Lance v. Employers Fire Ins. Co.

• Decision Date: 30 September 1999
• Docket Number: No. 99-3178.,99-3178.
• Citation: 66 F.Supp.2d 921
• Parties: Ronald D. LANCE and Joyce G. Lance, Plaintiffs, v. EMPLOYERS FIRE INSURANCE COMPANY, Commercial Union Insurance Companies, and Stivers & Powers, Inc., Defendants.
• Court: U.S. District Court — Central District of Illinois

Page 921

66 F.Supp.2d 921

Ronald D. LANCE and Joyce G. Lance, Plaintiffs, v. EMPLOYERS FIRE INSURANCE COMPANY, Commercial Union Insurance Companies, and Stivers & Powers, Inc., Defendants.

No. 99-3178.

United States District Court, C.D. Illinois, Springfield Division.

September 30, 1999.

James R. Potter, Springfield, IL, for plaintiffs.

John P. Cunningham, Edward L. Adelman, St. Louis, MO, for defendants.

OPINION

RICHARD MILLS, District Judge.

Plaintiffs allege that this Court lacks subject matter jurisdiction in this case because complete diversity between the parties does not exist.

Defendants respond that complete diversity does not exist only because Plaintiffs fraudulently joined an in-state Defendant.

Because the Court cannot say that there is no "reasonable possibility" that Plaintiffs can maintain their claim against the in-state Defendant, the Court lacks subject matter jurisdiction because complete diversity between the parties is lacking.

Case remanded.

I. BACKGROUND

On June 28, 1999, Plaintiffs filed suit against Defendants in Illinois state court alleging breach of an insurance contract. On July 28, 1999, Defendants removed this action to this Court based upon diversity of jurisdiction. 28 U.S.C. § 1441(a) & § 1446(b). In response, Plaintiffs filed a motion to remand, pursuant to 28 U.S.C. § 1447(c), arguing that complete diversity between the parties does not exist. Specifically, Plaintiffs assert that both they and Defendant Stivers & Powers, Inc., are citizens of the State of Illinois for diversity purposes. Because there is not complete diversity between the parties, Plaintiffs claim that this Court lacks subject matter jurisdiction and, therefore, must remand this case to state court.

Defendants admit that for diversity purposes, Defendant Stivers & Powers is a citizen of the State of Illinois. However, Defendants argue that Plaintiffs fraudulently joined Stivers & Powers in order to defeat the diversity necessary for the removal of this case to federal court. Defendants assert that Plaintiffs have not stated a cognizable cause of action under Illinois law against Defendant Stivers & Powers. Because Plaintiffs have not stated a cognizable cause of action against Stivers & Powers, Defendants assert that diversity of jurisdiction exists because Stivers & Powers should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6).¹

In short, Defendants argue that once Stivers & Powers is dismissed pursuant to Rule 12(b)(6) or the Court rules that it was fraudulently joined, diversity of jurisdiction exists because Plaintiffs are citizens of the State of Illinois, Defendants Employers Fire Insurance Company ("Employers Fire") and Commercial Union Insurance Companies ("Commercial Union") are citizens of the State of Massachusetts, and the amount in controversy exceeds $75,000.00. 28 U.S.C. § 1332. Accordingly, Defendants ask the Court to deny Plaintiffs' motion to remand and to allow its motion to dismiss.

II. ANALYSIS

In order for a defendant to remove a case to federal court pursuant to 28 U.S.C. § 1441(a), complete diversity is required; the citizenship of each plaintiff must be different from the citizenship of each defendant. Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68-69, 117 S.Ct. 467, 136 L.Ed.2d 437 (1996). Any defect in the removal procedure or lack of subject matter jurisdiction requires a remand. In re Amoco Petroleum Additives Co., 964 F.2d 706, 708 (7th Cir.1992). If there is a dispute as to whether a court has diversity jurisdiction on removal, the burden is on the party seeking removal to establish the right. Jones v. General Tire & Rubber Co., 541 F.2d 660, 664 (7th Cir.1976).

"Diversity jurisdiction cannot be destroyed by joinder of nondiverse parties if such joinder is fraudulent." Hoosier Energy Rural Elec. Co-op., Inc. v. Amoco Tax Leasing IV Corp., 34 F.3d 1310, 1315 (7th Cir.1994), quoting Gottlieb v. Westin Hotel Co., 990 F.2d 323, 327 (7th Cir.1993). Fraudulent joinder is a term of art and, in most cases, "involves a claim against an instate defendant that simply has no chance of success, whatever the plaintiff's motives." Poulos v. Naas Foods, Inc., 959 F.2d 69, 73 (7th Cir.1992). "Fraudulent joinder occurs either when there is no possibility that a plaintiff can state a cause of action against nondiverse defendants in state court, or where there has been outright fraud in plaintiff's pleading of jurisdictional facts." Hoosier, 34 F.3d at 1315, quoting Gottlieb, 990 F.2d at 327. The United States Court of Appeals for the Seventh Circuit has explained that a defendant who is claiming fraudulent joinder bears a heavy burden:

The defendant must show that, after resolving all issues of fact and law in favor of the plaintiff, the plaintiff cannot establish a cause of action against the instate defendant. B., Inc., 663 F.2d at 549. At the point of decision, the federal court must engage in an act of prediction: is there any reasonable possibility that a state court would rule against the nondiverse defendant? If a state court has come to judgment, is there any reasonable possibility that the judgment will be reversed on appeal?

Poulos, 959 F.2d at 73 (emphasis in original) (footnote omitted).

In the instant case, Plaintiffs have alleged, and Defendants Employers Fire and Commercial Union have admitted, that Stivers & Powers was Defendants' agent. Under Illinois law, an agent cannot be held liable for the acts of a disclosed principal.² Triangle Sign Co. v. Weber, Cohn & Riley, 149 Ill.App.3d 839, 843-44, 501 N.E.2d 315, 317-18, 103 Ill.Dec. 294, 296-97 (1986). However, there are exceptions to this general rule.

Plaintiffs rely upon one of these exceptions. Specifically, Plaintiffs assert that an agent can be held liable for the actions of a disclosed principal if the agent takes some active part in violating some duty which the principal owes to a third person. Plaintiffs rely upon Grover v. Commonwealth Plaza Condominium Ass'n, 76 Ill.App.3d 500, 507, 394 N.E.2d 1273, 1279, 31 Ill.Dec. 896, 902 (1979) and Merrill Tenant Council v. United States Dep't of Housing and Urban Dev., 638 F.2d 1086, 1095 (7th Cir.1981), in support of their argument that they may maintain a cause of action against Stivers & Powers under Illinois law for actively participating in violating Defendants' duty of good faith and fair dealing. See generally National Sur. Corp. v. Fast Motor Serv., Inc., 213 Ill.App.3d 500, 505, 572 N.E.2d 1083, 1086, 157 Ill.Dec. 619, 623 (1991) (stating that it "has long been established in Illinois that an insurer owes his insured an implied-in-law duty of good faith and fair dealing...."). Count V alleges that "Stivers & Powers, Inc., took an active part in violating the duty of good faith and fair dealing Defendants ... owed to Plaintiffs. ..." As such, Plaintiffs claim that they have stated a cognizable cause of action against Stivers & Powers, and thus, there is no complete diversity of jurisdiction between the parties, divesting this Court of subject matter jurisdiction.

On the other hand, Defendants argue that Grover and its progeny have been "effectively overruled." Defendants rely upon cases which disagree with Grover's holding and which find Grover to be inconsistent with Illinois supreme court precedent. E.g., Gateway Erectors Div. of Imoco-Gateway Corp. v. Lutheran Gen. Hosp., 102 Ill.App.3d 300, 302-03, 430 N.E.2d 20, 22-23, 58 Ill.Dec. 78, 80-81 (1981); Joe & Dan Int'l Corp. v. United States Fidelity & Guar. Co., 178 Ill.App.3d 741, 747, 533 N.E.2d 912, 915-16, 127 Ill.Dec. 830, 833-34 (1988); Strzelecki v. Schwarz Paper Co., 824 F.Supp. 821, 829 (N.D.Ill.1993). In short, Defendants argue that Grover espouses bad law, implore the Court not to follow it, and ask the Court to follow the general rule regarding an agent's liability to a third party when the agent's principal is disclosed.

Although Grover has been criticized, it is, nevertheless, still good law. In fact two cases issued subsequent to Gateway Erectors (i.e., the case upon which Defendants primarily rely) have re-stated Grover's principle that if an agent takes an affirmative role in violating a duty owed by a disclosed principal, that agent may be held personally liable. See McCormick v. McCormick, 180 Ill.App.3d 184, 207-08, 536 N.E.2d 419, 434, 129 Ill.Dec. 579, 594 (1988) (narrowing Grover's "active part" exception to cases where "the agent is liable if he takes an active part in violating a duty owed to a third person by the...