Grace v. INTERSTATE LIFE & ACC., INS. CO.

• Decision Date: 12 February 1996
• Docket Number: Civil Action No. 95-D-1458-S.
• Citation: 916 F. Supp. 1185
• Court: U.S. District Court — Middle District of Alabama
• Parties: Mary L. GRACE, Plaintiff, v. INTERSTATE LIFE & ACCIDENT, INS. CO., et al., Defendants.

916 F. Supp. 1185

Mary L. GRACE, Plaintiff, v. INTERSTATE LIFE & ACCIDENT, INS. CO., et al., Defendants.

Civil Action No. 95-D-1458-S.

United States District Court, M.D. Alabama, Southern Division.

February 12, 1996.

COPYRIGHT MATERIAL OMITTED

Frank M. Wilson, P. Leigh O'Dell, Montgomery, AL, for plaintiff.

Jere C. Segrest, Kevin Walding, Alan C. Livingston, Dothan, AL, for defendants.

MEMORANDUM OPINION AND ORDER

DE MENT, District Judge.

Before the court is the plaintiff's motion filed December 8, 1995, to remand the above-styled action to the Circuit Court of Houston County, Alabama, and to award the plaintiff attorney's fees and costs. On December 27, 1995, the defendants responded in opposition to the plaintiff's motion. On January 25, 1996, the plaintiff filed a reply brief. After careful consideration of the arguments of counsel, the relevant case law, and the record as a whole, the court finds that the plaintiff's motion to remand is due to be granted but that the plaintiff's motion for attorney's fees and costs is due to be denied.

STATEMENT OF FACTS

Plaintiff Mary L. Grace ("Ms. Grace") alleges the following three counts in her complaint: (1) fraudulent suppression, (2) fraudulent misrepresentation, and (3) negligent hiring, supervision, and training. Two of these counts involve the actions or inaction of defendant James Roney ("Mr. Roney"), an employee of defendants Interstate Life & Accident Insurance Company, Gulf Life Insurance Company, and American General Life & Accident Insurance Company (together "the corporate defendants").

Specifically, Ms. Grace contends that Mr. Roney, while acting as an agent for the corporate defendants, represented to her that the insurance policy in question, Policy No. 25106062, issued on or about April 14, 1975, ("disputed policy") would be beneficial to her although he allegedly knew or should have known that said representation was false. She also contends that Mr. Roney had a duty to disclose that the disputed policy with the corporate defendants would become unnecessary and duplicated benefits available to her under Medicare and Medicaid when she reached the age of sixty-five. Furthermore, she notes that it was illegal for him to sell her the disputed policy after she turned sixty-five.

Mr. Roney is the only defendant who is a citizen of the state of Alabama. As such, the parties agree that his presence as a party defendant destroys the diversity jurisdiction that the court would otherwise have over the above-styled action. The defendants request the court to either disregard Mr. Roney's citizenship or dismiss him as a party defendant and exercise diversity jurisdiction under 28 U.S.C. § 1332(a).

First, they argue that Mr. Roney should be dismissed from the lawsuit because he was fraudulently joined as a party defendant for the sole purpose of destroying diversity jurisdiction. In the alternative, they argue that Mr. Roney's citizenship should be disregarded for purposes of determining diversity jurisdiction because he is being sued in his capacity as an agent rather than as an individual, thus making him a formal, nominal, or sham party to this lawsuit. Furthermore, even if the court decides that it cannot exercise diversity jurisdiction, the corporate defendants argue that the court has federal question jurisdiction because the complaint, though grounded in state law, involves substantial federal questions regarding the meaning and interpretation of certain federal statutes.

DISCUSSION

This action was removed by the defendants from the Circuit Court of Houston County on the basis of diversity jurisdiction.¹ Def.s' Notice of Removal at 1. A district court has original jurisdiction over all cases where citizens of different states are involved and the amount in controversy exceeds $50,000, exclusive of interest and costs. 28 U.S.C. § 1332(a). When federal subject matter jurisdiction is predicated on diversity of citizenship, complete diversity must exist between the opposing parties. Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 373-74, 98 S.Ct. 2396, 2402-03, 57 L.Ed.2d 274 (1978).

A. Fraudulent Joinder

The court cannot exercise diversity jurisdiction unless it either dismisses Mr. Roney as a party defendant or disregards the presence of Mr. Roney as a party defendant for purposes of determining diversity jurisdiction. As noted above, the defendants argue that Mr. Roney was fraudulently joined for the purpose of destroying diversity jurisdiction and should be dismissed as a party defendant. The doctrine of fraudulent joinder is applicable when the plaintiff, a citizen of the forum state, joins a resident citizen defendant with a nonresident citizen defendant. The joinder is fraudulent if the plaintiff fails to state a cause of action against the resident defendant and the failure is obvious according to the settled rules of the state. See Parks v. New York Times, 308 F.2d 474, 477 (5th Cir.1962), cert. denied, 376 U.S. 949, 84 S.Ct. 964, 11 L.Ed.2d 969 (1964). In Parks, the court held that

there can be no fraudulent joinder unless it be clear that there can be no recovery under the law of the state on the cause alleged, or on the facts in view of the law as they exist when the petition to remand is heard. One or the other at least would be required before it could be said that there was no real intention to get a joint judgment and that there was no colorable ground for so claiming.

Id. at 478.

When determining whether a defendant was fraudulently joined, the court must evaluate all factual issues and substantive law in favor of the plaintiff. Coker v. Amoco Oil Co., 709 F.2d 1433 (11th Cir.1983). If there is 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 the joinder is proper and remand the case to the state court. Coker, 709 F.2d at 1440 (citing Parks, 308 F.2d at 477-78). "The removing party bears the burden of proving that the joinder of the resident defendant was fraudulent." Cabalceta v. Standard Fruit Co., 883 F.2d 1553, 1561 (11th Cir.1989) (citing Coker, 709 F.2d at 1440). The determination of whether a non-diverse defendant has been fraudulently joined to destroy diversity should be based on the plaintiff's pleadings at the time of removal. Autrey v. United Cos. Lending Corp., 872 F.Supp. 925, 929 (M.D.Ala.1995) (De Ment, J.).

Ms. Grace makes two separate claims against Mr. Roney in his capacity as an agent for the corporate defendants, one alleging fraudulent suppression and the other alleging fraudulent misrepresentation. The defendants assert that it is legally impossible for Ms. Grace to prevail against Mr. Roney under Alabama law on her claims alleging fraudulent suppression of a material fact and fraudulent misrepresentation of a material fact. If it is possible for Ms. Grace to state a cause of action under either theory, then the defendants cannot prove that Mr. Roney was fraudulently joined. The court will first address the fraudulent suppression claim.

The Alabama Code provides that "suppression of a material fact which the party is under an obligation to communicate constitutes fraud. The obligation to communicate may arise from the confidential relations of the parties or from the particular circumstances of the case." Ala.Code § 6-5-102 (1993).² As stated above, under § 6-5-102, a duty to communicate may arise through either a confidential relationship or from the particular circumstances of the case. Application of the "particular circumstances" test

requires a case-by-case consideration of several factors. "A duty to speak depends upon the relation of the parties, the value materiality of the particular fact, the relative knowledge of the parties, and other circumstances. Thus, each case must be individually examined to determine whether a duty of disclosure exists; a rigid approach is impossible, and indeed, the words of the statute itself counsel flexibility."

Trio Broadcasters, Inc. v. Ward, 495 So.2d 621, 624 (Ala.1986) (citations omitted). The determination of whether a duty to disclose exists under § 6-5-102 generally is an issue for the jury. Oxford Furn. Companies v. Drexel Heritage Furnishings, Inc., 984 F.2d 1118, 1124 (11th Cir.1993) (citation omitted).

The defendants first contend that Mr. Roney was not in a confidential relationship with Ms. Grace, and, further, that the particular circumstances did not impose a duty to disclose. In support of their position, they argue that Mr. Roney did not sell the disputed policy to Ms. Grace, but merely collected the premiums. Mr. Roney's Aff. at 2. However, it is clear that Mr. Roney was collecting premiums on several of Ms. Grace's policies, including the disputed policy, because he took over another insurance agent's policies nearly nine and a half years ago. Id. at 1. Thus, Mr. Roney asks the court to determine as a matter of law that, even though he was Ms. Grace's insurance agent on several insurance policies for nearly nine and a half years, he did not have a duty to disclose that the disputed policy became unnecessary upon her reaching the age of sixty-five or that it was illegal to sell her such a policy after she turned sixty-five.

As noted above, the "particular circumstances" language requires a case-by-case consideration of the particular facts involved in the action. Furthermore, the test to determine whether a duty of disclosure exists requires a flexible, not a rigid approach. With these principles in mind, the court finds that the facts alleged reveal a relationship between Ms. Grace and Mr. Roney sufficient to raise an issue of fact as to whether a duty to disclose existed based upon "... the relation of the parties, the value of the particular fact suppressed, the relative knowledge of the parties, and other circumstances," especially given that this determination is generally a question of fact for the jury to...