Jeff Gaither, Deputy Liquidator of Ky. Health Coop., Inc. v. Beam Partners, LLC, Civil No: 3:16-cv-0094-GFVT

CourtUnited States District Courts. 6th Circuit. United States District Court of Eastern District of Kentucky
Writing for the CourtGregory F. Van Tatenhove United States District Judge
Docket NumberCivil No: 3:16-cv-0094-GFVT
Decision Date31 March 2017

BEAM PARTNERS, LLC, et al., Defendants.

Civil No: 3:16-cv-0094-GFVT


March 31, 2017


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This removed action arises out of the same factual predicate as Maynard v. CGI Technologies and Solutions, Inc., 3:16-cv-00037-GFVT. Much like the Court's initial jurisdictional ruling in that case, this case presents, as a threshold matter, the Court's power to decide the dispute presented. Unlike Maynard v. CGI Technologies and Solutions, Inc., which was a consolidated action comprised of a removed case and original petition amongst diverse parties, the above styled removed action has not been consolidated with its companion petition action, Jeff Gaither v. Beam Partners, LLC, et al., 3:16-cv-00094-GFVT. The instant action was removed from Franklin Circuit Court but, absent granting the motion to sever or dismissing any fraudulently joined defendants, this court must remand the case as there are multiple nondiverse parties that defeat diversity jurisdiction.

This matter is before the Court on the Motion to Sever filed by CGI Technologies and Solutions [R. 5] and the Motion to Remand to State Court [R. 20] by Deputy

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Liquidator Jeff Gaither. For the following reasons, the Motion to Sever [R. 5] is DENIED and the Motion to Remand [R. 20] is GRANTED.


In October of 2016, the Liquidator filed a lawsuit against CGI Technologies and Solutions, Inc., Beam Partners, LLC, Terry S. Shilling, Janie Miller, Joseph E. Smith, and the Officers and Board of Directors of the Kentucky Health Cooperative, Inc. [R. 1-2 at 4-5.] CGI asserts that this lawsuit is an "attempt to interfere with this Court's jurisdiction over the Removed Action" as this "duplicative state court action" was filed using "unrelated and facially deficient claims against certain non-diverse defendants." [R. 30 at 1.] The Liquidator states that he did not bring this action to infringe upon the Court's jurisdiction, but rather felt the action was necessary to effectuate liquidation of the KYHC following its insolvency. [See R. 20-1 at 2.]

This lawsuit was initiated after an alleged breach of the Administrative Services Agreement (ASA) that was made between the Kentucky Health Cooperative, Inc. (KYHC) and CGI Technologies and Solutions, Inc. [See R. 20-1 at 2.] KYHC contracted with CGI to have CGI act as a third-party administrator for the Kentucky Health Cooperative. [Id.] The Liquidator's claims arise from CGI's alleged failure to perform "TPA functions at even a minimum level of competence." [Id. at 3.] Further, the Liquidator believes that "CGI's failure was so complete that it was a substantial factor in causing KYHC's insolvency." [Id.]

In May 2012, KYHC entered into a "Management and Development Agreement with Beam Partners." [R. 1-2 at ¶ 18.] Beam Partners was responsible for many daily managerial tasks such as training Directors on the KYHC Board, overseeing recruitment

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and employment efforts for KYHC, implementing the necessary processes to operate KYHC, "execut[ing] administrative services for the operation of KYHC," and providing management for the corporation. [Id. at ¶¶19-20.] Terry Shilling was Beam Partner's principal and was "instrumental in forming and managing KYHC from 2011 through at least 2013" including a period of service on the KYHC Board of Directors. [See R. 1-2 at ¶ 9.]

From September 2012 to June 2015, Ms. Janie Miller was the Chief Executive Officer of the Kentucky Health Cooperative, Inc. [R. 1-2 at 7.] In this role she was also responsible for selecting competitive but financially viable insurance premium rates. Many of the charges against Ms. Miller are also brought against Joseph E. Smith. Mr. Smith served as the Chairman of the Board of Directors of the KYHC throughout this same time period. [See R. 1-2 at ¶¶ 12-14.] As the KYHC's failure and insolvency became more apparent, KYHC initiated written communication with CGI to discuss contract performance issues and to estimate damages due to CGI's actions. [R. 20-1 at 3.] CGI Responded to the August 11, 2015, KYHC letter on September 29, 2015, by denying sole responsibility and arguing that losses were also attributable to "third parties" including improper premium pricing by KYHC. [Id. quoting Exhibit 3.]

The Franklin Circuit Court "placed KYHC in rehabilitation (later liquidation)" on October 2, 2015. [R. 20-1 at 3.] The Liquidator's initial lawsuit was filed in May, 2016, but that action was only brought against CGI Technologies and Solutions, Inc., and was removed pursuant to this Court's diversity jurisdiction. [Id.] Now, this removed "copycat" action has been brought against CGI and a number of nondiverse defendants.

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The Liquidator challenges the Court's power to decide this case with a motion to remand. [R. 20.] A defendant may remove a civil action brought in state court to federal court only if the action is one over which the federal court could have exercised original jurisdiction. See 28 U.S.C. §§ 1441, 1446. This court has original federal question jurisdiction over civil actions which arise under the "Constitution, laws, or treaties" of the United States, 28 U.S.C. § 1331. This Court also has original "diversity" jurisdiction over all civil actions when "the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and the dispute is between" parties who are "citizens of different states." See 28 U.S.C. § 1332(a).

Because federal courts are courts of limited jurisdiction, any doubts regarding federal jurisdiction should be construed in favor of remanding the case to state court. Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-109 (1941); Cole v. Great Atlantic & Pacific Tea Co., 728 F. Supp. 1305, 1307 (E.D. Ky. 1990) (citations omitted). In determining the appropriateness of remand, a court must consider whether federal jurisdiction existed at the time the removing party filed the notice of removal. Ahearn v. Charter Twp. of Bloomfield, 100 F.3d 451, 453 (6th Cir. 1996). Furthermore, the removing defendant bears the burden of showing that removal was proper. Gafford v. Gen. Elec. Co., 997 F.2d 150, 158 (6th Cir. 1993), rev'd on other grounds by Hertz Corp. v. Friend, 559 U.S. 77 (2010); Fenger v. Idexx Laboratories, 194 F. Supp. 2d 601, 602 (E.D. Ky. 2002) (citations omitted).

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The Liquidator seeks to remand the present action to state court since nondiverse parties are included as Defendants. The Liquidator also claims that the McCarran-Ferguson Act reverse-preempts the removal and diversity jurisdiction statutes through the Kentucky IRLL [R. 20-1 at 4], but this argument has already been considered and denied. See Maynard v. CGI Technologies and Solutions, Inc., 3:16-cv-0037-GFVT Memorandum Opinion & Order [R. 49.] CGI argues that the nondiverse Defendants were fraudulently joined, or alternatively that fraudulent joinder and fraudulent misjoinder allow the Court to Dismiss the "CGI-related claims against Miller and Smith," and that Federal Rule of Civil Procedure 21 permits the Court to "sever and remand the claims against the non-diverse Defendants." [R. 30.]


To begin, the general rule regarding removal based on diversity of citizenship is that there must be complete diversity "both at the time that the case is commenced and at the time that the notice of removal is filed" in order to properly remove the case to federal court. Jerome-Duncan Inc. v. Auto-By-Tel, LLC, 176 F.3d 904, 907 (6th Cir. 1999) (emphasis added).

It is clear that federal jurisdiction did not exist at the time the removing party filed the notice of removal. See Ahearn v. Charter Twp. of Bloomfield, 100 F.3d 451, 453 (6th Cir. 1996). The matter in controversy far exceeds $75,000 but the defendants are not citizens of different States as required by 28 U.S.C. § 1332(a). Defendant CGI "readily admits that, on its face, the Copycat Action does not satisfy the complete diversity requirement of 28 U.S.C. § 1332..." [R. 30 at 10.] The Plaintiff, Jeff Gaither Deputy Liquidator of the KYHC, brings this action on behalf of the KYHC, a Kentucky nonprofit

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corporation that has its principal place of business in Louisville, Kentucky. [R. 1-2 at 6.] The Defendants are citizens of Kentucky, Georgia, Virginia, and Deleware. Beam Partners, LLC, is a limited liability corporation formed in Georgia that has a principal place of business in Atlanta, Georgia. [R. 1-2 at 6.] Defendant Terry S. Shilling is a Georgia resident and citizen. [Id. at 7.] Defendant Janie Miller, previously the CEO of KYHC from 2012 to 2015, resides in Kentucky. The Plaintiff also brings claims against the Officers and Board of Directors of the Kentucky Health Cooperative, Inc., which was comprised of a "collection of individuals responsible for the operation of KYHC." [R. 1-2 at 7.] Defendant Joseph E. Smith was the Chairman of the KYHC Board of Directors and is a resident of the Commonwealth of Kentucky. [Id.] The removing Defendant, CGI Technologies and Solutions Inc., is a business incorporated in Delaware with a principal place of business in Virginia. [Id. at 8.]

There is an exception to this general rule, however, which allows certain cases to be removed even if complete diversity did not exist at the lawsuit's commencement. Where a plaintiff voluntarily dismisses a party whose presence would defeat diversity, the case becomes removable even though diversity did not initially exist. See Hopkins Erecting Co. v. Briarwood Apartments of Lexington, 517 F. Supp. 243, 249 (E.D. Ky. 1981) ("A case nonremovable on the initial pleadings can become removable only pursuant to a voluntary act of the plaintiff."); see also 32A Am. Jur. 2d Federal Courts § 1482 (Feb. 2016). The exception does not apply in this case because the Deputy Liquidator has, thus far, taken no...

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