Interior Cleaning Sys., LLC v. Crum

• Decision Date: 14 July 2014
• Docket Number: CIVIL ACTION 14-0199-WS-N
• Parties: INTERIOR CLEANING SYSTEMS, LLC, Plaintiff, v. GARY L. CRUM, et al., Defendants/Third-Party Plaintiffs, v. STATE FARM INSURANCE COMPANY, Third-Party Defendant.
• Court: U.S. District Court — Southern District of Alabama

INTERIOR CLEANING SYSTEMS, LLC, Plaintiff, v. GARY L. CRUM, et al., Defendants/Third-Party Plaintiffs, v. STATE FARM INSURANCE COMPANY, Third-Party Defendant.

CIVIL ACTION 14-0199-WS-N

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

DONE and ORDERED: July 14, 2014

ORDER

This matter comes before the Court on the Motion to Remand (doc. 9) filed by plaintiff, Interior Cleaning Systems, LLC. The Motion has been briefed and is now ripe for disposition.

I. Background.

Interior Cleaning Systems, LLC ("ICS"), initially filed suit against a singular defendant, "Gary L. Crum, Sr. d/b/a Ellwood Christian Academy / Ellwood Community Church" ("Crum"), in Dallas County Circuit Court in June 2013. The action arose from a September 2012 contract through which Crum (in his capacity as pastor of Ellwood Christian Academy in Selma, Alabama) had retained ICS to perform water mitigation services after Ellwood Christian Academy flooded. According to the Complaint, ICS completed those services promptly and Crum provided ICS with a certificate of completion, but Crum failed to pay the ICS invoice. On that basis, ICS asserted state-law claims against Crum for breach of contract, work and labor, and open account, seeking compensatory damages of $47,646.21, plus interest and costs. (See doc. 1, Exh. A.)

Upon being served with process, Crum expanded the scope of the state-court litigation by bringing a Third-Party Complaint (doc. 1, Exh. B) against State Farm Insurance Company onSeptember 18, 2013. Crum maintained that State Farm had provided insurance coverage to the Academy, that it had engaged in improper claims handling processes after the Academy sustained water damage, and that it was liable to Crum on state-law theories of breach of duty of good faith and fair dealing, breach of contract, professional negligence, and fraud. The Third-Party Complaint identified Crum (in his capacity as agent/employee and representative of the Academy) as the only third-party plaintiff. State Farm moved to dismiss or sever the Third-Party Complaint. (See doc. 1, Exh. D.) As to the severance aspect of the motion, State Farm argued that the third-party claims asserted by Crum were separate and independent from the claims asserted by ICS against Crum, thereby creating a risk of error or confusion if both sets of claims were tried together to the same jury. (Id., ¶¶ 12-14.)

Before Crum commenced third-party proceedings against State Farm, ICS moved for summary judgment on its original claims against Crum, who was the sole defendant at that time, in July 2013. (See doc. 13, Exh. 1.)¹ On March 21, 2014, while its motion for summary judgment against Crum remained pending in state court, ICS filed an Amended Complaint naming Ellwood Christian Academy (the "Academy"), which was described as an "unincorporated religious association in Selma, Alabama," as an additional party defendant. (Doc. 9, Exh. 1, ¶ 3.) The Academy previously had not been named or served as a party in this matter. ICS served process on the Academy on April 7, 2014. (Doc. 9, ¶ 8; doc. 1-4, at 53.) The rub is that the state court entered an order granting ICS's motion for summary judgment against both Crum and the Academy on April 2, 2014, some five days before service of process was completed on the Academy. (Doc. 1, Exh. E.)² Be that as it may, having purported to grant summary judgment to ICS against Crum and the Academy, the state court entered another order on April 2, 2014 stating, in part, that "[t]he 4-2-14 Order Granting Summary Judgment will leave only the Third-Party Complaint pending and disposes of the issues in the Motion to Sever." (Doc. 1, Exh. F.)

Pursuant to the April 2 state-court rulings, then, ICS had been granted summary judgment on all of its claims against Crum and (at least nominally) the Academy, and had been awarded judgment in the amount of $47,646.21, plus interest and costs. The state court had declared that only the Third-Party Complaint remained pending and had declined State Farm's request to sever the third-party claims from the original claims on that basis. State Farm took the position that the April 2 rulings created federal diversity jurisdiction pursuant to 28 U.S.C. § 1332. Even though ICS and Crum are both Alabama citizens and (hence) non-diverse, State Farm theorized that the absence of diversity as to the original claims is irrelevant because the original complaint has been fully adjudicated, leaving only the Third-Party Complaint still in play. As to that Third-Party Complaint, State Farm reasoned, there is diversity jurisdiction because Crum and State Farm are citizens of different states and the amount in controversy exceeds $75,000. On that basis, State Farm filed a Notice of Removal (doc. 1) and removed this entire action from Dallas County Circuit Court to this District Court on May 1, 2014.³

ICS (the original plaintiff) has now filed a Motion to Remand (doc. 9), arguing that diversity of citizenship is lacking because its claims against the Academy were not properly dismissed, and that ICS is non-diverse from the Academy, such that federal subject matter jurisdiction is not conferred by 28 U.S.C. § 1332. State Farm opposes the Motion, reasoning that the Academy's citizenship is irrelevant because ICS's claims against it were disposed of via summary judgment and the Academy failed to appeal in a timely manner.

II. Analysis.

A. Governing Legal Standard.

A removing defendant must establish the propriety of removal under 28 U.S.C. § 1441 and, therefore, must demonstrate the existence of federal jurisdiction. See, e.g., Scimone v.Carnival Corp., 720 F.3d 876, 882 (11^th Cir. 2013) ("the burden of establishing removal jurisdiction rests with the defendant seeking removal"); City of Vestavia Hills v. General Fidelity Ins. Co., 676 F.3d 1310, 1313 n.1 (11^th Cir. 2012) ("The removing party bears the burden of proof regarding the existence of federal subject matter jurisdiction."). Because removal infringes upon state sovereignty and implicates central concepts of federalism, removal statutes must be removed narrowly, with all jurisdictional doubts being resolved in favor of remand to state court. See, e.g., Scimone, 720 F.3d at 882 ("we strictly construe the right to remove and apply a general presumption against the exercise of federal jurisdiction, such that all uncertainties as to removal jurisdiction are to be resolved in favor of remand") (citation and internal marks omitted).⁴

The removal statute generally provides that "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants." 28 U.S.C. § 1441(a). State Farm ascribes federal "original jurisdiction" to this action pursuant to the diversity statute. Under 28 U.S.C. § 1332(a), federal courts have original jurisdiction over civil actions between citizens of different states where the amount in controversy exceeds $75,000, exclusive of interest and costs. See Underwriters at Lloyd's, London v. Osting-Schwinn, 613 F.3d 1079, 1085 (11^th Cir. 2010) ("For federal diversity jurisdiction to attach, all parties must be completely diverse ... and the amount in controversy must exceed $75,000.") (citations omitted). Of course, "[d]iversity jurisdiction requires complete diversity between named plaintiffs and defendants." Sweet Pea Marine, Ltd. v. APJ Marine, Inc., 411 F.3d 1242, 1247 (11^th Cir. 2005). Section 1332 must be narrowly construed; after all, "[i]n light of the federalism and separation of powers concerns implicated by diversity jurisdiction, federal courts are obligated ... to scrupulously confine their own jurisdiction to the precise limits which the statute has defined." Morrison v. Allstate Indem. Co., 228 F.3d 1255, 1268 (11^th Cir. 2000) (citations omitted); see also Osting-Schwinn, 613 F.3d at 1086 (similar).

B. State Farm was Not Empowered by Section 1441 to Remove this Action.

As a threshold matter, there is considerable doubt as to whether State Farm is even a permissible party to remove this case. The removal statute specifies that an action may beremoved "by the defendant or the defendants." 28 U.S.C. § 1441(a). State Farm is not a defendant, but is instead a third-party defendant. The distinction matters. Indeed, in another action, the undersigned adopted a report and recommendation in which Magistrate Judge Bivins opined as follows: "The majority of courts addressing the question of whether a third-party defendant is a 'defendant' within the meaning of the statute, and therefore entitled to initiate removal, have overwhelmingly concluded that such third party defendants are not defendants entitled to remove under § 1441(a)." The Mobile Washington (MOWA) Band of the Choctaw Indian Tribe v. Sunbelt Resources, Inc., 649 F. Supp.2d 1325, 1329 (S.D. Ala. 2009) (citations omitted).⁵ State Farm concedes this very point (and prudently acknowledges the MOWA case) in its Notice of Removal. (See doc. 1, at 5.)

Nonetheless, courts have carved out exceptions to the general prohibition on removal by third-party defendants. In ordinary circumstances, a third-party defendant's removal is akin to the tail wagging the dog; however, that concern "has no application where by judicial surgery tail and dog have been separated." Central of Georgia Ry. Co. v. Riegel Textile Corp., 426 F.2d 935, 938 (5^th Cir. 1970). Thus, where the state court has severed third-party claims from those in theoriginal complaint prior to removal, federal courts have authorized removal by third-party defendants. See, e.g., Title Pro Closings, L.L.C. v. Tudor Ins. Co., 840 F. Supp.2d 1299, 1304 (M.D. Ala. 2012) ("a state court's decision to sever the original action from the third party claim transforms the original defendant into a plaintiff and the third-party defendant into a defendant capable of removing the action"); Riddley v. Walgreen Co., 549 F. Supp.2d 806, 809 n.5 (S.D....