants removed the case to federal court on the ground that there is federal diversity jurisdiction because the Boy Scouts improperly joined Connecticut Yankee Council.

For the reasons stated above, the Court DENIES Plaintiffs' Motion to Remand (Doc. 4) WITHOUT PREJUDICE .

I.BACKGROUND

Boy Scouts of America is a well-known youth-development organization that operates across the country. Doc. 1-2, Original Pet., ¶ 13. The Boy Scouts works with local organizations to implement its scouting program. Id. ¶ 14. These organizations—often churches, clubs, or other educational groups—are supported by local councils. Id.

Boy Scouts of America and several of its local state councils filed this lawsuit in Texas state court against Defendants The Hartford Accident and Indemnity Company and First State Insurance Company (referred to together as "Hartford") for the improper denial of coverage under various general and excess liability policies issued by Hartford. See generally id.

The issue before the Court is whether one of the local councils, Connecticut Yankee Council ("Connecticut Council"), was improperly joined in this insurance-coverage dispute in order to defeat diversity jurisdiction.

The Boy Scouts maintains a "comprehensive, broad insurance program" for "its many activities and local councils throughout the country[.]" Id. ¶ 15. Relevant to this case, the Boy Scouts purchased several general liability, umbrella, and excess liability insurance policies from Hartford. Doc. 4, Mot. to Remand, 4. Connecticut Council, among other local councils, is named as an insured in these policies. See, e.g. , Doc. 5-7, Pls.' App., 370, 438.¹ Under the policies, Hartford agreed to cover sums that the Boy Scouts would "be obligated to pay as damages because of personal injury...." Doc. 1-2, Orig. Pet., ¶ 21. Hartford also agreed to defend and indemnify the insured in personal injury suits. Id. ¶¶ 22–23.

Recently, the Boy Scouts and its local councils have been sued by various youth participants for sexual-abuse-related injuries suffered while participating in various scouting programs. Id. ¶ 16. These sexual-assault victims generally allege that the Boy Scouts and the respective local councils were negligent in failing to prevent the abuse. Id. ¶ 18.

The Boy Scouts and the local councils allege that some of these underlying sexual-abuse lawsuits are covered by their insurance policies with Hartford. Id. ¶ 25. They further allege that they provided Hartford with notice of these lawsuits, but that Hartford has denied its coverage obligations under the policies, including coverage for defense costs and indemnity payments associated with these lawsuits. Id. ¶¶ 26–27.

Connecticut Council is a defendant in one of the sexual-abuse lawsuits. Doc. 4, Mot. to Remand, 5 (citing Doc. 5-4, Pls.' App., 16 (John Does Compl.)). Four individuals that were previously youth participants in the Boy Scouts brought claims against Connecticut Council and others, alleging that between 1974 and 1976, their scout leader physically, mentally, and sexually abused them. Id. The case ("John Does lawsuit") is currently pending in Connecticut state court. Id. Plaintiffs here assert that the injuries the John Does allege in this Connecticut case trigger the relevant 1974–76 Hartford primary and excess policies. Id. Thus, Plaintiffs claim, Hartford is obligated to both defend and indemnify Connecticut Council against these claims. Id. (citing Doc. 5-6, Pls.' App., 171 (Hartford Primary Policy); Doc. 5-8, Pls.' App., 500 (Hartford Excess Policy)). Plaintiffs allege that they have notified Hartford of this suit, yet Hartford continues to deny that it has any obligation to defend or indemnify Connecticut Council in the suit. Doc. 4, Mot. to Remand, 5–6.

On June 5, 2018, the Boy Scouts and local councils filed their Original Petition against Hartford in the District Court for the 95th Judicial District of Dallas County, Texas. Doc. 1-2, Orig. Pet. Plaintiffs assert the following claims against Hartford: (1) declaratory judgment; (2) breach of contract; and (3) violations of Chapter 542 of the Texas Insurance Code. Id. ¶¶ 33–57.

The case progressed in state court until May 31, 2019, when Hartford filed a notice of removal in this Court. Doc. 1, Notice of Removal. In its notice of removal, Hartford argues that the Court may exercise subject matter jurisdiction over this case under 28 U.S.C. § 1332, because although Connecticut Council and Hartford are citizens of Connecticut, Connecticut Council was improperly joined and thus its citizenship should not be considered for the purpose of assessing the validity of diversity jurisdiction. Id. at 2–7. Hartford alleges that, through initial discovery conducted in state court, it learned that Connecticut Council does not have a justiciable claim against Hartford in this action. Id. at 3–5.

On June 21, 2019, Plaintiffs filed a motion to remand the case to state court on the ground that Connecticut Council was properly joined and therefore diversity of citizenship does not exist. Doc. 4, Mot. to Remand, 1–3. The motion is now ripe for review. However, a wrinkle emerged while the motion was pending—the Boy Scouts filed a Chapter 11 case in the United States Bankruptcy Court for the District of Delaware. See In re Boy Scouts of America , Lead Case No. 20-10343 (Bankr. D. Del. Feb. 18, 2020). It appears that this proceeding remains unaffected by the automatic stay in place for the Chapter 11 case. See Doc. 20, Order, 1–2; see also Doc. 23, Defs.' Resp., 1 (concurring that automatic stay does not prevent the Court from ruling on the motion to remand). However, Defendants now assert that the Court has an independent basis for jurisdiction over this matter because it is "related to" to a Chapter 11 case. See Doc. 23, Defs.' Resp., 3–4 (citing 28 U.S.C. § 1334(b) ). The Court addresses both the motion to remand and the "related to" jurisdictional arguments below.

II.LEGAL STANDARD

Motions for remand are governed by 28 U.S.C. § 1447(c), which provides that "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." When considering a motion to remand, "[t]he removing party bears the burden of showing that federal jurisdiction exists and that removal was proper." Manguno v. Prudential Prop. & Cas. Ins. Co. , 276 F.3d 720, 723 (5th Cir. 2002) (citation omitted). Furthermore, "any doubt about the propriety of removal must be resolved in favor of remand." Gasch v. Hartford Acc. & Indem. Co. , 491 F.3d 278, 281–82 (5th Cir. 2007) (citations omitted).

The federal removal statute, 28 U.S.C. § 1441(a), generally permits a defendant to remove any civil action to federal court that falls within the original jurisdiction of the district courts. One such grant of authority is found in 28 U.S.C. § 1332. This statute provides the district courts with original jurisdiction over "all civil actions where the matter in controversy exceeds the sum or value of $75,000 ... and is between ... citizens of different States[.]" 28 U.S.C. § 1332(a)(1). However, removal is only proper in such cases if there is complete diversity of citizenship among the parties at the time the complaint is filed and at the time of removal. See Coury v. Prot , 85 F.3d 244, 249 (5th Cir. 1996).

That being said, a non-diverse defendant may be disregarded for the purpose of analyzing complete diversity if the non-diverse defendant was improperly joined. See Cuevas v. BAC Home Loans Servicing, LP , 648 F.3d 242, 249 (5th Cir. 2011) (noting that the "improper joinder doctrine constitutes a narrow exception to the rule of complete diversity") (citing McDonal v. Abbott Labs. , 408 F.3d 177, 183 (5th Cir. 2005) ). The burden to establish improper joinder is on the removing party, and it "is a heavy one." Id. The removing party must establish either "(1) actual fraud in the pleading of jurisdictional facts, or (2) inability of the plaintiff to establish a cause of action against the non-diverse party in state court." Smallwood v. Ill. Cent. R.R. Co. , 385 F.3d 568, 573 (5th Cir. 2004) (en banc) (quoting Travis v. Irby , 326 F.3d 644, 646–47 (5th Cir. 2003) ). In this case, Hartford does not assert that Plaintiffs engaged in fraud. Thus, in order to establish improper joinder, Hartford must demonstrate that Connecticut Council has no possibility of recovery.² Smallwood , 385 F.3d at 573.

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