Davis v. Carey

• Court: U.S. District Court — Southern District of Indiana
• Writing for the Court: Tinder
• Citation: Davis v. Carey, 149 F.Supp.2d 593 (S.D. Ind. 2001)
• Decision Date: 19 April 2001
• Docket Number: No. IP 00-1762-C-T/G.,IP 00-1762-C-T/G.
• Parties: Ricky Thomas DAVIS, Jr., Plaintiff, v. Cornelius Harlan CAREY, Judgment Defendant. Allstate Insurance Company, Defendants.

149 F.Supp.2d 593

Ricky Thomas DAVIS, Jr., Plaintiff, v. Cornelius Harlan CAREY, Judgment Defendant Allstate Insurance Company, Defendants.

No. IP 00-1762-C-T/G.

United States District Court, S.D. Indiana, Indianapolis Division.

April 19, 2001.

Frederick R. Hovde, Hovde Law Firm, Indianapolis, IN, for Plaintiff.

Jeffrey Allen Cooke, The Cook Law Office, Lafayeytte, IN, John W. Hammel, Yarling & Robinson, Mark R. Smith, Smith Fisher & Maas, Indianapolis, IN, for Defendants.

Entry on Plaintiff's Motion To Remand

TINDER, District Judge.

Garnishee Defendant Allstate Insurance Company removed this action from state court, invoking the court's diversity jurisdiction. Plaintiff Ricky Thomas Davis, Jr., now moves to remand, contending the court lacks jurisdiction because of a lack of complete diversity. Having considered the motion, the court rules as follows.

I. Background

On June 4, 1998, Plaintiff Ricky Thomas Davis, Jr., commenced this action in the Franklin Circuit Court against Defendant Cornelius Harlan Carey, Cause No. 24C01-9806-CT-145. Both Davis and Carey are citizens of the State of Indiana. Davis obtained a default judgment against Carey in the amount of $1,419,777.12. Allstate Insurance Company ("Allstate") was added as a garnishee defendant on October 25, 2000, when Plaintiff Davis filed his Petition for Proceedings Supplemental to Execution to collect from Allstate the judgment obtained against Carey. On November 13, 2000, Allstate filed its Notice of Removal, asserting this court's diversity jurisdiction.

II. Discussion

Plaintiff Davis moves to remand, contending that the court lacks subject matter jurisdiction over this action because there is a lack of complete diversity. He first asserts that he and Carey are citizens of the same state. He next argues that if Carey were realigned as a Plaintiff, then the action is a "direct action" under 28 U.S.C. § 1332(c) against Carey's insurer Allstate, and Allstate therefore is deemed a citizen of the state of which Carey is a citizen, defeating diversity. Allstate opposes the motion to remand and argues that the court may properly exercise jurisdiction over this action because Carey is a nominal party and should be realigned with Davis. Allstate also argues that this garnishment action is not a "direct action" within the meaning of § 1332(c).

A case properly may be removed to federal court from state court if it might have been brought originally in federal court. See Shaw v. Dow Brands, Inc., 994 F.2d 364, 366 (7th Cir.1993). A removed case must be remanded if the district court lacks subject matter jurisdiction. See id. at 366.

When jurisdiction is based on diversity of citizenship, the court may, if proper, realign the parties to conform to their true interests in the action. Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 62 S.Ct. 15, 86 L.Ed. 47 (1941); Am. Motorists Ins. Co. v. Trane Co., 657 F.2d 146, 149 (7th Cir.1981). "Realignment is proper when the court finds that no actual, substantial controversy exists between parties on one side of the dispute and their named opponents...." Am. Motorists, 657 F.2d at 149. In deciding whether there is an actual, substantial controversy, the court may look beyond the pleadings. Fid. & Deposit Co. v. City of Sheboygan Falls, 713 F.2d 1261, 1264 (7th Cir.1983); Am. Motorists, 657 F.2d at 149. The decision must be based on the facts as they existed at the time the action was commenced. See Am. Motorists, 657 F.2d at 149.

In arguing that his interests and that of Carey are adverse such that realignment would be improper, Davis relies on two things: Carey's potential personal liability on the judgment Davis has against him and Allstate's counsel's indication that Allstate intends to move to set aside the default judgment against Carey. Neither serves as a basis for concluding that the interests of Davis and Carey in this garnishment action are adverse. Even though Carey is potentially liable for a substantial part of the judgment against him, it is in his interest to have as much of that judgment satisfied by the proceeds from the Allstate policy as possible. As for Allstate's intention to seek to have the default judgment set aside, the decision whether there is an actual, substantial controversy between Davis and Carey is to be based on the facts as they existed at the time this garnishment action was commenced, see Am. Motorists, 657 F.2d at 149, not on Allstate's expressed intent to take some future action.

The court finds that no actual, substantial controversy exists between Davis and Carey in this action. Thus, Carey is properly realigned as a Plaintiff. Davis' garnishment action seeks to recover the proceeds of the Allstate policy issued to Carey's mother to satisfy Davis' judgment against Carey. Though the judgment exceeds the limits of the insurance, Carey's interests are aligned with Davis' interests. It certainly is in Carey's interest to have Allstate pay on the policy, thus reducing Carey's personal liability. Other cases have reached similar conclusions. See Truck Ins. Exch. v. Ashland Oil, Inc., 951 F.2d 787, 788 (7th Cir.1992) (concluding that insured and insured's victims' interests should be aligned in action by plaintiff insurer seeking declaratory judgment that it had no duty to defend or indemnify the insured or the insured's victims); Randolph v. Employers Mut. Liab. Ins. Co., 260 F.2d 461, 464 (8th Cir.1958) (concluding insured should be aligned as a plaintiff because "it would be to [his] interest to have the judgment against him satisfied by his insurer."); Boston v. Titan Indem. Co., 34 F.Supp.2d 419, 421-22 (N.D.Miss.1999) (stating in garnishment proceeding against county's liability insurer to collect judgment against county that "[s]ince garnishment of insurance proceeds would be in the [insured] county's interest, the court further finds that the county should be realigned as a party plaintiff for purposes of determining diversity of citizenship."). Because Carey properly should be realigned as a Plaintiff, the fact that he and Davis share citizenship in the same state does not defeat diversity jurisdiction.

Davis contends that if Carey were realigned, then his garnishment petition would be considered a direct action against Allstate and, consequently, Allstate would be deemed a citizen of the state in which Carey is a citizen. The statute which grants federal courts diversity jurisdiction provides that a corporation is deemed "a citizen of any State by which it has been incorporated and of the State where it has its principal place of business." 28 U.S.C. § 1332(c)(1). The statute contains the following exception:

[I]n any direct action against the insurer of a policy or contract of liability insurance, whether incorporated or unincorporated, to which action the insured is not joined as a party-defendant, such insurer shall be deemed a citizen of the State of which the insured is a citizen, as well as of any State by which the insurer has been incorporated and of the State where it has its principal place of business. ...

Id. The real issue in this case is whether Plaintiff's Motion For Proceedings Supplemental is a "direct action" within the meaning of that term as used in 28 U.S.C. § 1332(c).

The court first notes that garnishment actions under Indiana law may be removed from state court. See, e.g., Harding Hosp. v. Sovchen, 868 F.Supp. 1074, 1078 (S.D.Ind.1994) (holding garnishment proceeding under Indiana law was a removable independent "civil action" under § 1441); Wausau Ins. Cos. v. Koal Indus. Int'l, Inc., 811 F.Supp. 399, 400 (S.D.Ind. 1991) (same).

Davis relies on the decision in Prendergast v. Alliance General Insurance Company, 921 F.Supp. 653 (E.D.Mo.1996), for the proposition that a garnishment action against an insurer is a "direct action." The Prendergast plaintiffs brought an action to collect a judgment they had obtained in Missouri state court against the defendant's insureds who were Missouri citizens. The defendant was an Illinois corporation with its principal place of business in Illinois. See id. at 654-55. The court found that Missouri's garnishment statute authorizing a cause of action against an insurance company to collect insurance proceeds in satisfaction of a final judgment obtained against its insured was a "direct action" under § 1332(c). Id. at 655. The court noted that § 1332(c) was amended in response to Louisiana's direct action statute, which allowed an injured party to sue a tortfeasor's insurer directly without joining the tortfeasor as a defendant and which had the effect of "creat[ing] diversity jurisdiction in cases in which both the tortfeasor and the injured party were residents of Louisiana, but the tortfeasor's insurer was considered a resident of another state." Prendergast, 921 F.Supp. at 655 (quoting Northbrook Nat'l Ins. Co. v. Brewer, 493 U.S. 6, 10, 110 S.Ct. 297, 107 L.Ed.2d 223 (1989)). The court further noted that "Congress amended the statute because such a result was not within the `spirit or intent' of diversity jurisdiction." Id. The court then reasoned that policy considerations counseled in favor of finding the action to be a direct action:

The defendant insurance company ... is not being sued for any action it took against the plaintiffs, but is simply being sued in an attempt to collect a judgment that has already been entered against its insured, a Missouri citizen.... Missouri's equitable garnishment statute essentially does in two steps what the Louisiana statute that lead [sic] to the change in § 1332(c)(1) did in one step, and provides to the suing plaintiff the same remedy that a direct action against the insurance company would have provided, were that allowed under Missouri law.

Prendergast, 921 F.Supp. at 655.

In arguing this action is not a direct action, Allstate relies on the decisions of Searles v. Cincinnati Insurance Company, 998 F.2d 728 (9th Cir.1993), which held that an...