Gabriel v. Life Options Int'l, Inc.

• Decision Date: 30 April 2015
• Docket Number: CIVIL ACTION NO. 14-358-CG-B
• Parties: ROBERT GABRIEL, et al., Plaintiffs, v. LIFE OPTIONS INTERNATIONAL, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of Alabama

ROBERT GABRIEL, et al., Plaintiffs, v. LIFE OPTIONS INTERNATIONAL, INC., et al., Defendants.

CIVIL ACTION NO. 14-358-CG-B

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF ALABAMA NORTHERN DIVISION

April 30, 2015

ORDER

This matter is before the Court on the following motions: Defendant Veritrust's motion to remand (Doc. 20), Plaintiffs' motion to remand (Doc. 24), Defendant Chartis Specialty's opposition to both motions to remand (Doc. 26), Defendant Chartis Specialty's motion to realign (Doc. 27), and Defendant Veritrust's (Doc. 28) and Plaintiff's (Doc. 29) responses in opposition to the motion to realign.

Upon consideration of the motions, the responses of the parties, and for the reasons set forth below, the Court finds that Veritrust Financial's and Plaintiff's motion to remand is due to be denied and Defendant Chartis Specialty's motion to realign is due to be granted.

BACKGROUND

This case arises from a tangled web of litigation that began in the Circuit Court of Dallas County, Alabama.

On January 17, 2012, Plaintiffs Robert Gabriel, Joseph Habshey, Mary Shanklin, and Carl Most filed suit in the Circuit Court of Dallas County, Alabama, against Michael J. Howard, Life Options International, Inc., Mike Howard Financial Services, Inc. (the "Howard Defendants"), Aragon n/k/a Veritrust Financial, LLC ("Veritrust"), and Northeast Escrow Services, LLC,alleging claims arising from the sale of viatical settlements in the mid-1990's (the "Viatical suit"). (Doc. 1, Exh. B). Plaintiffs alleged that the Howard Defendants, who are an Alabama insurance agent and his affiliated Alabama corporations, sold the viatical settlements while acting as agents for Veritrust, a Securities Broker-Dealer headquartered in Texas. (Doc. 1, Exh. B, pp. 4 - 9)

Between January 2012 and September 2013, Plaintiffs amended the Complaint in the Viatical suit four times. Veritrust actively defended the Viatical suit, filing answers to all but the fourth amended Complaint. (Doc. 1, Exh. B). The Howard Defendants filed an answer to the Complaint and amended Complaint in May 2012, but never responded to the second, third, and fourth amended Complaints. (Id.) Northeast Escrow never filed a response to any Complaint. On March 29^th, 2012, the Circuit Court of Dallas County dismissed the claims against defendant Northern Escrow without prejudice. (Id. at 57).

In the fourth amended complaint, Plaintiffs moved to replace Robert Gabriel with RMG International, a foreign corporation based in the Netherlands, and AZMACOMP, Inc., who the plaintiffs' allege is a foreign corporation doing business by agent in Alabama. (Id. at 204). Curiously, the Court can find no evidence of the existence of AZMACOMP, Inc., let alone its corporate headquarters. The Circuit Court in Dallas County granted the request to replace Plaintiff Robert Gabriel with these two corporations. (Id. at 208).

Before trial, the parties filed a Settlement Status report in the Viatical suit stating that "[t]he Parties have circulated a final confidential settlement agreement and obtained some but not all of the necessary signatures for execution." (Id. at 223). The parties believed the release executed between Plaintiffs and Veritrust releases Plaintiffs' claims against the Howard Defendants, either specifically, by name, or generally, as agents for Veritrust. (Docs. 10, 12).

On April 14, 2014, the "Plaintiffs and Defendants" in the Viatical Lawsuit filed a Joint Motion to Enter Judgment against Veritrust for $5.1 million, with a $100,000 settlement payment to be paid to Plaintiffs by Veritrust within 10 days. (Doc. 1, Exh. B, p. 225). On April 17, 2014, the Circuit Court of Dallas County entered judgment against Veritrust for $5.1 million. (Id. at 228).

Neither Plaintiffs nor Veritrust moved to dismiss the Viatical Lawsuit after the settlement and entry of judgment against Veritrust. Instead, on June 19, 2014, Plaintiffs filed in the Viatical Lawsuit a post-judgment Fifth Amended Complaint adding Chartis Specialty, an insurance company based in Illinois, as a defendant and asserting judgment creditor insurance garnishment claims under Ala. Code § 27-23-2. (Id. at 229). The Complaint seeks indemnity coverage from Chartis Specialty for the $5.1 million consent judgment under the Chartis Securities Broker/Dealer's Professional Liability Insurance policy issued to Veritrust. (Id.)

On July 11, 2014, Veritrust filed a post-judgment Cross-Claim Complaint against Chartis Specialty alleging claims for breach of contract and bad faith failure to provide a defense to Veritrust in the Viatical Lawsuit. (Id. at 235).

On July 29, 2014, plaintiffs amended their complaint a sixth, and then due to a spelling error, a seventh time, to add Mary Sikora, a Texas resident, as a plaintiff. (Id. at 237 - 40).

On July 31, 2014, Chartis Specialty removed this action to federal court pursuant to 28 U.S.C. §§ 1331, 1441, and 1446. On August 5, 2014, Chartis then answered plaintiffs complaint (Doc. 6) and Veritrust's cross-claim complaint (Doc.7).

On August 9, 2014, the Howard defendants filed a motion to dismiss the claims against them citing that the mutual settlement in state court released them from the case. (Doc. 12). Furthermore, the Howard Defendants cited a separate action and settlement of Mary Sikora, which released theHoward Defendants from her case as well. (Doc. 10). The court granted the Howard Defendants' motion to dismiss on August 18, 2014. (Doc. 18).

On August 22, 2014, Veritrust filed a motion to remand to state court claiming removal occurred after the one-year time limit, lack of diversity of parties and lack of their own consent as defendants. (Doc. 20). On September 2, 2014, Plaintiffs filed a motion for remand to state court that also claimed lack of diversity, removal after the one-year time limit and lack of consent of all defendants. (Doc. 24)

I. MOTION TO REMAND TO STATE COURT

The first issue in this case is whether the Court should grant Veritrust's and Plaintiffs' motions to remand back to state court.

A. Jurisdiction in general

There can be no doubt that "[f]ederal courts are courts of limited jurisdiction, and there is a presumption against the exercise of federal jurisdiction, such that all uncertainties as to removal jurisdiction are to be resolved in favor of remand." Russell Corp. v. Am. Home Assurance Co., 264 F.3d 1040, 1050 (11th Cir. 2001) (citation omitted); see also Allen v. Christenberry, 327 F.3d 1290, 1293 (11th Cir. 2003) ("[R]emoval statutes should be construed narrowly, with doubts resolved against removal."), cert. denied, 540 U.S. 877, 124 S.Ct. 277, 157 L.Ed.2d 140 (2003); Univ. of S. Ala. v. Am. Tobacco Co., 168 F.3d 405, 411 (11th Cir. 1999) ("Because removal jurisdiction raises significant federalism concerns, federal courts are directed to construe removal statutes strictly. . . . Indeed, all doubts about jurisdiction should be resolved in favor of remand to state court."); see also Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 1675, 128 L.Ed.2d 391 (1994) ("Federal courts are courts of limited jurisdiction. They possess only that power authorized by Constitution and statute, which is not to be expanded by judicial decree[.]" (internal citations omitted)). Moreover, the removing defendant must bear "the burden of demonstrating federal jurisdiction." Triggs v. John Crump Toyota, Inc., 154 F.3d 1284, 1287 n.4(11th Cir. 1998)(citation omitted). Stated differently, because federal courts are courts of limited jurisdiction "[i]t is . . . presumed that a cause lies outside this limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting jurisdiction[.]" Kokkonen, supra, 511 U.S. at 377, 114 S.Ct. at 1675 (internal citations omitted).

A removing defendant must establish the propriety of removal under 28 U.S.C. § 1441 and, therefore, must establish the existence of federal jurisdiction. Leonard v. Enterprise Rent a Car, 279 F.3d 967, 972 (11th Cir. 2002) ("A removing defendant bears the burden of proving proper federal jurisdiction."); Tapscott v. MS Dealer Service Corp., 77 F.3d 1353, 1356 (11th Cir. 1996), overruled on other grounds by Cohen v. Office Depot, Inc., 204 F.3d 1069 (11th Cir. 2000). Because removal infringes upon state sovereignty and implicates central concepts of federalism, removal statutes must be construed narrowly, with all doubts resolved in favor of remand. See Univ. of S. Ala. v. Am. Tobacco Co., 168 F.3d 405, 411 (11^th Cir.1999) (explaining that strict construction of removal statutes derives from "significant federalism concerns" raised by removal jurisdiction); Whitt v. Sherman Int'l Corp., 147 F.3d 1325, 1333 (11th Cir. 1998) (expressing preference for remand where removal jurisdiction is not absolutely clear); Burns v. Windsor Ins. Co., 31 F.3d 1092, 1095 (11th Cir. 1994) (uncertainties regarding removal are resolved in favor of remand); Newman v. Spectrum Stores, Inc., 109 F.Supp.2d 1342, 1345 (M.D. Ala. 2000) ( "Because federal court jurisdiction is limited, the Eleventh Circuit favors remand of removed cases where federal jurisdiction is not absolutely clear.")

The removing party, Chartis Specialty, bears the burden of establishing complete diversity of citizenship and establish by a preponderance of the evidence that the amount in controversy exceeds $75,000. Tapscott, supra, 77 F.3d at 1357. ("[W]e hold where a plaintiff has made an unspecified demand for damages in state court, a removing defendant must prove by a preponderance of the evidence that the amount in controversy more likelythan not exceeds the ... jurisdictional requirement.").

Moreover, as a procedural matter, the removal must be timely. See Clingan v. Celtic Life Ins. Co., 244 F.Supp.2d 1298, 1302 (M.D. Ala. 2003) ("The time limit in 28 U.S.C. § 1446(b) is 'mandatory and must be strictly applied.'"); cf. Moore v. North Am. Sports, Inc., 623 F.3d 1325, 1329 (11th Cir. 2010) ("[T]he timeliness of...