Knoppe v. Lincoln Nat'l Life Ins. Co., Civil Action No. 3:18-CV-264-RGJ

CourtUnited States District Courts. 6th Circuit. United States District Court of Western District of Kentucky
Writing for the CourtRebecca Grady Jennings, District Judge United States District Court
PartiesCHARLES A. KNOPPE, on behalf of himself and all other similarly situated, Plaintiffs, v. LINCOLN NATIONAL LIFE INSURANCE COMPANY, KENTUCKY DEPARTMENT of INSURANCE, and NANCY G. ATKINS, COMMISSIONER, Defendants.
Decision Date09 January 2020
Docket NumberCivil Action No. 3:18-CV-264-RGJ

CHARLES A. KNOPPE, on behalf of himself and all other similarly situated, Plaintiffs,

Civil Action No. 3:18-CV-264-RGJ


January 9, 2020


This matter is before the Court on Plaintiff Charles A. Knoppe's ("Knoppe") Motion to Remand [DE 6] and the Motion to Dismiss [DE 10] filed by Defendants Kentucky Department of Insurance ("DOI"), and Insurance Commissioner, Nancy G. Atkins ("Commissioner"). The matters are ripe. For the reasons below, the Court DENIES Knoppe's Motion to Remand; and GRANTS the DOI's and Commissioner's Motion to Dismiss.


Knoppe brought this class action complaint against defendants Lincoln National Life Insurance Company ("Lincoln"), the DOI, and the Commissioner in Nelson County Circuit Court. [DE 1-2 at ¶¶ 43-69]. Knoppe is an insured under a long-term disability insurance policy issued by Lincoln to the City of Bardstown for its Kentucky resident employees. [Id. at ¶ 4, 10]. Lincoln then removed to this Court based on subject-matter jurisdiction. [DE 1 at ¶ 5].

This class action complaint alleges breach of contract, bad faith, unfair claims settlement practices under KRS § 304.12-230, and unfair and deceptive practices under KRS § 304.12-010. [DE 1-2 at ¶¶ 43-59]. Knoppe alleges that Lincoln calculated improperly, and continues to

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calculate improperly, the monthly long-term disability benefits payable under the insurance policy to Knoppe and others similarly situated. [DE 1-2 at ¶ 4]. Knoppe states that Lincoln is wrongfully reducing benefits because of his receipt of compensation from the Kentucky Retirement System. [Id. at ¶ 20]. Knoppe also alleges that the DOI's and Commissioner's approval of the policy, or failure to deny it, violates Kentucky insurance code and law. [Id. at ¶ 5]. Knoppe seeks a writ of mandamus and declaratory relief against the DOI and Commissioner. [DE 1-2 at ¶¶ 60-69].

Lincoln removed to federal court on diversity jurisdiction under 28 U.S.C. §§ 1332(a) and 1441(a). [DE 1 at ¶ 5]. Lincoln alleges that there is diversity among Knoppe, who is a citizen of the state of Kentucky, and Lincoln, a citizen of the State of Indiana and Commonwealth of Pennsylvania. [DE 1 at ¶¶ 5-7]. Lincoln alleges that the Court should disregard the Kentucky citizenship of the DOI and Commissioner under the doctrine of fraudulent joinder. [Id. at ¶ 8]. Lincoln asserts that the amount in controversy is satisfied as to Knoppe's individual claim, but even if it were not, it is satisfied as to the class under the Class Action and Fairness Act. [DE 1 at ¶¶ 10, 13].

Knoppe now moves to remand this matter to Nelson Circuit Court. [DE 6]. Knoppe argues that the DOI and Commissioner are not fraudulently joined, so no diversity exists, and the amount-in-controversy is not satisfied. [Id.]. Additionally, the DOI and Commissioner move to dismiss, arguing Knoppe's failure to state a claim against them. [DE 10].


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

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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. Rogers v. Wal-Mart Stores, Inc., 230 F.3d 868, 872 (6th Cir. 2000).

A. Diversity Jurisdiction

Lincoln alleges that Knoppe fraudulently joined defendants DOI and Commissioner. Thus, Lincoln asserts this Court has subject-matter jurisdiction based on diversity of citizenship of the properly joined parties, under 28 U.S.C. §§ 1332(a) and 1441(a). [DE 1 at ¶ 5].

The removing party bears the burden of proving fraudulent joinder and removal statutes must be strictly construed in a light most favorable to the non-removing party. Her Majesty the Queen in Right of Province of Ontario v. City of Detroit, 874 F.2d 332 (6th Cir. 1989). "In order to establish that an in-state defendant has been fraudulently joined, the removing party must show either that there is no possibility that the plaintiff would be able to establish a cause of action against the in-state defendant in state court; or that there has been outright fraud in the plaintiff's pleadings of jurisdictional facts." In re Welding Rod Prod. Liab. Litig., No. 1:03-CV-17000, 2004 WL 1179454, at *3 (N.D. Ohio May 21, 2004) (citing Wilson v. United States Dep't of Agriculture, Food & Nutrition Service, 584 F.2d 137, 142 (6th Cir. 1978)).

"Fraudulent joinder occurs when the non-removing party joins a party against whom there is no colorable cause of action." Jerome-Duncan, Inc. v. Auto-By-Tel, L.L.C., 176 F.3d 904, 907 (6th Cir. 1999). To determine whether the non-removing party has a colorable claim against a party, the Court considers whether the claim is so baseless that it has no hope of success. Saginaw Hous. Comm'n v. Bannum, Inc., 576 F.3d 620, 624 (6th Cir. 2009). The Court's task is not to provide an authoritative answer on the merits of the case but determine whether the plaintiff has provided a non-fraudulent basis for recovery against a non-diverse party. In re Welding Rod Prod.

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Liab. Litig., No. 1:03-CV-17000, 2004 WL 1179454, at *3 (N.D. Ohio May 21, 2004). To determine whether a Plaintiff has provided a non-fraudulent basis, the Court must find that a jury could reasonably conclude that one of the non-diverse parties is liable. Murriel-Don Coal Co. v. Aspen Ins. UK Ltd., 790 F. Supp. 2d 590, 598 (E.D. Ky. 2011).

The DOI and Commissioner argue that even assuming the Commissioner's allegedly inadequate regulatory action supports mandamus relief (which they argue it cannot), Knoppe has no colorable cause of action against the DOI and Commissioner because he failed to exhaust administrative remedies under the Kentucky Insurance Code, KRS § 304.2-165. [DE 1 at ¶ 8(e)].

Under Kentucky law, when administrative remedies exist, they must be exhausted before seeking judicial relief. Bulldog's Enterprises, Inc. v. Duke Energy, 412 S.W.3d 210, 212 (Ky. App. 2013). "Proper judicial administration mandates judicial deference until after exhaustion of all viable remedies before the agency vested with primary jurisdiction over the matter." Id. (quoting Board of Regents of Murray State University v. Curris, 620 S.W.2d 322, 323 (Ky. App. 1981). Exhausting administrative remedies prevents the filing of premature claims and allows agencies, which have expertise in the area, to correct its own errors and create a record for future judicial review. Popplewell's Alligator Dock No. 1, Inc. v. Revenue Cabinet, 133 S.W.3d 456, 471 (Ky. 2004). The doctrine of exhaustion of administrative remedies does not preclude judicial relief but promotes efficiency and adherence to agency processes. Id. at 471. A party's failure to pursue administrative remedies deprives a reviewing court of jurisdiction, compelling dismissal. Id. at 473.

Kentucky statutes provide a detailed administrative process to seek relief for violating Kentucky insurance statutes and regulations. KRS §§ 304.2-165 provides the statutory right to seek the Commissioner's review by filing a complaint to the DOI. The Commissioner can call,

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under her discretion, or a party can request, an evidentiary hearing on the dispute. KRS § 304.2-310. If an insurer's policy form violates the Insurance Code, the Commissioner may disapprove or withdraw the Department's previous approval of a policy form under KRS §§ 304.14-120(2) and to compel compliance under threat of license revocation, suspension, or civil penalties. See generally KRS 304.2-100; KRS 304.2-120; KRS 304.2-130; KRS 304.2-140; and KRS 304.99-020; see also Commonwealth ex rel. Chandler v. Anthem Ins. Companies, Inc., 8 S.W.3d 48, 53...

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