Gillett v. Spirit Commercial Auto Risk Retention Grp.

• Decision Date: 24 September 2020
• Docket Number: Civil Action No. 3:20-cv-00058-RGJ,Civil Action No. 3:19-cv-00260-RGJ
• Parties: GEORGE GILLETT, Plaintiff v. SPIRIT COMMERCIAL AUTO RISK RETENTION GROUP, INC., CTC TRANSPORTATION INSURANCE SERVICES, LLC, and SARMAN TRUCKING, LLC, Defendants GEORGE GILLETT, Plaintiff v. THOMAS MULLIGAN, et al., Defendants
• Court: U.S. District Court — Western District of Kentucky

GEORGE GILLETT, Plaintiff v. SPIRIT COMMERCIAL AUTO RISK RETENTION GROUP, INC.,

CTC TRANSPORTATION INSURANCE SERVICES, LLC,andSARMAN TRUCKING, LLC, DefendantsGEORGE GILLETT, Plaintiff v. THOMAS MULLIGAN, et al., Defendants

Civil Action No. 3:19-cv-00260-RGJ

Civil Action No. 3:20-cv-00058-RGJ

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF KENTUCKY LOUISVILLE DIVISION

September 24, 2020

MEMBER CASE:

* * * * *

MEMORANDUM OPINION & ORDER

Plaintiff, George Gillett ("Gillett") sues Defendants Spirit Commercial Auto Risk Retention Group, Inc. ("Spirit"), CTC Transportation Insurance Services, LLC ("CTC"), Sarman Trucking, LLC ("Sarman"), Thomas Mulligan ("Mulligan"), Criterion Claim Solutions of Omaha, Inc. ("Criterion"), Lexicon Insurance Management, LLC ("Lexicon"), Chelsea Financial Group, Inc. ("Chelsea"), 10-4 Preferred Risk Managers, Inc. ("10-4 Preferred Risk"), and County Hall Insurance Company, Inc. ("County Hall" and collectively "Defendants"). Defendants, CTC, Mulligan, Criterion, Lexicon, Chelsea, 10-4 Preferred Risk, and County Hall ("Moving Defendants") move to dismiss. [DE 39; 47; 48; 49; 50; 51; 52; 53]. Spirit separately moves to dismiss based on lack of subject matter jurisdiction. [DE 11]. Gillett responded [DE 23; 55; 57], and Defendants filed replies [DE 24; 58; 61; 62; 65; 66; 67; 69]. Gillett also moves to remand this case to Kentucky state court. [DE 54]. The Moving Defendants responded, opposing remand. [DE 56, 63, 64, 68]. Gillett replied. [DE 70]. Sarman has not appeared. These matters are now ripe.

For the reasons below, the Court DENIES Gillett's Second Motion to Remand [DE 54], DENIES Spirit's Motion to Dismiss for Lack of Jurisdiction [DE 11], and DENIES Moving Defendants' Motions to Dismiss, [DE 39; 47; 48; 49; 50; 51; 52; 53]. As oral argument regarding Moving Defendant's Motions is unnecessary, the Court DENIES Spirit's Motion for Hearing [DE 71], and DENIES Lexicon's Motion for Hearing [DE 73].

I. FACTUAL BACKGROUND

Plaintiff, George Gillett obtained a judgment in Indiana against Sarman for damages resulting from a trucking crash involving Sarman and Gillett ("Indiana Judgment"). [DE 1-2 at 30]. In that case (the "Indiana Action"), Gillett attempted, but failed to serve Sarman through Sarman's registered agent who Gillett alleges resides in Kentucky. [DE 55 at 1597-98]. Sarman is a now a defunct Kentucky corporation. [Id.] Gillette sought to serve Sarman's registered agent by mail and by process server. [Id.].

After failing to serve Sarman's registered agent six times, Gillett moved the Indiana court for permission to serve Sarman by publication. [DE 51-1 at 1419]. The Court granted Gillett's motion, and Gillett published notice of the lawsuit in News and Tribune, an Indiana newspaper covering Clark and Floyd Counties in southern Indiana. [DE 51 at 1383]. Gillett then mailed the various pleadings in the case to both Sarman's business address and Sarman's registered agent's home address. [DE 51 at 1383; DE 55 at 1599]. These pleadings included Gillett's Rule 36admissions, which asked Sarman to admit among other things, that Gillett was entitled to $750,000 in damages. [Id.].

Neither Sarman nor its registered agent appeared in the case or responded to the Rule 36 admission. Gillett filed a motion for summary judgment in the Indiana Action. [DE 51 at 1383]. The Indiana court granted Gillett's Motion for Summary Judgment and entered judgment against Sarman in the amount of $750,000. [DE 51 at 1384]. Sarman failed to pay the Indiana Judgment.

Gillett then filed a complaint ("First Complaint") in Kentucky against Spirit, CTC, and Sarman resulting from the parties' failure to pay the Indiana Judgment. [DE 1-2, ("First Compl.") at 16, 20-28]. Gillett alleges that Spirit was Sarman's insurance company when the Indiana Judgment was entered, and thus must pay the Judgment. [First Compl. at 20-21]. Gillett also alleges that CTC is responsible for paying the Indiana Judgment because "Spirit completed the extension of its reinsurance placement with CTC through 2019." [Id. at 22-26]. Thus, CTC is "responsible for paying any claims that Spirit is financially incapable of paying." [Id, ¶ 86]. Gillett also alleges that CTC is responsible for the Indiana Judgment because it is the alter ego of Spirit. [Id., ¶¶ 88-96]. As a result, Gillett seeks a declaratory judgment against both CTC and Spirit in the amount of the Indiana Judgment. [Id. at 27-28].

In January 2020, Gillett filed a second, related complaint against Mulligan, CTC, Criterion, Lexicon, Chelsea, 10-4 Preferred Risk, and County Hall ("Second Complaint"). Gillett alleges that Thomas Mulligan is the owner of CTC and is liable for the actions of CTC. [DE 1-2, ("Second Compl.") ¶¶ 91; 144]. Gillett alleges Criterion, Lexicon, and Chelsea each received money that should have gone to Gillett. Gillett alleges that Criterion was the third-party administrator for Spirit, [Second Compl., ¶¶ 92-93], Lexicon was the captive manager of Spirit, [id., ¶¶ 94-95], Chelsea provided premium financing services for Spirit's insurance policies, [id., ¶¶ 96-97], 10-4Risk provided risk management and loss run services for Spirit, [id., ¶¶ 98-99], and County Hall is another insurance company established by Mulligan, [id., ¶¶ 100-01]. He alleges that each of these Defendants knew or should have known that Spirit was insolvent, but they conspired to conceal the insolvency and continued to perform services and issue policies. As a result of this conduct, they received money that should have gone to pay Gillett pursuant to the Indiana Judgment. [Id. at 24-27]. Gillett also alleges that these entities are alter egos of Spirit and thus are responsible for the Indiana Judgment. [Id., ¶¶ 104-19].

The Court consolidated the two actions. [DE 46]. All parties are diverse and the amount in controversy exceeds $75,000. [DE 1 at 2-3].

II. DISCUSSION

A. Removal

Removal to federal court is proper for "any civil action brought in a State court of which the district courts of the United States have original jurisdiction." 28 U.S.C. § 1441(a). Diversity jurisdiction gives "[t]he district courts . . . original jurisdiction [over] all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between . . . citizens of different states." 28 U.S.C. §§ 1332(a), (a)(1). A defendant removing a case has the burden of proving jurisdiction. See Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97 (1921). The Court should determine federal jurisdiction in a diversity case at the time of removal. See Rogers v. Wal-Mart Stores, Inc., 230 F.3d 868, 872 (6th Cir. 2000). Federal district courts are courts of limited, not general, jurisdiction and "the absence of jurisdiction is generally presumed unless the party invoking federal jurisdiction clearly demonstrates that it exists." Parker v. Crete Carrier Corp., 914 F. Supp. 156, 158 (E.D. Ky. 1996). For that reason, "[a]ll doubts[should be] resolved in favor of remand." Eastman v. Marine Mech. Corp., 438 F.3d 544, 550 (6th Cir. 2006) (quoting Brown v. Francis, 75 F.3d 860, 864-65 (3d Cir.1996)).

Under 28 U.S.C. § 1441(b), federal courts have authority to exercise diversity jurisdiction 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." Id. This "forum defendant rule," prohibits removal if the defendant is a citizen of the state in which the suit was filed. United Steel Supply, LLC v. Buller, No. 3:13-CV-00362-H, 2013 WL 3790913, at *1 (W.D. Ky. July 19, 2013). "This rule reflects the belief that even if diversity exists, a forum defendant—a defendant who is a citizen of the state in which it is sued—has no reason to fear state court prejudice." NFC Acquisition, LLC v. Comerica Bank, 640 F. Supp. 2d 964, 968 (N.D. Ohio 2009).

"Section 1441(b)'s limitation on removal only applies as a limitation on the defendant at the time he or she actually removes the case." Terry v. Phelps KY Opco, LLC, No. 7:20-CV-23-REW, 2020 WL 2500306, at *6 (E.D. Ky. Apr. 20, 2020), report and recommendation adopted, No. 7:20-CV-23-REW-EBA, 2020 WL 2495802 (E.D. Ky. May 14, 2020) (denying remand where the amended complaint clarified that previously unnamed defendants were citizens of Kentucky because "it is the timing that matters when interpreting the forum defendant rule [and] the forum-defendant rule was not at issue [at the time of removal] because the plaintiffs had failed to properly join and serve the Kentucky defendants"). And "[p]ost-removal joinder of a forum defendant does not require remand so long as complete diversity is preserved." Rogers v. Boeing Aerospace Operations, Inc., 13 F. Supp. 3d 972, 977 (E.D. Mo. 2014) (quoting Spencer v. U.S. Dist. Court for the N. Dist. of Cal., 393 F.3d 867, 871 (9th Cir.2004)); Mendoza v. Ferro, No. CV 18-3807, 2019 WL 316727, at *2 (E.D. Pa. Jan. 24, 2019) (despite later service "the forum state defendant,had not been properly served at the time of removal, this action was properly removed from the state court").

Gillett does not argue that the Court's January 13, 2020 Order denying remand [DE 31] was wrongly decided. Instead, he argues that because Sarman is now properly served through a warning order attorney, the Court no longer has jurisdiction. [DE 54 at 1586]. Gillett is mistaken. Jurisdiction is decided at the time of removal. So long as the parties remain diverse, later service of a forum defendant does not require remand. See Terry, 2020 WL 2500306, at *6; Rogers, 13 F. Supp. 3d at 977. As a result, the Court DENIES Gillett's Second Motion to Remand [DE 54].

B. Motions to Dismiss

1. Legal Standard

Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a court must dismiss a complaint if it "fail[s] to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). To state a claim, a complaint must contain "a short and plain statement of the claim...