Life Time, Inc. v. Zurich Am. Ins. Co.
| Decision Date | 25 February 2021 |
| Docket Number | Case No. 20-CV-1998 (NEB/HB) |
| Parties | LIFE TIME, INC.; LTF CLUB OPERATIONS COMPANY, INC.; LTF OPERATIONS HOLDINGS, INC.; LTF CLUB MANAGEMENT COMPANY, LLC; and BLOOMINGDALE LIFE TIME FITNESS, LLC, Plaintiffs, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — District of Minnesota |
Plaintiffs filed this action against Zurich American Insurance Company ("Zurich") in Minnesota state court, asserting that Zurich breached the terms of an insurance policy, among other claims. (ECF No. 1-1 at 1-21 ("Compl.").) Zurich removed the action to federal court based on diversity jurisdiction, and now moves to dismiss Plaintiff Bloomingdale Life Time Fitness, LLC ("Bloomingdale LT"). (ECF Nos. 1, 6.) Plaintiffs oppose Zurich's motion and move to remand the action to Minnesota state court. (ECF No. 17.) For the reasons that follow, the Court grants the motion to remand and denies as moot the motion to dismiss.
Plaintiffs operate nearly 150 health and fitness centers throughout the United States. (Compl. ¶ 33.) Due to the spread and threat of the COVID-19 pandemic, state and local governments executed orders prohibiting access to all or portions of these fitness centers, causing Plaintiffs to lose over $200 million in interruption losses and damages. (Id. ¶ 2.)
Plaintiffs filed a claim for coverage under the Interruption by Communicable Disease ("ICD") endorsement of their EDGE Global insurance policy (the "Policy") issued by Zurich. (Id. ¶¶ 4-5.) The Complaint alleges that the ICD endorsement, which provides $1 million in coverage, is per "Insured Location," rather than aggregated for all locations. (Id. ¶¶ 5-6.) The parties' current motions focus on whether Bloomingdale LT is a real party in interest and has standing to sue as an insured under the Policy.
The case is in this Court based on diversity jurisdiction, so the citizenship of the parties is central to the dispute. Defendant Zurich is a citizen of Illinois. (Compl. ¶ 11.) Plaintiffs Life Time, Inc. ("Life Time"), LTF Club Operations Company, LLC, and LTF Holdings, Inc., are citizens of Minnesota, and LTF Club Management Company, LLC, is a citizen of Minnesota and Delaware. (Id. ¶¶ 8-9.)
Plaintiff Bloomingdale LT owns the Bloomingdale Life Time fitness center in Bloomingdale, Illinois ("Bloomingdale Center"). 1 Bloomingdale LT is a joint venture with three members: Life Time, Bloomingdale Sport Center Land Company ("BSC Land"), and an affiliate of Central DuPage Health ("CD Health"). (Compl. ¶ 10.) It is the only joint venture to own a Life Time fitness center. (Reding Decl. ¶ 12.) Each member owns one-third of Bloomingdale LT. (Compl. ¶ 10; Reding Decl. ¶ 11.) Based on the citizenship of its members, (Compl. ¶ 10), Bloomingdale LT is a citizen of Illinois and the party that destroys complete diversity.
Zurich issued the Policy at issue to Life Time. (ECF No. 1-1 at 22-201 ("Policy").) The Policy defines the "Insured" to include Life Time, any subsidiary of Life Time, and Life Time's "interest in any partnership, joint venture or other legal entity in which [Life Time] has management control or ownership as now constituted or hereafter is acquired." (Id. at 36.)2 The Policy also provides for "additional insureds":
The Policy's ICD endorsement is business interruption coverage that covers actual loss of gross earnings for a period of time while access to an Insured Location is prohibited by an authorized governmental order. (Id. at 198.) The Bloomingdale Center—which Bloomingdale LT owns—is an "Insured Location" under the terms of the Policy. (Id. at 37, 193.)
Life Time, BSC Land, and CD Health, as the three members of Bloomingdale LT, are parties to an Operating Agreement,3 which sets forth the terms and conditions of their membership and the operations of Bloomingdale LT. (Reding Decl., Ex. B.) The Operating Agreement states that Bloomingdale LT "will obtain insurance" and that such insurance will "name the Members and the Partnership as additional insureds." (Id. § 6.10.) The Operating Agreement also provides that Life Time will manage Bloomingdale LT, and that as the manager, Life Time is obligated to distribute insurance proceeds to Bloomingdale LT and its members. (Reding Decl. ¶¶ 13-18; id., Ex. B §§ 3.5.3, 6.1.3(a).)
Life Time manages the Bloomingdale Center under a separate Management Agreement, to which BSC Land and CD Health are also parties.4 The Management Agreement provides that "[Life Time], on behalf of [Bloomingdale LT], shall procure and maintain adequate and required insurance to cover the Property and its employees." (Reding Decl., Ex. A § 3(b).) It also states:
[Bloomingdale LT] shall obtain and keep in force adequate insurance, and name each Member as an Additional Insured as required by the Operating Agreement against physical damage and against liability for loss, damage, or injury to property or persons which might arise out of the occupancy, management, operation, or maintenance of the Property. [Life Time] shall be covered as an additional insured on all liability insurance maintained with respect to the Property. [Bloomingdale LT] agrees to furnish [Life Time] with certificates evidencing such insurance within five (5) business days of a written request by [Life Time]. At the written direction of [Bloomingdale LT], [Life Time] may purchase said policies or pay the premiums with funds from the Operating Account. The policies shall provide that notice of default or cancellation shall be sent to [Life Time] as well as [Bloomingdale LT].
(Id., § 15.)
Plaintiffs filed their complaint in Minnesota state court, seeking a declaratory judgment and alleging claims for breach of contract and breach of the covenant of good faith and fair dealing against Zurich for refusing to provide Life Time with $1 million inICD coverage for each Insured Location. Zurich removed the case to federal court asserting that Bloomingdale LT was not a real party in interest and was fraudulently joined to prevent Zurich from removing the action to federal court. (ECF No. 1 ¶ 26.) Once in federal court, Zurich filed a motion to dismiss Bloomingdale LT under Rule 12(b)(1) of the Federal Rules of Civil Procedure. Plaintiffs oppose the motion to dismiss and move to remand the action to state court.
A defendant's removal of a case to federal court is appropriate only if the action could have been filed there originally. Junk v. Terminix Int'l Co., 628 F.3d 439, 444 (8th Cir. 2010) (citations omitted). The court must remand the case if it determines that it lacks subject-matter jurisdiction. 28 U.S.C. § 1447(c); Junk, 628 F.3d at 444-45. The burden of proving federal jurisdiction always remains "on the party seeking to establish it." Great Rivers Habitat All. v. Fed. Emergency Mgmt. Agency, 615 F.3d 985, 988 (8th Cir. 2010) (citation omitted). In reviewing a motion to remand, the court must resolve all doubts about federal jurisdiction in favor of remanding to state court.5 Junk, 628 F.3d at 446; Hubbard, 799 F.3d at 1227.
Plaintiffs move to remand this case to state court for lack of diversity jurisdiction. Title 28 U.S.C. Section 1332(a)(1) vests district courts with "original jurisdiction" over civil cases where the amount in controversy exceeds $75,000 and the case is between citizens of different states. 28 U.S.C. § 1332(a)(1). Diversity jurisdiction requires "complete diversity," which means that no defendant holds citizenship in the same state where any plaintiff holds citizenship. Cascades Dev. of Minn., LLC v. Nat'l Specialty Ins., 675 F.3d 1095, 1098 (8th Cir. 2012) (citing Junk, 628 F.3d at 445). Here, Bloomingdale LT and Zurich are both Illinois citizens. Zurich's argument for jurisdiction in federal court lies under two theories: first, that Bloomingdale LT is not a real party in interest; and second, that Bloomingdale LT was fraudulently or improperly joined to prevent removal to federal court.6 (ECF No. 1 ¶ 26.)
As to the first argument, where a nondiverse plaintiff is not a "real party in interest," and is merely a nominal party, the court is to disregard its presence in determining jurisdiction. Cascades Dev. of Minn., 675 F.3d at 1098 (citing Iowa Pub. Serv. Co. v. Med. Bow Coal Co., 556 F.2d 400, 404 (8th Cir. 1977)). A "real party in interest" is a person entitled to enforce a right asserted under governing substantive law; in a diversity case, the governing substantive law is ordinarily state law.7 Id. "The fact that a plaintiff's claim may lack legal or factual merit does not necessarily mean that he lacks standing to assert the claim as a real party in interest." Iowa Pub. Serv., 556 F.2d at 405 ().
As to the second argument, joinder is improper where "there exists no reasonable basis in fact and law supporting a claim" against the defendant. Filla v. Norfolk S. Ry. Co., 336 F.3d 806, 810 (8th Cir. 2003) (...
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