Liebau v. Columbia Cas. Co.

• Decision Date: 20 December 2001
• Docket Number: No. 01-1278-JTM.,01-1278-JTM.
• Parties: Fred F. LIEBAU, Jr. and James G. Woodall, Plaintiffs, v. COLUMBIA CASUALTY COMPANY, et al., Defendants.
• Court: U.S. District Court — District of Kansas

176 F.Supp.2d 1236

Fred F. LIEBAU, Jr. and James G. Woodall, Plaintiffs, v. COLUMBIA CASUALTY COMPANY, et al., Defendants.

No. 01-1278-JTM.

United States District Court, D. Kansas.

December 20, 2001.

COPYRIGHT MATERIAL OMITTED

Randall H. Elam, Wichita, KS, for Plaintiffs.

Craig S. O'Dear, Daniel R. Young, Bryan Cave LLP, Kansas City, MO, Roger Sherwood, Sherwood & Harper, Wichita, KS, Lynn S. McCreary, Bryan Cave LLP, Overland, Park, KS, Alexander B. Mitchell, II, Klenda, Mitchell, Austerman & Zuercher, L.L.C., Wichita, KS, for Defendants.

MEMORANDUM AND ORDER

MARTEN, District Judge.

This matter comes before the court on plaintiffs' motion to remand this case to the Eighteenth Judicial District, District Court of Sedgwick County, Kansas. The class defendants have filed a separate motion joining in plaintiffs' motion. Defendant Columbia Casualty Company ("Columbia") has responded to both motions and the motions are thus ripe for determination. The court has fully considered the briefs in this matter and denies remand.

I. Factual Background

Columbia is an Illinois company with a principal place of business in Chicago. Plaintiffs are citizens of Kansas, as are many of the members of the class action defendants. Plaintiffs brought this declaratory judgment action seeking an order adjudging that Columbia is obligated to provide coverage and a defense for claims arising out of various securities transactions in which plaintiffs' holding company, Primeline Financial Group, Inc., was involved. The class defendants are all persons who claim a contingent interest in the proceeds from the liability insurance coverage provided plaintiffs by Columbia. The class defendants each claim to have sustained losses due to plaintiffs' alleged negligence arising out of the sale of securities to them by Asif Ameen, a registered representative of Primeline Securities Corporation, a subsidiary of Primeline Financial Group, Inc. The class defendants have cross-claimed against Columbia seeking recovery from the proceeds of the policy in question. Plaintiffs do not appear to seek any relief from or judgment against the class defendants.

Plaintiffs initially filed their lawsuit in Sedgwick County District Court on July 12, 2000. On that same day, plaintiffs forwarded the summons for Columbia to the Kansas Department of Insurance for service by the Department in accordance with K.S.A. § 40-218. That statute requires the Kansas Insurance Commissioner to serve the named defendant by forwarding the process by certified mail, return receipt requested to the secretary of the named insurance company. In its most recent annual statement, filed March 27, 2000, Columbia notified the Kansas Department of Insurance that Jonathon Kantor was Columbia's Secretary and General Counsel. Despite this information, the Kansas Insurance Commissioner issued the service to Columbia addressed to Nancy Sabate. Ms. Sabate is not Columbia's Secretary and was never authorized to accept service on behalf of Columbia. Ms. Sabate did not receive the service despite being the addressee. The signature that appears on the return receipt card which accompanied the service is not Sabate's signature.

On August 30, 2000, upon the motions of plaintiffs and the class defendants, the state court entered default judgment against Columbia. After a hearing on January 28, 2001, on March 9, 2001, the state court granted judgment to plaintiffs in an amount in excess of three million dollars. On May 10, 2001, the state court entered judgment in favor of the class defendants and against plaintiff for an amount also in excess of three million dollars. Class defendants asserted that this amount was Columbia's liability in view of the default judgment entered against it. Class defendants pursued the default judgment through garnishment procedure.

On June 21, 2001, after being notified of the garnishment request, Columbia appeared in state court and filed a motion to set aside the default judgment. On July 27, 2001, the state court declared that service on Columbia was proper, but vacated the default judgment on grounds of excusable neglect by Columbia. The court also indicated that Columbia had asserted a meritorious defense to the coverage claim. On August 6, 2001, plaintiffs re-served Columbia in accordance with § 40-218. Columbia subsequently removed the action to this court on August 24, 2001.

Plaintiffs and class defendants now move for remand of this action to state court. They assert numerous grounds. First, they contend that Columbia failed to file its notice of removal within 30 days of service as required by 28 U.S.C. § 1446(b). The moving parties also contend that Columbia failed to file the notice of removal within one year after commencement of the action as outlined in that same statute. Next, plaintiffs and class defendants argue that Columbia violated the "unanimity rule" which holds that removal of an action with multiple defendants requires all defendants to join in or consent to the removal. They also argue that removal is improper in this case because the court lacks jurisdiction in view of a lack of complete diversity. Columbia responds to this position by asserting that the court should realign the parties to reflect the true nature of this action since plaintiffs and class defendants share a unity of interest in this action. Finally, plaintiffs and class defendants claim that Columbia waived any right it might have had to removal by submitting to the state court's jurisdiction by answering, seeking to set aside the default judgment, and filing a motion to dismiss.

II. Discussion and Analysis

As noted above, plaintiffs and class defendants argue that remand is appropriate in this case because Columbia did not request removal within 30 days of service. 28 U.S.C. § 1446(b) states in pertinent part:

The notice of removal of a civil action or proceeding shall be filed within thirty days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based.

28 U.S.C. § 1446(b). For some time, significant confusion existed among the various federal courts as to the interpretation of the statutory phrase "through service or otherwise." Many courts held that receipt of the complaint was sufficient to begin the running of the 30-day period. However, the Supreme Court adopted a differing interpretation of the statutory language in Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344, 119 S.Ct. 1322, 143 L.Ed.2d 448 (1999). There, the Court held that "the defendant's period for removal will be no less than 30 days from service, and in some categories, it will be more than 30 days from service, depending on when the complaint is received." Id., 526 U.S. at 354, 119 S.Ct. at 1328. Thus, the 30-day period for removal in this case runs from the date that plaintiffs obtained valid service on Columbia.

Plaintiffs assert that, regardless of the sufficiency of service, the 30-day limit should begin to run from the time Columbia appeared before the state court by filing an answer and a motion to dismiss. Plaintiffs rely on the Tenth Circuit case of Huffman v. Saul Holdings Ltd. Partnership, 194 F.3d 1072 (10th Cir.1999) which held that defendant must remove within 30 days of discovering the grounds for removal. Huffman is irrelevant to the present determination, however, because the circuit was construing the second paragraph of § 1446(b) as opposed to the first paragraph which is now before the court. As will be discussed later in this opinion, the second paragraph of § 1446(b) is inapplicable to this case and thus plaintiffs' arguments thereunder are also inapplicable.

Plaintiffs argue that the 30-day period began to run on June 28, 2001. On that day, the state court judge ruled that plaintiffs had obtained valid service of process on Columbia. Plaintiffs argue that the state judge ruling forecloses further consideration of the validity of the service on Columbia. Columbia notes that the state judge did find the service to be sufficient, but stated that service "could be an interesting question in the future." Columbia's Ex. 18, p. 23-24. Regardless of the degree of confidence expressed by the state judge with regard to the ruling on sufficiency of service, this court is not bound by that ruling and may itself consider whether plaintiffs obtained valid service over Columbia. Plaintiffs concede that the court may review the state court's finding on sufficiency of process. See Plaintiffs' Response to Columbia's Opposition, at 4 ("Columbia Casualty's first argument, that the federal court may review, properly states the law."). Further, the idea that a denial by state court of a defendant's objections to service is interlocutory and subject to reconsideration by federal court after removal is supported by Supreme Court precedent, albeit somewhat ancient. See General Inv. Co. v. Lake Shore & M.S. Ry. Co., 260 U.S. 261, 267, 43 S.Ct. 106, 110, 67 L.Ed. 244 (1922) ("While the state court considered the objection to the service and overruled it before the removal, this was not an obstacle to an examination of the question by the District Court after the removal. The state court's ruling was purely interlocutory, and its status in this regard was not affected by the removal.").

Columbia contends that it did not receive valid service until August 6, 2001 and that the 30-day period for removal did not run until that time. Plaintiffs assert numerous machinations in an attempt to trigger the 30-day period in June of 2000. However, plaintiffs do not directly argue that their June 12, 2000 service on Columbia was actually valid. Nor do they seek to explain their rationale for re-serving Columbia in August of 2001.

The June 12, 2000 service attempt was made pursuant to K.S.A. § 40-218 which allows service upon the Kansas Commissioner of Insurance as a...