Morris v. Nuzzo

• Decision Date: 23 May 2013
• Docket Number: No. 12–3220.,12–3220.
• Citation: 718 F.3d 660
• Parties: Tommy L. MORRIS, Personal Representative of the Estate of Thomas Lynn Morris, Plaintiff–Appellant, v. Salvatore NUZZO, Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

718 F.3d 660

Tommy L. MORRIS, Personal Representative of the Estate of Thomas Lynn Morris, Plaintiff–Appellant,

v.Salvatore NUZZO, Defendant–Appellee.

No. 12–3220.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 14, 2013.

Decided May 23, 2013.

J. Kevin King, Attorney, Peter C. King (argued), Attorney, Cline, King & King, Columbus, IN, for Plaintiff–Appellant.

Siobhan M. Murphy (argued), Attorney, Lewis Brisbois Bisgaard & Smith LLP, Chicago, IL, for Defendant–Appellee.

Before KANNE and WILLIAMS, Circuit Judges, and ZAGEL District Judge.^*

ZAGEL, District Judge.

The United States District Court for the Southern District of Indiana (the “district court”) The Honorable James Zagel, United States District Court for the Northern District of Illinois, Eastern Division, sitting by designation. dismissed the claims of Tommy L. Morris, personal representative of the Estate of Thomas Lynn Morris (the “Estate”) against Salvatore Nuzzo (“Nuzzo”). The lawsuit, originally filed in the Trumbull County Common Pleas Court of the State of Ohio, was removed to the United States District Court for the Northern District of Ohio, and finally was transferred to the district court in Indianapolis. Because we find that the district court erred in its determination that Nuzzo was fraudulently joined, we will vacate the judgment of dismissal and remand to the district court with instructions that the case be further remanded to the Trumbull County Common Pleas Court of Ohio.

Background

This matter arises out of an automobile accident and a subsequent insurance dispute. On December 2, 2004, Daemon Sampson (“Sampson”) was operating a vehicle involved in a collision in Brown County, Indiana. One of the passengers in Sampson's vehicle, Thomas Lynn Morris, died as a result of injuries sustained in the accident. At the time of the collision, Sampson was insured under a Mid–Century auto insurance policy issued to his mother. Shortly after the accident, the Estate made a claim under the policy for $50,000, the highest allowable amount. Nuzzo, a citizen of Ohio, was the claims adjustor assigned to handle the Estate's claim.

The Estate was unable to settle its claim under the Mid–Century policy. As a result, it filed a wrongful death suit in Indiana state court against Sampson, which Mid–Century defended. The case went to trial and the jury returned a verdict for the Estate and against Sampson of about $1.2 million. Following the verdict, Sampson executed an assignment of his rights against Mid–Century to the Estate in exchange for an agreement that the Estate would not pursue collection of the verdict against Sampson personally.

In or around February 2011, the Estate filed a claim in California state court against Mid–Century, alleging that its bad faith failure to pay out the Estate's insurance claim resulted in the excess jury verdict against Sampson. In May 2011, the California court dismissed the case on forum non conveniens grounds. Although Mid–Century is incorporated and has its principal place of business in California, the California state court found that the suit belonged in Indiana given that the Estate and Sampson were citizens of Indiana, the insurance policy was issued and performed in Indiana, and the underlying death trial was conducted in Indiana.

Rather than file suit in Indiana, the Estate brought claims against Mid–Century and Nuzzo in Ohio state court, alleging tortious bad faith failure to pay an insurance claim and breach of contract. Mid–Century and Nuzzo removed the case to the federal district court for the Northern District of Ohio, and the Estate immediately moved to remand under the “forum defendant rule” based on Nuzzo's Ohio citizenship. See28 U.S.C. § 1441(b)(2). Mid–Century and Nuzzo opposed remand on the grounds that Nuzzo had been fraudulently joined to the lawsuit and his citizenship could therefore be disregarded in determining the propriety of removal. Mid–Century and Nuzzo also moved to dismiss the claim against Nuzzo or, alternatively, to transfer the case to the Southern District of Indiana pursuant to 28 U.S.C. § 1404. The district court for the Northern District of Ohio granted the motion to transfer the case to the district court in Indiana and denied all other pending motions, including the Estate's motion to remand to the Ohio state court, as moot.

Once in the district court, the Estate argued that the Northern District of Ohio lacked subject matter jurisdiction due to the forum defendant removal defect, which rendered the § 1404(a) transfer invalid. Alternatively, the Estate argued that if the transfer was valid, it could still seek remand. Mid–Century and Nuzzo claimed that the transfer did moot the Estate's remand motion, and renewed its contention that Nuzzo was fraudulently joined and should be dismissed from the case.

The district court found that diversity jurisdiction was properly exercised because the requirements of 28 U.S.C. § 1332(a) were met, and because the alleged forum defendant rule violation was a procedural error that does not affect jurisdiction. So the § 1404(a) transfer was valid, but the Estate's motion to remand was not foreclosed. In seeking remand, the Estate argued that the fraudulent joinder doctrine did not apply to Nuzzo because his presence did not compromise the parties' complete diversity—it simply prevented removal under the forum defendant rule. The Estate also argued that, in any event, Nuzzo was not fraudulently joined because the claims against him stood a “reasonable possibility of success” under Ohio law. See Poulos v. Naas Foods, 959 F.2d 69, 73 (7th Cir.1992).

While acknowledging that “most fraudulent joinder cases involve a defendant who is non-diverse to the Plaintiff and who the removing parties contend was joined to defeat diversity,” the district court could find “no principled basis” for refusing to extend the doctrine to a diverse resident defendant joined for purposes of triggering the forum defendant rule. The district court agreed that the Estate's claims against Nuzzo were potentially viable under Ohio law, but determined that Indiana law governed both claims because Indiana had the most significant relationship to the events underlying the claims. See generally Restatement (Second) of Conflict of Laws (1973). Under Indiana law, the district court concluded, the claims against Nuzzo were not cognizable and stood no chance of success. Accordingly, Nuzzo was fraudulently joined. The district court dismissed all claims against Nuzzo and denied the Estate's motion to remand. This appeal followed.

Analysis

On appeal, the Estate contends: (1) that the district court lacked diversity jurisdiction over the case because its removal from Ohio state court was prohibited under the forum defendant rule, (2) that the district court erred in applying the fraudulent joinder doctrine to a diverse resident defendant, and (3) that the district court erred in making a choice of law determination as part of the fraudulent joinder analysis. We review issues involving removal of an action from state to federal court de novo. See Schwartz v. State Farm Mut. Auto. Ins. Co., 174 F.3d 875, 878 (7th Cir.1999).

I

The first question before us is whether the district court exercised proper diversity jurisdiction over this case. A defendant removing a case on diversity grounds must not only demonstrate that the case satisfies the requirements of 28 U.S.C. § 1332(a), but must also clear the “additional hurdle” of 28 U.S.C. § 1441(b)(2), or the “forum defendant rule.” Hurley v. Motor Coach Industries, Inc., 222 F.3d 377, 378 (7th Cir.2000).

Section 1441(b)(2) provides:

A civil action otherwise removable solely on the basis of the jurisdiction under section 1332(a) of this title may not be removed if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.

The forum defendant rule is “designed to preserve the plaintiff's choice of forum, under circumstances where it is arguably less urgent to provide a federal forum to prevent prejudice against an out-of-state party.” Hurley, 222 F.3d at 380. In other words, the forum defendant rule disallows federal removal premised on diversity in cases where the primary rationale for diversity jurisdiction—to protect defendants against presumed bias of local courts—is not a concern because at least one defendant is a citizen of the forum state. See Dresser Indus., Inc. v. Underwriters at Lloyd's of London, 106 F.3d 494, 499 (3d Cir.1997) (“If diversity jurisdiction exists because of a fear that the state tribunal would be prejudiced towards the out-of-state plaintiff or defendant, that concern is understandably allayed when the party is joined with a citizen from the forum state.”); Lively v. Wild Oats Mkts., Inc., 456 F.3d 933, 940 (9th Cir.2006).

The Estate's argument that the district court lacked diversity jurisdiction over this case because its removal violated the forum defendant rule is wrong. The argument ignores our decision in Hurley v. Motor Coach Industries, Inc., where we joined “the longstanding line of authority that holds that the forum defendant rule is not jurisdictional.” 222 F.3d at 379 (listing cases). See also Holmstrom v. Peterson, 492 F.3d 833, 836 (7th Cir.2007). Neither side disputes that there is complete diversity between the parties—the Estate is alleged to be a citizen of Indiana, Nuzzo is alleged to be a citizen of Ohio, and Mid–Century is alleged to be incorporated and have its principle place of business in California—and the amount in controversy exceeds $75,000. Like the plaintiff in Hurley, there is no question that if the Estate's “case had been filed in the first instance in federal court, jurisdiction under § 1332 would have been clear.” 222 F.3d at 380. Whether the case was properly removed to federal court, therefore, is a matter of removal procedure, not jurisdiction. Id.

The Estate attempts to...