Maynard v. CGI Techs. & Solutions, Inc.

• Decision Date: 03 January 2017
• Docket Number: Civil No: 3:16–cv–0037–GFVT
• Citation: 227 F.Supp.3d 773
• Parties: H. Brian MAYNARD, Liquidator of Kentucky Health Cooperative, Inc., Plaintiff, v. CGI TECHNOLOGIES AND SOLUTIONS, INC., Defendant.
• Court: U.S. District Court — Eastern District of Kentucky

227 F.Supp.3d 773

H. Brian MAYNARD, Liquidator of Kentucky Health Cooperative, Inc., Plaintiff,

v.CGI TECHNOLOGIES AND SOLUTIONS, INC., Defendant.

Civil No: 3:16–cv–0037–GFVT

United States District Court, E.D. Kentucky, Central Division. Frankfort.

Signed January 3, 2017

Paul Christopher Harnice, Sarah Jackson Bishop, Stoll Keenon Ogden, Frankfort, KY, Perry M. Bentley, Stoll Keenon Ogden, PLLC, Lexington, KY, for Plaintiff.

Ben T. Keller, Daniel I. Waxman, Douglas L. McSwain, Wyatt, Tarrant & Combs LLP, Lexington, KY, Margaret H. Warner, Maurice Miller Baker, McDermott, Will & Emery, LLP, Washington, DC, for Defendant.

MEMORANDUM OPINION & ORDER

Gregory F. Van Tatenhove, United States District Judge

This case begins where all must, with a review of the Court's power to decide the dispute presented. All agree that the prerequisites for diversity jurisdiction exist. That typically would settle the matter unless, as urged by the Plaintiff, this is a case in which the Commonwealth of Kentucky has enacted statutory language that voids federal diversity jurisdiction. No federal court of appeals has concluded that is possible in this context and, for the reasons set out below, neither will this district court.

With the power to decide a case courts have the responsibility to do just that. In rare circumstances federal courts may abstain from exercising that power, but this is not one of them. So, as explained below, this is a contract case. The contract is clear and the parties agreed to arbitrate when faced with such a dispute as this, but the law that is to be used is unclear. Consequently, Plaintiff Maynard's Motion to Remand [R. 18 ] is DENIED and the parties are ordered to provide additional briefing on the issues described below.

I

In February of 2013, CGI Technologies and Solutions, Inc. and Kentucky Health Cooperative, Inc. (KYHC) entered into an Administrative Services Agreement (ASA) where CGI agreed to fulfill administrative and management services for KYHC. [R. 1–1 at 9.] Liquidator Maynard alleges that the KYHC became insolvent by October 2015 due to acts of negligence and gross negligence that constituted a breach of the ASA on behalf of CGI. [R. 19–1 at 4.] The KYHC was placed into liquidation pursuant to Kentucky's Insurers Rehabilitation and Liquidation Law (Kentucky's IRLL) and H. Brian Maynard was appointed Liquidator of the KYHC due to his role as Commissioner of the Kentucky Department of Insurance. [Id. ]

A State Court Action was then filed by Plaintiff Maynard in Franklin Circuit Court. [R. 1–1 at 3.] The Liquidator's State Court Action was removed by CGI to this Court and a separate action was brought by CGI in federal court to compel arbitration. [R. 19–1 at 4.] These are the two actions that were consolidated earlier this year. [R. 8.] Since the pending motions have been taken under advisement, yet another related case was filed and removed. See Jeff Gaither, Deputy Liquidator of Kentucky Health Cooperative, Inc. v. Beam Partners, LLC, et al. , 3:16–cv–00094–GFVT, filed December 1, 2016. CGI Technologies and Solutions, Inc. states that this is a "copycat state action" that has been filed by the Liquidator. [R. 1 at 2 in 3:16–cv–094–GFVT.] Full briefing in that case remains pending.

II

A

The Liquidator challenges the Court's power to decide this case with a motion to remand. [R. 18.] 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, 61 S.Ct. 868, 85 L.Ed. 1214 (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, 130 S.Ct. 1181, 175 L.Ed.2d 1029 (2010) ; Fenger v. Idexx Laboratories , 194 F.Supp.2d 601, 602 (E.D. Ky. 2002) (citations omitted).

Plaintiff Maynard's motion to remand attacks CGI's removal of this case on two specific grounds that heavily rely on persuasive, not mandatory, jurisprudence. Specifically, Liquidator Maynard contests CGI's claims that this Court has diversity jurisdiction. In support, Maynard claims that Kentucky's Insurers Rehabilitation and Liquidation Law vests exclusive jurisdiction for this liquidation in Franklin Circuit Court "reverse preempting" federal diversity jurisdiction. See Ernst & Young, LLP v. Clark , 323 S.W.3d 682, 684 (Ky. 2010) ; see also McCarran–Ferguson Act, 15 U.S.C. §§ 1011 –1015. Alternatively, the Liquidator argues that this Court should abstain from exercising jurisdiction.

Both parties agree that the "fundamental tenets of diversity jurisdiction" are present. [R. 30 at 10.] As required by 28 U.S.C. § 1332(a)(1), there is complete diversity amongst the parties. CGI Technologies and Solutions Inc. is a business incorporated in Delaware with a principal place of business in Virginia. [R. 1 at 1.] Brian Maynard is the court-appointed liquidator of the KYHC which is a Kentucky non-profit corporation that has its principal place of business in Kentucky. [Id. ] The amount in controversy, as evidenced by the complaint and administrative services agreement, [See R.1] far exceeds $75,000. 28 U.S.C. § 1332(b). Therefore, under a traditional analysis of diversity jurisdiction, this court has the requisite authority and subject-matter jurisdiction to adjudicate this dispute.

Despite these uncontested facts, the question presented is whether federal law has opened the door for state law to "reverse preempt" the diversity jurisdiction statute. It is certainly conceivable that Congress could act through the McCarran–Ferguson Act to to limit federal jurisdiction in narrow circumstances, but that was not done here.

The McCarran–Ferguson Act, 15 U.S.C. §§ 1011 –1015 was enacted by Congress to prevent general federal laws from interfering with state insurance regulations. See AmSouth Bank v. Dale , 386 F.3d 763, 780 (6th Cir. 2004) ("[a] general federal law that does not specifically relate to the business of insurance, therefore, cannot be construed to ‘invalidate, impair, or supersede’ a state law enacted to regulate the insurance business.") The text of the Act states that "no Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance ... unless such Act specifically relates to the business of insurance." 15 U.S.C. § 1012(b). The Supreme Court of the United States clarified that McCarran–Ferguson was enacted by Congress using Commerce Clause authority as derived in Article 1, Section 8 of the United States Constitution. See Am. Ins. Ass'n v. Garamendi , 539 U.S. 396, 428, 123 S.Ct. 2374, 156 L.Ed.2d 376 (2003) ("As the text itself makes clear, the point of McCarran–Ferguson's legislative choice of leaving insurance regulation generally to the states was to limit congressional preemption under the commerce power, whether dormant or exercised.") Therefore, the McCarran–Ferguson Act is limited to "reverse preempting" legislation passed through Congress' Commerce Clause authority. Id.

The Liquidator seeks to expand the existing McCarran–Ferguson "reverse preemption" framework to prevent CGI from exercising their right of removal pursuant to 28 U.S.C. § 1441. [See R. 18–1 at 2.] However, the Constitution prevents this Court from ruling so expansively. See, e.g. , Metropolitan Life Ins. Co. v. Ward , 470 U.S. 869, 881, 105 S.Ct. 1676, 84 L.Ed.2d 751 (1985) ("Although the McCarran–Ferguson Act exempts the insurance industry from Commerce Clause restrictions, it does not purport to limit in any way the applicability of the Equal Protection Clause"); Amsouth Bank v. Dale , 386 F.3d 763, 783 (6th Cir. 2004) ("[C]ourts tend to look unfavorably on claims of McCarran–Ferguson preemption of ... the removal statutes so as to insulate that action from the federal courts.") As stated in CGI's Combined Response [R. 23], "to CGI's knowledge, every federal court of appeals—the Sixth, along with the Third, Fourth, Fifth, Eighth, Ninth, and Tenth Circuits—to address the question has either categorically rejected or expressed skepticism that McCarran–Ferguson even applies to the diversity jurisdiction statute." [R. 23] (referencing multiple federal court of appeals cases including Amsouth Bank v. Dale , 386 F.3d 763, 783 (6th Cir. 2004) ; Dykhouse v. Corp Risk Mgmt. Corp. , No. 91–1646, 1992 WL 97952 *2 n.9 (6th Cir. May 8, 1992) (unpublished per curiam decision); Hawthorne Savs. F.S.B. v. Reliance Ins. Co. of Ill. , 421 F.3d 835, 843 (9th Cir. 2005), Gross v. Weingarten , 217 F.3d 208, 222 (4th Cir. 2000) ; Munich Am. Reins. Co. v. Crawford , 141 F.3d 585, 595–96 (5th Cir. 1998) ; Murff v. Prof'l Med. Ins. Co. , 97 F.3d 289, 293 (8th Cir. 1996) ).

After further research the Court found one example of McCarran–Ferguson "reverse preempting" federal diversity jurisdiction. See ...